Purchasing A Company? Buying A Business In Canada Without Overpaying With These Tools!

 




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Quality Decision Making When Financing And Buying  A business In Canada  

 

How To Not Overpay When Purchasing Company Buying Business Acquisition Finance

 

Purchasing a business in Canada, along with financing it always makes more sense when you feel you have paid the right price for an existing business purchase. One of the biggest business news stories in the world in the last couple of days was the discovery, apparently, that one of the largest technology firms in the world had (massively) overpaid for the business.

 

HOW CAN YOU ENSURE THE RIGHT PURCHASE  PRICE WITHOUT TAKING ON UNDUE RISK

 

  Accusations from both sides, surprisingly, abound. And much of those accusations are pointed at the legal and accounting firms that helped with the transaction. And we have met our share of clients who are struggling and wrestling with the financing they need based on having purchased a company at the wrong price, thereby incurring a lot of debt in the process... unnecessary debt! In some cases, the valuation of intellectual property of some sort might be the challenge.

 

As we can imagine, it's safe to say the  ' financial fur ' is flying! How then can Canadian business owners and financial managers protect themselves from these types of valuation mistakes when buying a business? Especially when they don't have access to all those high priced lawyers, accountants and valuation consultants. Those legal , tax and accounting issues around a business acqusition are important and many business owners don't have the expertise and resources in these key areas.

 

USING COMMON SENSE BASIC FINANCIAL TOOLS TO EVALUATE THE ACQUISITION

 

What to look for in financial statements when buying a business? The reality is that there are a number of common-sense financial tools that you can in fact use when buying a business and arranging acquisition finance.  And they come at almost no cost! It's all about examining some very basic relationships around how a company operates, and these techniques could save you thousands/ millions.

 

TAKE A STRONG LOOK AT THE RECEIVABLES TO SALES RATIO

 

A large part of the financing you need to purchase a business revolves around the relationship of accounts receivable and inventory to sales. When you learn to interpret these properly you are well ahead of the game, and hopefully, your valuation and financing will make a lot more sense.

 

When you have a strong handle on the size of A/R and inventory to sales the financing you may need to finance the acquisition will simply make a lot more sense.

 

Let's take a look at A/R first. Most business owners know that they can measure the general health and quality of their receivables via a calculation known as DSO - Days sales outstanding. This measurement will basically tell you two things - the quality of credit that you are extending to clients and the difficulty or mismanagement that you are experiencing in collecting that sale. Pretty important stuff from a basic calculation, and as far as we have read that’s one of the key issues in that breaking news story we talked about vis a vis out tech giant’s acquisition.

 

ARE INVENTORY TURNS MOVING IN THE RIGHT DIRECTION

 

Taking a hard look at the inventory situation simply allows you to determine if inventory is in fact being moved out of your current assets into the sales and receivables accounts.

How does the business acquirer then use this information to get a strong handle on sales, collections and inventory management? It's a lot simpler than you think, and the reality is that you can even use this simple calculation to monitor your own management effectiveness. Simply construct a basic chart that shows over any specific period of time your sales, A/R and inventory amounts. Monitor and analyze the relationships of these balances.

 

EXAMPLE OF THE A/R TO SALES RATIO

 

Example? No problem. Let's say sales go up 17% and you notice that A/R has now gone up 35%... with inventory going down by 5%. Is this bad, good, or who cares? The reality is that when you spend some time and also track the data you will see that in certain cases the numbers are out of whack, thereby identifying potential problems in A/R and inventory valuation.

 

It's up to you as the buyer to ask the right questions then. It's all about due diligence!

 

In the case of our recent major news story, the accusation seems to revolve around exactly the example we have provided - i.e. the cash conversion cycle slowing down because of sales behaviour as it relates to A/R and inventory.

 

Is our calculation the be-all and end all? Definitely not, but it also seems like it could have worked quite well for our Tech giants analysis team, as that seems to have been the problem.

 

Finally, all sorts of other issues need to be looked at also, they might include revenue recognition, expenses, accounting policy changes... and on it goes.

