Moment 137: Finance Isn’t Rocket Science! The 2 Simple Skills Billionaires Use Everyday: Codie Sanchez
Cody, a finance expert, discusses how to acquire small, "boring businesses" by demystifying deal-making. He emphasizes leveraging existing skills, finding motivated sellers, and structuring deals with minimal capital through seller financing.
Deep Dive Analysis
16 Topic Outline
The First Step to Buying a Business
Realizing the Simplicity of Deals Across Scales
Codie's First Business: A Laundromat Deal
Overcoming Objections: Why Profitable Businesses Sell
The Concept of 'Gateway Drug Businesses'
Industry Competence vs. Deal Understanding
Finding Operators and Information for Deals
Buying Businesses with Little to No Capital
The Win-Win Nature of Deal Making
The Fallacy of Sales and Finding Motivated Sellers
Becoming a Good Shepherd for the Seller's Legacy
Strategy for a Young Professional with Limited Capital
Leveraging Your 'Unfair Advantage' in Business Acquisition
Applying the 'Personal PNL Review' to Find Opportunities
Structuring Sweat Equity or Revenue Equity Deals
Becoming the Solution for a Business Owner's Needs
6 Key Concepts
Financial Lingo as a Moat
Financial language is often intentionally made complex to create a barrier to entry, allowing those who understand it to charge more for their services. By simplifying this language, more people can access and understand deal-making.
Gateway Drug Businesses
These are small, often less-than-perfect businesses that serve as an entry point into the world of acquisitions. They teach the fundamental process of doing a deal, changing one's perspective on business and ownership, and can be sold later.
Seller Financing
A deal structure where the seller acts as the bank, providing a loan to the buyer to purchase the business. The buyer pays the seller over time, often with interest, deferring the seller's tax burden and allowing buyers with limited upfront capital to acquire businesses.
Sales as a Fallacy
The idea that true 'selling' doesn't involve convincing someone to change their mind. Instead, it's about finding people who are already predisposed to want what you are offering, identifying their 'trigger moments,' and enabling them to achieve their existing desires.
Personal PNL Review
A strategy for identifying potential businesses to acquire by looking at one's own personal profit and loss statement. It involves examining what you already spend money on or utilize, and then seeking to turn one of those expenses into an asset or acquire a percentage of the business providing that service.
Sweat Equity Deal
A type of business acquisition or partnership where the buyer contributes labor, expertise, or connections (sweat equity) instead of or in addition to cash. This can involve increasing a business's revenue by introducing new clients in exchange for a percentage of the company.
6 Questions Answered
Codie Sanchez's first business acquisition was a laundromat, which she chose because it didn't require full-time management and involved a relatively low-risk transaction.
Many business owners, especially older ones, reach a point where they are ready to retire, deal with less hassle, or simply move on, even if the business is profitable. They may not realize their business is sellable or their children don't want to take it over.
Not necessarily; understanding the deal itself (balance sheets, P&L) and knowing how to connect with people who have industry expertise is more important than personal competence in that specific industry.
Businesses can be bought for as little as a few thousand dollars or even zero through deal structuring methods like seller financing, where the seller is paid over time from the business's future profits.
The key is not to 'sell' or convince, but to be curious, discover what people truly feel, and find 'motivated sellers' who are already ready for their next adventure. Then, position yourself as the solution that enables their desired future.
Instead of buying a traditional 'boring business,' leverage your 'unfair advantage' by performing a 'personal PNL review.' Identify what you already spend money on or utilize in your current job/life, and then try to acquire a percentage of or the entire business providing that service, potentially through sweat equity or revenue-sharing deals.
13 Actionable Insights
1. Leverage Your Unfair Advantage
Instead of buying a random business, identify your existing skills and industry knowledge, then seek acquisition targets within that domain to utilize your “unfair advantage.” This reduces risk and leverages your current expertise.
2. Convert Personal Expenses to Assets
Review your personal or business profit and loss statement to identify recurring expenses (e.g., video production, marketing services). Explore acquiring a percentage or the entirety of a vendor’s business that provides these services, turning a liability into an asset.
