Acquisition financing is used to acquire an ongoing business. The financing can be a loan, line of credit, equity, or a combination of all three. The financing is based on the value of the business which includes the future earnings stream and assets less any liabilities.

If the business has a building and land that is debt free, mortgaging the property can provide funds to acquire it. That loan has to be paid back of course and often increases the monthly operating costs due to the interest payments. More below.

The purchase price of a business can be based on a number of different formulas. However, anytime future earnings are included in the calculation the price is simply a guess. An educated guess, but a guess nonetheless since none of us knows what will happen in the future.

Many times a business will be purchased for a sum upfront paid at closing and then an agreed to amount each month, quarter, or year.