I want to buy a business
We are excited you are here!
If you look back over history, the best way to generate wealth is through business ownership. Not only can it make you money, but it can create a way to serve your community, help customers, create jobs, and have a pretty fulfilling career. If iron sharpens iron; owning a business will improve you. It makes you a better person and calls you to your greater self.
There are several ways to get started with owning and operating your own company. The largest number just start a business from scratch. Obviously, we call those “startups.” They are the stories of people who start a business in their garage and grow a company. For those people, it is really cool to create a concept from scratch. It is conceived in their own brains and they can set it up to do the things they want.
The bad news, however, is startups are risky and time consuming. We often hear of firms that get started and the entrepreneur toils in that garage for a few years, oftentimes surviving on ramen, rice, and beans. They put all they have into the business in pursuit of their vision.
Most people have heard the survival statistics. They are relatively grim. You can search Google but suffice it to say a high percentage of those which get off the ground, don’t stay in flight long. For a lot of them, the either the idea was not strong enough, or it required more money to gain traction than they had. They lost the race against time.
To counter this risk, franchise companies surfaced decades ago. It was a newer, safer business model. Instead of starting with an untested business concept, if you purchase a franchise you are buying into a system that (supposedly) has a verified model. Simply, the theory is if it works in Chattanooga, the same business should also do well in Topeka.
Franchisors can also tell the business how much it really costs to get started. If they have done it 10 times, or 200 times, or 2,000 times, then it starts to become like a science. That information is valuable to the business owner – and they pay for that information. The franchise also confirms that you run the business in compliance with their guidelines. On top of that, if the business struggles, the franchise can provide corrective insight to address the problem faster than the person facing that challenge the same time.
Running a business as a franchise is typically less risky than starting up from scratch.
Buying an existing business reduces risk further.
The site you are on teaches a third approach, one which we feel is less risky than either startup or franchise models. “Buying an Existing Business” drops the risk even lower.
An existing business already has customers, employees, and vendors. All the hard work to get started (and it is extremely hard work) has already been completed. They also have proven their business concept works; they have something to sell, and someone will buy it. If the business has operated for 10 years, it is more likely, everything else being equal, that the business can continue to survive.
There are still risks, and there are never any guarantees. But if you play the numbers (and we suggest you should), this is the smartest ways to get into a business.
From an investment perspective (we also suggest you view yourself as an “investor” first; buying a business is buying an investment vehicle), purchasing a small business is comparatively inexpensive.
If you look at publicly traded companies, they often sell at a PE (price / earnings) ratio of upwards of 30. That means to purchase a dollar worth of annual earnings, you must pay about $30.
We will use a broad brush here, but a dollar of annual earnings in a small business, can typically be purchased for about $3. While closely held businesses rarely use the term, it is comparable to a P/E Ratio of 3X.
This relatively lower price is another reason purchasing a small (to medium) sized business can pay higher returns and reduce risk when compared to other methods of entry (i.e.: startups or franchises). With the right support strategies – and some elbow grease – purchasing an existing, closely held business; reduces the risk.
The Banks and the Government Help Too
There are very few investment vehicles where both the government and the banks come together to help you build your income and wealth. But, in the case of owning a closely held company, they do. (This is especially true if you know what you are doing!)
Why do they do this? Because small businesses are the backbone of the economy, jobs, economic growth, and tax base. They know when you succeed, you will likely create jobs, you will pay taxes, and typically a strong combination of both. Seriously, they need you. So, they want to help you. And they have a lot of money to do so!
Banks, though, have a ton of rules. If you get into business, you’ll (unfortunately) become familiar with them. Most people hate having the bank looking over their shoulder, but if they loan you money, not only do they have a right to, but the government and regulators require that they do.
Those rules don’t just protect the banks, but they also protect you.
Banks are involved, in some way, in nearly every business that exists – and it has been that way for a very long time. So, those rules we mentioned above are sophisticated and well refined. And much like a casino, the banks set up the game to ensure they nearly always win. Because they have the money, they get to set some of the rules. (The government also highly regulates banks, so they do not abuse that rulemaking power.)
If you’re smart, you can learn how to use those same rules to your advantage. This is a huge part of what we discuss in QSI. Two of the three authors have banking experience, including SBA (Small Business Administration – a government program to support small business loans) lending. Our teaching about buying a business, requires heavy knowledge of the existing banking system.
The involvement of the banks in purchasing an existing business also reduces risk. All the rules we just mentioned means they have processes in place to reduce the likelihood of making overly risky or bad loans. They, of course, do that for their own benefit.
For you, the bad news is you must jump through multiple hoops to get the loan. The good news is that if you jump through their hoops, and they approve your loan, they’re basically telling you they believe the odds are stacked in your favor. That, too, reduces the risk. The banks we use at our brokerage focus on bringing on good deals, strong businesses, great sellers, and coachable buyers. This results strong results: typically, only 1 out of 72 SBA fails. 71 out of 72 means the odds are, again, working in your favor. The process itself is designed to weed out the businesses and people who wont make it. Look at it this way; a stronger door keeps more people out. We find safety in the arduous task of getting through the doors of underwriting. It results in safety for all.
Bank debt is not a bad thing
For many, the thought of borrowing money from the bank makes them uncomfortable. We have been, appropriately, conditioned to steer clear of bank debt. In the case of credit cards or overextending your personal spending, we agree. Using debt means you’re spending money you do not yet have. If that relates to your personal spending, it can lead to becoming upside down and facing financial challenges.
However, in the arena of closely held businesses, for most people, the cost of entry requires borrowing some of the money to purchase the business. Leveraging debt, when you own a closely held business, is not only common; but creates a positive multiplier effect on the return on the investment. Many people don’t know this, but intelligently using debt is and has been a key to strong levels of wealth for many decades. The ability to borrow – or leverage – money, can have a very positive impact on your business income and wealth.
Wealthy people put debt to work in their favor. Poor people use debt to their detriment. Learning the difference can propel your success.
QSI puts that concept on steroids.
There are a number of resources on this website which go into much more depth on this matter. Our BuyPrep™ courses teach you the techniques and processes to buy a business. Our QSI model looks at a different business model, one that multiplies the financial returns of small business ownership. It also decreases the time needed to succeed – and reduces the risks even more, due to some very specific guidelines for how to generate wealth from your company. Our approach also teaches you things to avoid; things almost all businesspeople do.
QSI is so powerful that we believe every person considering purchasing a business should, at a minimum, at least be aware of the concept. Frankly, it offers a different alternative from the normal way people conduct business. It is a game changer. At first it sounds counterintuitive, but as you study the details, you can see there is an amazing logic to the approach. And the mathematics behind the strategy are sound.
You have come to the right place. We believe there is no other website on the internet which provides stronger information on how to buy a business than the one you are on. Please spend some time with these concepts. Skimming over this only shortchanges you.
Similarly, we have two sister companies to assist in the process as well. Peterson Acquisitions is a business brokerage firm with nearly two decades experience. We can help you buy a business that meets the profile of the ones we suggest in our teaching.
Peterson Capital is another resource where we put the principles found in our teachings to work in a private equity fund setting. This allows for passively investing in these concepts, but without the need to do the hard work of managing them. At present, the fund is only open to accredited investors. We intend to have fund offerings for non-accredited investors in the future.