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Owner Finance: The Best Way To Buy A Business Today

We wanted to revisit the issue of owner financing for one major reason:

It might just be the last way (and best way) for a budding entrepreneur to purchase a business these days.

Face it – banks are not lending to those seeking to purchase a business and, to even get them to look at your deal, you better have twice or three times the collateral in relation to the potential loan amount (regardless if the business is extremely profitable or not) – and just because they might look at your business loan request does not mean they will approve it.

Even non-bank lenders are not lending for the purchase of a business unless it comes with a huge amount of real estate and then they will only fund based on a small loan-to-value of that real estate.

That leaves two options for most people wanting to buy the business of their dreams:

1) Friends and Family (what some call Friends, Family or Fools). However, unless you have a very rich uncle, most of your friends and family are also facing financing restraints and either will not or cannot help you make a big purchase like buying a business.

2) Owner financing. Where the current owner of the business is willing to sell it to you on terms (meaning they – not the bank – hold the note).

This is what we will discuss here – as this might really be the only way left to purchase a business today.

Owner financing can benefit the purchaser (you) in several ways:

1) Easier to qualify for as you don’t have to jump through all the hoops that banks or lenders will make you jump through like cash flow analysis, property appraisals, debt-to-income ratios, personal financial statements, etc.

2) Better terms than most banks will offer – thus, saving the new owner (the purchaser) both time and money – not to mention less in regards to reporting (ongoing financial statements and tax returns) and fewer covenants.

3) More than just financing, since the current owner still has a stake in the business’s success, they will provide invaluable guidance and advice well into the future.

Plus, if the current business owner believes in the business (and you can get them to believe in you) – this should be a no brainer for the owner. If they hesitate without giving a very good reason, that might be a red flag to you as it might show that the current owner does not believe in the long-term viability of the business (they know something is wrong or in decline).

Let look at an example to show how owner financing works:

Let’s say you find a business for sale – a business that you know you will have the necessary passion to work hard at and grow beyond where it stands today.

The price of the business is $100,000 – yet, you tried to get a bank loan, a SBA loan and even a non-bank loan and have heard nothing but “NO.”

Here is where you approach the current business owner and entice them to sell you the business while carrying the note.

How your deal should work:

You tell the current owner that you will provide some down payment (this is to show good faith as well as provide a little cash incentive to the current owner).

This down payment should be around 10% but could be less depending on how much you can raise. But, raising $10,000 is much easier than raising $100,000. Plus, any bank or non-bank lender would require you put up more than 10% – so 10% is really a win for you!

Now, if you put 10% down, that means the current owner would have to finance the remaining 90% or $90,000.

Here is how to approach that:

State that you will pay both principal and a comparable market interest rate (let’s say for this example – 10% APR) amortized over (7) seven years (choose a term that makes the payments work for you as well as for the current owner).

But, you will also include a balloon payment in (3) three years – allowing the owner a full exit if necessary.

The longer term (7 years) gives you breathing room by making your payment affordable (the longer the term, the lower the payment).

The balloon payment (meaning that even though the loan amortizes over 7 years, the remaining balance after 3 years will be due in full – the balloon term) gives the current owner a way out in a short period as well as provides you time (3 years) to establish yourself in the business – so that when the time does come, you have a track record that you can take to the bank to finance that balloon balance.

Plus, if both of you are happy with the way things are going; you can always refinance the balance (balloon) with the current owner at the 3 year anniversary date.

Now, if agreed, you get the business (what you were working for to begin with).

The current owner not only sells the business – but, (given our example above) earns $22,700 in interest above the original purchase price – interest that you would have paid to the bank anyway if you were approved for a bank loan – might as well pay it to the current owner.

From our example, your monthly payment would be around $1,500 a month – very affordable and at the 3 year balloon date, the reaming balance would be approximately $60,000 – much easier to get a business loan approved for than the original $100,000.

In the end, you, as the new business owner are no worse off and now have bought yourself some time to show both the selling business owner and the banks that you are a true success.

The other side:

Why, you might ask, would a current business owner, looking to get out of the business, be willing to owner finance?

Two main reasons:

1) The business owner, given this economy and the fact that banks are not lending, might not be able to sell the business any other way.

2) The business owner benefits additionally as he/she receives not only the principal from the loan (what they wanted in the first place) but will also earn interest from the financing as your interest payments go to them and not the bank (e.g. major selling point).

In good times, for a business to succeed, the business owner has to be creative in all aspects of the business. In bad times, like now, to be a successful business owner, you have to get doubly creative, especially when it comes to financing.

If you have no other choice or options, it never hurts to go to the current owner and ask them to finance – what do you really have to lose?

Just come prepare with a deal that benefits both you and the owner because owner financing just might be the best and last way to finance a business purchase today.

