Funding Business Purchase

Question 1

Funding options

Answer 1

Bank Loan
Savings/investments
Asset introduction
New partner has to buy in - known as a capital contribution - capital & current accounts

Question 2

Sharing profits in a partnership

Answer 2

Typical priority calls on profits:
Interest paid on capital introduced to partnership
Interest paid on overdrawn current accounts
Nominal salary/each partner’s minimum level of profits
Tax reserve
Annuity charges for retired partners & seniority bonus
Balance of profits is then distributed in line with partnership share/ratio’s

Question 3

Buying into a business (sole trader/partnership)

Answer 3

Purchase/new partner introduces new capital to buy out owner/partner
Find a new partner
Arrange an earn out clause for the previous owner/partner
Introduce assets e.g. property

Question 4

Buying into a business (Limited Company)

Answer 4

New shareholder purchases shares within the business usually from an existing shareholder in smaller companies
Can buy in as a director’s loan account
Introduce assets e.g. property

Question 5

Limited company financing growth

Answer 5

Seek new investment from existing/new shareholders
Loan, borrow or remortgage to raise the money
Private equity
Overdraft
Sale of fixed assets
Use of reinvestment of company profits
Factoring

Question 6

Factoring (Advantages )

Answer 6

Reduces costs of debt collection
Minimise risk of doing business overseas
Maximises cashflow 70-90% of invoices issued available immediately
Leave invoice collection to the specialists

Question 7

Factoring (Drawbacks)

Answer 7

10-30% loss to potential income
Costs may be in addition
Introduces a 3rd party to the customer relationship
Not applicable to all types of business

Question 8

Introducing capital into a company

Answer 8

Loan capital - bank borrowing or debenture - fixed (particular asset) or floating charge(any asset group/can change). Charge crystallises on requirement on monies from floating charge.
Share capital - issue new shares