What Advantage Money Gives You?

[Stayer]

Say you had a business for several years, made some money before it dried out. How can you utilize the money to gain competitive edge in your new venture?

A start-up doesn't require more than 1-2k to order an initial stock so if you decide to go that root again you will be competing against a huge crowd just like in the very beginning. But how can you utilise money to gain an advantage over the rest?

A couple of examples I noticed myself

Real estate -

Money doesn't give you advantage if you are going to compete with 'investors' ready to get into 30 years debt on a property (it doesn't make sense to pay cash for a house price which has been pushed up by people who pay with credit), but it gives you an advantage if you play their game and put deposits on several properties at once.

Buy/sell businesses -

At last year's Australian Young Entrepreneurs convention Jack Delosa (the owner of the convention and before 25 millionaire) had given a speech on the life of the business, how it develops, what stages it goes through and when is the time to sell it. However, what interested me most was the idea of flipping businesses by buying them from people who are not interested in running them anymore, eg. retired owners, turning them around than selling. The investor's job is to do the due diligence on the business and wire money. The middle man's job is to find a businesses like that. The contract states that the investor gets paid first. He talked about 1 million deals, but also mentioned that there are plenty of small businesses selling under 100k. Is anyone familiar with the process described here as I would like to know more about it?

What other ventures have a higher barrier of entry in terms of money like those mentioned above?

 

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[wade1mil]

You can get into both of those businesses with $1-2k. I've paid $40 for control over five homes. I also made about $15k without paying a dime - just partnered on a rehab.

Money gives me the confidence to take risks I wouldn't feel comfortable taking if I only had the $1-2k in my bank account. A security net knowing that if I make a mess and lose the $1-2k, I'm not going to end up starving and penniless.

After being around people on this forum for nearly two years, I'm beginning to realize that money is a non-issue if you can bring something else to the table in the form of value. Time, connections, knowledge, systems, etc.

 

[Nick]

The investor's job is to do the due diligence on the business and wire money. The middle man's job is to find a businesses like that. The contract states that the investor gets paid first. He talked about 1 million deals, but also mentioned that there are plenty of small businesses selling under 100k. Is anyone familiar with the process described here as I would like to know more about it?

Interesting ideas you put forward. If you are talking about buying and selling online businesses, and rely on the middle-man to identify the opportunities for you, make sure that his interests are aligned with yours.

Most such middle-mans - called brokers, online business brokers, or something similar - take commissions on the successful sale of the business, usually 10%. Similar to a real estate agent/realtor. Does it sound like his interests are aligned with yours? If he is not selling you a website, he is not making money.

There is also the question of who runs the website or turns the business around as you put it in your description. It's definitely not the online broker, he is done with you after the sale. And from your description you imply that it's not the investor's responsibility. So who does that? That's only for the online business part, i am not sure how in the brick and mortar industry things go. Maybe someone else can chip in.

Some other ways you can use 100,000$ to gain a competitive advantages, on the top of my head.

Develop a very expensive and hard to replicate piece of software once you identified a niche. Anyone can make a website. How many people can develop an application that turns the iPad into a cash register or a Point of Sale system able to take orders at a restaurant and use the QR scan reading technology code to identify and reward customers among different franchise locations? And how many people can employ sales people to convince restaurants to implement their system? That's a high barrier to entry compared with the 1-2k needed for a startup.

Everyone can publish some content on the web and try to make money from advertising, so it would be considered a business with a low barrier of entry. However, how many people are able to hire a team of 4 writers, to write non stop for a website for a year, and have at the end of the year a website with probably 3000-4000 original articles on it? You are not competing with any independent writer on the web at that point, you are one league above them and competing with the bigger boys.

I think money can be used to accelerate growth in virtually every industry, and opens you to new niches that are not accessible to everyday people, therefore creating a higher barrier of entry and increasing your chance of success.

 

[Stayer]

Most such middle-mans - called brokers, online business brokers, or something similar - take commissions on the successful sale of the business, usually 10%. Similar to a real estate agent/realtor. Does it sound like his interests are aligned with yours? If he is not selling you a website, he is not making money.

