Is Seller Financing Really This Good?

There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this new series watch CapForge’s owner react to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!

CapForge Founder and Owner Matt Remuzzi shares his thoughts on using Seller Finance to buy a business. 

Video Transcript: 

Business Advice Video: 

How do you buy businesses with zero dollars down and make hundreds of thousands or millions in profit? Last year I bought 50 to 100% of 5 businesses that do 15 million in revenue. I used less than 300k in cash to do it. What is the way to execute? Two words seller financing. There are 11 million small business owners that have businesses up for sale right now in the US but more than 50% of those won’t sell within a two year period. You actually come in as the answer of that. One of my businesses, I got introduced to a dude who is 67 and has a side business in marketing. So I told him, “Hey I’ll buy it for zero dollars down. I’ll pay you 50% of the profits for the first five years.” He gets an annuity better tax advantages, and I get a business for little to no cash out of pocket. They call this seller financing and more than 60% of small businesses are sold with this unique kind of creative structure. These deals they’re all around.

Matt’s Review:

Okay so first, yes there are tons of businesses sold with seller financing. Very often the way a deal works is, let’s say a business is for sale for a million bucks. The new owner or the purchaser comes in, they put in 100,000 then the seller takes a note for 100,000 and then the seller the buyer uses an SBA loan for the other 800,000. So at the close, the seller of the million-dollar business gets $900,000 in cash and they have a note for $100,000 that maybe due over the next two years. So they’re getting you know regular payments of $4,000 a month for the next 24 months and that’s where they get to their million-dollar price tag. That happens all the time.

That is not the same as what this lady is talking about, where she’s buying businesses half of the business or all of the business with essentially zero dollars out of pocket. That happens, well never, that I’ve seen. And I’ve been part of hundreds and hundreds of business sale deals. So I don’t think I’m saying I’ve only seen three and I’ve never seen it happen. I’ve seen businesses sold all over the country for the last 20 years, for hundreds of thousands or millions of dollars. And I’ve never seen one deal where it was zero cash down from the buyer. The only time something like that possibly happens is if the buyer and seller are related or have a close relationship. If the buyer has been the seller’s manager that business for last 15 years then the seller might say “I’ll let you buy it zero dollars down, just pay me $250,000 a year out of the business cash flow or whatever” and that’s how, that’s how this business can change hands. But a stranger off the street coming in and saying “Oh I see you got a business that has $1 million in revenue $300,000 in profit. I’d like to buy it from you and I’d like to give you zero for it.” Doesn’t really happen. These deals are not all over the place. It’s very uncommon for somebody to be wanting to give up a very valuable asset that produces cash flow for them for nothing. They have to have very strong reason to believe that the deal makes sense for them somehow. That you’re going to be able to grow it and pay them a lot of money over time, as opposed to giving them money now. And a lot of people, just even if you could do that, just wanna be done. It’s just “I just wanna check today. I’m gonna take my money and go. You can run the business however you want. I’m not gonna worry if you’re successful or not, if you’re gonna be able to pay me profits over the next four or five years. I just wanna be done.” 

So it’s the same as if you had a house, right? If you have a house and you decided, I’m not gonna sell the house, I’m just gonna let somebody come and live here and they’re gonna just pay me rent for the next five years. And at the end of five years then they can have the house. Why would you do that? It wouldn’t, it wouldn’t make any sense. You’d sell the house to somebody who could pay you cash today, they take it over, and you don’t have to worry about it anymore. So it sounds good in a video “Oh you can buy a business with zero dollars. You can buy millions of dollars of revenue with $0 out of pocket.” But the reality is these deals are one in a million and there’s other stuff going on if they do happen. If a deal got structured like this, there’s some other reason that it somehow made sense versus taking a cash buyer. But I would not structure a whole life plan around going out and acquiring a bunch of businesses with $0 out of pocket, because I think you’re gonna quickly find that it is nearly impossible to do.