When you are establishing the financial structure of an acquisition, take the opportunity to reinvest in the business. Remember: when it comes to structuring a financing plan for your purchase, every transaction is unique.
Here are 3 important factors to consider when drawing up your financial structure:
1. Follow your plan and put it into action
The financial structure must be suitable for all parties.
Although seller financing can sometimes be an easier source of funds, the transaction can run into difficulties if too much of the financial burden rests on the seller.
2. Protect your cash flow
Choose the right type of loan based on your business plan and your ability to repay. Don’t forget, the transfer of a business is frequently accompanied by a period of turbulence. According to some studies, only 2 in 5 companies succeed in reaching their financial goals within a year of the transaction.
For maximum flexibility, it’s often a good idea to divide your finaning needs between several institutions. Some loan repayment plans have very strict requirements, while others, such as mezzanine financing, are more likely to give you the flexibility you need.
3. Think about a minority-participation option
While a minority owenrship will likely result in a lost of control, it will give you access to a wealth of resources if you join forces with the right partner. Some of the benefits could include the access to growth capital, technology, a wider market reach and imrpovement of operations.
Planning on acquiring a business? The Mergex team will help you build your financial structure and go through all the options available to you.