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

[doitman]

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 a second baby on the way. Things were so dire that I was contemplating bankruptcy. I had just lost my slow-lane job with one of the original big three TV network companies. Worked there for about 3 years making the mistake of transitioning away from my career in computer consulting thinking that having a job would bring a certain level of security. It didn't. Man, those were dark days.

I decided to go back to consulting. But this time instead of taking on just one client full-time, I took on a second, and then a third, and then a fourth. A couple of them, I was billing 40 hours a week, working at the client site for 1, while telecommuting for the other. Clients 3 and 4 were part-time, billing 10-20 hours a week for each but at higher rates, also remote. FYI if you haven't heard, businesses more and more are allowing the telecommuting way. So, if you hate going into your job, look for opportunities to work from home. They're out there.

Well I did this for the past year+, and life has been shit busy, but I saved up a ton, about $200,000 in a year. That felt good. I felt secure with a lot of savings, I had multiple income streams, and the second baby now walks and can feed herself. My wife suggested we invest the $200K in money market funds or CDs. Sounds good, right? Earn 2.3% APY resulting in a whopping $383/mo.! I love my wife, but not for us.

Investing in low-yield financial instruments, and working for someone whether consulting or full time. These are strong characteristics of the slow lane. I've always had an entrepreneur’s mindset. I wanted financial freedom from the daily 9-5 grind, or for me this past year, the 5am-1am grind, including weekends. Even though I had the high-paying clients, if you think about it, it's never good to have all your nuts in very few baskets. And you definitely don't want your schedule dictated to you as consulting can often times do. Besides, money was still tied to my time, and this current work schedule was unsustainable. So having a business seemed like the way to go.

How did I start a business that gives me the financial freedom and time freedom that I so desired? Funny thing. I didn't. I didn't start a new business. Oh, I created a new corporate entity initially for my consulting. But I'm just not creative enough, nor risk averse with family and kids to take a chance there. And besides, burning a year of my life working my a$$ off to roll the dice on a new venture. Nah. So did this mean that I just wasn't going to pursue financial freedom, and maybe instead continue the 100 hours a week work load? No.

About 6 months ago, I started looking at buying software/internet businesses. Why reinvent the wheel? The number of businesses sold on the internet is growing rapidly. Sure there's a ton of scams, get-rich-quick opportunities offered by fake sellers. There are a lot of businesses that the seller just wants out because of failing operations. There are businesses that are a dying breed tied to the old world, pre-internet. For example, consider commercial printing companies which as a side note I was an owner of one about 10 years ago. I'll get back to this in a moment. There are businesses that run in a saturated space like many ecommerce, dropship/Amazon businesses that may have once been profitable, but have lost their edge due to the marketplace. Oh, and blogs, need I say more. Lots of bad opportunities!

So let me quickly detour farther into the past. 10 years ago, I was the owner of a print shop. We had lots of B2B customers looking for printed material on paper. They were all local customers, who often times paid late since we invoiced at NET 30. We had employees running the machines to print and cut and collate and staple. We had leased printers and other equipment. We had leased store-front space. We had a lot of COGS (Cost of Goods Sold), namely the paper itself. Ultimately we failed, and went out of business. Simply put, sales decreased over time, the business didn't scale, the cash flow was shit due to late payers, the overhead was horrendous, and having full-time employees was expensive and such a burden.

Years later, I tried blogging. Tech centric since I'm a programmer. That was a waste of time. AdSense brought in a few hundred bucks a month. But since I don't like writing (even this posting is painful to me), it turned out not to be worth it. I tried ecommerce, AliExpress/Shopify drop shipping of apparel. Did OK for a few months, but then the sales dried up, and I had difficulty coming up with new products to sell. Hated that as well. Definitely not sustainable. So ultimately I failed.

Which bring us back to now. I say I failed, which I'm sure many of you reading this have done so as well. But I say that to make a point. Failure is not truly failure when considering what it really is. As humans, we all fail, probably every day in one form or another. Most of our failures are inconsequential. We break something. We say the wrong thing at the wrong time. We buy some product that doesn't live up to our expectations. But guess what? We adjust our behaviors to mitigate risk so that next time, we do better. Business should be treated the same. Choices that you make in business can be driven by experiences, good and bad. I have a ton of that, especially the bad.

So based on my past failures, I came up with criteria for what my next business acquisition would require. Here they are:

1) No full-time employees. Didn't want the headache.
2) Profitable. Of course.
3) Years of proven profitability.
4) Digital/software products or services. No inventory. No drop shipping.
5) Scalable.
6) No physical location. Allowing work from home without need for leasing office/store.
7) Flexible business. Caters to expanding product and service line beyond current offerings to customers.
8) Low weekly hours necessary for owner operation.
9) Instant credit card sales, vs NET30 or other delayed payment processing.
10) Minimal marketing.
11) Full control. No partnerships. Limit dependencies with external entities.

So, I'm sitting on my $200,000 nest egg from all that hard work. I'm researching businesses for sale. And I find one that is a software company that sells proprietary accounting software. Promising! I'm a programmer with tons of experience in accounting. The business has been operational for 30 years, with recurring clients going back 10+ years, and has been run by this one couple who are well into their retirement years but hadn't pulled the trigger. And guess what? This software business satisfies all 11 of my requirements above. Well, I send their broker an offer of about $200K with half of it owner-financed for 5 years. They accept. Done deal. The profit annualized is $70,000 with an initial investment of $100,000. ROI = 70%. Nice! Since taking over, I'm happy with the performance, and I only spend maybe a couple hours a week on it. I outsource the programming.

Why stop there? I know MJ preaches monogamy. But I feel you can scale your company multiple ways. 1) expanding your sales in your current product/service line, and 2) buying existing businesses to generate more revenue. The only limiting factor of the second is that you will hit a limiting threshold in time when managing and marketing your multiple business holdings. Hopefully by then, you have gotten to a point where you can hire managers to offload that work. In any case, I next took over... a blog. I laugh when I write that because as mentioned before, I hated blogging. But I'll give you a little secret. You can hire writers, which I have a whole staff of them.

