In 1969, Robert Plant famously sang: “Don’t know where you’re goin’, only know just where you’ve been”. Even for those that don’t listen to Led Zeppelin on a regular basis, there is some truth to be found here. When a financial advisor attempts to build a relationship with his client, it is useful to ask what sort of footprint that client wants to leave behind. In fact, it is a question that must be asked, if any dialogue is to take place at all.

Financial advisors frequently ask me where that dialogue begins, and I believe the first step is identifying what the ideal client looks like. The ideal client is someone with whom you are familiar, whose name you know, whose kids’ names you know, and who you are excited to meet with-whether it is at the store or in a professional setting. It is, in short, somebody you are comfortable with; in whom you have an interest that goes far beyond numbers and graphics. Only once an advisor reaches that comfort zone can he or she determine if the client is open to having an in-depth dialogue. This, however, requires a different type of investment on the part of both the advisor and the client.

At the True Wealth Institute, we have developed a holistic screening process that defines the parameters of the client-advisor relationship. In financial planning, we not only focus on the changing trends in the financial services profession, but we also research health, happiness, and knowledge. The client who achieves True Wealth lives a life that focuses on more than merely their bottom line. The financial advisor is instrumental in making the client understand what True Wealth is about, namely, all that money cannot buy, and all that death cannot take away.

Memories, relationships, family, and personal legacy are all concepts that fit into this category.

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Finding Franchise Financing
Individuals or groups looking to buy a franchise rarely have the kind of cash it takes to pay for everything up front.  When you take into account the initial franchise fee - anywhere from $25,000 to $50,000, or more - plus money for equipment, inventory, supplies, advertising, and possibly even real estate, you are easily talking about anything from a low- to mid-six-figure number up to a million bucks, or more.  That’s a pretty expensive neighborhood.  As a result, you will be looking for a franchise loan to accommodate at least part of that figure, and most likely a large chunk of it.  Franchise loans are tough enough to secure in relatively good times, but what about during a recession?  One report estimated that 2009 could see as much as a 40 percent reduction in franchise financing, due to the current economy.  Is this bad news for the prospective entrepreneur?  Not necessarily.

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Financing Your Dream Business
Prospective business buyers are always looking for innovative ways to come up with the money to start a company or acquire an existing one.  If you want to buy a business, your choices may be limited based upon what you own, what you owe, how good your credit rating is, and what sort of incentives the seller may be willing to offer.  The smart business buyer will look carefully at every opportunity, selecting the one that offers the most “bang for the buck.”  In some cases, the best option to finance your business purchase is right under your feet—if you’re standing in your living room, that is.  The home equity loan is definitely worth exploring.

What is Home Equity?
According to a fairly reliable online resource, home equity is “the market value of a homeowner’s unencumbered interest in the … property.”  In layman’s terms, it is the current value of your home minus what you owe on it.  For example, if your house is worth $450,000 and your mortgage balance is $200,000, then your home equity is $250,000 (or 55.6 percent).  Banks or similar lending institutions, such as credit unions, typically provide home equity loans.

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Know The Buyer
One of the top commandments for anyone looking to sell a small business is to recognize where your prospective buyers will come from, and what will motivate them to acquire your company.  Among all the things you can do to sweeten the deal and attract a wider selection of prospects, one of the best involves seller financing.  Many buyers will express an interest in your company and possess the skills to run it properly, but they may be financially constrained in doing so.  By understanding what motivates a buyer and showing the willingness to accommodate him or her, you will sell your business more quickly and for the price you want to achieve.

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Taking the Money Step
There are many factors to consider when buying a franchise.  You have to decide what industry to enter, what form of operation your franchise will take, and which brand to represent.  No single decision is more important, however, than figuring out where the money comes from.  Very few people have enough cash on hand to buy a franchise outright.  Even for those who do, they may be better off financing at least part of the purchase and saving the cash for a rainy day, or those slow business days you will encounter while working hard to bring your new venture to profitability.  The money step is a big one, but you have plenty of franchise financing options at your fingertips.

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Creative Business Financing
There are a number of interesting ways to finance a business purchase.  The most traditional method involves securing a loan from a bank or a credit union.  You could also pool funds from friends and relatives or ask the seller to carry a note for a portion of the purchase price, or even all of it.  But one of the secrets for small business finance may be sitting closer than you might expect—your retirement fund.

What is a 401(k) Plan?
While the pension plan has pretty much gone the way of the dodo bird, companies have found other ways to allow their employees to set aside money for their retirement.  The 401(k) plan allows a salaried worker to deposit a small portion of his or her wages every pay period into a tax-exempt account.  Employers offer to match these funds up to a certain percentage or dollar amount; this figure may also vary depending upon the fiscal health of the corporation—where a year with greater profits will mean a higher matching deposit.  Oftentimes there are “vesting” issues, where the employer’s contribution does not completely accrue to the employee until he or she has been there a predetermined number of years.  No matter how these issues are structured, the money contributed by the worker is sacrosanct.  Surprisingly, you can use this money for financing a business.

Penalties Versus No Penalties
Once funds are deposited into your 401(k), whether they are yours directly or else matching contributions from your employer, the I.R.S.

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Why Business Valuation Is Important
The process of arriving at an accurate assessment when valuing a business is perhaps the most challenging aspect of any prospective small business purchase.  A seller has arrived at a specific price he or she wants for the company, and one must determine if that business value is accurate.  Pay too much, and you will struggle to make a profit.  Pay too little—well, there’s hardly a down side there, but the scenario is unlikely at best.  There are several ways to value a business; choosing the most appropriate one for your situation—and ensuring that it’s accurate—can make the difference between success and failure.

Three Basic Approaches
Small business valuation generally falls into one of three categories:

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Financing a Business Purchase

Few people who wish to buy a business have the kind of cash it takes to pay 100 percent of the purchase price up front.  Some sort of financing is almost always necessary.  The traditional path to financing the purchase of a business involves sitting down with a banker, filling out a loan application, and waiting to see if you qualify.  Once the loan is approved - assuming everything is in order - you have the money you need to proceed.  Whether you are buying an existing business, starting one from scratch, or purchasing a franchise, the path to ownership almost always runs through some sort of financial institution, whether commercial bank, credit union, or private equity firm.  But there is another route available to you, if you happen to be buying a business that is already up and running - having the existing owner provide some or all of the financing.

What is Seller Financing?

In its simplest terms, seller financing means that the current owner of a business offers to carry some or all of the debt incurred by the buyer when taking over the enterprise.  Let’s say the sale price of XYZ Company is $500,000, and the owner - Mr. Z - has no outstanding liens or mortgages.  In other words, he owns XYZ free and clear.  Ms. B, the prospective buyer, has only $100,000 to put toward the purchase.  Mr. Z agrees to take the hundred grand as a down payment and has Ms. B sign a promissory note for the difference.  By entering into this agreement, she now owns XYZ in its entirety while Mr. Z has $100,000 in the bank, plus a guaranteed income stream based upon monthly payments from Ms. B against the $400,000 debt (plus interest).

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