How to Buy a Business and Where to Find It (Proven Strategy)

have you ever wondered how to buy a business how do you do it well how do you set yourself up for success in the last 12 months I've actually done it five times and I've done it countless times in my 20year career of being an entrepreneur really I think I've been motivated to make this video cuz I see so many videos on YouTube of people that I don't think are giving the right advice when it comes to this strategy this advice is tried tested and proven no Theory just experience let's get into it one of the philosophies that I use in my business is OST that stands for objective strategies and tactics now the objective must stay on point but the strategies and tactics can change to meet the objective now the objective of this video what we're trying to learn today is how we can buy really good businesses that are profitable with as little of your own money down as possible at the start of the transaction that doesn't mean we Short change the people we're buying our business from but we want to use our cash our resources to grow our business to to improve our business not to buy the thing and I'm going to reveal the strategies and tactics of how to make that happen later on in this video so that's the objective let's now get into it a little bit further let's just quickly reiterate the point of why I buy companies before we diverge anymore I just find it's a tried tested and proven model if we buy a really good company that's got a proven track record and profitability that I can bolt onto my existing business it's just an Allelujah moment I've done it with day nurseries for example I set the first one up from scratch it takes three or 4 years to get them really profitable and established rather than wait three or four years I just bought more and more and more actually done it 10 times and that can be really great for growing and scanning a business much quicker than waiting for the organic approach now let's look at what makes a really good business and what makes a really bad opportunity remember I said earlier in the video there are countless amounts of opportunities the Baby Boomers are retiring and they want to get rid of their business or lots of people have just had enough of their business maybe because another opportunity come along or they're getting divorced and they're forced to sell the business because running a business is actually really tough and that's why I like scaling businesses because when you scan a business you can actually afford a team to help you run the thing rather than doing it all on your own that increased cash flow that buying companies gives you the ability to employ that management team one of the big philosophies that I have in business is e plus m equals s that's entrepreneurship plus management equals success and effective entrepreneurs are looking out for opportunities to buy and know they've got a really good management team to run the business and when you buy a company you want to make sure that there is great Management in place that you can leverage I suppose that's the first thing that I've learned when buying companies because if the seller is the management if the seller is making everything happen and you remove the seller I.E the founder of the business and it all starts to fall apart and you've got to dive back in what you've done is you've bought yourself a noose you've bought yourself self a job and that's what you don't want you want to buy something that's a commercially profitable Enterprise that can work without you in it or be a way of working without you in it in quite quick order because sometimes you're buying something that's an opportunity that's not quite there but you want to have a clear pathway to release yourself from running the business we want to have good Management in place we want to buy a business that primarily has good revenues I look for businesses that have a million plus Revenue back in the early days I was buying much smaller businesses and that isn't for me because within turnover within Revenue usually have affordability if you lose a few customers the rest of the revenue keeps you going and on that you don't want to have just one big customer one key account one key Revenue stream you want to have a little bit of money coming from a lot of people a lot of the time so regularity instant cash flow is another way of describing this so when you buy the business on day one instant cash flow comes in you don't want to lie on these key contracts and key accounts and only being paid once every 60 or 90 days now I also like businesses that are location based now this puts a moot around your business when I say a moat around your business imagine you've got a castle the moat protects the business it stops people from taking the castle from you having a location makes you high barrier to entry and so that's why I'm recording this in a hotel that we own right now see no one can just work for us or steal our hotel rooms and take all our staff to their hotel that's next door it cost you millon millions of pounds to build this hotel that's an example of having a castle with a moat around it so look for opportunities that are higher barrier to entry as possible not low barrier to entry remember that you're a castle how can you have Moes around your business the Moes protect you be as high barrier to entry as possible also has establishment businesses that have been trading for 10 plus years are usually ones that are more successful now it's a harsh reality of business only 5% of businesses trade past 10 years old human beings are creatures of habit businesses out there that are 20 years old that are nowhere near as good as a business that's only one or 2 years old but that two decades in the game means that maybe their parents have used them that local establishment that National establishment does protect your business it's another moat around the business so look for businesses that have been established 10 plus years that is a winner winner chicken dinner now lastly you want to find businesses where the owner of the business is really motivated to sell you don't want