Buying a business has its benefits because the business is already well-established and includes a full inventory and a consistent cash flow.

While it may be more difficult for business buyers to collect bank loans than in previous years, that does not indicate that a large sum of money out of pocket is required to buy a business. In fact, a handful of buyers have bought a business without using any cash of their own. The following guide discusses other routes of funding for a small business acquisition.

The due diligence process is used in M&A as a rigorous analysis of all aspects of the prospective business that allows the buyer to see the full scope of a company that they plan to purchase. The main purpose of due diligence is to mitigate risk for the buyer by qualifying it for financial performance, analysis of client and vendor relationships, test proprietary and patented products, and processes, etc. Due diligence may take several months due to the depth in which due diligence analyzes the company in question. Poor results in due diligence is perhaps the number one reason that many M&A deals fail. Due to the complexity involved in M&A transactions, it is essential that the company’s records will satisfy the most critical review. The following outline includes steps a business owner should take when preparing for due dilligence. 

There are a number of options for financing an acquisition. Many M&A deals will utilize an earn-out to cover a portion of the cost of the business, which allows the seller to close the gap between perceived value and actual paid value. If the business performs well for the buyer after the close, then the seller can earn contingent on certain provisions being met within the given period. Many sellers opt for earn-out financing when the buyer will not meet their asking price, this allows them to prove their confidence to the buyer and earn more in the future. Here are a few tactics to help avoid these mistakes and maximize the total earn-out.