In this week’s episode of CEO Warrior Podcast, Mike Agugliaro interviews Ace Chapman, who is an expert in how to buy and sell businesses and create wealth. Ace is a micro private equity investor who has acquired over fifteen offline businesses, sold thirteen, and also acquired twenty-four online businesses. If you ever thought about buying a business, this is a great podcast for you!
Main Questions Asked:
- What were some of the mind games or mental road blocks you experienced?
- What are some insights you can give people on what you’ve learned in selling your first business?
- Where does your ‘no fear’ approach come from?
- What holds people back from thinking that buying a business is possible?
- Are there any nightmare stories where someone bought a business, but didn’t have an expert and it turned bad?
- How can adding businesses into your portfolio magnify wealth?
- What is the magic piece of advice on growing a business?
- If you could start again, what are a couple of things you would do differently?
- How can people avoid ‘getting bored’ in their business?
- What are the first three things someone should do when buying a business?
- What should we think about when selling a business?
Key Lessons Learned:
- In the business world today, you have a few options such as work for a company, start your own business, or buy a business.
- Two million baby boomers own businesses in the U.S., and a lot of them are looking for buyers but there aren’t enough buyers.
- When you are working with a mentor or expert, it helps people control their emotion and ‘jump in’ reflex.
Buying a Business vs. Starting a Business
- There is little awareness and conversation around buying businesses, as it is mostly around staring new businesses.
- Even though there is a solid supply of businesses, when it comes to entrepreneurship and business ownership 99.9% of the conversation is about starting from scratch.
- Often buying an existing business is simply not part of the awareness.
- People think that if you start a business from scratch with low money up front then it is cheap, but it’s actually more expensive than buying an established business.
- If you can become a professional at finding really great deals instead of starting a business from scratch, then you can attract a lot of money.
- If you buy a business that has already been around for a number of years, then that business has already broken past the ‘five year failure rate’ point.
Buying a Business
- The biggest problem with starting a business from scratch is that you have to be amazing at everything: tech, finance, marketing, and sales. But when you buy a business, you can match your skills with what the existing business is lacking.
- The average person does due diligence on 6.5 businesses before they buy one.
- One of the problems in buying a business is that people get stuck on one deal and don’t look at enough deals.
- As a broker, Ace looks at a lot more businesses than the average person would on their own. His clients look at an average of 100 businesses before closing on one.
- Something that people overlook when buying new businesses is spending time to find a motivated seller.
- Ace says that he finds a lot of deals through referrals from divorce. This is an example of a motivated seller, as they often just want to get out of the business quickly.
Magnifying Wealth
- When it comes to building the dealmaker skill set, it becomes a long-term view of your return.
- As a business broker, Ace likes to see a business buyer get their money back within two years.
- Businesses are purchased at two times earnings (sales price is 2X annual cash flow). This means that even if you make a mistake in buying a business, it allows you to make up for any mistakes quickly.
- These numbers allow you to build equity as over the course of 2 years if you are paying the business down. Then you can take the cash flow and invest elsewhere.
- Ace likes ‘roll ups,’ which is buying up competitors in the market and then grow the business through acquisition. This creates a snowball effect.
Advice on Growing a Business a
- Have a trackable time and results system so you can match the time input and money.
- As a business broker, Ace tries to build and buy businesses that fit into the entrepreneur’s personality and how they are naturally built.
- It is best to come up with a wealth building strategy in line with who the entrepreneurs are on a natural level.
Selling your business
- Set your business apart from everything else on the market, as it will have a big impact on the buyer.
- Have systems in place. Most businesses don’t have operation systems documented to hand over to a potential buyer. If you create a franchise-like system, then this will set you apart.
- When you can not only answer questions but let the buyer know there is a resource that will help with selling, you will be able to sell your business at a premium.
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