How to buy a business if you’re broke.
Most people assume that purchasing a business is only for the wealthy or requires the buyer to take on huge levels of personal debt, for example by remortgaging a house or other property.
- However, it’s possible to raise money in various other ways – even if your cash reserves are low and you’re in no position to be accepted for a traditional bank loan. In this article, we take a look at 5 potential solutions.
- If you’re comfortable in conceding some control and stock of your business, equity financing may be the answer.
- Essentially, you are asking for help with finance in exchange for some shares or a percentage stake in your business.
- On the downside you’ll be losing some of the control in your business, but it can be a way to attract wealthy investors and partners. On the plus side, you won’t need to pay back any loans or investment with cash.
- Another method with its own pros and cons, seller financing is a process whereby the previous owner agrees to defer payment for a short period, typically 3-5 years.
- This can be beneficial as the seller will wish to see the continued success or growth of the business to ensure quick payment, and may be open to negotiation during that period.
- On the negative side, the purchase price may well be higher. As the seller is deferring their lump sum payment, they may ask for a larger sum overall – say 10-20% more.
- One of the most recent innovations in business purchasing is the use of crowd funding – essentially tapping into a huge pool of investors who can invest some of their equity into a central fund which is then used to purchase a business.
- A major benefit of this is that with such a large number of people invested, you have an immediate network for marketing and publicity.
- If there are investors with key skills, such as accountants or lawyers, they may even be able to provide their professional services to the business at a discount, or free of charge.
- While not usually becoming traditional shareholders or partners, it’s advisable to offer investors some return value, such as discounts, incentives or exclusivity on new products.
- On a smaller scale, many business start-ups or takeovers are funded through family members.
- Loans or investment often come with no fixed payment times, penalties or even interest. Of course, the potential pitfall should a business fail is that you may then have debts or conflicts with your family.
- This approach needs to be carefully considered, especially if the personal risks are high.
- Leasing companies.
- If your business has, or requires, specific or specialised equipment, one possible source of income is to sell that equipment to a company and then lease it back.
- This provides an immediate cash injection, though of course you will be giving up some of your assets.