Can Buying A Company In Canada Be Easily Done ? Acquisition Financing 101

OVERVIEW – Information on buying a company in Canada. These business purchase finance solutions , tips and tricks will make your acquisition successful

 

Buying a company in Canada may be an easier process than you might think… if you’re aware of certain financing and valuation pitfalls that many purchasors either don’t know about, or worse, choose to ignore. Let’s dig in.

In many cases it safe to say that that amount borrowed to fund the purchase will often dictate different levels of complexity. Many businesses in Canada that are under the 5 Million dollar range in annual revenue can actually be accomplished with the

government ‘ SBL ‘ loan.Buying a Company In CanadaHere though the loan cap is $ 350,000.00 so that again dictates that in some cases additional financing strategies on top of that loan might be required. In our experience many franchises are well suited to purchase under that 350k cap. And by the way the general terms and conditions of that loan are very competitive and attractive.

If you are borrowing from a bank, a commercial finance company, or even with some level of seller participation ( aka ‘ the vendor take back ‘ ) there are some solid ‘ top up ‘ financing solutions available . They include equipment financing, cash flow loans – secured and unsecured, working capital term loan debt, asset based credit lines, and even monetization’s of SR&ED research credits if in fact they exist on your transaction.

While many prospective business purchasers focus on taking on debt or monetizing assets of the business in question they often overlook the fact that a significant amount of cash flow can be generated by better management of company assets. You would be surprised at how improving A/R turnover, turning inventory faster and managing payables better will improve cash flow.

When buying a business study ratios of DSO, Inventory turns, and a/p days outstanding. They will give you a strong sense of where there is room for improvement. Over all this new found cash flow will limit some of the ongoing working capital you need.

Valuing the fixed assets will also maximize financing potential, and this is typically done via the services of a third party appraiser selected by yourself, or more commonly the lender.

No issue in Canadian business financing could generate more discussion with your lender than the dreaded ‘ Personal Guarantee ‘. While every situation will differ it’s safe to say these are negotiable to a certain extent if the overall optics of your purchase are positive.

Purchaser and seller may well wish to consider a vendor take back of some sorts. While sellers can often demand a higher purchase price in this area buyers have the comfort of knowing they have secured some additional ‘ financing ‘ with someone who is very incented for you to succeed!

The absolute fundamentals of buying a company and arranging business purchase finance include having a solid business plan, good cash flow projections ( conservative is better!) and ensuring that in some manner you as a buyer have some personal equity in the transaction . It’s the proverbial ‘ skin in the game’.

When it comes to that cash flow carefully consider realistic revenue expectations and your ability to collect client receivables in a timely manner. Building in the need for future asset purchases is critical also.

Both buyers and sellers can benefit from the use of an outside advisor when it comes to actual valuation of the business. Tax issues around asset vs. share financing, earn outs, goodwill, etc can be complex.

Would a co-pilot help? Consider seeking out and speaking to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can assist you in making more complex financing issues easy to understand.. and accessible.


Author: Stan Prokop
7 Park Avenue Financial :

http://www.7parkavenuefinancial.com

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 90 Million $ of financing for Canadian corporations . Info /Contact :

7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS PURCHAES FINANCE EXPERTISE


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