These days it seems you can buy almost anything without having any money upfront. You can buy your fridge, computer, car, and even house with no money down (ok, the house is a bit trickier now then it was in 2006). However, did you know it can be done for businesses to? Depending on the size of the business that is very reasonable option. However, the larger the business the harder this is to accomplish. If nothing else, consulting fees to your lawyer and accountant (whom you should always consult) could prevent a No-Money-Down transaction on larger (i.e. greater than $100,000 transactions).

So how do you go about finding a business to buy when you don’t have deep pockets and investors lined up?

The most important part of that is finding the right seller. The only way you can reasonably buy a business with little to no money down is to find a seller willing to finance the deal for you.  As funny as it may sound, people don’t always sell a business JUST to make money. There are actually a lot of other items that can factor into a sellers decision of whom they want to sell to and for how much. The biggest factor in getting a LOW PRICE and OWNER FINANCING is the seller’s time frame. What that means is if someone needs to sell quick, you can get a much better deal. The same is true of anything you purchase. If someone needs to sell a motorcycle because they’re joining the military and being shipped out in 2 weeks you’ll obviously get a better deal then if they have all the time in the world. When you buy a house, car, or anything from a small business the same can be true and the same is definitely true when buying a business. So what are some common “flags” that you can use for bargaining leverage?

1. Divorce – This may be the best one. Let’s face it, when people are getting divorced they need to get rid of things quickly and sometimes for very little money if for nothing else but to not allow their spouse to get the business. I’ve heard of one instance where a business owner literally gave his business away for free just so his ex-wife wouldn’t get it.
2. Illness – Sometimes people get sick (or someone in their family gets sick) and they can no longer adequately run their business. Often that requires them to get rid of it quickly or risk losing it completely. In one instance I looked at a business with this scenario. A month after visiting that business the owner called me back and said she’d go down on her price and finance the business for me because she just needed to stop working right away. I passed on that business even though the opportunity for a no money down purchase was there.
3. Retirement – This is a very common reason for selling a business and one that can be a great tool for negotiating the price down or toward an owner finance package. You first need to find out if they’re an S-Corp, C-Corp or LLC. If an S-Corp that you’re willing to buy the shares of, they stand to have great tax benefits by receiving small payments over time versus one large payment. The seller may not know of those tax benefits so you can use that as leverage. Another important point with retiring sellers is that they may be tied emotionally to their business. So what does that mean for us? Well that means they are motivated by more than just cash. If the seller is also the founder they generally feel a tight connection to their customers, employees and business as a whole. They don’t just want some well heeled corporate raiders coming in to sell everything off and make a mess. They’re looking for someone who can continue their vision. And if it’s important enough to them, they may even consider the buyer who is perfect in every way, except they don’t have the ability to come up with cash. From their perspective if their business is taken care of and they are still getting as much or more per month than when they were working why not take the deal?
4. Cashflow/Bankruptcy – What I mean by this is someone who’s going to lose their house because they can’t make payments may be willing to sell their business quickly and cheaply. Obviously the strength of a business whose owner is broke should be in question, however keep in mind that the best businesses to buy are the ones that have problems that you can quickly fix. The owner with cashflow issues may need money upfront or may just need X amount a month to cover some bills.

So when you’re evaluating businesses to buy, it’s always important to ask “Why are you selling?” A lot of websites, like Bizbuysell.com and Bizquest.com, even list the reason for selling right in the description so you can more easily cherry-pick the right ones.

Here are a few other important questions to start narrowing down your business choices:

1. Why are you selling?
2. Is the seller also the founder?
3. Is he involved in the business day-to-day? If so, in what capacity?
4. Is an individual or investment company selling?
5. What’s your time frame for the transaction?
6. What’s the annual cashflow or profit?
7. Is the business a S-corp, C-corp, or LLC?
8. How many full-time sales personnel?
9. Marketing budget?
10. Current marketing projects?
11. Is real estate included? If not does the seller own it and plan to continue leasing? (This can tell you a bit more about the sellers total monthly income without a business)

It can take quite a while to find the right business so start searching now. I’ll continue to walk you through the lessons I learn as I continue to work on business acquisitions.

To your business buying success, Bryan

As any business owner knows, Cash is King and when you can develop a method of repeatable, consistent, monthly cash then you’re on top. Let’s face it, the more fixed expenses you can cover with a fixed cashflow the better your business will run for several reasons:

1. You have more free time - to devote to things other than “Where are we getting the money for payroll this week?” – In other words, you’re more free to work on your business instead of just in it. Or take a vacation and know money will still be coming in when you get back.
2. You can sell your business for more – any business that has consistent recurring revenue is always worth more than a business that does not. Go look at the going rates of laundry mats and car washes. Often they go for many times earnings and even more than 1 times annual revenue.
3. You can go that extra mile for your customers – this one is often overlooked, but when you NEED that next big check to pay this week’s bills you might just skip other things that were of higher priority but pay less to get that fat check. Beyond that, you can sometimes do services for customers for free or at a discounted rate to go that extra mile even though it’s a month past warranty simply because you can afford to.
4. You can sleep more easily – When you don’t know how you’re going to pay that next bill it can get a bit nerve-racking for any of us. It’s a lot easier when you know you have X amount of billing going out every week or month.

