A production manager in Lonsdale has found an established packaging business for sale.
He’s worked in manufacturing and production for:
17 years.
For the past eight years, he’s managed:
employees,
production schedules,
suppliers,
quality control,
equipment,
and major customer orders.
The business he’s considering has been operating for:
14 years.
The agreed purchase price is:
$525,000.
The buyer plans to contribute:
$210,000
towards the purchase.
That’s a:
40% contribution.
Importantly, that isn’t every dollar he has.
He also intends to retain approximately:
$55,000
for acquisition costs, working capital and a post-settlement cash buffer.
The sale includes:
production equipment,
office equipment,
business systems,
customer relationships,
and goodwill.
He’s reviewed the business-for-sale information, spoken with his accountant and is now serious about proceeding.
So he contacts Thrive Broking and asks:
“What do you actually need from me to see if I can finance it?”
That’s a good place to start.
You don’t necessarily need every document that could eventually be required before having the first finance conversation.
But we do need to understand four things:
you,
the business,
the purchase,
and
how you intend to fund it.
Start With the Business You’re Buying
Tell us:
what the business does,
where it operates,
how long it has been trading,
the purchase price,
and what is included in the sale.
If you have:
a business-for-sale memorandum,
information memorandum,
sale summary,
or similar document,
send it through.
That gives us:
a starting point.
Don’t Just Send the Advertisement
A business-for-sale advertisement is designed to:
attract buyers.
It isn’t necessarily:
a complete financial assessment.
Statements such as:
“highly profitable”,
“strong cashflow”,
“excellent opportunity”,
or
“huge growth potential”
don’t tell us enough to assess:
finance.
Tell Us the Actual Purchase Price
In the Lonsdale example:
$525,000.
If the seller originally wanted:
$590,000
but you’ve negotiated:
$525,000,
tell us.
If the price is still being negotiated:
tell us that too.
The finance needs to be assessed against:
the actual proposed transaction.
How Much Are You Contributing?
This is one of the first questions worth answering.
Our buyer is proposing:
$210,000.
Against a:
$525,000
purchase price, that’s:
40%.
The remaining purchase price is:
$315,000.
But that doesn’t automatically mean:
$315,000 is approved,
or
that every acquisition with a 40% contribution will be financeable.
The complete transaction still needs to be assessed.
Your Contribution Needs to Be Genuine
Where is the:
$210,000
coming from?
Perhaps it’s:
accumulated savings,
proceeds from selling an asset,
or another genuine source of funds.
Tell the broker.
If some of the proposed contribution is itself:
borrowed money,
that also needs to be disclosed.
Borrowing the Deposit Changes the Position
Suppose someone says:
“I’ve got a 40% deposit.”
But most of that money is coming from:
another new loan.
That’s not the same financial position as someone contributing:
their own funds.
There is now:
another debt,
another repayment,
and another financial commitment.
The complete structure matters.
Don’t Use Every Dollar You Have to Reach the Contribution
Our Lonsdale buyer isn’t doing that.
He intends to contribute:
$210,000
and retain approximately:
$55,000.
That distinction matters.
Because settlement isn’t:
the end of the financial requirement.
It’s the beginning of:
owning the business.
The Business Still Needs Cash on Monday Morning
After settlement, the buyer may need to fund:
wages,
suppliers,
rent,
utilities,
insurance,
materials,
equipment expenses,
and other operating costs.
There may also be:
legal,
accounting,
due-diligence,
or other acquisition expenses.
That’s why we want to understand:
what cash remains after the buyer makes their contribution.
A 40% Contribution Doesn’t Help if the Business Is Left With No Cash
Imagine another buyer has:
exactly $210,000.
They contribute:
every dollar
towards the $525,000 acquisition.
The transaction settles.
Their remaining cash:
almost nothing.
That creates a different risk.
The contribution may look strong on:
settlement day.
But the business still needs to operate:
the following week.
Working Capital Should Be Considered Before the Finance Is Structured
The buyer and accountant should consider:
what the business may require after settlement.
