Ep 250: No Money Down Acquisitions – Can You Buy An Online Business With No Money?

Jaryd Krause:

Are you following people who take you further away from your wealth goals? Hi, I'm Jaryd Krause. I'm the host of the Buying Online Businesses Podcast. And today, I'm doing a solo podcast on something that you all need to know about buying a business with finance and what it looks like in reality based on where you're at with your own levels of cash or wealth or what you do or don't have.

In this podcast episode, I specifically dive into the different price ranges of businesses, when you can start using finances at different price ranges, how much you can use for finance, and what percentage you can use for finance. I also talk about how to use finance and who can do 100% no money down deals and who cannot do 100% no money down deals. I also talk about how to structure deals to use less of your own cash and also provide less risk when you're purchasing a business.

I share some warning signs on buying the right business for your goals, how many people get caught following the wrong advice and the wrong people, what to do if you want to buy a business and have no money down, and what you should start doing to get yourself into a position to be able to start buying a business.

And then I rant on about how so many people lose track of their actual goals, their real goals, when they come to trying to earn money and how they end up sometimes and often following the wrong path, wasting time and their money and getting further away from their goals.

Now there's so much value in this podcast episode. I typically don't do solo podcast episodes. You'll see why I did this one soon. But let's for now dive in. I see you on the inside.

Do you have a website you might want to sell either now or in the future? We have a hungry list of cashed up and trained up buyers that want to buy your content website. If you have a site making over $300 per month and want to sell it, head to buyingonlinebusinesses.co/sellyourbusiness. Or email us at [email protected], because we will likely have a buyer. The details are in the description.

Hello, this is a special episode. This is Episode 250. And most people in podcasting land or who create a podcast don’t make it to Episode 50. So I'm very excited and proud that we have recorded 250 episodes now. Also, there's so much value in this podcast.

I know that most people go through and binge every single episode and they start at one and work all the way through. And I believe that's a really good way to go about getting an education for free. So if you haven't done that, start binging.

Also, for those of you who do listen and are regular listeners of the podcast, I want to say thank you. Thank you so much for showing up and for listening in. Thank you for your questions.

Thank you for your support. In fact, for those of you who are longtime listeners and if you haven't yet reviewed the podcast, please, please, please go away and review the podcast. I'm sure you've listened to so many episodes and gotten so much value. If you'd leave one review, it would mean the world to me.

So if you could help me celebrate Episode 250 by leaving a review on Apple Podcasts, that'd be absolutely awesome. Of course, if you haven't subscribed, please do so. I don't ask you guys ever,basically,y to leave a review or subscribe. So I would greatly appreciate that in a celebratory episode of 250.

Now, again, this is a solo podcast episode with myself. Last time I did a solo podcast episode on size matters and the different sizes of businesses you can acquire, what is best depending on where you're at financially and then how to build your portfolio out to get to those larger acquisitions. That solo podcast episode was a massive hit. So I thought I'd do another solo podcast episode and get some things off my chest again.

This is therapeutic. It’s going to be a therapeutic one for me as well. And it's going to be totally unscripted. I've got a few talking points that I do want to get through, but let's dive into what this episode is about, which is, can you buy an online business with absolutely no money? Can you finance an online business 100% with OPM (other people's money)?

Now, there is a possibility of doing so. However, I'm recording this podcast to set expectations, and straight up, it's typically a no. There's very, very special circumstances under which you can buy an online business with 100% finance. And it's typically not what everybody does. And typically, it's a certain size of acquisition that you can purchase.

So let's go through the different types of acquisition sizes or businesses you can purchase and what it looks like to purchase with finance. And I just wanted to set an expectation for you guys here, because if you're looking to get into this and buy an online business, it's really important to understand how much cash you need to put towards the business and then what you can finance if you can, right? Or some creative structuring when you're looking at buying an online business, depending on the level or size of business you're looking at purchasing.

So for deals under $200,000, it's mostly cash. I'm talking 100% your own cash straight up. Now, why is that? Because people that are buying businesses from 200k and under, or even 300k, around that range of 200k and under, most people have the cash in that pool of buyers to just pay straight up cash. So if you're not paying straight up cash, typically you can be outbid, or the seller will take straight up cash from another buyer. So that's just where the market is.

So for those deals under the $200,000 price range, it's straight up cash. You can do some little things with creative structuring if you are able to, but you're going to have to suss out the buyer. I mean, so you're the seller and see where they're at financially and see where they are emotionally with the business, depending on doing some creative things with the deal structure, which I'll share with you shortly a few different options.

Now, between the $200,000 and $500,000 price ranges, it's more common to see earnouts and seller financing. And I'm talking about a very small percentage of seller financing and a very small percentage of earnouts. And there's also the option for seller notes.

So seller financing typically means that, say, as a $400,000 business, you might actually end up putting down 80% of the deal in cash and 20% as an earnout or seller financing. Now, typically, those seller earnouts and seller financing duration periods last between three months and six months. Sometimes you can extend them. But typically, they're not going to be much longer than a 12-month period of earnout or seller financing.

And also, the portion that you will be financing for the acquisition or earnout is typically no more than 10% to like 30%, max 40% for sure. Obviously, you can do certain things depending on where the seller is and where you're at. There's no one absolute hard and fast rule that you have to pick to stick with.

If you can get 60% financing or earnout and 40% down cash, great. Go for it. I would highly recommend it. But typically, these benchmarks are set due to where the market is and what buyers are willing to pay and how they're willing to pay in terms of cash and seller financing or earnout and then what the seller is willing to accept as well, depending on what type of pool of buyers are out there as well. So that's between the $200,000 and $5,000 price range.

Now, when you get to the $500,000 price range, that’s when you can start to finance a portion of the acquisition. Now, it can be done for small assets around the $200,000 price range, but we rarely see that.

Now, why is it that we rarely see that when it comes to buying a business with finance, such as SBA or outside finance? It’s because brokers and sellers won't typically sell their business in that price range of around $200K for somebody that's trying to get a deal across with finance when they could have somebody buy the business for the same price of cash, right?

So brokers and sellers typically don't want to do that. And there are even some brokers out there that just won't sell deals to people using SBA straight up because they don't want to deal with the admin of that, right? So that's an important one to understand.

Now, why am I sharing all of this with you? Now, there are a few reasons. Some people that come into the space have the ideology that they can buy a business with absolutely no money, with none of their own money. And they come in and then they walk away with their tails between their legs, going, “Damn, I can't buy an online business.”

The reality is, yes, you can, if you understand a little bit about how to save some money, push your money around and buy and start a little bit smaller with cash that will earn you a decent ROI and work your way up to building to those large acquisitions where you can put a little of your money down as a payment and finance the remaining part.

Now, I say this because I'd hate for people to walk away from this route of buying an online business, not just because I'm biased towards buying online businesses but because I know it works. And we've got so much data. We've got so many case studies that you can see that people have gone away and bought great businesses, built them up, sold them, flipped them and kept going and doing really, really well from buying businesses versus people going away and starting something from scratch because they believe they don't have the money.

Or they just are not in a position to do so when they could end up—and I advise most people to fix up their leaky bucket by understanding where all their expenses are going in their lives, typically their entertainment expenses that are not absolutely necessary.

Tighten up your leaky bucket and your plumbing on where your expenses are going and start saving a little bit of money and then you can purchase an acquisition that will get you further to your wealth goals than starting an online business typically.

Now, let's move back to the financing portion. Now, I just wanted to share that with you because it's so important to note that you can get further to your wealth goals by acquiring an asset that's already got product market fit, already has traffic, already is making sales and could be even recurring revenue or could be passive, semi-passive income that you can use whilst you're working your regular day job versus starting something from scratch—it takes so much more time and so much more effort and you don't have that product market fit, you don't have traffic and you don't have consistent income. Buying something typically gets you far closer to your wealth goals than starting something from scratch.

Think about the resources and energy that need to go into starting something from scratch. And I was speaking to a friend of mine just last week who started 10 businesses and only one did exceptionally well and the others were just complete failures, and he knew that and he's like, “Damn, it's crazy just the success rate.”

And he's smart, he's an SEO and he crushes it in this space with his specific business that killed it and some of his other businesses and it's just a shame that he knows that a big portion of these ones that you start don't really go anywhere.

And that's the same across the board with so many other people that I've spoken to, like Carl Broadbent and Alex Cooper from WP Eagle. So the proof is in the pudding that these professional website builders and creators that start sites to make money online fail, and a big portion of them fail, not because they're failures. Because that's just the data and the statistics that 90% of all startups fail.

So let's move back now to the finance piece. How do you get finance if you want to finance one of these businesses with obviously not 100% finance but a portion of finance? So the way that you can do it, first and foremost, is to raise money with family, friends and acquaintances.

So I have an example of somebody who bought a mid-six-figure deal, close to the seven-figure range that has worked with us, and closed this deal without any of their own money, but because they used family and friends, and they raised those funds before he even went away and bought that business. And that's a very rare case. Never have I seen anybody else do it in that price range, mid-six-figure range, with raising funds like that and putting 100% of their money down for the deal. It's a very, very rare case.

If you can do that, then I would suggest you work with a professional to purchase the right business and get the right team to maintain and grow the business. I would not suggest doing this for absolute beginners and you have no online business experience to do that with just family and friends, unless you're 7,000% confident in yourself that you can give them a great return and do them justice with their money. And then, yeah, you can raise funds through family, friends and acquaintances.

Now, for the rest, you can do SBA, right? I know that you guys have heard about small business administration. If you are in Australia and other places around the world, there are very few places where you can always go and get financing for acquiring an online business.

There are some pretty cool ways that you can do it. If you have a HELOC (Home Equity Line of Credit), you can do it that way. Or other assets that you could use as collateral to go away and get some sort of financing outside of you, telling them that you're going to use them to acquire an online business, because normally that raises flags. And then you can go away and purchase an online business with a portion of the funding you get from, say, a HELOC, a business loan or something like that.

Now, let's talk about the possibilities for people who do no money down deals. Now, people who do these no money down deals are business owners who typically take equity, like I said, from somewhere else. And it could be from another business property—HELOC, whatever it is. But technically, it's still your own money.

You're taking away equity from an asset and putting it into buying another asset. And you also need to pay more in finance because you're taking equity from one asset to another, and you still need to pay finance on the equity that you do take from that other asset, right? There will be a percentage of interest that you'll still need to pay.

And technically, what you are doing is taking your money, your cash, from another asset and putting it into purchasing something. So people may call this a no money down deal, like you're not using your own money, but technically you are, right? Now, especially if you are purchasing it with 100% of that equity that you do purchase.

Now, when it comes to buying absolutely no money down deals, I mean, you're not using any of your own money at all. These typically happen in the larger price ranges, right? Typically the highest seven-figure range, getting close to the eight-figure range and north of that, right?

I know somebody who worked as a financial consultant for a large firm that was bought out for a couple hundred million dollars and the people that purchased them used none of their own money. They're in the cryptocurrency niche. Pretty sure Ripple are the ones that acquired this technology and this business, and they used none of their own money. And how do you think they were able to do that?

Well, once you get to a certain size in business and a certain level of success—I'm talking laboutnine-figure plus size businesses—and you've got a big brand and a big public success story, people will throw money at you to go away and invest. And that's what Ripple has gone away and done.

They've gone away, raised the funds and used those to purchase another business. Typically, that's what happens when you start to get the snowball effect happening in that price range of deals.

Now, I know a lot of us listening to this are looking at buying much smaller businesses and starting off at a much different level or a much different bracket. But it's interesting to see that once you get the ball rolling and the snowball happening, you get more opportunities to come to you.

That's what I say, the wealthy get wealthier because they have more opportunities, right? Because they have some public success, people will be attracted to them and want to work with them because they have that public level of success. And if it's not public, they can make it public and raise funds as well.

So that's how they were able to do it. Sometimes people will raise some funds from outside acquaintances or from getting a business loan on a business they already have and then they'll put a small deposit into purchasing their business themselves.

So that's that. If you guys do have questions, I’ve got more to share with you on the pod—something else that I want to sort of get off my chest because I think it's an important thing to share with you, guys. But if you do have questions about financing, please do let me know; you can reach out.

I do talk about financing and how to get financing in more specific ways in our buying online business community. It's pretty rare. It's pretty rare that people buy businesses with financing when they're buying something under the $500,000 price range. It can be done, but it's very, very, very rare.

And then those people that are buying businesses around the $500,000, $400,000 or plus price range are typically buying them with an SBA loan. Or, like I said before, they're taking money from certain areas of wherever they're at with their assets and using that to finance.

They are not absolutely 100% no money down deals, which is why I want to share this with you. Because there are people out there that are creating content on YouTube and many different places that are saying that you can buy businesses with absolutely no money and make great passive income, and they're great lifestyle businesses. And a lot of people are feeding into this ideology. And it is typically people saying that you can buy a traditional boring business.

Now, I know this will be destructive to a lot of people. Because typically, a traditional business or a traditional boring business is a location-based business. And most people who want to earn a passive income, from what I find, may have different circumstances.

But I would say the larger bracket of people that want to buy a business for passive income or earn a passive income is to not stay in one location, so they can have a lifestyle and choose to leave their location or live anywhere and earn an income anywhere without being tied to any one place.

Now, I have had people that have gone away and done these trainings with certain types of people that they go away, and they get very, very close to buying a business and some people have even gone away and bought businesses and/or franchises, and come to me and say, “Jaryd, I just followed the wrong person. I followed the wrong routes to what people believe is wealth.” And it's set them in with where they're at in their location.

And also sometimes it can put people further back than where they were when they even started, especially with these franchise businesses where people have been known to buy, and I know these people have bought franchises and they bought themselves a job.

This is typically what I teach people to not do—to go away and buy yourself a job. Not only do they buy themselves a job, it’s not a job where you can work anywhere. It's not an online job. It's a job in a restaurant chain or it's a job in some sort of chain that they need to be in a certain location, and they end up running a lot of stuff, being an operations manager and not being a business owner.

There's a big difference between being a business owner who owns a business, does not work, and passive income versus being a business operations manager. That is a person who has a job. So they've gone away and bought themselves a job operating in a business in a location that they don't particularly want to stay in and they have not really built their path to wealth.

They have helped the person who owns a franchise become far wealthier. Because they sold them the franchise with the franchising fees that are hefty, and they make decent income from doing so.

So be careful. Be careful out there with who you follow and what you end up doing on your path to wealth. I'm not saying to run away from these particular people who are telling you to buy boring businesses, traditional boring businesses. If they're a location-based business and you love that, great, do it.

Understand that there may be some operational things that you may need to take on board. And sometimes you can buy these location-based businesses and just be a business owner and put an operations manager in place and be completely passive and be off-grid or wherever you want to be.

Typically, when you're buying these businesses with no money down, traditional brick-and-mortar boring businesses, typically those businesses are hard to find to buy them with no money down. Because you can buy something with no money down, especially a traditional business, and it's in a smaller price bracket, say under a million, typically they are distressed businesses.

Now, when you buy a distressed business, you’re not buying the best business. You're not doing what Warren Buffett says. It’s better to buy a good business at a fair price than a fair business at a good price. You're buying a fair business.

You're buying a very cheap business at a fair price because it's a distressed asset and you're using 100% financing or you're using little to no of your own money. The reason the seller will sell this for little to no money is because they're distressed, and they just need to get out. So you're buying a cheaper deal.

And a lot of people are selling the idea that you can buy a great business with no money down and earn passive income when the reality is that you get into their training and all that sort of thing. From what I have found and what I've been told and heard, obviously not mentioning names, you just need to be careful what people are selling to you versus what you're actually getting in terms of delivery and what that path looks like.

For me, I'm pretty upfront. If you buy a business and a smaller business, you're typically going to need to do work, and it's not full passive income; it's semi-passive income. And even when you buy a business in the 150k, 200k, or more range and use our team to grow it for you, our SEO service, you still need to jump on the phone once a month and have a chat with our SEO team to make sure things are tracking the way that you want them to be tracking.

And then readjust and realign your SEO campaign or your campaign to grow your business with a call per month. I know it's very little work, but it's not completely passive income; it's semi-passive.

So have a big think about who you're following, where you're at, and what's going to suit you. The reason I mentioned this is not because I need people to come across and learn to buy a business or work with us at all. It’s that people are selling you a dream and a lifestyle.

And typically, what we forget, and I know this to be true for myself, is that when we're going and looking to make money online, our goal becomes to make money online.

And sometimes we get so focused on that that we put the blinkers on and forget that that's not our actual goal. The goal is lifestyle. The goal is to spend more time with your family and friends, traveling and doing what you want, when you want, and how you want.

That's the actual goal. And sometimes we forget about that, and we just get so focused on money, money, money. Because money is the vehicle that's going to provide that. Money is the vehicle that's going to give us that lifestyle.

But sometimes we get so focused on the vehicle that we forget that sometimes we choose the wrong vehicle and it's not going to get us to our actual goal. Because sometimes it could be a vehicle that we need to do a lot more work on, a lot more maintenance on, and it costs a lot more money, and it ends up just costing us a lot more time than we need to get rid of that vehicle or let that vehicle die before we get in the actual vehicle that can get us to that lifestyle and that goal.

Now, I know I'm using a lot of metaphors here and I'm doing that on purpose to paint a picture of what it would look like for you to try and get to your goal and how you should choose the right vehicle to get there. Now, there's a lot in that. I hope you go away and re-listen to this and I hope you get a lot of value from it. If you do have questions, please let me know.

Again, I don't typically ask you guys to do much for me or for our podcast. This is Episode 250, and I would love for you to celebrate that with us by leaving us a review on the Apple Podcast. I don't typically ask for reviews or comments. I would greatly appreciate that in celebrating the Buying Online Businesses Podcast.

And if you are a long-time listener, thank you. Thank you for listening. Thank you for leaving a review. I appreciate you. And if you are just new to this, I suggest subscribing and binging like a lot of people do. Go through this and get a free education. And if you need help, reach out when you do need it. And I love you guys and I will leave you and speak to you on the next one. Bye.