How will the deal be financed?

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Financing the deal is always a concern. Depending on the buyer’s financial strength, the deal could be financed entirely with cash reserves. Typically, that isn't the case. Commercial lenders are often consulted. And, deals involving smaller businesses can be eligible for SBA loans.

SBA loans require a business valuation to support the financing application. Often, brokers use a valuation to initially "price the deal" and later submit it as part of the SBA financing application.

Strategic Valuation Group is a natural addition to the deal team in this regard, as we routinely develop and use financial modeling and forecasting techniques to estimate cash flow that can be generated in the future. Using these techniques, we test the value conclusion to determine if the cash flow can support the debt service obligation.

Sometimes, the price can't be justified with traditional financing. When this happens, alternative financing is explored. Often the seller is asked to carry some of the debt on the deal. Another mechanism often used is a structured earn-out. Earn-outs reduce the price paid up front, and are paid from profits in the future, once a business achieves anticipated milestones that have yet to be accomplished.