Episode Details

One fantastic and I find often overlooked way to achieve financial autonomy is to buy an existing business. In comparison to starting your own business where cash flow starts at zero and you need to support yourself whilst the business becomes self-sustaining (refer episode 1), when you buy an existing business, you have cash flow and customers from day one. Buying a business is something I can talk about with quite a bit of experience. I've bought two businesses, and for a couple years I was a licensed Business Broker as a side line to my financial planning practice. The thinking at the time was that my business owner financial planning clients would need to sell their businesses when they retired, and so perhaps offering business broking services was a sensible expansion. I ended up concluding that the two services weren't especially complementary, but I picked up some great learnings that make me a better advisor for my business owning financial planning clients, and for those seeking financial autonomy through buying a business. Just as an aside, something that I believe really strongly about business endeavours, but also life more broadly, is that we can't be afraid to try. I heard someone trying to sell business coaching recently and their tag line was 98% of business fail within 10 years. What a ridiculous statement. I assume their definition of failure is that the business isn't around 10 years from when it started. So? Does that equate to failure? I operated as a part time business broker for 2 years and then made the decision it wasn't sensible for me to continue to devote time and effort into that area. At the end of that period I had $35,000 sitting in my Business Broking bank account, and had learned an enormous amount. In fact even if there was no money in the bank account from that business, I'd still say it was a success because I learnt so much. So if you hear people trying to convince you that your plan or idea will never work because most businesses fail – don't believe it. People start businesses, and people wind up businesses. Their lives change, new opportunities come up, industries change. Sometimes people just come to the conclusions that they could make more money doing something else. That's not failure – that's having a go and then having the intelligence to reflect and chose a new path. In Silicon Valley jargon, that's a "pivot". Anyhow, sorry for the rant but that's just something I feel strongly about – you can't live your life being afraid to try. So when you look at buying a business, here's the process: You search the various web sites such as businessforsale.com.au and find a business that looks interesting. You submit an enquiry to the broker. The broker will send you a Confidentiality Agreement which you need to sign and send back – most business owners that are selling want to keep it quiet. They don't want their customers and staff to know that they are looking to exit. The broker will then send through to you an Information Memorandum (IM). The level of detail in here will vary depending on the scale of the business and it's complexity, but the IM will give you some good information about the business, it's history, and some figures around how revenue and profit have been tracking. Having read through the IM you should be able to determine whether this is a business you really want to look into in a serious way. Expect to look at quite a few IM's in your hunt for a business. They cost you nothing and it's always useful to see the figures for different businesses. So let's say you've found a business that looks like it may fit your needs. The next step will be to get the detailed financials – at least 3 years worth. So what to look for? The Profit and Loss is the most important. First of all, is the business making a consistent profit? This will be the number at the