Four Primary Financing Options

One way or another, there has to be some form of financing for an ownership transition to occur where one or more parties are putting capital at risk to make the deal happen.

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Succession: 4 Primary Deal Financing Methods.

There are four primary sources of financing and most deals will utilize a combination of these.  

  1. Seller financing where the current owner takes their money over time. This may come in the form of:
  1. Outside capital from the buyer with the most likely scenario for a significant amount of outside capital coming in from a strategic buyer.
  1. Bank financing of an ESOP.
  1. Bank financing on a term loan for buying the business. This will typically require some combination of outside capital and seller financing, along with proven financial performance, a proven management team, and all 5C’s met. 

Four Primary Financing Options
Continue building value in your business, yourself and your key team members with a good succession strategy....

Four Primary Financing Options
Continue building value in your business, yourself and your key team members with a good succession strategy....

Succession Fact #2: Desire & Competencies in the Management Team
Succession Fact #2: No exit strategy or deal structure will create desire, alignment, and competencies in the management team. With that said, it is incredibly important that the exit strategy and structure of the deal maintains and enhances the team.
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Contractors run on very thin profit margins however cash flow is even more important for sustainable growth. Poor cash flow is a primary reason for contractors failing or their profitable growth being seriously constrained.
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Construction Ownership Transition Issue 9 of 9: There are Few Barriers to Entry for New Contractors. About 500 construction contractors start up each day. In most cases, a new contractor starting up will cause a serious talent drain and add competition.