As far as I remember, middle-man would be the one to operate the bought business. The tricky part is that he doesn't invest any money at all. The business is bought at 1-2 year revenue. The investor is the first to get his money back after 1-2 years of the business operation than the investor splits profit with the middle-man after the business is resold.

It can be done online as a one-person operation with online businesses. I read somewhere about such business resellers that operate at flippa. They would buy a website at a good price than optimize it for better rankings and more traffic than resell it. The strategy used to work when Google was easier to manipulate, not sure how it is now.

Develop a very expensive and hard to replicate piece of software once you identified a niche. Anyone can make a website. How many people can develop an application that turns the iPad into a cash register or a Point of Sale system able to take orders at a restaurant and use the QR scan reading technology code to identify and reward customers among different franchise locations? And how many people can employ sales people to convince restaurants to implement their system? That's a high barrier to entry compared with the 1-2k needed for a startup.

Everyone can publish some content on the web and try to make money from advertising, so it would be considered a business with a low barrier of entry. However, how many people are able to hire a team of 4 writers, to write non stop for a website for a year, and have at the end of the year a website with probably 3000-4000 original articles on it? You are not competing with any independent writer on the web at that point, you are one league above them and competing with the bigger boys.

That's the sort of suggestions I'm looking for. I have been hiring writers to write for my blogs before, but didn't think in a bigger scale about it. Thanks.

 

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[Nick]

Well, it means you were talking about website flippers, a different model than online brokers. I know plenty of people doing flipping for themselves - have the expertise in the domain, buy websites, improve, resell -, but they usually invest their own money, i was not aware that there is a market where an investor can fund the purchase and cash in as well - although it makes perfect sense.

 

[bophisto]

I agree leverage is a great tool in real estate as you mentioned. But in today's market it seems like the best deals are going to cash buyers. Of course you could always buy with cash and then refinance later on.

It doesn't sound like Jack Delosa was talking about internet or web based business but I guess it could work for both.

I have also been interested in the idea of flipping businesses too. Flipping businesses is how private equity firms make their money..like Mitt romney's firm (or former firm..) Bain Capital.

Buy assets for low price , make improvements and sell for a higher price.

It seems like this can be done with any "under performing assets"

I think there are a lot of small businesses that really don't have a clue or they are stuck in their ways. There are some that don't put a penny towards marketing ..but if they did maybe they could increase their business significantly.

I think the goal is to buy a business that isn't struggling too much to the point where there is no hope..but one that is doing "ok" but can do much greater.

I think that cash gives you more advantage in buying a business versus real estate. Although financing for investment property is still not too easy...it's much harder to get a loan for a business right now. Not saying impossible just harder, that's a fact. I don't see any lenders that will loan you money to have 100% control over a business for 20% down. There are many that will do that on property.

 

[MMatt]

You can get into both of those businesses with $1-2k. I've paid $40 for control over five homes. I also made about $15k without paying a dime - just partnered on a rehab.

I'm not going to be lazy and ask for a monsterous reply, but could you please refer me to some reading information that could teach me how to do such things? Or did you learn from mentoring? I have limited capital but some rehabbing skills and real estate could help build capital for other ventures.

 

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[bophisto]

You can get a property under contract for as little as $1 if you are buying from a homeowner. You can then assign this contract or "double close" the contract to another person...pretty sure that is what MMatt is referring too. Also if you have rehab skills you might be able to find an investor that lacks the skills but would be willing to bring you on as a partner. If you are interested in real estate investing , I'd take a look at the biggerpockets site and forum . Lot's of info on there and many successful active investors on there that are very helpful and informative.

 

[youronlinestuff]

i like making money so i can fund what i call "r&d" = research and development. this allows me to go out and test things in the real world and fail at things without it being the end of the world. so to me money buys me time and allows me to try and fail at things and this is what brings me success in the long term

 

[infinitus]

After going through the art hamel buying businesses course it became clear to me money is not an issue, especially if you can buy multimillion dollar businesses on terms with the owner, funded from the cashflow of the business

 

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