The blog is more than just a blog with hundreds of thousands of viewers per month. It has an online Facebook page with a quarter million followers, and a Facebook group with tens of thousands of passionate people whose lives revolve around my niche. And I am one of them, also passionate towards the content that we generate. So, I placed an offer, and got it, trademark included. $80K. We make money working with an advertising agency that deals with handling ad fill. Profit after paying our writing staff has been about $3500/mo. So annualized is $42,000 profit/year. ROI = 52.5%.

Next acquisition. I bought a web site backup service. We have hundreds of customers that we perform nightly backups of their sites as well as make sure their sites are operational 24x7. I outsource that work to offshore for cheap, but excellent labor. I love the guys who keep this business going strong day to day. I barely do anything but accounting for this. Maybe spend half an hour a day. I got it for $35,000. And annualized we make $30K in profit. ROI = 85%.

And most recently I've assumed a web marketing business. This too has a team of contractors that do the heavy lifting. Premium one-word, business-specific, domain name that garners 30K organic traffic a month. Very little ad spend. We generate about $8000/mo. in profit, again annualized to $96K profit for an ROI = 240%. I haven't figured out why the previous owner sold this other than he didn't want to do it anymore, and wanted to concentrate on his other business. He's got rep. I did my research.

So here's the grand total annualized profit:

Accounting Software Business: $70,000
Blog and Online Community: $42,000
Web Site Backup Business: $30,000
Web Marketing Business: $96,000

Total Annualized Profit: $238,000

Mind you, since these ventures take up maybe a total of a couple hours a day for me to run, I am free to focus on marketing for growth, while keeping a couple of my consulting clients. I quit the one client where I had to go into the office, and the other remote client, I just quit because I didn't have time for them. So I work from home now. The consulting dollars gets me to $400K a year, but I will most likely stop consulting next year to completely focus on my businesses. And my family and I are planning on moving to Central America this winter, because we love it there, and hell, I can work from anywhere that has internet.

One last note on being a serial entrepreneur. I look for synergies between my businesses and any future acquisitions. Each of the four ventures that I now have complement one or more of the other businesses, so I can leverage/cross-sell amongst the lot of them. This specific business model is starting to gain traction. But one challenge for me is branding when cross-selling. I haven't figured out how to consolidate the brands most efficiently. Each has their own distinct brand that current customers trust. And future customers may gravitate to the current branding. So not sure yet, but it's a good problem to have.

 

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[doitman]

I wanted to add a little to my original post. I've been fortunate to be highly skilled with a relatively high earning potential as a full-timer/consultant within the corporate context. If I just kept one gig going though, I'd be living pay check to pay check with my family's lifestyle. Since I decided to take on a second job (and a 3rd and 4th), I was able to raise capital, and then scale very quickly to almost a quarter million in yearly profit. This shouldn't discourage people who make way less in their full-time jobs. Hustle for the extra dough.

I came upon a web hosting business recently that the owner wanted to sell to me for $15,000 with about $22,000 in yearly profit. It would have worked well with my current web site backup business. I would just consider it a business expense to acquire 1000+ customers who I could then re-market our current products. But even as a stand-alone, adding an extra $20,000 yearly income to someone who makes a more modest living than I would be a very good launch point for them in my opinion.

Once you achieve this surplus in income over expenses, you achieve what I call financial escape velocity. The escape velocity is like a rocket going fast enough upwards to reach a speed where it achieves orbit around the Earth due to going faster than the downward forces can recapture the vessel.

In financial terms, you reach a point when your profits exceed your expenses which allow you to increase income/profits by reinvesting any excess money. At this point, you have realized financial independence, since you are fully in control of your income, and keeping your employer will no longer be a requirement.

 

[doitman]

Is there a point where you'll hire a CEO/CFO of your "portfolio?" Then you only have to manage 1 or 2 people instead of all your businesses.

Also curious on how you're finding deals: existing network, business brokers, cold outreach, etc.

Awesome progress in just 18 months. I've been internally debating the balance between growing the current business and acquiring others.

I'm sure there will be a time where I'll want/need to do so. I'm in my mid 40s now, so I have lots of energy. I would imagine that when I go full out on the marketing, I'll hit a point where I'm putting in way more than 40 hours a week. My experience is around 60 hours, my quality of life starts to disintegrate.

I'll probably keep buying businesses over the next couple of years. So that hopefully may be the bridge I have to cross within that time frame.

As for the deals, there are so many sites selling businesses. BizBuySell and Flippa have been successful for me recently. I look for ROI of at least 50%. Preferably in the 75% range. Just as a side note, I don't like Empire Flippers because they focus mainly on ecommerce. And they typically do the 20x monthly revenue valuation. Not even profit based. Two things I hate about this. One, the business could have good revenue numbers but poor margins leading to ROIs way lower than my 50% threshold. Two, I'm not good at ecommerce from the stand point of constantly finding new products to market when the current ones drop in sales due to passing fancy or decreasing market share from saturated markets.

 

[doitman]

Oh wow! Congratulations!

Alright, now it's time to show your secret sauce so TFFers can model after you....

Lol, there is no secret sauce. It's all laid out in this thread. The playbook is written. Honestly, everything I've done up to this point like raising capital, setting up a strategy, targeting businesses based on that strategy, and then executing the simple strategy is all in here.

For the people that have read this thread, let me know if this all makes sense. And if there are any grey areas, or you're not sure about certain details, pm me. Lots of people have already done so with their thoughts, what businesses they have targeted, and asked for my opinions on those opportunities. Just get out there and start looking even if you are window shopping. You can save money in the meantime.

But before you start targeting, again make sure you come up with your criteria of what your future business should satisfy. Then find those opportunities, and get back to me. Don't let lack of capital, lack of experience, or lack of even confidence stop you from starting to look for purchase opportunities.

