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10 Reasons a Business Never Sells!



Top 10 Reasons a business never sells.

 There can be dozens of reasons why a business never sells; below are some of the most common:  
1. Priced too high, no justification for the price  (no basis for asking price)  
2. Business cannot be financed. (Buyers want leverage, Sellers want to cash out)  
3. Poor record keeping (tax returns).  
4. Not packaged correctly. Need to explain full value of the company in writing.
5. Sellers won’t sell for what they make in a few years.  
6. Business and accounts are too dependent on seller. (owner does everything).  
7. Desirability (owners responsibility and hours required to operate successfully).  
8. Management and employee not staying after the sale (family owned).  
9. Out dated service and/or product (i.e., payphone business).  
10. Too much working capital required. (not enough cash on cash return to justify risk)

Looking for a Job..Stop Buy a Business ....

Starting a Business Beats Looking for Jobs 

The Risky Economy
A job search under any circumstances is no treat - rewriting your resume at least a dozen times, job searching on the Internet day after day, and landing maybe two interviews for every hundred openings you dig up - but in a shaky economy it can be downright brutal. Business revenue declines, which causes companies to cut payroll, and then the lack of personnel drives frustrated customers away. It’s a vicious cycle. But why get trapped in that rat race if you don’t have to? 

Starting a Business Trumps Job Searching
Looking for jobs can be a very shortsighted process. Long gone are the days when people worked at the same company for decades and retired with a nice pension. Since at least the 1980s, most professionals change jobs every three to four years, and it’s usually the employer’s choice rather than the worker’s. Starting a business can be a scary proposition - especially if you come to the process with a lot of unanswered questions in your mind - but a job search can take up just as much time, effort and even capital. Besides, here is all you’re left with at the end of that road - just another job that you might hold for five years, after which it’s the same process all over again, except you’re now five years older! 

Four Reasons to Drop Job Searching for Entrepreneurship
If you have reached the stage in your career where you’re earning a comfortable living as an executive or someone with skills honed over many years in business, there are many strikes against you on the job search front. Here are four reasons why starting a business may better serve your long-term financial goals:

  • Experience - Few companies hire at a senior level and expect people to come aboard in an entry- or mid-level role. In your own business, you’re immediately at the top of the heap, both in earning power and in the decision-making process.

  • Location - The job you want may not exist in the city where you live, which either forces you to relocate or else downgrade your desires. Starting a business allows you to work wherever you wish.

  • Security - While it’s true that new businesses can fail, there are no guarantees these days that a 50-year-old company will still exist next year, either. By starting a business, at least you have it within your personal power to be successful. If you’re just another cog in the wheel, most of your own financial future is in the hands of others.

  • Personality - The corporate world forces people to conform to a particular mindset. Not all of us are cut out to operate in this manner, but having a maverick-type personality is oftentimes a dead-ender when working for others. This is, however, the exact trait that makes a terrific entrepreneur.

Take These Steps to Start Your Business Search
Instead of looking for jobs, try these things instead. Make a list of your skills and experience. Seek out small business owners in your area and find out what skills they had before they took the leap - people love to give advice, after all. Check out various franchising opportunities on the Web, since buying a franchise is one of the easiest ways to own a business. Explore your local community college and sign up for a course in entrepreneurship. People just like you who took the plunge and never again looked back at the job searching process are usually the ones who teach these classes. If you’re currently employed but nervous as to how long your job will be there, begin doing some freelance work or consider starting a business on the side. This will let you see if you’re cut out for the entrepreneurial lifestyle, bring in some extra income, and provide a welcome landing spot if that pink slip shows up someday on your desk. 

Closing Question
Where would you be today - both financially and emotionally - if you had started your own business the last time you were slogging through a job search?

Starting a Business Beat Looking for a Job

The Risky Economy
A job search under any circumstances is no treat - rewriting your resume at least a dozen times, job searching on the Internet day after day, and landing maybe two interviews for every hundred openings you dig up - but in a shaky economy it can be downright brutal. Business revenue declines, which causes companies to cut payroll, and then the lack of personnel drives frustrated customers away. It’s a vicious cycle. But why get trapped in that rat race if you don’t have to? 

