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EXECUTION Exiting the Slowlane by Buying a Business

Bones81

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Jul 29, 2019
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I'm 38, single, and have no dependents and have worked in credit risk in various banks since I graduated college. I've got to the point where I'm completely burned out with the job and am tired of being another small cog in the big corporate wheel. After reading TML twice and Unscripted, the most appealing fastlane to me presently would be to buy a business. This is appealing to me because (a) it would be an established business with a long history of proven profitability (i.e. not a start-up) and (b) I have the money to skip ahead and buy something that's already established and works versus having to build it step-by-step over a longer period of time (thus getting to the fastlane faster).

I'm just about done reading the HBR Guide to Buying a Small Business and have found it to be pretty useful to this point. I have come up with a preliminary set of requirements for a business by combining the CENTS requirements as well as some guidelines from the HBR book. Moving forward, here are the decisions I need to make:

1. Where do I want to live? - I currently live in Houston. I don't mind it but all the things I really like doing (e.g. skiing, hiking, being in the mountains) I can't do here. I think I would be happier living in a place like Denver, Colorado Springs or Salt Lake City where all these things would be in my backyard. Denver is presently the most appealing but I need to spend more time researching other cities as well. Initially, my search for businesses will include Houston in addition to cities near the mountains. If I move, I plan to live very cheaply while searching for an acquisition and running it the first year or so.

2. How much am I willing to spend on a business? My net worth is currently ~$1mm consisting of $20k in cash, $790k in stocks ($550k in retirement accounts / $240k in after-tax brokerage accounts) and ~$190k in home equity. I don't think I want to put all my eggs in the acquisition basket, perhaps just the $240k in the brokerage accounts and the $190k in home equity should I decide to sell my house. That would give me ~$430k of equity I could put down; assuming equity is 35% of the acquisition funding (the rest would be bank debt and seller financing), this would allow me to purchase a business with a total sale price of ~$1.22mm. I could purchase a larger business should I decide to raise additional equity outside of my own, but I don't know if I want to deal with partners / investors. I guess if the right opportunity presented itself, I would consider it.

3. What type of business? I'm generally agnostic to this as long as it fulfills the CENTS requirements and other criteria I've come up with. Ideally it is one where the present owner is looking to retire and is willing to stick around for a few months after so that I could learn the business. Would also like one that has good management already in place, both to satisfy the time commandment and to have people on board that know the business and would ensure a smooth transition. I realize I may have to spend more for a business with management in place versus one where the owner is the primary manager.

4. What do I do with my house? - Presently have ~$190k of equity in a house worth ~$400k. I could sell and use the cash from it as equity in the business acquisition. Alternatively, if I decide not to risk so much of my own equity in the acquisition, I could refi from my 15 year mortgage into a 30 and rent out the house. If I did this, I think it would generate ~$1k a month. My neighborhood is undergoing to redevelopment, so there is decent potential that the house can appreciate nicely over the next few years. I'm leaning towards selling the house; it's the higher risk move but the business will generate a higher ROI than the house.

5. When do I leave my job? - Job pays $15k / month plus I get a bonus of ~$50k (~$35k after-tax) at the end of January. Ideally, I would leave when I get the bonus in January. This would give me a few months to find a business and move along in the acquisition process while still cashing a good paycheck. However, leaving sooner allows me to dedicate myself full time to an acquisition and gets me to the fastlane quicker. If work stays relatively quiet, I can work on the acquisition at my job, however, with people quitting and the bank restructuring my group, I have the feeling I may hit my FTE before now and January.

For now I'm continuing to read on the process and things to look for / avoid while reaching out to various business brokers to get on their email lists to get prospects. I've also started working on a spreadsheet with both qualitative and quantitative metrics so I can start filtering businesses as I find them.

Would love to get any advice on where to live, types of businesses to consider, and from people who have been down this path before.
 

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Johnny boy

Gold Contributor
Speedway Pass
May 9, 2017
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Sell the house and rent a place in Colorado that you will thoroughly enjoy

Spend your time doing the fun activities you really enjoy and explore your passions

Don’t buy expensive things, just spend your time being happy doing the things you love

If you want, find a thing to do that’s related to your fun activities that’ll bring in some cash.

