5 Steps to Acquiring Businesses for $0 Out of Pocket

Typically after we've built up value, we might build up value as simply as just raising prices because a lot of these people haven't raised their prices in a long time and especially with inflation running where it is right now. So I had actually a friend of mine who I have a consulting for equity deal in his restaurant business yesterday who was just saying they raised their prices on a product that they have from 80,000 to 100,000 and now they're thinking of raising it to 120 and it hasn't affected business at all. And I'm like, well, this is the time to do it if you're going to do it. Because everybody's expecting prices to go up. So even super smart business people like him haven't raised their prices to market. So the other thing to think about when you're thinking about exits is There is about US$5 trillion sitting on the sideline in the United States alone and globally, significantly more in special purpose acquisition companies.

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Okay, so let's hop into this. Really excited to share this with you guys. We've just had so much success over the last couple of years sharing with people how we acquire companies and how we consult into companies for equity. So we go through this deal life cycle and basically we start pre planning, we get into our acquisition criteria, then we position ourselves. We'll talk about positioning today, finding deals, how are you going to source them? The right and wrong way and identify specific targets and find the people that you want to talk to, reach out and contact them, figure out what you're going to say and what you're going to ask for them, gather data and analyze the deal. Then put the structure together and put what we call the deal stack, which is how you fund these deals, get into negotiation, come out with a turn sheet and then start your due diligence. So we're going to cover quite a bit of this. But our objective throughout this is that we want to acquire businesses for no money out of pocket. Again, not no money down, no money out of your own pocket. Okay. And no credit, no personal liability, none of that. So we got a five step plan for making this happen. The first step is to position yourself as an investor. The second step is to protect your credit, both your business and your personal assets from any kind of liability. So we'll talk about how to do that, source and analyze deals, fund your deal with zero out of pocket, and then close the deal and get paid. So the very first step is positioning yourself as an investor. And this starts with a mindset that I mentioned when we started today of being above the business. So Michael Gerber wrote a great book called the E Myth Revisited. If you haven't read it, I recommend that you read it. And in it he says, most people are working in the business. They're opening the store and sweeping the floors and ordering supplies and serving customers. But you should really be working on it. So you should work on the business, not in it. Hopefully most of you guys have heard that. But here's the thing. There's another level right now. If you're working on it, you're delegating and you're hiring employees and automating and doing processes and systems and things like that. But you're still stuck in the business, and you're stuck in one business and you still have a job because you are basically the operator of that business. There is another place that I aspire for you to all be called above the business. Above the business. So to me, the O myth is that you should be working on the business at all. You should really be acquiring businesses and. And having investors and mentors and advisors that can help it. Finding operators to run the business so that they can be concerned with the business, not you. Going into new verticals, integrating supply and distribution changes, acquiring intellectual property and media and other competitors. Those are the things that cause you to work above the business. And here's the big distinction. The big distinction is that the operator has a product or service that the business is selling, and the product or service is whatever the business is selling. When you are above the business as the investor, as the owner, as the epic person, right? At that level, you are thinking about the business as your product or service. It's not the widget or the product or the service that that business is selling. It's the business itself. Because we plan to sell the business. Okay? That's a really important distinction for us. Okay, so how do we get people to want to talk to us? Will you be the thing that they want the most? Almost everybody thinks they want money, and almost everybody thinks that they. That investors will bring money. They don't really think about all the other things that investors can bring, like capital. Capital is not just dollars or euro or pounds. It's actually value, resources, things that can help the business. Right? So what, what will money buy? Money is not what the business necessarily wants. Money is going to allow something to happen in the business. It might allow the business owner to retire. But if we can bring capital to the business in the form of things other than money, that's something that we should be looking at and that's what we call consulting for equity. Otherwise, we can go out and use all of our financing tactics that we'll cover on day four to bring actual money to the deal without you having to go into your pocket to do it. So the key is for you to position yourself as an investor first. So if you look across my social media from Twitter to TikTok, Instagram, all over the place, you'll see that I position myself as an investor. And I have people that are sending me deals all the time. Most of them are horrible, right? But a few of them are good. And I only