Three Simple Questions to Define the Right SMB for You

Buying a profitable small business is a highly underrated strategy to build wealth.

If you’ve considered it, you likely faced this question:

What’s the right business for me?

There are thousands of businesses you could buy — everything from veterinarian clinics to niche food blogs.

Focus is critical.

So in today’s newsletter, I’ll offer three simple questions to help you narrow in on the right business for you.

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1) What role do you want?

Buying a small business gives you more control.

Control over your time, earning potential and the work you perform.

But there are significant differences in what your day-to-day will look like depending on the scale of the business you choose — or more appropriately, are able — to acquire.

Here’s a simple framework (based on the EBITDA you are buying):

• $250K = You’re buying a Job

• $500K = You’re buying a Management role

• $750K = You’re buying a C-level role

• $1.0M = You’re buying a Chairman role

There is no right answer.

While some gravitate to the “Chairman” role, it may very well be out of reach for the first time buyer.

That’s fine. As long as you know what you’re getting yourself into.

Consider this:

Do you want to give up your cushy $300k product manager gig to lead a team of blue-collar workers earning $25/hr?

Or a group of VA’s earning $8/hr?

Be honest with yourself.

Go in, eyes wide open.

2) How much can you really afford?

General rule of thumb:

You should bring at least 10% of the deal price to the table.

So if you have $100k of cash to invest, you can buy a business under $1M.

How do you bridge the financing gap?

1. Revenue Share Agreement

2. Stability Payment

3. Seller Financing

4. Bank Debt

5. Earn-Out

6. Investor Capital

Here’s a thread that goes deeper:

Important: the business you acquire may need additional growth capital to scale.

In that case, 10% may not be enough.

Always know the numbers.

If financial forecasting is your weakness, start here.

3) What is your edge?

Most of us have years of professional experience to lean on.

Projects we’ve led, skills we’ve developed or lessons we’ve learned.

That is your edge. Find a business that needs it.

Here’s an example:

Say you’ve spent 10 years as a Director of Sales for a multi-billion dollar insurance company. You’ve managed large teams of outbound sales agents. You know the sales cycle of landing national accounts inside and out.

What business might be right for you?

An established regional manufacturer serving a dozen local customers. This is a common profile. A seller that knows his local market, but isn’t familiar with a high-touch sales process focused on winning big accounts.

That’s precisely your edge.

Identifying your edge is critical because it instills confidence:

• Confidence in yourself - that you can operate the business and grow it.

• Confidence for the seller - that you are well-equipped to take what he has built and improve it.

• Confidence for your new team - that you will make their lives easier and create new opportunities.

We all bring a unique set of experiences to the table.

Narrow your search to businesses that can directly benefit from those experiences.

Take the Leap

99% of people who consider buying a small business will never do it.

The most common reason?

A lack of focus.

They can’t clearly define the size, industry and location of the business they want.

In a way, their search ends before it even begins.

Don’t let that become you.

Start by asking yourself these 3 simple questions:

1. What role do I want?

2. How much can I really afford?

3. What is my edge?

Use these questions to narrow your options.

Then, please, go make it happen.

We need more crazy entrepreneurs!

That’s it for today.

Reply to this email with any questions.

Until next week,

Danny

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