Unlocking the Secrets: Buying a Business Without 100K
00:00:00.000 | I think one of the most interesting things I've learned from you in your content
00:00:03.360 | is just that you don't actually have to have $100,000 to buy $100,000 business,
00:00:07.600 | which is just like kind of, I think it's probably the big unlock that no one knew.
00:00:11.920 | Can you talk a little bit about or maybe give some examples of why that is true?
00:00:15.440 | Because it certainly doesn't seem it.
00:00:17.600 | Yeah, it's two magic words when you don't have money. And that's seller financing,
00:00:21.680 | which used to be a thing in real estate. You used to be able to sometimes buy a house
00:00:27.040 | and from the future profits you got off a rental unit, you could buy that house for $0 down and
00:00:35.280 | pay them over time. So the seller would finance your purchase. Now it's not so normal, but in
00:00:40.480 | buying businesses, it's very normal. 60% of all businesses are bought using essentially the seller's
00:00:46.640 | future profits. And the reason why is because you've run a business or seven before. So how
00:00:52.640 | miserable is running a business sometimes? It's tough, right? And so for a lot of these sellers,
00:00:58.240 | they've been doing this for 10, 20, 30 years, that at some point they're ready for the next thing,
00:01:03.040 | even if it's a profitable business, but they're stuck in it because unlike a job,
00:01:07.200 | not everybody knows how to exit a business. Everybody knows how to leave a company.
00:01:12.080 | Not a lot of people know how to sell their company. Not a lot of people know you can't
00:01:15.280 | even sell your company. And so there are a ton of sellers out there who are trapped in their
00:01:19.280 | business. Most of these sellers do not have enough cash for retirement. More than 70% of them do not
00:01:26.320 | have a transition plan for the next generation to take over or somebody else to take over.
00:01:31.520 | And so you come in as a little bit of a solution for that. And how that works really quickly,
00:01:35.120 | for instance, like I always use this one deal because it was one of my smaller deals in the
00:01:38.800 | beginning. I bought a laundromat for like $100K a year that did $67,000 in profit.
00:01:46.160 | And that bit, so that's a one and a half, roughly X and one and a half X, the profits of the
00:01:52.160 | business is how you value these for everybody listening. And so I buy this laundromat, but I
00:02:00.080 | don't use my own cash to do it. I tell the seller over a three-year period, I'm going to pay you
00:02:05.120 | back from the profits of the business to take over your business. And at the end of three years,
00:02:09.120 | great, you have your full 100K. And at the end of the three years, I own the business outright.
00:02:14.160 | And this is very common. And I would say it's not always common. You get 100%,
00:02:18.400 | but it's more common than people think. So a business costs $100,000, the business
00:02:22.400 | is making enough profit to pay for that. Why is this a good deal for the seller just to get out?
00:02:27.760 | It seems like a great deal for you because the business pays him back with the profits,
00:02:32.960 | you don't spend anything. Yeah, it goes back to the old
00:02:35.760 | supply and demand curve. When you have a lot of supply and not a lot of demand,
00:02:40.560 | then you're in charge. And so there's somewhere around the range of 10 to 12
00:02:45.680 | billion small businesses for sale. There's a great article actually, we did a video on it
00:02:49.840 | about Japan, and they have a crisis in business owners starting to give away their business for
00:02:55.760 | $0. I'm not talking $0 seller financing, I'm talking $0 because the next generation doesn't
00:03:01.120 | want to run a goat herding business, or they don't want to run a plumbing business.
00:03:06.640 | And so the founders of the companies just shut them down, or they try to give them away. So this
00:03:12.880 | is a real thing that happens every day. In fact, a lot of people don't think that they have a
00:03:17.200 | business, they think that they have a job. So think about your neighborhood wedding photographer,
00:03:23.680 | right? Who also happens to have some contracts for high school photos that they do every year.
00:03:31.280 | They do $100,000 in revenue a year. It's a great little business for them, right? That's their
00:03:36.720 | business. They do $100,000 a year. And when you take out their salary, which at this point,
00:03:42.000 | they pay themselves the full amount, but let's say you take out their salary of like $60,000,
00:03:46.640 | $70,000, that leaves $30,000 to $40,000 profit. That person, when they're done being a wedding
00:03:53.200 | photographer and a high school photo photographer, they probably just stop and go do something else.