need one good one ever so often. Like what I like to do is try to target one really great deal per quarter. I have a saying. I say that once in a lifetime deal typically comes along three or four times a year. So once a quarter a really amazing deal will show up and I will have said no or not now or shared with other investors the deals that aren't the really, really juicy ones. And when you get started, you might start and cut your teeth on one. That's not the once in a lifetime deal. But I'll tell you what, the more that you get into this and the more you position yourself by telling the world that you're an investor and, and declare to yourself that you're an investor, the more deals will come your way. That is the big change. It's going to put a change here in your head, which is the most important place of all that causes you to look at things differently. I want you looking at things now as I can acquire part of that company. I don't need a job, I don't need another thing. That's going to be a dollars for hours thing. I want to build wealth and income and the way that I'm going to do that is by being an investor. Okay, great. I love that. Thank you guys for your participation in that. I really want you to do it. And if you missed it, even if you're on later watching this as a recording, I want you to declare to the world that you're an investor and go out and get your social media profiles changed to express that to the world. Okay? Step two now is going to be to protect your credit, your business and your personal assets. And I love this interview I did with Gary Vee for my Business Lunch podcast, where I asked him, I said, you know, what's the one thing that you know now that you wish you'd known when you got started? And he gave the most intelligent answer to that question of anybody that I have asked it to. He said, I wish I'd known about the spv. If I had, it would have saved me tens of millions of dollars. Tens of millions of dollars. Well, what the heck is an spv? Okay. The magic of the SPV is it's called a special purpose vehicle. Does it exist in the uk? Can you go to Companies House and form an spv? No. Does it exist in the United States where you can go and say, I want to form an spv? No. Does it exist in Australia or any of the other places in the world? No, not that I'm aware of. Here's what an SPV is. It's not a type of company. It's. It's how you use the company. So it's any limited liability entity that you use for acquisitions. Okay. Any limited liability company that you use for acquisitions. So it might be a PTY or an LTD or a PLC or an inc, any of those things. It could be an llc, limited liability company, limited liability partnership, limited partnership, all of those can be used as an spv. It's just that you use that to do the acquisition so that you can protect your personal assets and your other business assets that you might own from any kind of liability. Right. When you're going to form it, you want to form it before your first deal. Okay? Now, do you have an entity right now that is an SPV that's a limited company that you might be able to use for this purpose? Yes. And the reason I said that if you go down to the, you know, to whoever forms entities in your state, province or country and say, I want an spv, they're going to be like, I don't know what that is. It's just that we're using this limited liability entity for a special purpose. And the special purpose is to do the acquisition because we will probably ask the seller to provide some financing. And we don't want you to owe the. We don't want you to owe the seller. We want the business to owe the seller. What does it cost in the United States? We have the ability to get those formed through a company that I've got, and we only charge you the government fees. So if you decide that it's something you want to form, reach out to us and let us know and we can help you with that. Step three is sourcing deals. Sourcing the deals that you want to acquire. How do you find deals? Okay. And then step four will be to negotiate and analyze the acquisition. You know, like, how do I get the right price that I'm going to pay for this and the right terms, and how do I get the data and know that this is something that I might actually want? There are three major $0 out of pocket strategies that we use. All of these initial ones are going to fall under a category we call consulting for equity. And then the last one is going to be what we call an acquisition. Okay? So consulting for equity. Right now, my current consulting for equity deals, the lowest one pays me $5,000 a month. The best one pays me $170,000 a month. This is a very powerful way to build income. But I'm not in it just for the income. I'm in it for the wealth. Because each of these companies, I just have a small piece of the profits that these companies make. Right? But it adds up. Right, it adds up and can be a tremendous source of income for you. But then as the companies build towards an exit, which you'll see it here in a minute, as those companies build towards exit, they become worth multiples of this, 15, 10, 20 times this when it gets bought out. So take this and multiply it by 12 and then multiply that by 10 or 15 or 20 or even 5 or 7. It gets to be a lot of money, right? And so that's the wealth that you get to build in addition to income. Because if you're flipping houses, the minute that you sold the house, you got to go out and find another one, right? That's tough. And if you're trading crypto, whenever you stop trading it, you stop making money. But in these deals, you own a business, you own part of a business, and the business has value, right? So several of these deals, one type is called an advisory deal. An advisory deal is where you earn into your equity as an advisor. And it can be advice about anything. I do it typically for either M and A for growth