Do you need a business acquisition due diligence checklist & template? If YES, here is a detailed guide to buying an existing business with no money and bad credit.
Buying a business as opposed to starting one from the scratch is one of the ways of owning a business. In fact, a lot of entrepreneurs now prefer this to the traditional method of starting your own business because of the several benefits that it proffers. Such benefits including having an already known product or service, having members of staff with concrete knowledge about the business, having an existing customer base, among others.
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Is It Possible to Buy a Business With Bad Credit and No Money?
A lot of entrepreneurs always finger lack of capital to buy a business as one of the many obstacles to their ability to start a business. There is a popular saying that it takes money to make money. If this adage is to be taken at face value, it would imply that it is impossible to start or buy a business without money, yet, with proper strategic planning, it is very possible to buy a business with no money down.
Yes, it is not easy to get a business this way, but it can be done. Here is a guide on how you can buy a business with no money down.
A Due Diligence Checklist and Template for Buying a Business
When buying a new business, there are several things you need to look out for, and one of those things is the legal documentation of the business. One very important document to look out for is the buy sell agreement.
What is a buy sell agreement and why is it important to an existing business?
A buy sell agreement is an agreement between business owners or partners which provides for the state of affairs of the business when one of the business owners exits or dies. It states whether the business will be sold, to whom the business will be sold to and what happens to the shares of the co-owner in the event of his death or leaving the business.
The buy sell agreement is one of the most important document partners in a business should have because, without it, a co-owner can be left with little or nothing when he pulls out of the business. On the part of a buyer or investor, it is important that you take a critical look at the buy sell agreement before you make any commitment into the business. This is to prevent a situation where you run into legal logger heads with existing co-owners of the business.
10 Facts to Double Check in a Business Buy-Sell Agreement
a. Check the Type of Business: The first thing to look out for in a buy sell agreement is the type of business organization. The process of implementing a buy sell agreement for a partnership business is different from the process of implementation for a Limited Liability Company or a Public Limited Company.
For instance, some Limited Liability Companies make provision for the unanimous vote by over 75% of the existing owners or shareholders before the agreement can be implemented.
b. Look At The Sell Option Offered: One other important thing to look out for in a buy sell agreement is the sale option on the agreement. Some buy sell agreements provide for sale of the stock of the company instead of the assets of the company.
It is advisable that you go for the assets of the business especially if the business is a corporation, which is the share of the company. The reason is that when you buy the stock of the company, you assume the liabilities of the company. You won’t assume such liabilities if you buy the assets of the business.
c. Check out The Buyout Trigger: There is always a provision for buyout trigger in a buy sell agreement. Buyout triggers are events that trigger the implementation of a buy sell agreement. It can be triggered by the death of a co-owner, retirement or when the co-owner moves to another company. Other events that may trigger a buyout are long term disability of a shareholder. Ensure that the buyout trigger has occurred before you take steps to purchase the business.
d. Check The Liabilities and Assets of the business: You need to check the liabilities and assets of the company before you commit. Always ensure that the liabilities of the company are less than its assets. This is to avoid a situation of buying a bankrupt or moribund business. Also, ensure that you as the purchaser is released from the liabilities of the company prior to your coming on board.
e. Check the Purchase Option: If you are not an existing shareholder in the company, always check the buy sell agreement to ensure that provision is made for a buy in by an outsider. The reason is that some buy sell agreements provide only for purchase by existing shareholders in the company. You will run into serious legal problems when you buy into a company that prohibits purchase by an outsider.
f. Conditions for Sale to an Outsider: If the agreement made provision for purchase by an outsider, you need to check for conditions attached to the sale option to ensure that you meet the conditions before you make any commitment.
g. Persons Empowered to Carry out the Sales: Always check for persons empowered to implement the buy sell agreement to ensure that you are dealing directly with such persons.
