Question: If the seller is not cooperative and demands an immediate down payment to close the deal, what alternatives exist?
Answer: Sellers can have cold feet during negotiation, but this not a deal-buster. A leverage-oriented C.P.A can help you find alternative no-cash solutions. However, because it may take a little more than just financial tap dancing, you may also require legal counsel for contract negotiation purposes. Our program reports will help you find professionals who know about these procedures.
As mentioned earlier, knowledge can be a very powerful tool during your negotiations because it provides you with alternatives for making a no-cash deal happen. I’ll touch on a few likely scenarios you’ll need to overcome:
“The lawful pause”: Once you have reached an agreement for the payment of the business, your un-cashed check will be held in escrow until all conditions of the agreement are met. Actually, this method enables you to buy more time. You are placing legal requirements on the seller, knowing specifically that these official documents will take at least four to six weeks to be processed by the city or franchiser.
In the meantime, you are able to take over the business and put away the required cash over the ensuing weeks in order to validate the check when the time comes for the seller to cash it. In this way, the business ends up paying for itself.
“Solution for the hardheaded”: Here we’re talking about the seller who adamantly rejects all of your financial maneuvers to pay him off.
As a solution, showing proof of the business’s financial stability to the bank can actually be considered equivalent to a letter of credit, meaning that the company’s assets can be held ascollateral by the bank. This letter of credit is just proof that you have the money, but that does not mean you have to use it. This article will supply you with a list of entrepreneurial-friendly banks, which can serve as valuable sources of financial help. A bank can offer you a loan but it will be under harsher conditions than those of a long-term loan (remember this should be your last resort).
Having this financial support can make you feel more comfortable when negotiating with the seller. It helps to know that you actually have an alternative just in case the seller is hardheaded and uncooperative.
Question: How easy is it to postpone payments to suppliers?
Answer: Credibility and integrity are essential before attempting to do anything. Make sure you explain to the suppliers how you intend to use their products or services. Convince them that it is to their advantage to keep you as a client rather than losing you to their competitors. In order to maintain your loyalty, the supplier may extend every reasonable courtesy by being lenient regarding payments on their accounts. Sophisticated suppliers are familiar with such negotiating techniques and the so-called trade payables by a new owner. (Usually, they extend up to 60 days credit, giving you plenty of time to pay them back). This strategy is possible if your C.P.A can help attest to the viability of the plan. Finally, you might also be able to return some existing and unused inventory towards credit from your suppliers. Virtually every business has excess stock or supplies that can be returned and applied to what you owe. The suppliers will buy back the unused inventory at a lower price and if miscalculated (be careful to evaluate what you need in inventory), you might need to buy back the same inventory at the market value, which can eventually be more expensive.
Supplier financing is not a new concept. Many industries have been built through supplier financing. Some business have remained open because of this avenue. Big supermarket chains set up some franchise stores and offer similar options to the franchisee.
Question: How can I structure a profitable deal with a supplier?
Answer: It always has to be a win-win situation. This is what this book is about. In each transaction, both parties (you and anyone else involved in the transaction) will come out as a winner; it is no more advantageous for either individual involved. You need to first determine who your primary supplier is. Many businesses deal with a handful of suppliers. It is necessary for you to identify which one of them represents or generates the greater revenue for your business. Calculate the approximate amount of annual business your supplier can expect to receive from you. You need then to determine the percentage gross profit on his sales to you. By doing so, you’ll be able to determine what your business generates for his profit. You can then borrow this amount from him and he will lend to you to keep you as a client. He doesn’t want to lose you, so he’ll go the extra mile to help you out in the acquisition. However, this extra amount of money comes at a price. He’ll loan you this money in return for the tangible assets of the newly acquired business. Be prepared to offer mortgage on the business assets, and if necessary a personal guarantee. He’s taking a risk with you, you should too.
Question: Can a supplier take advantage of this situation to take over most of my assets if the loan is not repaid on time?
Answer: Why shouldn’t you pay the loan in time? The supplier needs his money back. He is lenient for a limited period of time, hoping that you’ll get enough cash flow rolling into the business to pay him back. However, a good way to protect yourself and to get the most advantageous deal with the suppliers, is to shop around for them. You don’t necessarily have to deal with the current supplier of the business. You can get other suppliers to bid on your business. I don’t mean that you would sell your business but for you to market the opportunity to suppliers to do business with you. You can choose from a large sample of suppliers who offer the same product, selecting the best one with the best offer of financing. He’ll offer you a deal which should satisfy you both. Many business deals are made this way. Make it a habit of using suppliers as a major source of financing. If you don’t dare to ask, you’ll never get.