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Can You Really Buy A Business With No Money Down Is The Perennial Question
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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 buyer
of 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 no
money down." Specifically, it all hinges on whether or not the seller walks away on
closing 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 sophisticated
financially and understand the ways in which you can use the target company's assets to
finance your down payment, you will most likely be able to work out a deal where your
personally don't put any money down, but the seller still walks away with a sizable down
payment.
If you really know what you're doing you will use the 25/75 strategy for acquisitions of
small businesses. This means that you cut a deal where the seller takes back a note for
75% 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 gets
something 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 teach
yourself how business purchases are financed. Second, you have to avoid companies
listed 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 the
buyer'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 the
33% to 50% down payment sitting in their checking account out just waiting to be spent.
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If you find FSBO situations, you have a strong chance of building a relationship with the
seller wherein you can put creative financing techniques into play. Once the seller
understands that he will walk away on closing with a down payment and secured note,
he will cooperate with you. If a broker was involved the odds are high that he would
sabotage the deal.
To find out more about you can build wealth through the serial acquisition of small
businesses, visit our website and subscribe to the free newsletter.
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