Working Capital Needs

Buying a business is one of those times in life when you feel true accomplishment. You are going to be able to show all those knuckleheads in the corporate world that you can do it better! The deal is done, now it’s you and the seller working through the transition. Pat yourself on the back because you are ready to really kill it!

However, stress starts to build as you realize you just plunked down most of your available funds for the down payment and what you have left in your personal checking account is to keep the kids fed and your spouse happy.

Right out of the gate you may need to order inventory, employees might need to get paid on Friday, vendors are working with you on service transition and may want deposits, etc. The business has had a good cash flow, but if you have customers on credit you have to wait 30 days for some of your customers to pay. If you have a cash and carry business, is the first week or two of business expected to cover your bills that are going to hit fairly quickly?

An important aspect of buying a business is making sure that you have the ability to fund the business acquisition and the business operations for a period of time. Complete a projected cash flow detail for the first few months with the seller’s assistance. Sometimes the bank who is giving you a loan for the business purchase will also give you a loan for the working capital needed in the short term. It’s important to ask what they might prefer; either keep some of your down payment money to have ready cash, or get a working capital line of credit. Whether you need it or not, in the beginning it is much easier to ask for a line of credit rather that going back in a month and asking for another loan. One thing for sure, if you don’t ask for it, you won’t get it.

Contact Apex Business Advisors to discuss preparing your business for sale or to buy an existing business.