For a manufacturing business, that could include:
materials,
wages,
freight,
supplier payments,
utilities,
maintenance,
and other operating expenses.
The amount required will vary:
business by business.
What Exactly Does the $525,000 Include?
This is another important question.
Does the purchase price include:
machinery?
Vehicles?
Stock?
Goodwill?
Intellectual property?
Business name?
Customer relationships?
Other assets?
Is stock:
included
or
additional at settlement?
Don’t assume:
“I’m buying the business, so everything is included.”
Find out.
The Asset Breakdown Can Matter
Suppose the packaging business includes:
cutting equipment,
sealing machinery,
label application equipment,
compressors,
warehouse equipment,
and office equipment.
We need to understand:
what is being acquired.
But don’t simply use:
the equipment’s original purchase price
as its current value.
Goodwill May Represent Part of the Purchase Price
The business may also have value in:
customer relationships,
reputation,
systems,
trading history,
and established earning capacity.
That can form part of:
goodwill.
Goodwill can have genuine commercial value.
But it isn’t the same as:
a separately identifiable physical asset.
That distinction can be relevant when:
finance is assessed.
Next, Tell Us About You
We need to understand:
who is buying the business.
Useful information includes:
your current occupation,
industry experience,
management experience,
previous business ownership,
and relevant qualifications.
Our Lonsdale Buyer Has Relevant Experience
He’s worked in:
manufacturing and production
for 17 years.
For eight years he’s managed:
employees,
production,
suppliers,
equipment,
and customer orders.
That’s a considerably different buyer profile from someone who says:
“I’ve never worked in manufacturing, but this business looks profitable.”
Give Us Specific Experience
Instead of saying:
“I’ve got plenty of experience,”
tell us what you’ve actually done.
For example:
“Eight years as a production manager responsible for 22 employees, production scheduling, equipment, supplier ordering and major customer orders.”
That’s useful information.
What if You’ve Never Owned a Business?
Say so.
Management experience isn’t:
business ownership.
But a first-time business owner may still have:
significant relevant industry and management experience.
We want:
the real picture.
What if You’re Changing Industries?
Tell us that:
at the beginning.
Then explain:
what transferable experience you have
and
how the business will be operated.
If experienced managers or key employees are remaining:
that may also be relevant.
Tell Us Whether You Own Property
Another useful question to answer early is:
whether you own:
residential,
commercial,
or other property.
If you don’t own property:
tell us that too.
Property ownership doesn’t by itself determine:
whether the acquisition can be financed.
But available security can affect:
the finance options that may be investigated.
Tell Us About Existing Debts
That may include:
home loans,
investment loans,
vehicle finance,
personal loans,
credit cards,
business loans,
or other commitments.
Don’t omit a debt because:
“it’s not connected to the business I’m buying.”
The buyer’s overall financial position may be relevant.
Now We Need to Understand the Business Financials
This is where the acquisition moves beyond:
the advertisement.
Depending on the transaction and lender, information may include:
historical financial statements,
tax returns,
BAS,
current trading information,
bank information,
and other supporting financial records.
Requirements vary.
Ask the Seller for Proper Financial Information
If you’re considering spending:
$525,000
on a business,
you need more than:
a sales brochure.
Your accountant may also require detailed information to perform:
due diligence.
“The Owner Says It Makes $250,000” Isn’t Enough
What does:
“makes”
mean?
Revenue?
Net profit?
Adjusted earnings?
Owner benefit?
EBITDA?
Cashflow?
Get:
the actual numbers.
Be Careful With Adjusted Earnings
Business-sale information may contain:
adjusted earnings
or
add-backs.
Some adjustments may be reasonable.
Others require:
closer examination.
Your accountant can help assess:
how the seller’s figures have been calculated
and
whether they make sense for you as the new owner.
The Current Owner’s Role Matters
Suppose the seller currently:
manages major customers,
quotes work,
supervises production,
and handles key supplier relationships.
What happens:
after settlement?
Who takes over:
those responsibilities?
The Buyer Has Relevant Management Experience
That’s useful in our Lonsdale scenario.
