In order to buy a business, you will likely need backing from a lender. However, to obtain financing, you need to establish yourself as an expert and create a business plan. Here, our experts at AutoCenter Sales will discuss what you should do when you need financial assistance for your business acquisition.
Have a Detailed Business Plan
In order to obtain a loan for your business acquisition, you will have to provide your bank at least a basic business plan. This plan should, at the bare minimum, have details regarding your plans for the transition period. The transition when any business is sold and acquired can be difficult, and there are a variety of risks involved. Some of these risks involve new systems or software that need to be implemented, as well as the retention of dedicated customers and employees after new management takes control.
However, the more detailed your business plan is, the better. Lenders want to see you have a plan and an understanding of what it takes to operate the business you are attempting to purchase. In this plan, you should also analyze how the acquisition could impact the business’s EBITDA. Though you should have a solid business plan in place for your acquisition, don’t try to change too many things all at once, as this could turn off lenders.
Retain Employees
When you acquire a business, you are often also acquiring the employees that work for that business. In order to retain an outstanding reputation among employees and customers, you need to learn how the business previously operated so you can best serve your employees. Many customers bond with the best employees; therefore, you should focus on building relationships with them, finding out what leadership style works best, and how you can adequately lead your team.
Analyze the Trends
When lenders are considering your proposal, they want to see the business’s financials trending in a positive direction. If the business’s financial records are already positive, lenders may be more willing to give you a loan, as there is less perceived risk. If you are looking to purchase a business that has been trending down, you should be able to show the lender that you have taken this into account and have solutions to eradicate the issues.
Seller Transition
To have a successful transition when you acquire a business, you need to immerse yourself in the seller’s role. You have to understand exactly what they did for that business and how your skills can mesh with theirs to make the transition as smooth as possible. Being the new owner, you have to dedicate a great deal of time to train your employees and anticipate employees possibly leaving because of the change in management, which could result in profit loss due to fewer sales. To be successful, you need to prepare yourself for as many situations as possible.
Additionally, lenders like to see an established relationship between the buyer and seller. This gives them confidence that the transition period will go smoothly. Transitions can take anywhere from one to several months, and having a good relationship with the seller can be extremely helpful dealing with any challenges that arise during that period. Keep in mind, though, that with the Small Business Administration (SBA) rules and requirements, sellers will need to be out of a primary role within 12 months.
Establish Yourself for Financing
Lenders are more confident offering a loan if the seller backs your purchase of their business. If the seller finances even the smallest portion of your deal, that shows the lender the seller is confident in your abilities to make a profit from the business. While negotiating the business deal, you should have a proven lender in place to ensure all the terms and ratios are met. When business deals are done correctly, the seller carry note can make business acquisitions more affordable.
Working Capital
To meet a lender’s requirements, you should analyze the finances and working capital needs of the company from top to bottom, including records dating back two to three years. In your deal with the seller, you should have all these numbers and contingencies established so everything is out in the open. With this information, a lender may be more likely to give you the loan you’re seeking.
Contact AutoCenter Sales Today
To learn more about our services and how we can help you buy or sell a business, contact us today. We can be reached at 800-874-5793 or on our contact page.