There are several supposed gurus who are luring unsuspecting individuals to expensive courses, boot camps and seminars with the ridiculous promise of teaching them how to buy good businesses for zero money. I am interested to know if these so called experts have done, let alone succeeded, with the strategies they are teaching and charging people thousands of dollars for these stupid tactics.
Over the past few months, I’ve had more questions about the “no money down” concept, so I can only assume that these world-class traders are making an impact. Unfortunately, they are taking money from those who can least afford it.
Some of the strategies I’ve heard they come up with are crazy. My favorite are the ones who claim with great enthusiasm that they will teach you how to consistently buy sustainable and profitable businesses and how to get the seller to finance 100% of the deal every time. This is complete madness!
Business Acquisition Lesson #1
Good business owners don’t hand the keys to strangers for free and let them pay the entire purchase price over a long period of time.
It would be a wonderful situation for a buyer I agree. I am not looking to extinguish the hopes and dreams of individuals who want to buy a business. However, it is essential to understand what is true and how to act effectively, and not waste time or money on schemes that simply do not work in the real world.
Seller financing is great – but be realistic about it
I am a big believer in seller financing. I have taught and preached it for over thirty years, whether I represented the buying or selling side of the deal. It is the most effective way for the seller to validate any promises he may have made about the business. It provides a higher degree of comfort to a buyer when the seller has the proverbial “skin in the game“.
However, the seller’s role is not to be the bank. The notion that they will sign the whole deal is simply not realistic. I don’t care how much these gurus charge people to teach them this nonsense. I think it can happen on the rarest of occasions, although I have yet to witness it and I’ve only been in the industry for thirty-two years.
Think about it: why would the seller of a good, profitable business offer to just give it to a stranger and let them pay the entire purchase price? Do you think anyone is going to take their life’s work and hand it over to an unproven operator and cross their fingers and pray they continue to pull it off and pay them?
How much can a buyer expect a seller to finance?
So what is correct when it comes to smaller seller financing deals? In the real world, seller financing will average thirty to fifty percent of the deal. This has been the benchmark for decades and my guess is that it will remain so for decades to come.
That means the buyer has to come up with the rest. If a buyer is not in a financial position to finance the equity investment in the deal (down payment), don’t despair or give up. There are options available, such as bringing in investor/partners, buying less than one hundred percent of the business, or potentially working there for a period and earning capital. We will discuss these in future posts.
As you pursue your goal of buying a business, understand what is realistic about the business buying process and focus your attention on meaningful strategies you can use effectively. Buying a business is a dream for many people, so stay focused and don’t get sidetracked by fantasy scenarios that will never come true.