There are several alleged gurus who are luring unsuspecting individuals into expensive courses, boot camps, and seminars with the ridiculous promise that they will teach them how to buy good businesses for zero money down. I am interested to know if these so-called experts have even done, let alone had any success, with the strategies they are teaching and charging people thousands of dollars for these foolish tactics.
Over the past few months, I have had more frequent inquiries about the “no money down” concept so I can only assume these world class marketers are making an impact. Unfortunately, they are taking money from those who can least afford to throw it away.
Some of the strategies I have heard they present are insane. My favorite one is them claiming with great enthusiasm that they will teach you how to consistently buy solid, profitable businesses and get the seller to finance 100% of the deal every time. That is sheer craziness!
Business Buying Lesson # 1
Owners of good business do not hand over the keys to complete strangers for free and let them pay out 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 squash the hopes and dreams of individuals who want to buy a business. However, it is critical to understand what is true and how to go about it in an effective way, and to not waste time or money on schemes that simply do not work in the real world.
Seller Financing Is Wonderful – But Be Realistic About It
I am a huge believer in seller financing. I have been teaching and preaching it for over thirty years, whether I have been representing the buy or sell side of the deal. It is the most effective way for the seller to validate whatever promises they may have made about the business. It provides a highest degree of comfort to a buyer when the seller has the proverbial “skin in the game”.
However, the role of the seller is not to be the bank. The notion that they will underwrite the entire deal is simply not realistic. I do not care how much these gurus charge people to teach this nonsense. It may happen I guess on the rarest of occasions, although I have yet to witness it and I have only been in this sector for thirty two years.
Think about it: why would the seller of a good, profitable business offer to simply give it away to a complete stranger and let them pay out the entire purchase price? Do you think someone will take their life’s work and hand it over to an unproven operator and cross their fingers and pray that they will continue to run it successfully and pay them?
How Much Can A Buyer Expect A Seller To Finance?
So what is accurate when it comes to seller financing of smaller deals? In the real-world, seller financing will average thirty to fifty percent of the deal. This has been the parameter for decades and my guess is that it will remain that way for decades more.
This means that the buyer must come up with the rest. If a buyer is not in a financial position to fund the equity investment to the deal (the down payment), do not despair or give up. There are options available such as bringing in investor/partners, acquiring less than one hundred percent of the business, or potentially working there for a period and earning equity. We will discuss these on future posts.
As you pursue your goal to buy a business, understand what is realistic in the business buying process and focus your attention on meaningful strategies that you can use effectively. Buying a business is a dream for many people, so stay focused and do not get sidetracked by fantasy scenarios that will never materialize.