find a owner of a business that might want to sell that might not want to sell find motivated sellers so that you actually get the deal done and they're working with you to get a positive outcome anyone that flip-flops backwards and forwards is just a Time drain on you I've been in that situation so many times we want motivated sellers that want to get a deal done and want to work with you to get the deal done I'll talk to you about pricing a little bit later so it's a win-win for both parties so we've explained what's a really good business but what isn't a really good business to buy one where the founder makes it all happen and if they disappear it all starts falling apart one key account one key manager don't have instant cash flow low barrier to entry management team that's non-existent avoid all these things and make sure you buy the biggest possible business that you can because in a big business you will find that you have more protection don't go and buy a profitable job a business turning £1,000 is going to make hardly any profit for you it takes the same amount of effort to buy a big business as a small business but the Returns on a small business are very very hard remember 1 million plus Revenue management team in place preferably a location instant cash flow High barrier to entry customers that like you establishment all of that stuff will protect you just want to say a big thank you to American Express for sponsoring this video now I've teamed up with MX UK to help entrepreneurs and business owners grow their business they done two things one is create the business Trends and insights up this is a resource center for business owners and entrepreneurs full of articles with great information that you can swipe and deploy into your business so go and check that out I'll help you out by putting the link in the video description but I've also made great videos masterclass Style on the UK MX YouTube channel now specifically the one I want to talk about today is the quadrant method now this is the rule of four the four company Philosophy that I use to grow my companies it's a really good philosophy that I think will help grow your business now go and check it out there's a link above my head of how you can watch that video and also a link in the video description you love it see you over there now it's time to get juicy where do we actually find these businesses to buy the really good ones well I've bought multiple businesses from multiple places the web directories I found some great businesses I bought a day nursery and a free hold and I actually done a really good deal there I've actually bought from landlords where someone's gone busted and they had a trading business and the owner just didn't want to rent the property anymore and I've done a deal with a landlord I've found businesses for sale on right move I've also done Outreach if I identify a really good business and I've got an idea that the owner might be coming up for retirement I write them a letter and say hey can I please buy your business is probably one of the most amazing ways for me to buy businesses also that's one of the primary reasons why I've built my personal brand every single week someone offers me an opportunity to buy their business they think of me first and I think that's a really important strategy you must be out there letting agents business agents lawyers solicitors accountants insolvency practice iers let them know that you are on the hunt by businesses especially in the sectors that you want to operate and I think that's another really good point to know you want to operate in sectors that fold into your existing Empire if you are a manufacturing business create an ecosystem where you buy the supply chain of that manufacturing business so they keep your cash flow revolving around if you look at all my portfolio of businesses each one of my companies serve the other business to create an internal cash flow ecosystem multiple revenue streams folding into the existing Empire so you've now find the perfect business to buy you're like Aladdin you found the magic lamp in the Cave of Wonders you've taken your time to find the right deal you haven't just rushed into it you found a business that's big enough to leverage your time to get you a good return on your time investment but how do we fund the business using as little money as possible I want to be up front here I've bought many businesses where I've just given the vendor all the money up front but I've done most of my deals using creative strategies to fund the business using a strategy called seller or vendor Finance I've Loved this I've done my first deal when I was 22 so this is a process where the seller says I'd like to sell my business I want a million pounds for the business and I will do two things well I say look I'll give you half a million pounds of your business upfront on day one and I'd go and borrow that money from the bank sell a property or Rel leverage it raise Finance or any other way to get that big discount maybe even go to a private investor to get the cash in the early days but now I would say okay I'll give you a million pound but I want to pay for it over four years over a process of paying it monthly and then I would give them a charge over the business I would give them my personal guarantee because I want to pay them back then I would buy the business using the business's cash flow and profitability now in many cases that means that I might not get anything for 2 three four years but I haven't had to borrow the money from the bank and usually I can get these loans on an interest free basis sometimes I have even paid them an interest fee depending on the deal and that's a very good strategy to buy businesses without having to worry about raising the finance from the bank now why would someone use seller finance or vendor Finance now even when I bought businesses from the bank you want to have an element of vendor Finance it's true that 60% of business transactions in the UK and America are sold with an element or all vendor finance and banks are very used to seeing this happen it actually gives you security as the buyer of the