Question added to topic Money • June 7, 2008
Would it be better to put down 20 percent, 33 percent or 50 percent toward the purchase of an existing business?
I am looking at purchasing an existing business with a good history, and I want to maximize my leverage. I have no debt and don't need to take that much money out of the business. I would prefer lower payments and lower financing with a balloon at the end of five years. Then I could use the profits from this business to continue buying other businesses.
While leverage can maximize your returns, it can also increase your risk. While putting down less money to buy a business will free up capital to acquire other companies, that strategy may backfire if the first business runs into problems and fails to generate the cash flow you're expecting. Your strategy may also inflate the prices of the businesses you acquire since sellers who are willing to accept less money now are probably going to demand a bigger payout down the road.