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How I Bought a $1.2 Million Business with No Out-of-Pocket Cash.

In late 2007, at 42, I lost my $10K+/mo job, a few months after buying an $800K house in So. Cal. I had used up all my cash to make the house purchase. Shortly after the layoff, I landed a consulting job making about $15K/mo with a shakey startup company. I suspected the consulting wouldn't last more than a year (it ended up lasting about 1.5 yrs). I also rented my $800K house (which only covered about two-thirds of the expenses), & bought/moved into a larger $400K house an hour away, using the severance pay as the down-payment.
So I had an excellent short-term income, about $100K in my 401K, no debts, no liquid cash, about $500K in unused credit cards, some underwater rental props, 700 FICO, no real "business management" experience, & started looking for a business to buy.
With that, I was able to buy a $1.2M business with a cash-flow of about $400K/yr, using an SBA loan, credit cards & the 401K.
Now, others run the company, & I work about 4 hrs a week keeping the books.
Comme

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Don, The 1100 character limit really didn't allow me to get into my thoughts/opinions on the matter, and so I just spelled out the facts. One other important fact was that I closed on the SBA loan in late August 2008 -- two weeks before the financial meltdown, and before practically every SBA lender and bank froze in their tracks for many many months to come. So your points are well taken.

I honestly have no idea if the above scenario could be replicated again these days. I doubt it could. The consulting contract was a pure fluke, and probably the only reason that any SBA lender even considered lending me money. However, my rental properties were bleeding several thousand a month in losses, and so my overall financial profile wasn't that great. On the credit cards, several of them were fixed interest at 3-7% for the life of the loan -- giving me about $200K in additional low-interest "cash" for the down payment. It was risky, and in retrospect, I can now recognize several other "pure luck" circumstances, any of which could have doomed the whole thing (not the least of which was the calibre of people that were [and still are] running the business when I took over).

When I did lose the consulting job (after I had owned the business for about 6 months) and my income was drastically reduced, I was able to start modifying the various mortgages, and doing short-sales and settlements. My credit score has nose-dived of course, but things are cash flowing extremely well right now -- and the business was fairly strong through the entire recession.

Using the 401K worked out, but it also complicated things which may not work well for others -- one being the requirement that I use a C Corp, instead of an S Corp. Overall though, it was a tremendous learning experience, and has worked out pretty well. But I do grant that much of it was pure luck, and certainly not applicable to most folks, especially these days.

Aug 26, 2011
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The BAF Group LLC
MD

That's great, Brian. Good for you - seriously. But the picture you paint is incredibly difficult, if not impossible to replicate by others. The times have changed. Credit card maximums and terms have changed. The uniqueness of your situation is far from the reality of most others that participate in this bulletin board.

While - again, most sincerely - you are to be commended, your story holds out hope for many others who could not and should not try to do what you have done. The mere fact that you could obtain a consulting stint paying $15k per month, that you had $500k in unused credit cards, that you could move into a $400k house while only having a consulting position, (I take it while having a mortgate already on an $800k home,) all point to unrealistic scenarios in this current credit climate for the average person.

That is not to say it is impossible; but it comes close. And the biggest reason for business failures today is a lask of capital. To do that can, and often is a recipe for failure. Remember that the guy that originally wrote the real estate book entitled, "No Money Down", went bankrupt at the first cyclic economic downturn he experienced.

Continued good luck.

Aug 26, 2011

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