How to Buy a Business with No Money

Nick Chi Updated on June 30, 2022

How to Buy a Business with No Money

“It takes money to make money.” At least, that’s the old adage.

This saying holds true in the world of online business. It’s becoming increasingly common for investors to buy online businesses rather than build new businesses from scratch in order to generate income starting from day one and reduce the time involved in amassing wealth.

However, does the money have to be your own?

In this article, we’ll explore financing options that allow you to acquire an online business with little to no money upfront.

In the end, you might find that you can acquire an income-generating business and begin building wealth as soon as today.

That said, I am not offering you financial advice, and you should speak with an accountant or financial professional before committing to any of the financing options listed below.

So to start, why would someone buy an online business through financing?

Reasons to Buy a Business through Financing

At Empire Flippers, we see new and experienced buyers leverage financing for various reasons, including the following:

Hedging Your Risks

No business is guaranteed to continue making money in the future. Supply chain issues, algorithm updates, and competition are all external factors that can impact online business performance.

Depending on the financing agreement, owning a business, even through part financing, can mitigate the risk of losing everything in the event your business declines or shuts down.

Going from Zero to One

Buying an online business can be a life-changing opportunity for those looking to replace their job and start working for themselves.

Without a revenue stream in place to fund an acquisition, however, going from zero to one can be the most difficult step for anyone entering the world of online business investing. Leveraging financing can help those who don’t have enough money to get their start in investing in online businesses.

Accelerating Your Early Retirement Plan

The cash flow from online businesses can accelerate the timeline for those following a “financial independence retire early” (FIRE) plan and can be particularly powerful when applying the FIRE flywheel acquisition strategy.

If your objective is to build a portfolio of online businesses that generates the necessary monthly income to enable you to retire, financing can be a tool to accelerate that plan.

Buying a Business Beyond Your Budget

Larger businesses tend to be more established, have long histories of consistent performance, and, of course, drive larger cash flow.

If you’re experienced in acquiring and operating online businesses, you may feel confident in your ability to scale a larger business. Financing can provide the opportunity to own a business that may be beyond your budget.

Financing to Fund Your Growth Strategy

Some investors might want to acquire a business to supplement and build on an existing business.

Known as the bolt-on acquisition strategy, a buyer could acquire a business that would increase the value of both this and their current business simultaneously. For this strategy to work, it’s important to find a business that meshes well with your existing business.

When such a business presents itself on the market, it’s important to be ready to buy, and financing can allow you to make this decision quickly.

Low on Liquidity

Even experienced investors and entrepreneurs may have only a small percentage of their net worth sitting as cash or liquid assets.

Perhaps you have an ecommerce business with your capital tied up in inventory. Perhaps you’re spending a significant amount of your monthly profit on growth and employees’ salaries. Financing can enable you to acquire additional businesses despite being low on cash.

If one or both of these situations apply to you, it is important to understand the financing options available to you.

How Can I Buy an Online Business with No Money Down?

Buying a business with little to no money down is possible, though it can require some creativity and understanding of how to leverage, and potentially combine, the various options.

Seller Financing

One of the most straightforward methods is through seller or owner financing, meaning that the seller agrees to be the lender for their own business, and sell you their business in exchange for payments over a set period or based on the business’s performance. At Empire Flippers, we call these types of deals earnouts.

In most cases, cash is a seller’s priority, as they are often selling to achieve a major goal, such as to retire, purchase a home, or invest in their next business venture.

That said, while it’s certainly more common for sellers to expect a portion, if not most, of the payment in the form of cash up front for their businesses, there are instances where financing and paying little to no down payment is an option.

If most sellers prefer cash up front, what type of seller would be open to financing?

Six-figure+ businesses: Typically, the larger a business is, the smaller its buyer pool. To expand the pool of potential buyers, it’s common for larger businesses to allow a portion of the business payment to be delivered over time to reduce the cash required up front. On the Empire Flippers marketplace, financing is more common for businesses valued at six figures and higher.

