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Understanding the Real Cost of Acquisition Funding

When it comes to financing an acquisition, many financial advisory firm owners instinctively focus on one number above all else: the interest rate.

It’s understandable. A lower rate feels like a win. And in principle, it is. But in practice, relying solely on the interest rate to assess the value of a funding deal can be misleading—and potentially costly.

At Vertus, we often work with principals who are weighing up multiple funding options. What we’ve found is that the smartest borrowing decisions come from understanding the total cost of capital, not just the rate.

Let’s unpack why that matters.

Term, Rate and Repayment: The Borrowing Balancing Act

Every funding structure is a balancing act between rate, term, and repayment profile.

• A shorter term may carry a lower overall interest cost—but it also comes with higher monthly repayments, which can squeeze cashflow at a time when you’re investing in integration and growth.
• A longer term reduces the strain on cashflow, offering more breathing room to execute your acquisition plan. But you’ll typically pay more interest in total over the life of the loan.

Neither option is inherently better—it depends entirely on your firm’s:

• Free cashflow
• Growth strategy
• Existing liabilities
• Target business profile

Getting this balance right is crucial. Misjudging it could leave your business with a cash crunch just when you need flexibility most.

Why the Headline Rate Can Be Misleading

Even beyond the term and monthly repayments, many borrowers forget to consider the true cost of borrowing—what you’ll actually repay in full over time.

A few things that can dramatically impact this include:

• Arrangement fees
• Deferred interest
• Performance-based covenants
• Early repayment penalties

In other words: a “cheaper” loan on paper may carry hidden costs that only show up in the fine print—or in your cashflow down the line.

Focus on Total Repayment Over Time

This is where modelling comes in.

At Vertus, we always encourage firms to look at:

• Total capital outlay over the life of the loan
• Impact on monthly and annual cashflow
• Risk exposure tied to performance conditions
• Breakeven analysis (how long it takes for the deal to become accretive)

That way, you’re making funding decisions from a position of clarity—not just comfort.

Real Deal Highlights: Tailored Structures in Action

We recently completed a deal with DS Howell Financial Services, which was acquiring two client banks from nearby retiring advisers. The business financed the transaction through a blend of debt and self-funding.

By carefully managing cashflow, the firm has been able to retain sufficient reserves within the business to meet its loan repayments and begin self-funding the deferred consideration payments due to the sellers. This approach provides flexibility and resilience—critical when integrating new clients and managing ongoing growth.

“As a company, our strategic focus is acquiring good quality IFA client books from retiring advisers. The acquisition process and the financials relating to the deal are critical: We focus on assessing the retiring adviser and their business, reviewing client opportunities and subsequent organic growth. In-depth cashflow modelling allows us to calculate our essential costs over the relevant period of time, making sure we find the sweet spot in terms of the amount of debt that is required and the acquired books income streams helping us to repay the total debt (Vertus and the deferred consideration owed to the sellers).” – Arron Sharkey, DS Howell Financial Services

We also supported a recent management buyout for Paul Spencer-Nixon, who acquired full control of Fingerprint Financial Planning by buying out his long-term business partner. Paul purchased the remaining 50% of shares through a carefully structured internal buyout.

Given the business had existing debt in place, we worked closely with Paul to balance the loan term and repayment profile. The funding was designed to ensure the business maintained sufficient cashflow—not just to service the new loan, but also to support wider business initiatives and future growth.

“Completing the buy-out was a significant milestone for me, and working with a lender who understood the nuances of financial advisory firms made all the difference. The process was collaborative — working through different options to arrive at a structure that balanced value, term, and affordability. You can’t underestimate the process enough and the support received from Vertus was invaluable. I reached out to Brad at Vertus who reassured us this could be done and he, with Giuliano were very patient, guiding me through the process. This has enabled the business to be in a good position to grow.” – Paul Spencer-Nixon, Fingerprint Financial Planning.

These weren’t just financial transactions—they were carefully planned transitions that supported people, culture, and long-term business continuity. And they’re the kind of outcomes that are increasingly possible when total cost, not just the interest rate, drives the decision-making process.

Rethinking the Cost of Capital

If you’re exploring funding for an acquisition or management buyout, it’s worth stepping back from the headline rate and asking deeper questions:

• What’s the full cost of this funding over time?
• Can my business absorb that cost while maintaining flexibility and growth?
• Does the structure support—not strain—my long-term strategy?

Making smart capital decisions isn’t just about securing a loan. It’s about choosing a structure that fits your business, supports your goals, and positions you to succeed through transition and beyond.