Take the next year or two as a time to be happy, do what you love, get in great shape, develop some skills, etc.

Enjoy an insane amount of happiness for about a year or two.

Once the market crashes and everything that’s worth 1 million is now being sold for 150-300k, use your savings to scoop up opportunities left and right. Real estate would be perfect.

You’ll come out of things with another million or two and you will have spent your time being happy. That is exactly what I would do.

Or...
You could hop into a inflated market with cash and little experience and get eaten alive, blow your money, hate the learning curve, and lose a ton of equity when the market crashes and your business you bought is worth much less.
 

AppMan

New Contributor
May 25, 2019
47
16
16
When do I leave my job? - Job pays $15k / month plus I get a bonus of ~$50k (~$35k after-tax) at the end of January.
So you are making 15k / month and you want to buy exisiting business ?
If your target price is 1.1 m most like the income will produce to you is about 10k - 15k .
And there is no fast lane business for 1.1 m , you are basically buying a job for yourself unless your plan to keep buying more businesses.
I myself trying to buy exisiting business but most of them are expensive.
 

Grinder20

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
May 28, 2019
29
41
24
Michigan
Sell the house and rent a place in Colorado that you will thoroughly enjoy

Spend your time doing the fun activities you really enjoy and explore your passions

Don’t buy expensive things, just spend your time being happy doing the things you love

If you want, find a thing to do that’s related to your fun activities that’ll bring in some cash.

Take the next year or two as a time to be happy, do what you love, get in great shape, develop some skills, etc.

Enjoy an insane amount of happiness for about a year or two.

Once the market crashes and everything that’s worth 1 million is now being sold for 150-300k, use your savings to scoop up opportunities left and right. Real estate would be perfect.

You’ll come out of things with another million or two and you will have spent your time being happy. That is exactly what I would do.

Or...
You could hop into a inflated market with cash and little experience and get eaten alive, blow your money, hate the learning curve, and lose a ton of equity when the market crashes and your business you bought is worth much less.
Hey @Bones81,

What @Johnny boy said, let me add, if you decide to sell your house now instead of holding out until January for the company bonus (however, if you're done, you're done, I get it--no amount of money is worth, but you also have to be strategic and level-headed), then be prepared to sell it more aggressively. It takes at least a month or more to prep a house to get ready to sell (assuming you haven't done anything) and we're quickly approaching crunch time of Labor Day where families will either decide to move or stay put for another year because they need to get their kids enrolled in schools and need to time to wind down and get established. (This based off last year's market and my own experience as we listed in September - November, took off the market and relisted in mid-March and sold shortly thereafter for a lot more then we would have during the late fall/early winter. Again, my experience).

Let me also point out, a lot of business usually sell after the 1st of the year, so you will have a lot more choices, but possibly pay more. Whatever you do stay away from the restaurant and bar industry, unless you want to live there.

My wife and I did exactly what Johnny Boy described, sold our house, moved into an apartment, and sold the business in anticipation of the market crashing again. However, we really don't know when that's going to happen, so at this point we're all guessing.

Lastly, Denver is great, but very expensive, as is Salt Lake City. I'm sure there are other less expensive areas outside of these 2 cities with a solid economy?
 

Grinder20

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
May 28, 2019
29
41
24
Michigan
I'm 38, single, and have no dependents and have worked in credit risk in various banks since I graduated college. I've got to the point where I'm completely burned out with the job and am tired of being another small cog in the big corporate wheel. After reading TML twice and Unscripted, the most appealing fastlane to me presently would be to buy a business. This is appealing to me because (a) it would be an established business with a long history of proven profitability (i.e. not a start-up) and (b) I have the money to skip ahead and buy something that's already established and works versus having to build it step-by-step over a longer period of time (thus getting to the fastlane faster).

I'm just about done reading the HBR Guide to Buying a Small Business and have found it to be pretty useful to this point. I have come up with a preliminary set of requirements for a business by combining the CENTS requirements as well as some guidelines from the HBR book. Moving forward, here are the decisions I need to make:

1. Where do I want to live? - I currently live in Houston. I don't mind it but all the things I really like doing (e.g. skiing, hiking, being in the mountains) I can't do here. I think I would be happier living in a place like Denver, Colorado Springs or Salt Lake City where all these things would be in my backyard. Denver is presently the most appealing but I need to spend more time researching other cities as well. Initially, my search for businesses will include Houston in addition to cities near the mountains. If I move, I plan to live very cheaply while searching for an acquisition and running it the first year or so.

