100% seller finance deals: updated insights for 2022

Do 100% seller finance deals *actually* exist in the real world? If so, how can you negotiate them? What are the red flags to watch out for? My personal site: ||

Hey it’s jason here ceo of brady utilities as well as b b professional plumbing and air and in this video i want to talk to you about 100 seller finance 100 seller finance deals where they tend to come from how to get into a position where you’re buying a deal with 100 seller finance and some of the risks associated with this kind of structure all right so first

Thing i can say is the longer i go into the future building my and our resume if you will as deal makers we’ve done four deals at this point over the last two years and as we continue to move forward and build that deal making as well as that operational track record and that operational track record is really important for seller finance by the way because

That’s what the seller uses to lean on as the credibility that they’re going to get paid back but as we continue to build that track record we have more and more opportunities where we get um large amounts of seller finance proposed to us or uh where sellers are agreeing with with that deal structure and recently here we had an offer to do 100 seller finance and

By the way if you have been paying attention we closed a 100 seller finance deal back in august of 2021 for an hvac company okay so what’s the deal here because if you watch my older videos i basically told many of you that 100 seller finance is largely a pipe dream and what i would edit my comments to be is it’s largely a pipe dream if you lack the track record

Of making deals happen and then operating in post close that’s where i believe it’s still largely a pipe dream however there’s always a way to get 100 seller finance done and the way i see it happening in my world is largely with deals that are distressed or the company has a problem maybe the books are bad maybe the tax returns are messy maybe it’s losing money

Maybe it has employee problems you know fill in the blank as far as why but usually a 100 seller finance deal is capable of being negotiated to that point meaning you can negotiate for 100 seller finance if that business is distressed which will then motivate the seller to sell as soon as possible before the business bankrupts or continues to lose its value now

There could be a scenario wherein a seller becomes interested in 100 seller finance simply because he’s really motivated to sell and he doesn’t care but in my experience usually the seller really cares about the terms really cares about the price and really is doing 100 seller finance because they realized that through your diligence process you found out just

About everything you’re going to find and now they have no leverage and here’s the thing i can share about seller finance from my own experience we’ve gotten two sellers in the last six months to agree to do 100 seller finance terms one of the deals we decided to do the other we walked away from in both cases we agreed to that deal structure after diligence not

Before diligence what’s the takeaway here the takeaway here is you usually find things during diligence which changes the conversation to the point where suddenly now a seller is willing to do seller finance whereas before they were looking for a lot of cash up front usually skeletons come out of the closet things get revealed and during that process of things

Coming out of the closet and things getting revealed the seller changes his or her tune realizes they lack the leverage they thought they had and at that point they’re willing to sell the business at 100 seller finance or very near 100 seller finance so here’s the deal with seller finance 100 seller finance most notably and this is what we’re talking about here

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Companies that you can buy with 100 seller finance are almost always going to have fleas problems they’re gonna have some distress going on within the business and so building your your your business plan simply to target companies with 100 seller finance in my opinion is a risky business plan although if you’re a great operator and you’re a turnaround expert then

Maybe it’s the right plan for you but if you don’t have operational experience if you’ve not turned around a company before then buying companies with 100 seller finance is going to put you in a position to have to perform in a way you’ve never performed before because of the fact that you’re going to have to turn around a live business in real time a business

That may be bleeding cash today you buy it and that may be bleeding cash before you stack that onto it right now what i would say to you is i think 100 seller finance deals especially assuming they are distressed make a lot more sense as a bolt-on acquisition than they do as the foundational acquisition okay so when we enter a market with brighter utilities

And you can look at what we’ve done in tampa bay where we’ve pretty much rolled up tampa bay now we’ve done three acquisitions in tampa bay and about we did it in about actually we did three acquisitions in less than a year we did the foundational acquisition right of b professional plumbing we then brought two hvac companies that we bolted on to b and b right

You see my bmp shirt on here okay so and b was the the foundational acquisition that one we did through traditional finance traditional finance built that strong foundation then we added two bolt-on acquisitions to bring in the the two hvac divisions we wanted the service side and the mechanical side we bolted those on one of those two bolt-on hvc acquisitions

Happened to be 100 seller finance the other we got we paid cash for but we negotiated that down to be a pretty down affordable price okay those were two businesses that candidly had some distress going on they were great businesses but they were past their prime if you will and we needed to do things to get them back to their best and we’re still working to get them

Back to their best but the point i’m making is it’s a lot easier to do those kinds of deals where maybe there are problems with the company when you have a strong foundation to set those companies on top of i would not have gone into the tampa bay market and done my first deal with a business that was highly distressed that may have been more easy to negotiate 100

Seller finance okay that’s my strategy you don’t have to agree with that but that’s what we’re doing and that’s working for us that’s working for us all of that being said the way you’re really going to get 100 seller finance is by taking the long route by the long route again what i mean is you’re probably going to negotiate a purchase price okay we’ll buy your

Business say for two million dollars okay great eighty percent of that is going to be paid out in cash the final 20 is going to be in seller finance okay great put it into contract sign it okay we got a contract very good now we’re going to go into diligence and assuming everything cleans up in diligence we’ll close on that transaction okay sounds good says the