00:03:58.160 | But those contracts with the high schools are worth something, that residual revenue is worth
00:04:02.880 | something, their gear is worth something, their website, the SEO that's built up, all of these
00:04:09.280 | jobs have inherent value to them. And it's just that a lot of people, there's a big mismatch.
00:04:15.360 | And it's one thing we're working on trying to build right now, so I should talk to you about,
00:04:18.800 | but I'm trying to build right now a better mousetrap because there's something called
00:04:22.640 | BizBuySell, which is like the Zillow or Redfin of small businesses to buy, except it's awful.
00:04:29.440 | It's like bad UI/UX, a bunch of garbage on there. The financials aren't clean. They have business
00:04:36.240 | brokers that never respond to you. It's not a great site, but it's the best of all of the bad,
00:04:41.440 | right? And so we're trying to figure out how to build a marketplace where sellers can come
00:04:50.480 | and trust that there's going to be non-looky-loo buyers on it. And we can sort of normalize the
00:04:56.480 | information and pair the two. But there's not a lot of that right now. So that wedding photographer
00:05:03.040 | can't find you, the young new photographer that would love to buy that business because you,
00:05:09.520 | the young photographer, are just thinking, "Oh, I'm just going to go start my own."
00:05:11.840 | As opposed to, "What if I could buy it? What if I could instead, when I graduate dental school,
00:05:16.960 | what if I could buy somebody's practice and I could give them an annuity in retirement,
00:05:21.520 | but I get to start that?" Instead, people just retire.
00:05:25.040 | I think buying small businesses is the next real estate. And in 10 to 20 years,
00:05:30.080 | it will be completely commoditized and normalized in a way that it is not today.
00:05:34.080 | But until then, there's a lot of opportunity. If there's not a platform to do it,
00:05:37.920 | is it knocking on doors? Is that how you find these businesses in your local community?
00:05:42.240 | We started one company... Well, actually, we bought a company. I bought a company called
00:05:46.000 | BizScout. BizScout.io. And that company sources off-market deals. And so basically, if you want
00:05:53.040 | to buy a car wash in your geographic area, it pulls together all the data from Yelp and Google
00:05:59.520 | and business listings and pulls them into one location. Also cross-references that with PPP
00:06:04.480 | loans. So you can try to get to who the owner is in your location. And maybe needed some help.
00:06:10.320 | And so it might be more likely to sell now. And then also pulls this list of proprietary
00:06:14.800 | deals we have from having this big audience. So BizScout.io is the one that we want to build off
00:06:18.960 | of. It's what I use right now. And then, yeah, I think the best way to buy a business is different
00:06:26.320 | than buying a house. It's almost like buying a house back in the day. Before Realtors,
00:06:30.800 | you would be like, "Oh, my friend Sally is selling. You want to get into the neighborhood?
00:06:35.120 | You should talk to Sally." That's like foreign to my generation.
00:06:38.480 | We can't even imagine you just buy houses on word of mouth. What's wrong with you people?
00:06:43.120 | But that is actually the best way to buy a small business is to build up your network or do what
00:06:49.520 | I call personal P&L review, where you look at all of your expenses and you see which CEOs of those
00:06:54.400 | companies you could actually get to. And you start nurturing relationships and saying, "Oh man,
00:06:58.640 | you guys produced my podcast at all the hacks. How's that business going? Is it profitable?
00:07:05.360 | How long have you been doing it? A while. Cool. Is this something you want to do forever? You
00:07:09.440 | want to keep running this business? No, you don't. You're kind of ready for the next thing.
00:07:12.000 | Interesting. I actually buy small businesses. If you had an offer at the right price and the
00:07:18.160 | right terms, would you be open to a conversation on potentially getting acquired or an investment
00:07:22.960 | that comes with distributing equity, cash flow, something like that? Oh, you might be interested
00:07:27.360 | So that great, now we're in the game.