Opinions needed on purchase of business

[NCSF]

Hello all,

After months of looking through this forum religiously, I have finally decided to join and now am looking for some help from you fellow fastlaners. I have researched and found an established business that I am interested in. It is an e-commerce store and the seller is offering some seller financing. Do to my current financial situation I do not have much funds to purchase the company, but have been thinking of creative ways to obtain this business. One thing I thought about and want your opinions on, isis the seller does 100% owner financing while retaining 15-25% of the company. Hopefully this would be a large enough incentive for them to entertain my offer. Please share your comments or ore suggestions. Thanks in advance.

 

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[healthstatus]

Depends on their reason for selling. If they need the cash for a vacation, funding another project, or a pool in the back yard. Your deal won't fly. If they are selling because they are sick of it, maybe, but it is a huge risk for them, because if you screw it up in the first couple of months and can't pay, they will have a now worthless ecommerce website (that you screwed up), and no cashflow.

I wouldn't do 100% financing ever, not even for my children.

 

[NCSF]

heathstatus,

Thanks for your reply. The current owner is selling due to focus on another established business. Let me go one step further into my creative thinking and again any thoughts or comments from anyone is greatly appreciated. What if instead of 100% financing we came to an agreement where I am paid either a minimal salary with the remaining profit going directly towards the purchase of the business, or paid a percentage of the sales with the rest going towards the purchase of the company. This would have the business paid off in less than 4 years with the owner retaining 15-25% of the company as an incentive for this creative approach. Again, I am just trying to be creative in purchasing this business and trying to come up with a solid offer before moving forward with the current owner.

 

[kurtyordy]

if I were the seller, this is how I would look at you-

if ncsf has proven unable to handle his own current income/expenses to be able to bring cash to the table, why would I trust him/her to handle the income/expenses of the business when it is my money on the line?

Not judging you because I do not know you situation, but that is how I would react as the seller. Typically, lack of money=poor money management skills. (not always, but typically)

 

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[healthstatus]

OK, and three years into it, you make the site SUPER successful, and he says, "I'm not going through with our deal, you are fired." What are you going to do then?

Don't scoff, this happens all the time, businesses that seem to be at the end of their life, the owner is thinking about retiring, a new president is hired and told that he can have the company when the owner retires, then it starts making bank, the owner's kids now get interested in a successful business and the president is shoved out the door, if you try and take them to court, they spend all the companies money defending it and you are tapping your own resources with little chance of success and if you do win you end up with a cash strapped business.

You need to find a personal investor/lendor that will finance the business and let you run it for salary and equity stake. Or you need to wait until you have the resources to do it the right way.

 

[JEdwards]

So you want the owner to hand over his business with zero down and you will be nice enough to give him 25%.

Seems like a deal he will not be able to pass up.

 

[Money mania]

What do you bring to the table for the seller. For instance if this was a business in which you were an expert in and have been in this niche or industry for many years, then that may be valuable to the seller, or if you had a partner who had money and you both had business experience that may be of interest. If you are asking this guy to sell a business with the hope that you are going to maybe understand his industry through trial and error, that seems to be a HUGE risk. I don't know your situation, but just reading so far that would be my 2 cents.

 

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[futhey]

When I read threads like these I wonder if I'm the only one here with a credit card.

If you 100% believe in your ability to execute and the business model, put some skin in the game and scrape together the money by any means possible.

If the thought of borrowing money from your friends and family, maxing out your credit cards, and putting every cent you have into the project scares you, you don't have enough confidence in the project. Pass on it.

Credit isn't evil. Credit is absolutely brilliant if used properly.

Best of luck.

 

[Vigilante]

When I read threads like these I wonder if I'm the only one here with a credit card.

If you 100% believe in your ability to execute and the business model, put some skin in the game and scrape together the money by any means possible.

If the thought of borrowing money from your friends and family, maxing out your credit cards, and putting every cent you have into the project scares you, you don't have enough confidence in the project. Pass on it.

Credit isn't evil. Credit is absolutely brilliant if used properly.

Best of luck.

Borrowing money at 18% with a personal guarantee to gamble on an uncertain business proposition is nothing I'd ever be interested in.