How to Decide Which Type of Business to Buy

Hey, this is Hector Santiabo. I'm the producer of Business Lunch. And today's episode is another snackable episode with Roland. Something that is bite sized that you can get through while you are washing the dishes, cleaning up around the house, or on that quick drive to the grocery store. But we want to make sure that we give these to you because Roland has been on a mission over the last little bit to really help as many entrepreneurs take their life and their business to the next level. And so these snackable episodes are going to come out every week so that you can have bite size, actionable tactics and strategies that you can start to use right away. And if you know another entrepreneur that's looking to invest, acquire, or one day sell their business, we ask that you please share an episode with them as well. Thanks for tuning in today. We're going to get into the episode with Roland right after this quick break.

You're listening to Business Lunch with Roland Fraser. This is your seat at the table.

Foreigners. If you want to scale your business, you have to know what's working and what's broken. And to date, Ryan and roland have started 13 companies from scratch. They've funded a dozen more and directly advised hundreds of CEOs and entrepreneurs on how to grow and scale their companies. And over the years, they've identified the eight key domains that allow a business to scale to eight figures and beyond. And they use those eight areas to help entrepreneurs and CEOs find their current strengths and weaknesses and understand the constraints that are getting in the way of them scaling. So if you want a quick and accurate look at what areas you can improve to scale your business faster, go and take our scalability assessment. It's an assessment that'll show you exactly where you need to focus to scale your business and achieve even your loftiest goals. In just five minutes, you'll know your exact scale constraints and you'll get instant, actionable steps on how to improve your business. So go to businesslunchpodcast.comScore to take the free assessment one more time. It's businesslunchpodcast.comScore.

Hey, Roland Frazier here. A lot of people ask what type of business? Like, how do I figure out what type of business that I should buy? And I talk about this quite a bit. The very first thing is buy profitable business. It's so much easier to acquire and run a profitable business than it is to get one that needs help, that's in trouble, that needs a turnaround. That's like a whole different set of skills and a Lot of extra work that you don't need to put yourself through because there's so many profitable businesses that you can acquire right from the get go. So that's the first thing I look at. The second is do you want to work in the business or do you want the business to be held as an investment? I personally like to work what I call above the business. I think there's three places you can work in a business. You can work in it, meaning that you're doing all the work. You can work on it, meaning that you're kind of at a higher level, more of a CEO manager type person. Or you can work above it where you're really thinking about the business as the asset that you're as the product that you have for sale. That's the business itself, as opposed to like a CEO manager that's working on the business where the product or service the business has to sell is whatever it sells and then working in it where you're actually doing the thing, you're making the product or you're rendering the service. So the thing to think about I think is where do you want to fit in that hierarchy of things? For me, I like to be above. But if you want to be above, you cannot work in the business. So that means that you probably are either going to be looking for a business that's not owner operated, because if the owner is the operator and the owner leaves you buy him or her out, then he or she's gone and now who's going to run it?

Right?

