How Big a Business Should I Buy
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- เผยแพร่เมื่อ 7 ก.พ. 2023
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How big a business should Luke buy?
If he gathers all his money together, Luke says he can buy a business up to $10M.
Should he?
In this video, I lay out the considerations that you should be thinking about when you decide how big a business to pursue.
Again, much of the consideration depends on what you plan to do after the transaction.
And- I’ll tell you why getting this right will set up your business empire for years to come.
Watch here now: • How Big a Business Sho...
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Such solid wisdom in this video, thanks Dave!
My pleasure!
This is the video I’ve been looking for! Your channel just has everything I want to learn. A true gold mine.
Glad to hear it!
Good sound advice David!
Glad it was helpful!
Very helpful info. I am coming from the multi family world and wanting to transition to a small business owner and the way you break things down is so clear and concise. Thanks DAvid
Welcome to the SMB world.
I’m in the same position
Hi dave: I have one general serious question, it is this: Is investing all your money in one small business a good idea for anyone who isn't already very rich?
A first rule of investing is to diversify your investments. It is without a doubt a very good rule.
So should anyone sink most of their time and money into one business? That would seem like a very bad life plan. You may make a lot of money but you may very well get cratered and live under a bridge. If you invest all your money in one risky business such an outcome seems very possible.
Age and your family sitch count of course. If you are young and the business craters you could go bankrupt and maybe make some kind of a recovery. But in reality few people recover from that kind of a failure.
What are your honest thoughts on this?
The attitude that many buyers take is that they are in control with an investment like this as opposed to a portfolio of other things. But, I'm the first person to tell people that you can't put 'all' your money into a deal. As I state in the video, it curtails your options.
The structure of the acquisition is key to managing risk. As you said, they're risky.
But buying one is not as risky as starting one. When you buy, you should have cash flow on Day 2 if you do it right.
This was helpful, but I think you could create another video truly answering the right size business for a particular goal, not buying too small of business, etc. but I think this video was more of just not over leveraging when buying a business.
Just recorded one in the coming weeks that you'll enjoy. 'Low SDE Businesses.'
@@DavidCBarnett Thanks for the response David!
So he has 3 million in real estate, another $700K in cash and lines of credit. Excluding the lines of credit (assume 500K cash), he has a 3.5 million net worth.
For any acquisition above 3.5 million, he's betting "every nickel" that he has. Any loan will require a PG.
The better question is - when or is it ever appropriate to use leverage for a business acquisition?
If he's willing to acquire a business at 3.5 million, is it appropriate to use leverage and buy a business at 5 or even 7 million (SBA w/ seller's note)?
If the business fails, you're most certainly bankrupt. Is there any material difference between discharging 3.5 million worth of debt vs 7 million? And if not, why not take the bigger swing?
Would love to hear your take David. Thank you for the great content.
It depends on what's 'in' the business and what a plan b might look like. Buying a $5M business that has a ton of tangible assets, inventory, etc would be a different scenario than buying software company, for instance.
I've met entrepreneurs who do what you suggest to buy a $5-7M business with lots of assets who would never do the deal to buy a $3.5M business with no assets.
Very few people who accumulate $3.5M are comfortable 'putting it all on the line.'
A few gamblers excepted, of course.
Betting every nickel and putting your last nickel into a deal are two different things. One refers to your net-worth, the second refers to your available liquid cash.
When you're on the ropes, your tangible assets may be very illiquid as nobody will want them as collateral for a loan and if you're forced to sell them you might not get the best price if you're in a hurry.
Cash is king- it's a catch phrase for a reason.
Cheers, glad you're enjoying the videos.
Have you bought over businesses and done what you say?
If so do you still do these?
I've both bought and started businesses. I've sold two. I've never put myself in a position where my last nickel was in a deal. Business acquisition is something you come at from a position of strength. Otherwise you can't deal with 'bumps' in earnings and cash flow. There are ALWAYS unforseen things that happen.
Do i need an llc to buy and sell businesses
The form of entity you decide to set up to buy a business is something you should discuss with your accountant. Very few people do business as a sole-proprietor, so you'll likely need an LLC or a Corporation.