The purchase price is not the full acquisition budget

An acquisition discussion naturally centres on what the seller will receive. The buyer’s financing requirement may extend well beyond that figure.

Transaction costs, opening liquidity, overdue maintenance, integration and planned investment can all compete for cash after completion. A business bought at an attractive price can still place pressure on its new owner if those needs were omitted.

Institutional investment processes place appraisal and negotiation before commitment. For an acquisition, that work should connect the proposed purchase to the resources needed to operate the business afterwards.

Build a sources-and-uses account

Identify each use of funds and the proposed source supporting it. Distinguish the payment to the seller from money staying within the business. Establish the timing and any assumptions about cash, debt and working capital at completion.

The operating forecast should reflect what the buyer actually expects to change. If improved performance depends on new equipment or a management transition, the associated cost and delivery risk belong in the case.

Ask who funds the first difficult period

A transition may disrupt customer relationships or require spending before expected benefits arrive. Liquidity planning should examine that period rather than begin with a fully integrated business.

Specialist legal, tax, technical and financial diligence may be needed, depending on the transaction. Their findings should inform the budget instead of remaining separate reports.

Our view is that an acquisition becomes easier to assess when the price and the plan are examined together. The question is what capital is required to acquire the business and make the intended ownership strategy workable.

Financing the signature is only part of financing the outcome.