When you are on the street (aka unemployed) you will endure some pressure. Financial pressure from family, friends and even yourself to get something done that will produce income. In fact you may not even want to go to a party for fear that someone will ask you where you are working. But as dreadful as this sounds it can change overnight. But sometimes you need to settle for less at the outset. Not everyone needs to swing a leveraged buyout of a $10 Million company to be happy. You can start out by doing a deal which does not require banks, capital or time. Well ok you will need some time and you will need some modest capital.
Use the 1/3 down rule. Look for companies where the price tag is low, ($0 to $300k) and look to plunk down 1/3 of the negotiated price in cash. You will complete a deal very fast this way. For example if the deal is priced at $300k you will want to make an offer of $150k with $50k down. You will need $50k in cash of course but then there are even lower priced deals for companies that are not making much money in this economy. I am seeing many more deals under $100k now than a couple of years ago. The opportunities for putting almost no money down are many.
A few issues with this strategy. You will need to see your way clear to getting a minimum salary out of it. Hopefully $50k for starters which you can build on. Second, you will need to make sure the company isn’t a storefront with no future. Make sure its expandable. For example a clothing store in a small town will not grow well. But small manufacturing and distribution companies can be built to substantial sizes. Moreover any storefront business that can reach past its town borders for sales growth is a good candidate. Also be prepared to do some hagglling about the seller paper. Finally you will need to work the company. These deals will not have room for managers, you will start out being the chief cook and bottle washer. Many people prefer it this way but after many deals over the years I usually go after the larger transactions which allow you to be hands off.
Bottom line if the seller is motivated, you will come away with a satisfactory arrangement and a small growth company that you can build on and still draw some good money from.
Remember in this micro market you will want to see $50,000 in discretionary income from a business that sells for $100,000. That is 2x earnings. Be a tough negotiator on the sales price because this market is a buyer’s market and everyone ought to know it buy now.
Again, this is another version of our tiny LBO strategy where you are using seller leverage to complete the deal. I have seen this strategy work many times for people who need to get a deal done fast and need a place to start. If you network hard and look for these small companies you will find more than enough viable tiny growth opportunities that will give you a fast start.
