Leveraging against the business you are looking to acquire is one of the most common ways to buy a business. Looking at the balance sheet in the annual accounts will show what the company owns as assets against what it owes in liabilities. These assets can be used to acquire the business for the purchaser. For example, if the company is a B2B or business-to-business industry such as recruitment then invoice finance could potentially be used. If there is a large debtor book shown on the balance sheet, then commonly up to 90% of this can be used to finance the acquisition. Certain industries lend themselves well to invoice finance such as recruitment, haulage, engineering, printing, and healthcare recruitment. Many other forms such as business loans and asset re-finance of current equipment or vehicles within the business can also be used as funding the business acquisition.
Free-hold commercial property can be a great way of funding a business for sale. The reason being is a commercial property lender can finance against the property and release the equity which is tied up. An example would be a £100,000 commercial office that is owned in the property and £70,000 of this is used to buy the business.
Vendor Finance is another way business acquisitions can take place. This is whereby the seller effectively finances the deal themselves and sells shares back to the acquiring owners at pre-agreed prices. This of course is less popular than debt financing or leveraging the business because the seller is effectively having to wait longer to get paid. Although it can achieve a higher business sale price consequently.