Starting a Business Trumps Job Searching
Looking for jobs can be a very shortsighted process. Long gone are the days when people worked at the same company for decades and retired with a nice pension. Since at least the 1980s, most professionals change jobs every three to four years, and it’s usually the employer’s choice rather than the worker’s. Starting a business can be a scary proposition - especially if you come to the process with a lot of unanswered questions in your mind - but a job search can take up just as much time, effort and even capital. Besides, here is all you’re left with at the end of that road - just another job that you might hold for five years, after which it’s the same process all over again, except you’re now five years older! 

Four Reasons to Drop Job Searching for Entrepreneurship
If you have reached the stage in your career where you’re earning a comfortable living as an executive or someone with skills honed over many years in business, there are many strikes against you on the job search front. Here are four reasons why starting a business may better serve your long-term financial goals:

  • Experience - Few companies hire at a senior level and expect people to come aboard in an entry- or mid-level role. In your own business, you’re immediately at the top of the heap, both in earning power and in the decision-making process.

  • Location - The job you want may not exist in the city where you live, which either forces you to relocate or else downgrade your desires. Starting a business allows you to work wherever you wish.

  • Security - While it’s true that new businesses can fail, there are no guarantees these days that a 50-year-old company will still exist next year, either. By starting a business, at least you have it within your personal power to be successful. If you’re just another cog in the wheel, most of your own financial future is in the hands of others.

  • Personality - The corporate world forces people to conform to a particular mindset. Not all of us are cut out to operate in this manner, but having a maverick-type personality is oftentimes a dead-ender when working for others. This is, however, the exact trait that makes a terrific entrepreneur.

Take These Steps to Start Your Business Search
Instead of looking for jobs, try these things instead. Make a list of your skills and experience. Seek out small business owners in your area and find out what skills they had before they took the leap - people love to give advice, after all. Check out various franchising opportunities on the Web, since buying a franchise is one of the easiest ways to own a business. Explore your local community college and sign up for a course in entrepreneurship. People just like you who took the plunge and never again looked back at the job searching process are usually the ones who teach these classes. If you’re currently employed but nervous as to how long your job will be there, begin doing some freelance work or consider starting a business on the side. This will let you see if you’re cut out for the entrepreneurial lifestyle, bring in some extra income, and provide a welcome landing spot if that pink slip shows up someday on your desk. 

Closing Question
Where would you be today - both financially and emotionally - if you had started your own business the last time you were slogging through a job search?

Looking for a Job............Don't Buy a Business Instead!

The Risky Economy
A job search under any circumstances is no treat - rewriting your resume at least a dozen times, job searching on the Internet day after day, and landing maybe two interviews for every hundred openings you dig up - but in a shaky economy it can be downright brutal. Business revenue declines, which causes companies to cut payroll, and then the lack of personnel drives frustrated customers away. It’s a vicious cycle. But why get trapped in that rat race if you don’t have to? 

Starting a Business Trumps Job Searching
Looking for jobs can be a very shortsighted process. Long gone are the days when people worked at the same company for decades and retired with a nice pension. Since at least the 1980s, most professionals change jobs every three to four years, and it’s usually the employer’s choice rather than the worker’s. Starting a business can be a scary proposition - especially if you come to the process with a lot of unanswered questions in your mind - but a job search can take up just as much time, effort and even capital. Besides, here is all you’re left with at the end of that road - just another job that you might hold for five years, after which it’s the same process all over again, except you’re now five years older! 

Four Reasons to Drop Job Searching for Entrepreneurship
If you have reached the stage in your career where you’re earning a comfortable living as an executive or someone with skills honed over many years in business, there are many strikes against you on the job search front. Here are four reasons why starting a business may better serve your long-term financial goals:
  • Experience - Few companies hire at a senior level and expect people to come aboard in an entry- or mid-level role. In your own business, you’re immediately at the top of the heap, both in earning power and in the decision-making process.

  • Location - The job you want may not exist in the city where you live, which either forces you to relocate or else downgrade your desires. Starting a business allows you to work wherever you wish.

