MBA896 Should You Buy a Business Instead of Starting One?

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You can become an entrepreneur by buying an existing business, something that's already established, that has a track record that's making money. There are a lot of advantages to buying a business opposed to starting one. I want to highlight them in today's episode because that could be an option for you. But but you might be asking who's gonna sell a business that's doing well? What kind of business am I gonna be buying? That's a great question that I will be answering in today's episode. I'll also be covering how to find businesses to buy, how to evaluate them, and how to know if buying a business is right for you. We get into all of that, so let's get into it. Let's get down to business. So should you buy a business instead of starting one from scratch? This is a topic not a lot of people Talk about in our space. And it's actually a great opportunity for a lot of people. So starting a business from scratch is no easy feat. You're starting from nothing. No one knows anything about you except for yourself, right? And maybe your mom or something, right? But the point is, is that you have to build traction. You have to build a brand to build everything from zero. Now, I'm not discouraging to start your own business or starting from scratch, but that's the reality. It's a lot of work just to be at the point where you can open for business. Now, buying a business, they've been in business for a while. They have customers, they have traffic, whether it's online or in a physical space. So you're starting off with a lot of traction, right? And that's really what you're buying. You're buying established traction of your business. When you buy a business, that's what you're buying, really. So let's first address the question. Is buying a business right for you? And this is when you have to just get really honest with yourself. Why do you want to become an entrepreneur? If the top reasons why you want to become an entrepreneur is financial independence, flexibility of time, being your own boss, having a team you're proud of. If these are on the top of your list, then buying a business might be the best choice for you. If these next points are in the middle or the bottom of your list, you should really think about buying a business. And those things are creating something completely new and bringing it into the world. Seeing something being created from nothing to something, you know, that really excites people innovating in some way in your marketplace. These are things that are really important for people that start something from scratch. But you can actually tick some of these boxes even when you buy a business. When people buy a pizzeria, for example, they rebrand it, they make it their own. They say it's under new management. So even if you're buying a business, you can have some of these things to some capacity. Now, there are businesses for sale, and they're everywhere. There's cafes for sale, yoga studios, online software products where you could just buy their SaaS business. And in a little bit, we're gonna get into, how do you find these businesses? How do you buy them? But first, let's address the elephant in the room where you're asking, why would somebody sell their business if it's doing so well? Why are they selling it well? There are several reasons why somebody would wanna sell their business. I wanna Give you some of them. A lot of people sell their business because they just wanna retire. They've been running their cafe, they've been doing their software business for X amount of years, and they've had a great run and they loved it and they've en. That's a successful business. It makes a profit, but they're ready to hang it up. They want to spend their days playing golf or going hiking, take it easy. Running a business is a lot of work. So retirement is one of the reasons why people sell their businesses. Another reason why somebody would want to sell their business is they want to start another business, maybe something they perceive to be bigger or the next level. And in order to do that, they need to sell their current business to have the capital, build that next business. Again, nothing negative about that business could be running fine, doing great, but they just want to take things to the next level and they need the capital, so they're selling their current business. This can also be applicable to if somebody wants to buy another business and they need the capital, so they're selling their current business. Now, don't get me wrong, there are businesses that are being sold that are not doing well, right? That they're not as profitable as they could be or should be, or maybe not profitable at all. But that's not necessarily a bad thing. You might be saying, well, well, this is a horrible business to buy. Sometimes those are the best businesses to buy because they're poorly managed. And if you just do a few things right, you can turn it around and you can be making so much more money than it is now. Some people are just not good entrepreneurs and they poorly manage their business. I mean, there's shows on this, right? Doesn't Gordon Ramsay have a show where he goes in and he takes a look at a restaurant and he turns it around by just changing the menu or, you know, changing the decor. You look at these people on these episodes, you're like, what are these people doing with a business? They're horrible at business, but they're everywhere. And you can take that business and turn it around and you can often buy that business at a bargain because they just want to get out of it. Sometimes businesses are not doing well because they don't evolve. They were great at one point, but the industry changed or the market changed or the neighborhood changed and they just never changed with it. You might look at a business, say, wow, they do no online marketing. I try to find them on Google. They came up on page 12 or something like, I couldn't find them at all. And you could just simply turn that business around by improving its SEO by just putting up some really helpful blog posts. I'm serious. I've seen businesses like this where you can really just double the revenue if they just knew a little bit about SEO, if they just worked on their websites a little bit. Again, ample opportunity for you to turn it around and again negotiate a great price. Because they are just frustrated. They're like, hey, this is not working for me. I don't have the answers. Take it off my hands. And of course there are businesses for sale