 

CONCLUSION

 

Entrepreneurs and current business owners look to buying an existing business for many reasons, one of which is simply that there is a general perception that it entails more risk than starting a business from the startup stage. The ability to acquire a business that is generating revenues and acceptable profits is a temptation for many business people. We looked at the a/r to sales ratio as one example of evaluating a business - you also want to make sure that those same customer generating sales revenue will keep buying after the business transition.

 

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in acquisition finance if your goal is to buy a business in the SME sector of Canada - small business acquisitions done right!

 

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.


Click here for the business finance track record of 7 Park Avenue Financial







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Purchasing A Company . Buying A Business In Canada Without Overpaying With These Tools !

Quality Decision Making When Financing And Buying a A business In Canada


OVERVIEW – Information on purchasing a company in Canada . When buying a business you need a solid level of acquisition analysis .. and financing



Purchasing a business in Canada - along with financing it, always makes more sense when you feel you have paid the right price! One of the biggest business news stories in the world in the last couple days was the discovery, apparently, that one of the largest technology firms in the world had (massively) overpaid for the business. That story seemed even more interesting to us because I toiled in that Tech giant for ten years . What a story!

Accusations from both sides, not surprisingly, abound. And much of those accusations are pointed at the legal and accounting firms that helped with the transaction. And we have met our share of clients who are struggling and wrestling with the financing they need based on having purchased a company at the wrong price, thereby incurring a lot of debt in the process... unnecessary debt!

As we can imagine, it's safe to say the ' financial fur ' is flying!

How then can Canadian business owners and financial managers protect themselves from these types of valuation mistakes when buying a business? Especially when they don't have access to all those high prices lawyers, accountants and valuation consultants.

The reality is that there are a number of common sense financial tools that you can in fact use when buying business and arranging acquisition finance. And they come at almost no cost! It's all about examining some very basic relationships around how a company operates, and these techniques could save you thousands/ millions.

A large part of the financing you need to purchase a business revolves around the relationship of accounts receivable and inventory to sales. When you learn to interpret these properly you are well ahead of the game, and hopefully your valuation and financing will make a lot more sense.

When you have a strong handle on the size of A/R and inventory to sales the financing you may need to finance the acquisition will simply make a lot more sense.

Let's take a look at A/R first. Most business owners know that they can measure the general health and quality of their receivables via a calculation known as DSO - Days sales outstanding. This measurement will basically tell you two things - the quality of credit that you are extending to clients and the difficulty or mismanagement that you are experiencing in collecting that sale. Pretty important stuff from a basic calculation, and as far as we have read that’s one of the key issues in that breaking news story we talked about vis a vis out tech giant’s acquisition.

Taking a hard look at the inventory situation simply allows you to determine if inventory is in fact being moved out of your current assets into the sales and receivables accounts.

How does the business acquirer then use this information to get a strong handle on sales , collections and inventory management . It's a lot simpler than you think, and the reality is that you can even use this simple calculation to monitor your own management effectiveness. Simply construct a basic chart that shows over any specific period of time your sales, A/R and inventory amounts. Monitor and analyze the relationships of these balances.

Example? No problem. Let's say sales go up 17% and you notice that A/R has now gone up 35%... with inventory going down by 5%. Is this bad, good, or who cares? The reality is that when you spend some time and also track the data you will see that in certain cases the numbers are out of whack, thereby identifying potential problems in A/R and inventory valuation.
It's up to you as the buyer to ask the right questions at that point!

In the case of our recent major news story the accusation seems to revolve around exactly the example we have provided - i.e. the cash conversion cycle slowing down because of sales behavior as it relates to A/R and inventory.

Is our calculation the be all and end all? Definitely not, but it also seems like it could have worked quite well of our Tech giants analysis team, as that seems to have been the problem.

Finally, all sorts of other issues need to be looked at also, they might include revenue recognition, expenses, accounting policy changes... and on it goes.

Bottom line - spending some time on the numbers will help you make a better decision when purchasing a company and financing any acquisition, large or small.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in acquisition finance.


Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/purchasing-company-buying-business-acquisition.html

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com

7 PARK AVENUE FINANCIAL
CANADIAN ACQUISITION FINANCE EXPERTISE

Is There A Secret To Buying A Franchise Business When It Comes To Franchising Loans And Cost?

