Welcome to Acquisitions podcast, hosted by Moran Pober - a serial entrepreneur and co-founder at Acquisitions.com.The Acquisitions podcast originates from Acquisitions.com, a training program about mergers and acquisitions for all entrepreneurs - new or experienced.Each week Moran Pober is sharing his knowledge and exploring different aspects of business buying space. You will learn how to do transactions with less risk and build wealth with this process.
Why SMBs are a Superior Investment Vehicle.
Right now more than ever we are seeing asset prices inflate like crazy throughout the world.
The stock market is at near all-time highs and looking dangerously top-heavy, real estate has not seen a market state like this since 2008 (and we all know what happened after that) and even low-yield bonds are going crazy, and don't even get me started on crypto.
Some people are calling this an everything bubble, which is great if you invested 5 years ago, however, if you are holding cash and trying to break into the market, it is now harder than any time in history.
These are just some of the reasons I believe SMEs are simply THE best investment vehicle if you are trying to achieve financial freedom.
Let me explain why:
There is always going to be demand for a good business, I don’t care if we are in a recession or the market is booming, if you have a quality good or service that is in high demand, you will be in business.
The nice part is that you can scale up or down your involvement in the business, for example, if you invest in a public company it is completely hands-off and you have no say, compare that if you are the sole investor in a small mom and pop business and you can hold the majority of the decision making power.
The second reason I believe SMEs are a superior investment vehicle is the sheer upside potential, real estate is great, but there is only so much value that slapping a new coat of paint and re-carpeting will bring when it comes to increasing cash flow and ROI.
Compare that with a small business and you can come in and “renovate” that business with new systems and processes, sales, marketing, price negotiation, and very quickly see your investment double, triple, or even quadruple in a short period of time.
Of course, it comes down to your skills in business but that is also part of the fun, you get to build your business, personal, and life skills in the process. Name another investment that can offer that!
It's a bankable asset, which means that it is nearly as good as having money in the bank. You can walk into your local financial institution and if you have a solid, profitable business you will have no problem borrowing money against the business.
It works the same way if you are looking to buy an existing business, banks look a lot more favorably at existing, ongoing concern businesses and you can use the power of leverage (good debt as Robert Kiyosaki would call it) to finance yourself into a revenue-producing asset.
Finally, the last reason I love SMEs is what I call the multiplier effect, businesses are valued by a multiple of their yearly net profit. Typically 3-5x.
That means if you buy a business and then increase its bottom line, you can reap 3-5 dollars for every dollar of added profits when it comes time to sell.
Alternatively, you can merge multiple small businesses together and arbitrage the value since larger businesses are valued at higher multiples than smaller businesses.
This strategy is known as a roll-up and we just completed one with a client where we acquired 16 businesses in under 6 months and generated over $200,000,000 in value.
Over the last 3 years, we have helped 100+ clients not only invest, but outright acquire their own business. We are looking to work with a small number of additional clients in 2022.
I put together a free training program where you can learn more and see if you are cut out to pursue an opportunity like this.
Winning the War of Business
At the end of the day I don't care what people tell you, business is a war and the sooner you can learn to look at it in that way, the sooner you will see massive success.
The #1 Trick to Succeed in Acquisitions
Ok so there isn't really a "Trick" but this is certainly as close as it gets, because simply flipping this switch in your mind will change everything because we are talking about the way you see the world.
Have you ever been in the process of looking to buy a new car?
You research all the models and read all the reviews and look at the listings online.
Then, next time you walk down the street you see that model car drive by.
Then on the way home you see another.
All of a sudden you see them everywhere.
Did everyone suddenly go out a buy this model of car?
No, of course not. It just that before you were looking without seeing, but now you are seeing them because you are specifically looking.
If you look at the world through a negative lens guess what you will see?
Only negative things.
You need to force yourself to look for the positive things, and when you see something you perceive as negative, ask yourself
"What can I learn from this?"
The hardest but most effective thing we can ever do in life is to start acting not like the person we are, but the person we want to be.
That is how you begin the process of growth and how you ultimately fulfil your potential.
The person you want to be 5-10 years from now, what would that person do this year? this month? this week? in the next 5 minutes?
How does that person look at life and look at the life challenges you are facing now?
Does it break them down or make them stronger?
When you force yourself to become that person every single day, and you can remain consistent, your world will change.
Is Your Team REALLY on Your Side?
The first thong to understand is that you will only be able to hire people up to the calibre of your leadership.
Your ability to influence and engage your people will be the determining factor of your ultimate success, you simply cannot lead a successful organization with your staff have checked out and just going through the motions.
So really when you break it down, the job of a leader really is to inspire others and give people a strong enough vision to where they will want to get up and actively pursue it themselves.
How do you do that?
The first realization you need to understand and accept is that human beings a selfish.
