How to buy a company for $0

[Mike39]

Found this article the other day, definitely an interesting read. I see a couple flaws for me personally but I want to hear your guys' opinions first!

How to Acquire a Company Using a Leverage Buyout | Nerd Business Blog

"But nevermind the big corporations. For the small business owner or an individual starting with little or nothing: leveraged buyouts can effectively help you skip the 2 to 5 years it generally takes to build a strong company.

What this means is that instead of wasting years painfully trying to grow your business with your own money: you can take over an existing business and begin reaping the rewards within literally weeks or a few months.

For this reason - many people, particularly those of us who already own our own businesses - experience a paradigm shift after learning about how to do leveraged buyouts. Because we suddenly see the potential for a totally new way to go about building a successful business.

We assumed the way to do it was by saving up the initial capital by scavenging every penny and pressuring friends and family to come up with some money.

Then by starting the business from scratch and working 15 hour days while putting your savings and everything you've got on the line."

 

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[Amail]

That is fascinating. If I knew this a few years ago, I could have used that strategy to buy a wooden handplane business I was interested in.

 

[PatrickP]

Couple things I don't know about that idea.

Do you really own the business when you only put down 150K? Meaning will the agreement you sign with the seller not say that you can not get any other loans?

Or what about when you get an asset loan wouldn't the bank want to know if they are taking a second position. Technically the $350K you still owe on the business is probably secured in part by the inventory. I would even thing that the documents you sign at closing would state that.

I also don't understand at the end where he says that you don't have to use your credit when you get an asset based loan.

Anyone know if that is true?

It really is an interesting concept and would LOVE to hear some feedback from others.

 

[socaldude]

Great article!

My only concern here would be if the free cash flow could keep up with the debt. How much is the company for sale relative to its free cash flow and is it feasible with the debt i'm putting in? I think it could totally work but I would not do this if I was new to business ownership/management. Because if the free cash flow sucks a$$ because of the debt obligations even though its making money/profit it could lead to disaster.

And another thing you have to look at is your cost of capital relative to its return because borrowing money is not free.

 

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[NetBorn]

Hey, has anyone gone through that process of buyout ? I'd research more on the technicalities of this, but the topic is 8 years old ... I think it'd work great if you already have some intellectual or other capital to add to the company and increase its value + currently I hear big companies just restructure and resell other companies artificially - no added value just selling to next one with bigger loan.