Financing Your Canadian Franchise Opportunity


OVERVIEW – Information on franchising loans in Canada. Factors critical to franchise cost and finance when buying a business opportunity in the franchise industry



Buying a franchise business in Canada. Talk about a commitment that requires a combination of logic, perhaps some luck, and some common sense around the type can cost of franchising loans.

Franchising is so popular today that opportunities are available at every price point, and with that comes varying costs - from a few thousand dollars of investment required... all the way up to Million dollars ++.

As consumers we certainly don't buy thing we can't afford, and that logic should clearly be carried over when it comes to a franchise purchase. Notwithstanding the fact that franchising loans and financing are available to those that qualify it becomes a question of risk, return on capital, and your ability to make an equity contribution to the business venture.

Having both a realistic business plan that properly shows cash outflows and inflows at the start of the business is critical. And quite frankly that’s the same methodology and logic you would use to acquire any other business, franchise or not! Being able to demonstrate a realistic profit and cash flow to your lender is always critical.

What are then some of the key factors that come into the financial aspect of the purchase? (We’re going to assume you are over the hump when it comes to all the emotional aspects!)

Every business purchaser assesses the cost of buying a franchise business when it comes to return on your initial investment. We constantly hear that an investment in the franchise industry requires a major investment of time when it comes to ' who's minding the store ‘. So don't forget to factor in both the cost of the franchise as well as the amount of time and expertise you have to invest to make the business successful and grow.

Part of the franchising cost is of course the initial franchise fee. In general that fee is not financeable, and is often shown as ' Goodwill ' on your balance sheet. So more often than not we advise clients that they need to cover off the franchise initial fee as part of their initial equity investment into the business.

Franchise royalties vary in Canada - they typically seem to be in the 6-8% range and need to be carefully factored into your busines plan and cash flows as they significantly impact cash flow and profits.

Timing. There isn't a day when we don't speak to a potential franchisee that needs to have his or her financing arranged - yesterday! You need to be in a position to allow for a reasonable amount of time to put your whole financing plan and package/strategy together. Working in panic mode with a lender basically ... never works!

Franchisees address the opportunity to own their own business in a number of ways. Some actually end up paying cash, some choose a partner, and larger opportunities actually have the ability to acquire an equity investor. Is any one of these better than the other? Not really, although we would add that paying full cash for your purchase certainly depletes personal equity and net worth. By incorporating your business and financing it properly you are clearly addressing the issue of matching risk and liability properly.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with a proper strategy for the cost and type of franchising loans and finance you need to be successful.

7 PARK AVENUE FINANCIAL
CANADIAN FRANCHISE FINANCING EXPERTISE

Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/franchising_loans_franchise_cost_buying_business.html

Man Buying A Business Receives Financing Approval! Surprised? Here’s Some Info On Franchise Loans In Canada

Franchise Financing In Canada


OVERVIEW – Information on franchise loans in Canada . Get the right financing when you’re buying a new or existing business from a franchisor .





Franchise loans in Canada. When you're buying a new or existing business in this large segment of the economy should you be surprised to read our headline regarding financing approval? That depends of course... on whether you yourself have been approved, or declined!

There is of course some ' right ways ' to finance a busines in the franchising industry. Top experts in the field can provide you with both the guidance to ensure your finance request is approved, as well as minimizing the time it takes to get to the goal line - that time often being the most frustrating part of your search to finance entrepreneurship.

We continually remind clients that they must focus on a total solution, that being both the turnkey financing of their project, as well as taking into consideration working capital and growth financing. Those latter two are sometimes forgotten, leading to disastrous consequences.

In Canada financing for franchise loans is provided by a small handful of resources - they include specialized finance companies, the government SBL loan, and third party lease and finance companies.

Using any one or a combination of the above financing resources effectively puts you very quickly very close to the goal line when buying a business.

Many new franchisees associate ' the bank ' as the source of their possible financing. They are thinking in terms of what we could call ' conventional financing ‘. So the question then is very simple. Do Canadian chartered banks in effect finance franchise loans? The answer is a resounding yes, couple with a resounding watch out.

While our bank system has the lowest rates in Canada, as well as generally flexible terms the reality is that a conventional loan of this type requires that you put up personal assets, quite often the equity in your home. That of course requires approval from your husband or wife, whom many franchisees tell us is more difficult than negotiating with a banker.