3. Scale Down Large Deal Principles
Understand that the fundamental principles of buying a small business are not materially different from large corporate deals, just scaled down. Apply the same ‘work backwards’ approach used for large acquisitions to smaller, more accessible targets.
4. Partner with an Expert Operator
If you lack direct industry experience for a target business, find a knowledgeable operator who can manage the day-to-day operations. You can then focus on finding and closing deals, providing the capital, and leveraging their expertise.
5. Identify Motivated Sellers
Look for business owners who are ready for their “next adventure,” such as retirement, or whose children are not interested in taking over the business. These individuals are more open to selling, even if the business is profitable, due to burnout or a desire to move on.
6. Master Deal Structuring
Focus on learning how to structure deals creatively, as this is the true key to successful acquisitions, especially with limited capital. Understanding how to construct win-win scenarios is more important than having a large sum of cash upfront.
7. Utilize Seller Financing
Propose that the seller acts as the lender for a significant portion of the purchase price, allowing you to acquire a business with minimal upfront capital. This often involves paying the seller over time, potentially deferring their tax burden.
8. Approach Sales as Discovery
Instead of trying to persuade someone to sell, focus on asking curious questions to discover if they are already predisposed to selling. You are looking for “trigger moments” where a seller reveals their desire to exit or retire.
9. Become the Seller’s Retirement Plan
Frame your acquisition offer as the solution to the seller’s desire for retirement or legacy. Position yourself as a reliable steward who will care for their business, enabling them to transition into their next phase of life.
10. Prove Your Stewardship
Convince the seller that you are capable of successfully running and growing their business after the acquisition. This builds trust and assures them that their legacy and financial future (if seller financing is involved) are in good hands.
11. Apprentice to Acquire
If you’re young and lack capital, offer to apprentice with an older business owner who might be looking to retire. Learn the ropes and propose a future acquisition using the business’s profits, appealing to their desire to leave a legacy.
12. Start with Gateway Businesses
Begin by acquiring smaller businesses that may not be perfect long-term holdings but serve as learning experiences. Like real estate, you can gain experience, improve them, and then sell them to fund larger acquisitions.
13. Tap Online Communities for Expertise
Leverage platforms like Reddit to find local experts in specific industries (e.g., electricians for an HVAC company). Offer to pay them for an hour of consulting to quickly gain crucial operational knowledge about a target business.
5 Key Quotes
I realized there's no difference like materially between a billion dollar, a hundred million dollar, a ten million dollar deal and a one million dollar deal.
Codie Sanchez
Financial lingo is like the moat around how we make money, right? The less people speak our language, the more we can charge them.
Codie Sanchez
Once you learn how to do a deal, you'll you'll never see the world the same again.
Codie Sanchez
I truly believe that sales is a fallacy. I don't think sales exists. I think you find people who are already predisposed to want what you are quote-unquote selling.
Codie Sanchez
This is why people are poor because nobody teaches us the language of deals and if somebody taught us not how to negotiate our salary that's fine but how to negotiate for equity and ownership the world will the whole look a whole lot different.
Codie Sanchez
1 Protocols
Pro Way to Buy a Business Leveraging Your Unfair Advantage
Codie Sanchez- Identify your 'unfair advantage' based on your current job or skills (e.g., content creation).
- Perform a 'personal PNL review' by looking at what you already spend money on or utilize as an expense (e.g., ad purchasing, video production, studio space).
- Approach a business that provides one of these services and understand their financial situation (e.g., revenue, owner's age, motivation to sell).
- Determine if your current spend or potential referrals are 'material' to their business (e.g., if your $3k/month is 20% of their revenue).
- Propose a deal to turn that expense into an asset, such as a sweat equity deal where you introduce new clients to double their revenue in exchange for a percentage of the company.
- Alternatively, if the owner is older and looking to retire, offer to apprentice and eventually buy the business using future profits, becoming their legacy solution.