Discuss acquisition entrepreneurship as a Fastlane launch point...

[CareCPA]

This isn't quite what you're talking about, but I used a 7a loan to acquire another accounting firm in Q3 2020. One of the reasons I did it was that it had a great team in place, and that probably cut 4 years off my growth timeline.

The best part: since it was an "expansion" loan instead of an "acquisition" loan, I put 0% down, and was even able to wrap working capital into the loan as well (about 15% of the total acquisition).
I actually did end up getting a seller note as well, but that was because it under-appraised.

 

[MJ DeMarco]

and unless you can do something to greatly expand the business over what the previous owners did,

I think that's the point of acquisition entrepreneurship, you take a poorly managed business and tweak marketing and operations so the business no longer makes $3K a month, it makes $10K. Boom, instant ROI in terms of selling valuation. The key is to spot these hidden gems. There are probably aplenty as some business owners are just burnt-out and want to sell. A fresh perspective is all it takes, especially if the owner is a boomer or a Luddite who refuses to accept technological advances.

 

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[MJ DeMarco]

Some value here...

https://twitter.com/i/web/status/1594347722668212227

View: https://twitter.com/SMB_Attorney/status/1594347722668212227

 

[FillyCheez]

I have a window cleaning business that I am currently growing through acquisitions.

I'm buying small, owner-operated businesses, that are not very systemized, then folding them into my bigger, systemized business. Basically, I'm buying someones job, since these businesses often have no employees and have heavy owner involvement. Since I'm buying "jobs", I can buy them for very cheap, and they instantly become more valuable once they become part of my company. We are often able to raise prices, follow up with past customer in their databases, and create recurring services to multiply the revenue from these purchases.

This all sounds easy when I condense it into a paragraph like this, but theres a ton of headaches involved. Its not easy, but it IS a great strategy. It's certainly possible to acquire businesses, but I wouldn't say its as simple as getting a loan and BAM, you're in business.

Regarding Codie, I have a friend that was featured in her newsletter, and he told me she over-exaggerated a lot of his accomplishments. She has lots of good content, but take it all with a grain of salt. There is no easy money in this world, everything comes with some kind of cost.

 

[Guest-5ty5s4]

I think this is true - I would value a business much higher if it is truly hands free. Especially if it has something that nobody else can replicate (for example, a proprietary software, not made public or sold to anyone else, to automate a process that is normally time-consuming).

I think your biggest opportunity to value-add is to use one of your existing skills that is compatible with the business.

• If you know software, can you automate a tedious process?
• If you know SEO/content marketing, can you bring in some new customers?
• If you already have a related business/product, can you cross sell and increase revenue for both?

I know, it sounds pie in the sky, but at the same time it is exciting. The first acquisition in a group of related companies is probably the toughest though.

After your first purchase, it would be much easier to apply the same optimization to other related ones. e.g. after specifying SOPs for your virtual assistants/employees, establishing relationships with vendors, etc., you can now use that over and over again.

Love it.

To me, this is really exciting.

I could see a nice path being someone working a job or side hustling their way to say, $100,000, and then leveraging this strategy to owning a business worth between $500,000 and $1 million and growing from there. (Through SBA loans)

Maybe even keeping the job or side hustle while starting out with the business.

However, monogamy is a really big probability driver of business success, and the absentee thing seems like unnecessary risk.

 

[MJ DeMarco]

I moved your topic into a new thread as it deserves it, big topic for discussion.

 

[Guest-5ty5s4]

Ok, so I would actually totally do this if I were anyone reading this and was not already part of a business (I'm still researching this anyway).

Find a business to buy, get your financial house in order, talk to lenders, research SBA financing, make sure the business you are looking at either meets CENTS or could meet CENTS in the future, and then go for it!

I think this is an incredible opportunity and honestly it's one that's been bothering me too, despite being tied to what I said already.

That 10% down, even 5% down, potential is MASSIVE leverage to get you started on your fastlane journey.

We are talking about an investment where you could immediately have 10 times or 20 times leverage.

 

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[CareCPA]

This sounds like a pretty cool ninja trick. Thank you for bringing it up.

So is this distinction a legal one, or just how the lender classifies it for their own records?

