The Trump Blog

If you visit this blog often, you already have read my many posts about the advantages of buying a business. You know that buying a business, in nearly all cases, is far wiser than starting one. (On the first day you own a business, a customer will call. You can’t say that about a new business you just started.)

But did you know that there is a low-cost way to enjoy all the benefits of buying a business at a fraction of the cost?

There is, and it all starts when you ask a very simple question about the business you are considering . . .

Is the seller open to a possible partnership?

Chances are the seller will flatly refuse this suggestion - but only initially, or at least until you spell out the advantages. Why would the seller want a partner when he or she is trying to sell the whole business? The seller will probably say that he or she has run the business alone and cannot imagine working in a partnership situation.

While that might be so, you may find yourself in a situation where you find a business that really excites you, but it may not be financially feasible for you to buy it in its entirety. Or, the seller may really want to sell but cannot get his price. And, since most small businesses involve some seller financing, the seller is always worried he won’t get paid. If you come in first as a partner with a plan for an eventual buyout, the seller can witness your skills first-hand and will be infinitely more confident financing you, a known entity, than a complete stranger.

If you get the seller to become a fan of yours, you can then try to negotiate a partnership. This formula, if structured properly, can actually have the business, and not you, buy out the owner over time and provide you with a monstrous return on your investment.

I cover the topic in depth in my course, The Art of Buying a Business. But here are some considerations you should know when negotiating a partnership instead of an outright purchase:

• It will require less up-front financing, since you are not buying the whole business.
• The seller will be less inclined to "bend" the truth during negotiations because he or she will be your future partner.
• You get the benefit of the current owner’s experience going forward in the business.
• If the seller is willing to keep a stake, then he or she believes that the outlook for the business is good and you are the person to get the job done.

The downside to a partnership arrangement is that you may not be able to completely exert your influence over the business or the employees. The reason is simple: as long as the previous owner is present in an ownership capacity, old policies, procedures, strategies, allegiances, and philosophies will take longer to dissolve. You must understand this or else you may be faced with some very stressful situations.

All employees must know three things. One, you are the boss; two, even though the seller will remain onboard, you are going to buy him or her out completely over time; three, while he or she is still an owner, the seller is, in effect, an employee, and his or her position is based upon continued results.

But with those caveats aside, partnering to acquire a business is one of the best ways I can think of to acquire a successful enterprise at a very advantageous cost. That’s worth thinking about - and I’d urge you to start thinking about it today.