A physiotherapist in Griffith has the opportunity to buy an established allied-health practice.
She’s worked in the industry for:
12 years.
She’s been employed at the practice for four years and understands:
the patients,
referral relationships,
employees,
systems,
and day-to-day operation.
The current owner wants to retire.
Agreed business purchase price:
$360,000.
The buyer has:
$125,000
available.
Her first calculation is simple:
$360,000 purchase price
minus
$125,000 cash
equals
$235,000 finance required.
But before deciding that $235,000 is the finance requirement, there is a more important question:
How much of that $125,000 should actually go into the purchase?
Because buying a business and having enough money to operate it afterwards are:
two different things.
Is There a Standard Deposit for Business Acquisition Finance?
Not one that applies universally to every transaction.
The contribution required can depend on factors such as:
the business being purchased,
purchase price,
buyer,
relevant experience,
financial performance,
assets,
goodwill,
security available,
amount being borrowed,
and lender requirements.
So when someone asks:
“What percentage deposit do I need to buy a business?”
the answer isn’t automatically:
10%,
20%,
30%,
or another universal number.
The actual transaction needs to be assessed.
Why Is Buying a Business Different From Buying a House?
With a property purchase, there is:
an identifiable piece of real estate.
A business purchase can include:
equipment,
stock,
customer relationships,
systems,
contracts,
intellectual property,
and goodwill.
The composition of the purchase price can affect:
how the transaction is viewed.
Two businesses can both sell for:
$360,000
while having completely different underlying assets.
Compare Two $360,000 Businesses
Business A
Purchase price:
$360,000.
Includes:
substantial machinery and other identifiable assets.
Business B
Purchase price:
$360,000.
Physical assets:
relatively modest.
A substantial proportion of the price represents:
goodwill.
Same purchase price.
Different transaction.
That’s one reason a single:
“business acquisition deposit percentage”
doesn’t tell the whole story.
What Does the Buyer Actually Have Available?
Our Griffith buyer says:
“I have $125,000.”
Good.
But where is it?
Is it:
cash savings,
sale proceeds,
available funds after another transaction,
or money being borrowed elsewhere?
The source matters.
Borrowed Money Isn’t the Same as Your Own Contribution
Suppose the buyer says:
“I’ve got $125,000.”
Then we discover:
$100,000
is coming from a newly arranged personal loan.
The financial position is very different.
The buyer now has:
another repayment
and
another debt.
So when discussing contribution, tell the broker:
where the funds are coming from.
Don’t Automatically Contribute Every Dollar You Have
This is probably the biggest point in this article.
The buyer has:
$125,000.
That doesn’t automatically mean:
she should put $125,000 into the purchase.
Suppose she does.
Business settles Friday.
Monday morning she owns:
the practice.
Her available cash:
almost nothing.
But the practice still needs to operate.
The Business Doesn’t Stop Spending Money Because Ownership Changed
The practice may have to pay:
employees,
rent,
software,
insurance,
utilities,
equipment costs,
medical or clinical supplies,
marketing,
professional fees,
and other operating expenses.
The new owner may also need:
personal income.
The purchase price isn’t:
the last expense.
It’s the beginning of ownership.
Working Capital Needs to Be Considered Before Settlement
Suppose the buyer and accountant estimate the practice should have at least:
$35,000
of available working capital following settlement.
Now the buyer’s:
$125,000
needs to be considered differently.
If she retains:
$35,000,
that leaves:
$90,000
potentially available towards the purchase and associated costs.
The finance requirement may therefore be different from:
the original $235,000 calculation.
What Is Working Capital?
In simple terms, it’s the money available to support:
day-to-day business operations.
A profitable business can still run into trouble if:
cash leaves
before
cash arrives.
The amount required depends heavily on:
the type of business.
Some Businesses Need More Working Capital Than Others
An allied-health practice may have:
different cashflow characteristics
from:
a construction company.
A retailer may need:
stock.
A manufacturer may need:
raw materials.
A transport business may need:
fuel and wages
before customers pay.
A hospitality business may need:
food,
beverages,
wages,
and supplier payments.
So don’t simply say:
“I’ll keep $20,000 aside.”
Determine:
what the business actually needs.
Look at the First 90 Days
A useful exercise is:
What will happen financially during the first three months after I take over?
What expenses will be due?
When will customers pay?
Will any suppliers change terms?
Will employees remain?
Will there be transition costs?
Will the seller leave immediately?
Will revenue continue normally?
Will there be a seasonal slowdown?
