As with any type of cash flow note, there are several strong avenues to market for business notes. Some will be costly, some will cost nothing but your time (which is a valuable commodity that is not to be wasted or taken for granted). The key to be successful is to strike a balance between the two, based on your budget (or lack of one) and the time you have available for one-on-one marketing, networking, follow-up, etc.
It’s not necessary to take out expensive ads in numerous publications to establish an effective marketing campaign. A key point to remember is that ADVERTISING is not MARKETING. Advertising is a form of marketing. Don’t get the two confused.
When considering a marketing and business plan for your cash flow business, it’s important to understand the industry as it pertains to business notes (or whatever note type you’re pursuing for that matter). The better you understand your prey, the better prepared you’ll be for the hunt. As the saying goes, “only an idiot brings a knife to a gunfight.” Understanding why business notes are created is just as important as knowing where to market for them. One will lead to the other.
Knowledge is Power
The banking industry is curious. We’ve experienced record low interest rates, but the ability to qualify for financing is as hard as ever. As a result, very creditworthy individuals are turned down for traditional financing every day. This isn’t necessarily due to bad credit. Self-employed, just moved to the state and do not have two years of local state tax returns, starting a new job, etc. are all reasons banks will turn very creditworthy applicants down. This is even more prevalent when it comes to borrowing money for the purchase of a small business. Most banks do not make small business loans regardless of the full page ads some banks run in USA Today boasting they’re the “Friends of the small businessman.” If there’s so much money available the following would not be true:
80% of the small business sales in the U.S. are seller financed…80%!!
Every seller of a business will tell you that nine out of ten prospective buyers that have come through their door have asked if the seller would be willing to carry some of the financing. Initially, sellers are hoping for an all-cash buyer. Eventually, they come to the realization that if they are serious about selling the business, they will have to become the bank. They take a down payment from a buyer and agree to allow the balance to be paid over time. Problem is, most sellers are like you and me…entrepreneurs. Although the monthly payments are nice for a while, eventually the noteholder realizes the reason he was selling the business in the first place was to buy that other business down the road. The down payment he received from the sale is not enough to buy that business (unless that seller will carry the paper which is an invitation for you to go talk about that note too!!) and he needs cash. It’s a vicious cycle.
So there you have it…no financing, sellers have to carry paper, sellers need cash, sellers liquidate all or part of the remaining payments. At this point you should be doing cartwheels as you realize the millions of dollars of business notes presently in the market, and the millions that are created every day, nationwide. So here’s the $64 question:
Where are all of these notes hiding?
Several places:
Business Brokers
Business brokers (”BB’s”) are your #1 source for business notes in this country. A very high percentage small business sales are transacted through BB’s. Additionally, if 80% of all transactions involve seller financing, then your BB’s filing cabinets are a vault just waiting to be cracked. BB’s receive calls all the time from past clients asking them if they know anyone that would have an interest in buying the note that was created previously when they sold the business. Most BB’s have a fair idea that the note is salable but have few actual investors that will take over these high risk notes. That’s where you come in.
It is imperative that you are on a first-name basis with every BB in your city. It’s time for the BB’s of the world to stop turning their past clients away and start referring them to you. You can become the “alternative financing arm” of the business brokerage community.
No, if you are a business note buyer you are not a lender. However, if we are all in agreement that the sellers of the world will be carrying paper on 80% of the small business sales in this country, then you can become an integral part of the cycle. Past sellers are prime candidates for present and future listings the BB has. Problem is, they’re not liquid…their capital is tied up in the note. If the seller can liquidate all or part of the note he’s presently collecting, chances are good that he could be a buyer for one of the BB’s present listings! Therefore, by helping you (through referrals and introductions to present noteholders) the BB is actually helping himself. How? Noteholder gets liquid, noteholder buys another business and…
BROKER POCKETS ANOTHER COMMISSION!
Design a nice brochure explaining how your services can assist an existing noteholder and anyone about to sell a business and carry the paper. Convince the BB that your company’s services will be viewed as an added service to his clients. Your goal is to have him allow you to keep a nice acrylic brochure stand in his office (preferably at the receptionist’s desk as well as in the board room where the closing documents are signed). This will be a terrific boost to your marketing and will bring you plenty of referrals.
Classified Advertisements
Look in your local paper under “Business Opportunities.” You’ll see lots of businesses for sale, some by business brokers, some For Sale By Owners, or “FSBO’S”. The broker listings are another invitation to visit yet another business brokerage firm to discuss what we talked about above, in addition to the business he’s advertising. The FSBO’s are an avenue for you to call and explain how you can assist with a seller financed note, should the seller not be fortunate enough to sell for all cash. (Now, you know and I know that there’s an 80% chance that a note will be created, but you don’t want to imply that he will be unsuccessful in finding an “all cash buyer”).
Working with notes that technically haven’t been created yet is the way to eliminate the competition. Educating the sellers of the world BEFORE the sale and creation of the note makes you an integral part of the transaction, and it’s unlikely the noteholder will work with anyone other than you when it’s time to sell the note.
Ed Lisogar is President and CEO of National Capital Corporation, Scottsdale, Arizona, a nationwide principal investor in all forms of cash flows.
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