  • Security - While it’s true that new businesses can fail, there are no guarantees these days that a 50-year-old company will still exist next year, either. By starting a business, at least you have it within your personal power to be successful. If you’re just another cog in the wheel, most of your own financial future is in the hands of others.

  • Personality - The corporate world forces people to conform to a particular mindset. Not all of us are cut out to operate in this manner, but having a maverick-type personality is oftentimes a dead-ender when working for others. This is, however, the exact trait that makes a terrific entrepreneur.

Take These Steps to Start Your Business Search
Instead of looking for jobs, try these things instead. Make a list of your skills and experience. Seek out small business owners in your area and find out what skills they had before they took the leap - people love to give advice, after all. Check out various franchising opportunities on the Web, since buying a franchise is one of the easiest ways to own a business. Explore your local community college and sign up for a course in entrepreneurship. People just like you who took the plunge and never again looked back at the job searching process are usually the ones who teach these classes. If you’re currently employed but nervous as to how long your job will be there, begin doing some freelance work or consider starting a business on the side. This will let you see if you’re cut out for the entrepreneurial lifestyle, bring in some extra income, and provide a welcome landing spot if that pink slip shows up someday on your desk. 

Closing Question
Where would you be today - both financially and emotionally - if you had started your own business the last time you were slogging through a job search?

How to Sell your Business? Follow these 10 Steps!

Follow These Ten Commandments To Avoid Wrecking the Deal

1. Place a reasonable price on your business. Since an inflated figure either turns off or slows down potential buyers, rely on your business broker to help you arrive at the best "win-win" price.

2. Carry on "business as usual." Don't become so obsessed with the transaction that your attention wavers from day-to-day demands, affecting sales, costs, and profits. Since the selling process could take some time, the buyer needs to keep seeing a healthy business.

3. Engage experts to insure confidentiality. A breach of confidentiality surrounding the sale of a business can change the course of the transaction. Expert intermediaries can channel the process and the parties involved to keep the sale within safely silent bounds.

4. Prepare for the sale well in advance. Be sure your records are complete for at least several years back and do all pertinent legal or accounting "housecleaning" - as well as a literal sprucing-up of the plant or store.

5. Anticipate information the buyer may request. In order to obtain financing, the buyer will need appraisals on assets, such as real estate, as well as information to satisfy environmental regulations (when real estate is concerned).

6. Achieve leverage through buyer competition. This can be tricky; you are wise to let your business broker, as a third party, create a competitive situation with buyers to position you better in the deal.

7. Be flexible. Don't be the kind of seller who wants all-cash at the closing, or who won't accept any contingent payments or an asset transaction. Depend on the advice of your business broker - their knowledge of financing and tax implications - to keep the deal sweet instead of sour.

8. Negotiate; don't "dominate." You're used to being your own boss, but be prepared to learn that the buyer may be used to having his way, too. With your business broker's help, decide ahead of time when "to hold" and when "to fold,"

9. Keep time from dragging down the deal. To keep the momentum up, work with your business broker to be sure that potential buyers stay on a time schedule and that offers move in a timely fashion.

10. Be willing to stay involved. Even if you are feeling burnt-out, realize that the buyer may want you to stay within arm's reach for a while. Consult with business brokers to determine how you can best effect a smooth transition.

How to Recast a Financial Statement when Selling a business!

RecastingFinancial Statements When Selling A Business

Whatdoes it mean when we say that we need to "Recast" your financialstatements as one of the initial steps in preparing to sell your business?

Financial statements and tax returns for most privately-held businesses areprepared for tax purposes, not for business sale purposes. The objective ofbusiness owners and their financial advisors is to use all available acceptedaccounting methods to minimize taxable net income. This is effective forminimizing taxes, but may paint an incomplete picture for business valuationpurposes. The goal when presenting financial information to a potential buyeris to maximize net income by clearly outlining the owner benefits, net income,and cash flow of the business.

