6 Effective Ways To Obtain A Small Business
One of the most effective ways to generate lasting freedom and wealth is to own a business. However, there is a great deal of uncertainty involved.
Perhaps you do not have the world-changing vision, connection, or funding to get massive concepts as SpaceX, Amazon, or Tesla started. Maybe you already own a business but building momentum is a struggle. Or perhaps you run a franchise but would like to create your own business. The following are ways you can consider to acquire a profitable business without having to spend your own money.
1. Determine what you are interested in.
Small companies that earn $1 million to $10 million in revenue per year are the best opportunities.Search for basic business models that do not have a lot of investment competition, like plumbing, engineering, construction, or other professional services. However, the best sector will be one that speaks to your experience and interests.
However, it is also true that you might not need to have personal experience with the industry. You might be able to make a deal where you are trained by the business owner. If you are not interested in managing the daily operations yourself, you could hire someone with experience or promotion from inside of the company while the old owner is still there who can train them. Usually, you can find someone who is doing the same job at another company and incentivize them to give up their salary in exchange for equity in your business.
2. Look for motivated sellers.
It is critical to locate business owners who are motivated to sell and interested in moving on. Many baby boomers are preparing to retire, whereas other sellers are looking for a change.
Most businesses will end up selling for a certain multiple of its profits. For example, a business that is earning an amount will normally sell for three times this amount. So if you are able to locate a motivated seller, often you can negotiate to pay just one year's revenue.
These businesses can be found in the same ways you find clients - for example through networking or social media marketing. It is all about getting a conversation started or letting it be known there you are an investor who is searching for opportunities.
3. Calculate this basic math.
First, volunteer to sign a nondisclosure agreement so that the owner of the business will be comfortable sharing the company's books with you. Make sure that cash flow has been consistent for the last three years and that more money is coming in than is going out. Then make sure there is enough profit for covering financing costs.
Along with profitability, it is also important to consider whether there are opportunities for improvement for the business, especially if it happens to be weak in a certain area that you excel in. For example, it is often possible to double the profits simply by improving marketing.
4. Consider different financing options
Finance advisors at Lend say, ‘there are many financing options available that do not require any of your own capital. There are some business owners who will allow you to pay them back using the business profits”.They suggest, “if they want an upfront payment instead, you can obtain a loan from a lender that specialises in acquisitions.”
The business profits can be used as collateral by the bank. They mainly want to see you have actual skin in the game and less interested in your own credit.
You might be surprised that you negotiate many financing terms, so polish your persuasion and sales skills. You can often pay 30 percent or less of the total purchase price at the closing. If you are able to find experienced investors who will lend you the money you need in exchange for equity in the company, you can use business profits for covering your interest payments.
Other deal structures are possible. The point is: Instead of taking on debt for funding an unproven idea, it is possible to purchase an asset with cash flow that pays for itself instead.
5. Do your due diligence
Once you have agreed on an offer, you need to do your due diligence. Speak with lawyers and accountants and then negotiate the fee structure contingent on the deal closing. That will avoid them trying to bill you with as many hours as they can.
Talk to key employees openly so that you can understand the way the business is run and to make sure they are not planning on leaving after the deal has been closed. Get a solid success plan established with a manager who is thoroughly knowledgeable about the industry. Clarify their role and yours and identify the key performance indicators (KPIs) that are involved.
6. Leverage the current business owner throughout the transition.
Everyone needs to be held accountable and you need to establish a clear process that can be executed. The current business owner knows precisely how everything and everyone works, so rely on them heavily throughout the entire transition. Typically, they are motivated to help be successful. However, consider having a handover period stipulated to make sure they stay around long enough to pass their knowledge on.
Congratulations! You now own a profitable, established business. Whether you remain involved in the daily operations or allow others to do it for you, you own a valuable asset now - as well as more personal freedom.