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How to Make Money Buying a Business.

Mar 03, 2022

 

If you have followed me for any length of time, you will know that I love talking about everything business acquisitions and mergers, that's what I do, and that is what our company Acquisitions.com has helped 100+ people achieve for themselves while working with us.

An obvious but sometimes overlooked aspect of the acquisitions game comes down to the question, "how do I actually make money by buying a business?"

Everyone knows that the purpose of a business is to make a profit and that acquiring that profit-generating asset theoretically should result in money in your pocket.

Still, in reality, it goes so much deeper than that, and taking drawings or cash flow is just one method to realize the money you desire when buying a business.

The first step to making money from buying a business is having a solid plan for exactly how you will make money from your deal.

This is not something you want to "wing" or "figure out as you go along" yes, having the ability to improvise along the way is essential, but it needs to be in accordance with a plan.

We call this your Deal Positioning.

Think of this as your battle plans, things like your:
Sector
Website and branding materials
Pitch deck

The next part of your plan revolves around your Deal Team. You need to know what positions to fill and who the best people are for the job.

Positions include:
Board of Directors
CEO
Advisors
Lawyers
Accountants
Obviously, none of these positions are cheap to fill, so you will need to figure out if you will pay them with cash or equity in the deal.

Next, you need to plan out how you will structure the deal itself. Basically, strategize how you are going to pay for the business.

You have probably heard of things like:
Earn Outs
Seller Financing
OPM
Carve Outs
Takeovers
etc
These will then be made into an offer, and the first round of negotiations can begin.

All of the above are critical points to getting a deal done, but none have yet touched on when and where you will make the money.

Put simply, to make money, you need to be the owner, and to be the owner, you need to finance the deal.

Common financing strategies include:
Debt
Equity
Mezzanine
And many sub-sectors

So once you can raise the money to get the deal done, your options open right for how you can pay yourself, even on the day of closing.

You can over-finance the business (meaning your borrow more than the required purchase price) and take a bonus for you and your team.

You can pay yourself in the form of dividends.

Or you can grow the business and sell the entire thing for a healthy chunk of change in a year or two.

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