FINANCING YOUR BUSINESS PURCHASE
If you don't have a nest egg saved up or an equity partner with cheque book at the ready, then you'll need to borrow to finance your purchase. Thatís when itís time to call your business banker.
Your banker will need key financial information about the business, including its profitability, cash-flow, sales forecasts and growth potential. Theyíll be looking for a sound business with healthy cash flow, to make sure you can repay the loan without getting into difficulties.
Generally speaking, you'll need to have some equity in your business by investing an amount of your own money. And youíll usually need to provide some security for the loan, such as a residential property, business assets or other assets, such as a share portfolio.
What You Need
The current balance sheet.
A full tax return for the business (less than two years old).
A profit and loss statement for the business (less than two years old).
Details of your qualifications and any previous experience in running a business (your past business success will boost your chances of securing finance).
Information about your personal assets and liabilities.
Details about the equity you plan to invest in the business.
Depending on your experience and the profitability of the business, you may also need to put together forecasts of expected profit and loss and cash flow for the first two years.
Pitfalls to Avoid
Leaving it too late. Just as it takes time for you to go through the due diligence process, it can take time for your banker to assess your new venture. Leave yourself enough time to put your application together and secure finance before you need to sign on the dotted line.
Too little financial information. Your banker needs all the key numbers to make a decision. Cutting corners on your application could mean that you end up gathering more information down the track.
Not borrowing enough. A lack of money to keep the business going is a common cause of business failure. You need to ensure you have enough capital to feed your business from day to day, without starving it of cash flow.
For experienced legal advice when purchasing a business, contact business lawyer Christopher Neufeld at Chris@PurchaseBusiness.ca or by telephone at 416-887-9702 [Toronto]; 403-400-4092 [Calgary]; or 905-616-8864 [South West Ontario].
The information presented herein is intended for information purposes only and solely as a general guide. The information is not intended as legal advice. It is a summary of selected/potential issues and does not represent a definitive or complete statement of strategies and law relevant to scenarios that are highly particularized, fluid and rarely, if ever, certain and fully disclosed. The information may not address the special needs, interests and circumstances of a particular scenario, with a single factor potentially necessitating an entirely different approach. Scenarios differ and you are strongly urged to seek specific professional business and legal advice.
Neufeld Legal P.C. is strategically positioned to effectively serve key Canadian business markets, with offices located in Toronto, Calgary, Mississauga and Burlington. As such, we are capable of effectively serving the western Greater Toronto Area (GTA), including downtown Toronto, Mississauga, Burlington, Oakville, Hamilton, Brampton, Milton, Guelph, Kitchener Waterloo, Cambridge, London, St. Catharines and Niagara Falls, together with the city of Calgary and southern Alberta. Copyright 2010.