Top 3 Dangers of Buying a Business with no Money Down
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- เผยแพร่เมื่อ 28 ก.ย. 2024
- Can you buy a business with no money? Possibly. The important question however is should you buy a business with no money down.
There has been an increase of gurus selling courses on how to buy businesses with no money down. These courses are typically aimed at inexperienced buyers, lured by easy riches that are unaware of the potential dangers.
Occasionally, sellers will let you take over the business, and you pay them an agreed upon amount monthly. But ask yourself this, if I have a business that is doing well, I'm generating $500,000 a year net, and I could sell my business for 2.5 times multiple. A multiple is one way to valuate a company based on earnings, so a 2.5 multiple of my net earnings would be 1.25 million. I could sell my business for 1.25 million dollars and walk away. And for profitable businesses there are always buyers.
Why would I give my business to this inexperienced person who has no money? It's not realistic. The majority of vendor finance deals are open to no money down because they are unable to sell through traditional means as they have some sort of problem, or are insolvent.
Right now there are hundreds of businesses around the nation that are l are basically insolvent. Every month they lose more money. They maybe can't break the lease because they gave a personal guarantee. They maybe can't break the franchise agreement because they'll owe royalties for 2 years because of a liquidated damages clause. People think if a business is losing money they would just shut the doors, but as strange as it sounds, many can't afford to close.
The owner will tell you all you have to do is spend more time in the restaurant, make a few changes and you'll be the person to turn it around. The seller will even finance the deal. So if you have good credit you take over the lease to a restaurant and bar. You needed to do a share sale because if you buy only assets you lose the license to sell alcohol. You do some creative things to bypass the liquidity minimums, and you now own a business that didnt cost you a penny. You did it you bought a business with no money down! Which is great until the first month lease payment is due of $7,000. And the paychecks for the employees are due for $5,000. But your revenues won't even cover half of that. You didn't know how to read the financials so this is a surprise. Also, because you jumped at this incredible deal you forgot to check if the seller had any unpaid taxes, payroll taxes, unemployment insurance premiums, sales tax remittances, federal income taxes, and whether in this type of sale you could be liable. You signed everything they put in front of you to get at this great deal and you also didnt check if they had any outstanding accounts payable to vendors. The vendors are now threatening to cut off your food and alcohol supply if you don't pay the $20,000 owing. Also there were liens on some of the kitchen equipment that you didn't check and weren't disclosed, so they come and take your ovens. Your business has to close, you are financially ruined and on the hook for thousands, and the seller is clicking his heels he got out from under that mess. Now can you sue them? It doesnt matter because you dont have any money.
If you have no money it is because you haven't learned how to make money. If you don't know how to make money, a business doesn't teach you how to make money. Picture it like this - it's like buying a race car, you don't even know how to drive but you now expect to win the Indy 500 because someone sold you a car with no money down. That car isnt going to do anything except crash unless you first learn how to drive. And if you have no business experience your business won't do well.
Inexperienced buyers think a business just prints money like an ATM. You just hire people and they show up and work and the business runs itself. A successful business owner needs to be good at hiring, managing, employee retention, understanding financials, forecasting & budgeting, marketing, community outreach and customer acquisition,
Almost nobody is going to sell you a profitable business, free of issues with no money down. What you are really looking for is an easy way. And there is no easy way. Learn to make money first. Study business. You don't need university, everything you need to know is online today for free. Get your experience. If you can make money with no money, prove yourself first, then you will be able to make money when you have money. And once you have the experience you won't be taken advantage of, you'll be able to identify a good over a bad business, and once you have these skills you can potentially buy distressed businesses, turn them around, and replicate this over and over again. But first you need to pay your dues and realize there are no shortcuts to wealth.
#franchisecity
you and your channel deserve more followers.
"If you don't have any money it's because you haven't learned how to make money "..... wow.
The most powerful, brutally honest, and NECESSARY statement in this entire video. SO TRUE
If you can't cook what makes you think you are going to become a Michelin Star Chef tomorrow!!😂😂
LEARN HOW TO GENERATE MASSIVE INCOME PERSONALLY FIRST
These videos are pure gold!
Truer words were never spoken: "If you don't have any money, it's because you haven't learned to make money yet!". So sad to see people fall for these "gurus" and buy their courses to show them how to buy a business with no money and no experience! , when the reality is these gurus have never made any money in real life business other than selling their expensive courses to thousands of people! .....As a guy in business for over a decade myself, I would suggest to anyone looking to buy a business to find a successful company in that industry and work for them for a while and get paid to be trained and save some money first.
Similar with expansive vintage cars - nothing more costly, than a cheap classic Ferrari.
I'd love to see you do an interview of Moran... Iron sharpens iron!
Hats off for this man. As always great video. A bitter truth is much more better than a sweet lie.
Glad to see you bring up the taxes, and possible trust funds liability as well.
Thanks for your informative and realistic point of view as usual, its such a breath of air from all the fluff and lies.
So much value in this video, thank you so much!
Thanks for watching!
I've always thought that buying a house, car, or Business with no cash down or no understanding or express is a quick way for someone to get out of death..
Great video. Thank you for the upload
Very interesting and informative. Thank you for the video
Why when I look up franchises for sale, all I see are the crappy ones I never heard of ?
