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Top 3 Dangers of Buying a Business with no Money Down

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

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