But we still need to understand:
whether his experience matches the role he will perform
and
whether the existing team will remain.
Are Key Employees Staying?
If the business depends heavily on:
a production supervisor,
specialist technician,
sales manager,
or another key employee,
the buyer should understand:
what happens after ownership changes.
Don’t assume:
everyone stays forever.
Customer Concentration Can Matter
Suppose:
40% of annual revenue
comes from two major customers.
That’s important.
The business may be:
profitable.
But the buyer needs to understand:
how dependent it is on those relationships.
The Same Applies to Suppliers
Does the business depend on:
one critical supplier?
Will existing:
pricing
and
credit terms
continue after the ownership change?
That can affect:
working capital
and
profitability.
Current Trading Matters
Historical financial statements are important.
But what is happening:
now?
Suppose the previous financial year was:
excellent.
But revenue during the most recent six months is down:
20%.
Why?
Perhaps there is:
a reasonable explanation.
Perhaps there is:
a problem.
Either way:
we need to understand it.
What if the Business Is Growing?
That also needs:
context.
Growth may be:
positive.
But rapid growth can increase the need for:
working capital.
More sales can mean:
more materials,
more wages,
more stock,
and more money tied up before customers pay.
Send the Sale Contract When Available
If a sale contract has been prepared:
tell us.
Depending on the transaction, it may contain important information about:
the parties,
purchase price,
assets,
conditions,
settlement,
and structure.
Your solicitor should advise you about:
the contract.
Don’t Sign an Unconditional Contract Assuming Finance Will Be Available
If the acquisition depends on:
finance,
obtain legal advice about:
the contract
and
appropriate conditions
before committing.
A finance broker can’t undo:
an agreement you’ve already entered into.
Tell Us the Settlement Date
Don’t say:
“ASAP”
if there is:
an actual date.
If settlement is proposed for:
28 October,
tell us:
28 October.
Timing can affect:
what needs to happen next.
What if the Seller Wants a Very Fast Settlement?
Tell us immediately.
Whether the timing is achievable can depend on:
the transaction,
lender,
documents,
assessment,
conditions,
and other requirements.
Don’t promise the seller:
a finance timeframe
before the transaction has been assessed.
Has a Deposit Already Been Paid?
Tell us:
how much
and
when.
Your solicitor can advise you about:
the treatment of the deposit under the sale contract.
Is There Vendor Finance?
Suppose the seller agrees to leave:
$50,000
outstanding.
That needs to be disclosed.
Vendor finance is still:
a financial obligation.
It changes:
the transaction structure.
Don’t Create Undisclosed Side Agreements
If the seller says:
“We’ll sort part of the purchase price privately after settlement,”
tell your broker and professional advisers.
The finance application needs to reflect:
the actual transaction.
Is Stock Additional?
This is an easy way for:
the required cash
to change substantially.
Suppose the purchase price is:
$525,000
plus:
stock at value.
Stock at settlement is estimated at:
$48,000.
Now the buyer needs to know:
where that $48,000 will come from.
The 40% contribution calculation against the purchase price doesn’t automatically cover:
every other cost.
This Is Why We Retained the $55,000
Our buyer didn’t calculate:
40%
and then empty his bank account.
He thought about:
the transaction beyond the purchase price.
Whether:
$55,000
is enough depends on:
the actual business and costs.
But at least the issue has been considered:
before settlement.
What About the Lease?
The packaging business operates from:
leased industrial premises in Lonsdale.
The buyer should obtain appropriate legal advice about:
lease assignment,
remaining term,
options,
rent,
outgoings,
and other conditions.
For a manufacturing business with:
installed machinery
and
established production operations,
premises can be:
commercially important.
What About Existing Equipment Finance?
Some equipment inside the business may have:
existing finance.
Find out:
what is owned outright,
what is financed,
what is leased,
and what is actually being transferred as part of:
the sale.
Don’t assume:
every machine in the building belongs to:
the seller.
What About Other Security Interests?
Appropriate legal and professional due diligence may include checking:
ownership,
security interests,
and the seller’s ability to transfer:
the assets being purchased.