Businesses that are declining or currently unprofitable: A business that is declining or unprofitable likely has minimal buyer interest. With the law of supply and demand at play, a seller who is receiving little buyer interest is likely to be more open to financing—and even transferring ownership of the business with no cash up front. Somewhat like flipping distressed real estate, this can be a valuable opportunity for small business owners and business buyers who believe they have the knowledge or skillset necessary to restore an undervalued business.

Our sales advisors can help you find these types of businesses if they are currently on our marketplace.

Businesses that could be sold for a higher price with financing: In some cases, a deal can be structured whereby a certain portion of the business price is paid out according to a percentage of the business’s performance. If a business is performing well or growing quickly, a seller might be able to sell their business for a higher purchase price by adding interest to financing or using performance-based financing than by a cash up front deal. A situation where the buyer takes on less risk up front in exchange for paying out a larger amount if the business continues to grow can represent a win-win deal for both the buyer and seller.

When financing would provide tax advantages: In some cases, receiving all cash up front for a business can trigger a significantly higher tax liability for a seller. This scenario presents an opportunity for a buyer to pay out an annual amount that allows the seller to remain below a specific tax threshold and, as a result, net a higher amount overall from the sale of their business.

Seller financing is the most straightforward method of financing a business; however, if a seller is unwilling to accept either full or partial financing, what are some financing alternatives?

Business Acquisition and Bank Loans

Depending on where you live in the world, you may be eligible for small business loans and bank loans. In the US, for example, you can apply for Small Business Administration (SBA) loans to purchase a business or franchise.

Online businesses are currently more difficult to fund through these methods than traditional businesses. Online businesses often have no physical location to use as collateral and can be seen as riskier business models.

Funding online businesses may become more common as they become more widely accepted as viable investments.

Participating with Other Investors in a Deal

The past couple of years has seen the rise of Amazon FBA aggregators, which are investment-backed groups tasked with acquiring and operating Amazon FBA businesses. While highly lucrative if done right, this type of operation is often far more complex than funding a single business and requires teams of specialists to manage a portfolio of businesses.

A smaller-scale version could look something like this—a passive investor or silent partner is brought in to invest in one or more businesses to be a starting point for a portfolio.

While there are multiple options for financing the acquisition of a business, how will you fund your business operations?

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Funding Operating Costs and Future Business Expenses

Funding the acquisition of the business will allow you to get started, but it’s equally important to ensure that you have enough capital after the deal to cover expenses and keep the business moving.

What are your financing options for covering expenses?

Using Your Business’s Cashflow

Don’t forget, businesses are revenue-generating assets. A business’ revenue should cover its operating expenses and leave the owner with profit to fund their lifestyle, set aside a rainy day fund for any low-revenue months, and invest in the growth of the business. How much profit your business generates is based on its profit margins. Finding ways to lower its operating expenses and increase its revenue provides you with organic funding from the asset itself.

If the profit margin is large enough, you may be able to rely entirely on the business to cover unexpected fluctuations or to fund more aggressive growth strategies. This is often the ideal financing option, as it requires no external sources of funding.

For more expensive growth campaigns, what are your options apart from using your own profits?

Financing Growth

Imagine that you purchase an Amazon FBA business that experiences sudden growth and that you need to make a much larger inventory payment to avoid stocking out; however, given the spike in demand, your prior month’s profits are insufficient to cover the costs. Or let’s say you want to fund more aggressive PPC campaigns or pay for sponsorships to grow your newly acquired business faster and at a cost greater than your current profit margins can cover. Aside from business loans, you can consider alternative funding options now that your business is in a different phase.

Some alternative financing options can include the following:

  • Businesses—such as SellersFunding, AccrueMe, or Boopos—that provide funding for online businesses
  • Private lending
  • Personal loan from friends or family
  • Crowdfunding
  • Cash advance
  • Selling off assets

Some of these options come with high interest rates or may be risky, but they could make sense under specific circumstances, such as to cover short-term expenses while waiting for payouts on completed sales or growth, which would enable you to repay your debt within a few weeks or months.