2. How much am I willing to spend on a business? My net worth is currently ~$1mm consisting of $20k in cash, $790k in stocks ($550k in retirement accounts / $240k in after-tax brokerage accounts) and ~$190k in home equity. I don't think I want to put all my eggs in the acquisition basket, perhaps just the $240k in the brokerage accounts and the $190k in home equity should I decide to sell my house. That would give me ~$430k of equity I could put down; assuming equity is 35% of the acquisition funding (the rest would be bank debt and seller financing), this would allow me to purchase a business with a total sale price of ~$1.22mm. I could purchase a larger business should I decide to raise additional equity outside of my own, but I don't know if I want to deal with partners / investors. I guess if the right opportunity presented itself, I would consider it.

3. What type of business? I'm generally agnostic to this as long as it fulfills the CENTS requirements and other criteria I've come up with. Ideally it is one where the present owner is looking to retire and is willing to stick around for a few months after so that I could learn the business. Would also like one that has good management already in place, both to satisfy the time commandment and to have people on board that know the business and would ensure a smooth transition. I realize I may have to spend more for a business with management in place versus one where the owner is the primary manager.

4. What do I do with my house? - Presently have ~$190k of equity in a house worth ~$400k. I could sell and use the cash from it as equity in the business acquisition. Alternatively, if I decide not to risk so much of my own equity in the acquisition, I could refi from my 15 year mortgage into a 30 and rent out the house. If I did this, I think it would generate ~$1k a month. My neighborhood is undergoing to redevelopment, so there is decent potential that the house can appreciate nicely over the next few years. I'm leaning towards selling the house; it's the higher risk move but the business will generate a higher ROI than the house.

5. When do I leave my job? - Job pays $15k / month plus I get a bonus of ~$50k (~$35k after-tax) at the end of January. Ideally, I would leave when I get the bonus in January. This would give me a few months to find a business and move along in the acquisition process while still cashing a good paycheck. However, leaving sooner allows me to dedicate myself full time to an acquisition and gets me to the fastlane quicker. If work stays relatively quiet, I can work on the acquisition at my job, however, with people quitting and the bank restructuring my group, I have the feeling I may hit my FTE before now and January.

For now I'm continuing to read on the process and things to look for / avoid while reaching out to various business brokers to get on their email lists to get prospects. I've also started working on a spreadsheet with both qualitative and quantitative metrics so I can start filtering businesses as I find them.

Would love to get any advice on where to live, types of businesses to consider, and from people who have been down this path before.
@Bones81, I was thinking more about your situation and a good one mind you, single, cash flush, and have life experience. Go to Denver and live it up! With your background and contacts, my recommendation is to start a business brokerage. I realize this may not be 100% fastlane, however, the per transaction can be outstanding. Take home is typically 10% per deal. Do the math on just an average $3 million dollar local company. With baby boomers selling and retiring it's the perfect storm.

Just something to think about.
 

Walter Hay

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Rabby

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Another thought when looking at businesses to buy... they can be a lot like fixer-uppers. Not in the bad way. What I mean is you might see an obvious problem that does not seem like a problem to the seller. They never bothered with a web site. They sell the widgets but not the widget dispensers. It takes them too long to pack up a shipment. Stuff that annoys customers, and that you have the energy and acumen to fix.
 

SteveO

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And there is no fast lane business for 1.1 m
Well, using a bit of leverage, you could purchase a commercial property that is setup on a NNN lease to the tenants. 10% cash-on-cash would make about $110K per year with minimal work. Purchase a 4M property with 25% down. Make sure the leases have a 3% increase each year. This will increase the value and income each year.

The value is increasing based on the $4M valuation and should stay well ahead of inflation.

Then you will have lots of time to bootstrap another business for yourself.

All real estate has a learning curve though. There will be a fair amount of upfront work to figure it all out.
 

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