May 13, 2020
Today's episode of the podcast, Robert Hirsch from Freedom Factory discusses "How to Buy a Business When You Don't Have the Cash".
listen to the podcast, watch the video or read the transcript below.
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Transcript of Podcast
Hi, Robert from Freedom Factory here. And I want to talk to you about a question that we get from buyers of a lot, which is, well, what if I don't have $1 million check to write? And the reality is most of us don't have $1 million check to write, but how do you buy a business if you don't have $1 million check? And that's what we're going to jump into today.
So it's my personal belief that small businesses are the most undervalued asset class on the entire planet. If you're buying a stock and you're buying it at a 30 times multiple or 30 times price to earnings ratio, which is the value of the company.
When you're looking at a small business, you're looking at three to five times multiple, which obviously is significantly different than the stock market. If you have a special set of skills, which is how do you run a small business, there couldn't be a more undervalued asset class, and I think the opportunities are limitless.
And I think one of the big reasons that many people don't consider buying it is they say, well, I don't have $1 million check to write. And that's true for most of us. And so let me talk to you about some options. There there are many more, but I'm just going to go into some early ones. Most businesses sell with some sort of seller financing, especially if the seller believes in their business.
So sometimes you'll have a 30% note, 50% note, sometimes an 80% note to the seller. And what that means is the seller is carrying a note of the financing or carrying part of the financing on the business, and it's secured by the business. So if you didn't make the payments on that note, the seller would come back and take their asset, and that's okay with them.
So usually we see some sort of seller financing, and obviously there's no bank requirements, no prequalification. All the seller has to do is say yes. Another option that we do is we've been selling businesses for an of a long time. And so we have several relationships with SBA lenders across the country.
And usually, we can get a go or no-go in 24 to 48 hours. And if a business is a good SBA business or small business administration, which essentially is a government-subsidized loan, then it can give you up to 80% of the value. So you can buy $1 million company with a check of only a few hundred thousand dollars. That's a great way to go as well.
I've even taken over a business where I have not spent any money out of pocket and people say, well, why would you do that? It was a tea business and as some of you know, I used to work in the search engine industry and had an early search engine in Silicon Valley and I was considered a search engine expert 10 years ago in my career. Well, there was a tea company that acquired all their customers through search engine optimization. And so they wanted to work with me, but I wasn't willing to write them a check. So I took over the business. I didn't even make a payment for the first six months to make sure it would work, and I eventually bought it and I didn't even write a check for a penny out of pocket. All I did was fund the operating capital needs of the company.
So there are lots of ways that you can buy a business without writing $1 million check. In fact, most of the businesses aren't one buyer and one seller writing a seven or eight-figure check. And there's lots of ways to be able to do that. Of course, you can raise investment, you can syndicate, there's lots of options.
And if you have any questions about what's the best way to either buy a seller finance business or what makes a great candidate for an SBA business. Why don't you give us a call at Freedom Factory? If you've even thought about buying a business, there's never been a better time than there is today. We look forward to speaking with you soon.
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