If you want to learn how to do something well, it’s usually helpful to look at others who are doing that same thing very well, and emulate their behavior. Let’s look at wealth creation, one measure of business success. We can likely identify some trends in what some of the most ‘successful’ people are doing to create wealth.
Who is Making the Most Money?
Reading through the Forbes 400 list of the world’s wealthiest people, there’s an obvious trend linking all of the individuals. The vast majority of these people have created their wealth vis-a-vis ownership. Their wealth was predominantly created by owning and/or selling successful businesses - in other words, either by dividends or capital gains. What you will not find on the list are individuals who have a “regular job”, or even a very high-paying profession. You can work at a very high-paying job your entire life and never even get close to being on the Forbes list. The point here is that most of the wealth of the richest people in the world was not created by working for someone - but rather, through ownership.
What Can We Learn From These Entrepreneurs?
Now of course, not everyone attains this upper echelon of wealth. But as mentioned, we should look, listen, and learn from what successful people are doing and then apply it to our own lives. The average person earns 1.4 million dollars (before taxes and inflation) over their working career¹. Furthermore, according to the Federal Reserve, the average family (with the head of the household being 65 years of age or older) has a median retirement savings of $148,900. On the other hand, small business owners with less than one year’s experience were earning up to $75,000 per year in 2010- about double the national average for salary! Business owners with 10 or more years of experience are pocketing upwards of $105,000 per year - about double the average family income²! This is not to mention the various other benefits that come with owning a business in terms of time flexibility, tax benefits, and quality of life.
To put it simply, privately held, profitable businesses are true financial gems. They can provide an attractive income and a high-quality lifestyle for years. As an added bonus, they can also be sold when the owner wants to cash out and retire or maybe try something else. One of the best parts about privately held businesses is that they are available at a great price compared to most public companies, mutual funds, and other investments. These opportunities fly under the radar in that many sophisticated investors do not have them as part of their portfolios when they should.
What If I Can't Afford to Buy a Business?
Buying a business may seem out of reach for some people, but there are options available allowing the purchase of a business to be affordable. SBA loans (Small Business Administration loans) are business-acquisition specific loans that are guaranteed by the government. These loans can cover up to 80% of the purchase price, generally up to a maximum of five million dollars. In addition to leveraging an SBA loan, business sellers often provide financing (negotiable) for a portion of the remaining purchase price. This means that ordinary people can afford to buy a business since they are actually only providing 10-15% of the total purchase price upfront.
Related: What is Seller Financing?
Although this all seems pretty clear cut, there are some key initiatives you, as a buyer, will want to do to ensure a successful acquisition. First off, secure the capital you will need for the initial equity portion or down payment - generally, around 10-15% of the total price. Whether this money is from your savings account or raised from family and friends, it doesn’t much matter. You will also want to make sure that you have a good credit score (700+). These important items alone can take you a long way towards buying the business of your dreams.
As a business buyer, you need to keep an open mind. Many buyers don’t realize that there are lots of businesses on the market that might not seem interesting or “sexy” on the surface, but are in fact very profitable and enduring. Meaning, these businesses do not face a constant barrage of competition and have stood the test of time.
Lastly, one must be patient in the searching process. It can take some time to find just the right business and the right seller. Be patient, learn, and follow the money via business ownership.