Also, how closely related does the other company have to be to your core business to be an expansion vs acquisition?

Unfortunately, I'm not 100% sure on the technicalities here. In my case, it was pretty cut and dry: accounting firm acquiring another accounting firm offering substantially the same services (bookkeeping, payroll, and tax).

I'm guessing the bank makes this determination, as they are the one that would need to be comfortable with 0% down. And just because it is an option probably doesn't mean each bank needs to offer it: the bank is still doing their own underwriting process as well.

But I didn't really have a choice: the non-SBA banks I talked to wouldn't loan since there were no hard assets to put a lien against. Worked out in my favor, though, because the SBA loan was 10 years at 6.5% (this is variable with a floor, so we'll see how the next couple years go), 0% down, plus working capital, SBA definitely worked out well for me.
It is a pain in the a$$ for underwriting, so make sure you have your documentation in order. They will all say they can close in 45-60 days, but that clock starts once they have all the documents in hand, and they can really drag out the document requests. Mine was about 5 months, but I also didn't get them stuff as fast as I probably could have.

 

[MTF]

Assuming this is general acquisition talk, I've been exploring the world of micro acquisitions. These are usually very small deals (less than $50k, often less than $10k) for various online assets. Some of these can be scaled into proper businesses and some are more like strategic acquisitions to grow your primary business.

Two notable micro acquisitions platforms are:

Acquire.com, the #1 Startup Acquisition Marketplace

Buy and sell startups in as little as 30 days. Connect with 200k+ qualified buyers & browse 1,000s of vetted listings. Free escrow, legal docs & more. Join now.

microacquire.com

Tiny Acquisitions

Where the BEST tiny projects are acquired.

tinyacquisitions.com

For a few months already I've been tempted to invest in something like that and see where it takes me. The risk is low (considering many of these are sold for less than $10k, unlike regular acquisitions that usually require $100k+) and the upside can be pretty high.

 

[Guest-5ty5s4]

I follow her as well. I think the advice of buying an established company instead of building from scratch is good, but you're right - you still need to know how to run the business.

I think her content is helpful just to get ideas for inspiration and think more creatively. For a lot of that stuff, you will never hear about it if you only read mainstream financial advice (stocks! bonds! etc.)

The financing really has gotten ridiculous though. The SBA used to require 30% down for a loan, and now it is 10% down (5% if you are getting partial seller financing). From buythenbuild.com:

"Recent changes to SBA lending rules mean banks can now finance up to 90% of a small business purchase.

Buyers only need to put down 5% in cash now. (The other 5% can come in the form of seller financing.)"

That's actually the best part! The low down payment makes it really attractive and I would swear by this.

The part that is really iffy to me is where she starts going off on this acquisition and roll up track, like you're going to start accumulating dozens of these businesses... Just getting one to run without your daily oversight is going to be quite a feat, because most businesses and business owners are chained together.

However, that is the goal of the fastlane if there ever was one, as far as I can tell.

Usually if a business is truly absentee, it's going to be priced sky high from the beginning. Is this my limiting belief?

 

[Raoul Duke]

That thread is (I dont know how to link it):​

From 0 To $240,000 Per Year PROFIT In 18 Months (Acquisition Entrepreneurship)​

GOLD! - HOT! - From 0 To $240,000 Per Year PROFIT In 18 Months (Acquisition Entrepreneurship)

From 0 to $240,000 per year profit in 18 months I've been a follower of this forum for about a year now, had read the Millionaire Fastlane book, and finally have decided to tell my story. About a year and a half ago, I found myself unemployed and with near zero savings, two house payments, and...

www.thefastlaneforum.com

 

[Guest-5ty5s4]

Assuming this is general acquisition talk, I've been exploring the world of micro acquisitions. These are usually very small deals (less than $50k, often less than $10k) for various online assets. Some of these can be scaled into proper businesses and some are more like strategic acquisitions to grow your primary business.

Two notable micro acquisitions platforms are:

Acquire.com, the #1 Startup Acquisition Marketplace

Buy and sell startups in as little as 30 days. Connect with 200k+ qualified buyers & browse 1,000s of vetted listings. Free escrow, legal docs & more. Join now.

microacquire.com

Tiny Acquisitions

Where the BEST tiny projects are acquired.

tinyacquisitions.com

For a few months already I've been tempted to invest in something like that and see where it takes me. The risk is low (considering many of these are sold for less than $10k, unlike regular acquisitions that usually require $100k+) and the upside can be pretty high.