Now the buyer can make a more informed decision about:
how much cash to retain.
What if the Practice Has Strong Cashflow From Day One?
That may reduce:
some working-capital pressure.
But don’t assume:
every dollar of historical revenue will continue without interruption.
Ownership changes can affect:
employees,
customers,
referrers,
and operations.
A buffer still has value.
What if Revenue Drops After Settlement?
This is worth considering before:
the purchase.
Suppose the practice currently produces:
$85,000
in monthly revenue.
What happens if the first two months under new ownership produce:
$70,000?
Can the business still cover:
wages,
rent,
loan repayments,
and other costs?
A buyer should understand:
the downside scenario.
Your Contribution Isn’t Only About Getting Approved
This is important.
A buyer may become focused on:
“What’s the minimum amount I need to put in so the lender says yes?”
But there is another question:
“What contribution leaves the business in a healthy position after settlement?”
Those aren’t necessarily the same thing.
A Bigger Contribution Can Reduce Borrowing
That’s obvious.
If the buyer contributes:
more cash,
the finance requirement may reduce.
That can potentially reduce:
debt
and
repayments.
But if the larger contribution leaves the business with:
no liquidity,
the benefit needs to be considered against:
the cashflow risk.
A Smaller Contribution Preserves More Cash
But that doesn’t mean:
smaller is always better either.
The lender may require:
a certain contribution
based on the transaction.
And increasing the amount borrowed may create:
higher repayments
and
greater leverage.
The objective isn’t:
maximum debt.
It’s an appropriate balance.
Let’s Compare Three Contribution Scenarios
Purchase price:
$360,000.
Available cash:
$125,000.
These figures are illustrative.
Scenario One: Contribute All $125,000
Purchase contribution:
$125,000.
Apparent finance requirement:
$235,000.
Cash remaining:
very little before other costs.
Lower borrowing.
But potentially:
very limited liquidity.
Scenario Two: Contribute $90,000
Purchase contribution:
$90,000.
Apparent purchase funding gap:
$270,000.
Cash retained:
$35,000
before considering other acquisition costs.
More liquidity.
But:
more finance would be required if available.
Scenario Three: Contribute $70,000
Purchase contribution:
$70,000.
Apparent purchase funding gap:
$290,000.
Cash retained:
$55,000.
More cash buffer.
But the lender may not be comfortable with:
the higher finance requirement.
None of these scenarios can be declared:
the correct one
without assessing the transaction.
Don’t Forget Acquisition Costs
The buyer may also incur:
legal fees,
accounting costs,
due diligence expenses,
and other costs associated with the purchase.
There may also be:
stock adjustments,
lease-related amounts,
licensing expenses,
or other transaction-specific costs.
Obtain professional advice about:
the actual acquisition.
A $360,000 Purchase Can Require More Than $360,000
This is the point.
The business price might be:
$360,000.
But the buyer may need:
$360,000
plus:
transaction costs
plus:
working capital.
So asking:
“How much deposit do I need on $360,000?”
may understate:
the real funding question.
What if Stock Is Additional?
Suppose the sale agreement says:
$360,000
plus stock at value.
And stock at settlement is:
$25,000.
Now the buyer needs to understand:
where that $25,000 is coming from.
Don’t discover it:
three days before settlement.
What if There Is a Lease Bond?
Again:
additional cash may be required.
The business purchase and the premises arrangements need to be understood:
together.
What if Equipment Needs Replacing Soon?
The practice may include:
equipment.
But suppose some of it needs replacing:
six months after settlement.
The buyer should know:
before using every available dollar on the acquisition.
Buying a business with:
$125,000 cash
and spending all $125,000 at settlement
could leave the buyer struggling to fund:
necessary equipment shortly afterwards.
Due Diligence Should Identify Future Cash Requirements
The buyer and professional advisers should investigate:
what the business may need
after settlement.
That might include:
equipment,
repairs,
renovations,
stock,
technology,
employees,
or marketing.
A business can look profitable historically while still requiring:
significant new investment.
Relevant Experience Can Strengthen the Story
Our Griffith buyer has:
12 years in physiotherapy
and
four years inside the actual practice.
That gives her considerable familiarity with:
the operation.
Again:
experience doesn’t replace contribution.
And contribution doesn’t replace:
a viable business.
The complete picture matters.
What if the Buyer Has No Industry Experience?
Now the transaction may be harder to support.
Imagine someone with:
no healthcare experience,
no business-management experience,
and limited contribution
wants to purchase:
the same practice.
The buyer needs to explain:
how the business will be managed
and
what expertise exists around them.
