Starting a small business is TOUGH. Like, real tough.
You have to start everything from nothing.
If you follow me and my podcast, you know I am a big believer in the potential for veterans to do really well on the entrepreneurial path. But the startup path isn’t always for everyone.
But starting a new business is not the only path toward owning yor own business. You can buy a business.
It’s called Entrepreneurship Through Acquisition.
Why Buy vs. Start
The easiest answer here is that instead of going from $0 revenue and needing to generate everything for the business (sales, legal, hiring) you can instead buy a business that may have figured out a lot of this (depending on your due diligence).
So you may be able to walk in on Day 1 and have a business that is already generating money.
That is a lot less risky than trying to start from nothing.
Does this work?
It can.
PLENTY of entrepreneurs have made millions, even billions, by starting off by buying one small business.
Let’s take a famous example:
You may recognize this guy, Warren Buffet. He is worth approx. $120 billion (give or take) and is widely considered the world’s preeminent investor. How did he build that wealth?
He bought a business.
His company, Berkshire Hathway, started as a textile manufacturer. Buffet thought the stock was undervalued and so kept buying it until one day he owned the company. He then kept reinvesting the cash flow from the business into other businesses and built the company he has today.
If you open the business news, you will usually hear stories of the startup entrepreneur who risked it all and threw caution to the wind to start a business. America has a number of people who have done that and been wildly successful. But there are also plenty of entrepreneurs who you will never hear of who started off with a single acquisition and are now fabulously rich.
How Does This Work?
In the coming weeks, I will share more details about how this works, but for now, know that this is not as complicated as it might seem.
Let’s say a business makes $1,000,000 a year in net profit. That means that after all the employees have been paid and the expenses taken care of, the business owner has $1,000,000 left over.
A business like this may sell for $3,500,000 or 3.5x earnings.
Using an SBA loan (which I will get into later) you can take out a loan for the purchase price and pay the bank back with the money the business generates.
Here is a quick example:
That means if the business makes $1,000,000 a year and you have $555,033.09 in debt to pay, you still clear $444,966.91
Not bad.
This still is definitely not easy to pull off, but I wanted to show you the basics to understand that the cash flow from a business can be used to buy that business. It’s crazy.
Note: For simplicity’s sake, I did not include investors or a seller note.
So why go this path instead of starting a business?
You may not have an idea you care enough about to start a business
Starting a business is not just about having a great idea. That is less than 1% of what matters. The 99% of what matters is the hustle, smarts, and determination to get it done.
You may have an awesome idea, but the real value is unlocked when you can match that with the desire to see it through. A startup can find itself going months sometimes years, without making money, let alone a serious profit enough to make you as an entrepreneur feel that your time is worth it.
When you have a problem you are trying to solve, all of that struggle can seem well worth it. But without that passion, the startup journey can be extremely daunting.
Without hat drive, you can still build a great business by buying one first.
You may have a family.
The great thing about buying a business is that you are acquiring an asset that already produces cash flow. meaning, you can start paying yourself from day 1. If you have a family and mortgage and car payments, that can be way less stressful than the process of trying to start a business from nothing,
Some people tend a garden, some plant it.
Some people just really want to BUILD. They enjoy the creative process of making something from nothing and like seeing a business get built from the ground up. They get to a point where the business is actually doing well and they find they get bored or are no longer interested in the process of taking the business to the next level.
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Buying a business allows an entrepreneur to take something that has already solved a number of problems. A good business will already have customers, and employees, and reliably makes money. The new owner can now focus more on how to grow and may not need to worry as much about keeping the lights on.
Who can do this?
You.
Seriously.
People in this space LOVE veterans who buy businesses. I’ve talked with lenders, investors, and business owners and they all say that the veterans they see who do this do very well and are some of the best people to work with.
In the coming weeks, you can expect more from me with details on how to find deals and how to start putting a deal together.
Mark
The Veteran Professional
P.S.
If you think you may want to run a small business before you buy, I am working with a number of small business owners looking for people to run operations or be the General Manager for their small business. Submit your interest to be included in these opportunities here.