Since bottom-line earnings is the primary factor that influences businessvalue, maximizing the presentation of the financials is essential. Prospectivebuyers must be able to appreciate the full benefit of owning the business andbe able to understand its actual income-generating ability. By recasting oradjusting the financial statements, the "real" financial performanceof the business can be demonstrated.

A "recast financial statement" is a reconstructed representation ofthe earnings that a buyer would be able to enjoy from the business. It removesnot only one-time or extraordinary income and expenses, but also adjusts foraccounting anomalies, identifies owner compensation, owner "perks"orfringe benefits, non-cash expenses such as depreciation and amortization,interest, investments in future growth such as new facilities or expansion, andother items that are common in privately-held businesses.

The following are some of the most common recasting adjustments:

Owner Salaries

The amount of salary or bonus that an owner takes is completely discretionary.Some owners take little or no salary, while others may take more extravagantannual sums. In recasting financial statements, the salary of one owner isadded back. If there are other owners receiving compensation and would need tobe replaced under new ownership, those salaries would be replaced with“normalized” compensation. Normalized compensation is best defined as whatwould have to paid to someone to replace the owner's operational role in thebusiness. Compensation for family members not actively working in the businessbut being paid through the business should also be added back. It is importantto differentiate between salary for working in the business and salary just forowning the business.

Owner "Perks" or Fringe Benefits

In addition to cash compensation, most business owners receive numerous"perks" or benefits that are not required for the daily operation ofthe business. For example, while a vehicle may be required, a high performancesports car or luxury automobile is not normally necessary. There may also bediscretionary expenses reimbursed to the owner that may not be applicable to anew owner and do not affect the profit performance of the company. These includeitems such as the following:

  • insurance expenses
  • travel and entertainment expenses
  • family employees
  • a large life insurance contract or pension plan
  • personal-use assets such as a Hawaii condo or a sailboat
  • income or expenses that may be transacted between more than one company that is owned by the same seller

Insome instances, nothing short of going through the income statement line byline to gain an understanding of what lies behind the numbers will do.

Non-Cash Expenses

The most common non-cash expense is depreciation and is added back to netincome.

Interest

A business is typically transferred free and clear of debt and interest-bearingliabilities. Accordingly, interest expense is added back since it will not beincurred by a new owner.

Non-Recurring Income or Expenses

Adding back one-time, extraordinary, or non-operating income or expenses ismeant to remove items that appear in the financial statements but are eitherunlikely to be repeated in the future or are unrelated to the company’sbusiness operations and will not be incurred by a new owner. Common examplesinclude things such as the following:

  • unusual legal expenses
  • moving expenses incurred during a company relocation
  • expenses related to expiring equipment leases
  • receipt of a one-time contract payment from a new client
  • payment of a lump sum bonus to an employee
  • expenditures made for a new facility or expanded operations
  • a gain on the sale of an asset
  • receipt of insurance proceeds (from a hurricane, for example).

Ifyou are a seller of a business trying to establish value, you will want as manydollars as possible added-back to your financial statement to improve businessprofitability and thus its value. Buyers will question all add-backs.Therefore, adjustments should be provable. If you cannot prove it, the buyerwill not want to give you credit for it. Sellers want to maximize value andbuyers want to minimize it. This tug-of-war is usually part of the negotiationprocess in buying and selling a business.

Why do people want buy an existing business?



Here are the top reasons:
 1.Job burn out.
 2.Current business growth potential is limited.
 3.Business owner is bored with business and time for a new game.
 4.Rewarded directly, (we're speaking money) for your hard work.

Buying an existing business or starting a new business is, or can be:

  Complex

 Challenging

 Exhilarating

Is the right business out there for you?

Absolutely, at any given time about 20% of America’s businesses are for sale. This means of the approximate 1,000,000 business for sale, there must be a right business for you!

What are your options?

 1.Stay in Current Job - You could change companies, you might be able to get another job at another similar business. Then if you find a job, could be back in your current situation. Job security is definitely a thing of the past!
 2.Start a new business - This is risky. It can be frightening, and it should be! Over 50% of new businesses fail within the first year. There are many unknowns and few guarantees in a start up.
 3.Buy an Existing Business!! Buy into the many advantages of purchasing someone else’s hard work, and success. Use your team of professionals to examine (due diligence) the business of your choice.