3 Things Thought Leaders Need To Do To Win Business Today

If you’re an author, speaker or thought leader you’ve managed to navigate your way into the somewhat choppy waters of the content business. You make your money by monetizing your work. You may do that through traditional means such as speaking or writing (although as most of us know very few thought leaders make any sort of real money from the writing side of their business) or you may do so by leveraging your content in more robust ways such as assessment tools, organizational diagnostics, licensing, video enabled training, etc. Regardless of how you are currently deploying your work there are three things to take into account in order to win in the marketplace.

3 Things Thought Leaders Need to do to Win Business Today

1. Be easy to work with
The world is getting more complex every day. Your client does not have the time or energy to decipher why your work is valuable and how it will be of benefit to their organization. Being easy means two things actually.

Operational ease is the first. Are you easy to work with? Are you contracts concise? Are you requirements a complex? Make it easy for the client to work with you and interact with your company at every touch point every time. I’m shocked at how difficult the simple things like scheduling a call or a meeting are with far too many thought leaders.

The second element of being easy is relative to your content. Complex models may score points in the world of academia but if you can’t clearly articulate what you do and how it works you are burdening the buyer with a cognitive load that they certainly did not sign up for. Think of Google’s home page, think of your favorite Apple device. Simple, intuitive, logical and easy to understand and use.

2. Create a degree of urgency
Now that you’ve done some tweaking to be easier to work with, realize the next challenge is to instill a sense of urgency in prospects and clients. Far too many authors and thought leaders have created great content that are “nice to haves” as opposed to “must haves”. People are busier today than ever before and the cadence of business is not going to slow down anytime soon. How do you ensure that your initiative winds up at the top of someone’s to do list? Instill a sense of urgency into the process.

First: Make yourself and your organization somewhat scarce (i.e. – we only take on x number of clients a year, or projects that are incredibly interesting to us from a research perspective).
Second: Tie what you do to an initiative or business objective that is a priority for your client and is getting “favored nation” status currently.
Without a degree of urgency it is far too easy for you to languish and not get the green light.

3. Know who owns it
Today, decisions are not typically made by one individual at an enterprise level. We live in an age where the lines are blurred. Is that a marketing initiative or a technology roll out? Hmmm, both. Great let’s get both of the decision makers involved. Is it an HR issue or a strategic business initiative? Is it a talent development problem or is it a sales problem? Given that more and more people are getting involved in the decision making process at most organizations it’s important to understand who owns your project? Whose budget does it come from and who will benefit the most by working with you? It’s key to establish clarity around ownership as early and as often in the process as you can.

I’d suggest you take a step back and do an analysis of your organization from an ease, urgency and ownership perspective to see where you can tighten things up so that you can win more business, more often in less time then you have been.

Three Advantages to Owning a Great Internet Business Today

A great internet business can bring radical changes to your life. The immediate impact, of course, will be the fact that you will have more money to spend. But money is not the only thing you will get from creating a successful online business. There are several advantages to having your own business on the Internet, not to mention the fact that you will have access to the largest consumer market in the entire world. Here are three of those advantages you will enjoy when you build a successful online business.

1. A Great Internet Business Will Pay You More Money.

A great Internet business is likely to pay you more money than you could earn from a regular job. Having your own online business can bring you freedom from a regular job. No one likes to take orders from other people. When you work a regular job, you have to take orders from either a boss, or a shareholder. If you yearn to make your own decisions about every aspect of your life, then having your own Internet business can give you the freedom to be your own boss.

2. A great Internet business is a Fast Track To Financial independence.

 Apart from having someone else determine your pay check, you can also earn enough money to become financially independent. Financial independence generally means that you control enough assets or businesses, to pay for all your expenses, without having to work a job. Financial independence also means that money does not become the primary determinant in all your decisions. If you want a vacation, a new house, a better car, or a better education, you can just go out and pay for it, as long as you are financially independent.

 3. A great Internet Business Can Make You A Better Giver

Granted, you have to possess the willingness to give money to worthy causes, whether you have little or much. But if you are willing, a successful Internet business will allow you to magnify your own character. I believe the primary reason for great wealth is to do great deeds for people less fortunate. If you have a passion to help others, you can do so if you have enough money coming in from your Internet business. A successful internet business will pay you enough to help other people, not just to pay for your own consumption. This means that you can feed hungry children, help people who do not have potable water, educate children, and help other members of your own family as well.

 But what types of business, can typically be called a great Internet business? There are many business models online that could possibly qualify. You can create and sell websites, known as flipping. You can build websites to sell your own products. These are call e-commerce sites. You can buy and sell products on eBay, sell goods on behalf of Amazon, or create Web Logs (blogs) and sell advertising space. These are just some examples of good Internet businesses. Finally, you can create residual income through Network Marketing-type businesses. This represents one of the best business models because you can recruit people into your business, and earn money from their efforts for many years to come.