How to Buy a Business When You’re Cash Tight?
While many people dream of buying a business most talk themselves out of it using financial excuses. They tell themselves that they can’t afford to buy a business. They typically use the down-payment as the main excuse. This is a depressing fact about humanity. Most people surrender without even trying.
However, there’s some good news. If you begin looking at businesses for sale and know what you’re doing you quickly begin to realize that most small businesses are over-priced fixer-uppers. Then you can make a strong and compelling case for reducing both price and down-payment. Furthermore, there are what we in the Playbook call Cash Creation Tactics and Cash Deferral Tactics.
A Cash Creation Tactic is one that allows you to create cash for the down-payment. If you follow business news and stories about acquisitions you will typically hear that when Company A is acquiring Company B, it will immediately sell off a division of the latter. The reason normally given is that the division doesn’t fit in with A’s business. This may be true in some cases, but in others the real reason is that A needs the cash to do the deal. As the Playbook course teaches you, you should always be on the lookout for assets you can sell off to help raise cash for the down-payment. The assets could be machinery, other equipment, vehicles, IP, real estate, and even inventory.
A Cash Deferral Tactic is one that allows you to push payments to the seller back months if not years. Seller financing is probably the most well-known example of these tactics. With it you pay a portion of the selling price off over a few years instead of all at closing. The seller financing portion can be anywhere from 30 to 75% (or better) of the selling price. It all depends on how motivated the seller is to get out and how many bidders there are. If he’s motivated and you’re the only buyer, you can set your own terms.
In the Playbook’s long section on how to finance a business acquisition, we reveal dozens of ways to both create cash seemingly out of thin air and push back payments to the seller.
Even better, there are ways to structure deals so that the down-payment is either reduced to a tiny fraction of the selling price or otherwise eliminated altogether. We cover it all in the Tycoon Playbook course on buying a business.