Small-Business-Funding Techniques

One of the best small-business-funding method in acquiring a business is with little or no money down.

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There are many reasons for selling a business. The business could be failing, owners may want to retire, there may be partnership or family issues. Regardless of the circumstances, there are ways to become a business owner with little or no money down.

When owners of business have a huge cash flow problem and are hugely in debt, you may be able to consolidate the owner’s debts. - Make a list of creditors with an aging report (time dating payables) showing how long each debt has been outstanding. Determine a time line of future income and determine a repayment schedule based on discounted debts. Then you can consider various small-business-funding options.

- Writing a letters to creditors requesting discounts of 25 to 40 cents on the dollar.

- If the alternative is total bankruptcy of the current owner and total non payment of debts, certainly 30 cents on the dollar is a better deal. “A little bit of something is better than a whole lot of nothing.”

Since creditors may be essential suppliers, your relationship will probably change from term payments to COD (cash on demand). But term payments can be reestablished over time by the ownership when payments are promptly.

- Plan a yearly cash flow projection using the format found in a typical financial statement.

Projected Income, Expenses and Profits

To protect your personal asset, you should gain control of the business by forming corporation. In this way you will not be personally liable for the company’s debt. And if creditors are not willing to accept the new terms, filing for Chapter 10 will place finances of the company under court control. ( It is important to have an attorney handle details.)

Using Real Estate

The following are small-business-funding techniques that uses real estate equity to acquire a business that is marginally profitable or nearing bankruptcy but with good profit potential.

- Establish a line of credit using the equity in real estate.

- Create a second mortgage (real estate paper) on the equity.

- Real estate paper will enable the owner to benefit from real estate tax breaks.

- Income producing real estate can be used as collateral to secure a new loan from financial institutions to which the business owner may have outstanding loans.

- Seller Financed Deal. If the owner is sufficiently motivated, one option is to negotiate a payment plan whereby the owner can finance your acquisition. If real estate is part of the purchase, a mortgage can be made based on the equity in the property.

The availability of cash will be crucial during the initial phase of business operations. One major reason for business failures is the lack of sufficient capital. One source of cash are the receivables that no older than 90 days. They should be included in the purchase.

Other Small-Business-Funding Techniques of Conserving/Obtaining Cash

- Negotiating terms for purchase of inventory

- Receiving inventory on consignment

- Inventory financing

- Leasing equipment

- Attract Angel or Venture capital through the issuing of shares in the corporation

Summary

There are many small business funding strategies to acquire a business with little or no capital of your own. But it is important to analyze its financial statement to determine its profit potential. Small business funding is always available for good deals.
If it is not a good deal, move on.

Small-business-funding techniques include finding angel or venture capital.

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