I sound like a commercial! But I promise you, I'm not selling you anything. Hell, I'm spending a lot of time working with so many of you. But I'm not asking for any money or financial gain in return, nor will I ever.

The only thing I'm selling you is frankly a way for you to enter the fast lane. And my only compensation is to see you succeed.

 

[doitman]

When vetting sellers online, it's tricky. I always look up their public profiles on Facebook, LinkedIn, etc. Unsolicited. I then reach out to them if they're selling their business. Often times with scams, they'll say something like they have no idea what I'm talking about. If they are selling, then we continue on with the transaction. You'll obviously also want to validate how long they've had their accounts. If it's been online for years, it's highly likely they are legit. But you want to cross reference their name with other online profiles and postings. Google is your friend.

You also can research their business online. Most that I deal with have social media accounts. Again, if their pages have been up for a long time and they post somewhat regularly, that's indicative of a legitimate business. Due diligence weeds out if they're full of shit or not. The aging of their profiles and pages on social media is importantly simply because most scam artists don't play the long game. Like I'm not going to create an account now, age it, and then scam someone years later. Although it's possible.

Usually when you are corresponding with a seller, their time is important so if a "seller" is hyper responsive, and then tried to close a deal that day... Don't be fooled. Selling a business is a process, just like buying a business. It takes time. Real sellers are wary too of fakers. So they will want to vet buyers as well. Oh, and even if a seller is legit, if they are that eager to sell say that day, their business is very likely shit.

Meeting in person is best. Getting copies of government issued ID is important too. All this can be faked, so you'll want to cross reference IDs with other databases online.

 

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[doitman]

@richardd, It's super hard for me to find a business with 1.5x to 2x valuation. Especially on bizbuysell and other platforms, I am seeing 3x and above.

In most cases, I see the owner working on the business full time, let alone a 2 hour a day business at that multiple.

How do you source acquisition opportunities?

I'll give you another secret/tip. Many of those businesses that are more than 2x my ROI valuations are actually closer to 2x than you see. For example, earnings that sellers publish to buyers are based on the P&L statements. You have to drill down into them to see that they are listing expenses that you may not incur. I'll give you some examples.

1) Telephone/internet services. You probably already have that. You're not going to buy more internet service or a separate phone and plan.
2) Accounting: even if you utilize accounting services, you shouldn't incur the costs that they have for their bookkeeping. You're costs will increase a little due to more record keeping though.
3) Server costs: if they are running web servers, you can either consolidate them onto yours if you have other businesses, or you can move to cheaper servers. I can't believe some businesses where their servers cost hundreds of dollars a month. I spend $30/mo on hefty servers that have unlimited bandwidth.
4) Owner wages: most include owner wages when reporting monthly earnings.
5) Other internet services: many businesses including myself play around with a ton of SaaS services for automating their business processes. I do this for fun and some efficiency. But I definitely don't need a lot of it.
6) Office supplies
7) Travel expenses
8) Legal expenses
9) Postage!

All this adds up to impact the seller's bottom line, and thus their reported monthly profit. You have to dig deeper into their finances to see where they are spending needlessly.

As for owners working lots of hours on their businesses, either don't consider them, or look to outsource the stuff that they do.

 

[doitman]

Amazing success story. Gold post @MJ DeMarco ?

Thank you for sharing (especially since writing is painful for you). That is very inspiring.

I have to admit, I was reading your list and thinking to myself, "NO WAY. Does that even exist?"

I was also curious, because you said you didn't want employees, but then you bought businesses that had them.

So how did that turn out? Did you change your mind, or am I not understanding your criteria?

Good questions! Here's my list again for reference:

1) No full-time employees. Didn't want the headache.

Software business only has contractors working on coding. Blog has contracted writers. Web site backup service has contractors for support. Web marketing business has contractors. No employees.

2) Profitable. Of course.

All, yes, as mentioned in the original post.

3) Years of proven profitability.

Software biz has been around since early 1990's. Blog has been around 2015/16. Backup biz for 10 years. Web marketing for 2 years.

4) Digital/software products or services. No inventory. No drop shipping.

All apply

5) Scalable.

All market to either nationally (US) or internationally.

6) No physical location. Allowing work from home without need for leasing office/store.

All work from home.

7) Flexible business. Caters to expanding product and service line beyond current offerings to customers.

Each I can expand software/service offerings.

8) Low weekly hours necessary for owner operation.

I work 2 hours a day total for all of them managing staff, and performing accounting.

9) Instant credit card sales, vs NET30 or other delayed payment processing.

All use Stripe/Paypal payment processing, or direct deposit for the blog.

10) Minimal marketing.

I don't do any right now to keep the revenue steady. Recurring business for all of them, except for the marketing biz, but that gets 30K organic traffic every month, so we get lots of business from that traffic.

11) Full control. No partnerships. Limit dependencies with external entities.

I have no partners. I don't require Amazon, Facebook, YouTube to keep revenue going. I guess Google will always have a huge impact on the blog and marketing businesses.

 

[doitman]

One more thing to add. Another reason why I like serial entrepreneurship is that you mitigate risk by spreading out your investment dollars across multiple unrelated ventures. Keep that in mind. Just like my not wanting to depend on one client for my income, namely an employer, I like not having everything on the line with one business. So if one drops in sales, or completely fails, the others are there to weather that proverbial storm.

 

[doitman]

@Shanice asked me for any tips on how to filter through scammers selling businesses online. So I figured I would share here.

One tip when filtering out scams in business-for-sale listings. Typically, businesses are valued/appraised at 20-25x monthly revenue, not profit. But many sellers list their business at 20-30x monthly profit. This applies more towards smaller businesses that are priced at or below $100,000. For example, if I'm selling a business on Flippa, and my business makes $2000/mo in profit, I might list it at 20x = $40,000. Sellers will obviously vary. In any event, if the listing price is in line with their monthly profit numbers, then no red flags go off for me. Scammers claiming the same $2000/mo in profit will offer the listing for $4000 . But this shouldn't make sense because why wouldn't they just keep running the business and then after 2 months, they have their $4000 + retain control of the business?

