Buy a business with no money up front: four steps before you propose seller financing

So you are looking to buy a business, and you would like to do it with no money up front. Before you approach a seller and propose buying their business on that basis, there are four things you need to do. Get them right and a no-money-up-front proposal lands as a serious offer. Skip them and it lands as a request for a free business. This guide walks through each step.

Why do you want to buy a business?

The first step is to determine why you want to buy that business. Different buyers have different goals, and the goal drives everything that follows.

• Are you looking to make some extra income on the side?
• Are you looking to start your entrepreneurial journey by buying an existing business that has been doing well, rather than starting from scratch?
• Or do you already own a business and want to integrate a new target business to expand your current operations?

Whatever your goals are, be clear on them. Have a clear vision, and use that vision as the criteria for finding suitable businesses. A business that is a perfect bolt-on for an existing company may be a poor choice for someone wanting passive side income, and the other way round.

How to find businesses to buy

Step two is to identify a business that meets your criteria. There are two ways to go about this.

• Online databases. Broker websites and listings of businesses for sale let you search by sector, size and location for businesses that are actively on the market.
• Direct approaches. You can simply contact existing businesses that you believe fit your criteria and that are not advertised as being for sale. Sellers in that position might still be open to taking an offer, and you will face less competition than you would for a business that is publicly listed.

Work through both routes until you have a shortlist of businesses that meet your criteria.

Understand the seller's motivation

Say you now know what kind of business you are looking to buy, and you have identified a few that meet your criteria. The next step is to get in contact with the seller of each business and understand their motivations. Different sellers sell for different reasons, and the reason tells you whether a no-money-up-front structure can work.

More seasoned business owners who are looking to retire are often more open to seller financing, or to being paid in deferred payments over a period of time. They might see the ongoing payments almost as a way of contributing to their pension, and a steady income over several years may suit them better than a lump sum.

Younger business owners looking to exit, perhaps because they want to start a new business, may expect all of the purchase price to be paid up front. They want the money so they can reinvest it in their new venture, and a stream of deferred payments does not help them do that.

This is why understanding the seller's goals is a critical step. Once you know what they want, you can negotiate a structure for the deal that suits both parties, rather than proposing something that works for you and nobody else.

When to propose seller financing

Only once you have completed those three steps should you propose seller financing. By that point you know why you are buying, you have a shortlist of businesses that fit, and you understand what the seller is trying to achieve. A proposal built on that foundation is far more likely to be taken seriously than a cold approach asking a stranger to accept nothing up front.

For what seller financing is, and its advantages and disadvantages, see seller financing to buy a business. For the three things to know once a seller is interested, see seller financing: three things to know.

Next steps

Write down your goal, build a shortlist from online listings and direct approaches, and have a conversation with each seller about why they are selling before you mention the structure. When you are ready to propose seller financing, have the offer put into professionally drafted heads of terms by a corporate solicitor so that the seller sees a serious buyer rather than an empty wallet.