Seller you go into diligence you look around for 30 days you ask for financial records you look at employee files you look at all types of different files and documentation relating to the business and after say 30 days of diligence you find fleas you find problems you find skeletons in the closet at that point you go back to the seller and say i am not interested

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In doing the deal on these initial terms because i found x y and z and therefore i’m not interested in proceeding with the deal you say you know if you need these terms to take place why don’t you find a different buyer at this point usually a motivated seller will say whoa whoa whoa whoa what are you doing easy now tiger let’s not walk away from this thing why

Don’t we try to work a different deal and at that point you can come in and say something to the effect of okay we’ll still buy your business for two million or hey you know what we’re gonna need to knock the price down from two million to one and a half million and we’re gonna expect you to finance the transaction either ninety percent of it or eighty percent of

It or hey we need you to finance every single wood nickel because we’re going to have to go raise working capital to keep this thing going so we can turn this business around okay and here’s the thing with 100 seller finance deals as well okay first of all that’s how i would negotiate it you come to the price that you think you would buy the business for assume

For a minute that it’s going to be a good business and then only if you realize it’s not a good bit when i say not a good business meaning there’s a lot of problems only when you find these problems these specific problems you can point to at that moment do you then go and negotiate for more seller finance or maybe 100 seller finance that’s what we’ve done that’s

Worked for us we’ve done that two times here in the last six months we did it back in august we’ve done it again here in january of 2022 the august deal we closed the january 2022 deal we decided to walk away from and here’s the reason why we’ve walked away from the recent deal and here’s the thing you have to think about as well any business that’s going to have a

Turnaround component to it is going to need working capital well first of all all businesses need operational capital right it’s almost like you as an individual you need some amount of money in the bank account to be able to pay for rent be able to pay for your car payment to pay for food for this for that for whatever okay same thing in running a business except

You need a lot more money in your operating account than you would if you’re just operating as an individual okay so whereas for maybe you you’re comfortable with having three grand or five grand or 10 grand in the bank account for a business it probably needs 50 or 100 or 150 or 250 grand and that’s for a small to mid-size business i mean if it’s any real size

Business it’s going to need seven figures of cash in the bank account or more okay great what’s the point point is any business needs capital and if it’s a turnaround business whereby you’re getting 100 seller finance because the business is distressed then in that event you better have a lot of capital in the bank account relative to the business’s size and how

Much revenue it’s doing because you’ve got to expect there’s going to be a burn rate of say three or six or nine months until you can turn that business around you’re turning the wheel you’re turning the barge but it’s a big ship and it’s not going to turn quick right and this is where your operational prowess comes into play and maybe your industry expert can

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Guide you and your historical experience as an entrepreneur or as a business person helps guide you in realizing or understanding and forecasting that’s really the key word forecasting how long it’s going to take for you to turn around the ship and the ship i mean the distressed business and turning it from a cash flow negative business into a cash flow positive

Business but all that being said it you got a plan for having more capital to turn that ship around okay so you’re still gonna raise capital in 100 seller finance deal almost in every circumstance okay so so yeah you can finance 100 of the purchase price through seller finance but like our deal we did back in august that was 100 seller finance okay we did the

Deal with 100 seller finance but then we went and raised working capital because we knew we were going to need to have capital in the bank account to run this thing how are we going to make payroll the following friday now there’s ways to do it whereby you inherit the cash from the business enroll that into the transaction there’s stuff like that you can do as

Well you can talk to your lawyer about that i’m not going to talk about that in this conversation but my point to you is as follows one i’ve changed my opinion on seller finance especially as we build more operational confidence and more operational more of an operational track record and more of a deal making track record and as we continue to repay every single

Obligation we’ve ever made on time every single month we are being given these types of opportunities that when i was getting started i wasn’t getting okay so in going from zero to one very difficult i think to get 100 seller finance now that we have done you know we did our second deal we did our third deal we’ve done our fourth deal we’re negotiating another

Deal right now right we’re we’re truly in the game and we’ve been in the game for years now now that we’re at that place we get seller finance offers more regularly or rather i should say we’re able to negotiate two highly leveraged seller finance positions okay normally we start with the majority of the cash getting paid out as cash at the closing table when we

Go into diligence we figure out the truth and when we find fleas we negotiate that seller finance and usually sellers will reluctantly agree and then we have to decide if it still makes sense for us because we’re still going to have to go out and raise working capital to keep the engine flowing to keep enough oil in the engine if you will so that we can run the

Business and turn it around okay so those are the key things i would think about when you’re thinking about 100 seller finance or highly leveraged first position seller finance notes to buy businesses all right i know that was a lot that’s why i have a youtube channel and that’s why i have my website jasonpalrogers.com but for this one if you’ve liked the video

Thumbs it up all right share your comments below what do you want to talk about next please share in the comments below so i can try to help you all in any way i possibly can again jason rogers.com for more information and i will talk to you in the next video by the way subscribe to the youtube channel if you’ve not already alright hit that subscribe button hit

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Transcribed from video
100% seller finance deals: updated insights for 2022 By Jason Paul Rogers