Now keep in mind for the example above where the legitimate seller lists the price at $40,000 with $24,000/yr profit ($2000/mo), you are getting estimated an ROI = 60%. For me, this is more than acceptable since my minimum ROI is 50%, and it is well within the norm of typical seller listing behavior.

Oh another thing. Some ROIs are better than others! Depending on the business type, a SaaS business with an ROI of 50% in my opinion will be better than an ecommerce business with the same ROI. Simply because of the recurring revenue model, instead of the B2C, one-time purchaser.

 

[doitman]

Can any of you recommend a website, book, online course, mastermind, or something similar for a beginner to walk this path (of purchasing a business with positive cashflow that meets RichardD's criteria)?

Ideally, I'd like to find a mentor who would profit share with me when I do all the work and they save me from dumb mistakes while speeding up my learning curve.

You don't need to profit share with a mentor. But I understand your concern. I highly advise against partnerships. You lose control which is one of the main tenants of the fast lane.

I understand that such an arrangement on the surface seems like a good idea, but you really want to just get out there and find value in business opportunities. Using a mentor as a crutch will handicap you. Making business mistakes is a part of the process. Start small to limit risk. Learn by doing. Ask questions in this forum if you're not sure what to do, but you should get into the game.

I honestly don't have any recommendations on books or web sites beyond this forum. I got to this point by experience of failure, not success. Sure I scoured the internet to read up on a ton of things business and technology related. But I'm here now because of execution and failure, which leads to success.

 

[John_Wick]

UPDATE: maybe not my progress, but others that have reached out to me on their own journeys. I won't name names, but 2 people that have PM'd me have closed or are closing on deals like mine, graciously telling me what they read here in this thread and in our PMs had direct impact on their process and action. I'm super proud of them. You know who you are.

Everyone, keep going! It's not as hard or impossible as you may think it is.

And stop offering me money for my help. I won't take it. But I will give you whatever help I can.

I hope this may somehow help others by sharing my experience from listening to the book, to finding this post, trying Richardd's strategy and getting advice from the OP himself.

It's funny I actually read Fastlane about 5 years ago. But, I never bothered to check the forum. Maybe I just wanted to act on it instead of discussing it. And, my trust for online forums were (still) low. That was a mistake of course.

Anyways, so I thought of picking up this book again for a refresher in October. But, I have already read it. So, this time I tried listening to it, which makes my NET time more productive.

Then, I realized that I have been trying to hack the slowlane equation by changing jobs. I decided to never repeat that mistake again. So, I created a poster and put it on my wall (attached). The pivotal moment came when I opened the book for reference and realized there was actually a forum with like-minded people. Great, maybe I can benefit from others' experience, too. So, here I came.

I found this OP in about mid-Oct. I got really inspired because I have been trying to create side businesses while working full time. It really hit me because it shows there is actually another alternative for people who feel they are stuck in the middle.

Then I started trying Richardd's strategy. I started reading the thread from the beginning. I created an index with captured images that serve like a playbook - where to look, what to ask, how to DD, criteria to use, how to operate, etc.

Then I started looking for deals and doing DDs. I experienced the same analysis paralysis someone mentioned here in the thread, too. And, just when I thought I was really close to finding a deal (a VPN business), the seller decided to keep it for himself. Then the next one (social media analytics) was bought outright while I was bidding. Disappointed but somewhat validated. I thought maybe I should look into other places, too.

Then, Richardd finally showed up replying on this thread and offered help to everyone - "please PM me if you have any question." I wasn't sure. But, I reached out anyways. I explained what I have tried and asked for advice. So, that led to me increasing my budget to $10k~$20k range for a first purchase. Then, I found a directory business. The ROI was okay (45%), but the site is really simple and has strong organic traffic. At least it seemed like a real performing asset.

So, I sent that listing to Richardd, and asked his view. I felt uncomfortable because it felt like asking someone to do my homework. He wrote: "Now we are talking." His simple rely made me day because it validated my pick when I was about to give up on this business acquisition strategy.

The process wasn't all smooth but that's as it should be. For example, I was almost outbid last minute. That got my ROI dropped from 45% to 40%. But, I can live with that. It's a simple business with lots of upside potential that can actually help me learned how to build things that add value while getting paid.

Before the S&P was signed, I negotiated a trial period of 20 days to test the asset. I wanted that because I was scared of buying a scam. Richardd helped me check the traffic. And, I'm seeing AdSense revenue everyday. So, it seemed real.

Today I signed the S&P agreement. I think the chance of seller walking back on this deal is close to zero now. So, I consider this a great milestone for myself.

This isn't a success story at all. But, it's a process story that shows this strategy works and Richardd really does offer help for free (but please do your homework too). Keep in mind that this is on top of his consulting jobs and many businesses.

So, that's amazing.

 

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[doitman]

This was an inspiring read! Is it conceivable to work from home at a full-time job and still take consulting jobs to save up for that initial investment/acquisition? It seems like most clients for freelancing dislike weekend or evening work (unless it's a different timezone, weirdly enough).

Any advice for other developer who have a full-time job and are already doing some side-hustles (writing articles for $$ already and making some video courses for publisher advances)

It is feasible. Just ask my wife. Most smart phones nowadays have WiFi Hub capabilities, allowing you to work from virtually anywhere. For example, when I was working full-time at the client office, I also had my own laptop and cell phone. I was always connected to service the 3 remote clients. It may not work if your bosses are micro managers, and if you have tons of conflicting meetings. Believe me though, I made it work. When I had two meetings scheduled at the same time from two different clients, I'd pick the one that was most important. What's the worst that could happen, I'd get fired from the other That never happened.

My advice to developers: go with your core expertise. You can write articles and video courses for some extra money, and that's great. But you are probably not making as much as if you were charging for your programming/development skill sets. Find a away to get multiple clients who need your programming capabilities.

