small business
Maybe you don’t have the funds, connections, or world-changing vision to launch amazing ideas like Tesla, Amazon, or SpaceX. Maybe you have a business but are struggling to build momentum. Or you have a franchise but want to create something of your own.
I know how difficult it is to start a business from scratch. My first business was selling flowers on the street when I was 16. I knew nothing about flowers or sales; as expected, nobody bought from me. But there was an established flower shop nearby with a lot of foot traffic. Looking back, what would have happened if you had bought this company and taken advantage of the reputation and customers they have already built?
I didn’t consume the money to do it, but here’s the thing: In some cases, it’s possible to buy a profitable business without cash, credit, or experience. Rather than starting from scratch, it’s much easier and faster to take something good and make it great, plus it’s less risky. You can even find companies on the verge of doubling, tripling, or tenfold in value in a day. It won’t be relaxed to find a real estate investment or stock decision to give you this kind of return.
Over the past decade, I’ve bought millions of dollars from companies this way and taught others to do the same. It works so well that I also set up an investment fund to support such deals. Why teach others how to do it? Easy. It gives me access to a stream of offers I wouldn’t otherwise have.
How to buy profitable companies without spending your own money.
Table of Contents
1. Identify what you want.
The best opportunities are for small businesses that generate between $1 million and $10 million per year in revenue. Look for simple business models with little investment competition, such as B. Professional services such as construction, engineering and plumbing. But the best sector is the one that appeals to your interests and experience.
At the same time, you may not even need personal experience in the industry as you may be able to work out a deal where the business owner trains you. If you don’t want to manage the day-to-day operations yourself, you can hire an experienced professional or promote them within the company while the owner is still there to train them. You can typically find someone doing the same work for another company and encourage them to give up their salary in exchange for equity in your company.
2. Find motivated sellers.
Finding business owners who want to get ahead and are motivated to sell is crucial. Many darling boomers are ready to retire, while other sellers are uninterested and need a change.
Most companies sell for multiples of profit. For example, someone who makes $100,000 will be sold for three times that amount. But if you find an inspired seller, you can often bargain to pay the equivalent annual income ($100,000 in this case).
You can find these companies the same way you would find customers, such as through social media marketing or networking. It’s simply about changing the conversation and presenting yourself as an investor looking for opportunities.
3. Do this simple math.
Offer to sign a non-disclosure agreement, so the business owner feels comfortable sharing their books with you. Confirm that more money is pending than going out and that cash flow has been consistent over the past three years. Then make sure there is enough profit to cover the financing costs.
In addition to profitability, consider whether the company has room for improvement, especially if it’s weak in an area where it excels. For example, you can often double your profits simply by improving marketing or operations.
4. Connect with the business owner.
While demonstrating smart business plans is important, your presentation must be more than that. For many owners, their baby is their business, which means they care about more than money. They want to distinguish that you care about the brand and reputation they’ve worked hard to build. They may be wary of firing their longtime employees or damaging important dealings.
Focus on why your willpower is the best steward of pardon you have built by showing that you are trustworthy and will carry their legacy. As? Build a relationship, ask questions, and speak directly about your concerns. Show that you care about her instead of talking about yourself. It’s even well if you can position yourself as their young and eager version.
5. Fund the business, sometimes with little or no outlay.
Many financing options require no or no own capital. If the owner is motivated to keep successful, they can often buy a company with high potential for next to nothing. Some business owners allow you to pay them with profits over time. If they want to be paid, they can get a loan from a financial institution specialising in purchases. Banks can use trading profits as collateral; They care less about your credit score and want to see that you matter.
You’ll be surprised how many financing terms are negotiable, so brush up on your selling and persuasion skills. It is customary not to pay more than 30 per cent of the purchase price upon closing. If you can find experienced investors who will lend you the money in exchange for shares, you can use the profits from the deal to cover curiosity costs.
There are other deal structures, but the point is this: instead of taking on debt to fund an unproven idea, you can buy an asset with the cash flow to support itself.
6. Dive into due diligence.
After accepting an offer, it’s time for due diligence. Check with accountants and attorneys and negotiate a fee structure that depends on closing the deal. This way, they are not motivated to the bill as many hours as possible.
Speak openly with key employees to understand how the company works and ensure they have no plans to leave the company once the deal is closed. Build a solid succession plan with a manager who knows the industry inside out. Clarify your role and theirs and identify Key Performance Indicators (KPIs) for everyone.
7. Leverage the business owner during the transition.
Now you must hold everyone answerable with a clear process you can follow. The corporate owner knows exactly how everything and everybody works, so rely on them during the transition. They’re usually motivated to help you succeed, but consider setting a transfer window to ensure they stay long enough to pass on their knowledge.
Congratulations! You are the owner of an established and profitable business. Whether you engage in everyday life or step back and let others do it, you now have a valuable asset and more personal freedom.