Background on business acquisitions. Who they are for and where to get started.
Today, we're going to talk about business acquisitions. I'm sure you hear a lot about that concept, but what really is a business acquisition? It sounds difficult, but it's actually not.
When you look at a business, you have basically two options to get involved.
Don’t Start a Business from Scratch
One of them is to start from scratch. And in order to do that, you need to come up with an idea. You need to create a process or a product and find people who have those problems that your product or service can deliver.
You need to find customers. You need to do marketing. You need to do sales. So you need to learn how to do marketing and how to do sales. If you have some product, you need to obviously learn how to create that product. And you need to learn everything about how to be a leader, run the customer support, build a finance department, and even set up HR, eventually.
So many things that you need to learn and create from scratch. And many times you need to read. This will cause you to need to come up with new ideas all the time. The difference is with business acquisitions is that when you're doing a business acquisition, what you're doing is you basically find an existing business that someone already did all that work and already created that product and tested all those marketing channels and all those.
Save Time and Pain by Buying a Business
When you make a business acquisition, you usually go for businesses that are at least for businesses that have already been established for at least five to 10 years. And the reason for that is because at that stage, that business is not a startup anymore.
It's basically. You buying something that's already proven in the market. You already have revenues, profits, customers with products you know, customers, and obviously employees. And when you have all those employees, you all already have procedures and processes on how to run that business, how to find those customers, and how to convert those prospects into customers.
And when you do a business acquisition, you can tap into all of those existing assets, instead of starting from scratch, reinventing the wheel, and finding all those things on your own, because especially if you don't have a business experience it's really hard to learn all of those things to begin with.
Grow an Existing Business with Acquisitions
When you have an existing business you have basically two ways to grow, right? One way is to go out there and grow by getting new customers. And the other way is to do a business acquisition.
Go find a business with customers that you also want or businesses that have products that you can serve your existing customers. That's how you can grow much faster. You can go and buy your competitors. You can go and buy other complementary businesses in your sector. Instead of again, reinventing the wheel from scratch and coming up with new ideas, new products for your existing business, or growing one client at a time with the business acquisition, you can grow one business.
Find a Business to Buy
Now after you understand what is a business acquisition. The next step is basically to go out there and find your ideal business. Many people think that “Hey if I want to go and buy an established business, that's existed for 5-10 years, I probably need millions of dollars.” You need a lot less than you think.
We have helped many students structure these transactions with little or no money upfront.
We have proven it's possible to buy businesses without much capital or any capital. And I have many students who did the same. I have students who bought three multimillion-dollar businesses in less than a year without using their own money.
First of all, you want to find someone who actually wants to sell their business. So ideally you don't go to someone really happy with his business which is growing really fast. Then they would have no reason so to sell. Because that’s probably going to be the first question you're asking why would someone sell his business if it's successful?
Why Do People Sell Their Businesses?
Ideally, you want to find someone who is motivated to sell their business. Personal situations come up. It's very similar to real estate. Think about why, if you had at home or know someone who's ever sold these homes if you think about why would someone sell his home if he's in a very nice home and there are plenty of reasons for that it can be something personal in terms of health issues or divorce, or just want to expand that or leave in a different place in a different home.
People that want to get out of business often have personal situations that are going on, or sometimes people just want to be retired. And that's especially the case right now with all the baby boomers out there looking to retire. So after you find someone who's motivated to do so and sell his business, you need to find out the exact reasons, right?
If it's he wants to retire, he's been going through a divorce and the way to buy his business without using a lot of money or any money is to find a way to solve his challenges and his problems. Money can be involved there or not.
Where Do You Find Money for Business Acquisitions?
Or you can just use seller-side financing. Use the business’s money to pay back the acquisition cost. And that can be paid over a period of a few years. You can negotiate that where you pay a specific amount for 1-10 years, as many as you can negotiate. And you're paying that money back using the business cash flow to cover that debt service back to that seller who sold their business.
So it's very similar to real estate. Again, you can negotiate a lot of those things. There are many financial buyers partners in institutions who will give you that money because you are out there looking to do the work, find those deals and eventually own and run those businesses. So many financial institutions make money by giving you money.
And it's not just big financial institutions. There are also a lot of private individuals who have a lot of money in their banks. They want to invest it in a place that will give them better returns than just leaving their money in their bank account.
Obviously after you agree on a deal with the business owner, you can do your due diligence on the business, even more, and really understand what's going on and learn the business from the actual seller. All those things that when you start from scratch will take you a lot of time to learn.
Now you can learn very fast from someone who already found the answers and can, you will give you. All of the answers that you want about a business because he wants to make sure that you will pay him back the amount that you promised. So he got interested to help you.
And many times there are many employees involved and those employees are literally like, his family. So his agenda is to help you help the business so you can help and you can help employees. So yeah, that's how you can become the owner of a very successful business.
You need to learn a little bit more about the details and find a team that will help in terms of lawyers, and accountants, in terms of due diligence in signing the right agreements. And understanding perhaps how to find more of those businesses, but in a nutshell, that's the best way that I know.
It is way better to own a successful business without starting it from scratch in working years to get to. You can go and immediately get access to quality business. A better life is just one well-executed business acquisition away. This can even be your first business. It is the best way to start.
Or if you have a business, in my opinion, that's the best way to grow because you grow one business at a time instead of one client at a time. And many times it can get can take you literally the same amount of time and money as it is to get a new client, as to buy an add-on acquisition.