 

[doitman]

Beautiful thread man. Wish you luck on your next acquisitions.

Reading what you had first noted down for yourself as a acquisition criteria, it sounded like a dream. Too good to be true. But as you explained more in the post it seemed very realistic. I hope one day I could do what you did.

Best of luck and thanks for this inspiration.

Thank you for your kind words of encouragement.

I agree about it sounding too good to be true. When I laid out my plans for the last 18 months, I couldn't understand how simple it was. Please don't mistake that as easy. I mean simple as in logically simple. I figured really that the challenge was execution. And handling of the stress of long endless hours of work.

I chose this path for the simplicity of it. By taking over proven business models with real-world profit, it came down to plain math. When doing a startup, there are so many variables to reach success. Although I itch to do this in the future when I can take on the risk.

The main challenges to my path have been finding the right opportunities (see my list of 11 criteria), vetting the seller with due diligence while detecting scam artists (this is fun for me, but for a different topic to discuss), obviously raising the capital by hustling, and then transitioning the business upon closing.

 

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[doitman]

PROGRESS UPDATE: A couple of awesome things to report today. For my blog, we officially had our best advertisement-earnings month with 4 days to go! This month we should bring in about $4400. I'm really proud of this, since as a new owner, there are occasionally doubts that go through my mind. Doubts that I might not get these businesses to perform well. Except, all of them including the blog have just run almost flawlessly since I took them over. There surely has been some learning, but nothing overwhelming.

SECOND thing: I'm in the process of buying another business. It will be a quick sale, target within 7 days. The business is a web host. This totally is in line with my web site backup business. I will probably merge them together thus offering web site backup / hosting services. I'm really excited about acquiring 2000+ customers who are perfectly suited for our backup services.

Details to follow with more of the financials, but the deal is for less than $20,000, and I get a pretty damn high ROI! Way more than my target 50%. And that's not even taking into account the cross selling with my backup business. I'm pumped!

 

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[doitman]

Where do you think the balance is between doing due diligence on a deal and just going for it?

To an extent its always going to be unknown so I'm trying to decide on my personal threshold for when to stop analysing and pull the trigger. It seems to be a fairly fine line.

I think you're talking about "analysis paralysis". In business as you allude to, there will always be unknowns. In the end you have to be willing to lose all of your investment. That is a tough sell. For me because of what I went through when I owned a commercial printing business years ago, I went through an even worse case scenario. Not only did I lose my initial investment, I also went into severe debt with the business operating at a significant loss each month (in the thousands of dollars) with long-term liabilities like office and equipment leases. It changed my life in so many ways, bad and ultimately good. My acquisition search criteria is fundamentally built from not wanting overhead that can sink you. If any of my businesses fail completely, I ultimately just lose some of my initial investment, and of course my time. That baseline helps me not to have analysis paralysis when I'm evaluating a business. Therefore, now I do not fear failing in business like I did before.

Getting back to your question, when I am evaluating a deal, I look at ROI, and based on the verified financials, if they appear strong (2+ years of consistent profitability and 50%+ ROI), I pretty much automatically pull the trigger, assuming it's the best deal that's on the table currently. I'm almost like a computer in a sense. Emotion and fear have very little affect on my decision making. And believe me, I have plenty to be anxious or fearful. I have a stay-at-home wife and two kids, one- and two-year-olds. Plenty of bills, etc.

It may not be fair to compare where I am at now with where I was 18+ months ago. My company is now successful with plenty of discretionary income. After all bills are paid like mortgage, utilities, car payments, and of course business operating expenses, we clear a good $20,000 a month now. But 18 months ago, as I mentioned at the beginning of this thread, we were living paycheck to paycheck. Actually not even, since I had lost my job, and had no income. Maybe that's the secret sauce that someone earlier mentioned. When you are so down, and you've pretty much lost it all, your perspective on life and business changes. You get to that point where enough is enough. Playing it safe gets you a "secure" job and a mortgage payment. But that "secure" job is really not that secure at all. And that mortgage payment will eat you alive.

When I rebooted my life and started investing earlier this year in April, I had my search criteria, found a software business, did due diligence the best I could (verified all their bank statements, P&Ls, merchant account statements, talked about their software products in detail, got copies of their US drivers licenses, scoured the internet and their web site, obviously met with them a few times, spent 2 full weeks drilling into the business), and then pulled the trigger.

 

[doitman]

UPDATE: 32 days until fast lane freedom! I gave my final notice to all of my managers. Yes I have a bunch. That will leave me with only one... My wife.

I've been busy building our new server infrastructure, full with firewalls and disaster recovery features galore. This is not only to beef up security of all of our online assets, but also to prep for our new business ventures, namely an online school. Such a massive undertaking in my opinion. But I'll have the necessary bandwidth come April.

I'll also have time for my family. 2 years is a long time to go all out. I've been doing 100 hour weeks lately, and I'm all done with it.

My rebranding under one name has been a success. Meaning we haven't lost any customers so far that I'm aware of. I think in April we will start a new marketing campaign both with cross marketing to our current customers of all of our services, and mass marketing. Maybe you can tell, but I'm very excited.

 

[doitman]

HAPPY 4TH OF JULY UPDATE FROM AMERICA!

Hey, Friends! It has been a long while since I last posted. You can probably imagine with the state of the world, I have been busy. I'm sure many of you have been. I had been locked down in my home for a couple of months, so I took the opportunity to re-architect and re-code our whole accounting software product line. And now I'm done! I modernized the user interface since the original software was written over 10 years ago. And I added a bunch of features that are pretty common now with current software standards. I'm really proud of this.

My focus was on making the user experience much more enjoyable, increasing the performance and speed of the programs, and improving the support capabilities. And now that I have everything working, we are in BETA test mode. Once we clear that hurdle, then we market the new products to all new customers, something that I prevented from happening while we had the old platform. We have been cruising with our current customer base. Time to take the new company that I purchased over a year ago out for a worldly spin!

