Funding Your Business Purchase: Acquisition Financing Strategies for Beginners

Running a business involves constant learning. From understanding market trends to managing finances, entrepreneurs have the chance to expand their knowledge and skill set across so many dimensions. 

‍

Maybe you’re driven to buy a business that lives your passion. 

‍

Maybe it’s because the business makes a significant impact on the community.

‍

It could be the incredible opportunity to innovate, create and build wealth. 

‍

The time leading up to buying a business is exciting, but it can also present challenges to figure out. The big one on our brain today: how are you going to pay for this thing?!

‍

Let’s get clear.

‍

Why Is It Important to Understand Financing Options?

‍

The potential for financial success and the ability to reap the rewards of your hard work can be a driving force. Owning a successful business can lead to financial stability and the chance to build wealth. 

‍

How you decide to start financially can determine the rate of success. The more prepared you are about finance options, the more likely you are to make a good decision. It’ll help you avoid unpleasant surprises later and have a clear understanding of the costs involved.

‍

Financing is also something that can be tailored to your situation. Different businesses may require unique financing structures, so you can weigh these factors against your personal situation and the nature of the business you want to acquire.

‍

Understanding financing options also gives you more power. You can mitigate risks, negotiate stronger, flex your decision-making skills and, ultimately, build confidence in your early stages of entrepreneurship. 

‍

Join The Waitlist

‍

Acquisition Financing Options for Beginners

‍

Budget

‍

How much business can you actually afford? Going through a budgeting exercise (or multiple) either tells you how much business you can afford right now, or gives you a timeline for when you can expect to buy the business that you desire.

‍

Think about these three things as you build your budget: 

• Assessing the total cost of the business purchase
• Calculating ongoing operational expenses
• Determining the amount needed for working capital

‍

If you’re not best friends with spreadsheets yet, then go introduce yourself to Excel or Google Sheets. You will use them often.

‍

We can go deeper into budgeting strategies in another post. For now, let’s continue to the meat of the conversation: acquisition financing options for beginners.

‍

Small Business Loans

‍

One of the most popular options is a U.S. Small Business Administration Loan, commonly called “SBA Loans”. These SBA-backed loans make it easier for small businesses to get the funding they need to expand or start a business, and they reduce the risk for the lenders, too. 

‍

You can also pursue traditional bank loans for small businesses. Each bank will have different requirements, so start up another spreadsheet to stay organized while you shop around.

‍

In today’s digital economy, there are up-and-coming online lenders and alternative financing options that emulate traditional bank loans without having the physical bank present.

‍

Investment from Business Partners

‍

Creating a partnership or group of people to come together and buy a business can be an extremely successful approach. People who align themselves in the industry and their approach to the future of the business can share the responsibility and the risk of entrepreneurship. 

‍

You can structure a partnership agreement that makes it more affordable on each individual for the initial purchase and also shares in the reward. 

‍

Self-Financing

‍

Not interested in going into debt or paying interest over time? Sounds nice! While most first-time business buyers aren’t in a position to pay cash, it is certainly an option to finance the purchase yourself. 

‍

You can use personal savings or liquidate assets, such as selling personal investments, real estate, or other valuable possessions. 

‍

Make sure you consider the lifestyle factors that might change if you choose to finance your business purchase on your own. If you’re in a position to make this successful, then get after it and keep us posted!

‍

Friends and Family

‍

When an entrepreneur is excited about a new opportunity, it can become contagious in their inner circle. Taking a loan or investment from friends and family can be great for building community and support for your business. 

‍

Take our word of advice, though… Establish clear terms and agreements. It’s easy to overlook red flags or to excuse questionable behavior with friends and family because we want to see the best in the people we love. 

‍

Business doesn’t care about your relationships. Get that stuff in writing!

‍

Seller Financing

‍

Also known as “owner financing”, this model creates a working relationship between the previous owner and the new owner. Instead of pursuing a traditional loan, the business owner effectively becomes the lender and the buyer makes payments over time.

‍

This is a good option when the seller wants to ensure business continuity during the owner transfer because the seller still has a vested interest in the future success.

‍

Crowdfunding

‍

If the business or industry you have your eye on is sure to draw in a crowd, then you might find success with Crowdfunding platforms like Kickstarter or Fundable can help you raise money in exchange for future goods or equity in your business. 

‍

This fundraising strategy is suitable for compelling campaigns, and it can be a fun option to keep your eye on as a way to position an established business to a new crowd.

‍

Cross Your T’s and Dot Your I’s

‍

This is a super high level view of different acquisition financing options to help you figure out how you’re going to pay for the business you want to buy. 

‍

While it’s good to have an idea of how you want to finance your business, it’s essential that you’re doing thorough due diligence on the business before going deep with financing. You can connect with financial advisors and experts to craft a plan, audit the business extensively, and also create a realistic business plan that will work for you and your money.

‍

Before we let you go, here is our parting advice for common pitfalls to avoid: 

• Overextending financially
• Ignoring due diligence
• Failing to secure proper legal and financial advice

‍

Embarking on the path to owning a business is a thrilling endeavor that demands courage and strategic thinking. As you contemplate financing your business purchase, remember that challenges are inherent, but they also present opportunities for growth and success. Your passion, dedication, and the knowledge you've gained about financing options position you for a rewarding and transformative journey.

‍

Your dream of business ownership is within reach, and to support you on this exciting venture, we invite you to join our waitlist. By joining, you'll be among the first to access exclusive resources, expert insights, and valuable business listings that will further empower you on your entrepreneurial journey. Don't miss out on this opportunity to turn your aspirations into reality. Join the waitlist now and take the first step toward buying the business you've always envisioned.