business CU there might be some skeletons in the cupboard maybe an unpaid tax bill or big Insurance claim or a supplier that hasn't been paid and then you can offset it against the payments that you're going to pay the vendor or seller now another strategy if the business owns lots of equipment assets and stock you can actually buy the business and then when you've bought it you can refinance that stock and assets to give you a cash flow in so you might have a period where you've got to personally Bridge the money you could get this from a private investor or even a bridging company knowing that you'll be able to refinance it with the asset and equipment that the business has got I've done that many times lastly is suppliers if you've got a big supply line with a particular company you could go to your big suppliers and say look I want to buy this business and I'm going to move all the supply lines to you would you help me fund it I've also done that as well that's a really cool strategy because it helps them grow their business they might be sitting on wads of cash and they really trust you because you've transacted with them over the last few years and they can see that you're going to grow their business by helping you to buy that other company so it increases their business and allows you to acquire the company I suppose the strategies of vendor Finance the strategies of using supplier Finance or bank finance when buying a company you've got to remember delayed gratification you might be running the company for 3 four five years and not actually getting any money out yourself because you're paying down all the loans or cash flowing the vi the vendor Finance but at the end of it you should have something much bigger and really when you're building a business you should have the attitude that you're building a business to sell even if you have no intention of selling it so when you build a much bigger business usually the multiple of what it's worth grows see if you got a business that makes a couple of hundred th000 a year profit it might be worth three to five times profit if you build a business by conglomerating lots of businesses and get to that 1 million 2 million 3 million plus profit you might be able to help yourself to 7 8 9 10 even 12 13 times profit when it comes to valuation that is one of the smartest ways for entrepreneurs and business owners to think see by bolting businesses together you massively increase the value of your business I want to give you some top tips things that I've learned when I've bought countless companies over the last 20 years I've only really been done over once and that's someone that I didn't really trust would do what they said they was going to do but the deal looks so good I thought I'll give it a go that's a big error if you got Instinct k in that you're dealing with someone that you shouldn't be dealing with walk away cuz opportunities like this are like buses there's always another one coming along you want to make sure you get on the right buses and people that are shady avoid at all costs now secondly your investing day I actually find time in my diary to go and see deals I see at least six deals a month and that means not just looking it on a piece of paper or reading an email or a prospectus about a particular opportunity I get in the car I go and visit the owners and actually see the business there's some real massive tips here as well because when you see a business and actually see owners you start leveling up the questions that you ask and how to structure deals and if you're seeing multiple opportunities you start only bidding for the right opportunities because you should have too many things on your plate and only choose the right food to eat interesting metaphor there so you want to make sure that you're really going out and seeing companies and finding a day in your diary I like to call this what's your investing day because it really is one of the best investments that you can do investing in buying companies is the most tax efficient way that I know of Building Wealth here in the United Kingdom remember when you sell a business with a property involved in it and that would be another one of my top tips that I've learned try and buy companies that have got a property a freeold property around it because there's a number of bonuses here when you sell a business with a property you get asset business disposal relief which used to be called entrepreneurs relief you only pay 10% in your lifetime on the first million pounds that you sell a business and then after that it's only 20% compare that to earning income or selling property that isn't part of your business it's astronomical in terms of tax saving at the time of recording I don't know if that's going to change in the future but it's been like that for a good number of years so I'd like to hedge my bets that it's going to stay like that to be still tax visent to build a business employ people do a really good job and then sell it hope I the missed anything out if there's anything you want Clarity on please hit it in the comments below and let us know what types of videos you'd like me to make next get that in the comments too please like And subscribe to this video if you're loving the Channel Please Subscribe most people that watch the video don't subscribe and I really want them to subscribe because I want to get to 100K subscribers so I can get my plet and be one of the best achievements of my career and you could help me doing that by pressing subscribe plus if you want to learn some more from me why don't you come to one of my seminars I'm actually doing a seminar on buying companies in the next few months all the details of that and how you can get along are on my website James sinclair.edu for money see you in the next video bye-bye

Channel: James Sinclair

Views: 37,545

Keywords: business, business owner, entrepreneur, entrepreneurship, how to buy businesses, how to buy business, how to buy companies, buying businesses, buying companies, how to buy business low cost, buying business uk, uk business

Id: 3E5I5IRPgbo

Length: 16min 15sec (975 seconds)

Published: Thu Nov 02 2023