Marieta Lean Consultant Legal Sector
Hi All,
Those of you who have had experience with structuring a deal and buying out a business from the seller, I would highly appreciate your financial advice.
The main two factors are:
1. The seller, who is the owner, operating his business, is interested to sell it because he is tired after 20+ years on the market.
2. The buyer, who has ideas and passion would like to enter and start managing and restructuring the business with the main idea to buy it out. The buyer doesn't have the money and assets to provide cash and assets, he can only provide time and connections.
Is there a way how to structure a deal between the seller and the potential buyer? For example, paying out something annually to the seller?
All your thoughts and knowledge are highly appreciated!
Marieta
Hello Marieta:
Can you actually buy a business with no money?My short answer is yes, you can, but not without the right circumstances. If the right seller presents themselves you may have a shot at buying a business( with no money. But don't act too soon. The truth is, you may be able to BUY a business with no money but RUNNING a business with no money may be a problem.
100% Seller Financing
If you find a seller that is willing to offer you 100% financing then [removed] with no money may actually be a reality for you. In The New Economy, there are many sellers that are willing to offer some sort of financing as a part of the sales agreement. In fact, many lending institutions now look at whether or not the seller is offering any sort of financing. If they are, it gives the deal some credibility with lenders because it shows them that the seller is confident that the potential buyer has the means to run the business successfully and repay their loans.
In most deals that I have seen, sellers are typically willing to offer [removed] for 20 to 50 percent of the remaining balance after the down payment is made. Someone who is willing to offer 100% financing is going to be someone that really wants to walk away from the business but doesn't necessarily need the money right away. Finding a seller that is the will to provide 100% financing for the sale of their business may be tough as it is seen as a risky move and most sellers will need or want their money sooner than later, but still, this type of sales agreement is not unheard of.
Alternative Sources Of Financing
If seller financing isn't going to work, you can also consider exploring alternative funding sources. Seeking out an angel investor may be a potential source of funding. Angel investors don't award funds based on the same criteria as a traditional lender so the amount of money you have to put down probably won't matter. You can also consider other sources such as friends and family and your [removed] .
Potential Pitfalls
If you are lucky enough to find a seller that is willing to work with you on financing 100% of the sale, you should understand that an agreement like this will likely come with some comprises on your behalf. For example, businesses in which the seller is providing financing usually sell for a higher asking price than one that requires a buyer to find [removed] . Sellers know that they are providing a valuable service to a buyer by offering to finance so they charge a premium for the business. Also, understand that you may pay a higher interest rate for a deal like this.
May I suggest that you talk to other business managers and perhaps a lawyer before you move ahead.
Chuck