Small Business Acquisitions
Did you know you can buy a successful business right now with zero money? As crazy as that may sound, people are doing it all the time. There is no need to go through the hassle and the risk that comes with starting your own businesses. And we all know that many businesses fail within the first few years.
Around 50% of all small businesses shut down, never to open their doors again. The main reason is due to an information gap: Buyers don’t know where to buy, and sellers don’t know where to sell. In fact, both buyers and sellers don’t even know they can buy and sell.
This is a great example of down to earth, realistically achievable FF(Financial Freedom) that does not have to do with the latest tech, or the next unicorn startup idea. It is boring, yet it’s simple. It is these silent businesses who have ‘seen it all’ throughout the years and passed the test of time that are now up for grabs.
Think about your local business shops. Your local car wash, coin laundromat, mom-and-pop stores, and corner stores. All of these small business owners could be looking to retire, and they are looking for someone to take over their business. Every year, thousands of Baby Boomers(1940s~1960s) are retiring every single day. For example, in the U.S., more than 3 million Baby Boomers are retiring every year. That means, 100s to 1000s of them are retiring right now in your own backyard wherever you are reading this. And a good number of them were business owners. Unfortunately, around half of them have to close their doors without selling because they couldn’t find a successor. What a complete economic waste!
This is a major shift in the small business landscape. The tides are turning. The previous old generation is in the process of handing down the torch for the next generation to carry. Soon, there will be so many opportunities for new up-and-coming entrepreneurs to easily make their first success in business because a number of these businesses are entering the market for sale all the time.
Think about it for a moment, you can just pick the best deals. There are so many of them, if the deal is not blatantly in your favor, you can just walk away. Small business acquisitions offer unique opportunities for: wealth creation, recurring revenue, and cash flow. Unlike volatile stock markets or the ‘high-risk, high-reward’ startup scene, small businesses provide stable and predictable and immediate cash flow. However, many people overlook this sector due to misconceptions about the necessary requirements or the effort to manage these businesses(see “E-Myth: Revisited”).
There are 3 common methods to acquire a small business:
- Self funding
- SBA loans
- Seller financing
– Self funding: You can try and come up with the money yourself, or ask the bank for a loan. This is the least recommended choice because it has the largest risk and is the worst option. There are much better options than the traditional methods.
– SBA loans(business loans): For example, in the US they have the SBA (Small Business Association) which helps small businesses in many different ways. One way is to get an audit for the business you are trying to acquire, and they might loan out the money for you if the business is healthy under their requirements. Check your governmental policies at the local and federal level to see if you can take advantage of any legal help or structure. It must be mentioned that working with government will be a slow process, so you must make sure you have enough time, or you might lose your chance with a popular business seller with multiple suitors.
– Seller financing: This is the best method because it has the lowest risk but the highest upside. In this way, the payment plan is structured so that you are paying the price of the business to the ex-owner from the proceeds of his own business! Usually you will make a multi-year contract that agrees to pay out to the ex-owner every designated interval period (month, quarter, year).
Good to know info:
– Business valuation is usually between 2~4 times earnings.
– 60% of all small business acquisitions deals are done through seller-financing.
– Use SNS platforms to find your local businesses(X, FB, IG, LI).
– Acquire a preference for businesses that have systems set in place for automation and require less hands-on management. Something that resembles a vending machine or coin laundromat.
– Begin acquiring knowledge in setting up manuals and SOPs(standard operating systems).
KOL shoutout: Codie Sanchez bought her first laundromat while she was still working at her job. Coming from a modest background, she has built a formidable reputation as a Latina entrepreneur, investor, and a positive influence(r) for financial independence. She currently owns around 30 small businesses with a collective revenue of over $50 million. Codie stands as a testament to the untapped wealth potential in small business acquisition.
Her investment philosophy is simple yet powerful: find undervalued businesses, often deemed ‘boring’, and leverage their steady income streams. This contrarian approach(from Silicon tech and startups) sets her apart, proving that you don’t need to chase the latest fad to achieve financial success.
Key takeaways from Codie’s approach:
– Look Beyond the Hype: Success doesn’t always come from the most exciting or innovative ventures. Sometimes, it lies in the steady, reliable businesses that form the backbone of the economy.
– Value in the Undervalued: There’s immense potential in businesses that may not appear glamorous but have solid fundamentals.
– Education is Key: Codie emphasizes learning about business operations and financials, which is crucial for successful acquisitions.
For those interested in this path, start by educating yourself about business valuation and management. Resources like Codie’s ‘Unconventional Acquisitions’ can provide a wealth of knowledge. She has a lot of great content over on her YouTube channel(@CodieSanchezCT). Next, look into local businesses for sale, focusing on those with steady income and potential for growth. Remember, due diligence is crucial in understanding the true value and potential of a business.
For those who think that taking over another business is annoying work and requiring a lot of time, look into SOPs(standard operating procedure). You can start with reading the book notes of E-myth: Revisited (here).
Codie Sanchez is more than just a success story; it’s a blueprint for financial independence that many can follow. By focusing on steady, reliable businesses, she demonstrates that financial freedom might be closer than we think, hidden in plain sight among the small businesses that surround us.
This reminds me of a turtle. Slow and steady wins the race. This is not a get rich quick scheme. It is ridiculously simple and very much straightforward. This reminds me of Benjamin Graham, Warren Buffett, and Charles Munger. Taking a “the magic of compounding” approach to FF(financial freedom).
Food for thought: What will happen if we don’t buy up these small businesses? If we don’t start buying them, then who will? The big corps will. Either they will buy them out or fill up the empty void left behind. The gap between individuals and corporations would only increase and everything would become centralized. We would end up being at the mercy of big corp. If you love your local neighborhood and city, taking over a small business might be the best thing you could do to preserve it.
Rabbit hole: Although they do exist, it seems there must be some conscious advancement in the platforms of business brokerages. How could we create a platform that would solve the current problems in this niche and industry? How would you go about structuring the business model, processes, and payment plans for the platform to sustain itself?