 

What is my Business Worth?

The first question almost every seller asks is: "What is my business worth?" Quite frankly, if we were selling our business, that is the first thing we would want to know. However, we're going to put this very important issue off for a bit and cover some of the things you need to know before you get to that point. Before you ask that question, you have to be ready to sell for what the market is willing to pay. If money is the only reason you want to sell, then you're not really ready to sell.


*Insider Tip*
It doesn't make any difference what you think your business is worth, or what you want for it. It also doesn't make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Only the marketplace can decide what its value is.

Question 2

The second question you have to consider is: Do you really want to sell this business? If you're really serious and have a solid reason(s) why you want to sell, it will most likely happen. You can increase your chances of selling if you can answer yes to the second question: Do you have reasonable expectations? The yes answer to these two questions means you are serious about selling.

The First Steps

Okay, let's assume that you have decided to at least take the first few steps to actually selling your business. Before you even think about placing your business for sale there are some things you should do first.The first thing you have to do is to gather information about the business.

Here's a checklist of the items you should get together:

  • Three years' profit and loss statements
  • Federal Income Tax returns for the business
  • List of fixtures and equipment
  • The lease and lease-related documents
  • A list of the loans against the business (amounts and payment schedule)
  • Copies of any equipment leases
  • A copy of the franchise agreement, if applicable
  • An approximate amount of the inventory on hand, if applicable
  • The names of any outside advisors

Selling Notes

If you're like many small business owners, you'll have to search for some of these items. After you gather all of the above items, you should spend some time updating the information and filling in the blanks. You most likely have forgotten much of this information, so it's a good idea to really take a hard look at all of this. Have all of the above put in a neat, orderly format as if you were going to present it to a prospective purchaser. Everything starts with this information.

Make sure the financial statements of the business are current and as accurate as you can get them. If you're half way through the current year, make sure you have last year's figures and tax returns, and also year-to-date figures. Make all of your financial statements presentable. It will pay in the long run to get outside professional help, if necessary, to put the statements in order. You want to present the business well "on paper." As you will see later, pricing a small business usually is based on cash flow. This includes the profit of the business, as well as the owner's salary and benefits, the depreciation, and other non-cash items. So don't panic because the bottom line isn't what you think it should be. By the time all of the appropriate figures are added to the bottom line, the cash flow may look pretty good.

Prospective buyers eventually want to review your financial figures. A Balance Sheet is not normally necessary unless the sale price of your business would be well over the $1 million figure. Buyers want to see income and expenses. They want to know if they can make the payments on the business (more on this later) and still make a living. Let's face it, if your business is not making a living wage for someone, it probably can't be sold. You may be able to find a buyer who is willing to take the risk, or an experienced industry professional who only looks for location, etc. and feels that he or she can increase business.

New Listing-Video Game Shop

  Thanks for taking the time to hear about iour latest listing for a video game store in Tampa. 

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The 5 Biggest Mistakes Made When Getting A Business Appraised

The 5 Biggest Mistakes Made When Getting A Business Appraised 
Most business owners will, at some point, want or need to know how much their business is worth. They will be faced with the task of finding someone to perform a business appraisal or valuation. Since this is unfamiliar territory, the owners often make some big mistakes. 

Mistake #1 – Automatically Hiring Your Existing CPA Firm
Business owners often assume that all CPAs are competent in business valuation. In fact, many CPAs have very little or no business valuation experience or training. Don’t expect your CPA firm to tell you if they are not proficient in this area. Firms are often reluctant to; turn down additional revenue, admit their lack of expertise, and refer you to a competitor. 

Ask your CPA firm if they have any staff that are credentialed and experienced in business valuation. Then get an anonymous list of their prior business valuations by business size and type. Don’t be too concerned if they have not valued a company in your same industry. Regular and recent business valuation experience is much more important. If they don’t have adequate business valuation experience, ask if they would recommend a firm that does. 