My online blog took a precipitous drop in traffic during the early C0VlD-19 days, but has since rebounded. And actually, the past week we have blown past daily traffic records that we achieved back in November of 2019. Yesterday, we had over 45K page views with revenue of $689. The previous day we had 40K views. Today, even though it's still the morning here on the East Coast of the US, I can tell that we will eclipse 40K views.

The timing of all of this has been perfect for me. I quit my last full-time consulting gig at the end of April 2020. The last paycheck cleared a couple weeks ago. So, now I'm basically flying without that safety net. I'm not sure what our revenue numbers will be this month, but next month, I'll try to post them. My guess is that we will be around $20K.

Don't get me wrong. I'm scared. But even with C0VlD-19 in this new world, we just keep chugging along. Maybe "scared" is too strong a word. "Anxious" is better suited. Even when things got dark a few months ago, I told myself that THAT was the time to hit the accelerator. When things get hard, in my opinion, that's when you double and triple your efforts. I mean it. I hope all of you took advantage of all of this "downtime", to advance your undertakings.

 

[doitman]

I cannot thank you enough for this post. I share some of your backgrounds. I am a Programmer myself, even though I prefer the official title of Software Engineer and make high slow lane income with high cost of living - mortgage, kids, etc. I have been wrestling with the ideal transition path from Slow lane to Fast lane and no matter how I dice it, the options of Freelance/Consultant/Agency stares at me and I resent it because of its yet another trading time for money. I end up with this choice of building my own digital product which is taking forever.

My take away from your post is to treat Freelance as a means to an end. Thanks for sharing.

That's right. It is the necessary evil to bridge the gap from slow lane to fast lane. You summarized it succinctly. I too thought about developing my own product or service, but it could take years without anything to show for it.

So why not short circuit that route with business acquisition? Someone mentioned it as a cheat code. It kind of is. The challenge is finding the right opportunities to unlock the fast lane with this cheat code.

I've read many articles saying quit your job to start your business. More recently I've been reading the ones that say don't quit your job, but start you business on the side.
I don't see as many say keep your job and buy a biz.

This third option can be the fastest and safest way to get to the fast lane. There are pitfalls like in anything, but hedging your bet while keeping your job seems prudent to me. Once you get to the fast lane, or pretty close to it, then you can say good bye to your job.

 

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[doitman]

These are my initial thoughts on my own version of your criteria.

1) Profitable
2) Low weekly hours necessary for owner operation.
3) Poor marketing (because I can improve this, thereby increasing value after purchase)
4) Scalable.
5) No physical location. Allowing work from home without need for leasing office/store.
6) Digital/software products or services. Not a time-for-money service-based business.
7) Instant credit card sales, vs NET30 or other delayed payment processing.
8) Full control. But open to passive investment partnerships. Limit dependencies with external entities.
9) Amenable to integration marketing (I can scale advertising without cash outlay by offering commissions to other business owners who advertise my product on their thank-you page/back end)

This looks good. If you have a budget for how much you're willing to invest, go on the internet since there are many business brokerage sites, and peruse the listings. Find some that fit within your budget, and then message me. I'll give you my opinion on each, and we'll see how they rate against your criteria. Sound like a plan of action?

 

[CareCPA]

Is there a point where you'll hire a CEO/CFO of your "portfolio?" Then you only have to manage 1 or 2 people instead of all your businesses.

Also curious on how you're finding deals: existing network, business brokers, cold outreach, etc.

Awesome progress in just 18 months. I've been internally debating the balance between growing the current business and acquiring others.

 

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[doitman]

I have a few high-level goals since this is actually a progress thread. I want to grow our profitability year-over-year by $100K. Honestly, we won't need the money. As mentioned before, my wife and I are moving to Central America to have a simpler life with fewer temptations for materialistic things. Basically we want to downsize, and teach our kids that life is more about enjoying the world and different cultures, and less about accumulating stuff.

But I sure would like never to have to worry about money again. And when we come back to the States years down the line, I'd love to be netting a million bucks a year as we head into our retirement years. My wife also loves philanthropy, and I kind of dig it too. I also would love to start some crazy venture that is not profit driven. Having lots of money makes doing those things a lot easier.

Anyway, back to the progress thread. I'm pretty sure I can get to another $100K in profit by 12 months from now. I'd just have to continue consulting for another year, and use those earning to add to my business portfolio. Also, I can work to scale up my current businesses. The only caveat is if I be willing to continue consulting. Or will my clients continue to renew me through next year? My will is fading since I've been working multiple consulting clients over the past year. I kind of just want to relax a bit. And when we live in Central America, I probably will lose more of this edge.

In any event. GOAL: extra $100K profit by next year.

 

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[doitman]

F*ck man I hope i can get to your level. Im running my Landscaping business and expecting i can make enough so i can buy or start off an internet company. Every time i read MJ book or see a story like yours I feel like i’m wasting my time and should just go for something digital. This year was horrible for me. I had a fallout with my dad then he got a heart attack. I had to sell my truck to pay bills and im not stuck with 5k in debt. So I been doing Landscaping to get out of my rabbit hole. The business pays me enough to live but i want to do better. Im done with having to trade time for money. Im tired if competing with me too business. Im tired of always dealing with penny pincher customers. What are some are some tips in becoming an online entrepreneur? What are trades or skills I should focus on. Creating people value is obviously important but i want to do so with my brain not my hands. Please any information you can provide will be appreciated. I don’t want you to tell me the hows. Instead guide me to the right information and I will figure it out. Im not as tech savvy as I should be for my age but god damn i will learn !!

Ok, so digital is such a good way to go whether product or service. This is simply due to lack of physical material to produce the product or service. This saves in a ton of overhead, from storage, to COGS, to shipping, etc. You sell X units, you pretty much get 100% profit minus software maintenance.

Digital could also mean having an automated web site that provides more value than most others.

This doesn't mean you have to build or buy a business that sells software. You could sell a service that requires human resources to do the labor, but services customers through the web.

