Seasonal Business & Working Capital

by a searcher from Georgia State University

1 year ago

I am looking at a business that on paper looks great, minus one big problem…. The majority of its revenue is made May-September. By the time I go into LOI and close, the summer would be over and the company wouldn’t produce enough money during the off season to cover the SBA loan. I am just curious if anyone else has had experience with this and how they worked around this?

1 like
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15 comments

searcher from Wabash College

All the SMB's I've seen are structured as S-Corps, so the sellers want to walk away with all the cash/receivables for tax reasons. If the owner/founder is still running the business, even if they don't get the numbers per se, they'll understand the industry mechanics and why there'd need to be some give and take due to timing - in my opinion, short-term seller note with beneficial terms to you is the best bet

1 year ago | like reply | 0 likes

investor from Vanderbilt University

We worked with a searcher in a similar situation. Based on the LOI terms, there would not be enough cash in the business to operate it the first few months after close. Ultimately, a seller note was negotiated for the shortfall and that extra cash was on the balance sheet day 1 to get through the slower months.

1 year ago | like reply | 1 like

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