How to fund a roll-up: debt, equity and seller finance

You don't buy companies with your own cash

The first myth to kill is that you fund acquisitions out of your bank account.

You don't. Almost nobody does. If you're writing a personal cheque for the full price of every bolt-on, you'll run out of money after one and a half deals and you'll have taken all the risk yourself. That's just gambling your savings one company at a time.

Real roll-ups get funded from a stack. Some debt. Some equity. Some money that stays with the seller. The skill is putting those pieces together so the deal pays for itself and you keep the risk sensible. Nobody hands you that stack, though, until they believe in the platform underneath it.

Fundability starts with the platform, not the target

Here's the uncomfortable bit. The reason most owners can't raise money to buy is their own business, not the target.

A lender or an investor looks at your platform first. If your numbers are late, your systems are held together with string, and the whole thing runs on your memory, no serious money is going near you. Why would it? You're asking them to back a machine that only one person can drive.

Nobody funds chaos. They fund a platform that could run without you.

That's the whole point of doing Build before you Scale. A clean platform, real reporting, and a business that survives you being on holiday is what makes you fundable. The order matters. Regenerate the platform, become fundable, then go buy. Do it the other way round and every conversation with money ends the same way.

Debt: cheapest money, tightest leash

Debt is usually the cheapest money in the stack, so it's where most deals lean.

A bank or a specialist acquisition lender will lend against the cash the business throws off. If the target has steady, boring, predictable profit, that's exactly what a lender likes. Predictable cash services debt. Lumpy, hope-based cash doesn't.

But debt has teeth. You pay it back whether the year goes well or badly. Load a deal with too much of it and one soft quarter can put you in breach and hand control to the bank. So debt is brilliant on a stable, cash-generative target and dangerous on a fragile one. Match the tool to the business.

A few things lenders actually care about:

• Cash that's predictable, not just large
• A platform that reports cleanly, so they can see the truth without a forensic dig
• A deal where the debt is a sensible share of the whole, not the whole thing

Equity: patient money, real cost

Equity is money that shares the risk with you. If the deal goes badly, an equity investor loses alongside you rather than chasing you for repayments.

That patience isn't free. You give up a slice of the upside and, usually, some control. Bring in an outside investor and you've a partner with opinions and a say in the big decisions. For a lot of owners that's a fair trade. Owning 70% of a group worth £20m beats owning 100% of a business worth £3m.

The trap is selling equity too cheap, too early, because you're desperate. Desperate owners give away half the business to fund a first deal they could have structured better. Raise from a position of strength, off a platform that's already worth backing, and you keep far more of what you build.

Seller finance: the most underused tool in the box

Here's the one most owners forget. The seller can fund part of their own sale.

Deferred consideration and earn-outs mean you don't pay the whole price on day one. You pay some now and some later, often out of the profits the business itself generates. That's money you don't have to raise from a bank or an investor. It comes out of the deal's own performance.

It does two jobs at once. It reduces the cash you need up front. And it keeps the seller's skin in the game, which matters enormously when the value depends on them handing over cleanly and the customers staying put. A seller who's confident in the business will usually accept some deferred money. A seller who fights to get every penny on day one is telling you something about how confident they really are.

Earn-outs can bite both ways, so get the structure right. I've written a separate piece on how not to get burned by them, and it's worth reading before you agree a number.

Stack it so the deal survives a bad year

Put it together and a healthy deal usually blends all three. Debt does the heavy lifting where the cash is predictable. Equity fills the gap and shares the downside. Seller finance closes the rest and keeps the founder committed.

The test for any stack is simple. If the business has a rough year, does the whole thing fall over? If yes, you've over-leaned on debt and you're one bad quarter from disaster. Build in slack. The point of buy-and-build is to compound over years, and you can't compound if a single soft patch wipes you out.

The clever part of this game is being fundable. Get the platform right and the money finds you.

If you're not sure your business would survive a lender's first look, that's worth knowing before you ask. A strategy call tells you honestly whether you're fundable yet, or still in Build. Book one and let's find out.