Do it and write a progress thread

I haven’t acquired anything besides stock and real estate so far and I’m dying to dip my toes into this. This is fastlane investing. Heck, it’s not investing, it’s just business!

I’m sure many here would love to read that like the thread by doitman (couldn’t find him to tag).

I’m still looking. I’ve actually found a local RV park that was a solid contender. Don’t have the cash to do it myself though. Smarter people than I wouldn’t let that stop them. You guys reading this can do it too!!

I hope all of you do, get filthy rich, and keep it out of the portfolio of Blackstone and foreign investment funds.

 

[Guest-5ty5s4]

Has anyone read Codie Sanchez's blog about private equity and/or buying businesses? Seems massively oversimplified, but also like the right track (acquisitions in general).

Can't believe the prices these "gurus" charge for courses, though.

MODERATOR NOTE:
Feel free to discuss acquisition entrepreneurship as a means for Fastlane entry...
Discuss business brokers, strategy, SBA loans, or more.

 

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[MTF]

Has anyone read Codie Sanchez's blog about private equity and/or buying businesses? Seems massively oversimplified, but also like the right track (acquisitions in general).

Can't believe the prices these "gurus" charge for courses, though.

I've been subscribed to her newsletter for a long time and she seems to be a person who knows her stuff.

 

[jdm667]

Yeah I follow her, she seems very smart. Really enjoy the content, just can't quite figure out how real it is (get sba loan and bam you're rich versus buying yourself a hellacious job)

She makes it sound so easy, and like everything can be solved by buying the course

I follow her as well. I think the advice of buying an established company instead of building from scratch is good, but you're right - you still need to know how to run the business.

I think her content is helpful just to get ideas for inspiration and think more creatively. For a lot of that stuff, you will never hear about it if you only read mainstream financial advice (stocks! bonds! etc.)

The financing really has gotten ridiculous though. The SBA used to require 30% down for a loan, and now it is 10% down (5% if you are getting partial seller financing). From buythenbuild.com:

"Recent changes to SBA lending rules mean banks can now finance up to 90% of a small business purchase.

Buyers only need to put down 5% in cash now. (The other 5% can come in the form of seller financing.)"

 

[jdm667]

Usually if a business is truly absentee, it's going to be priced sky high from the beginning. Is this my limiting belief?

I think this is true - I would value a business much higher if it is truly hands free. Especially if it has something that nobody else can replicate (for example, a proprietary software, not made public or sold to anyone else, to automate a process that is normally time-consuming).

I think your biggest opportunity to value-add is to use one of your existing skills that is compatible with the business.

• If you know software, can you automate a tedious process?
• If you know SEO/content marketing, can you bring in some new customers?
• If you already have a related business/product, can you cross sell and increase revenue for both?

The part that is really iffy to me is where she starts going off on this acquisition and roll up track, like you're going to start accumulating dozens of these businesses... Just getting one to run without your daily oversight is going to be quite a feat, because most businesses and business owners are chained together.

I know, it sounds pie in the sky, but at the same time it is exciting. The first acquisition in a group of related companies is probably the toughest though.

After your first purchase, it would be much easier to apply the same optimization to other related ones. e.g. after specifying SOPs for your virtual assistants/employees, establishing relationships with vendors, etc., you can now use that over and over again.

 

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[jdm667]

I ddi not know the SBA adjustment. I wonder how many banks will allow this low a figure though. I mean, the SBA only pays the institution back a portion of the loan amount, so banks have real risk on these deals. Especially if its a business loan.

If you have experience in said business already, that makes it easier. But to use this to buy one a first business in an industry you have no experience? I'm guessing you'll have to put a lot more down or have some quality collateral like real estate in play to make it happen.

I'd be interested to hear from anyone who actually does one of these type deals.

*I have not done this type of deal myself yet, but looking into it seriously*

Lots of Baby Boomer entrepreneurs are retiring every day now. For many, their kids have neither the interest nor the aptitude to take over the company.