where you just don't touch with a ten foot pole. Bad concept, bad location, bad product. Just a. But in my experience at looking at businesses for sale, most of them are not in that category, most of them in the other categories I mentioned. So there are some really real practical reasons why people sell their business. Now, before I get into how to buy a business, I want to go through a couple more advantages to buying a business. Your infrastructure, whether it's online or offline in a physical business, is established. If you're buying, let's say a cafe, the rent is already established. You know exactly how much you're going to be paying for rent. You know how much you're paying for salaries for your staff, how much the coffee costs, how much the cost for the muffins. Everything is outlined. And if they're selling your business, their numbers are going to be, they're going to tell you how much revenue they're making every week or every month. So things are already established. You have things working for you have suppliers, you have customers already. You have the cups you need to fill the coffee with, right? You have all this stuff that you don't have to do your homework for. It's already there. Now if you do buy the business, you might think, hey, I don't really like those cups, they're horrible quality and I think I need to change that up. I have to find a new supplier. That's fine. You're going to have to make some improvements and you're most likely will have to make some improvements. Want to make some improvements, right? But the point is that a lot of the hard stuff that you have to do at the start is already taken care of. Number two, you don't have to guess how well this business will do. When you start a business from scratch, you kind of don't know how well it's going to do until you actually put it out in the world. This business is already out in the world. So you can see by the numbers, how well it's doing profit wise. If it's a physical business, you can go to the actual business and see the clientele, see how busy it is on you know, a, you know, Monday morning. If it's an online business, you can take a look and see how much traffic it's getting. You can use like a site like similar web where you can see how much traffic that URL is getting. You could see how many backlinks they have, what references come up when I search that business name. Again, if it's a physical business, Yelp reviews, Google reviews. I can read what people say about this business. If I'm buying a hotel, I can go on TripAdvisor. What do people say about this hotel? Things to refer to to find out how well it's doing. You don't have to predict or imagine or guess. Huge advantage. Now, where do you find a business for sale? Well, they're everywhere. I mean, you can literally go on Craigslist and find businesses for sale. You can go to the newspaper. Remember newspapers? Yeah. Newspapers have businesses for sale that are listed. You can Google the word businesses for sale and put your city or online businesses for sale and you'll find a whole bunch of directories. But that's not the only way you can find businesses. That's a really easy way to find one, but by knowing people in the industry. Say, for example, you love software as a service, you love software businesses, you love the model. Get into that industry, go to a couple conferences, go to, you know, entrepreneurial conferences, or go to conferences like fincon and get to know other people. A lot of people buy businesses from entrepreneurs they got to know. A lot of online businesses, publish their income, they say how much money they're making or you can just straight up email them, hey, are you interested in selling your business? That's one way to actually buy a business. Getting to know people, learning from the industry, discovering new businesses that are out there and saying, hey, would you like to sell it to me? You can negotiate a price and you don't have to pay it all at once. You can negotiate over terms. You could say, I'll pay you a lump sum, this much amount of money and the next amount of money over 12 or 24 months. This is very common when people buy businesses. Now when you're looking for a business to buy, it's really important for you to evaluate the business so you can know how much you actually want to pay for it. Let's go back to the example of buying a cafe Again, you got to do your homework. Read the Yelp reviews, read the Google reviews on Google. Go to the actual venue. You can go even before even inquiring about buying the business. And just taste the coffee. Take a look around. How busy is it? What kind of clientele are coming? So traffic light. Where is the traffic coming from? Is it coming from some corporate building across the street? Other competitors around you? Take a look at the staff. Are the staff, you know, friendly, helpful? Or are they just kind of like walking half dead, you know, around the cafe? Take some notes. While you're sitting there sipping your coffee, what are the immediate improvements you'd want to make? How much would those improvements cost? Evaluate, evaluate, evaluate. One of the best ways to do this is to almost see yourself as the Gordon Ramsay, right? The Gordon Ramsay that comes in and evaluates a restaurant and tries to improve it. So you become Gordon Ramsay. You go into that business, whether online or offline. You take down your notes. You say, okay, this is what I would do to change it, to make it successful, to turn it around, to make it more successful. This is how much it would cost for me to do that. And that way you have some sort of numbers and some sort of insight before you go in. Negotiate the price for the business. So then you can come to the table and say, hey, I took a look at your business. This is what I found. And you can have an honest conversation and be like, hey, I think that your business is worth this much, not what you're offering. Maybe they say, hey, I want to sell my business for $200,000. You say, well, actually, I think it's worth $120,000. Here's why. These are the things I'm going to have to change and do to make it more successful or worth for me. And you could probably meet somewhere around the middle. Now, believe it or not, there's a lot of small physical businesses out there that are not that expensive. You could buy businesses for as low as 30, $20,000. I just saw one on Craigslist. A small cafe that's selling for $60,000. You know, that's not a lot of money to buy yourself. Entrepreneurship. And when I think about it, that's pretty cool. So buying a business is a real option.

