I wanna buy a business, but where do I start???
Good Q since: 91% of ppl with a net worth of $5M+ own their own biz
BUT - Sometimes it's better to start with what not to do.
Here are the most common MISTAKES in M&A & how to avoid them:
Good Q since: 91% of ppl with a net worth of $5M+ own their own biz
BUT - Sometimes it's better to start with what not to do.
Here are the most common MISTAKES in M&A & how to avoid them:
1) Don't listen to your Mom, not all Debt is bad
Leverage. I like to try to shoot for a similar to a mortgage.
10-20% cash down in cash, rest “seller-financed"
For example, a biz makes $100k profit, and they're usually valued at 2-3x profits
Leverage. I like to try to shoot for a similar to a mortgage.
10-20% cash down in cash, rest “seller-financed"
For example, a biz makes $100k profit, and they're usually valued at 2-3x profits
So you buy for $200k let us say bc you my friend r a killer negotiator.
- $20k down (20%)
- $80k paid end of year 1
- $100k end of year 2
If you fancy, u use profits from biz to pay for the purchase.
Rule #1, Don’t Buy with Cash. Rule #2, Don’t Forget Rule #1.
- $20k down (20%)
- $80k paid end of year 1
- $100k end of year 2
If you fancy, u use profits from biz to pay for the purchase.
Rule #1, Don’t Buy with Cash. Rule #2, Don’t Forget Rule #1.
2) Don't Overpay
(No sh*t Codie)
- There are more complex modeling techniques than patagonia vests on Sandhill Rd
- but on your first deal, save some headache...
Small businesses are worth 2-3x their profits on average. Period.
(No sh*t Codie)
- There are more complex modeling techniques than patagonia vests on Sandhill Rd
- but on your first deal, save some headache...
Small businesses are worth 2-3x their profits on average. Period.
3) Use Milestones & Earnouts
When negotiating, you have two big levers: Price & Terms
Our saying is you can have your price my terms, or my price and your terms. I tend to prefer my terms and their price
EX: Protect the downside AND only pay the price if milestones are hit
When negotiating, you have two big levers: Price & Terms
Our saying is you can have your price my terms, or my price and your terms. I tend to prefer my terms and their price
EX: Protect the downside AND only pay the price if milestones are hit
4) Don't Build A Business When You Can Buy It
Not buying a business is the single biggest mistake I made.
Most people really just want revenue and financial freedom in their careers.
They don't want 80 hour weeks & world-changing ideas
BUY, don't build
Not buying a business is the single biggest mistake I made.
Most people really just want revenue and financial freedom in their careers.
They don't want 80 hour weeks & world-changing ideas
BUY, don't build
It boils down to efficient use of capital:
Hire 2 employees, spend $20k on a startup OR use that capital to acquire a relevant business and close with a couple $100k day one.
Hire 2 employees, spend $20k on a startup OR use that capital to acquire a relevant business and close with a couple $100k day one.
5) Don't Buy Too Small of a Business (Buy a Job)
Strive for at least $100k/ yr in profit. Why? So you can hire a decent operator
If you want to buy a job, those deals are EVERYWHERE.
Strive for at least $100k/ yr in profit. Why? So you can hire a decent operator
If you want to buy a job, those deals are EVERYWHERE.
What takes more looking is one you can buy with an operator and get cashflow without YOUR time...
Holy grail. But there are. a lot more than u think.
Holy grail. But there are. a lot more than u think.
If you leave with one thing today I hope it is this:
No such thing as a free lunch.
It's hard, things get ugly, parts don't work, employees don't show up.
But it is possible.
No such thing as a free lunch.
It's hard, things get ugly, parts don't work, employees don't show up.
But it is possible.
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