The list can go on and on. If it’s not obvious yet, then just take my word for it, every business wants recurring revenue. Before moving further, I’ll provide my definition of recurring revenue as “Consistent, repeated income from the same customer in a predictable time frame.” In other words, if you have an oil change business, I don’t consider oil changes recurring revenue unless your customer is tied into some sort of maintenance plan or agreement. That’s not recurring revenue because in 3 months, they can go somewhere else to get their oil changed very easily.

Recurring revenue can be broken down to 3 main areas:

1. Renting/Leasing Products – In this category would be automobiles, motorcycles and other gas powered vehicles along with any product designed to be very reliable for a long time. The top 2 that come to mind are copier machines and water softeners. Every city has a copier salesman with a lease program “perfectly tailored” to your business needs… We also all have the Culligan man. His business philosophy since 1936 has been “Rent one, Sell one.” What he’s renting and selling are water softeners and the reason he does that is to have cash by selling a softener to cover his costs for renting the next one. He rents the next one to build up reliable consistent recurring revenue that can continue for literally decades.
2. Services – The simplest way to think of this is subscriptions – magazines, newspapers, Netflix, Cable TV, internet, cell phones, insurance premiums – All those bills you have to pay each and every month.
3. Rent-to-own/Payment Plans – These are just like the “rent/lease” products above except eventually the customer will own them AND they generally don’t last as long. Think of “Rent-to-Own” stores like Rent-a-Center and Aarons. The products they rent-to-own have a relatively short shelf-life. In other words, 5 years from now we all want a bigger TV, newer computer, upgraded furniture, the latest gaming system, and the most advanced new sound system. So guess what the rent to own businesses try to do? They start renting you a new X when the rent-to-own plan for the last one is up so you’re always making a monthly payment. And the second time around it’s a much easier sale because the consumer already has that dollar amount budgeted every month.

Now it’s time to get creative, how can you incorporate those into your business?

If your business sells a product then you can easily incorporate 1,2 and/or 3. You just have to decide which ones will work best. Is your product prone to frequent and regular updates that your customers are going to want to replace in a few years? Every major electronics and computer store now has a price and a monthly payment next to each product. Those are rent-to-own or finance programs. There are subtle difference between finance plans and rent-to-own plans that normally come down to how the interest is calculated. Either one can be effective. Off the top of my head, I can only think of a few items that you would want to simply rent without your customer ever owning the product. Basically any major appliance in your home could fit into that category – Hot water heaters, air conditioning units, heat pumps…  All the things people only think about when they don’t work. Why rent those in addition to selling them? The benefit to the consumer is that with a rental, since your business technically owns the product, it’s your responsibility to fix it when it’s broke. In other words, the customer will never have to pay any bill except their monthly rental payment. The benefit to you is the recurring income.

Honestly, I’m not at all familiar with those home appliances so it may make a lot more sense to simply sell the customer a new unit along with an extended warranty/maintenance program. That way you can get the up-front sale to cover cash flow and recurring revenue from the service plan forever. After all, if you sell them the plan up-front and get them used to an annual “plumbing inspection” or “air conditioning” maintenance they’re much more likely to continue that every year instead of waiting till 3 or 5 years down the road for maintenance. My last blog was all about creating, selling, and pricing these extended warranties to create another profit stream for your business so check it out for more details.

In my business we’ve incorporated all 3. We have rental options, rent-to-own options (we don’t call it financing for legal reasons), and Platinum Care Plans. Of course we also simply sell our product which is still the preferred method for most clients.

If your business simply provides a service such as computer support, accounting, legal advice, consulting, etc. etc. etc. the same rules still apply. For the computer company you may be able to lease/rent equipment (maybe even consider adding a copier lease division since those are so tied to computers with built-in network printers and scanners these days) or simply setup a monthly service fee where you verify backups, scan for viruses, maintain drives (i.e. defrags, scan disks, space requirements), and help spec out new equipment as needed for a flat monthly fee. Lawyers now provide pre-paid legal services (just google it) and most accountants still have a lot of monthly or quarterly services to supplement the April tax return cash influx. The point is, no matter what your business does, there’s a way to get people to come back again and again. Find those opportunities and in the next recession you’ll be in a much better position than today.