Well, there's lots of places you can go to find those people. But the one person that I would argue you don't want it to be if you're trying to work above the business, is you don't want it to be you. If you want to be an investor, you need a business that actually can operate itself. So that's going to have a little bit of an impact. You may want to try to find a professionally managed business so that you don't have to replace the owner operator. Now if you do decide that you want to acquire an owner operated business, and those are probably the most available in the greatest number and also the most affordable businesses to acquire, they sell for much lower multiple than the owner, excuse me, than the professionally managed businesses. So if you're looking for an acquisition and you find that there's an owner operated business you want to acquire, but you don't want to work in it because you want to work above, not owner in, then what do you do? Okay. The first place that you look is you look for the owner that's selling. Maybe they don't want to leave the business. Maybe they're just selling because they're tired of being an entrepreneur. They're tired of being an owner. They just want to be an employee. They just want to do the thing they like. Most people, get into business, they are what we call accidental entrepreneurs. That's that they're good at something and then they start doing that thing and then other people start paying them for it and before they know it, they're a business owner totally accidentally. They didn't ever even plan to do it. Now they're in this business and they're doing the thing that they enjoy doing. But now they've got all these other things. They've got accounting and hiring people and getting money and financing and payroll and taxes and all this other stuff, stuff that they don't enjoy. So the very first thing you want to do is you want to ask in an owner operated business, you want to ask the owner, say, when, when we complete this deal, would you like to keep working in the business as an employee of the business without all the hassles of ownership? And very often you'll find that they say yes. The next place that you would look would be if the owner is going to leave and you don't want to be the operator, then there's a good chance that there's somebody in a top management role in the existing business that will be a good person to be your operator. So if we think about how businesses work, usually there's like, if the owner operator is kind of the main person doing things, they probably have someone that's either the head of marketing or the head of operations or the head of sales or the head of finance. And one of those four positions, one of the people in those four positions is a good potential person to come in and run the company once the owner operator leaves. So what happens typically is your owner operator doesn't wear every single hat. They might be the head of operations and sales, but not the head of finance. So then they would have somebody that's ahead of finance. Or maybe they're doing the numbers and they're doing the operations, but they've got somebody else that's doing the marketing and or the sales. So what we like to do is we like to look at the positions in a bigger company. These people are going to be in what we call the C suite. They're going to positions that have a C before them. So cfo, chief Financial officer, coo, Chief Operating officer, maybe CEO, but that's usually the owner cmo, which is the Chief Marketing Officer or CRO, which is the Chief Revenue Officer. Those are typical positions in bigger companies. Now in a smaller company that those same positions might be significantly less grandiose sounding titles you might have instead of a cfo, a Chief Financial officer, you might have a controller or an accountant or even just bookkeeper. For marketing you might just have marketing director or head of marketing or just media buyer. For sales it might be instead of Chief Revenue officer it might be sales director, VP of sales, etc. Right. And operations. Instead of COO, chief operating officer you might have MD, managing director, just General Manager or even manager. So those are kind of the, the roles that you're going to be looking at. If the owner operator is going to go away and you need somebody that's kind of got experience in the company that knows some of the tribal knowledge that maybe hasn't been documented that will be very helpful to you to have. That person is a very good person to think about maybe interviewing to be the person that's going to run the company and that way they're dealing with the day to day and you can coach and guide them and supervise and hold them accountable. But you've got somebody that's got that experience. If you can't get one of those people, then there may be a key employee that everybody knows and likes and trusts and goes to. And that person, he or she's been there 10, 15, 20 years, they know all the stuff, everybody knows them, they know where all the skeletons are hidden, they have all the relationships with all the right people that would be a good person to consider to promote up as well. You want to interview them, obviously be sure they're qualified but, but even if they're not qualified to do everything, you can hire someone to support them. And then that combination can be a very powerful operational team. If that's not available to you, then look at consultants or contractors that the company has hired for key roles. So if there's somebody that maybe is a outside contracted sales team or an outside HR team or an outside marketing team, those are or an outside accountant or finance person, those are good people who again have long history and knowledge of what's going on with the company, know where it's weak, know where it's strong and are good potential places to look to hire. So these are not employees of the company, but consultants and contractors that the company is already and has for a while worked with. If that is not available, then we'll go to the next level, which is to query your network to ask around and say, does anybody know somebody that has experience, skill and desire to work in a company like this? And if that doesn't work, you can always go and hire a recruiting firm to find that person. So that's how we're going to find the operational team. And you need to decide if you're going to be an owner, operator. If you're going to actually work in this business and replace the owner, that's fine. But if you're not going to do that, we're going to have some of those things to think about as well. The next thing for me is, is this an industry that is heavily regulated or regulated at all? Because I don't want to deal with it, most likely. So if it's one that's in the health space for me, this is for me and for you. If you're looking to acquire simply and particularly if you don't have experience and, or credentials in the industry that you're thinking about, then stay away from ones that are complex, like that require financial oversight or regulation, or health department oversight or regulation that are subject to HIPAA requirements, those kinds of things. Pharmaceutical companies, those are all things I generally steer clear of. Just because there's so many companies that don't have that extra layer of complexity and that layer of potential liability. I'd rather avoid that if I could. The next would be think about industries that you have experience in already. So when you're looking and you're saying, I can acquire anything in the world, that's cool, and you can. But if you've got some sort of prior experience either working with or in or for a company like that, then that's going to be very helpful to you as well. So think about that when you're, when you're making your list of potential acquisitions. Do I have experience in this industry? Would be a question I would ask myself. And then this is related, but different. Do I have any contacts or connections? How does my network, my personal network of business connections fit with this potential acquisition? Do I have contacts in this industry that might be able to advise, consult, or connect me to people? That will be valuable relationships, because if you do, it's just going to make everything that much easier and everything that much quicker. And then you also want to think about, is this an industry that's growing? Is this an industry that's actually experiencing growth? Because one of the best, easiest ways to grow a business is to be in A business that's in an industry that's already growing anyway, that rising tide raises all ships kind of idea, that's something that can be very, very helpful as well. And then you also want to say, is this something that is likely to last and not be kind of like a fad, like a Y2K business? Back in when the millennia was rolling over, there were a lot of actual business startups focused just on Y2K. Well, that's a very ephemeral industry. Like that's not going to last a long time, or an industry that's starting to decline. That's something that I would avoid. So I'd stay away from those two things. And then I would think about what is something that, that you actually love. And then if you're passionate about it, it's going to be way easier. Now once you find something you've identified. Well, maybe you say, I love crypto, therefore I want to get in the crypto industry. Well, a challenge there is. That's an industry that is probably going to be around for years and years and years, but it's very nascent right now. It's very, very early stage. So there's going to be a whole lot fallout and a whole lot of technical changes that are going on. So I'd be careful about looking at that. If you love it and you have the contacts and connections, it's definitely an industry that's growing, then that's something that would be worth thinking about. But just be aware that it's very likely that you might get obsolesced because you might come up with something or you might be acquiring a company that is, that is doing well right now, but because things are changing, it's not going to exist anymore. Or you, you might find a bigger company that rolls that thing that your company you're acquiring does into their services. That's one of the dangers in tech. Think about Meerkat. Meerkat was a company that came out that was to provide something that Twitter didn't. Then Twitter announced the services and that company just went away. That happens a lot. So those are all things that you want to be thinking about. And then last but not least, is this a company that is going to require a lot of capital investment for you to continue to be in that business. So a great example would be an audio visual company business. An audio visual company business has a whole lot of capital equipment. They've got cameras and stages and sets and projectors and all kinds of technical equipment, computers and stuff like that. Well, the problem, though is that in that business they are continually having to reinvest because the rate of innovation with that type of thing is very, very fast. So they're spending a whole lot of money on equipment that depreciates very, very quickly and then they have to go out and buy more equipment. So there'll be the latest, most up to date, but they can't really sell the equipment they've got for that much money. So that's a concern. Doesn't mean, doesn't mean don't do it. But for me, that's going to make it a concern. It's definitely going to be something I look for. And if I've got the choice between a business like that and another business that's much simpler and that doesn't require that capital expenditure, then I'm probably going to go for the one that is less risky.

