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6 Replies Latest reply: May 18, 2012 4:06 PM by laurieed2002 RSS

How do you get past the 'buyer financial statement' when trying to purchase a business?

laurieed2002 Novice
Currently Being Moderated

I intend to use financing as well as what we be called 'creative' financing to purchase the business I am looking at.  The owner nets $745k per year and my plan would be to passively own the business, giving the GM (general manager) a reasonable compensation package for being in the drivers seat of the business and I would basically give myself, as the owner, a small portion of that and use the rest to service the debt.  To break it down a little better, taking into consideration that the yearly compensation will not always be $745K (and I am quite willing to take the 'leftovers' to make sure the debt is serviced and my GM gets his pay) here is my hypothetical breakdown:  GM would receive approx $50,000 raise which would be a combination of performance based compensation on how well the company is doing as well as a straight pay raise, Approximately $500,000 would go each year to service the debt, and I would receive what is left, which if I am using the figure of $745K would mean I would be getting around $195,000.  My point to this is:  What difference does what I make matter if I will be using bank financing based on revenue as well as assets owned by the company for collateral?  I am trying to get the particulars on a business and the 'broker' will not release anything without me signing a NDA (which I have no problem with) and also a Buyer Financial Statement.  I will tell you right now I don't have the money to 'buy' this company with cold hard cash, and I have been advised by people in the business that isn't necessarily wise anyway, because you want to save your own capital for using after you have the business to help bolster it with marketing, etc. etc. etc.  Can someone tell me how to get around the Gate Keeper, a.k.a. the broker with regards to the buyer financial statement?  I appreciate anyones input on this and thank you in advance for that input.

  • Re: How do you get past the 'buyer financial statement' when trying to purchase a business?
    laurieed2002 Novice
    Currently Being Moderated

    I apologize for the grammar in the first sentence of my question "I intend to use financing as what we be called 'creative' financing...  I meant to say, I am using financing and to be more specific, creative financing.  Sorry if the first sentence of my question is a little hard to read

  • Re: How do you get past the 'buyer financial statement' when trying to purchase a business?
    ArcSine Apprentice
    Currently Being Moderated

    The Bal Sheet request isn't to demonstrate that you have sufficient cash to do an all-cash purchase (and if the seller is expecting an all-cash deal with nary a shred of seller paper in the mix, he's either a bit delusional or else willing to take a significant discount from fair value in the price), but rather to demonstrate to the seller that you have the wherewithal to obtain the necessary financing in the first place.

     

    Before Seller expends effort and releases sensitive info, he just wants to verify that you're for real and won't be turned down by the bank, leaving him to start over with a new potential Buyer. Of course, your balance sheet doesn't provide Seller with an ironclad guarantee that your bank will greenlight this deal, but it at least gives him a sense of the likelihood.

     

    When a business puts a For Sale sign in the front yard, the tirekickers come out in droves. A balance sheet request causes most of the less serious ones to move along, so you can see their rationale.

     

    If the fact-set of your particular situation are such that you're convinced that you won't have to provide a personal guarantee to the bank to backstop the acquisition financing (i.e., this biz has the assets and cash flow to support the financing without any PG on your part), then you'll need to convince the Gatekeeper of same, in order to get the balance sheet request waived.

     

    As a side note, I like your model: Identifying some party(ies) with the chops and expertise at running the business (the GM in your case) and then providing them with the financial incentive to put their 110% into it, for which you'd both reap benefits. It's a strategy that private equity firms have found a lot of success with.

  • Re: How do you get past the 'buyer financial statement' when trying to purchase a business?
    CEO Space Apprentice
    Currently Being Moderated

    I agree with what ArcSine stated above.

     

    This step is most likely to make sure that they only spend their valuable time with legitimate and qualified potential buyers.

     

    However, in all of my business dealings, regardless of which side I was on, the buyer or the seller, I was always open to and appreciative of honest communication.

     

    I would suggest you have your personal balance sheet ready just in case, but I would preface it with a candid conversation with the broker about your plan.

     

    If they know you are seriously and not just trying to avoid their requirements, you might get some leeway.

  • Re: How do you get past the 'buyer financial statement' when trying to purchase a business?
    Uncle Leon Apprentice
    Currently Being Moderated

    I also agree with Arcsine, except that I believe that the bank will require a personal guarantee.  ( If you're not willing to risk your assets, why should the bank be?)

     

    Based upon the information you've provided (and subject to confirmation by tax statements), this seems like an ideal prospect for an SBA guaranteed loan.  (That would almost certainly require the seller to carry a minor note in second position.)

  • Re: How do you get past the 'buyer financial statement' when trying to purchase a business?
    Moderator_JoleK Master
    Currently Being Moderated

    Interesting thread. There are some excellent points being made. Do you find the community helpful, Laurieed?  Let us know how you are doing .

     

     

    Joleen

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