Many entrepreneurs opt to buy an established company rather than start one from scratch. The advantages of purchasing an already existing business include constant cash flow, an established customer base and current sales. The downside of this is that the owner will want compensation for the time, effort and value he has added to the company. If you don’t have any amount of cash to pay for a down payment, there are various strategies which you can use if you want to buy an an already established business.
- Clearing errors in your credit card
You need to prepare yourself well before approaching the owner of the business who you want to purchase from. Check the rating on your credit card and clean up errors in your credit card report. Make sure that your credit card score is high, as this will show the owner that you are financially independent and responsible with money. Also, create a resume which will show that you are well experienced in the kind of business you are looking at.
- Working for the company
If there is a business owner who wants to sell his business or is retiring soon, you can start working for him. Many businesses can’t work without the owner managing it. Typically, this means that without the owner the business is likely to collapse. Such types of companies should be sold to the employees, as they already know how the business runs. If you are a manager in the business and are working close to the owner, then you are likely to know the pitfalls in the business and may be able to take over when he retires.
- Building relationships in the company
As a manager in the business, you will be able to build a relationship with the staff members, customers and the owner of the business. This will reduce the chances of the seller starting a new competing business. When you are working for the company, the owner is most likely to finance part or the whole purchase of the business. The business sale can then be termed as an owner loan. Alternatively, each year the owner can sell you part of the company and reduce your salary every month.
- Finding a motivated seller
You should find a seller who is ready and motivated to exit his company. This could be finding a seller who has had the business for more than six months without potential buyers. Another instance is an owner who is ready for retirements and wants the money paid in several years instead of the whole amount at once. It can also be a business where one partner has died, or one partner has left the business.
- Finding a business which is not performing
A company which is not making profits or even taking losses is a much more likely to be open to an acquisition offer without any upfront money than a business which is highly profitable. The trick is for you to manage the business and use strategies which will turn its status around. If the company fails, you will have wasted the time you have invested since you took ownership. This is a good strategy when looking at a local business. For example, if you are looking for a business for sale in Los Angeles, see if you can find any stores that are hurting or looking to sell at a fire sale price and see if you can convince them if you can take ownership without any money down.
- Supplier financing
Another strategy which you can use when you don’t have money to buy a business is using supplier financing. If the business you want to purchase has more than one main supplier, you can approach them for a loan. Explain to them that you will keep them as the main supplier when you take ownership and that you intend on growing the business and their business too. To build their trust and confidence, you can show them a business plan or an executive summary of what you intend to do.
- Owner financing
Owner financing means that instead of going to the bank to get a loan, the owner of the business is the one who lends you the cash. The purchasing agreement indicates the interest rate, the principal, the number of payments to be made, the amount of payment, and what should happen in case you miss any payments. You can get more favorable terms from the seller than a bank because the seller understands the business well and the risks associated with it.
If you want to buy a business but don’t have the required cash, you can use the above strategies. Conduct research on the seller, talk to him and build confidence with him so that he can entrust you with the company.