or exit. And that will be somewhere between a quarter of a point, depending on what type of company and how big the company is, up to about 5, maybe even 10%. And that's kind of fun because if you do 20 of those deals at 5%, it's like owning a whole company. I had Kevin Harrington and I had a conversation a couple days ago. I was in Florida speaking at an event And Kevin was there as well and he came up to the room. We're just chatting about strategy and he's talking about hundreds of millions of dollars that he has earned as a result of having small pieces of deals. And it's pretty crazy how it adds up over time. So just imagine if you've got 5% of 20 deals. It's like having a whole company that you didn't have to start, but you're diversified across 20 different companies. It's an amazing portfolio. Right. The bonus strategy for this is consulting to get paid to vet deals, which I talked about that half day consult that a lot of people are using that, that go through our program to basically find out how do I get deals with people who I can have come in and pay me something first so that I'm not wasting my time talking to a whole bunch of people that aren't going to invest in themselves, then turn that into an equity deal. Right. Type 2 is a straight equity deal. This might be an operating deal where you're going to be some sort of operator or operations consultant. And those are typically somewhere between 5 and 50% plus transactional deals are where you're going to come in and you're going to get equity to help with some specific finite type of transaction. Maybe you're going to help them exit, maybe you're going to help them acquire a company using the tactics that you learn here a lot of people do. Maybe you're going to help them raise money with funding or you're going to help them with some other transaction like building a sales team or a call center, or developing a marketing plan or getting their finances in order or migrating over to a different accounting program or anything that you have any kind of skill at that you can do. The other type of deal is a performance related deal. And this is where you're basically saying, hey, I'm going to come in and I'm not going to get the equity right off the bat. I'm actually going to perform some specific thing and accomplish the setup of the call center or the installation of the sales team, or the hiring of the two people that you need to fill these jobs, or the acquisition of the company that does this. And in exchange for that, when that thing happens, you get a piece of the company. Okay. And then these self funding deals are the acquisitions. This is where we're actually taking creative financing, which we'll talk about on day four. To have the business literally pay for itself. To have the business literally pay for itself. So we'll cover that on day four. And then the last step is to fund your deal and get paid. Okay, There's a few different ways to monetize these deals. The three primary ones are I'm going to show you here, here. And this example company we're going to use is a company that's making $400,000 in EBITDA. EBITDA is an abbreviation for earnings before interest, taxes, depreciation and amortization. Do you need to know what all those things are? No, what it really means is profit. Okay. This is how accountants and investment bankers and people that buy and sell companies say profit. They either say EBITDA if it's a professionally managed company or if it's owner operated. They say sde, which stands for seller discretionary earnings. And if you have an owner operated company, you'll probably see sde. If you have a professionally managed company, you'll probably see ebitda. And there's a formula to convert one to the other, which I'll share with you on day four as well. So right now think of this company. It's earning 400,000 in profit. It's valued at the market. If you were to go through a process of selling that you hired somebody and they went and did all of the things you need to do to sell a company at five times its profit, or five times 400 equals $2 million as the market value. Okay? So if we're buying from a motivated seller, remember, right. Ten types of motivated sellers under market, we don't want to pay market for the price for the asset because anybody can do that. We've got a motivated seller, they're willing to sell under market. How do you buy houses for a fraction of what the fair market value is and still even do that in today's market? You do that when you find motivated sellers. Okay? So that motivated seller piece is really key to us. So if we could acquire this company at a 4 times purchase price multiple, the purchase price would be 1.6 million. Okay? And feel free to change the symbol to pounds or euro or whatever currency in your country you're in. Again, you can do this stuff in all countries, right? So The EBITDA is 400,000. The multiple is 4x. So we're buying under market by 1x. Because the market is 5x. The purchase price would be 1.6 million. The post closing valuation would be 2 million. That's what market value is. If we were to go through a process. So we've instantly built $400,000 of wealth in acquiring this Asset this business under market. Now, a better deal would be we acquire it at 2x. And if we did that, we'd pay 2 times 400,000 in profit or 800,000 as a purchase price. The value is still 2 million. The market value does not change. That means we've got 2 million -800,000 or 1.2 million of built in wealth. A great deal is that we buy at 1x. If we buy at 1 times profit, we spent 400,000 to buy the business. It's worth 2 million. We've got 1.6 million built in. You want to talk about creating wealth super, super fast. Buy assets that are worth more than you have to pay. Now we're acquiring these assets, these businesses at under market from motivated sellers. Maybe they were just going to close it. So