Most entrepreneurs start from scratch with very few considering the alternative of acquiring an existing business. This is often because no thought is given to this alternative, or of the perceived risk, cost, and complexity.
There are lots of advantages to acquiring an existing business as much of the groundwork has already been done, for example:
- A market for the product or service will have already been demonstrated.
- There may be established customers, a reliable income, and a reputation to capitalise and build on.
- There will be a useful network of contacts.
- A marketing method should already be in place.
- Existing employees should have the experience you can draw on.
- Many of the problems will have been discovered and solved already.
How to finance buying a business
A loan is one way of funding the purchase of a business. Other ways are:
- Own funds
- Using assets within the business to provide funding e.g., invoice discounting
- Vendor finance (deferred consideration) – this is where the seller agrees to receive the sale
- price over a period of time
Usually, a mixture of the above methods is used to fund a deal.
Can you get a loan to buy a business?
Whilst loans are often difficult to obtain for newer or smaller businesses there are two schemes that can be used to successfully access funding more easily:
The Government backed British Business Bank supports entrepreneurs with Start Up Loans. These can be used for purchasing an existing business, provided you have been trading for less than three years. The programme offers loans (from £500 to £25,000 per director, at 6% interest) alongside free mentoring and support.
In addition, the Government Recovery Loan Scheme can be also used to provide resources within a company looking to sell that could subsequently be used to fund an acquisition.
How do I buy a business with no money?
It is difficult to acquire a business with no money unless the seller is happy to wait to receive the sale proceeds over future years.
This is most likely to occur if a business is being acquired from a family member or in a Management Buyout.
Buying a small business
A prerequisite when planning to buy a business of any size is to prepare projections to make sure the deal stacks up financially. These projections along with a business plan are likely to be required when applying for funding.
Our team has a history of successfully completing deals (22 with a combined consideration of over £16 million) means we have the expertise and proven track record to help with your business funding needs.
Either call 01284 704260 or email chris@jacobsallen.co.uk
Book a FREE no obligation meeting.
Latest Video: Business Acquisitions
Chris Kelly of Jacobs Allen talks about important considerations when you are thinking about raising finance for business acquisitions.
Want to know more? Watch our video and find out what to consider when raising finance for a business acquisition!
FAQs
How to buy a business with seller financing?
Selling financing is a form of deferred consideration where the buyer negotiates with the seller and agrees to a portion of the purchase price to be paid upfront and the rest over an agreed-upon period.
What is the best way to finance a new business?
The best way to financing a new business involves a combination of funding sources tailored to your specific circumstances. Often new businesses are self-funded using personal savings or funds from family and friends. External options such as start-up loans, angel investors, or crowdfunding platforms may be available depending on your business model and growth potential.
Can I borrow money from a bank to buy a business?
Yes, you can potentially borrow money from a bank to buy a business. However, this is only a realistic option for larger businesses or transactions. For smaller businesses other sources of finance are usually required.
What is the difference between asset purchase and business purchase?
The key distinction between an asset purchase and a business purchase is what is being acquired. In an asset purchase, the buyer purchases specific assets and liabilities of the business, such as equipment and stock, as well as intangible assets like goodwill. The seller retains ownership of the legal entity, its liabilities, and any assets not specifically included in the sale. On the other hand, a business purchase involves buying the entire legal entity, along with all its assets, liabilities, contracts, and legal obligations.
