Financing Acquisitions

by Keith Basik on June 25, 2012

To Buy or sell a business, you need to realize that you have many tools in your bag to cover the gap between equity and the purchase price.  Especially given today’s financial environment, far fewer deals are done where a buyer puts down cash for the entire purchase price.  As a result, you need to understand what items can be discussed to accomplish the mission.

Below is a simple chart to keep on file as you look for ways to bridge that gap:

1.  Account Receivable:          Buy all, part, none

2.  Accounts Payable:             Assume all, part

3.  Inventory, WIP:                 Buy all, part, none

4.  Equipment:                          Buy, not buy, lease back

5.  Earn Out:                             Top to Bottom

6.  Seller Financing:               Option to convert to equity

7.  Rent:                                      Above market

8.  Consulting Agreement:     Above market

9.  Employment Agreement:   Above market

Due the cash restraint that exist today, you need to think outside the proverbial “box.”  The above items will give you items to talk about to bridge that equity to purchase gap.


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