If you are planning to buy a business some day, or if you already have one, and want to know a secret way to expand quickly without begging a bank or lender for the money, then this article will show you how. I recently did an interview about buying businesses and a guy from Florida emailed the following question in: "I have a small electronics business and am going through a huge growth spurt and need to figure out how to get financing to keep up with demand. We are growing real fast and cant get money from our bank because they said our balance is too low. We are spending all our available cash on product purchase. We have a classic problem of too much success and no funding. We could lose some big sales for lack of capital. All our customers are large corporations like Proctor & Gamble, Hilton, Hewlitt Packard, et cetera. What can we do?" My answer to him was simple and the only answer to his problem: The easiest thing to do on a deal like that is bring an investor in because...whether its a million, two million, five million, whatever the amount is...theres either one person or three or four persons that will come in. Again, this is not going to be a loan...its going to be equity financing. In other words, youre going to give them part of your company. But don't let that scare or stop you. Because most investors -- at least the ones I work with -- dont want to own common stock in your company. They want to own preferred stock. If you own the type of corporation that allows preferred stock, youre going to find theyre not in a voting position (except in rare circumstances). All of which means you still own 100 percent of the company. You just dont own 100 percent of the cash flow. This way of expanding doesn't get talked about too much in the business schools any more. But it sure beats the pants off any kind of loan you can get at the bank. And as long as your numbers are good, you'll have little or no problem getting investors to jump on board and give you all the expansion money you need. |
