How To Win Friends And Influence People Seller Financing (The #1 Way To Buy A Biz)
Acquisition Aces - Issue #15 - Read Time - 3.5 minutes
How To Win Friends And Influence People Seller Financing (The #1 Way To Buy A Biz)
Did you know that the self-help book category did an astounding $10.5 billion worth of business in 2020 and it is projected to grow to $14 billion dollars by 2025? We take for granted that you can get dozens of books to improve upon every area of your life, from fitness to mental toughness. However, this hasn’t always been the case. In the early 1900’s the self-help genre didn’t really exist. If what you were looking for didn’t revolve around business, you pretty much had to figure it out yourself.
That all began to change when in 1936, the book “How To Win Friends And Influence People” was published.
Contrary to popular belief, Dale Carnegie didn’t actually set out to write a book that would birth an entirely new industry. He was convinced by a rep from Simon & Schuster to have someone transcribe his 14-week course on human relations and public speaking. The rest, as they say, was history with the book selling over 30 million copies worldwide since its release. Its simple but powerful advice is a great reminder that everything boils down to relationships.
This is especially true when trying to acquire a business with my preferred method of financing: Seller financing.
Seller Financing: The “Not-So-Secret” Secret
A lot of business coaches out there treat business acquisition as a math problem. While it is true that you can approach it as a numbers game, doing so removes seller financing from your toolbox. Why? Because your relationship with the seller goes beyond just negotiating. This is because they agree to take on the risk of the deal and basically become the bank in the transaction.
Instead of going the traditional financing route or SBA funding, the seller agrees to finance the purchase price themselves. The buyer signs a promissory note with the terms for repayment and pays for the business over time.
There is a high requirement of trust in this transaction. The seller must be confident that the buyer is competent and committed to making the business work over a long period of time. Can you see how the soft skills of relationship building espoused by Dale Carnegie are incredibly important for this type of acquisition? It definitely pays to be more than just a numbers guy or gal when building your portfolio.
There are also great downstream benefits of this type of financing, as well.
Mutual Interest Hedges Against Risk
If you buy a business via straight cash or bank financing, once the deal is done everyone typically goes their separate ways. Unless the seller agrees to stay on in some sort of consultant role, you don’t have much (if any) contact with them once the ink dries on the purchase agreement. After closing, the buyer takes control of the business and moves forward.
When seller financing is used, the seller has a vested interest to do everything they can to make sure the business remains profitable. This means you get to keep all of the hard-earned knowledge the seller has inside their noggin for as long as it takes to pay off the promissory note. If something comes up that you don’t know how to handle, chances are they will know exactly what to do.
Another benefit to seller financing is there is less chance of a deal falling through because of timing issues. It can take a long time for a bank or investors to approve funding. This can torpedo an acquisition. Seller financing is much faster. It can take longer to find these deals, but when you do the time between offer and closing can be very quick.
Seller Financing Is The First Option Of Four
There are a ton of reasons why I love seller financing. There is no need for a large down payment (or one at all), the collateral is the business itself, and the risk is very low in these types of deals. But what if you find a deal where the seller doesn’t want to act as the bank in the transaction? Never fear. Watch this quick video where I go over the four methods of buying a business with no money (including seller financing):