If the owner cannot sell the business, it closes up shop, and the asset is gone. I think the SBA is trying to prevent this - and at the same time, help Gen X/Millennials/Gen Z get into the entrepreneurship game.

@BizyDad I agree 100% - don't be the guy who "wants to work for himself", has no plan, and wants to put nothing down to buy a company.

Instead, be the guy willing to put some of his own money down, negotiate seller financing, take a 401K loan, etc. Do your research and create a solid plan to improve the business. Heck, apprentice under the old owner for 6-12 months while he stays on to teach you the ropes.

 

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[Guest-5ty5s4]

also, industry experience is important, but with a good credit score, proof of broad generalized experience and work ethic, and a relationship with the bank, you can get approved. It's like those memes that slowlaners share about job resumes for entry-level positions requiring 20 years of experience... if that were the case, nobody would have those jobs.

Just do it.

 

[Two Dog]

The only problem with those sites is that the multiples are way too high for the profit / revenue figures. Even if you are doing say 10k a year in recurring profits, doesn't really justify a purchase price of 70-80k. These are the kinds of multiples that you would pay for a fully grown SaaS with good systems, plenty of customers and employees. If it was doing 500k-1m recurring revenue per year, a 7-8x multiple would be the norm.

Those would be pretty optimistic valuations.

I've looked at a bunch of businesses for sale over the years while playing around with the idea of selling my own. Small business with a real-world presence (e.g. services, storefront, restaurant) would typically be valued at 3x annual owner takeout (not EBITA). The vast majority of these are under $1M in annual sales and generally aren't worth having a professional business valuation. Heck, you'd be fortunate to find reliable financial statements at all. Specifically, there's only about 35,000 - 45,000 US businesses grossing over $1M vs. 30M - 32M total US businesses.

The idea is to count every penny the owner put into their own pockets regardless of tax consequence. You'd have salary and distributions plus things like insurance, car allowance, phone allowance and even a good chunk of travel expenses since those are often mostly personal trips for a lifestyle business. Fixtures, inventory, leases, etc. would be added to the 3x multiple.

Here's a decent summary:

Small Business Revenue Statistics: Annual Sales and Earnings

The average small nonemployer business makes $46,978 annually in revenue while small businesses with one to five employees average $387,000 per year. Small business owners who are employed by their own incorporated business take home an average of $50,347 per year in earnings.

www.fundera.com

SaaS / online business valuations can be significantly higher. Established sites with longevity and strong growth might sell for 4x - 5x owner takeout (although it's usually listed as a multiple of MRR, not annual), but 30x - 40x is more typical. You can find tiny ones for 3x - 12x (not a typo), but really have to start worrying about scams with fraudulent financial statements, markets that are about to run dry, partnerships that will expire and artificially inflated sales figures (last quarters numbers exploded because something unusual happened). There's plenty of ways to hack the numbers to make it look legitimate.

In the end, that's why I've always decided to keep running my own SaaS business. The numbers just don't make sense for selling it. If you're clearing $20K monthly (and that's a pretty significant takeout), the business might sell for $750,000 with 20 - 30% going to taxes and broker fees. I'd rather have $20K in largely passive income each month. There's no place I can invest that would generate those kinds of returns except for another SaaS business.

Like MJ pointed out, the sweet spot for an acquisition is probably $1K - $5K MRR. That's well under the radar for private equity and small enough that doubling the monthly revenue is feasible. Aside from cash, you really have to understand the niche and have a plan for increasing revenue. Doable, not easy.

 

[MTF]

Yeah I follow her, she seems very smart. Really enjoy the content, just can't quite figure out how real it is (get sba loan and bam you're rich versus buying yourself a hellacious job)

She makes it sound so easy, and like everything can be solved by buying the course

One thing that's working against her is IMO how smart she is. She does paint it as something super simple and easy. I think it might be easy for her because her background is in investment as far as I remember.

And in general, she seems to be way more business-savvy than 99% of entrepreneurs. It's sort of like Conor McGregor saying how easy and simple it is to knock out a world champion. Of course it is if you're already one lol.

 

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[Two Dog]

She has a deal on AppSumo right now and the reviews are similar to what people are saying here - she's clearly knowledgeable but it's hard for any of us to take real action based on what she says.

