Plenty of people considered owning a business of their own.
But instead of building the business from the ground up, essentially making it from scratch, you thought about buying an existing one instead.
But what happens when you don’t have startup capital? Is it a deal-breaker for a new business venture?
Well, not necessarily.
It is one of the most challenging ways to acquire a business, but it isn’t an impossible task, as long as it is done under the right circumstances.
In case you wonder how to pull off something like that, here are some important suggestions, or rather strategies, on buying a business with no money.
Finding The Right Business To Buy
Start by deciding what type of business you would like to run.
Purchasing the right type of business is important even if your only plan is to flip it for a profit later, since you will still need some time to grow it and increase its value.
So choosing the sort of business that you are interested in, or the one you are familiar with is a relieving factor.
It would certainly make the whole process a lot easier.
The right time
When it comes to buying an established business, it is not just about the right type of business, but about the proper timing as well.
Finding just the right moment to purchase and take over the company is crucial, especially when you are working with a limited budget. It is all about buying low and making a profit.
So, other than it being the right moment for you, these are some of the situations when it might be a good idea to buy:
- when the owner is ready to sell – there are different reasons for someone wanting the sell their business. But one of the best ones is retirement. In those situations the owner is ready to sell, and usually ready to sell fast, so he might give you a great deal. Take it as a chance to give an old business a completely new perspective.
- recession – this could also be a good moment to buy cheap, but be aware, it can be quite risky. When the economy is on the downturn, prices of companies tend to go down, meaning the deals can be struck fast and cheap. Here is the catch – the company itself might be in a bad shape so it is u to you to put it back on the right track. And the thing is, you can’t foresee how long will it take for the business and the whole business market to recover from the recession.
Let’s talk about the advantages of buying an already existing business instead of starting your own.
First of all, it saves you some time, as an existing business already established things like:
- marketing strategies
- a brand
- ongoing cash flow.
These reasons will also determine the price of the business. The more developed and successful they are, the more expensive the deal is going to be.
So, buying a small business is a good idea. Not only will it cost less, but you will have an opportunity to develop some of those (if not all) aspects yourself.
It is a nice compromise between starting a business from scratch and buying an established business. Someone has already done most of the startup work for you, but you still get to give your own contribution and mold the company the way you see fit.
How to Buy an Existing Business With No Money
After you have chosen the sort of business you would want to own, we get to the step where we should discover the exact way of buying a business with no money down.
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Getting into a business without risking your own money sounds like a great deal, doesn’t it? That way, you can avoid one of the main risks (the one that usually scares people the most) of starting, or in this case buying, a business on your own.
How to Get a Loan to Buy a Business
When you don’t have enough startup capital of your own to purchase a business, the obvious solution is to apply for a bank loan.
You can use it as an only source of payment, or in combination with an alternative financial solution.
The problem with bank loans and the paperwork involved is that they tend to be long, complicated, and overwhelming.
But the main issue is that in most cases banks are reluctant when it comes to granting loans for deals that need to be 100% financed.
100% Seller Financing
If you are hesitant to apply for a bank loan you might want to consider owner financing (or seller financing). That means, instead of the bank, the owner of the company lends you the necessary amount for the purchase.
The owner stays tied to the business for a while since the buyer uses the cash flow from the company as payment.
When buying a business with no money down, acquiring a 100% seller’s financing could be an ideal solution. But is it actually possible?
The answer is yes, although you should know that it is not an easy task.
For most business transactions of this sort the seller financing range goes from 20% to 50%. So, for the owner to be willing to offer 100% seller financing usually means that they have to sell the company as soon as possible.
The reasons for this urgency could be various, but it is a chance for you to make the most of this opportunity.
Their need to sell the company fast, combined with your capability to convince them of your expertise in running their company could be a perfect chance to buy a business with no money down.
If you can’t finance the purchase yourself, it could be a good idea to involve other investors.
Whether they are friends and family, or outside investors, they can contribute the funds in several ways:
- as silent partners, they can contribute the funds without having any active participation in the company
- you can issue preferred stocks to different investors in order to raise money
- the money they invest in your company can be paid back in future profits.
Keep in mind that convincing the investors to back up your business plan could be a challenging task, especially when you can’t make any financial contribution yourself.
Ultimately that will depend on how developed your social and business network is, your personal qualities, skills, and convincing methods, as well as the type of business you are planning to purchase.
Buy Into a Business
Another option is to buy into a business. Or, in other words, to purchase a portion of the company, making the whole deal a partnership rather than full ownership.
That means shared investments and shared profits. But it also means that you wouldn’t necessarily have to do all of the work, as you would be able to delegate the responsibilities amongst yourselves.
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Over time, when the company grows and increases its profit (or in any situation where you are able to afford it) you could buy out the other partner (or partners) and gain full ownership of the business. If that is your main goal of course.
It might not be the right deal for everyone, or it might not be exactly what you had in mind, but it is definitely a valid option when getting into a business with a small budget or with no money at all.
As you can see, buying a business with no money down is not a simple thing to accomplish, and in all honesty, odds are not in your favor but it isn’t completely impossible.
It takes a lot of effort, work, and energy in order to navigate through all the obstacles that come with this whole process.
Hopefully, by explaining the strategies of how to purchase a business, it made it a bit more clear on what your options are.
By choosing the right strategy and pairing it up with a well-balanced combination of personal and professional skills, you are ready to start a new business venture.