Although it may sound crazy at first glance, buying a company with no cash is a viable process if you are aware of the correct strategy. In short, you can use the attributes of the very business you desire – in particular, its assets and cash flow – to finance your acquisition. This method is used often by corporations in big business but is just as viable for the small-to-medium-sized business. Let’s take a closer look at the leveraged buyout.
Choose the Business You Can Leverage
The first step tends to require special information; for example, if an old friend works at the company you wish to engage and leverage buyouts, then you might be able to wean info on the owner’s intentions: does she wish to sell, and when? This is important, as the only time you can leverage buyouts is when a sale of the actual business is in the works.
Get With the Seller and Discuss Your Intent to Leverage Buyouts
To this point, things may have seemed somewhat sneaky; like insider trading on the stock market. It is anything but as your next move is to arrange an interview with the company owner. In this interview, you are posing as the buyer – which you are. Take a tour of the business facility, and gather information before hearing the seller’s selling price. For purposes of constructing a viable example, let’s say she wants $350,000 for the business.
Building a Relationship Through Negotiations
Frankly, $350,000 is a lot of cash – but this is where the relationship part comes in (which should have started when you were being given a tour of the business facilities). Nail down what’s important to the company owner, and then you can come up with a counteroffer. If she wants to retire but also wants the business she built to continue to be successful, you may be able to convince her to sell for $100,000, and agree to receive a passive income stream monthly that would total the requested $350,000 + interest over the next decade as you manage and grow the business.
The monthly payments and interest are easy to pay from business operations; the real problem is the $100,00 down payment. When you want to leverage buyouts, you get this money from an asset-based loan. This works very well since the business is already up-and-running, and has the assets necessary to provide collateral for the loan. To complete the deal, you’ll need a swing loan since you don’t own the assets of the business that you’re taking over (yet). This can be a relatively long process; for more information, get in touch with a financial expert in the field of leveraged buyouts from Progressive Capital Funding.