Why is that? Serious question. It goes directly to exactly what are you buying and why from her.

Never heard of this girl myself, but have purchased coaching programs from three people over the years. Two local real estate people and a Google Adwords / online marketing guy to learn marketing for my own business. About $25K total between the three programs over two years. I also traded marketing services worth about $10K to learn how to raise private money from someone else. The entire point of those programs (at least from the student's perspective) is to partially duplicate the instructor's previous or current successes. Nowadays, I could easily run my own coaching programs in any of those four areas.

Both real estate people had done at least 10 - 20+ rehabs, ran their own investor meetups to trade deals, had solid networks of contractors and other necessary industry professionals and committed considerable face time to their students. The marketing guy was intimately familiar with Adwords, had studied copywriting with previously successful direct marketers and actively taught using automated email autoresponder campaigns at least 15 years ago. He was available weekly for live calls and email support at any time. The finance guy raised $50M over two decades and brought for companies public (not in the big Goldman Sachs IPO manner for a billion dollars, but the little known direct IPO or pink sheet swaps kind of deals for tens of millions). I worked in his office, so he was easy to ping with any questions.

My wife and I rehabbed and flipped a half dozen properties, ran several successful Adwords campaigns for my own online software and had fair success raising private capital. Those results easily paid for the programs along with far more cashflow over the years. I think that's only possible when you can work with someone directly who is highly knowledgeable in a particular niche of interest to you AT THE TIME. The majority of coaching students - also true for non-coaching students - will take little or no action to make something happen.

I invested 10 minutes watching Codie talk about the virtues of owning an automated ice machine business. There's little wrong with anything she says, but also nothing that I didn't already know or couldn't figure out pretty quickly. The BIG problem is she doesn't actually own such a business and never has in the past. That's not even a red flag, it's a complete non-starter. It's the guy in the bar talking about his great business idea. Maybe she has more relevant content available, but I'm not looking for new business ideas at the moment so it doesn't matter for me.

I only want to talk with people who will pro-actively explain all the things that I'm too ignorant to even know will be problems in the future because they've experienced them personally. Exactly the same as I'd do for anyone paying for my advice on real estate investing, direct marketing, raising capital, SaaS or logistics. Why in the world would anyone pay for advice otherwise?!?

 

[chimichangatime]

The BIG problem is she doesn't actually own such a business and never has in the past. That's not even a red flag, it's a complete non-starter. It's the guy in the bar talking about his great business idea.

Exactly this.

• Hey, somebody was able to talk a retiring couple into seller financing for a car wash!
• Someone bought some land in Joshua Tree and did a HipCamp on it!
• Someone bought ice vending machines!
• etc.

Her model seems to be this: "Find someone retiring, get them to do seller-financing, structure the deal so you don't have to put up any of your money, step 4: ????, step 5: profit!" It's like, yeah, no shit, but HOW do you do that? She didn't do it, other people did. From what I gather, she made her money in cannabis.

Cool, these are nice ideas and I'm motivated to find something I like that I want to get into, but she has little to zero knowledge of any of these areas and telling me someone made money in them doesn't make me want to buy her courses or pay to join her group.

Her latest email was about a guy that turned the crochet needle market upside down with handmade needles (furls). Okay, cool. Guy found a need and filled it. She's never done that, though. I can see that she's trying to profile people that do something different ("contrarian" is the name of the newsletter).

She also spouts some right-wing nonsense and I don't want to see politics in my inbox when I'm just looking at how to get out of the rat race by being an owner/creator and looking for like-minded people. I may unsubscribe for this reason (I'd do the same for ANY political bent because that's not what I signed up for).

I paid for Rob's web dev Legends course because I am interested and skilled in that and he demonstrably was successful in it personally. THAT is content I'll pay for (and I've already earned back the cost of the course).

I paid for another course on how to buy and flip websites from a guy that's done lots and lots of them, and I'm working through that now. Maybe some of the info is the same (use SBA loans, use seller financing, etc.) but it's targeted and specific and he's personally done it, which is what I'm willing to pay for.

MJ is all about, "I did this and you can do it, too!" and wrote books about it. I guess that's the sort of thing I like and she doesn't come across as THAT to me.

