Society will tell you that there are two main paths to solving for money:
- Work for someone else
- Start your own business
But very few people talk about the third path, which is business buying.
I've taken both paths. I've been an employee, and I've built and sold 3 businesses. After discovering acquisition entrepreneurship, I'll never go back to building businesses from scratch.
It’s better than starting a business from scratch
When you start a business from scratch, the odds are stacked against you.
According to the SBA, only 50% of small businesses survive past the first 5 years, and only 1 in 3 businesses make it past the 10 year mark.
Aside from those odds, you're in for quite the rollercoaster ride as you work tirelessly to build a product/service, prove the market, and build a customer base that get's you to profitability.
Have you ever been in one of those incredibly long lines at the airport and a staff member comes over and re-directs you to a new line they are creating and suddenly you're now up next?
That's what buying an existing business is like. You cut the line, and step right into existing cashflow and customers.
The business has already been proven, which means you are more likely to succeed as you work to accelerate growth.
It’s better than working for someone else
There is nothing wrong with being an employee, but if you want to build true wealth and freedom you will most likely need to own your own cash flowing assets.
I'm sure you've heard this quote:
“Build your own dreams, or someone else will hire you to build theirs.”
Owning your own business means you can create and execute on your own vision. You can be in the driver's seat.
The return on investment is high
Right now, small businesses are very affordable – often selling for less than 3 times their annual cash flow.
There are many ways to finance up to 90% of the purchase price of these businesses, meaning you only have to put 10% cash down.
Here are some high level numbers:
Let's say you target a business that is generating $500,000 in EBITDA per year (earning before interest, taxes, depreciation, and amortization).
It can be realistic to acquire that business for 2.5 times it's earnings, which would put the purchase price at $1,250,000.
Now let's say you work with Acquira to get financing for 90% of that purchase price, leaving only 10% ($125,000) cash to put down.
Let's assume your financing terms are similar to SBA acquisition loan terms at 6% interest over 10 years. This would put your principle plus interest payments at ~$149,880 per year for the other 90% of the purchase price ($1,125,000).
After you acquired the business you would be left with $350,120 in free cash flow after debt payments.
Let that sink in. You just paid $125,000 to step into more than $350,000 of cashflow. That's a 280% cash-on-cash return in just the first year!
The best part is, that's assuming the business doesn't grow and that it just stays steady.
I dare you to find returns like that anywhere else.
Businesses are more affordable than you think
Like we've already said, many small businesses can be acquired for less than 3 times their annual cash flow.
This is because there is a high supply of businesses to buy, but there are few buyers.
Let me explain…
Baby Boomers own 2.3mm businesses (nearly 60% of America's total small business count) and they are retiring at a rate of 10,000 per day. That represents ~10 trillion dollars worth of small business assets that need to switch hands over the next 10 years.
The issue is that only 10-20% of businesses listed will sell due to lack of buyers. According to BizBuySell, only 10,312 businesses were sold in 2018. That's barely a drop in the bucket.
Why are there so few buyers?
Because most people lack the interest, skills, or capital to successfully acquire a business, which is why Acquira exists – to fill that gap.
You can implement systems into the business so it works for you
Implementing systems into the business allows you to step out of the day-to-day, and spend time doing what you love (or do another acquisition).
This is why we exist and how we help you. It's one of our superpowers.
Systems should be implemented in your business because:
- They maintain a consistent standard of quality
- They save you money and time
- You can identify weaknesses in the business and address them instantly
- They allow you to scale
- Your business can be sold more easily and at a higher valuation once you decide to exit
If you would like you can read our full article on 6 Reasons Why You Should Be Designing A Systematic Framework For Your Business.
As I’m writing this, business buying is still not very popular. I think we’re still early in the game, but over the next 5-10 years, I firmly believe that this will be the next wave of entrepreneurship as more people discover the benefits.
I challenge you to seize this opportunity while it’s still early!
I'm also curious to hear your thoughts on this. Why do you think business buying is the way to go? Or why don’t you think it’s a good idea? Let me know in the comments below!
If you want to take the next step in your business buying journey, apply to our Acceleration Gauntlet or schedule a call with one of our Acquisition Experts.
Acquira is a business acquisition in a box service. We help entrepreneurs buy businesses and we invest in them and their chosen businesses. We are here to help ensure that each business we work with is posed to make the biggest positive impact possible for its owners, employees, and community.