Buy a Business with Its Own Cash

David C Barnett Small Business and Deal Making SMB

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***New Video Alert!
Several people have asked me about claims they see online about using a seller’s own cash as a source for a down payment when buying a business.
Is this possible?
How would it work?
What conditions would be necessary, and could you repeat this over and over?
Let’s examine these claims here: • Buy a Business with It...
Cheers
See you over on RU-vid
David C Barnett
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Опубликовано:

5 сен 2023

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Комментарии : 37

@charlescooper300 11 месяцев назад

When you normalized the balance sheet, you removed 225 from the cash and add 100 line of credit. Assuming the line of credit is fully extracted, would that not mean 325 was pulled from the business and therefore added to the enterprise value bringing it to 850? You had to remove 325 from the capital section to get the balance sheet to work after the normalization. Either way great review, thank you

@DavidCBarnett 11 месяцев назад

Yes, that's what I did. Maybe I mispoke.

@TheJet1 6 месяцев назад

Summer of alternative finance. I need to understand more about this. Differed downpayment - I must apply this on my next real estate deal.

@DavidCBarnett 6 месяцев назад

Sure, if they'll take it.

@LukeAvedon 11 месяцев назад

Excellent walk through!

@DavidCBarnett 11 месяцев назад

Thanks Luke.

@robertpurviancevids 10 месяцев назад

Of course right now, the SBA allows for the seller note to count towards the down-payment. So, if the seller is willing to let you do the deal with none of your own money, you could get the business no money out of pocket.

@DavidCBarnett 10 месяцев назад

Sure, but find a banker willing to write this deal. Harder than you think.

@kalebbillig3472 10 месяцев назад

The Sba allows for 5% down payment to be carried as a seller note… but realistically if you can convince them to keep the cash inside the accounts I would say it’s gotta be easy enough to find private capital to get the deal done and then pull the cash out and replace it with lines of credit and sell down the inventory for the profit to pay back the private capital investor

@kalebbillig3472 10 месяцев назад

But the sba still wants the other 5% to Come from the buyer…

@kalebbillig3472 10 месяцев назад

It seems to me that ppl teaching these things are really talking about buying it and then having nothing down by month end or something, it sure would be a lot easier to just have a place holder of cash and then pull assets out after closing! Maybe if you convince the seller to take an equity position and use it as a retirement payment payed through death and liquidation following to compensate their estate then maybe they’d feel okay just handing over everything they worked their whole life to build a nest egg up so they don’t suffer in old age… if you cannot preserve some security for them (boomers value security) then you may even ruin your opportunity to buy the business even With Your own capital to make the down payment

@unbelievablepancake 10 месяцев назад

Hey David! RU-vid has fed me some of your videos and I'm really appreciative of your steady approach.-and that you are also Canadian. I would love to invest time into learning more about this world (I know none of the language). Where should a person start? A business degree? RU-vid? Are there good courses online for just starting the learning process? All the courses I see are to help buy a business, but I'm still early in the learning process.

@DavidCBarnett 10 месяцев назад

This channel has hundreds of videos. I also have several books that cost $3-$10. Dive in!

@unbelievablepancake 10 месяцев назад

@@DavidCBarnett oh I'm diving in, but I'm wondering if there's a more organized way to approach it. Which books of yours would you recommend I start with?

@robertsullivan9833 7 дней назад

the broker could add their commission to the pot especially if they were a party in the purchase

@DavidCBarnett 5 дней назад

I have heard of brokers becoming partners on deals. I think it's pretty rare though, most need cash at closing to pay their bills.

@ShonTolliverMusic 10 месяцев назад

I must have been gone from this video for a while because since when did we get a two camera setup? Nice.

@DavidCBarnett 10 месяцев назад

This old dog is learning new tricks ;)

@louisflores9643 11 месяцев назад

I need to do this right away but it is late. Tomorrow.

@Nick-lf2jo 11 месяцев назад

David, does your course help explore different types of financing for business buying ?

@DavidCBarnett 11 месяцев назад

Yes. But you need to have some of the money on your own or with a partner or something. There are no 100% leveraged solutions in my course.

@Zawakawaka 3 месяца назад

Would the seller be more motivated to agree to this if you pointed out that depending on business structure with drawing the cash would be claimed as income but using it as a down payment and posibly recieving seller finacing on the rest will be claimed as capitail gains resulting in a significant reduction in taxes payed?

