3 unique ways to creatively finance your next acquisition

The last 5 years have been a wild ride for the Kelly household.

I’ve bought and scaled 7 businesses, and my portfolio is worth $7M+ in annual revenue.

But the craziest part?

I built almost all of that net worth off of one skill:

Creative financing.

AKA acquiring businesses using other people’s money.

This is how I acquired all of my businesses with little to $0 down.

You’ve heard me talk a lot about the main ways you can creatively finance deals, like:

• SBA loans

• Conventional loans

• Investor injections

• Seller financing

But I want to share a few more you might not have heard about before:

Earnouts

This is a popular one.

An earnout is an agreement that if the business hits certain performance metrics, the seller gets paid more.

For example, say you bought a business for $1M.

You can have an earnout clause that says:

“If the business does X over the previous year’s revenue in the first year after acquisition, then the seller gets a 10% bonus.”

So if the business does well, the seller gets an extra $100k.

This is good for you, because it incentivizes the seller to stay engaged and help you with the business after the sale.

Consulting agreements

This is where the seller stays on after the acquisition as a “consultant.”

But what you’re really doing here is giving them a specialized job in the business that they already know how to do.

For this you’ll usually pay them a six-figure salary for 5-10 hours of work per week.

This is ideal if you need the owner’s expertise in a certain area of the business.

Plus, a lot of sellers enjoy this setup because it lets them spend less time working, with less responsibility, without having to 100% give up the business they’ve been working on for years.

Working capital adjustments

Picture this:

You buy a company in an asset purchase on Monday, so you’re starting with zero money in the bank account.

Your first payroll is Friday.

But no revenue came in that week for whatever reason. Maybe you made no sales, or payments haven’t hit the bank account yet.

So what do you do?

This period is usually covered by working capital.

(The capital you use to keep the business running.)

This can be through a line of credit or a bank loan.

Or, you could do a working capital adjustment.

This is an agreement to have the seller leave a certain amount of cash in the business to help you float through those rough patches.

If you want to reduce your reliance on credit/loans, this is a great bargaining chip to use during negotiations.

Interested in buying a small, boring business?

Fill out the 2-minute survey below, and I’ll put you on my Interested Investor list.

Any time I come across a high-quality deal I think my subscribers might like, I send an email to that list with the details.

👉 I want to buy (or invest as a silent partner into) a business

Or if you’re selling a small business, tell me more about it below. We’ll reach out if we find a potential buyer.

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Onward,

— Ben Kelly