For example, if we pick landscaping, I know I need mulch in the spring and fall. I also need trees cut which could be used as mulch.

If I went to a web site that gives me prices for each of these products/services and that I could just schedule a time for it to be delivered or done, I'd go with that contractor. You see, I hate calling around and getting quotes. If the site asked me how many square feet of mulch coverage, what depth, what kind of mulch, and allowed me to upload pictures, and then either automatically it calculated the price, or automatically sent me a quote within 30 minutes, I'd probably be sold.

I picked landscaping knowing very little about you just based on your post. The reason is that you should consider your core compitency when looking at running a business. If you know it, you're ahead of the game. That's not to say that you shouldn't look at other unrelated ventures.

You should also consider looking into WordPress. That is a standard web development platform that is easy to use and build web sites fast. Google it if you are not familiar with it.

You'll also need to hustle to save capital. Capital will allow you to either start a new business, or like me, buy one. There are so many affordable ones to be had. The internet is teaming with business brokerage firms like Flippa and BizBuySell. Check them out and browse their listings to get a feel for what's out there. Sure good sites sell fast, and you may not be ready to purchase, but at least you'll get an idea of what's out there.

 

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[doitman]

Since I'm too lazy to maintain two threads, let's talk scams! I'll start with businesses that have sales prices listed too low. Simple concept that most people should understand. If I have a business that makes $2000 a month, and I want to sell it, I'd probably list it for $40,000 or more. Most sellers target 20x monthly profit. It varies, but I think that's a good rule to start. So if someone lists that same business for $5000. Red flag! Because it should be obvious, why would a seller cash out, when they could just wait 3 months operating his business before he gets roughly that $5000? I look at so many businesses when doing my search that I don't even waste my time on these.

OK, so let's say a seller lists that same business that makes $2000 for $40,000, but it has only been running for 3 months or only has 3 months of reported earnings. The price point seems reasonable. I'd not waste my time of this as well. Why would someone who developed a startup business, especially one that apparently has become profitable very recently, turn around and sell? If I started up that venture and saw those numbers, I'd keep it for a year or more to see where I could take it. Many people on this forum alone would be thrilled starting a business that makes $2000 a month. Very few would sell it right when it started showing success.

Here's another. Google Analytics is your friend, so use it. With businesses that require organic traffic to make money, like blogs, if you see huge spikes in traffic using Google Analytics, look for where the traffic is coming from. The site should have a relatively straightforward distribution of source countries. Common source profiles would be like a majority of the traffic is coming from the US, UK, AU, CA, IN and maybe some EU states. If you see Congo or Pakistan as making up a significant part of the traffic, well you should probably re-consider this opportunity.

One more for today. I alluded to quick sales in my previous post. Do not let the seller pressure you into closing quickly! Real sellers care about their business, and should be considerate to whom they are selling. Anyone who wants to dump their business so quickly should be looked at warily. Trustworthy sellers allow for due diligence which takes time. Any seller that does not give you the time you need, or tries to pressure you to purchase now. Run now.

 

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[doitman]

UPDATE: maybe not my progress, but others that have reached out to me on their own journeys. I won't name names, but 2 people that have PM'd me have closed or are closing on deals like mine, graciously telling me what they read here in this thread and in our PMs had direct impact on their process and action. I'm super proud of them. You know who you are.

Everyone, keep going! It's not as hard or impossible as you may think it is.

And stop offering me money for my help. I won't take it. But I will give you whatever help I can.

 

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[doitman]

Thank you @richardd, your analogy to the car mechanic scenario was spot on for me and makes sense. Also, happily, I do actually have some familiarity with the IT world since my current career demands significant collaboration with software engineers and the IT leadership crowd, so although I can't write or read the language I can at least make a broken conversation work.

One other follow up question- outside of business marketplaces that have been mentioned in this thread- would one simply rely on word of mouth and/or "cold calling" businesses that you would be interested in buying? Is that how you came to purchase a blog (i.e. organic interest in subject matter, idea of possibly running the site yourself, contacting the owner and making a bid)?

Finally- outside of the info posted here- I'm wondering if there is a basic check list new people such as myself could reference for the due diligence phase. (I would likely hire an accountant to scrub the books since I certainly don't have the background skills for that).

Thanks again, this thread has been equal parts exciting and sleep depriving for me these last four or so days.

P.

I don't waste my time with cold calling. But there are forums that people list their businesses. Here's one that I contribute to on occasion. And since I showed interest, I get solicited with offers:

Web Hosting Companies And Clients For Sale or Purchase | Web Hosting Talk

Web Hosting Companies And Clients For Sale or Purchase This forum is for the sale or purchase of web hosting companies with or without customers and customers with or without a web hosting company. Please read the Announcement within before posting. You need 10 (relevant, non-advertising...

www.webhostingtalk.com

The forum above is specific to web hosting businesses. This is inline with my current web site backup business. I'm sure I'll continue going back to this.

For due diligence, my check list is the following:

1) Matching published sales/revenue with tax returns (if available), bank accounts, and merchant accounts.
2) Go back 2 years at least for financials.
3) Get records of most significant expenses.
4) Get marketing performance numbers life for Google Ads, Facebook, etc.
5) Find out what products/services they use for their day-to-day operations.
6) Get list of employees/contractors that you'll take over. Offer not to discuss when them directly until after closing.
7) Get list of employee/contractor responsibilities.
8) Get breakdown of customer sales. Better yet, get details/invoices for customer individual sales.
9) Try to get their accounting books.
10) Get any future projected revenue like recurring invoices.

I'm sure there are more, but those above are key.

I have to say, it may seem like a lot to do in order to purchase a business, but once you do one, the others become easy. Often times, the sellers are novice at going through the process, so they ask me lots of questions, and I walk them through what to expect. You start doing this, and you'll become well-versed in it as well. It should be exciting! It is for me. It changes the game for me, and I really feel it can change the game for many others on this forum. I see focus is on building new businesses, and I love the passion and drive that some people have for that path, but my process, albeit less sexy, can be much more effective in reaching the fast lane.

