Many smart entrepreneurs prefer to buy an existing business than start a new one.Buying a business that is already operational will bring many benefits, including an already established product or service, well trained staff who know the business and enough success to have kept the company afloat for a period of time.You can buy the business if you don’t have enough cash on hand.Commercial lending standards have been tightened by banks in the last few years, but you can still find funding to purchase a business without using your own money.
Step 1: Take the time to figure out your ideal business.
Before you buy a business, make sure you know what type of business you want to run.You will have to run and grow the business for a long time if you want to flip it.Make sure you want to be involved with this type of business.Identifying what you want can help you find a business to buy.
Step 2: There is a business owner ready to leave.
To find out which businesses are ripe to be bought, investigate them.Finding an owner who is prepared to retire or move on to a new business opportunity is what this means.The retiring owner has more incentive to sell the business quickly.It is difficult to locate these businesses.They can be found by talking to lawyers or accountants that work with local businesses.Talk to the business owners.They may know another business owner if they aren’t willing to sell.Look for owners who are nearing retirement age.
Step 3: Come in at the right time.
To get a good deal on a business, you need to make an offer at the right time.This doesn’t mean the right time for the business owner.As the owner is planning to retire, this can simply be.The owner is looking for a quick exit to establish his financial security during a recession or economic downturn.While this is a risk for you as the buyer, you may be able to secure betting financing from the owner and then see the business grow faster as you exit the downturn.
Step 4: Find an attorney.
If you’re buying a business without using your own money, you need a good business attorney to make sure the deal is structured correctly.Don’t get a general purpose attorney, get an attorney who specializes in business sales.Too much can go wrong with a deal handled by an attorney who isn’t specialized in business transactions.
Step 5: Find a business that has seller financing.
The owners of businesses that are for sale are willing to lend money to buyers.You can buy a business with no money if you can find one that is on the market with seller financing.Almost no business owner is willing to lend 100% of the purchase price.You will still need a down payment.You can still get the business without putting your own money into it if you borrow the down payment from another source.When a business owner is willing to lend you money to buy his or her business, that usually means two things: The owner believes in you and you can manage the business well.It points to likely success in your entrepreneurial efforts.It can also mean that there is a limited market for the business.The seller is faced with liquidating the business at a significant discount.
Step 6: You can make a creative offer.
If the owner is hesitant to offer 100% financing, you may want to make them an attractive offer to go along with your purchase of the business.They could be offered higher payments for a period of time or a better interest rate.A buyer could offer to work for free for a number of months while giving all profits to the seller.
Step 7: An owner who wants to be a passive investor can be found.
Some owners have been working with their businesses for a long time.They want to retire and just enjoy life for a while, but they still need income.If you approach that type of owner with an opportunity to let you buy and run the business while he or she earns a percentage of the income, you can do it.You may need to put some money down.For several years into the future, you will owe the owner a percentage of the intake.The payments to the owner are based on the success of the business.You are not in debt.
Step 8: If necessary, look for a secondary source of financing.
Most business owners won’t give you 100% financing for the business.You will need a second source of financing if that is the case.The process of getting a bank loan for a small business is long and complicated, but you can try.Banks don’t like deals that are 100% financed.Unsecured personal loans are the best option in many cases.
Step 9: Bring in other investors.
You may have to bring on another partner if you can’t finance the purchase through other means.A share of the business’s future profits can be contributed by this partner.They can be brought on as a silent partner, where they have no responsibilities or active duties in the business, but simply contribute money.The original business owner will likely have to give up his equity partner’s position.You could possibly issue preferred stock to family and friends.
Step 10: Determine if you purchased the assets of the business.
The assumption of debts by the business is different.You don’t have to worry about these loans if you only buy the assets of the business.If you buy the whole business, you will have to factor in the repayment of existing loans in your repayment schedule.This distinction can inform your decisions, like the purchase value of the company and your repayment schedule to the business owner.
Step 11: You still have money left over, so structure the deal.
You don’t want to leave an empty bank account with owner and secondary financing.Money left in the bank can be used for capital budgeting, working capital and attorney fees.Before making an offer on a business, you should determine how much you can borrow from the owner and other sources.It’s a good idea to make an offer that leaves you with some money left over.
Step 12: Do you need additional financing for working capital?
If you buy a business for $100,000 with no money, you have done a good job.Working capital is also needed to keep the business going.You will have to pay rent, employees and utilities.You should have some working capital.You can either use the business’s income and assets to get the capital you need or you can get it from other sources.
Step 13: Existing cash flows can be used.
Working capital can be supplied from the business’s cash flows.You won’t have to borrow more money.To make sure you have enough working capital, you’ll need to analyze and project the business’s future cash flows.If you don’t feel comfortable with projecting cash flows, you can hire a bank to do the projections for you.
Step 14: Generate income by using existing assets.
There are opportunities to sell or reuse equipment owned by the business.You can make additional income without investing in yourself.You can loan out vehicles that are not used often or sell unused equipment.You can assess the potential value of all of the assets available to you by examining them.If the assets are not pledged as security to the seller, you can’t do this.
Step 15: You can finance your business with receivables and inventory loans.
Factoring allows a business to sell its accounts receivable at a discount in order to receive capital more quickly.Accounts receivable financing allows the business to take out a loan against their account.If the business has to pay back regular payments, they risk losing the rights to their accounts receivable.75 to 80 percent of the accounts receivable value is given to the business immediately by the third party buyer.The remainder, minus the discount taken by the third party, is given at a later date when the customer payments actually come in.If you talk to your bankers, they will refer you to a third party that offers factoring.Factoring is more expensive than a short-term financing arrangement secured by receivables.
Step 16: Generate money from the property.
Look for business owners who own the real estate associated with their business.You might be able to structure a deal with an option to buy the property later.You may be able to get another lender to give you cash for the real property.
Step 17: Refinancing or taking on more loans is a good idea.
Additional loans can be taken to cover working capital costs if all else fails.Taking out an inventory loan is a good way to do this.An inventory loan gives the business money to purchase products for sale, with the inventory being held as a security for the loan.Many lenders are reluctant to offer this type of financing because of the difficulty banks may experience in selling inventory.If you buy a business that takes in a lot of revenue from credit card sales, you might be able to get a merchant cash advance.The company that provided you with the money takes a percentage of your credit card sales for a period of time.