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Buying a business for MSPs. Chapter 9, Funding, Part A.

If you’ve structured a deal so that there’s a payment upfront, then you’ll need to find money. Of course, you can decide to simply use your own money, how you’ve earned, saved or inherited, but then you’ll be limited by what you have. Sooner or later, it always runs out. Most people restrict their own possibilities by limiting their thinking to just the capital they personally have direct access to. However, for those people that get good at securing finance from other sources, potential funds are unlimited. Stop and think. That’s another game-changing concept right there. However, for those people that get good at securing finance from other sources, potential funds are unlimited.

The number and size of a business you acquire isn’t limited by how much money you have, rather by how well you structure deals and secure investment. There are a number of potential sources of finance. Assuming it’s not simply a gift or loan from a trusting friend or family member, the person providing it will want to see some kind of return on investment and ensure they have some degree of assurance that they’ll get their money back. To this end, you can offer to guarantee their money by providing security in an asset that they can control if you default on the payments. Again, most people considering getting business finance simply think in terms of bank loans, yet the possibilities of how capital is borrowed, repaid, and from whom are endless.

The main variables to consider when acquiring capital are the source of funding, return on investment, the repayment structure, types and terms, the security and guarantee. Here are some potential sources of finance. As mentioned, banks, overdraft, secured or unsecured, loans, personal loans, commercial loans, and credit cards, specialist business lenders, crowdfunding websites, peer-to-peer investors, e.g. the funding circle, sales of shares and investors or angels, invoice factoring, supplier, customer, staff financing, other business owners, personal finance drawn from or borrowed against retirement funds and life insurance, government loans, grants, SBA loans in the US, vendor finance, and lastly, family, friends, colleagues, and anyone else.

Remember, selling shares is the most expensive form of financing in the long run, although bringing in an angel or another investor with experience does mean that, as well as cash, you may well negotiate access to their expertise and other resources. While most of those suggestions listed before are relatively obvious and can be easily investigated, there are definitely occasions when it can pay to be creative and spend a bit of time looking at other possibilities. Certainly, if there are grants, subsidies or loans available, it would be a sin not to use them. Also, it is possible that some common denominators may want to join together to help finance the business. For example, if a particular company is servicing some clients and they don’t want to see the business top trading, perhaps they can form a co-operative and help you finance the acquisition of the business in return for part equity and/or financial returns.

A similar arrangement can apply to suppliers or staff. The 2 main alternative sources of finance that I’d like to spend a little time considering is vendor financing and non-professional investors. So, vendor financing. Getting the owner of the business to sell you their business and pay for the finance of it has to be some kind of magic, but it’s not as crazy as it sounds. As we’ve already covered, they may have very compelling reasons to get out of their business, some of which may be a concern for you, others an opportunity. The main benefits to the vendor, which you may want to remember during your negotiations, are more potential buyers, especially if the banks are not forthcoming, potential to keep any interest the banks would have charged, potential to increase the overall price due to more potential buyers, speed, less limitations or less hurdles to jump through, easier, more flexible negotiations, potential tax benefits, a future income stream, potentially residual income, and it gives the owner some degree of control and leverage over the transaction.

Unlike a bank, they know their business, they believe in the business. The main benefit for you is that they have skin in the game and are committed to everything working because their loan repayments from you are contingent upon your success with the company’s performance meeting pre-arranged criteria with no nasty surprises. Non-professional investors. In recent years, the banks have been paying very low interest rates and so people who have kept their savings in a bank are often getting very poor returns. After inflation, they’re probably actually losing money in real terms and that hurts. you can offer them significantly better returns.

Plus, you can negotiate. It’s a lot easier to spin ideas around with your friend, brother, sister, father-in-law than you can ever with a bank. People with money to invest are everywhere. There are a lot more people around that have savings squirreled away than there are banks. If you can grow and maintain a sales pipeline of private investors that can provide funds for your businesses, properties, and other financial projects that pay an attractive return, then you’re in a position to earn much higher revenues at a vastly accelerated rate. For this reason, make a plan to start attracting investors for now and the future. Ask what they want, uncover their hopes, fears, and desires, use everything you’ve learned in previous sections about selling and negotiation, and be flexible and creative. Some points to bear in mind when looking for a non-professional investor finance. Firstly, the law. Familiarise yourself with a law regarding soliciting money and borrowing. For example, the Financial Conduct Authority, the FCA, and the legislation PS 13 forward slash 3 in the UK. The mindset. Become an opportunity to help people make good returns. You’re not begging for money, so act accordingly. Don’t be of SPIV or too British.

MSP Marketing in bite-sized bits. It’s easier than you think with MKLINK. To get more of MKLINK’s MSP MBA Marketing and IT training resources, make sure that you’ve registered for your account for free now at www..MKLINK.org.