Mistake #2 – Automatically Hiring a Referred Professional
Referrals mean different things to different people, so you must ask on what basis it is being given. If it based on a brief meeting at a networking event, then don’t give it much weight. Referrals based on reputation alone are only slightly better. Seek referrals based on first-hand dealings with the referred professional. All referrals, even high quality ones, need to be evaluated further to determine their business valuation competence. 

Mistake #3 – Using Rule of Thumb Formulas
Many business owners believe there is some secret formula that can be used to accurately value their business. There are many rules of thumb and they are not a secret. Rules of thumb can be useful to get a “quick and dirty” estimate, but they have some serious flaws. No one really knows the quality and the quantity of the data on which they are based. The formulas typically use multiples that are expressed in ranges (like 1 to 2 times annual sales) that result in widely varying values. The formulas provide no guidance on how to select an appropriate number within that range. Most importantly, these formulas do not account for the unique characteristics and factors that affect the value of a specific business. If a business valuation will be given to third parties or subject to dispute, rule of thumb formulas just won’t stand up to the scrutiny. 

Mistake #4 – Paying Too Little
Business valuations typically cost thousands of dollars. In an attempt to save money business owners often look to get one on the cheap. There are a number of sources on the Internet that will value a business for substantially less cost. The old adage – you get what you pay for – applies here. These services use various formulas, proprietary data, checklists, and etc. to arrive at an estimate. Some even come with rather impressive looking reports. In general, these services are just high-priced, dressed-up rule of thumb formulas. 

Mistake # 5 – Paying Too Much
Business valuation firms often set minimum fees and limit the levels of service without regard to the cost restraints of smaller companies. By omitting some valuation procedures that typically aren’t relevant to smaller businesses and preparing summary-style reports, firms can legitimately and significantly reduce the cost of a business valuation. A high cost, full scope business valuation is often overkill for a small businesses. Look for a firm that can match your needs more closely to save money. Fees can vary greatly so it

I want to sell my Business What Should I do?

When you sell your business, you want to get all of your cash upfront, putting the risk in the hands of the buyer. When you buy a business, you want to put up as little cash as possible in favor of paying for results in an earn-out—sothe risk sits in the hands of the seller.

If a potential buyer sees your company as risky, he or she won’t want to play. A deal gets done when a compromise is met somewhere in the middle—when both parties strike a balance between risk and reward.

The trick to getting a higher portion of your proceeds upfront is to minimize the risk that the business will fade when you leave. Here are seven things you can do to get more of your money upfront (and less tied to an earn-out):

  1. Get your customers to sign long-term agreements.
  2. Track your repurchase rate to demonstrate a recurring revenue stream.
  3. Document your systems for making your product or service.
  4. Give key employees a long-term incentive plan that ties them to the business after the sale.
  5. Track your sales pipeline, qualified lead rate and close rate.
  6. Delegate your personal accountabilities to key managers.
  7. Write down your secrets for generating qualified leads.

Most acquirers will insist on some form of earn-out or “golden handcuffs.” Your job is to get as much cash upfront as you can by reducing their risk—making that seesaw as balanced as possible.

What else have you done to get your company ready to sell?

How to Get Advice on Buying a Business?

Get Advice on Buying a Business? 

Buy Business Today - Profit When?
There's an old saying that states, "Free advice is worth [only] what you pay for it." While this is true in many situations in life, how does this homily apply to buying a business? After all, anyone who wants to buy a business will need some serious advice on the matter. They will want answers to such questions as, "What kind of business should I buy?" and "What's the advantage of a franchise over an existing business?" and "How do I know it's a good price?" and so many more. Additional concerns arise once the reality of buying a business starts to sink in. Then buyers will want to know, "How much money do I need to operate the business properly?" and "When will I start to show a profit?" The novice may not even know which questions to ask, not to mention having a clue about the answers. In this situation, free advice is both available and worthwhile. Even the cost of paying for such advice is nominal. 

