Buying a business with 0$ down

In last week’s mailing, I touched on the topic of buying a business with 0 dollars out of your own pocket and asked you to vote in the poll if you wanted more. It was unanimous.

If you have no idea what mailing I am talking about. You can subscribe to it right here.

Let me begin by stating that the topic is too complex to fully cover in just one article. Instead, I’ll briefly describe the basics and share the resources I found extremely valuable to learn about the topic. If you want to skip my summary you can just scroll to the bottom and get your hands on the book and courses right away. No hard feelings.

Adjusting your mindset

Let’s kick off with the slight adjustment of mindset you have to make.

It’s this mindset that withholds us from doing things out of the ordinary. What I mean by that is that we tend to stay stuck in the known. And ‘the known’ is limited to what most people around us believe to be possible.

An example of this is that we take on a huge debt burden to pay for education or to buy a house. This is considered normal. If we try to do the same in order to buy real estate meant to rent out or a loan to start a business, we often find discouragement. 

I’ve witnessed this myself when trying to get a mortgage to buy real estate meant for rental. In my case, I would get way less money than when I would want to buy a property to live in. 

If you think about it, it’s crazy. The first “investment” doesn’t generate income, but the second one does. Still, while the second is the more safe investment from a bank’s perspective it’s easier to receive the first. 

Anyway. It’s this mindset and way of doing things that prevent us from looking for different opportunities.

  • It’s out of the ordinary to buy a house abroad if you don’t even have a property in your home country.
  • It’s risky to start a business.
  • This is not how it’s usually done.

The acquisition of existing businesses fits right into this lane. Buying businesses is something for the ultra-rich. It’s Google that acquires a new venture. Not Jake from New Jersey. Well, you’re wrong.

Let’s look into some numbers

  • Startups are normalized in this modern age. Even tho 90% of start-ups fail.
  • Vc-backed startups have a success rate of 25%. These are the startups that are backed by the big boys. So even tho there are some very experienced and wealthy people behind them, still, 75% of them fail.
  • Of the small business loans used for the acquisition of existing businesses, the default rate is about 2%. (According to the small business administration) Or, said otherwise. The money put at risk has a chance of 2% to vanish into thin air. Well, now we’re talking. 

The pro of buying an existing business is that you already have revenue, you have staff members and clients and you have systems and processes in place. In most cases, all you need to do is “Not F*ck It Up”.

“But why would anyone sell a good and profitable business?”

Reasons for selling

The reasons for selling are very diverse. But the most obvious one is very simple. Business owners retire and don’t have a successor.

In 2013, there were about 12 million small businesses owned by boomers in the US alone. That’s 43% of all small businesses in the country. 

Those boomers are all retiring in the next 10 years. Currently, they are retiring at a rate of approx 10.000 a day. And most of them don’t sell. Their spouse won’t take over and they don’t know how to sell. So the businesses just cease to exist.

Other reasons for selling from my own experience:

  • I want to focus on my study
  • I’ve got other priorities, no more focus on this particular business
  • I’m bored with this business, I can retire already, I want to do something else.
  • I don’t need to sell but this asset is an excessive luxury. I could use the money to invest in something else.

3 of the 4 businesses/assets associated with the reasons above, I bought with 0$ out of my own pocket. The 4th concerns a house abroad for which I needed to put 40% down. But that’s only because I’m a foreigner. Would it be in my own country I would have to put 25% down. 

Summing it up so far. 

Just because we think that something is impossible doesn’t mean that it is. People leverage this principle. I am an example of it, and I’m a car mechanic according to my last diploma. If I can do this, so can you.

Where to find businesses to buy.

Let me kick it off with the usual places. Brokers and websites. There are a lot of businesses already for sale. Because these are the obvious places, they are also the ‘worst’ deals. Not bad perse, but they could have been better if you went straight to the source.

What I mean by that is that you make the most money at the start. When you’re buying. Or, the better the initial deal the higher the return on investment.

Websites to find business deals:

Finding deals straight at the source

I found all 4 of my major deals in my own network. They were just around the corner. 

This shows the importance of networking. And I’m not talking about “connecting with people on LinkedIn” or joining local business clubs. That’s just scratching the surface, superficial. I’m talking about gaining trust with the people you work with or for

Every deal requires a level of trust. That’s why all the businesses listed on the websites above require brokers and escrow services. Because we lack trust. The people you have worked with for years earned your trust, and vice versa.  

The only variable left is you actually mentioning your intentions.

It’s somewhat similar to the concept of your high school crush. The boy or girl you thought was unreachable just to find out 20 years later he or she had a crush on you as well. 

If you don’t mention your intentions how will someone know? If you dream of buying a particular property. But you never tell the owner about it, you’ll never hear when he or she is looking to sell.

I’ve worked with the owner of 2 assets I bought for 2 years. I never overcharged him and always gave my best. When I found out that he wanted to sell, all I needed to do was ask for a chance. Both deals were forged in a day. Both with seller financing. Meaning that he gave me a loan. So out of the existing revenue, I paid him back. 

This can only work if there is mutual trust tho. 

A third deal came to life because of my curiosity. I’d known the owner for a few years as a guest at his establishment. All those years I asked him sincere questions about his business, about him. 

When he joked about selling one day it triggered my “opportunity radar” right away. I waited for the right moment and just asked him straight forward about it*. It turned out that he really would consider selling if the right opportunity came. 

*Do not confuse waiting for the right moment with waiting until you grow a pair…. I didn’t want to confront him in front of his guests or staff. After all, people tend to stress out if they hear rumors. So I visited him at times when no one was around. 

It took us 1 hour to check the most important numbers. But since I’d known his business for a long time I can say with certainty that it’s a profitable business. For the financing, I can get a bank loan of up to 90%. 

If you would find yourself in a position unable to come up with the 10% investment yourself, you could always negotiate seller financing for this part. Meaning that the seller would loan you the required 10%. This way you’d forge a 0$ out of your own pocket deal.

Anyway. These are some key insights regarding my own experiences. This only scratches the surface of the topic. If you want to dig deeper there are 3 resources you should check out.

3 resources to learn all about buying your next business

  1. Buy Then Build by Walker Deibel. This book covers everything you need to know.
  2. Roland Frasier’s EPIC Challenge. It’s a 50$ course. Worth every penny. Check it out right here.
  3. Codie Sanchez. Check out her free content online and the community attached. It’s pricey so maybe this is a step you could take when you’ve established a steady base and cash flow. Do keep an eye out for her tho. Following her costs you nothing.

Wrapping it up

Start working on your mindset first. Then start paying attention to possibilities around you. They are pretty much endless. Finally, speak up, and share your intentions with the world.

Buying a business is just the first step. A topic that isn’t covered yet is the upside you can create from growing the business. We’ve only talked about buying a business for steady cash flow so far. Not even about scaling those businesses. How to add tech or digital marketing to boomer-ran companies and 2, 3, or 5x its revenue. 

But first things first.