Newspaper article The Journal (Newcastle, England)

Raising Finance for Buying a Business

Newspaper article The Journal (Newcastle, England)

Raising Finance for Buying a Business

Article excerpt

Buying an existing business can take a substantial initial investment. Finding the right funding package will give your new business a solid foundation.

When raising finance to purchase a business, it will be expected that you contribute a meaningful amount of your own funds as a measure of your own commitment.

What is a meaningful amount? Most people should be able to raise between pounds 10,000 and pounds 20,000 without too much difficulty and may be able to turn to family and friends for help. It may also be that you can raise funds from the equity in your house. However much it is, it should be an amount that would cause you 'pain' should you lose it, but should not be so much that if all went wrong you would lose everything, including your house.

If you are looking to raise finance, then this will have to be supported by a business plan for presentation to any prospective lenders.

This should address all key strategic issues and be supported by two to three years' detailed monthly financial forecasts, including cash flow, profit and loss, and balance sheets. Historical financial accounts must also be included to show the past trading performance. Most funding packages will include a mixture of equity and debt. The structure of the finance package will look to match each type of asset with a specific debt product. For example, land and buildings (being regarded as long-term assets) should be funded by long-term commercial mortgage products which could be repayable over as long as 25 years.

Other fixed assets such as plant/ machinery and vehicles should be financed through traditional hire purchase or leasing agreements (again to match the expected life of the asset). Working capital facilities should be arranged to cover stock and the trading cycle through the use of bank overdrafts, factoring, invoice discounting or even relatively short-term loans. …

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