This tweet caught my eye yesterday
I applaud him for the “absolute no brainer” rage bait statement since it’s definitely NOT
This question highlights the clear division between how people view money.
For someone without financial literacy taking $6k/month is the right decision.
But for an entrepreneur, money isn’t a resource to be protected. It’s fuel to accelerate our growth.
Here’s what I would do with the $1M of cash:
I’d buy profitable, existing auto repair shop(s).
It’s much easier to keep going in the business you already know vs. diluting yourself into something else.
Most small businesses can be bought for 3.5X annual profit
With a $1M budget, I could buy a business making ~$300K of profit per year.
That could be a single shop, 2 shops each making $150k, or 3 shops each making $100k.
So instead of the $6k/month option, I’d buy $25k profit per month.
I could use debt to juice the returns even more….
Usually you can get at least 3X debt on your cash.
With $1M of cash, I could get another $3M of debt, giving me a total budget of $4M
$4M purchase / 3.5X = $1.10M/profit
I’d have annual debt payments of $450k/year
So I’d be left with about $650k year of cash flow.
That’s $55k/month. More than double the “all cash” deal and 9X more than the $6k/month “no brainer” option
All of this is BEFORE making any improvements to the business.
Obviously there’s a lot of risk involved. The profit could go down after buying it.
It’s also hard to find deals that pencil out.
None of this is easy, but the plan is simple.
This is exactly how I scaled my auto repair business to $55M+ per year. I reinvested profits into buying more locations, then used that new cash flow to buy even more.
This is how you truly get rich
All of this “business buying” stuff can be learned. I didn’t know any of this stuff 10 years ago.
The best part is you don’t need $1M. You can do this with $100k or even less.
My lowest cost acquisition only cost me $20k of cash (+ $100k in debt)
I’d love to hear from you: what do you need to learn to start doing deals like this?
Is it finding them, underwriting, negotiating, or something else?