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Becoming an entrepreneur doesn't necessarily mean starting a new business from scratch. You can also acquire existing businesses, for which there is no shortage. According to a CNBC analysis of a 2023 report from the Exit Planning Institute, 58% of boomers who are business owners say they planned to sell their businesses within the next five years. In other words, there's a prime opportunity to own a small business that's already been up and running and earning cash.
Acquiring a business may sound like something that's only meant for rich people and private equity funds, but you can get started even if you don't have much money to make the purchase. However, much like any major financial decision, it requires careful planning and understanding your risk appetite.
That's why we spoke to Codie Sanchez, founder of Contrarian Thinking, where she teaches people how to acquire and manage businesses. Read on to hear her advice for how to financially think about acquiring a business.
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Before you start thinking about raiding your retirement fund to buy a business, consider the kind of business it makes sense for you to acquire. Sanchez calls this the "perfect fit" business — and there are a few questions you can ask yourself to narrow down your answer.
"For our perfect fit, we start with a few things," she says. "How much money do you want to make? How much money do you want to invest? Do you want to operate the business? Or do you want to just invest in the business? Where do you want the business to be located? What industries and sectors are you interested in? What skills and unfair advantages do you have that this business is going to need? How do you want to finance the business?"
Sanchez recommends creating a "deal box," which is basically just a checklist that helps you assess whether a business aligns with what you said you wanted to acquire in the first place.
The deal box should include criteria like revenue earned, profit, geography and margins. This is your chance to define the type of business you would be comfortable purchasing at this time, so you don't end up biting off more than you can chew.
Sanchez has a video explaining the deal box and showing an example.
"Your deal box basically is the thing that tells you when to swipe right or swipe left on a business," she explains. "Until you have that done, you'll get so distracted that you'll forget what the core things actually are, and you don't ever want to fall in love with something that can't fall in love with you back."
The first business Sanchez acquired using her own money was a laundromat. It was while she was still working in a corporate role looking for a way out without needing some brilliant new startup idea.
"I don't think it was more than $100,000 that I put up, which is a lot of money," she says. "But at the time for me, that felt like a comfortable ask." According to Sanchez, the laundromat turned a $60,000 profit in its first year.
But not everyone has the money to make a sizable purchase. Sanchez recommends a few important ideas for buying a business with or without money: sweat equity and earned equity:
"I think a lot of people make the mistake of saying, like, I need to have this much saved up," Sanchez says. "And yes, that is the easy button. It's much easier to buy a business if you have cash. But the real problem is, it's never that somebody doesn't have enough money to buy a business, it's that they don't know enough about doing deals."
But if you would prefer to spend your own money to buy a business, Sanchez's personal rule of thumb in the beginning was to not invest more than 1% of her investable assets into a deal. Then, she gradually raised that to 5%, then 10% over time.
Another way to get the money to purchase a business is crowdfunding, which involves getting a large pool of people to pledge small amounts of money to help you reach a fundraising goal. To avoid giving up equity or having to pay back the money, you'd want to opt for a rewards-based crowdfunding campaign.
Kickstarter is one of the more popular crowdfunding platforms because there is a wide range of projects you can raise money for, from video games and technology, to dance, music and arts and crafts. You have to pay a fee of 5% of the money raised if you hit your goal and want to cash out, so keep this in mind when setting your fundraising goal. Indiegogo is similar and also takes a 5% cut of the money you raised.
5% of total funds raised; payment processing fee of 3% + $0.30 per pledge
Project categories are quite diverse and range from arts and crafts, design, dance, music, publishing, technology and more. Business owners and creators launch a project and set a funding goal with a deadline. You'll only be charged if you reach your funding goal by that deadline.
5% of total funds raised; payment processing fee of 3% + $0.20 per pledge
Project categories offered include energy and green tech, film, health and fitness, video games, home, audio, phones and accessories and travel and the outdoors.
Check out CNBC Select's list of the best crowdfunding platforms for businesses.
Whether you're starting a business from scratch or acquiring one, there's some level of risk involved. You can surpass revenue expectations, break even or lose money. But one of the best things you can do before you accept a deal is to to figure out how much the business would need to "fail" or lose and still be able to stay afloat.
To do this, Sanchez suggests using the free calculators on BizScout, a business buying marketplace that she founded. You can use tools, such as this buying power calculator, to plug in some numbers and figure out what you'd need in order to make a deal work and how much of a loan you'd be able to take on.
"The scariest year for business acquisition is your first one," Sanchez says. "We call it the valley of death."
But once you learn the ropes, you're set up to do even better in the following years and eventually acquire even more businesses. Sanchez likens business acquisition to dating: You don't end up planning to marry the first person you date but, over time, you learn more things and you're able to "trade up."
If you're serious about taking early steps to acquire your first business (or you just want to do some window shopping), there are many websites and marketplaces for buying and selling businesses.
BizBuySell is one of the largest marketplaces for buying businesses. You can purchase anything from food trucks and manufacturing businesses to hotels, pharmacies, car washes and restaurants. You can also search for businesses based on location if you want to purchase something local. The site offers a blog with resources for getting started. After a quick glance, this site lists businesses ranging from $60,000 to over $1 million in sale price.
Business Exits is more of a brokerage that lists high-revenue businesses, like wellness practices, construction companies, wedding venues and more. These kinds of businesses earn well over $1 million, up to as much as $60 million.
Lastly, Niche Investor specializes in helping people buy and sell creative websites and online businesses (think blogs and sites that sell digital products). The site has facilitated the sale of over 5,000 websites so far. Sale prices are far more modest than listings from BizBuySell or Business Exits, ranging from $4,000 to $325,000-plus.
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At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Codie Sanchez, founder of Contrarian Thinking.
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