The American Dream: How to buy/start a business with none of your cash.. Part IV

Additional leverage techniques: Helpful methods for buying a business without using your personal bank account

There is so many other leverage techniques available, of which many people are unaware. Many of us have heard the phrase "you need money to make money". This expression is partly true. However, it does not take into account that the money does not necessarily have to come from your own pocket. Leverage is a method used everyday by large financial organizations and by consumers. For example, when you buy a car, you are using leverage by borrowing someone else's money (either the bank's or the car dealership's, depending on which one offers the best rate).

A leverage buyout (or LBO) requires the same method to buy a business, except you can often use the assets and cash flow of the business to make the complete down payment and the monthly installments. Now, let's discuss some leverage strategies you can use to buy any size company without a penny of your own, making it possible for the business to literally buy itself.

Question: What kinds of leverage techniques have been used most successfully to acquire companies?

Answer: As mentioned previously, you can use the assets of the company for the initial down payment (covered in the previous strategy). Directly contacting the entity that stands to benefit the most from your transaction, your prospective supplier, can be a successful strategy. Think about it. You're going to be a potential "cash cow" for them, especially if you make the business grow beyond its present level. By approaching the prime supplier of the business with a simple offer, you can convince them to loan you X thousands of dollars in return for your continued business. Once you present them with the offer, you should work out an agreement stipulating that if you
switch suppliers and not use their products or services anymore; you would pay the balance of the loan immediately.

Question: What other ways can suppliers help me in this process?

Answer: Selling off excess or unwanted inventory prior to acquisition can be another way to raise cash needed to purchase the business. Make sure the inventory is determined by physical count and divided by finished goods, work in progress, and raw materials.
Suppliers may be willing to buy this inventory. Make sure as well that you know how much inventory is necessary for your business to function properly. In fact, there may be enough unused goods to cover the entire down payment or more.

Question: How does the deal work?

Answer: A seller is identified, often with the help of a supplier, and an agreement is drawn up stipulating that upon change of ownership, the inventory is shipped to you, the buyer. You can either sell the goods directly for cash or convert them to account receivables, from which a fixed-asset lender can immediately loan you the cash. This can satisfy your down payment. You need to find out precisely what your needs are before you sell anything. You do not want to find yourself in a position in which you will have to repurchase the same items at a more expensive price. The same approach can be used for liquidation of hard assets, such as machinery, equipment, or fixtures, which can be sold for cash and used towards your down payment.

Question: What techniques are available in which I can use account receivables as a form of leverage in my future acquisitions?

Answer: Program Report #6 list other forms of leverage buyouts and the necessary procedures to follow that any aspiring entrepreneur can use to make a none-of-your-own-cash business transaction. A bank or financing company will lend you up to 80% of the value of all receivables under 60 days old. After 60 days, you may have a problem borrowing the money. So it makes a lot of sense for you to focus your attention on the value of the receivables that the business holds.

Question: If I assumed the payables of the business, will I be able to "buy down" the seller's down payment?

Answer: This leverage approach utilizes credit as a means for taking over the business with a temporary exemption from paying the suppliers. You will have to pay them within 30 to 60 days, but that will give you extra time and money to resolve financial obligations
with the seller. One possibility for you is to assume all trade payables with your suppliers (as Sandy and Kevin did when they took over the deli pastry restaurant). This will enable you to delay payments to the suppliers while you concentrate on more immediate concerns, such as making money for the business and repaying your other existing debts (bank, seller and business brokers).

Question: Is it recommended to buy or start a business strictly on credit?

Answer: If credit card companies look at your credit history and judge you worthy enough to receive a number of pre-approved, $5,000 to $10,000-limit cards in the mail, I say, "Go for it." This is among the easiest form of leverage to use to start up cash-free.

Question: If I use credit to purchase or start a business, will the high interest rate affect its success?

Answer: Nowadays, some credit card companies are offering 0% interest applied to any purchases made within the first several months. Take advantage of these offers (Program Report #6 will supply you with the list of these credit card companies). Other companies are offering low APR financing on balance transfers, a rate that depends on your credit history. You should apply for several credit cards to take advantage of these benefits. You should use the first credit card with 0% interest to initially purchase the business (Obviously, make sure it has a large enough credit limit). In order to avoid high interest rates after the 0% interest period has expired, begin conducting balance transfers from one card to another. Continue doing so until all initial debts are fully paid.

This strategy will allow you to minimize your interest payments.

Questions: How can a buyer take control of a business with high liabilities, without putting himself in jeopardy?

Answer: We often hear of large leverage deals in which the buyer assumes the huge debts of a company to take control. If this seems too risky, can it also be done on a smaller scale?

Debt can, of course, be a burden to the company. However, it can also bring new opportunity to the buyer. Very often, sellers want to rid themselves of their business to avoid further litigation from creditors. Some of them cannot wait to escape this financial strain. At this point, these sellers will practically give away their business to relieve themselves of the stress caused by their never-ending debt. In this situation, any conditions you pose to the seller could actually benefit them. Meanwhile, you will be able to utilize a no-cash down payment and keep your savings for the operating expenses of your new business. Knowing the reasons why a seller gives up their business can be a source of strength for the buyer during negotiations. In the past several years, I've assumed ownership of a number of distressed companies without using my own cash, returning them to solvency and health and then selling them for a comfortable profit.

My academic background, having earned a Bachelor's degree in Finance and a Master's degree in Business Administration, has given me the opportunities to learn about these kinds of transactions and their rates of success. Through my experiences in the corporate world, I have applied these concepts and have helped many of these failing companies regain their position in the market.

The program reports offered throughout this book enable you to pinpoint the troubled areas on which you need to focus your attention. However, during a leverage deal, being overly cautious and concerned about possible mistakes can slow down the negotiation process. Because there are often several qualified buyers hovering around any one good business opportunity, it is to your advantage to have the adequate professional support to guide you in making the right decisions. Mind you, this doesn't mean you should rush into ownership without absolute certainty that it's the right business and the right deal. (In fact, you should be ready to "walk" if it doesn't feel right.) It's a buyer's market (and a jungle) out there, you need to be prepared and act calmly in order to keep the process moving.

Dan Amzallag Author: The american dream book: How to buy or start a business www.theamericandreambook.org Email: dan@proaceintl.com Phone; 3019477563 Submitted with Article Distributor.

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