Many entrepreneurs want to own a business. Business ownership gives the owner more flexibility and bargaining power in an economy that often feels shaky. While some people start their own businesses, others consider purchasing an existing one.
Existing businesses already have a brand and reputation built around them, and these elements garner more trust and interest from potential customers than new brands. If you have a set budget, you might want to know how to buy a business with no money down.
Below, you can explore some different methods that may assist you in achieving this goal.
#1. Explore Options for Business Loans
All businesses, large or small, come with a price tag. The total cost will include various assets, such as:
- The business’s physical property
- The equipment, tools, and other material objects used to run the business
- Current and projected earnings
- The business’s sellable inventory
- Debts and liabilities
Determine how each element affects the business’s total value.
Then, apply for a business loan of equal or greater value. You can apply some business loans to the purchase of your desired business. Although this method still requires money upfront, the payment doesn’t have to come directly from your pocket.
Eventually, you will begin paying your loans back; however, you won’t pay back the flat sum received. The entity that loaned you the money will calculate interest and fees into the payments.
These payments allow the entity to make money off of your loan. The entity may also require collateral as a part of your loan agreement. Collateral often consists of property you already own, such as a house, car, or other property.
The collateral you put up protects the entity in the event you cannot pay back the loan. The entity will repossess that collateral if you consistently miss payments. Thus, you must calculate the risks associated with the loans to ensure you can manage payments when the time comes.
#2. Find a Business Partner with Money to Spare
Another method involves finding a business partner or multiple partners who can pool the financial resources necessary to make the purchase. You may still need loans and other resources to finalize the purchase, but a business partner can make business acquisition easier and less expensive for you.
Network with people within your inner circle to find like-minded people with money to put toward this project. This process may take time, but it ensures you discover the right people.
But you don’t just want business partners with money: You need partners who possess business savviness, commitment, and industry knowledge. Make sure you can work with each other as a team throughout the process to ensure strong, professional relationships where each person carries their weight.
Speaking of carrying your share of the weight, consider what you have to offer to assist the situation. The people with whom you partner will likely expect a contribution from you. Use the ideas listed below to determine what you’ll provide during the acquisition process:
- Procure a bank loan to assist with the expenses.
- Use your skill set to provide free labor and help the business grow.
- Devote your time to securing other resources to ensure the business’s success.
You should brainstorm different ways to increase business profits or decrease business expenses and apply them to your new company.
#3. Work for the Company to Earn Equity
If you want to know how to buy a business with no money down, apply for positions within the company. Find a position, secure your employment, and work your way up. Instead of periodic raises, you’ll request equity.
Equity is a business’s total value after subtracting any liabilities. Many small or startup companies may offer equity to important employees; however, larger, well-known businesses don’t typically offer equity to employees.
But you may work out an agreement with the owner of a smaller business with a couple of years behind it. Seek a position for which you can easily qualify. If the hiring manager offers you the position, you have one foot in the door.
Make your place within the company crucial to business operations. Expand your scope of knowledge while taking on new tasks outside your listed responsibilities. Within six months to a year, management may offer you a raise.
Request a percentage of the business’s equity instead of a pay bump. Most initial equity offerings can reach up to 2%, meaning you could earn up to 2% ownership in the company. Depending on your performance and how the ownership views your value, you might acquire more equity over the years.
This approach could benefit both you and the business owner. The owner avoids an extensive sales process while gaining a committed business partnership with a valued, experienced staff member, enabling you to acquire some of the ownership you desire.
Your acquisition may increase over the years, leading to more power with important decisions. However, many business owners offer equity at a cost. You may have to forgo regular raises or accept lower raise percentages than you would typically receive.
#4. Look into Lease Agreements
You can also buy a business with no money down via a lease-to-own agreement. These lease arrangements allow you to purchase a business over time while paying for it in increments. You’ll essentially rent the business until you achieve full ownership.