The finance position can be different.
What if the Buyer Doesn’t Own a Home?
That doesn’t automatically mean:
no finance.
But it may affect:
available acquisition-finance options.
We’ll deal with that question separately because it deserves:
its own article.
What if the Buyer Owns Property?
Tell the broker.
Owning property doesn’t automatically mean:
it has to be used.
But available security can affect:
the options that may be investigated.
What if I Have Equity but Not Much Cash?
That’s another situation.
Someone may own:
property
with substantial equity
but have:
limited cash savings.
That doesn’t mean:
the equity automatically becomes available contribution.
The buyer needs to understand:
how the proposed transaction would actually be funded.
What if I Have Cash but Don’t Own Property?
Again:
different transaction.
A buyer with:
significant genuine cash contribution,
strong relevant experience,
and a quality target business
may present differently from someone with:
little contribution
and
no experience.
This is why we need:
the complete buyer profile.
Don’t Choose the Business Based on the Maximum Amount You Might Borrow
Suppose a buyer asks:
“What’s the biggest business I can afford?”
That’s not necessarily the best starting point.
Find a business that:
makes commercial sense,
matches your experience and objectives,
and has financials that withstand scrutiny.
Then investigate:
the funding.
Don’t Use the Seller’s Profit Figure to Decide Your Contribution
The seller says:
“You’ll make your deposit back in the first year.”
Maybe.
Maybe not.
The buyer needs:
independent financial and legal advice.
Historical performance doesn’t guarantee:
future performance.
Your Own Income Needs Matter Too
Suppose the practice historically generates enough income for:
one working owner.
The new buyer has:
higher personal financial commitments.
Perhaps:
mortgage,
children,
vehicle finance,
and other living expenses.
The buyer’s required drawings or salary can affect:
how much cash needs to come from the business.
Acquisition Debt Needs to Be Serviced
After settlement, the business isn’t only funding:
normal operations.
It may also be servicing:
the acquisition finance.
The historical business may have had:
no acquisition debt.
The new owner does.
That’s an important difference.
Don’t Assume Historical Profit Equals Cash Available for Loan Repayments
There may be:
tax,
capital expenditure,
working-capital requirements,
owner drawings,
and other commitments.
The accountant should help the buyer understand:
the real cashflow position.
What if the Seller Leaves Cash in the Business?
The transaction structure matters.
Don’t assume:
the bank balance shown in the seller’s accounts
will belong to you after settlement.
Understand:
exactly what is included in the sale.
What if the Buyer Has a Business Partner?
Then we need to understand:
who is contributing what.
For example:
Buyer A:
$70,000.
Buyer B:
$55,000.
Combined:
$125,000.
Now the transaction also involves:
ownership structure
and
both buyers’ positions.
What if One Partner Is Doing All the Work?
That’s relevant commercially.
Again:
professional legal and accounting advice is important when establishing:
ownership,
roles,
and agreements between business partners.
Contribution Isn’t Just a Percentage on a Spreadsheet
It tells us something about:
how the acquisition is being funded.
But the buyer still needs to answer:
Why this business?
Why this industry?
Why this purchase price?
How will it be operated?
What cash will remain?
How will the debt be serviced?
Those questions matter just as much as:
the percentage contributed.
What Should You Tell Thrive First?
If you’re considering buying a business, start with:
purchase price,
your available cash contribution,
source of the contribution,
industry experience,
management or business experience,
whether you own property,
and what financial information is available for the business.
Also tell us:
how much money you believe you’ll need to keep available after settlement.
If you haven’t calculated that yet:
that’s worth doing.
Back to the Griffith Buyer
Purchase price:
$360,000.
Available funds:
$125,000.
Industry experience:
12 years.
Experience inside the business:
four years.
But the important decision isn’t simply:
“Put in $125,000 and borrow $235,000.”
She needs to determine:
transaction costs,
working-capital requirement,
post-settlement cash buffer,
and how much contribution the finance structure may require.
Only then can the real acquisition-funding requirement be understood.
Thinking About Buying a Business?
Before committing all your available cash to:
the purchase price,
work out:
what the business needs after settlement.
Tell Thrive Broking:
what you’re buying,
purchase price,
how much cash you have available,
where the contribution is coming from,
your relevant experience,
whether you own property,
and how much working capital you expect to retain.
We can investigate potential business acquisition finance options based on:
the complete transaction.
Because the important question isn’t only:
“How much money do I need to contribute?”
It’s also:
“How much money do I need to still have after I’ve bought the business?”