Earnout and Financing
When buying a business, there are two areas of methodology that will assist with your purchase.
First things first. Don’t buy a business you cannot afford and don’t waste a seller or broker’s time with trying to steal a quality business for nothing because you heard some YouTube video say that you can buy businesses with $0 down.
Maybe there’s an example of such. But 9 times out of 10, you will upset the seller and the broker with that approach.
This is like buying a house. You have to have cash or a partner ready to go, to move on it, or someone else will.
To be serious, you want to focus on acquisitions that are within a reasonable multiple, and you want assistance on the deal.
Instead of trying to buy a $2mm business with limited cash down, buy a $800k business, with 20% down, use some traditional lender financing, and get some seller financing involved as well.
There are many ways to get a deal done.
Earnouts are part of the equation.
Most buyers are looking to come in with 50% cash and are hoping for the other 50% to be made up in another way.
Most deals get done when the buyer has closer to 90% cash.
Bridging the gap can be difficult.
There’s a lot of ways to bridge the gap but the quickest way is to understand there is an earnout and financing.
Earnouts can be based on a guaranteed monthly or quarterly or annual payment over X number of years or performance based, based on % of sales or EBITDA.
EBITDA is much harder to track than sales, so our suggestion is sales, if we are representing the buyer.
Financing can be done from the form of the seller in the earnout, or traditional loans.
SBA is a promising route. They have requirements such as a minimum credit score, and will need to see certain financials on the business including tax returns and P&L’s.
SBA will only allow for a certain % of seller financing in addition to the loan.
That’s where other lenders come in to play.
We have a lot of options to help you with the acquisition.
If you would like to hop on a call with us to go over things related to acquisitions and general business overview, please schedule a time here. We do a one hour deep dive where we go over your needs as it relates to acquisitions & business expansion, and then we go on the hunt for you to line up a business that fits.
Please reach out to us if you have any questions relating to acquisitions:
Email – firstname.lastname@example.org
Phone – (800) 773-1523
Simply engage us below to get started whether it comes to bringing you qualified buyers where we list your business for maximal value or engaging us to bring qualified and vetted businesses that match your exact target criteria such as industry and EBITDA multiple if you are buying a business:
Buyer-Side Engagement – Retain Us to Provide you with Qualified and Vetted Businesses that Match Your Target Criteria
Seller-Side Engagement – Retain Us to List Your Business and Bring Legitimate Buyers to the Table
Leader in Acquisitions with Expertise in Representing Sellers & Buyers on Deals
Jarbly is a leader in acquisitions with expertise in helping with listings, negotiations, LOI's, asset purchases, company purchases, and real estate purchases. JARBLY has access to high net worth individuals if you are on the sell-side and businesses that may be of interest to you if you are on the buy-side.