Real Busines Appraiser/ Business Broker reacts to purchasing a business with no money down

This series is dedicated exploring the concept of buying a business with no money down.  At the end of this video I will give you my honest opinion as to whether it is possible to buy a business with no money down.

To determine whether is something that can be accomplished we must first define the term.

“Purchase a money with no money down”

The most narrow definition is to use 100% of owner financing (without a personal guarantee if possible)

Wider definitions could include the following additional source of funding:

Bank loans without a personal Guarantee

Bank Loans with a Personal Guarantee

SBA Small Business Administration loans

Friends and Family Loans

Friends and family as business partners

Friends and family as passive investors

Acquintences as debtors

Acquantances as partners

Acquantences as passive stockholders

Corporate Credit cards

Personal Credit Cards

Asset Backed Loans

Supplier financing

Getting Partners

Swindling the elderly

Ponzi Schemes

Cold Calling investors

Words and phrases are broad categories that are trying to depict a reality and in this case a future reality.  However whether your plan is going to work comes down to the details.

Just like asking the question can I build a plane that will fly?

Hypothetically the answer is YES you can, but will you do it? That is more complicated and that it is the topic we are exploring in this series.  How many NO and failures will you tolerate before you give up?

Like water running down a mountain slope most people take the easiest path, the path of least resistenace the mopst conforatable path, then when they get that path they stay on and then the buy houses, have families and other obligations that prevent them from daring and risking and taking advaentures.

The expression “buy a business with no money down” is found in many advertising and marketing campaigns whereby people are selling programs that claim to teach you how to accomplish this.  This is an extremely broad topic with many different scenarios and possible structures for the purchase. Every industry and every business and owner is different and as such has different dynamics.  The answer to the question can you buy a business is going to be found on a continuum or spectrum of the probability of being successful.  For example I can form a business that invests in lottery tickets and it is theoretically possible that I could with the jackpot. However, is it likely and would you invest in my lottery sceme.  What are the odds of being successful?  In statistics there is a mathematical law called the Law of Large numbers. 

(Put this definition on the screen)

“In probability theory, the law of large numbers (LLN) is a theorem that describes the result of performing the same experiment a large number of times. According to the law, the average of the results obtained from a large number of trials should be close to the expected value and will tend to become closer to the expected value as more trials are performed.”

The LLN is important because it guarantees stable long-term results for the averages of some random events.^[1][2] For example, while a casino may lose money in a single spin of the roulette wheel, its earnings will tend towards a predictable percentage over a large number of spins. Any winning streak by a player will eventually be overcome by the parameters of the game. It is important to remember that the law only applies (as the name indicates) when a large number of observations is considered. There is no principle that a small number of observations will coincide with the expected value or that a streak of one value will immediately be "balanced" by the others (see the gambler's fallacy).

What this means to us is that if we can get the mathematical odds of success in our favor and if we repeat the task enough time we will win in a ratio similar to the odds.  For example if I flip a coin 1 time, I may win or I might lose.  I would either have won 100% of the time or I would have lost 100% of the time. If I flipped it 4 times I would either win 100% of the time 75% of the time 50% of the time or 25% of the time.  None of these reflect my actual probability of wining which is 50% and 50% of losing.  50% of the time I will win and 50% I will lose these are the actual probability of my success.  But because I am using such a small sample size of 4 flips my actual results are not going to accurately reflect my odds of winning or losing.  However, if I flip the coin 100,000 times the law of large numbers states that the number of times I have heads will be very close to 50,000.

(Flip  a coin in the video)

So if we analyze our hypothetical lottery busines, we discover that the mathematical odds of winning in the lottery business are against us and in favor of the lottery seller. Therefore if we apply the law of large numbers we can be relatively sure that the most likely outcome is that we will lose our money and not invest in such a business.  Is it possible that we might hit the power ball jackpot, yes but not likely.  If all things being equal I would choose a business where the odds are in my favor.  Also learning about and studying the skills to buying a business with no money down is a cumulative and the more you study and work on it the more of a master you will become.

As another easy to understand example:  If I practiced playing basketball every day and invest all my time in following my dream of being an NBA basketball player but what is the likelihood of me reaching the pinicle and being an NBA player.  if I fail at reaching the height of being a millionaire basketball star are there reasonable uses for my the basketball skills that I have invested so much time and energy in acquiring.

What is the probability of me as middle age man who is 5’10 and currently not a skilled at the game of basketball becoming successful at this endevor.

OK now will the odds change if I am 7 feet tall and a college basketball all star?  Obviously the answer is yes.

Now the same principles can be applied to being able to “purchase a business for no money down”

Now the good thing about trying to buy a business for no money down is that you are learning a great many useful life skills that even if you don’t win and become the millionaire NBA basketball player you did not waste your time because like going to college you learned a lot about business and these will be usefull skills that will make you money at a later point in you life,  Trying to purchase a business with no money down does not have to be an all or nothing project.  Even if you don’t succeed at your ultimate goal there are a lot of profitable niches along the way that will be useful to you later on in life.  As opposed me trying to become a basketball player where the basketball skills do not have much use if I do not succeed at become a professional basketball player.