The EASY Way to Buy a Business
Acquisition is a fantastic method of building wealth and fast-tracking your career as an entrepreneur. We help entrepreneurs like you make deals every day. We eat, breathe, and sleep these deals, so you’re in great hands if you’re just starting out. We can guide you through the process of buying a business the right way—whether you have the funds right now or not.
How to Buy A Business with No Money
This is news to a lot of people who are interested in securing their wealth through acquisition, but you don’t necessarily need any capital of your own to acquire businesses. Some new acquisition entrepreneurs put no money upfront to buy their dream business!
Here’s how you do it:
First, you need to find a deal you like. Ideally, it will be a local business in an industry that you understand. This eases your ability to run the business after closing. No long trips to a business across the country. No need to learn about an entirely new business.
Make a list of other must-haves and know where you’re willing to bend your preference. What size business are you looking for? Do you prefer a services-based business? Scout BizBuySell to find a business that matches your criteria. Stay patient. This process can take a while. Add it to your calendar. Make it routine.
In the meantime, start to learn about the SBA 7a program. As the SBA’s most common loan program, it allows equity investors to put as little as 5% down. That means a million-dollar business would only require a $50k investment.
This program does have special requirements including a personal guarantee. This is where you have an advantage. Many investors don’t want to or cannot take on a personal guarantee, so YOU will be the investor who can. And, you’ll get preferable terms.
At this point, you’re thinking: Where’s that $50k coming from? You said I could do this without spending a dime!
Well, you need to find outside investors who focus on deals like yours. They will invest 100% of the equity while you invest the personal guarantee. In this type of deal, you will split business ownership—typically 30% to them and 70% to you. One of the benefits of going this route for newer entrepreneurs is gaining the expertise and perspective of seasoned investors. Take the time to find investors that like and feel like you can trust.
In addition to investors, you can also seek out seller financing meaning that you pay off the seller through the profits of the business over a set period of time. As an added benefit, this incentivizes the seller to help you out as much as possible during the transition period because they are invested in the company’s future success.
Due diligence and research are critical for this kind of deal. You don’t want to take on the debt or personal guarantee for a business that’s not capable of delivering a return on investment.
With any luck, you’ll close on a business without putting any money down!
Don’t wait on your acquisition dream because you don’t have the funds. All you have to do is be smart with how you make your deal happen.
The Business Buying Process
While all deals are unique in their own way, the process of buying a business can generally be broken down into easily identifiable steps.
Deal Sourcing & Evaluation
The first thing you’ll need to do is seek out a deal that’s right for you. That starts with uncovering exactly what you’re looking for in a business. Remember what we said earlier. Ask questions like: Does location matter? What about industry? Identify your deal breakers and areas where you are less resolute. Sourcing high-quality deals is generally one of the longer parts of this journey.
Preliminary Negotiations
Once you find a deal that meets your criteria, you’ll enter preliminary negotiations with the seller and broker. You will write an Indication of Interest and a Letter of Intent to formalize this relationship and allow you to enter the next step of due diligence.
Quality of Earnings
Due diligence is a necessary step that will protect you from bad deals, give you the upper hand in purchase price negotiations, and ensure the deal is what it seems. Deep financial and operational analysis uncovers the true state of the business—whether or not that’s what the seller has presented.
A diligence provider like Guardian will give you a Quality of Earnings report (find a sample report here) with adjusted EBITDA with add-backs, proof of cash, and profit per product or service. This helps you get to know the business and start developing a plan of action if you do take over. During this time, you will also engage your other specialty vendors including a lawyer, CPA, lender, and/or broker.
Transaction Completion
Next, you will need to secure the necessary capital to buy the business. Many SMB buyers use SBA loans, like the 7a program we mentioned above, that offer generous terms. You can also work with the owner to incorporate seller financing into your deal in which the business is paid off with future profits.
Assuming diligence goes well and you’re ready to move forward, you will then negotiate the purchase agreement with the seller. You will agree on the purchase price and how the deal will be structured including how involved the seller will be post-close.
Once all parties agree: Congrats! You’re now the owner of a shiny new business.
Post-Close Growth Planning
What’s next? You need to operate the hell out of it! During the due diligence phase, you likely identified a handful of flaws in how the business operates. Find solutions to those problems, update business tech, build a new team if necessary, and build profits. Get the business running effectively, and you will see your ROI in no time.
How to Get Started
Buying a business is a grueling process, but it does become more manageable when you break it down into actionable steps and surround yourself with reliable advisors.
If you’re interested in getting started with support by your side, consider our Pre-LOI Program.