Plenty of entrepreneurs have the urge to run their own business but not necessarily by starting one of their own from scratch. Buying a business makes sense for several reasons, with advantages including that existing businesses have established customers, current sales and ongoing cash flow. These advantages come at a price, namely, the value of the business. Most owners, even if they offer seller financing, will still expect a down payment for the business before they hand over operations to you.
Thus, to try and buy a business with no money down is a pretty tall order. Despite this, with some luck, determination and clever strategy, you can find an owner that may work with you to buy the business with no money down and payments spread out over time. It is not impossible, but frankly, very difficult. Read on to find out how to buy a business with no money.
How to Buy a Business With No Money
Whenever a person is buying a business, including with no money down, there are some essential steps to take. Some basic steps every business-buyer should take include:
- Choosing what type of business you want to buy
- Searching for businesses that are for sale
- Finding out why an existing business is for sale
- Conducting due diligence
- Evaluating the price of the business
- Securing funding to complete the purchase
- Closing the deal
For more on buying a business in general, check out this complete guide to buying a business. It covers all the aforementioned steps in great detail as well as information on the forms, permits and paperwork you might need. When it comes to buying a business with no money, here are some good strategies you can take.
1. Search for Business Owners Ready to Get Out
This is the key first step: You need to find business owners who really want or need to get out; perhaps even desperate to get out. Research is the best way to do this, such as investigating local businesses, their owners, conditions of their business, their industry and their market. At this stage, enlisting the help of a business broker would make this step easier since their job is to aid in the buying and selling of businesses.
You need to look for an owner that is highly motivated to exit his company. A good way to identify an owner like this is to find one who has had his business on the market for six months to a year with no buyers. Another common case is an owner who is close to retirement age or is considering retirement because of health issues. If you can convince them that they will continue to receive a stream of income over the years from you running their business, it’s possible they could forgo payment upfront. A related opportunity is when an owner has passed away or a partnership where one partner wants to leave.
2. Find an Underperforming Business
Considering you’re trying to buy a business with no money, you should expect to make some compromises with the quality or profitability of the company you want to buy. A company that is barely profitable or even losing money gives you a better chance to purchase a business for no money down. Even a low-to-moderately profitable business is likely to not go for no money down. Thus, identifying an underperforming firm gives you a shot at buying it with no money upfront. To make this strategy work, you need to have the experience and management ability to turn the business around. It also takes personal skills in communication and charisma to convince an owner to give you a shot without any money down. You’ll need excellent personal and professional skills to buy a business with no money in this manner.
3. Obtain Owner Financing
Owner financing, also called seller financing, in business acquisition means that, instead of, say, getting a bank loan, the owner lends you the money for the purchase. In your purchase contract, you will detail the principal — the purchase price of the business — the interest rate, the number of payments, the amount of each payment, the consequences of missing a payment and the duration of the loan. In the long run, seller financing may cost you more money than buying it upfront, but the whole point is to buy a business with no money down, so the expense comes with the territory.
Is 100% Seller Financing Possible When Buying a Business?
Before you seek seller financing, you must ask: is it possible to buy a business with no money down through 100% seller financing? Most experts in the field settle on a similar answer: It’s not impossible but is certainly very difficult. In most business acquisitions of this sort, after sellers typically offer owner financing on the range of 20% to 50% of the remaining balance after you make the down payment, according to BizBuySell. In fact, they recommend not having the seller finance too much of the purchase.
Therefore, a business owner who is willing to offer 100% seller financing is highly likely to be someone that really wants to or must walk away from their business and may not need the money right away. It is probably more feasible to find 100% seller financing from an owner trying to immediately exit rather than from a business that’s merely underperforming. From the business owner’s point of view, to offer 100% seller financing is extremely risky, but it isn’t completely unheard of. If you combine identifying an owner very anxious to exit with your demonstrating excellent qualifications to run their business, you may have a chance buying a business for no money down.
4. Buy a Business With No Money Through Sweat Equity
This method of buying a business with no money down is linked to the previous tip. If you manage to find a very flexible and willing owner who won’t do 100% seller financing, you can pitch a compromise solution: You can offer them a better interest rate or higher payments by you working for free, which results in greater profit for them. When you work in this manner, you’re building what’s called sweat equity. Your labor is making up for your lack of money down by producing profits for the old owner and sparing them money on your salary. It’s a pretty creative strategy to add to your arsenal for when you’re trying to buy a business with no money down.
5. Buy a Business With the Help of Investors
As with the whole idea of buying a business with no money, getting investors to back you without you contributing anything is difficult but not impossible. Doing so is heavily dependent on your personal qualities and network, and the quality or potential of the business you’re eyeing to buy. It is arguably easier to come up with a very smart business plan from scratch and convince investors to back you when you have no money than it is to convince them of buying a business.
All that said, if you manage to find an underperforming business with solid potential or one where the owner just wants out, you could possibly persuade them to put up the money. If you have experience and proven skills and your investors believe in you, you may be able to convince to make the purchase while you take on all the day-to-day work. In return, they’ll likely have a greater say in business decisions than if you had put up some of your own money. And, they’ll be repaid for their investment with the profits from your company. Ideally, you should aim to bring on a silent partner or partners to gain the benefit of financing without relinquishing too much control.
The Bottom Line
Can buying a business with no money be done? The short answer is yes, but it is very difficult and unlikely. Business owners, even distressed or retiring ones, are going to want some money for the value of their businesses. When combining this with the risk inherent in offering 100% seller financing, it becomes clear why it is so hard to buy a business with no money. However, with the right combination of personal and professional skills, that you demonstrate to the owner, and a patient, well-planned strategy, it is possible to buy a business with no money down.
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