10 Commandments of a Deal
Hey friend,
Welcome to the Better Business Brief, where I share takeaways from:
- running a business I’m building to sell for millions
- my consulting with business owners building to sell for millions
- tips and tricks you can use to do the same
I have been on a quest to buy an established, cash-flowing business. Along the way, I have learned many, many things. I’ve been talking to people who have bought many businesses, people who work in the space of helping others buy businesses, and even now talking to business owners and brokers who have specific businesses to sell. Today, I want to share with you some of the things I’ve learned and decided about the process.
So today, in less than 5 minutes, I’ll give you:
🪦 Our 10 Commandments of a Deal We Want to Make
📖 What Each of Them Means in the Process
🗣️ & Why Each of Them is Important to Us
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1. No money out of pocket - |
As we’ve gotten into the process more and more, we’ve realized all of the best players in this field buy the businesses they buy without using their own money. The SBA will fund up to 90% of the purchase price of a business under $5 million, and there are many, many other creative ways to get the business itself to pay for its own changing of hands. We set this rule because we figure we might as well do it the way the best do it right off the bat.
2. Must be able to acquire minimum of 15% equity - |
This one is straightforward. We are open to making partial acquisitions. This would be in the case that we are consulting in exchange for equity, or helping achieve some particular objective in exchange for equity in the company. This leaves us open to doing a lot of different types of work while we do our search, and being more flexible depending on the business owner’s current situation and goals. However, we decided we would not value anything below 15% equity enough to really make it worth our time.
3. Must be open to further equity acquisition down the road - |
This one plays off of the last. If we do make a partial acquisition of equity, we want the option to be able to buy into more down the road by either finding more capital to use to purchase it somewhere or by achieving another objective or playing another role for the business in exchange for it. That means that if we do a deal like this, the owner needs to be open to this in the first place. That way, if we see value in growing into the business more or see another big, effective change we can make, we have the option.
4. Company must be on a growth trajectory - |
This one should almost go without saying. We don’t want to be part of a sinking ship or a turnaround. We are looking to make it easy on ourselves, not something that would take a miracle to pull off making successful. Because of that, we need the financial state of the company to show that it is on an upward growth trend over the last 3-5 years. That way, we know that there are already forces besides us working towards the business’s success.
5. Must have experienced industry professional staying on post closing with us - |
This one is important. We haven’t decided exactly what industry this business we acquire will be in just yet, but we know that it might be one that we are not experienced in. If this is the case, we will need to make sure that we have someone in our network that has run (and ideally sold) a business in that industry that will consult with us, or that the previous owner will stay on for a least a year or two to help us learn the ropes and get someone to advise in long-term. This way, our inexperience in the industry will not be a blind spot.
6. Must have low hanging fruit (no CRM, lack of systems, operational deficiencies, etc.) - |
Our goal is to grow the business we buy. For us to do that, we must be able to see areas that we could do well with. For example, we have seen many businesses that are successful financially with no marketing, advertising, or social media being done whatsoever. Because we have some experience and connections to great service providers in these areas, that would be an attractive situation for us. We would be able to come in and quickly bring new growth without doing anything crazy to shake things up.
7. Must have management team and sales team in place OR $200k in EBITDA - |
Sales are what make a business actually run. The issue is that with a business sale, you often lose the salesperson when the old owner walks out the door. We made it a requirement for us that there will be someone staying on that is handling sales for the business. We also need the business to either have an operator that is responsible for managing its people on a day to day basis, or to be making well over $200k per year in profit. If we needed to, we could hire an operator to replace the old owner with a good salary and bonus options with that much profit to pull from.
8. Florida based OR remote operations - |
For now, we want to keep this business close to home. We want to make sure we can be there to help it grow and succeed or at least manage things remotely. There will be employees to get to know, and we will be more effective if we can get in and form relationships with them early and make sure they are happy with the new ownership. Businesses are about people, and this will likely be the make or break of whether we are successful after buying one.
9. Recession resistant businesses only - |
We want a boring business. Something that has stood the test of time, and that isn’t going anywhere. The type of service that is always going to be needed, like plumbing. Nothing sexy, just something that makes good money year after year, and can be grown. This is because buying a business is a risky thing, and going for something solid and reliable makes it a heck of a lot less risky.
10. Owner must be someone we like and trust - |
This one is important. The likelihood is that the previous owner is someone we will deal with a lot, at least early on. We need to make sure this is someone who we like and trust, because our livelihoods will be tied together in many ways. We will be responsible for their successful exit from their business, and they will be responsible for us transitioning in well. If we can’t trust them, we can’t rely on a smooth transition in. If we don’t like them, there may be problems that arise while we’re dealing with them. This is just another way to make this a better process for everyone involved.
Those are our 10 commandments for a deal we will do. There are plenty of other things we consider, and we have actually been doing a live show on Tuesday nights at 6PM EST where we actively search for deals and analyze them. If this is something that interested you, tune into Deal Flow Live any Tuesday night on my Youtube, Instagram, Facebook, TikTok, LinkedIn, or Twitter to watch along and comment and ask questions.
Be great. Keeping growing and aspiring. And as always: I hope you got something from this.
If you did, share it with a friend who may too, as this is the best way for me to grow it and make this better.
They can even sign up here :)
Happy value-building to all of you!
See you next time for Better Business Brief,
-Brody
If you are considering selling your business soon, let’s talk. Grab some time here and we’ll make sure your plan is on track.
