Funding Business Purchase

Only general comments without more data.

1. An interest free loan from the vendor and some sort of earn-out basis is what I would try for.

1. Have you checked the CGT position on the liquidation of your share portfolio?

2. If you have to borrow money, some adjustments to your mortgage could maximise tax relief.

1. Have you had an accountant check over the books?

So you need 170,000 for tangible items of which you have 160k available immediately (130k).

Most banks would back you on this, use your portfolio as security instead of cashing it in. You'll need a cash flow projection to judge your working capital requirements more accurately.

The goodwill: ask the vendor if you could pay after a period of time (say 12 months). Are you an ex-employee, friend ?

Good luck Dave

In message , cbjroms writes

If you can get an interest free loan from the vendor, then this is a no-brainer. You are then using his money to earn the money to pay him back, and your money is free to earn in the share market, or otherwise.

Whether you liquidate your shares, or not, then becomes a separate issue.

In message , Dave writes

Not my method..

I would tie in the vendor(s) for at least 3 years. I'd nail them tight, putting profit/ earnout as high on the agenda as I could.

"Goodwill" is a load of toffee unless you're publicly quoted or have a brand name to offer.. and in low value companies such as this the risk is infinitely greater than the reward.

Oh dear.. if so, it's another ten grand to the legal vultur^advisors

There are loads of issues with this and a good corporate financier/lawyer will be able to help. The most important points are:

1. Any bank is likely to ask for either a personal guarantee or extensive due diligence on the business being bought, or both. A personal guarantee is more likely the less experienced you are because you will not know how to play the financing game. Banks will also want controls and checks in place - you may not want them interferring in the business.
2. You should look at tax and personal liability because it sounds like you have some personal wealth you do not want to risk (i.e. your home) and some structures are more tax efficient than others. THIS IS IMPORTANT. GET SOME PROFESSIONAL HELP. Especially as you are thinking of extending you mortgage as you will need to try to get this deductable against profits.
3. If you are not financially aware and compentent, employ an independent accountant (i.e. not the owner's accountant) who is experienced in due diligence to go through and check the numbers. This will probably be 10k+ but better than losing 250k. Given you made this post, you are not because if you were you would know these answers, so get some help.
4. An interest free loan is a wonderful idea and you should ask for it anyway. Nothing better than free money. As is any deferral of payment for the business. Can be linked to point 2, i.e. if the business failed no more money available to pay vendor.
5. Liquidating share portfolio is a personal choice. The returns on the proposed investment are higher but there is no diversification. If you have to borrow the money from a bank then these are likely to be pledged in some form so there may be little difference to selling them. There is a tax issue as any gains from the business are subject to a much lower rate of CGT. See 2 again. Also, no shares means no distraction and all your focus will be on the new business which may be good.
6. Goodwill at about 1x EBIT is not substantial in my experience and you should not be overly concerned. However, make sure that the vendor cannot start up the same business again within a few years and take all his customers back again. GET PROPER ADVICE on how to do this as some schemes may not be enforceable and therefore useless.

The list could go on....

slightly off topic but I've just found out that I can get a 150% R&D tax credit from the revenue - if you're doing R&D this may help you in cash planning.

John

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