You might encounter some common downsides associated with these arrangements. For example, lessees are financially responsible for any changes or shifts the business may incur throughout the agreement’s duration. Thus, you will pay for any new equipment or shifts necessary to keep the business healthy and profitable.
#5. Search Out Willing Investors
Investors or venture capitalists offer another outlet for purchasing an established business. Investors often have money at their disposal and are willing to put it toward up-and-coming businesses. This method requires a little planning on your part.
To secure reliable investors, you need to fully understand the business you want to purchase. Find answers to the following questions:
- Is this business struggling?
- Why do these struggles exist?
- How else can you improve the business overall?
- How can your ownership remove these struggles?
Create a detailed plan for how you intend to approach these subjects.
Once you find some investors, present your plan to them. You can more easily persuade them with a developed idea for how you want to approach the business. If the investors agree to use their funds to purchase the business, you’ll have an easier and less expensive experience.
Remember that you must eventually buy out the investors if you want full business ownership at some point. Thus, you will eventually need access to financial resources to truly and fully acquire a business.
Learning How to Buy a Business with No Money Down… Is Impossible
You may have noticed that each of these methods still requires a generous allotment of different resources. Even if you choose a strategy that requires no immediate down payment, you will still provide other resources, including:
Since these resources also have financial worth, you still contribute value from a different source.
Employers will pay for your time, skills, and energy to fill a position at a company. Like an investor pooling funds for a purchase, you pool your resources and hope for an equivalent return on investment later. Instead of offering money upfront, you forgo some financial support or pay later.
Thus, acquiring an existing business always requires some form of initial payment from everyone involved. However, you can develop a detailed plan that allows more financial freedom than most upfront purchases. Consider the non-monetary resources at your current disposal and create a plan that works for you in the long run.
Seek Innovative Ways to Purchase a Business Instead
How can you acquire a business without emptying your bank account or falling into debt? This question is more realistic and has definable answers. Use the brief guide below to help you acquire a business.
Research the business you want to purchase—all smart business decisions begin with thorough research. Consider the industries in which you have the most experience and quality connections. Create an idea for what you can realistically bring to the table.
Some of your offerings will likely include money. However, you can also use your time, energy, and skills as a part of the overall plan. This relieves you and other partners or investors of some expenses.
Develop a network with similar interests, and seek out a team of people who also have resources to spare. This team may include investors or potential business partners. Compare what each person can offer to achieve a successful acquisition with fewer risks.
You can allot your resources to decrease associated costs and develop a more affordable payment method. Some partners may invest money upfront to complete the purchase, while others may provide additional resources that offset costs associated with employment or other areas.
Create a proposal plan that appeals to your network. After developing a solid plan, present and discuss it with your network. Consider their opinions, visions, and experiences before finalizing the plan. Then, work together to apply it to your acquisition.
Finalizing the plan may require time and effort. The more people involved, the more input you’ll include. Eventually, all parties should come to an amicable agreement.
Use other resources to buy a business. Once you’ve pooled all available resources, consider what else you need to finalize the purchase. If you need more money, apply for applicable loans, but seek loans with low-interest rates.
Sign with network members with a strong credit score and previous experience in business management and ownership where possible. This may result in lower, more affordable loan payments that allow more flexibility.
Protect your potential investment before signing any agreements. Hire lawyers to help you understand the terms of your purchase agreement, loans, and ownership abilities within the purchase. Attorneys can help you cover all your bases by helping you understand the legal terms and conditions that apply to each obligation.
Then, shop for business brokers who understand the local economic climate. A dependable business broker can assist you in achieving a favorable sales price with accessible payment options. They can also ensure you obtain the proper permits and meet any requirements.
Discover Strong Business Solutions with Sacramento Business Broker
You wanted to discover how to buy a business with no money down. Our team at Sacramento Business Broker provided a realistic answer to help you get started. Choose our services to assist you in procuring your business today – or browse our FAQ for even more information.
Call us at (916) 975-8388 to learn more about how we can help you further develop your business plans.