What Happend When I Tried To Buy My Dream Business, And This Wrecked Everything

Imagine finding your dream business making over £250,000 a year, when everything gets wrecked because of two simple and easily avoidable mistakes you make.

This happened to me on my journey to buy my first million-pound business.

So in this article, I’m going to show you the dream business I tried to buy and exactly what wrecked everything, and explain what I’d do differently now to make sure it doesn’t happen to you.

Let me show you the deal I’d negotiated, because when it collapsed after one phone call, I was gutted.

This was a civil engineering business doing over £2 million in sales.

The seller wanted £850,000, and I negotiated it down to £480,000.

The problem was, I didn’t have £480,000, so I had to structure it.

I agreed a £220,000 deposit, and none of it was my own cash.

The deposit was coming from three places:

1. £75,000 of asset finance against the equipment,
2. £120,000 of invoice finance against customer invoices,
3. and £25,000 from a friend of mine for a 5% stake in the business, who also knew civil engineering and was going to come in as a director, and run the company for me.
4. The remaining £260,000 was seller finance over 60 months.

The seller basically became the bank, and he agreed to 0% interest.

On paper, the deal was as good as done, and almost too good to be true.

And then I received 'THE PHONE CALL.'

“I was at home when my phone rang. It was Ian, the owner.

He said, ‘Russell, this is a call I really didn’t want to make.’

My heart sank.

He went on: ‘I’ve had another offer.

It’s £100,000 more than yours, and they’re paying 100% upfront.’

I didn’t even know what to say, because in that moment, the deal was lost.

So, I just said, ‘Ian, I’m gutted this has happened, but you have to take it.’

I put the phone down and stared at the wall.

Because I realised I had just lost an amazing deal.”

What was my lesson when trying to buy this million-pound business?

And here’s what really hit me after I put the phone down:

I’d let it happen.

Because the business was still being marketed.

I hadn’t actually locked the seller down.

So, anyone could come along, offer more, and take it.

The first mistake I made was simple.

Once the seller said yes, I went straight into arranging finance and due diligence, when I should’ve paused and got exclusivity in writing first.

Exclusivity means the seller agrees to negotiate only with you, for a fixed period of time.

And if there’s a broker involved, it also means the listing comes down.

Because if it’s still being marketed, you’re just one phone call away, from losing the deal.

The second mistke I made when buying a million-pound business

But this next mistake is what made it far more likely to happen.

The asset finance was relatively quick to agree, but the invoice finance was the bit that took time.

Because the lender doesn’t just look at the business.

They also look at the people who owe the money, basically they ask, ‘Are these customers actually going to pay?’

So, they wanted customer lists, what each customer owed, invoice records, plus bank statements and the profit and loss and balance sheet.

Gathering that information for a company you own, is hard enough, but when it’s a business you don’t yet own, it turns into weeks of back-and-forth.

And because I hadn’t locked down exclusivity, the seller could still speak to other buyers whilst time was dragging on.

Basically, the deal was just sitting there; EXPOSED.

Imagine, if you leave your front door wide open.

That’s what it’s like when you don’t get exclusivity.

Anyone can just walk in.

Sometimes you might get away with it for a little while.

But leave the door wide open for long enough, and eventually someone will walk in and take what’s yours.

What was this second mistake when buying my dream business?

Looking back, the second mistake was simple:

I massively underestimated how long invoice finance would take to put in place, especially when it was against invoices in a business I didn’t even own yet.

And that delay is what left me vulnerable.

Because even with exclusivity, you’re still working to a deadline, which is often 8 to 12 weeks depending on the deal.

So speed still matters.

And that’s the key takeaway: even if I had exclusivity, I took too way long to arrange the finance, and it cost me the deal.

What is the solution to buy a business if finance takes too long to arrange?

But what I also hadn’t seen at the time, was the solution was staring me right in the face.

Obvious now, but hindsight’s a wonderful thing, right?]

Let me give you a quick example.

"I was involved in a £1.6 million deal where only £75,000 was paid on completion.

The rest was deferred for two years at 0%.

The plan was: after two years, the buyer would pay a further £325,000, and refinance the remaining £1.2 million with a bank loan.

But, when that refinancing point came, the bank basically treated the buyer like a new business, because the deal had been done as an asset purchase into a new limited company.

So, even though the business had been trading for years, on paper the buyer had a short 2-year track record.

That meant they were basically stuck with one bank, and because they had no real choice, the only offer on the table had high interest rates and charges.

After the buyer discussed their problem with seller, the seller said, ‘Fine, I’ll be the bank.’

The seller agreed to a £1.2 million long-term seller financing loan at around 7% a year.

This meant they earned more than leaving the money in the bank, and the buyer got cheaper funding than they could get from the bank, and the deal was done."

And that’s the big difference:

Banks are rigid about lending and structure, whereas sellers can be more flexible.

And that brings me back to my civil engineering business deal.

Now, invoice finance isn’t just slow, it’s expensive too, as the quote worked out at just under 15% a year.

So, what do you do when the lending is taking forever to agree, and it’s comes back very expensive?

What if the financing is expensive and takes too long to agree

Well, here’s exactly what I should’ve done, and what I’d do now with hindsight if I saw this deal again.

I could see early on it was taking far too long to get the invoice finance approved.

But that’s where this works in your favour, because it gives you a strong argument for a different solution, especially when the seller wants it done quickly, like mine did.

So, I should’ve gone back to the owner and said:

“Let’s change the structure.

Instead of waiting for invoice finance, will you add that £120,000 onto the seller finance instead?

That way we complete faster, and I’ll pay you interest on it too.”

I’d much rather pay the seller 6–8% on that £120,000 and get the deal done, than waste time with invoice finance and risk losing the deal altogether.

And for him, it would’ve made sense too.

He wanted the deal done quickly, and he didn’t need the cash, because on completion he was also taking out around £340,000 of surplus cash that was sat in the business.

So, he still gets £100,000 upfront, we complete faster, and on that extra £120,000 he earns more than he would by putting it in the bank.

And that’s what I missed at the time:

The moment I saw invoice finance dragging, I should’ve stopped and restructured the deal.

But because I let the finance drag on, I lost the whole deal.

And that mistake cost me a business doing £250,000+ a year in cash flow.

If I’d renegotiated, I genuinely think I would’ve completed that deal.

Now, here’s the part that would’ve stopped me being gazumped in the first place.

If I’d found that deal before it came to the open market, I’d likely have been the only buyer looking at it.

There’d be no broker in the middle, and there’d be far less risk of someone else being introduced at the last minute, with a higher cash offer.

That’s why one of the best ways to avoid this risk, is to focus on off-market deals, where you’re not competing with other buyers.