A “bootstrap buyout,” more formally known as a leveraged buyout (LBO), is a method of obtaining a business wherein the buyer utilizes a blend of other investors’ money and business assets to purchase a business. These are tough times and credit markets are drying up. Finding funds can be difficult, however, these tough times often lead to enormous investment opportunities because there is a good amount of value in an LBO, if you find the right business for the right price. Our Coachella Valley corporate attorneys have gathered a few tips to help ensure your success.
#1: Start by choosing an appropriate business. This may sound like common sense, and it is, but you have to ensure the business to be acquired has sufficient assets that a bank or other lender will consider as adequate collateral in case of default. Not all businesses or industries will be a fit for an LBO. Documented cases show that a small-business owner will often ask too much to clear a profit from leveraging its assets, so carefully consider the balance sheets.
#2: Adequate planning is crucial! This point needs to be given a special priority. Ensure the financials of the business are sufficient to make repayment possible within a one- or two-year time frame, while providing enough income to support the daily expenses of operations. Investors who fail to plan adequately or realistically often get caught up in complicated situations they were not aware existed and run short of cash. Our Coachella Valley corporate law firm has experienced attorneys on staff to provide advice and guidance prior to signing the contract and help you avoid an unpleasant situation.
#3: Pay off debt as promptly as possible. Any time you use leveraged assets and borrowed money to acquire a business, there are inherent risks. Investors and lenders will want recoup their capital as soon as possible, so they will have the use of that money for future investments. Our Coachella Valley corporate law firm can advise a one- or two-year repayment plan.
#4: Seek out a knowledgeable and experienced corporate attorney. Wise investors pursue sound advice from advisers with experience, construct a solid plan and execute a properly timed assumption of the business. LBOs should not be considered a get-rich-quick scheme. Without proper planning, knowledge and sufficient capital, an LBO can soon become a nightmare. Get advice, make a plan and execute the plan! Call our Coachella Valley corporate attorney’s office today for expert advice and counsel at 760-322-2275.
