By Mike Warren — One of the things I teach some of my clients who are looking for cash to start a business is to consider the possibility of buying an operating business instead of starting from scratch. Did you know that you can buy a business using the business’ own cash? Sounds cool, right? Let me give you a few ideas of how you could make this happen. The important thing I want you to get from this guerrilla source of cash is that you can buy the business, even if the seller wants cash, without using any of your own money.
Did you catch that?
I said none of your own cash. You can use the cash that already exists in the business as your down payment. This includes any cash that is already in the business’ bank accounts. You can also use accounts receivable. What I mean by this is that you can borrow against the money that is owed to the business. This technique is called factoring.
It’s important for me to restate that it’s not your money. I’m just describing how you get some of the money. So one of the things that you can do is use assets of the very business that you’re buying to pay for its actual purchase. And, yes, it’s true; you can do that. And get this: yes, you can count on the seller of the business for the money that you need to actually buy a business. This is one of the ways that we can buy a business with its own cash.
I like using OPM – or Other People’s Money. In fact, I love using OPM to buy a business. It allows me to leverage the business better. I have none of my cash at risk and I can increase my profit. I always like to have extra cash sitting around. And let’s assume that you’re interested in buying a business and you have no cash; then this would be a perfect option for you.
To prove it to you, let me give you a few examples of people who chose the path of buying a business versus starting from scratch. In fact, I could give you story after story after story, but let me tell you about some companies that you may have heard of. By the time we get to the end of the story, you’ll realize, “Gosh, I know that brand.” And you’ll see that they all started their companies with none of their own cash. They were able to bootstrap it, meaning they were able to do it without financial help from others.
Let me give you the first. This is from a guy named Ray Kroc. Now, Ray Kroc was a 52-year-old milkshake salesman back in 1955 when he convinced brothers Mac and Dick McDonald to sell him a lonely little hamburger stand, which was located near Burbank, California. Now, Kroc didn’t have any money to speak of, so he worked out a really unique and highly leveraged no-cash-down lease arrangement. On its first day in business, Kroc’s cash register rang up $366.12. “It rained that day,” he later explained. The following week, his daily sales doubled. Today, the registers at McDonald’s ring up a bit more than that, taking in upwards of $20 billion a year.
McDonald’s is both the biggest owner of commercial real estate and the biggest food service corporation in America. And Ray Kroc didn’t have to spend a penny of his own to get started. The fact that McDonald’s is one of the largest owners of real estate may come as a surprise to some, but think about it: they own the best locations in every single city. They’re on all the corners because those properties are worth more. McDonald’s is about systems and real estate. It’s not about burgers.
Here’s another example about a gentleman named Paul Orfalea. He was known as a C-student, just out of college when he started the now-famous Kinkos copy stores without a penny of his own money. It began in 1971 when he convinced a commercial bank that there was a demand among college students for a convenient, multi-purpose coffee shop. The bank loaned him $5,000 to take over an 80-square-foot hamburger stand for that purpose. And Orfalea went on to build his tiny operation into a $400 million chain of nearly 800 stores throughout America.
Then there’s the famous confectioner William Wrigley Jr. in 1891, car maker Henry Ford in 1903, Reader’s Digest publishers DeWitt and Lila Wallace in 1922 – all bootstrapped entrepreneurs using other people’s money to lay down a foundation for great business fortunes.
So think about it. These were some people who went out and either started and leveraged a business, got a bank loan, got a lease, were able to use the business assets to fund the business or to get terms with creditors. But they were all able to bootstrap their startup so that it required none of their own cash to get into the business. These are some ideas that I talk about in my other book called “How To Buy A Business Using Its Own Cash.” Would you like a copy? If so just go to our website http://misuniversity.com/bizflip and you can download a copy.
Please comment on this article and tell me what you think!
Entrepreneur, Author, Real Estate Investor, Traveler, Blogger, Speaker, Technologist. Spending time with my kids makes me feel young.
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