 

[Knuffix]

Assuming this is general acquisition talk, I've been exploring the world of micro acquisitions. These are usually very small deals (less than $50k, often less than $10k) for various online assets. Some of these can be scaled into proper businesses and some are more like strategic acquisitions to grow your primary business.

Two notable micro acquisitions platforms are:

Acquire.com, the #1 Startup Acquisition Marketplace

Buy and sell startups in as little as 30 days. Connect with 200k+ qualified buyers & browse 1,000s of vetted listings. Free escrow, legal docs & more. Join now.

microacquire.com

Tiny Acquisitions

Where the BEST tiny projects are acquired.

tinyacquisitions.com

For a few months already I've been tempted to invest in something like that and see where it takes me. The risk is low (considering many of these are sold for less than $10k, unlike regular acquisitions that usually require $100k+) and the upside can be pretty high.

The only problem with those sites is that the multiples are way too high for the profit / revenue figures. Even if you are doing say 10k a year in recurring profits, doesn't really justify a purchase price of 70-80k. These are the kinds of multiples that you would pay for a fully grown SaaS with good systems, plenty of customers and employees. If it was doing 500k-1m recurring revenue per year, a 7-8x multiple would be the norm.

About 10 years ago I went to some Harv Eker courses. One of the speakers was Keith Cunningham, supposedly Kiyosaki‘s original Rich Dad mentor. He was flogging a course to teach you how to buy a business. Naturally he made it sound like an easy way to riches. I talked to him for a while and tried to figure out how you would actually buy a business that would return a decent income. I mean, nobody’s going to sell you a business for $10k that clears $1 million/year profit.

As far as I can tell, sellers usually value their business so that its current profits produce maybe 10-20% return on your purchase price. So basically it’s just a risky investment, and unless you can do something to greatly expand the business over what the previous owners did, you’re just buying a 10-20% return. And probably a full-time job.

Cunningham didn’t do anything to convince me otherwise. I’m sure there are opportunities out there, but you have to know how to run a business so you can grow it beyond what the seller managed to accomplish with the business. If you don’t, the business will probably wither.

What they value and what they get are vastly different. Most of the businesses that are sold in the US get a 2-3x multiple on their EBIT, so the buyer would get a 33-50% yearly return on their purchase. And most of the price paid is usually deferred over a couple of years with a 10-20% down payment.

Multiples of 5-10 are mostly for bigger companies in a stable industry or established SaaS companies. I think PE firms target companies where they pay like multiples of 8-15.

 

[Hong_Kong]

Has anyone read Codie Sanchez's blog about private equity and/or buying businesses? Seems massively oversimplified, but also like the right track (acquisitions in general).

Can't believe the prices these "gurus" charge for courses, though.

MODERATOR NOTE:
Feel free to discuss acquisition entrepreneurship as a means for Fastlane entry...
Discuss business brokers, strategy, SBA loans, or more.

SBA makes it harder on yourself. Don't use a broker either. Directly contact sellers. Your goal should be to get 100% seller finance. Only works with motivated sellers, but it only takes 1 deal.

The broker just wants to get paid. Look at brokers to see what type of biz are in your area and what the numbers are like. Then find a list of these companies, and talk to the owner directly.

There is a reason so many PE guys end up buying a biz. Buying cashflow is easier than building it.

Its not 'easy' though. Its a massive amount of work doing that many cold calls, and then running the biz successfully isn't 'easy' either.

There are many solid books on this topic. I would recommend the one by Harvard Business Review (How to buy a small business). It outlines this exact process, but also shows you how to get funding by outside investors so you can even pay yourself a salary while searching for the biz. (Called a search fund btw).

 

[Hong_Kong]

seems like good advice. I know several businesses that were owned by PE though that failed miserably after being acquired; the "good ol' boys" who sold to them seemed to know a lot more about it than the buyers did.

That being said, this is something we all need to learn more about. What I am most interested in is finding a business to buy that would not require me to quit the business I am already in. I'm sure everyone here would like that.

As in PE bought them then it failed? If you get 100% seller finance, and the business fails, who cares? You can pay yourself a salary on the way down, and tell the seller screw you, sue me. They foreclose on the biz, and have to run it again. If you targeted a truly motivated seller, they won't be able to do this.