We further remind clients that they would do well to consider the concept of separating their personal life and finances from business finances - that is just common sense, and one of the many reasons you also consider incorporating your franchise into a separate legal entity. However, in fairness to our great and strong banking system in Canada almost all the banks have embraced the franchise industry and have some experts in their system who can address your needs. It's just finding out which branch they are located at!!

So what about the franchisee who can or doesn't want to pledge all those personal assets (you have to have assets to pledge them apparently)? One solution is of course to partner with someone who can assist in relieving the total financial burden of the business. However, in our own experience a lot of issues (mostly character and personal!) arise in partnership challenges of managing and owning a business. Going alone, while lonely is often the best solution.

In general the potential Canadian franchisee requires a reasonably good personal credit history, as the franchise lender wants to know you manage your own personal finances in a manner that reflects how you will manage your business.

So, when you plan or system to successfully enter the franchise industry seek out and speak to a trusted, credible and experienced Canadian business financing expert for assistance with franchise loans in Canada . Your focus? Doing it right... and quickly.

7 PARK AVENUE FINANCIAL
CANADIAN FRANCHISE FINANCING EXPERTISE

Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/franchise_loans_financing_buying_business.html

Buying And Financing A Business Purchase With An SBL Government Loan In Canada

Let Your Business Purchase Put You On The Road To Richistan !


OVERVIEW – Information on the buying and financing of a business purchase in Canada using a SBL government loan strategy. A Hands On How To!




At some point in time many business people have the opportunity to purchase a business in Canada. That’s buying a business, not starting one by the way!

But financing the business purchase, i.e. putting your transaction together is another story. Here's one great way to do it if you business fits some basic criteria, and it’s via the SBL government loan. Finally, some help from Ottawa, but we digress...


There are of course the obvious advantages to buying versus building a business. First of all it's easier to find if you know what you are looking for, and many of the challenges of starting a business are immediately eliminated when you have a turnkey operation already in place. Finding premises, buying and financing assets, and generating revenues with a sales / operating team are instantly removed. Not that we're making anything too easy.

Oh and buy the way when we think in turnkey, we often think franchises, and to make it perfectly clear our strategy today also covers existing franchises, or corporate stores owned by the franchisor .

Getting a clear look and quick access to the business financials, but no matter how good, or bad... those financials look it’s a case of also trying to understand the motivation of the seller. Things like a financial tool called the VTB... the vendor take back can often play a key role in our financing strategy today and the proverbial ' motivated seller ‘ is often ok with a vendor take back . (If not, he or she is probably willing to negotiate price a bit more?!)

When you utilize the government SBL business loan for a business financing strategy in Canada you need access to those financials. They will tell us what assets are in the business, and by the way, it’s difficult, if not impossible to finance a smaller concern when there is a huge ' goodwill ' component in the final purchase price.

Although the income statement is important in our financing strategy via the SBL loan it’s not the deal breaker. However clearly you do want to know that the business is generating sales, that’s growing sales, and profits. If not the business can still be financed, don't despair, but you better have an action plan in place for that missing sales and profit strategy!

Getting back to the balance sheet, that’s key today in our finance strategy of buying a business in Canada. Here's where the SBL government loan comes into place. That’s because it finances the current and fixed assets of the business, as well as existing leaseholds. Leaseholds?

Yes, the government loan financing via the BIL/CSBF program finances those three asset categories - fixed assets, receivables as a portion of the current assets, and leaseholds. A qualified appraisal of these is required and the SBL program finances a total of $350,000.00 of these assets. A down payment or equity injection by yourself, as well as perhaps our previously mentioned vendor take back can get you often pretty close to a 1/2 Million dollar financing for your business purchase.

So, is that a creative strategy? We think its closer to a common sense strategy, and one that comes with great rates, terms, and structures, including limited personal guarantees and flexible repayment options that include repayment without penalty.

Buying and financing that business purchase via the SBL loan is a solid way to become a Canadian entrepreneur. Speak to a trusted, credible and experienced Canadian business financing advisor to kick start your business purchase.

7 PARK AVENUE FINANCIAL
CANADIAN BUSINESS PURCHASE FINANCING EXPERTISE














Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/buying_business_financing_purchase_government_loan.html