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How to Buy a Business With No Money Down
Can you really buy a business with no money down is the perennial question. As a buyerof businesses, I get asked this question all the time.The answer is both yes and no depending on how you define "buy a business with nomoney down." Specifically, it all hinges on whether or not the seller walks away onclosing day with a down payment.If you believe that a seller will hand you the keys for nothing more than your IOU Note,you're in for a big disappointment. On the other hand, if you're more sophisticatedfinancially and understand the ways in which you can use the target company's assets tofinance your down payment, you will most likely be able to work out a deal where yourpersonally don't put any money down, but the seller still walks away with a sizable downpayment.If you really know what you're doing you will use the 25/75 strategy for acquisitions ofsmall businesses. This means that you cut a deal where the seller takes back a note for75% of the price and you use the business's cash flow and assets to create the 25%down payment for him.So, yes it is possible to buy a business with no money down so long as the seller getssomething reasonable at closing like 25% down payment on the total selling price.However, no one says that down payment has to come out of your pocket.If you're going to try this strategy you have to do two things. First, you have to teachyourself how business purchases are financed. Second, you have to avoid companieslisted by brokers and find FSBOs (For Sale By Owner).The reason for avoiding brokers is that they represent the owner of the company listed.In many states, they are required by law to represent the seller's best interests, not thebuyer's. They are also interested in getting paid which only happens if the business sells.As a result, they will try to quickly screen out anyone who can't prove that they have the33% to 50% down payment sitting in their checking account out just waiting to be spent.
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