Issue link: https://nebusinessmedia.uberflip.com/i/527454
18 • June 2015 What is the business worth? The asking price is only one measure. Company documents and cash-flow history; input from outside professionals; trends in the industry and market; and changes in the company's prospects that could accompany new ownership are all part of the calculations a loan officer makes. Some assets are intangible; for instance, a patient list at a dental practice can be an essential part of the transaction. Yet, will the customers, as well as key employees and suppliers, stick with the new owner? A business's future value, of course, matters most to the buyer – and banker. To get to the nuts and bolts of worth, a banker will first ask why the seller is selling. It could be retirement, a personal matter or a career change; or the company could be facing or expecting financial setbacks. The bank draws on experience and numerous sources of information in determining the soundness of a proposed purchase. Does the buyer have what it takes to make the business work? Running a business is a round-the-clock proposition requiring knowledge and ability on multiple fronts. Strong industry experience and leadership skills will serve the buyer and business well. In addition, the bank looks for the buyer's due diligence in preparing for the purchase, and a detailed business plan for the next three to five years. What is the buyer's financial profile? A buyer needn't be rich to buy a business, but must be risk-worthy. In addition to collateral and a good business credit history, the buyer should have or be able to raise enough capital to put a stake in the loan in the form of equity, typically about 20 percent of the purchase price. In addition to the above questions, which are bedrock to the decision, the bank will address a range of other matters on its way to approving the loan. These include: The nature of the sale. To avoid various liabilities, a cash sale of assets is generally preferred over a stock transfer. Beyond that, each business purchase has its own strengths and weaknesses, with qualities that can point to success or failure. A good sign is a deal in which the seller intends to help the buyer transition to the role of owner. Supplementary funding sources. In addition to bank loans, the buyer may qualify for support from the Small Business Association, Massachusetts Development Finance Agency or other organizations. The seller may also be able to assist, such as by taking a note for some of the purchase price. Bankers have knowledge and community connections that can bring support and advice to the borrower. In forging that first loan, the bank is signifying it believes in the business and buyer. We hope it's only the beginning of the buyer's relationship with the bank. As additional needs arise − for equipment, upgrades, innovations and other purposes − the bank can lend additional money. Maintaining a relationship with your banker will help to ensure your business continues to grow and succeed. n Russell Dye Senior vice president Senior lending officer of business banking Webster Five Seeking help from your bank to finance your business purchase A banker looks at a proposed business purchase with a critical eye. That's because, when a bank provides financing, the bank very much wants to see the buyer succeed. A bank loan is, in essence, an investment in an enterprise's success. So the banker's involvement should begin early in the process. It's also important to have an accountant and lawyer on "the team" at the outset. A banker's questions, aimed at sizing up the transaction over the long term, are similar to the ones buyers ask themselves. They include: