You may want to own your own company, but feel the prospect of building it from scratch is intimidating. An effective way to take the pain out of building a business is through purchasing another company. If you lack the capital to get this done, you could try a leveraged buyout, or using the assets and the income generated by the business to finance the purchase of it. When a business owner needs financing for his or her company, they can go to the bank and show they can pay the loan based on the assets they have. If the assets aren’t already in your possession, how can you secure financing to buy the company?
There are several ways to make a leveraged buyout, either using some of your own capital and financing or using nothing out of pocket. If you approach a business owner who is eager to sell and you offer $600,000 for his small business while putting down $200,000 as an initial payment, you can reach an agreement for paying back the additional $400,000. This is a convenient strategy if you have a strong enough credit record and assets to borrow $200,000. A problem can arise if you find that you cannot get your hands on $200,000 so easily.
You can execute a buyout with nothing out of pocket if you receive pre-approval of the loan based on the assets of the company you are buying, give the business owner a check in exchange for proof that you own the business, and then take that proof of ownership to the bank and complete the loan. This can be an effective way of buying a company if everything goes as planned and provided there aren’t delays in the process.
A leveraged buyout is a strategy used by large corporations use for acquiring smaller businesses and is often more simple than growing one’s own business. This method isn’t reserved for multi-national corporations, but can be used by almost anyone. If you take your bike to a neighborhood bike repair shop and notice the owner wants to move into another line of work, you could start making inquiries about his possibly selling the business. If you have a knowledge of the field, you can figure out how to expand the businesses profits and add value to your investment. Buying a functional business can save you the headache of those rigorous early stages of establishing a company and can enable you to enact expansion plans and grow your investment.