Owning a business is one of the best ways to create lasting wealth and freedom. But there’s a lot of uncertainty.
Maybe you don’t have the funding, connections, or world-changing vision required to get moonshot ideas like Tesla, Amazon, or SpaceX off the ground. Perhaps you have a business but are struggling to build momentum. Or you have a franchise but want to create something of your own.
I know how difficult it is to start a business from scratch. My first entrepreneurial venture was selling flowers on the street at 16 years old. I didn’t know anything about flowers or sales, and unsurprisingly, no one bought from me. But there was an established flower shop with lots of foot traffic nearby. Looking back, what if I had bought that business and leveraged the reputation and customers they’d already established?
I didn’t have the money to do that, but here’s the thing: In some instances, it is possible to buy a profitable business without having any cash, credit, or experience. Rather than starting from nothing, it’s much easier and quicker to take something good and make it great — plus it’s less risky. You can even find businesses poised to double, triple, or 10X in value within a year. You’ll be hard-pressed to find a real estate investment or stock option that will give you those kinds of returns.
Over the past decade, I’ve bought multimillion-dollar businesses this way and taught others to do the same. It works so well that I’m also establishing an investment fund to support these kinds of deals. Why teach others how to do it? Simple. It gives me access to a flow of deals I wouldn’t have otherwise.
Here’s how to buy profitable businesses without spending your own money.
1. Identify what you want.
The best opportunities are small companies earning between $1 million and $10 million a year in revenue. Look for simple business models with little investment competition, such as professional services like construction, engineering, and plumbing. But the best sector is the one that speaks to your interests and experience.
At the same time, you may not even need personal experience in the industry—because you may be able to work out a deal in which the business owner trains you. If you don’t want to manage the day-to-day operations yourself, you can hire an experienced professional or promote from within the company while the owner is still around to train them. You can usually find someone doing the same job for another business and incentivize them to leave their salary for equity in your company.
2. Find motivated sellers.
It’s crucial to find business owners who want to move on and are motivated to sell. Many baby boomers are ready to retire, while other sellers are bored and need a change.
Most businesses sell for a multiple of the profits. For example, one that’s earning $100,000 will sell for three times that amount. But if you find a motivated seller, you can often negotiate only to pay the equivalent of one year’s revenue (in this case, $100,000).
You can find these businesses the same way you would find clients — through social media marketing or networking, for instance. It’s simply about changing the conversation and putting yourself out there as an investor looking for opportunities.
3. Calculate this simple math.
Offer to sign a nondisclosure agreement, so the business owner is comfortable sharing their books with you. Confirm that there’s more money coming in than going out and that cash flow has remained consistent over the past three years. Then ensure there’s enough profit to cover the cost of financing.