Finding Businesses For Sale With Seller Financing

Finding Businesses For Sale With Seller Financing 

Financing a Business Purchase
Few people who wish to buy a business have the kind of cash it takes to pay 100 percent of the purchase price up front. Some sort of financing is almost always necessary. The traditional path to financing the purchase of a business involves sitting down with a banker, filling out a loan application, and waiting to see if you qualify. Once the loan is approved - assuming everything is in order - you have the funds you need to proceed. Whether you are buying an existing business, starting one from scratch, or purchasing a franchise, the path to ownership almost always runs through some sort of financial institution, whether commercial bank, credit union, or private equity firm. But there is another route available to you, if you happen to be buying a business that is already up and running - having the existing owner provide some or all of the financing. 

What is Seller Financing?
In its simplest terms, seller financing means that the current owner of a business offers to carry some or all of the debt incurred by the buyer when taking over the enterprise. Let's say the sale price of XYZ Company is $500,000, and the owner - Mr. Z - has no outstanding liens or mortgages. In other words, he owns XYZ free and clear. Ms. B, the prospective buyer, has only $100,000 to put toward the purchase. Mr. Z agrees to take the hundred grand as a down payment and has Ms. B sign a promissory note for the difference. By entering into this agreement, she now owns XYZ in its entirety while Mr. Z has $100,000 in the bank, plus a promised income stream based upon monthly payments from Ms. B against the $400,000 debt (plus interest). 

Why Buy a Business Financed By the Seller?
Over the past couple of years, traditional sources for financing the purchase of a business have been severely compromised. Lending today is tighter than ever; interest rates are high and credit rules are such that the old adage, "Banks seem to lend only to people who don't need it," is perhaps truer than ever. Qualifying for a loan is an arduous task, and a lender will be very fussy not only about your own financial situation, but also the perceived health of the business you wish to buy. But eliminating the need to deal with a bank is not the only reason to seek out seller financing. Oftentimes a seller is highly motivated to find a buyer and sees this option as an ideal way to attract serious attention. The buyer can frequently obtain better terms from the seller - a longer period to pay back the loan, and an interest rate more attractive than the current market - while not having to jump through so many hoops to qualify. One more advantage - the seller remains a party to the company's ongoing success. Mr. Z wants to make sure that Ms. B does well so she will remain current on her payments against the $400,000 she owes. 

Typical Seller-Financed Terms
It is not unusual to see situations where a seller will finance at least half the value of the purchase. This number will go up based upon several factors, including how much the seller may owe to others (real estate mortgage, equipment financing, etc.), or what he or she expects to do with the proceeds. If Mr. Z is planning to retire, he won't mind taking the majority of the funds in monthly payments, as the deal would look very much like an annuity to him. But if he is buying another business, he may be less inclined to float a loan for the entire purchase price - unless, of course, the business he is buying also involves seller financing! While every deal is different, you can expect to see at least a five- to seven-year payback, and usually an interest rate in the eight to ten percent range. Using a straight-line amortization schedule and the aforementioned purchase of XYZ Company, a $400,000 loan at 8.5 percent over seven years would require Ms. B to pay Mr. Z $6,334.59 per month for 84 months. If this amount does not seem to comfortably fit within the company’s expected cash flow, the two parties may instead agree to lengthen the term and thereby reduce the amount owed each month - perhaps in exchange for a slightly higher interest rate. For example, changing to a ten-year note at 8.75 percent, the monthly payment drops to $5,013.07 a month. That extra $1,300 in Ms. B’s pocket could make a big difference in the day-to-day operation of the business. Also, most seller-financed notes allow the buyer to pay it off early without penalty. If Ms. B does better than expected, she can make bigger payments every month or save up for a lump-sum payoff a few years ahead of schedule.

Buying a Business With No Money Down!

Buying a Business With No Money Down? 

Cash-Poor Entrepreneur
Many of us have dreams of owning our own business. Franchise opportunities abound for people who have ready cash to spend, although it can take close to six figures ($100,000) to do a proper job of it - what with the initial franchise fee, start-up or build-out costs, inventory, supplies, and so on. But what about those entrepreneurs who have a self-employment wish but little or no money to sink into the venture? Breathe a bit easier, folks, because it CAN be done. 

