Buying Businesses - Efficiency If Competence
Potentially one of the next big waves.
The hardest part in business is going from zero to X/month in revenue/profit.
Generally the first $0 to $2k/month profit is the hardest and takes the most amount of time.
Personally it took me years to get to £3k/month and 6 months to double that to £6k/month.
In short, its really hard to earn your first “decent” money, however much you define as “decent” to you personally.
For me, at 19-20, I would have taken £40k/year.
At 22, £100k/year was the goal, it’s just the reference point you have by the people around you and the content you absorb.
Nowadays £100k/year for someone isn’t what it used to be, both due to inflation and how the goalposts move.
But it’s more how you make this. £100k/year through a job in London is very different to £100k/year in a business that runs itself and you can live anywhere in the world.
It’s essentially the 4 hour work week.
So how does this tie into buying businesses?
Well.
People have no problem spending £300,000 or more on a house.
Getting on the property market is seen as a wise thing to do, whereas buying a business is seen as very risky.
Issue I have is that when it comes to pure value + skills, property investments are not great options.
Spending £300k on a property vs £300k on a business is not even close.
Of course a business is far more of an active project, and it can seem scary as you could in theory lose all of that £300k of value, whereas in a property even in worst cases you probably aren’t going to lose more than 50%.
But to that I have 2 main points.
When you spend money on a house to fix it up, or just fix things that break throughout the years, you are paying a lot in both sunk cost and costs that you simply forget about, or you justify with “it increases the value of the house”….
But the other, more important point is your upside.
Buying a business has unlimited upside, and you also fast-track the first and very difficult getting of the £2-3k/month, both revenue and profit.
The risks are higher, but as a wise man once said;
If You Don't Risk Anything, You Risk Everything.
Which I believe is a Rob Moore quote that’s worth living by.
Let’s assume your max spend on a business is £200k and £50k “cash flow” for marketing, inventory etc.
For this amount you can get a business that brings in roughly $5,000/month in net profit.
Here’s a screenshot of what’s currently on offer on Empire Flippers for near $200,000;
So of course it’s a better ROI than property, but the 2 main issues are;
I can’t live in a digital business.
Risk - What if it all goes wrong, I can’t “afford” to lose $200k.
To the first point, you are correct, you cannot live in a business, but instead of spending more on a property and living in that property, you can simply live off the difference.
So instead you can simply live off of the difference.
In your previous example you were spending $1000-1500/month on the mortgage payments for a $250,000 place.
Instead, spend that same $1000-1500/month but just use a business to fund this instead (on a rental).
So now we have an extra $3-4k/month in useable net-income, but no property.
So that’s obviously better, except the risk side.
This, is the only reason anyone shouldn’t buy a business…. If you could not make it work!
But, if you look and wait, wait for the right opportunity and don’t buy anything outside your circle of competence.
Most people work in a job, at a company that they think they could run better…. Then prove it.
Buy a mini version of that business and as the phrase goes “put your money where your mouth is”