Summary: Seller financing is a common financing component of many business acquisitions. It’s a type of loan that the seller of a business offers to the buyer. The loans are privately negotiated between the participants and usually have competitive terms and rates. In this article, we discuss: 1. What is seller financing? Few buyers can […]
Frequently Asked Questions
What are Add Backs? (Business Acquisitions)
Summary: Add backs are specific business expenses that can be added back to the seller’s discretionary earnings (SDE). Consequently, add backs can increase the SDE. Add backs are important in small business acquisitions because they affect the SDE, which ultimately determines the company’s valuation. In this article, we cover: 1. What is an add back? […]
What are Seller’s Discretionary Earnings?
Summary: Seller’s discretionary earnings (SDE) is a metric used commonly by business buyers and sellers to determine the market price of a small business. This article describes how this metric is calculated, how it works, and its importance in small business acquisitions. We cover the following: 1. What are Seller’s Discretionary Earnings? Seller’s discretionary earnings […]
Should You Buy an Existing Business?
Summary: New entrepreneurs are often torn between buying an existing business versus launching a new company from scratch. Buying an existing business typically has a lower risk than starting a new company. However, this outcome depends on buying the right company and operating it successfully. The article discusses the advantages and disadvantages of buying a […]
Buying a Business? How to Pay for it
Summary: Buying an established business is a common way for first-time entrepreneurs to get into business ownership. It’s a strategy that has lower risk because buyers can review past performance and, consequently, be better able to forecast performance. When executed correctly, this strategy can help the buyer acquire a company with solid potential. However, buying […]
What is an Equity Injection?
Summary: The equity injection is an investment of capital that a buyer contributes to a business acquisition. It is integral to most acquisitions because every lender requires one. The size of the equity injection varies and depends on the transaction’s size, the target company’s profile, and the lender’s risk tolerance. The typical range is 5% […]
How Much Money do You Need to Buy a Business?
Summary: Buyers, sponsors, and managers often want to know how much money they will need to acquire a company. They may be trying to gauge the size of the company their funds can acquire or the scale of the equity injection. Ultimately, it’s the same question. The answer to this question depends on many factors. […]
Advantages & Disadvantages of a Leveraged Buyout
Leveraged buyouts (LBOs) are a popular way to finance business acquisitions by using debt financing. This article focuses on the pros and cons of using an LBO to buy a small business. We discuss the following: For a detailed explanation of LBOs, read “What is a leveraged buyout?“ 1. Leveraged buyout advantages When used correctly, […]
Can I Get a Business Acquisition Loan with No Collateral?
Summary: There are many misconceptions regarding business acquisition loans and their need for collateral. This article explains the collateral requirements in clear terms and puts you in a better position to negotiate this requirement with lenders. The article covers: 1. The basics: What is collateral? “Collateral” refers to assets pledged to a lender as security […]
Can You Do a Leveraged Buyout with No Money Down?
Summary: Leveraged buyouts are a popular way to finance business acquisitions. Though well-known for their use in large transactions, they are commonly used in smaller acquisitions as well. Thanks to some popular media stories, leveraged buyouts (LBOs) have gained a reputation for financing an acquisition without using your own money. But is this portrayal accurate? […]