3 Ideas to Know When Buying a Business
Learn how to buy a business with these 3 ideas. Run a real life case study, understand the quick money math, and know what to look for before you buy. Make the right decision and increase your chances of success with these tips.
Michael Girdley
I share 25 years of direct business knowledge and life advice. $100M (and counting) HoldCo owner. Fireworks, software, school + 9 others.
-
Most people suck at buying businesses.
— Michael Girdley (@girdley) June 17, 2023
Because they focus on things that don't matter.
Let’s run a real life case study of a Canadian coffee shop we did on @acquanon.
Here are 3 ideas to know when buying a business: -
Here’s the quick money math on our case study.
— Michael Girdley (@girdley) June 17, 2023
This coffee shop was on the market with:
$500K in revenue
$125K in profit
Selling for ~$250K
On paper, it looks like you get your money back in 2 years.
Should you buy it? -
Before we even look at the deal, let’s imagine the lifestyle.
— Michael Girdley (@girdley) June 17, 2023
It's 4:59 am, and you're snuggled up in bed, snoring soundly.
Your phone rings.
It's your general manager at the coffee shop.
"Hey, sorry to bother but I can't come in today and nobody can cover me.” -
So you roll out of bed and put on your barista outfit.
— Michael Girdley (@girdley) June 17, 2023
You pour espresso shots for college kids from 6-10 am.
And, of course, they barely tip.
That's the reality of this coffee-shop-owner-life.
Do you want it? -
Don’t consider a deal if you can’t handle the lifestyle it requires.
— Michael Girdley (@girdley) June 17, 2023
Once you find something that actually works for you, it’s time to look closer.
Here are 3 ideas I apply to deals I look at… -
Value Trap: Cheap =/= good
— Michael Girdley (@girdley) June 17, 2023
Cheap can be a red flag.
Even if this deal gets your money back in 2 years…
Ask yourself: what am I missing?
In the coffee shop, the 10-year lease is 3 years from expiring.
Then rent will double and eat all your profits. -
Check your Comparables
— Michael Girdley (@girdley) June 17, 2023
The coffee shop’s gross profit margins are 60%.
All that tells you is revenue minus cost of coffee ingredients = 60%.
Is that good or bad?
Well, you need to look at coffee comps.
And if you do your homework, gross profit should be 70%+. -
Don’t stop there.
— Michael Girdley (@girdley) June 17, 2023
If your comps don’t match, find out why.
Can’t you just raise prices and make more money?
Not with this deal.
It’s a college-kid-focused coffee shop, so raising prices will lose you business. -
Find your Value Drivers
— Michael Girdley (@girdley) June 17, 2023
In brick and mortar retail, one thing matters most:
LOCATION.
Location makes this coffee shop reliant on college kids.
College kids mean you can’t raise prices.
In retail, Location = Profit Margins. -
The verdict:
— Michael Girdley (@girdley) June 17, 2023
This deal mostly sucks. Two reasons:
Low “return on hassle” ($ you earn divided by time or brain damage to get there)
Risk. That looming lease negotiation could kill this business. Gotta fix that first. (And that’s a new can of worms…) -
Did I miss anything?
— Michael Girdley (@girdley) June 17, 2023
What do you think?
Give me a follow/retweet of the first tweet below if you like this! https://t.co/FuKpVHAdyg -
For more no-BS wisdom on life, business, and HoldCo’s (my specialty),
— Michael Girdley (@girdley) June 17, 2023
Subscribe to my newsletter: https://t.co/OO1piAuAyk