@DavidCBarnett 3 месяца назад

So, this is a specific tax-related question that you'd need to run past a CPA in the country you're in. In Canada, there are rules about the amount of cash that can stay in a business when the shares are sold in order for the capital gains to be tax-free. Usually, it's limited to what can be demonstrated to be necessary. So, if you did what you suggest, then you'd be removing the required operating capital and putting yourself in a tight spot. Now, if you can think of technique to make this work, you'll likely need a CPA on your side to potentially explain it to the seller's CPA. That CPA will likely say 'Ok, so, you're going to give this business to someone on the hopes that they operate it correctly and pay you over time?' It always comes back to the same issue. With no 'skin in the game' it's hard to demonstrate that it's a smart move for the seller unless you find that super-motivated seller who has no options elsewhere. Needle-in-a-haystack kind of odds. Or, maybe the seller is your Dad or someone you've worked with for years who knows and trusts you fully. Likely not a stranger. I like your thinking though.

@Zawakawaka 3 месяца назад

@@DavidCBarnett It is legal in the USA and the SBA(small business administration) looks favorably for loans with the former owner stilling having a interest(financially) in the business.

@hiyou4078 10 месяцев назад

I am sure the 100% claims include a bank loan on the assets of the company, say 60%, and the other 40% comes from an arrangement with the seller, like the house sellers have their arrangement(s). So the process is in fact done.

@DavidCBarnett 10 месяцев назад

Bank won't lend any money if there is no equity in the deal. Banks require a minimum debt:equity ratio. Maybe if the buyer is another company with significant balance sheet strength, but not a broke bloke.

@timz2917 11 месяцев назад

Wouldnt it be safer to just pay for it with a secured loan and pay yourself back with less stress

@DavidCBarnett 11 месяцев назад

Secured against what? The tangible assets are not sufficient to buy this company's shares.

@mooreblue1612 6 месяцев назад

I can put down-payment out of my pocket then apply this strategy to pay seller on a note!

@DavidCBarnett 5 месяцев назад

The gist of the video is from the point of view of a broke buyer.

@albertodeulofeu5277 10 месяцев назад

Codie Sanchez right?

@DavidCBarnett 10 месяцев назад

Nah, more often the UK gurus.

@hiyou4078 11 месяцев назад

Highfalutin nonsense! No seller leaves cash in the business when selling THEIR business. ... "and number 3, hope they don't ask about this cash that is in the business".

@DavidCBarnett 11 месяцев назад

It certainly can happen but it's all considered in the negotiation, of course. As I said, in some countries capital gains are tax advantaged over dividends so the sellers actually look for ways to include cash in the sale of shares if the price goes higher. A lot of this talk about using a seller's cash for the downpayment comes out of the UK, but people don't mention or ask about that.

@hiyou4078 10 месяцев назад

Yes. That's right. In countries with Capital Gains Tax, the seller might prefer leaving the cash in the company to avoid paying CGT: @@DavidCBarnett; ChatGPT v3.5 reasons for leaving cash in the business for CGT countries: 1. To lower capital gains tax liability. 2. To incentivise Buyer Confidence: To provide a sense of security to the buyer. 3. To assist with a Smooth Transition: For the business continues to function effectively after the sale, esp. important when the seller remains involved for a transition period. 4. To increase Asset Valuation: To lead to a higher valuation and sale price. 5. To Negotiation Leverage. 6. To Attract Buyers. 7. To Reduce Risk. However, should the seller be liable for debt in the business then the seller would, e.g., pay off the short term debt with that cash.

@bzigila 10 месяцев назад

@@DavidCBarnett i was kinda thinking the same thing that this person was stating but I also heard that a C-corp may leave a larger amount (for the USA folks). Is this true and is a C corp what we should look for?

@WHO.GOT.NEXT-TikTok 3 месяца назад

@@bzigila I believe what you’re referring to when you form an LLC or a corporation when you fire taxation class with the IRS you file asC-Corp. that way you separate the liability of personal from the liability of your business. meaning, that whatever liabilities you have as a person will not affect your business and vice versa. But is very important to know that you must keep I believe at least 33% of your profits and the rest can stay in your business . And it is very smart of you to keep most of your money you make in your business because of the fact it is in a lower taxed class.