Some buy sell agreements provide that the implementation of the agreement be carried out by the remaining partners or shareholders in the event of the death of one of the shareholder. In a family business, the buy sell agreement may provide that the agreement is implemented by some named members of the family.
h. Check for Right of Refusal to Sell: Some buy sell agreements provide for the right of refusal to sell by a co-owner. Thus, you need to beware of a situation where one of the co-owners of the business decides to exercise his right of refusal to sell midway into the purchase transaction. If the buy sell agreement made provision for the right of refusal, ensure that you get the written approval of all the co-owners before you implement the agreement.
i. Check for Administrative Approvals: There may be provisions in the agreement for administrative approvals before the implementation of the agreement. Always check the agreement preferably with your solicitor and if there are some administrative approvals provided for in the agreement, ensure that you get the approvals before you initiate the purchase process.
j. Payment and Transfer of Shares: The buy sell agreement most likely makes provision for transfer of shares and final process. Endeavour that you check the process of transfer of the shares of the company and the payment process to ensure that you comply with it during the actual transfer.
How to Buy an Existing Business With Bad Credit and No Money Down
1. Figure out the right business for you
Before you settle for a business to buy you will have to first decide on the type of business you will like to own and run. That it is possible to buy a particular business without putting money down does not necessarily mean that that particular business is the ideal one for you.
Even if you only have the intention of buying the business, managing it for some time and then selling it off for profit (that is flipping), you still have to make sure that you actually want to get involved with this type of business. By figuring out the type of business you would want to own, it will help you to streamline and identify a business to buy.
2. Find a business owner who is ready to sell
To do this, you should investigate local businesses that are in your area and try to find out those that are willing to be bought. Usually this entails finding a business owner who is about to retire or move out from the area or to a new business. Business owners who are about to retire are more likely to be a better opportunity as they have more of an incentive to sell off their business.
Alternatively, you can also seek out businesses that are under performing because these types of businesses that are losing money are more likely to sell to you without any money down than a business that is really making a lot of money. However, buying a dying business does present its own set of peculiar challenges in the sense that if you do not have the right managerial acumen, you will not be able to revive the business.
To find businesses that are willing to sell off their business with no down payment, you can ask lawyers and accountants that work with local businesses, business owners or try seeking out business owners who are near retirement.
3. Choose the right time to approach the seller of the business
Getting a good deal on a business requires making an appropriate offer at the appropriate time. The right timing can be the difference between the seller accepting to sell the business to you with no money or insisting that you must pay to own the business. As was mentioned earlier, if the owner of the business is planning to retire, has a failing business or if it is during periods of recession and economic downturns, you are more likely to get the deal in your favor.
4. Find an attorney: when you are trying to buy a business without using your own money, you should always ensure that you enlist the services of an experienced professional who will make sure that the deal is structured properly. Don’t just go for a general attorney but look for one that is specialized in the field of business sales.
5. Find a business that is offered with seller financing
Some business owners who are selling their businesses may be willing to loan the buyer money to buy the business. When you find a business on the market with self-financing, then you are likely to get the business without having to put any money down.
It should be noted however, that most business owners will not be willing to lend you 100 percent of the purchase price. They will still require you to pay a sort of down payment. There is still a probability that you can borrow the down payment from another source meaning that you can still get ownership of the business without putting in your own money.
It is usually a good sign when a business owner is willing to lend you money to buy his or her business. This is because when they do so, they believe in the ability of the business to survive and make profit or that they have a personal conviction that the buyer can manage the business properly.
6. Be creative with your offer
If the owner of the business is unwilling to offer 100 percent financing, then you can make them attractive offer that should make them shift he or her shift stance. For example, you can offer them higher payment for a period of time or better repayment plan. Also, the buyer can offer to work for free for some period of time while giving all the profits to the present owner of the business.
7. Bring in other investors
In the case that you were not able to finance the purchase of the business or you were not able to get the business owner to sell 100 percent of his or her business to you with no money down, you can bring in partners to help you out.
These partners can help to contribute the money that is needed to buy the business in exchange for a share of the business’s future profit. These investors may not even be saddled with any other responsibility apart from just contributing funds to the business.
In conclusion, it is very possible to buy a business with no money down, though in some cases, a seller who is willing to do 100 percent financing may not even have a viable business to give away.