Buying a not-so-good business can be part of your growth strategy. But buying a business with debt involves different aspects than buying a thriving business.
A business can have all kinds of debt, but the most common business debts are surely:
- Lease debt;
- Revolving credit with the bank;
- Outstanding accounts payable;
- Tax debts.
A business with debts is worth less, so it won't cost you a grand. In addition, debts are tax deductible, provided you can pay them off in a timely manner. However, cash flow must exist or come on line soon, so that you do not face a period of negative operating results.
Does a business with debt fit into your strategy?
Taking over a business is an expensive time commitment, and while buying a business with debt can also bring benefits, it's good to consider whether it fits into your business strategy. Bankruptcy laws are complex as the problems are often deep-rooted.
The trustee can help you map out your financial affairs, but they do not represent your interests. The creditors want their money, while your focus is entirely elsewhere.
Are you about to take over a business with business arrears? Then be sure this is a strategic move to strengthen your position. And seek timely advice from a specialist in bankruptcy law so you don't make miscalculations.
Profit begins with confidence
If you decide to go for it, it is hugely important that you start to regain trust. Think about the relationship with customers, suppliers and employees. After all, the situation now is completely different than it was, but parties involved need to get used to this. Can they trust their jobs, revenues and products delivered?
Personnel is also a weighty factor in making a relaunch, as here you have to pay attention to every step you take. In an acquisition, staff is always part of the deal, but in a bankruptcy, you have the freedom to make choices it in staffing.
If there are employees who feel the business was wrongly declared bankrupt, you could be in big trouble. Making a relaunch to get rid of employees is anything but a lucrative move.
How do you finance an acquisition if you want to buy a business with debt?
A business acquisition can be financed in a variety of ways. From equity to using lenders and from crowdfunding to a vendor loan, but with a business with debt it's a little different. You will have to put a lot of time and energy into the investment budget, as the cash flow is not exactly something to write home about. A financing advisor can obviously help you in this story, so be sure to consult them.
Cost control and evaluation.
Finally, all we can give you is that it is essential to keep costs low. Minimize costs by keeping headcount minimal and save on assets.
After about 6 to 12 months, it is wise to look at the results. Is the relaunch worth the money or do you need to take further action? It is and always will be a numbers game, so be aware of this if you want to buy a business with debt.
