valentinap
New member
Hi all, throwaway for obvious reasons
I am after a bit of advice around raising capital to finance a business purchase. Finance is not something I know much about.
I am trying to be somewhat vague as I do not want to divulge any sensitive information but I am looking for advice.
TLDR - I want to borrow up to $3m to purchase a business with approx $5m in assets, while using the $5m of assets as security.
Business Background:
The business itself operates in an area of the construction industry and has seen a decrease in monthly revenue over the past 6 - 8 months and therefore the owners have decided they want to retire and now is the time to do so.
Revenue for this business earnt from staff labour charges and from equipment hire charges. Annual turnover is approximately $3.5m with a 20% net profit margin - this has usually been reinvested in the business to purchase more equipment to continue growth.
Future work is in the pipeline for the upcoming year, however the nature of the industry is that we get a maximum of 4 weeks notice prior to jobs starting as we come in relatively late in the construction schedule, so a cashflow forecast is relatively hard. We have long standing relationships with a variety of construction companies that have been cultivated over 25 years of service to them.
The business has between $4-5 million in assets (vehicles approx $200k and equipment valued at replacement cost) that are owned freehold by the business. A stocktake is being carried out over the coming weeks and accounts are being done to ready the business for sale.
The overall workplace culture is incredibly strong and positive, it has faded over the past 12 months as the directors have begun to be somewhat disinterested.
Currently 23 staff are employed by the business broken down between 5 managers (including 2 x directors), 1 part time admin, 1 x support staff member and the remaining 14 x staff members are field workers.
My Background:
I am close to 40 and I currently work in the management team, over the past 2-3 years I have assumed virtually all of the operational management roles from both directors, the only duties I am have not assumed is accounts payable and disciplinary (firing staff). I currently receive $115k + a vehicle.
I have worked in virtually all areas of the business over the past 15 years and am fully qualified in this field of work. I also have a tertiary qualification in commerce, however this was attained a very long time ago.
Existing Staff
The directors have typically split their responsibilities, one director is in charge of the financial side of the business and the other director has been responsible for the operations side of the business. To be entirely honest neither director does much these days in relation to the business as I do a lot of their work for them. Between the two directors they draw approximately $500k from the business annually through salary, vehicle allowances and “expenses”.
Of the two other managers, one has an operational role at a less senior level. They have been in the role for 2 years are picking it up very well. We have a good working and personal relationship and this staff member is also fully qualified in our field. This manager is on a reasonable salary and would be due a 10% increase (still less than $90k) as a result of the extra responsibility they have taken on.
The additional manager has an internal support role. They are a personal friend of one of the directors and on a salary of approx $110k + vehicle. This manager will not continue with the new business and will be replaced by their direct staff member who is capable of doing the job for approx $70k + vehicle.
The workforce itself overall is very good, there are a couple of bad apples which can be weeded out. Overall the workforce is highly qualified and experienced with a good output. Currently the recruitment market favours employers so replacement staff if any decide to leave are relatively easy to find - they just need to buy in to our culture which takes time.
The Deal
I am of the understanding that the business can be purchased for up to $3 million (60% replacement cost of assets) from the directors. I know the directors want to sell the business sooner rather than later - the majority shareholder of the two wants to move overseas to be closer to her children.
My idea would be to purchase the business and form a new company to continue trading, this would continuing with ongoing contracts etc which means the business will be instantly earning money. This would allow us to renegotiate all staff contracts and would make us exempt from any liabilities from the existing company.
The idea would be for the new company to start trading from 1 April as it is the start of the new financial year. This would allow at least 4 weeks for due diligence.
Finance
I currently have very little savings and have a mortgage of approx $500k on an apartment worth approx $700k. So approx $200k equity in my own home.
My family may be able to use their property worth approx $500k as security (mortgage free) and loan me around $200k cash with interest and principle to be paid off weekly/monthly from the time of the loan at an agreed amount.
I would like to refrain from my using my family assets/loans as much as possible.
Therefore, does anybody have any advice on how to try to raise up to $3m and securing it against the equipment? Who, where and how do I find lenders within such a sharp timeframe?
I have looked online and can find loans for up to $500k or so but nothing of this size. Is that even possible or is this just wishful thinking?