If you’re interested in scaling an ecommerce business, you can find further details in our article on ecommerce loans.

Now that you understand ways to finance the acquisition and operation of a business, how will you find a business that you can finance, and how will you decide which one is best to buy?

Deciding Which Business to Buy and Finding Businesses

If you’re just starting out, finding a good business that you can finance can be difficult. Here are a few steps to help guide your decision-making process:

Determining the Best Business for You

To help you distill your search, it is important to determine the best type of business for you.

Business model: Running an ecommerce business and running a website are two very different experiences. One involves managing inventory and logistics, and the other might involve creating content or managing content creation specialists. You need to decide what type of business model you would like as well as your specific role within it. Do you plan to have a largely hands-on role, for example, creating content or responding to customers? Or do you plan to manage a team of specialists?

Business size: Operating a six-figure business can also be a very different experience from operating a seven-figure business. In addition to the complexity of the business itself, you’re also committing to a larger financial liability, depending on your financing agreement. If this is your first business or if you are inexperienced with the particular business model concerned, it might make more sense to purchase a smaller business so that you can gain some experience and can make mistakes on a smaller scale before committing to a larger acquisition.

State of the business: Is this business experiencing a period of high growth or decline? This decision will likely depend on your level of experience with online businesses and your confidence in being able to restore a failing business or grow an already optimized one.

With so many options, it is easy to be overwhelmed by the choices and the pressure to make the correct decision. To get you started, we highly recommend reviewing our free 2021 State of the Industry report to get a full overview of different business models and some helpful data underpinning them.

Finding a Business

At this point, you may have a better idea of the type of business you’d like to own. The next step is to find a business that matches the above criteria and is also open to financing.

There are two methods of finding a business: privately or through a broker.

Buying Privately

Finding a business privately involves looking on forums and other places online where sellers post notices of their businesses for sale. It’s important to note that businesses advertised on private forums probably have not been vetted to confirm their performances or the existence of all their assets or that they meet quality standards. It is important for you, as a buyer, to perform especially rigorous due diligence.

If you’re in the market for a website, we recommend going through a list of website pre-checks to determine which sites would make a solid investment.

Buying through a Broker

Online business brokers often have a marketplace of online businesses that have been vetted for quality and assigned valuations. Brokers may also help buyers negotiate seller financing terms.

The Process of Buying and Selling a Business

So now that you’ve performed due diligence on a business and found one that meets your criteria, how do you purchase the business?

This process also depends on whether you purchase it through a private deal or a brokerage.

When buying a business, the benefit of working with a brokerage is that it provides all the services below, but if you’re set on purchasing privately, here are some important areas that you should focus on:

Vetting and valuing the business: Ideally, you will have a third party to help value the business and someone experienced in the business model to ensure that the quality of the business is satisfactory.

Making offers for the business: If you’re reading this article, you are likely interested in partially or fully financing the business. This may require significant negotiations, depending on the type of deal you’re looking for.

Finding a lawyer: You need to find a lawyer experienced in online businesses to create legal documentation that will protect you in the deal.

Speak with a Qualified Person before Pulling the Trigger

Buying a business, even with financing, is a major undertaking. As stressed above, we recommend speaking with an accountant or financial professional before committing to financing. We also recommend discussing financing an online business purchase with a qualified third party, such as a sales advisor.

A sales advisor can discuss your specific situation and needs and determine the acquisition path that best suits you and what is available on the market to meet your requirements.

If you’d like more information before speaking with a sales advisor, we recommend reading through our free 2021 State of the Industry Report.

With some creativity and support from professionals, you could be on your way to jumpstarting your entrepreneurial journey and meeting your financial goals far faster than imagined.

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