This its self is not a bad thing, its just the way it is.
To get the best out of your employees you need to convince them through words and actions that getting behind you, your company and your vision will ultimately lead them to theirs.
So you need to understand exactly what their vision is, it is probably very different to yours.
Maybe it's a stable job with consistent income and benefits.
Maybe it's the ability to work from home and be with their kids.
They very likely don't want to deal with being the owner or CEO of a company.
You can have different goals that can be achieved through the success of a common goal, that is how you get their buy in, that is how you get them to "Show Up".
Secondly, be slow to hire and quick to fire. Like anything in life, the chances are high that you will have to kiss a few frogs before you find the princess.
That means you need to set clear expectations, hold people to account, and if they continually fail to meet those expectations, find someone else.
It can sound harsh, but business is tough and there is simply no room for dead wight people on your boat.
How to Make Money Buying a Business.
If you have followed me for any length of time, you will know that I love talking about everything business acquisitions and mergers, that's what I do, and that is what our company Acquisitions.com has helped 100+ people achieve for themselves while working with us.
An obvious but sometimes overlooked aspect of the acquisitions game comes down to the question, "how do I actually make money by buying a business?"
Everyone knows that the purpose of a business is to make a profit and that acquiring that profit-generating asset theoretically should result in money in your pocket.
Still, in reality, it goes so much deeper than that, and taking drawings or cash flow is just one method to realize the money you desire when buying a business.
The first step to making money from buying a business is having a solid plan for exactly how you will make money from your deal.
This is not something you want to "wing" or "figure out as you go along" yes, having the ability to improvise along the way is essential, but it needs to be in accordance with a plan.
We call this your Deal Positioning.
Think of this as your battle plans, things like your:
Website and branding materials
The next part of your plan revolves around your Deal Team. You need to know what positions to fill and who the best people are for the job.
Board of Directors
Obviously, none of these positions are cheap to fill, so you will need to figure out if you will pay them with cash or equity in the deal.
Next, you need to plan out how you will structure the deal itself. Basically, strategize how you are going to pay for the business.
You have probably heard of things like:
These will then be made into an offer, and the first round of negotiations can begin.
All of the above are critical points to getting a deal done, but none have yet touched on when and where you will make the money.
Put simply, to make money, you need to be the owner, and to be the owner, you need to finance the deal.
Common financing strategies include:
And many sub-sectors
So once you can raise the money to get the deal done, your options open right for how you can pay yourself, even on the day of closing.
You can over-finance the business (meaning your borrow more than the required purchase price) and take a bonus for you and your team.
You can pay yourself in the form of dividends.
Or you can grow the business and sell the entire thing for a healthy chunk of change in a year or two.
How to Choose a Board of Directors
I recently had a member of our Acquisitions.com community reach out to me requesting that I join his board.
This conversation led to some valuable insights that you can use if your goal is to go out there and build your board of directors for your acquisitions goals.
Many people have heard from different people on the internet that they NEED a board of directors (BOD) to succeed in their acquisitions journey.
Now a BOD can be a great asset to help you achieve your goals, but the first question you need to ask is, "What kind of board am I bringing with me on my acquisitions journey?"
Am I looking to bring on TOP Tier, First Tier, or Second Tier players? And more importantly, what is the exchange of value that will be taking place?
At the end of the day, a BOD is just people you connect with to help you achieve a mutually beneficial outcome.
❓ Do I connect with this person?
❓ Do I like them?
❓ Do I enjoy working with them? (Do they enjoy working with me?
❓ Can I learn from this person? If so, what can I learn?
❓ Do I respect them?
❓ Can they connect me to other people who can also help?
❓ Are they willing to invest in my deal? If not, why not?
❓ Will they do some kind of work in the deal? If so, what kind, and if not, is it even worth having them be part of the deal (BOD)?
❓ Are they active right now in the world of acquisitions? (Not 25 years ago when the game was very different)
The second thing to understand is that a BOD is not a free pass to offload responsibility and work onto someone else.
You need to be at a level where you are ready, willing, and able to get the deal done yourself. Most people I speak with who have assembled a BOD only talk to them a couple of times per quarter.
Once you acquire your business, you also need to understand that the BOD will not help you run the company's day-to-day operations.
Think of them as your coaching staff as opposed to your players.
Your job is to be on the field and in the coach's box, formulating your plan and vision for the company with your BOD and implementing it with the team (your employees).
Many BOD candidates are older retired people who don't have a lot of skin in the game. If it succeeds, that's great, but if not, it's not really going to impact them.
That is why with our concierge service, we make it a priority to get in with the entrepreneur, roll up our sleeves and very often invest a significant portion in the deal.
That means we are bound to the deal with skin in the game. This way, the entrepreneur can be confident that their emails and calls won't go unanswered and have access to an entire team, similar to a BOD, to help them get their deals done.