anything that they get for it is a great deal. And I'm typically looking to pay one to two times. I don't really like to go much over that. And there's so many deals that are out there where you don't have to that it's a great way to, you know, it's a great goal to make. Okay. The second monetization strategy is cash on cash. So this is how much cash is the business going to throw off? Well, think about it. In our good, better and great Scenarios, we paid 1,600,000, 800,000 or 400,000 for the company. If we do that as a no money out of pocket deal and the EBITDA of the target or the profit is 400, it stays at 400 across the deal. And we could finance 100% of this at 10% interest. At 10% interest, this would cost us $160,000 in interest. Our net cash flow would be 240,000. So that's how these things can create cash on cash and be self funding. And the returns on these things are crazy, right? Just investing in savings accounts or a stock index fund, you might get 1.2 points on your money in savings accounts these days. You might get 8% on average long term in the stock market or 10 or 11 or 12% in real estate. Because you can come out of pocket $0 here. Your returns when you're doing this is infinite. You're earning infinite returns. So, you know, who wants to earn infinite return? I mean, I do. I like that third monetization strategy, one of my favorites is at the end of the day we can sell these businesses in an exit transaction. So we're selling them to somebody else. Typically after we've built up Value, we might build up value as simply as just raising prices because a lot of these people haven't raised the prices in a long time and especially with inflation running where it is right now. So I had actually a friend of mine who I have a consulting for equity deal in his restaurant business yesterday who was just saying they raised their prices on a product that they have from 80,000 to 100,000 and now they're thinking of raising it to 120 and it hasn't affected business at all. And I'm like, well this is the time to do it if you're going to do it. Because everybody's expecting prices to go up. So even super smart business people like him haven't raised their prices to market. So the other thing to think about when you're thinking about exits is There is about US$5 trillion sitting on the sideline in the United States alone and globally significantly more in special purpose acquisition companies. These are called SPACs. They're public companies that just go and buy other companies in family offices that rich people start when they cash out of their business and they get hundreds of millions or billions of dollars and they want to start buying companies in private equity funds which are companies that exist to acquire companies and in high net worth individuals and in companies like Apple and Google and other companies like that. But even boring companies have a lot of money sitting aside right now what we call dry powder, which means that they will use that money to acquire companies that will make their business better. So what we like to do is we like this arbitration, this arbitrage game where we're acquiring owner operated businesses. This is the average currently across all industries. Now some businesses are higher, some are lower. But I have to give you something. So I'm going to give you the average across all industries, owner operated businesses sell for 2.5 times their profit. If you get a professionally managed business. And this number just changed by the way, this number is now 4.5. It says 3.8 but it just changed. So the difference between an owner operated business and a professionally managed business, that green box business that has someone not you running it is about 2x the differences between 2.5 and currently 4.5. So you get a 2 times profits multiple bump just by putting in professional management, which is not that hard to do. Okay, and why is that the case? Because nobody wants to buy a job. The market for owner operated companies is very limited because it has to be someone, it has to be sold to someone that wants to run it. Right. But for Us, if we know how to put professional management in, then just by the fact, virtue of the fact that we put that professional management in, that company now is worth two times more than when we acquired it. As an owner operated company, we have an instant bump in valuation. So if we bought it at the deal and we get a bump in valuation because we put professional managers in, really good things happen. Now here's the thing, these businesses that are professionally managed are a target for private equity. Private equity doesn't want to come in and run the business, so they're not interested in owner operated businesses. So if we acquire owner operated businesses, get professional management in and sell them to private equity, the average private equity deal right now is buying those businesses for 15.2 times profits. So if we go from 2.5 times profits to 15.2, our wealth increases dramatically. And why would they do that? Why would they pay that much for it? Well, they're going to take it public. And public companies on the NASDAQ are trading around 27 times right now. That goes up and down depending on the market. But that's the ecosystem that we operate in. We like buying blue and green box companies and selling them to red box buyers. That's really the simplicity of that. Here is your homework for today. Okay? Your homework for today is very the very first thing. You guys all declared yourself an investor. Now I want you to tell the world, okay, so your LinkedIn, social media, wherever you are, if you have an about page, if you have a bio, if you have an email signature, I want you to put that you are an investor. Okay? So we'll see you guys at the same time, same channel and look forward to it.

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