Right.

So those are the things that I look at when I'm thinking about acquiring a business. And I think that can be very helpful for you to kind of pass anything that you're thinking about acquiring through that set of filters and, and see if it fits. I hope that helps and I hope that you have a fantastic day.

You've been listening to Business Lunch with Roland Fraser. If you're enjoying the show, let us know by subscribing and leaving a review. And for more information, go to businesslunchpodcast.com thank you for listening.

Foreign.

Listeners. We're going to get right back to the show, but Roland wanted me to invite you to a brand new training that he's doing on acquiring businesses with no money out of pocket. It's something that he's talked quite a bit about on the show, but he's doing a free training where he's going to walk through the entire process. So if you want to get access to that, go to businesslunchpodcast.com epic that's businesslunchpodcast.com epic and you can get signed up.

Ever wondered how some people build real wealth through acquisitions while others just sit on the sidelines? Well, I'm here to tell you it's not about luck. It's about having the right system, the right deals and the right guidance. And that's exactly what we give you in the EPIC deal fast track. If you've been thinking about buying a business, but you keep getting stuck, whether it's finding the right deal, structuring the financing or negotiating with sellers, you are not alone. Too many people waste months, even years just thinking about acquiring a business while the Real opportunities pass them by. The EPIC Deal fast track is not another course. It's actually an implementation program and it's designed to get you from the idea to the acquisition in just 16 weeks or less. We work with you one on one to help you find, fund and close your first or next deal. And once you do, we're going to plug you into our elite EPIC board community so that you can keep scaling through acquisitions. We install three powerful systems in your business. The first is the deal flow engine so you always have high quality off market deals coming to you. Number two, we give you our offer and funding system so that you can structure offers to that get accepted and fund them creatively many times with no money out of your own pocket. And number three are closing and integration systems so that you don't just buy a business, you actually successfully run and scale it once you have acquired it. Plus you'll have direct one on one support from an EPIC Deal Advisor every step of the way. And that's people that have actually come up through this system and done these deals themselves. That's the only way to become an EPIC Deal Advisor. And if you're serious about acquiring a business this year, don't just sit on the sidelines. Just text I'm in to 334-458-9034 and we'll get you in. So text I'm in to 334-458-9034 will get you in. No fluff, no wasted time, just real deal making from people that are actually out there doing deals right now. I'll see you there.