Getting the Money from Family and Friends When Buying a Business

Getting the money to buy a business is, oddly enough, one of the things that many buyers leave for the last minute. Perhaps it ties into the incorrect perception that traditional lenders have their vaults open ready to hand over money to you to buy a business.

Unfortunately, it is not the case. Not even close!

Today, I received an email from a website visitor explaining he has found a business, negotiated the deal and now is absolutely stunned and stuck to learn that his “investor”, his Uncle Max, doesn’t want to lend him the money.

This financial backer initially told him “I will lend you the money – don’t worry” (I really wish they had read my course because here’s what they would have learned):

If you are planning on having friends or family members finance your purchase, you need to understand it is a business deal. More importantly, you must be sure that they will be there to write the check when you need it. It is very easy for somone to off-handedly promise you the money, but it is a whole different ballgame when the time comes for them to fork over the cash.

If you are considering getting financing from your “Uncle Max”, keep a few things in mind:

• Make sure Uncle Max’s criteria for agreeing to finance you is completely aligned with the type of business you are looking to buy.
• Nail down the deal details with your financier before you begin negotiations with any seller.
• Lay out very specifically what Uncle Max expects in return for his investment. Is it equity, debt, and what are the note terms, etc.?
• Involve him in the process. Keep him updated. Analyze companies together. If a particular business is not of interest to Uncle Max, you want to know it early on.
• Be completely upfront with any sellers or their brokers about the source of your financing. Simply telling them “My Uncle Max has plenty of money and will finance the deal” is not good enough.
• Get Uncle Max to provide you with a letter acknowledging they will assist in the financing, and have him provide you with a Personal Financial Statement that you can offer sellers as proof to back up your claim.

While family and friends who offer to lend you the money are well-intentioned, and may even come through with the financing, do yourself a favor and don’t put your entire future in Uncle Max’s hands. There are many options available to finance a business. Learn what these are beforehand. When the right opportunity arises, you want to be in a position to pounce on it and get it done!

I will be leaving for Canada on a personal matter as my father is quite ill. The beauty of my business is that I can operate it from anywhere. However, I am not certain when my next posting will appear, but I do hope to be back on track for the newsletter after Memorial Day. As you may have read in some of my posts last year, I became an American citizen on January 23, 2007 which was one of the greatest days of my life. I waited ten years to achieve that incredible honor. I love this country, and I am totally excited to vote next November. As we “celebrate” Memorial Day, I hope that you too will recognize the day for what it is supposed to be – to honor those before us who gave so much, and paid the ultimate price, so that we can enjoy our freedom. One of my true life heroes is Jerry Efros, who works with Transworld Business Brokers in Fort Lauderdale, Florida. Jerry is a highly decorated WWII veteran and each year, on the Thursday before Memorial Day, I look forward to his sobering, yet somehow uplifting recollection of his military career, and his 33 combat missions as a B17 tail gunner. His stories are bone-chilling. Jerry definitely does not see himself as a hero - he always tells people "the guys that never made it back - those are the heroes." While Memorial Day seems to have unfortunately evolved into a mass retail marketing event, please be sure that you take the time to honor the day and its true meaning. Regardless of your political beliefs, the fact remains that far too many of this great country’s finest young men and women are stationed away from home today and sacrificing their lives for us, just as others before them have done.  Give them their due. We owe it to them. To my friend Jerry Efros, a real American hero, you definitely symbolize the greatest generation - God Bless You!

Comments

[Bob Peterson]

Richard,

I have read with interest many of your columns and admire your ability to make complex topics clear and interesting.

I have also contributed articles from time to time, so I know how much energy it takes. My writing is, I am sure, much more painful than yours, but I try.

Thanks for your comments about Memorial Day. We have much to thank for our Canadian partners during that time. It is well for us to put some perspective on the carnage of that time--the upcoming June 6 (D-Day) in particular.

I tell my kids: nearly 5,000 lives have been lost in Iraq and Afghanistan. Those are people who would have contributed greatly, they are missed by loved ones and we must honor their sacrifice.

My generation, Viet Nam, saw 50,000 die. But the WWII generation had 500,000 US deaths. Every family was affected.

It is interesting and appalling to me that the numbers increase by a factor of 10. Each generation has made it better for the next.

But, then, consider the Russian and Chinese casualties that are just estimates, but run to as many as 20 million. No wonder the Russians and Chinese were hard to get along with during the Cold War.

Our lives are so much more protected today, we just can't let go of our commitment to the next generations to protect our way of life and our safety. The evil of Hitler/Stalin/the Japanese Imperialists cannot be allowed to regenerate. And come back, it will, if given the chance.

Thanks for the inspiring words.

Bob Peterson
info@nbbcompany.com

[Steven Swartz]

I am currently in the process of purchasing a business, However the current owner is unwilling to provide me with any financial detail until I sign the contract because he wants to know I will be obligated to purchase the business after the due dilligance period of 15 days. Is this a normal situation? Further, He has agreed to certain terms such as 3 days training before settlement and 60 days by phone after but doesn't seem willing to put any of this in the contract. What should I do?

[Avigail Teumim]

Hello Bob,
From reading Richard's articles and from knowing people very well...
Don't sign.
If someone doesn't want to tell you everything or commit to training, there is a good reason. They hate it and want out. If they don't want to share the books, 99% chance it don't look good.
3 days of training is not normal unless it's a hot dog stand. You will probably need 2 weeks of training and a month of owner availability.
And yes EVERYTHING should be in the contract, no hand shake deals in this day and age.
Good luck, I hope you find the right deal for you!
Avigail