🏗️ $treet $mart$: Don't Build a Business → Buy One 💸

Samson Jagoras 17.Jan.2023

$treet $mart$ (vol. 17)

Buying a Business

There is a massive wave coming, or should I say Tsunami. We are on the verge of the greatest wealth transfer in history. Estimated at $68 Trillion, a whopping $7 Trillion will transfer to a new generation of business owners, as boomer entrepreneurs finally hang it up.

By 2030, all Baby Boomers will be 65 years old or older; and a large segment of this population are business owners. Business owners who may or may not have a Legacy plan. The data suggest that last less than 58% of Boomer business owners have a legacy or transition plan. Therefore, in order to retire they must find a hungry aspiring entrepreneur who can carry the torch into the next decade.

Starting a new business from scratch or bringing a new product to the market is more difficult than most people want to admit. There are 5.34 Million new business entities formed each year. Yet, there are only 6 million employing companies in the entire United States, which means that the vast majority of businesses never make it. In fact, less than 4% of businesses make it to $1M dollars a year in revenue.

If you are reading this and considering taking the entrepreneurial leap, buying an established business might be the right move above starting something new.

Since 2008 real estate has been touted as the holy grail strategy to exit the 9-5 career. And admittedly, I find it very attractive. It can create cash flow and has tremendous tax benefits. In fact, I take full advantage of this asset; however, my wealth strategy has adjusted to accommodate buying more established companies as well. Here is why:

Small fish in a big pond → In real estate, there is a bunch of money all chasing the same deals, the deals take so long to close, and the yield is getting smaller and smaller. But why? Because private equity, family offices, and institutional real estate funds want to buy easy assets that don’t require a lot of people to operate them. This is both the beauty and the drawback. You can own 3,000 apartments and not actually have to manage the day-to-day. Instead, you can hire a 3rd party management company. If your sole wealth strategy is your real estate investing, you are just a small fish in a big pond.
Big fish in a small pond → There are fewer private equity companies chasing people-heavy business, where the owner wants to retire. WHY? Because private equity groups do not want to RUN the company. Therefore, these Boomer business owners are giving more favorable terms, open to more creative deal structuring, and seller financing than you will find in real estate. If you are willing to get your hands dirty and operate the business for a period of time, then you are a big fish in a small pond. The potential is unlimited.
The velocity of revenue → Real Estate is slow. I have to wait an entire year to raise my rent because I lock myself into a contract, and I am limited by the total number of units I can sell because they are finite. But with business, I can invest in more marketing, hire more employees, sell more products or services, break into new markets, and reinvest my money into systematizing my processes in order to increase revenue velocity.

The Secret Sauce

Real estate will always be a great place to put excess capital and watch it grow. In fact, I'm still buying and developing real estate, but the truth that no one wants to say out loud is it is slow money! It's slow because finding great deals takes a lot of time, closing on deals takes a lot of time, entitling deals takes a long time and money, turning a property takes a long time, and it's ultimately slow because it has limited upside. Therefore, your typical life cycle in commercial real estate can take 6-9 months to find and close one deal. And if you are developing, it can take 2 years before you break ground.

But if you are a reader of this newsletter, then you are an entrepreneur, a business operator, you like the game of business, or you aspire to own a business. And entrepreneurs like us, who can operate companies are gonna win big time in the next decade, because we can provide something unique that money alone can’t buy. We can provide legacy business owners an exit from the day-to-day → we can help them retire.

Below I have put together some tools and resources that will help you get started on the path to buying a business.

Best,

Samson