How To Buy A Business Without Spending Money (with Pictures)

Many savvy entrepreneurs would rather buy an existing business than start a new one. There are many benefits to buying an already running business, such as well-established products and services, employees who are trained and know the business well and are able to maintain business continuity for a long period of time.

It is still possible to buy a business, even if you don’t have a penny in your pocket.

#1. Find and stay in business

How To Buy A Business Without Spending Money

1. Find the perfect business for you. Before buying a business, consider what kind of business you want to run. Even if you plan to reengineer your business unit for profit, you still need to keep it running and growing over time. In addition, finding the ideal business will help identify the business units to buy.

How To Buy A Business Without Spending Money

2. Look for the business units the owner is moving into. Check out local business units and their owners in your city. Typically, a business unit is ready to sell if the owner is about to retire or move on to new business opportunities.

You may have a better chance with a business whose owner is retiring because usually the owner wants to sell the business unit quickly. However, finding these business units is quite difficult. Try these tips for finding business units for sale:

  • Talk to a lawyer or accountant who works with local businesses.
  • Talk to the business owner directly. Even if the owner does not intend to sell his business, he may know the owner of another business entity who wants to sell his business.
  • Read local publications and look for owners approaching retirement age.

How To Buy A Business Without Spending Money

3. come at the right time You must bid at the right time to get the best price. However, the exact timing really depends on the business owner.

For example, as mentioned earlier, the business owner is about to retire. Also, business owners may want to sell their business during a recession or worsening economic conditions in order to maintain their financial health.

In this case, you face a significantly higher risk as a buyer, but you can take the risk and try to grow the business quickly once the crisis is over.

How To Buy A Business Without Spending Money

4. Find a lawyer. When doing an LBO ( leveraged buyout ), i.e. buying a business without using personal funds, you need a good business lawyer to make sure the agreement is properly drafted.

Use an attorney who specializes in commercial sales, not general legal counsel. This is done in order to avoid errors in business transactions.

#2. Purchase of a business unit

How To Buy A Business Without Spending Money

1. Find businesses that offer vendor financing. Some business sellers offer to borrow money to buy their business. When you find a business that is being sold by the owner of the business with funding, you are halfway to buying the business without using any personal funds.

  • Keep in mind that almost no business owner provides 100% financing of the sale price. You will still have to pay the “down payment” as part of the deal. This upfront payment is available from other funding sources so you can buy the business without using personal funds.
  • Business owners are usually willing to finance the purchase of their business units for two reasons:
  • The business owner believes in his business.
  • The business owner trusts you to run their business well.
  • However, this also means that the market for trading is rather limited, which means few buyers. As a result, the seller is obligated to terminate his business at a reduced rate.

How To Buy A Business Without Spending Money

2. Make creative suggestions. If the business owner is hesitant to provide 100% financing, make an attractive offer when purchasing your business. For example, offer the best payment or interest rate. For example, the buyer may offer to work for several months without pay, giving the seller all the benefits.

How To Buy A Business Without Spending Money

3. Find business owners who want to be passive investors. Many owners have worked hard to manage their business over the years.

This owner wants to retire but still needs the income from his business. Such owners will sell their business to you if they receive some income from the profits of the business unit.

  • In this case, you still need to make a down payment. However, over the next few years, you will have to transfer part of the profits to the former owner. This method is similar to vendor financing, with the difference that payments to former owners are based on the success of the business. Besides, you’re not even in debt.

How To Buy A Business Without Spending Money

4. Find another source of funding if necessary. Owners willing to finance 100% purchase of a business unit are rare. Therefore, you need another source of funding.

  • You can try to get a loan from a bank, but usually the process of obtaining a loan for a small business is very long and complicated. Banks usually do not like to finance a business up to 100%. Your best options are often with other investors.

How To Buy A Business Without Spending Money

5. Invite other investors. If you cannot finance the purchase in other ways, you will have to find an additional partner. These partners can provide the necessary funds in exchange for a portion of the business entity’s future profits. You can also bring in a “passive partner” who is not actively responsible for the business.

  • In addition, we recommend that you issue preferred stock or unsecured debt to various investors (possibly family and friends).

#3. cover additional costs

How To Buy A Business Without Spending Money

1. Decide whether you are buying the business on your own or just real estate. The difference lies in the estimated debt of the business.

If you are only buying property, you do not owe these loans. However, if you are buying a business as a whole, the loans you had prior to that business will be covered by you.

This difference will certainly influence your decisions, for example, regarding the purchase price of the company and the schedule of payments to the business owner.

How To Buy A Business Without Spending Money

2. Arrange your agreement so that you still have the remaining funds. You certainly don’t want to leave your bank account empty, even if the purchase was paid for by the owner and another partner. We recommend setting aside funds for attorneys’ fees, capital budgeting, and working capital.

  • You should always determine the loan amount from the owner and additional sources before making an offer. This way, you will be sure that you have made an offer for which you will have some money left.

How To Buy A Business Without Spending Money

3. Assess if additional funds are needed for working capital. If you buy a business for IDR 100,000,000 that is financed entirely by a loan, you have successfully acquired the business without using your personal funds.

However, you still need working capital to run the business. You still have to pay rent, employee salaries, water and electricity costs, etc.

Make sure the business still has working capital. You can get it from your investors or use the income and assets of the business to build the capital you need.

How To Buy A Business Without Spending Money

4. Use the cash flow from your business. This will help you stay out of debt. However, you will need to analyze and forecast the future cash flows of the business to ensure that the business has enough capital to operate.

If you don’t think you can forecast the cash flow of a business, seek professional advice or contact a banker for a forecast.

How To Buy A Business Without Spending Money

5. Use existing assets for profit. Look for opportunities to sell or recycle equipment or other assets owned by the business entity. This will provide an opportunity to receive additional income without investment.

For example, you can sell equipment or rent a vehicle that will be used less frequently. These opportunities may vary by business, so research all available properties and assess their potential value.

  • This can only be done if the property is pledged to the seller as collateral.

How To Buy A Business Without Spending Money

6. Fund your business with receivables and inventory loans. Factoring is a faster method of financing by selling receivables (at a discount) to a third party. In contrast, receivables loan accounts fund a business using receivables as collateral. Thus, the business must pay off its debts or lose the rights to receivables.

  • In factoring financing, a third party provides 75 to 80 percent of the value of the receivable immediately so that the business can cover its various expenses. The balance, minus third party discounts, is due at a later date upon receipt of payment from the customer. Ask the banker to refer you to a third party that provides factoring.
  • Factoring is not cheap capital and is usually more expensive than credit loans.

How To Buy A Business Without Spending Money

7. Earn property income. Look for business owners who also have assets related to their business. Then, develop an agreement to lease the asset, along with an option to purchase at expiration. Or you can refinance the original asset with cash from other borrowers.

How To Buy A Business Without Spending Money

8. Consider refinancing or offering additional loans. If all else fails, you can borrow money to cover your working capital costs. Inventory is a great way to get credit.

Essentially, these loans fund a business to purchase the products it sells, as long as inventory is held as collateral for the loan. However, due to the difficulty banks have in selling inventory held as collateral, many are reluctant to provide this type of loan.

  • Or, if you’re buying a business that generates a lot of income from credit card sales, you may be allowed to use cash -on-time trading advances.

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