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That's tommyjohn.comfort. tommy John Comfort Perfected. Thinking about buying a business, one thing you need to consider is the cap of the business. Meaning what is the maximum you can make with this business, whether it's online or offline? Let's go back to the cafe example. How much traffic can you actually generate? How many hours can you be open? How many days can you be open and factor that in, see how much your cost will be and have a rough estimate of, okay, I can make about $30,000, $40,000, $50,000 a month with this business. That's my cap. That's the most. If I max out in all areas, I'm the king of SEO. When it comes to the cafe in this area, I'm the king when it comes to, you know, online marketing, I'm the king when it comes to having great signage and getting a lot of great foot traffic. I have incredibly loyal customers and they come back every day. You need to know that number so you can say, I'm comfortable knowing that this is the most I can make with this business. Now, of course, you can turn around and sell that business again. Of course you can open up another business. You can open up a second branch, or you can open a completely different business if you like. This business is going to make this much amount of money. Now, if it's an online business, it's a different story. Sometimes, especially if it's a SaaS business, the cap is quite high. But the point is you have to know that number so you can say, that's fine with me. I'll be happy if I can hit that cap or even a little bit below it. So as you can see, if you're buying a business, most of the work is the homework you have to do. Discovering this business, evaluating it, taking a look at how you're going to improve it. Being that Gordon Ramsay, right, that's where all the work comes in then obviously when you buy that business is turning it around, implementing all those plans you had and improving things and making it, of course, your own. Guys, I hope you love today's episode as a topic that has been requested for some time. I'm glad that I got a chance to record this episode and get it out there for you. If you have suggestions for new episodes or you want to say what kind of episodes you love on the Hunter MBA show, let us know in an itunes rating and review. This helps us improve the show, helps us bring you the best episodes possible, and also lets other people learn about the show who wouldn't know about the show beforehand. They can hear from you, a listener, what it's like to listen to the show. Alright, that's it for me today, guys. Thank you so much for listening. But before I go, I want to leave you with this one piece of advice I would like to convey to you. If you are buying a business is to make sure you have enough money for the running costs of that business. Let's say, for example, you are buying that cafe and that cafe costs $60,000 to buy, but it costs about $110,000 to run for the whole year. That's the expense for the whole year. I'd try my best before buying a business like that to get to as close as possible to $170,000 in CAP money I have in the bank and then buy the business because that will give you a good Runway where it says, of course you're going to be profitable from day one. I would wait until I have $170,000 in the bank before I actually buy that business. That gives me a year to cover my expenses. Yeah, of course you're going to be making money. You're going to be making revenue because you're buying an existing business that's running. Right. It'll cover a lot of the costs, but you'll feel a whole lot more comfortable. A full year of expenses is kind of a stretch for you. Try to make it at least six months. You'll feel a whole lot better about it and allow you to, you know, think about re, you know, invigorating the business and proving it, that financial pressure of turning it around tomorrow. And again, remember, when you buy a business, the terms of that purchase, it doesn't have to be a lump sum. You can break it up into payments if you like, maybe over the first year. That's something you can negotiate with the business owner. All right, thank you so much for listening. I'LL check you in the next episode. I'll see you then. Take care. Of.

ADP knows anything can change the world of work. Like what if a blocked shipping port caused a worldwide coffee shortage? Suddenly, businesses are scrambling to manage an increasingly drowsy workforce. Productivity slips 20% just due to the extended time it takes to conduct a job interview while yawning. Anything can change the world of work. From HR to payroll. ADP helps businesses take on the next anything. ADP always designing for people.