There is a recent thread about acquiring multiple Subway restaurants. I'm not a fan of taking on a franchise since it lacks control, BUT the theory is sound. You acquire 5 Subways, and each averages $40,000 in profit, so you're banking $200,000 a year. Not sexy but effective.

 

[doitman]

I have nothing to add or no question to ask right now. I'm just baffled by the amount of value you are sharing with us. Thank you. I've been browsing Flippa for a couple of weeks, trying to find low-profit, low-priced businesses where I could hire a contractor to do the main job while keeping a small profit in the end. Your pointers in your various posts are really helpful in this sense.

Thank you, Jeff, for the feedback. I've read this forum for quite a while, and I find the most inspiring threads are the ones that deal with real experience born from theoretical process. It makes the information more tangible.

People ask how can one build a business from scratch. There is no magic to it. I don't even believe there is a secret. My process is standard investment that we all learn in the slow lane. People know all about putting money into the stock market and retirement funds. All we are doing is investing in existing businesses that have ROI. Earnings compound yearly, albeit at low ROIs.

I just apply this same process, but instead I acquire businesses not stock or shares. I of course have to save money to make the investments which means get a second job. I also have to run the businesses. But there should be no secret to this.

I am not arrogant enough to say that I am doing anything special. Nor am I doing anything special performing the analytics in deciding which businesses to invest in. I hope my progress thread makes that clear to everyone.

I'm not building some amazing product or SaaS solution to reach the masses. I'm letting others build that for me, whether it was the previous business owners, or whether it is the contracting staff that I hire to make all these businesses work on a day to day basis.

 

[doitman]

Thanks for this really valuable information, and congratulations @richardd .
I read this thread through once before all the while thinking this is beyond my capacity. Now reconsidering, it looks like a learning curve of a year of even half a brings buying a business within the scope of possibility. Does that sound right?
Who do I need to hire to vett a business?
And where are the best places to look for businesses for sale?

Thanks again, this is truly gold. Thanks for the wake-up call @broswoodwork .

You would be surprise how quickly you can ramp up. Don't think in term of time, otherwise you'll overwhelm yourself. Just start looking at businesses for sale on the web. Find some that interest you even if you don't have the funds or the knowledge to take it on. Then start asking the seller questions about their business. I forgot to mention, before searching for businesses, come up with your list of criteria that you are looking for in a business. You read my thread. Go back to my 11 criteria in the original post, and come up with your own similar to mine.

I may seem way ahead of you now, but to give you an idea that we are basically in the same situation... I'm looking at a business now that is way beyond my budget. It may be had for about $110,000. I don't currently have that kind of cash on hand since I blew through my nest egg. But I know that I can raise it in 6-9 months, so I'll be ready for it if it's still available. Also, it's a business that I don't have much expertise, let alone experience, in. So, I know I can get it.

Maybe the thing I do have much more experience than you is experience in buying businesses. But that only comes by doing. Anyone can do it as long as they have capital or good negotiation skills. And if you need help, you can ask me or many people on this forum. Start a thread on it. There are many truly knowledgeable people on here that will be able to answer your questions.

 

[CareCPA]

Poor book keeping by the way is a good indicator for being wary of an opportunity.

Wary, yes, but I wouldn't necessarily run away.

I end up doing a lot of projects for e-commerce companies who want to sell but have no/terrible books. Brokers want at least trailing-twelve months, and preferably two years.
Usually it's a one-person company who has been so busy growing and expanding that they just don't have time to do the books.

When I'm done, they're usually surprised by their profit numbers - sometimes it's a good surprise, sometimes not so much, but I haven't found a correlation between lack of bookkeeping and poor profitability (so far).
Maybe the fact that they're getting it cleaned up before going to market is a good indicator?

However, I agree you should either know how to do due diligence, or hire someone who does. If a seller isn't giving you access to the information you need, then run.
Even if they have good financials, I'm still going to request direct access to Shopify/Amazon, Bank accounts, credit card accounts, processors, advertising accounts, etc.

 

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[ZCP]

Can any of you recommend a website, book, online course, mastermind, or something similar for a beginner to walk this path (of purchasing a business with positive cashflow that meets RichardD's criteria)?

Ideally, I'd like to find a mentor who would profit share with me when I do all the work and they save me from dumb mistakes while speeding up my learning curve.

Do one and fail miserably. You will learn a lot and get past this limiting belief. And, it might even succeed!

 

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[doitman]

OP - congratulations, and thanks for sharing. This is a truly inspirational post for a number of reasons.

It highlights what is possible in a short time with some serious graft.

It's generic enough to be applicable to anyone prepared to put the time in to learn how to differentiate between a good buy and a bad one (i.e. it could work for any market, not just software).

While it highlights success, a 'diversified' approach like this mitigates the risk of subsequent buys.

Have you thought about helping others with finding and acquiring? Not as a broker, but as an expert - that aspect would for sure keep many from jumping on this model- perhaps that is another string to your multi-stream income strategy.

Thanks for the inspiration! May your success continue to grow momentum!

I hadn't thought about helping others in any active sense other that posting on this forum. I honestly wouldn't want to make money doing this. Leave that to the gurus. I offer my knowledge and experience for free. I have no plans nor wish to sell anyone anything here.

Besides what I'm doing I don't find special nor creative. Do people think this is out of the box thinking? Warren Buffet does this at a grand scale. It's highly publicized. The real key is not thinking "I don't have billions. Therefore I can't do it." Investing in already existing businesses is so mainstream. It's on TV all the time.

I just do it at a much more modest scale. Anyone can. I see businesses that go for $5000. They may make $200 a month, but ROI! You're not going to get that with a money market fund.

Searching for and buying businesses is streamlined and relatively easy to do. Common sense and logic when evaluating and purchasing is all you need, besides the capital.