The Real Estate Model
In all kinds of financial times, but especially when things are a bit tight, there are plenty of stories about people who buy houses with "little or no money down." Although this article is aimed at actual businesses - "flipping" houses by buying, fixing up and reselling them is clearly a business, but outside the scope of this discussion - many of the techniques used by budding real estate magnates are applicable here as well. And the secret to buying a business with no money down can be boiled down to a single word - financing. 

Financing Options
Outside money to buy a business is generally available from three primary sources - banks, sellers, and outside investors. Each source has its own requirements. Some offer multiple ways to achieve the same result, which is to gain enough money to buy a business without dipping into your own wallet. The best way to accomplish this is by combining sources and methods, and the type of business you choose to buy is a key factor in how you proceed. There are essentially three business models for the entrepreneur. Each model requires a slightly different strategy in order to acquire it on a no-money-down basis. 

The Start-Up
A start-up business is one that you "start" from scratch. These are the most difficult deals to structure, mainly because they have no financial track record. A brand new business has no history of sales or credit. Banks find that these offer the greatest risk, and in these times of particularly tight credit, "risk" is a nasty word among bankers. However, under the stimulus package proposed by President Obama, a significant sum has been set aside for use by small business owners. The Small Business Administration (SBA), a federal agency, works with banks to provide loan guarantees. While the SBA will guarantee a large portion of the loan, it will not cover its full value. You may have to look elsewhere for enough money to get started, perhaps taking on a friend or relative as an outside investor. 

The Existing Business
An existing business is one you acquire from its current owner. This is the best option for a no-money-down buyer, since one assumes there are customers, cash flow, and intrinsic business value such as "goodwill" and ongoing relationships with suppliers. Banks are more likely to lend money to buy a solvent business, but your best terms may actually come by way of the seller. A seller may finance as much as 80 percent of the purchase price, while a bank rarely lends more than 60 percent. Some sellers are even willing to float the entire value of the sale as a loan. Payback terms are also generally more lenient from seller-based financing. It's not unusual to see a seller charge significantly less interest - perhaps as much as three to four percent lower - than a bank, as well as providing a longer payback period. In some cases, an owner may allow you to pay back the loan over ten years. 

The Turn-Around
A turn-around is an existing business that is either already failing or else teetering on the edge. Banks will rarely provide financing for these kinds of deals. However, sellers under these conditions can be highly motivated, and buying a business like this is definitely worthwhile if the underlying premise is sound. Perhaps the business is failing because the owner has lost interest, is undergoing personal challenges, or simply does not have the marketing or financial management skills to turn a profit. If you believe you could do a better job, then the turn-around could be your perfect chance to buy a business at a rock-bottom price. An outside investor is also an excellent option under these circumstances. Some people have money to invest but have no interest in running a business on a day-to-day basis. If you can convince an investor that you have the skills to turn around a nearly defunct enterprise and make it profitable, you both will be winners. 

Seller-Based Financing Options
If the seller is willing to provide most or all of the financial incentive for you to take over, there are several clever ways to structure the loan. One is through asset financing. Prior to closing, you arrange to sell off part of the business elsewhere and use that money for partial financing. This could be tangible items (vehicles, equipment, etc.) or intellectual property, such as a patent or trademark. Another is known as inventory financing, where you identify a buyer for part of the company’s inventory - perhaps a competitor or professional liquidator. A third option is supplier financing. Few suppliers these days are happy to see a customer disappear. They may be willing to help you acquire the business so that their sales will continue uninterrupted.

The Secret to buying a profitbale small business.

This blog is based on a recent transaction in which the buyer was able to ensure there success by structuring the deal so that the seller had full control of the revenues.  This buyer asked the seller to stay on during the traing period but will make all the porifts less the cost of goods.  This allowed the seller to fully focus to the continued sales, service, and support and freed him up not to have to worry about the costs, expenses and enabling the seller to both make more money as well as the buyer to have a wonderful experiece during the training. It also allows and gives sellers to not cut and run once they are paid and it insures the business will have a relatively smooth trabsitin while providing a lucrative financial opportunity for the during the traing.  This is a unique approach and could easily be adopted in future transactions and also keeps the good will of the business in tact.