Moment 137: Finance Isn’t Rocket Science! The 2 Simple Skills Billionaires Use Everyday: Codie Sanchez

Nov 24, 2023 20m 1s 13 insights
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.
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.