Buying the engineering business

Amelia knew the industry from the floor up and had managed a comparable workshop for several years. The business on offer came with an experienced team and established customer accounts, which is most of what makes an acquisition worth doing.

She had money to contribute. What she did not have was a clear picture of two things: how much a lender would actually support against a business like this, and what the first six months of owning it would demand in cash while she was still finding her feet as the owner rather than the manager.

Working alongside Amelia's accountant, we presented the target's financials in the form a credit team reads them: what the business earned, which adjustments to earnings were genuine and why, and what Amelia's own experience brought to the risk. A buyer who has run the same kind of workshop is not the same applicant as a buyer who has not, and the file has to say so rather than leave it to be inferred.

The funding assessment covered the purchase price, the commitments coming across with the business, and - separately and deliberately - the working capital the business would need on the other side of settlement. Treating that as part of the purchase price is how buyers end up owning a business they cannot afford to run.

The structure combined a $570,000 acquisition loan, Amelia's $285,000 contribution, and $95,000 the vendor agreed to leave in the transaction. The vendor finance was documented by the solicitors and agreed with the senior lender rather than arranged around it. Finance conditions were coordinated with the lease assignment and the sale contract so the three did not fall out of step.

The acquisition settled, with the three sources together covering the $950,000 price. Amelia funded the transaction costs separately and kept the agreed working capital reserve, so the workshop had money for wages and stock through the handover.

That reserve is the part buyers most often skip and most often regret. This was one buyer's structure on one transaction.

Vendor finance is common in business sales and it is not a shortcut around the lender. It works when the senior lender has agreed to it and the solicitors have documented it, and it causes problems when it is sprung late. Raise it early, and budget the working capital as a separate line from the purchase price.