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It’s all about OPM
By Michael Taylor
The dream of owning your own business should not be out of reach of anyone with some savings and decent credit. The key to your acquisition success is the concept of OPM – Other People’s Money.
In particular, you want to find a situation in which you can pay for the purchase of the business by using cash from the business itself, using a loan from the person selling it.
The good news is that for most small businesses, the seller is willing to finance your purchase.
If you are looking to purchase a business you will find plenty listed with the national franchises of business brokers such as Sunbelt or VR Business Brokers. Each site allows you to search by your preferred industry or home state for a business for sale.
I have worked with brokers from both of these franchises, in addition to many other business brokers. One of the key things I’ve learned is that a great majority of Main Street businesses (with sales of say, less than $5mm annually) are sold using a seller-financed note.
Before you make an offer, be aware of how eager the seller is to get a deal done. The more eager they are, the more the seller should be willing to carry back a note.
If they object to taking back a note, remind them that they should be showing confidence in the cash flows of the business.
If the seller is not confident in how the business cash flows, perhaps the business is not worth the price they are asking. You see how the negotiation goes.
What is a reasonable down-payment vs. seller-financing? Probably 50% of the purchase price of the business. If you can get a bank to finance part of your purchase, however, you may be able to buy with for example only 25% in cash, 25% from a bank, and 50% in a seller-financed note.
Comments (0)February 13, 2008 11:37 AM