A lot of times, the most prominent list of franchised businesses for sale is a confidential list only offered to franchisees, and it's against the franchisor's policies to share this list to brokers or broker listings. The well known franchised businesses often seen by the public are from desperate franchisees who are willing to bend the rules to sell their locations. Also, most franchisors require that you're a franchisee to purchase a location, so keeping the list internal ensures that there are qualified buyers when you're trying to sell your business. This is typically how most nationally known franchisors work from my experience.
Although, if you know how to run the business that you're buying.. doesn't that mean that you can actually buy a business and that income? So in that sense a business can teach you how to make money. Just a thought cause it's my current situation! love the content!
Always keeping it real! I love it!
Thanks for watching!
Is there ever a time when it would be more advantageous to take payments as opposed to a lump sum?
Let's say an owner was a combination of ready to retire, sick, or didn't have suitable heirs, would 20% of net profit for life be more attractive than a lump sum at a multiple?
You know what they say about a bird in the hand is better than two in the bush! 🙂 There are multiple considerations including taxes, capital gains exemptions (if applicable) the abilities of the new owner (what if they run the business into the ground?) and future economic climate (what if the industry tanks?) Also if you "gave" the business for a token amount to someone for future profits they have no skin in the game which is not ideal. You have more invested then they do which sets the power dynamic to you needing them more than vice versa.
My own choice would be to take the guaranteed lump sum, unless I was unable to sell due to market conditions. There might be specific scenarios where it would make sense but many variables come into play. Thx for the question.
great content. you enlighten people and make them aware of so many financial tricks. thanks alot
thank you for the info and the time to make this good video.
Aren't brokers (or sellers) criminally liable when they misrepresent a company that's for sale's earnings? As in your example. They are essentially presenting a liability as an asset, and asking (a lot often) money for it. It is essentially fraud, but so common practice... How can this continue...
Unfortunately the system puts the burden on the buyer to prove fraudulent misrepresentation, which costs money. Also business financials can be presented in a favorable light to buyers without breaking any laws. Unless you know what to look for it's impossible to find.
@@FranchiseCityOnline could you do a vid on basic financial dd for sme?
@@forgotmyname11 Absolutely - good idea! Thank you.
@@FranchiseCityOnline awesome, thanks
Due diligence first
Great Content!
Thanks for watching!
Hey Franchise City, Is it possible you guys can do an episode on Smoothie King Franchise is a good buy?
You should make a course. I would buy from you.
Maybe one day :-). Thx for the kind words.
Is it ok to buy a running business with 20% down and the rest take out a SBA loan ?
As long as you know what you are doing! Even zero down is fine if that is the case. The problem is less about how much money you put down and more about investors not understanding the risks and challenges involved with business ownership. Thx for the question.
@@FranchiseCityOnline Thank you for a quick reply really appreciated.
This situation only happens if you're not taught about what Due Diligence is. If you don't know what that is, you shouldn't be buying a business.
Yeah ofc. Seller finance and debt. Easy peasy.
This is a nightmare but no one is this dumb to purchase a business like this.
I wouldn't buy a business until I had an independent audit completed
Good advise, ive owned 2 construction business's, i think ill be ok if i buy an online store for example. But yes ill definitely check for liens and taxes stuff like that to make sure you can handle whatever problem theyre having, but i still think its a good way to wealth, just know your industry
This is why you don't buy a losing business only a consistently growing one and you do a thorough due diligence!
Great Content. Really enjoy the genuine honesty and unveiling of the realities of business and money. My dad would always speak to me about this.
Top advice, holds true for the UK as well. Especially regarding taking on the existing employees + the lease (not just the rent but any repair liability as well, that £20k roof repair is suddenly your problem).
Interesting channel, promoting capitalism with a libertarian mindset!
Greetings, Great video's! I was wondering whats your take on opening a liquor store? Cheer's!
I reccomend you Learn how to write CHEERS before going on an adventure of Opening any Stores ... Cheers 😉
Isn't that just a commonsense?
I love the videos, you tell it like it is. The Tough love really works. I have managed bars in the past. The sad part was these bars only made a 5% net profit. It’s tough out there.
Thanks Robert, timely, and relevant. I imagine these "wonderful" deals will pop up at an exponential rate as everything begins to "reopen". I can see, "The virus is the reason the financials look bad, but now that we are open you can get it back to where it was and better". As a buyer you will have to look beyond the business, evaluate the industry and the impact of social changes on future sales. If you thought looking at a P&L was difficult... time to break out the crystal ball.
Absolutely! Thx for the comment and stay safe!
No offense, but everything you stated should’ve been worked out in the due diligence period. If you take the right steps before purchasing - none of this should happen. The last part has to do with just being business savvy.
It's great you already know what to look for when investing in a business. Some people don't - this video is for them. Thanks for the comment.
😍
Can you please do a video on Assisted living facilities, Nursing Homes, Car Dealerships, Barber Shops, Laundry mats, Nail shops, and Salons!
1:11 love this momment
Are yall investors
I appreciate all his videos. Always give honest opinion.
Thanks for watching!
No free lunch
🔥🔥🔥
I disagree; you can't learn how to run a restaurant online. I don't know why everyone is obsessed with just taking the lazy, cheap way when it comes to a business education.
Agreed!
Will you turn on your closed captions, it'll help viewers see the terminology too. I'm in a business valuation program you're right about getting skills. Are you interested in developing future business buyers?
He talks like Donald Trump. He is not telling us what we want to hear or to make us feel good. He is telling us the truth. He is saving us from a disaster .