To your recurring success, Bryan

What I’m talking about are Maintenance Agreements, Privilege Programs, Preferred or Platinum Care Packages, etc. etc. Call them whatever you like, but if you want to get paid now for what you might have to pay for later you need to start these at your business. First let’s talk about the benefits so you’re fully convinced you need to do this right away.

1. Immediate Cash – That’s right, increase your average dollar sale immediately and put more cash in the bank with virtually no expense (you will have to do some marketing, training, and have agreements to sign).
2. Recurring Income – Depending on how you set it up, you can bill your customer for the whole package all at once or every month, quarter, semi-annually, or annually. Whatever works into your game plan. (More on this below)
3. Your customer wants it! – When the economy is down, consumers rethink their purchases. One thing that they hate when they aren’t sure where their next check is coming from is large surprise repair bills. Whether that bill is for a refrigerator, computer, or pickup truck. There’s nothing worse than getting hit with an unexpected bill when your income is slow. Most will much prefer to trade a small monthly payment and the security that no other bills will come up, for the possibility of that “surprise bill” down the road.
4. It’s simple – I’m in the middle of this project right now and though I’m consulting dozens of colleagues, the vast majority have never done this so I’m figuring out a lot as I go and so far there isn’t a whole lot to it.

Do you really need any more reasons then that? If you were going to implement any new program can you think of 4 better reasons than those? Me neither…

So what are the pieces to a good Maintenance Program. First let’s consider some common versions of these and who’s using them…  Best Buy, Circuit City, and just about every electronics company offers them now and you pay for them all right up front and for a terms from 1-3 years. Dell computer does the same thing with various time frames and various levels of coverage. When you go to buy a couch you can even get an extended warranty plan that covers rips, tears, stains, etc. etc. etc.  All of these require an upfront payment for the full amount. So asking for that payment up front isn’t too uncommon and is actually the norm.  Car companies do the same thing except they wrap that additional “investment” into your monthly payment. The pitch goes, “for an extra $24 per month if your $4000 transmission fails it’s all completely covered and we give you a rental car while it’s in the shop.” Now can I see a show of hands from the people who believe that all of these major organizations are implementing these programs and losing money in the process. My point is that if your business isn’t doing this you’re missing out on additional revenue and more importantly additional profit.

So what do I recommend?

1. Keep it simple! Dell and the car companies have a complicated assortment of options from their basic to most advanced plan and they have dozens of people dedicated to creating, marketing, and tracking just those things. At your local car dealership they have a “business manager” who’s sole job is to sell you these add-ons. That’s a lot of complication. To start off simplify. This doesn’t mean that later on you can’t add more options to make sure you get every dollar, but keep in mind the more options, the more paperwork, the more training, the more tracking etc. etc. etc. To get started, keep it simple!
2. Make it a “no-brainer” My marketing even says just that. That it’s a “no-brainer” that shouldn’t be passed up. Why? Because I priced my Privilege Program to cost LESS than the cost if they just paid for service/maintenance as needed. Why? Because some times people forget when it’s time for service and when we remind them they could put it off for weeks or months. When people have already paid for something they tend to not forget to get it. Also, my costs for tracking people down for regular service and scheduling them become much less because now they are expecting (and wanting) to hear from us.
3. Have an easy way to track it. Without the ability to simply manage, the progam can cost way more than it can make. Is your billing software setup for monthly, quarterly, or annual billing? (Quickbooks honestly is not very good at this) Do your work orders have a way to let your service tech’s know it’s a Privilege Customer? Can your customer service people tell they’re a Privilege Customer? Can your business manager easily track progress, related Profit and Loss, implement price changes, and even track the reasons why someone is canceling? If not, look into software for your industry that can or consider hiring a programmer to write you a custom database.
4. Try for an up-front payment but have other options available. If you determine your Maintenance Agreement for your computer store, plumbing business, or bicycle repair shop is going to be $120 per year then allow them to pay $12/month (with a minimum term if necessary) or $35/quarter. Note that the further ahead they pay, the more discount the receive. Obviously only offer these options if your computer system can handle that kind of billing. After all, $12/month is better than $0/month.
5. Incentivize for your team. I’m a big fan of employee incentives so throw in an extra few bucks for each one they sign up. At the very least, tie their job description and performance to signing up X agreements per day or week.
6. Train your team (over and over again). One lesson I’ve learned from running a business is that your team members don’t quite retain everything or take it real seriously the first time around. You have to bring it up again, and again, and again. That’s OK. That is your job after all. Granted if you have an incentive program tied to each employee signing up these agreements you might not have to repeat it so many times.

There’s your maintenance program outline. Get started today and start making more money tomorrow while making your customer’s happier than ever.

To your “increased profits during a recession” success, Bryan