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Funding Your Future

Why Building banking relationships can help your business grow

Buying a business can be a very rewarding, yet daunting, undertaking.  It may be one of the largest single financial transactions in your life, so there is a lot to think about and questions to ask yourself: 

  • What personal skills do I have that will help me run the business?
  • How much income am I trying to replace, or supplement, with the new business?
  • What kind of work-life balance will I have as the owner of a new business?
  • Do I have the right professional advisors (CPA, attorney, etc.) to help me evaluate the purchase opportunity and provide advice post purchase?
  • Finally, where is the capital coming from to purchase and operate the business?

Unless you recently won the lottery, you probably need, or want, to finance a portion of that required capital.  More than likely you will then need to discuss obtaining a loan from your bank. 

"A bank is looking for an owner that will be upfront with issues the business is facing and willing to make tough decisions when needed."

When you approach your bank, there will be several things they will want to understand in order to suggest the right type of financing for your situation.  Some pretty obvious items include the cash flow of the business, what collateral can be pledged to secure a loan, and how much money you can inject up front, as well as in the future, if cash flow becomes strained.  However, there are other considerations like the economic outlook of the industry you are buying into and your character as a borrower.  The latter is one that many people spend little time thinking about. 

Character is something that can be hard to quantify but is important.  A bank is looking for an owner that will be upfront with issues the business is facing and willing to make tough decisions when needed.   They are also looking for someone that understands the business and can demonstrate that they can be a good operator.  This is all in an effort to mitigate the inherent risk of providing a loan, coupled with being able to provide future financing as needed, because the bank knows you and understands the company you operate. 

This is why I recommend building a relationship with a bank before you start the process of purchasing a business.  A simple first step can be establishing your personal accounts with the bank and taking the time to sit down with their lender to explain what your plans are and discussing what is important to them in order to explore the kind of financing you are looking for.  Ask about their experience with the industry in which you are looking to purchase a business.  Not all industries require specialized knowledge, but some do.  Plus, it helps if the lender can understand some of the challenges you will face.  Lastly, discuss what your future growth goals are and what financing may be needed.  You want to know if the bank has the capacity and willingness to grow with you. 

"Discuss what your future growth goals are and what financing may be needed. You want to know if the bank has the capacity and willingness to grow with you."

This can be made more difficult if the business you are looking to purchase is in a different geographical market than where you reside.  In this case, your banker is going to want to understand how you plan to manage your business.  Do you plan to move, commute each week, or manage remotely?  If you already have a strong banking relationship, then your bank may feel comfortable working with you even if the business is not near a location they have.  If not, building a relationship with a bank that has locations in both areas will be something you may want to they can continue to meet your financing and banking needs. 

No matter what your business goals may be, working with the right bank from the beginning can bring your ideas to fruition.  Whether you plan on buying an existing business or starting from scratch, your lending institution needs to put a face with the loan, especially if you plan on owning remotely.  Being your own business can be challenging, but the rewards are numerous, and your path to success will be easier if you work to build a relationship within the lending community.

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The Firm makes no warranties or representation in consideration to the information provided above. All communication regarding this business must occur directly with The Firm Advisors, LLC. The Firm is not a real estate brokerage and does not sell real estate. The Firm solely advises on exit strategy.