I am after a bit of advice around raising capital to finance a business purchase. Finance is not something I know much about.
I am trying to be somewhat vague as I do not want to divulge any sensitive information but I am looking for advice.
TLDR - I want to borrow up to $3m to purchase a business with approx $5m in assets, while using the $5m of assets as security.
Business Background:
The business itself operates in an area of the construction industry and has seen a decrease in monthly revenue over the past 6 - 8 months and therefore the owners have decided they want to retire and now is the time to do so.
Revenue for this business earnt from staff labour charges and from equipment hire charges. Annual turnover is approximately $3.5m with a 20% net profit margin - this has usually been reinvested in the business to purchase more equipment to continue growth.
Future work is in the pipeline for the upcoming year, however the nature of the industry is that we get a maximum of 4 weeks notice prior to jobs starting as we come in relatively late in the construction schedule, so a cashflow forecast is relatively hard. We have long standing relationships with a variety of construction companies that have been cultivated over 25 years of service to them.
The business has between $4-5 million in assets (vehicles approx $200k and equipment valued at replacement cost) that are owned freehold by the business. A stocktake is being carried out over the coming weeks and accounts are being done to ready the business for sale.
The overall workplace culture is incredibly strong and positive, it has faded over the past 12 months as the directors have begun to be somewhat disinterested.
Currently 23 staff are employed by the business broken down between 5 managers (including 2 x directors), 1 part time admin, 1 x support staff member and the remaining 14 x staff members are field workers.
My Background:
I am close to 40 and I currently work in the management team, over the past 2-3 years I have assumed virtually all of the operational management roles from both directors, the only duties I am have not assumed is accounts payable and disciplinary (firing staff). I currently receive $115k + a vehicle.
I have worked in virtually all areas of the business over the past 15 years and am fully qualified in this field of work. I also have a tertiary qualification in commerce, however this was attained a very long time ago.
Existing Staff
The directors have typically split their responsibilities, one director is in charge of the financial side of the business and the other director has been responsible for the operations side of the business. To be entirely honest neither director does much these days in relation to the business as I do a lot of their work for them. Between the two directors they draw approximately $500k from the business annually through salary, vehicle allowances and “expenses”.
Of the two other managers, one has an operational role at a less senior level. They have been in the role for 2 years are picking it up very well. We have a good working and personal relationship and this staff member is also fully qualified in our field. This manager is on a reasonable salary and would be due a 10% increase (still less than $90k) as a result of the extra responsibility they have taken on.
The additional manager has an internal support role. They are a personal friend of one of the directors and on a salary of approx $110k + vehicle. This manager will not continue with the new business and will be replaced by their direct staff member who is capable of doing the job for approx $70k + vehicle.
The workforce itself overall is very good, there are a couple of bad apples which can be weeded out. Overall the workforce is highly qualified and experienced with a good output. Currently the recruitment market favours employers so replacement staff if any decide to leave are relatively easy to find - they just need to buy in to our culture which takes time.
The Deal
I am of the understanding that the business can be purchased for up to $3 million (60% replacement cost of assets) from the directors. I know the directors want to sell the business sooner rather than later - the majority shareholder of the two wants to move overseas to be closer to her children.
My idea would be to purchase the business and form a new company to continue trading, this would continuing with ongoing contracts etc which means the business will be instantly earning money. This would allow us to renegotiate all staff contracts and would make us exempt from any liabilities from the existing company.
The idea would be for the new company to start trading from 1 April as it is the start of the new financial year. This would allow at least 4 weeks for due diligence.
Finance
I currently have very little savings and have a mortgage of approx $500k on an apartment worth approx $700k. So approx $200k equity in my own home.
My family may be able to use their property worth approx $500k as security (mortgage free) and loan me around $200k cash with interest and principle to be paid off weekly/monthly from the time of the loan at an agreed amount.
I would like to refrain from my using my family assets/loans as much as possible.
Therefore, does anybody have any advice on how to try to raise up to $3m and securing it against the equipment? Who, where and how do I find lenders within such a sharp timeframe?
I have looked online and can find loans for up to $500k or so but nothing of this size. Is that even possible or is this just wishful thinking?