If you meant someone bought a biz from PE and it failed, makes sense PE guys will screw you over out of principle and laugh about it. I would try to avoid doing business with them.

I have contacts from someone doing two deals right now (not a PE guy he is on his own). One is in the 9 figure range, the other I'm not sure. Public companies used as financing, as well as private capital (none of his money). The one deal has been in court for years with the seller, sued by other companies etc. The people that do this are tough as nails, and almost love to fight it out in court it seems. It doesn't make sense when someone controls 9 figure companies and they say they will sue you all the way to the supreme court over ten grand.

My ultimate game plan is to focus on business acquisitions long-term.

Currently we are about to go through the largest transfer of assets in human history. Millions of baby boomers around the world will be ready to retire. Millions companies in boring dated industries that are too small to IPO, or for big-time PE. When their kids are incompetent or lazy, can't run a business and there is no ownership transition plan in place.

When those millions of businesses change hands, I will be right there to capture a piece of the action.

 

[BizyDad]

I did not know the SBA adjustment. I wonder how many banks will allow this low a figure though. I mean, the SBA only pays the institution back a portion of the loan amount, so banks have real risk on these deals. Especially if its a business loan.

If you have experience in said business already, that makes it easier. But to use this to buy one a first business in an industry you have no experience? I'm guessing you'll have to put a lot more down or have some quality collateral like real estate in play to make it happen.

I'd be interested to hear from anyone who actually does one of these type deals.

 

[USN-Ken]

There is a killer thread right here in the forums on Acquisition Entrepreneurship using online businesses. I encourage you to read it.

I too get Codie’s newsletter and belong to her lowest level group. She is a great motivator and seems to walk the walk, but sometimes she does paint a pretty picture of things that I personally know aren’t ‘pretty’ (aka makes things seem easier than than they are). But, at least she is positive, supportive and encouraging.

 

[Guest-5ty5s4]

I somewhat regret making this about one particular blogger rather than the acquisition model itself (although Codie does put out some pretty bad a$$ information in her blog from time to time)

The thing is, you need to make some money if you're going to go this route so that you have that down payment to buy the initial deal, and you need to find something that meets CENTS.

I would combine what Codie says with what MJ says and buy your way to Fastlane greatness

 

[Guest-5ty5s4]

off topic from the thread, but Codie Sanchez's newsletter is really good today. She dives into some stuff about the history of investing, Dodd-Frank, accreditation, and it's very eye-opening.

The acquisition stuff is still very smart IMO.

Great quote: "By protecting investors from themselves we’re asking the SEC to become our parents. Keep out bad actors, hold them accountable but instead of telling someone what they can and can’t invest in, maybe instead we TEACH them how to invest."

 

[Ocean Man]

Think of it this way: do you have a job? Are you going to have a job anyway? Why not make it a job where you show up every day somewhere you’re in control and the bottom line profits are yours?

I don’t see it as being passive but you can grind through the learning process, painfully, by putting in more time and effort. No passive investment let’s you do that.

I agree. I don't expect anything passive and I don't necessarily want anything passive at this early stage of my life. I'd like to learn and become better.

My worry (or excuse) is that I don't understand how to read P&Ls, basic accounting things, or basic business stuff. But at the same time... I believe I can learn any and all of that. Instead of focusing on the 1000s of problems ahead, just focus on the single problem in front of you and solve that. But once again, once you acquire a business, you're the CEO suddenly. You're going to be dealing with all these problems right away. This is where I would learn and grow though.

I've seen it argued otherwise. The recipe I've seen replicated the most is to buy cashflowing companies with large moats. This limits your downside risk, and use leverage to buy the biz with minimal cash input (preferably seller financing). Going after turnarounds has high upside but high downside.


The Harvard book on this topic I mentioned in this thread above recommends against going after turnarounds. They call the class of companies I'm describing "enduringly profitable".

The best case scenario is the business owner is close to retirement, no succession plan in place. This model depends on motivated sellers. If they have health problems and have to do something fast, that's ideal as grim as that sounds.

I'm not sure if "enduringly profitable" is a common term, but I also found that in "Buy then build" in one of the charts.

 

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