The buyer’s solicitor can provide:
guidance.
Insurance May Need to Be Organised
Depending on:
the business,
assets,
premises,
and finance structure,
appropriate insurance may need to be:
in place.
Don’t leave this until:
settlement morning.
What Happens Once Thrive Has the Initial Information?
The first objective is:
understand the transaction.
We’re not trying to submit:
an application
before understanding:
what we’re financing.
First: The Buyer
Who are you?
What experience do you have?
What is your financial position?
What are you contributing?
Where is that contribution coming from?
What cash remains afterwards?
Second: The Business
What does it do?
How does it make money?
What do the financials show?
How is it trading now?
What assets and goodwill are included?
Third: The Purchase
What’s the agreed price?
What is included?
Is stock additional?
Is there vendor finance?
What happens with the lease?
When is settlement?
Fourth: The Funding Requirement
Now we can determine:
what money is actually required.
In our example:
purchase price:
$525,000.
Buyer contribution:
$210,000.
Contribution percentage:
40%.
Remaining purchase price:
$315,000.
Separate cash retained:
approximately $55,000.
That’s a much clearer starting position.
Does a 40% Contribution Guarantee Approval?
No.
The business still needs to:
support the transaction.
The buyer still needs to:
meet lender requirements.
And other factors can affect:
the finance structure.
The purpose of showing the contribution clearly is:
to understand the buyer’s genuine financial commitment to the acquisition.
What Happens if More Information Is Required?
We’ll identify:
what is missing.
There may be questions about:
business financials,
current trading,
assets,
goodwill,
experience,
contribution,
working capital,
or another part of the transaction.
What Happens if the Transaction Doesn’t Look Financeable?
It’s better to identify that:
before significant additional time and money are spent.
The issue might be:
the business,
purchase price,
buyer,
contribution,
security,
cashflow,
or transaction structure.
The answer isn’t always:
find another lender.
Sometimes the acquisition itself needs:
reconsideration.
What Happens if It Looks Worth Pursuing?
Then potential finance options can be:
investigated in more detail.
Additional documentation may be required.
The exact process depends on:
the transaction
and
lender requirements.
Approval Isn’t Settlement
A finance approval may still have:
conditions.
Documents may need:
completion.
Other requirements may need:
to be satisfied.
Don’t tell the seller:
“The money is done”
until you understand:
where the finance process actually stands.
Tell Us if the Transaction Changes
Perhaps:
the purchase price changes,
your contribution changes,
vendor finance is introduced,
another buyer joins,
the entity changes,
or the assets included in the sale change.
Tell us.
The finance needs to reflect:
the actual acquisition.
Back to the Lonsdale Buyer
He’s buying:
an established packaging business.
Purchase price:
$525,000.
His proposed contribution:
$210,000, or 40%.
He has approximately:
$55,000
additional cash available for:
costs,
working capital,
and a post-settlement buffer.
He has:
17 years in manufacturing
and
eight years of production-management experience.
The business has:
14 years of trading history.
Financial information is:
available.
The acquisition includes:
equipment
and
goodwill.
Now we have:
a genuine transaction to investigate.
We still need to understand:
the business financials,
current trading,
purchase structure,
lease,
assets,
customer concentration,
working-capital requirement,
buyer financial position,
and potential security.
But we’re starting with:
a buyer who has thought about more than simply:
“How much can I borrow?”
Found a Business You Want to Buy?
Send Thrive Broking:
the business-for-sale information,
purchase price,
your proposed contribution,
where your contribution is coming from,
how much cash you’ll retain after settlement,
your relevant industry and management experience,
whether you own property,
what is included in the purchase,
and any business financial information already available.
Tell us:
where you are in the purchase process
and
whether you’ve signed anything.
From there, we can determine what else may be required and investigate:
potential business acquisition finance options.
Because once you’ve found the business you want to buy, we don’t only want to know:
“How much is the business?”
We want to understand:
who is buying it,
how much they’re contributing,
what they’re actually buying,
whether the business supports the proposed debt,
and
whether enough cash remains to operate the business after settlement.