I took an L last week 😢
Over the past two months, I've been trying to buy a business. My goal is to buy boring businesses (maybe the odd sexy one here and there 😉) to build a £10M plus portfolio. I know a lot about starting a business, managing staff, and growing a business. I knew nothing about buying a business three months ago. Now I know a little - I'm dangerous.
A great business can still be a bad deal and a not-so-hot business can still make a great deal
This is going to be a slightly longer email than normal so here are the heading if you want to skip around:
🧠 The Deal
🧠 All is not lost
🧠 Deposits - ouch!
🧠 Legal fees, ouch again! (but also my unfair advantage)
Next Steps and where I need to improve:
🧠 Negotiating & Valuing
📬 Rolling Fund
🧠 The Deal
One of the mistakes I made here was finding a great business and pursuing it at all costs. It was a retirement sale, had been around for 20+ years, and had a great balance sheet. This meant I chased this deal a little too hard. Soon into the communication, it was clear the sellers and I weren't on the same page. This business was very asset-based (property and other physical items) and these items needed to be valued. It was a hard no from the vendors to let us come and view. Eventually, they moved a little on this but we still couldn't view everything. That meant asset finance wouldn't come through and on top of this I couldn't proceed without knowing if I might need to replace certain items on Day 1.
With more due diligence we found more competitors in the area than had initially been stated by the vendors.
Ultimately it has taught me that a less attractive business could turn out to be a better deal. It also depends on the sellers and what they want from the deal. I would spend more time investigating this upfront.
🧠 All is not lost
Whilst it's a shame this deal didn't work out, a business I missed out on 6 months ago has come back up for sale. I liked this business a lot and it could be a great fit. I have been going back over the figures for this and will no doubt meet with the owner over the next few weeks. I hadn't pursued that until I knew where things stood with the current deal as I had invested a lot of time here. Stay tuned for an update on this!
The company brokering the deal that didn't happen ask for a deposit. Not all companies do this. Whilst their terms and conditions say it will be refunded and is just held in a current account, I will believe it when it's back in my account and will update. I feel paying a deposit at this early stage does push the leverage in favour of the sellers. Going forward I would be happy to do a deposit again BUT once we have a SPA or something like that negotiated. Deposits at heads of terms are too soon. There is still so much negotiation to be done.
🧠 Legal Fees
This is my secret weapon. I did a law degree and worked for the world's largest legal finance company. It's my edge. I understand how to structure complex finance arrangements and can read and interpret legal documents. If this wasn't the case I would have spent between £10k and £15k to get to this stage. Of course, the more you go through this process the more you will have set Heads of Terms and SPA's templates you can use.
🧠 Negotiating & Valuations
Still, a lot to learn when it comes to negotiating these deals. I had a lot of help from experts regarding what to ask and how to value the businesses. It is more of an art than science seems to be the consensus. I have learned a huge amount about aged debtors lists, balance sheets, and more. I had an awareness of these items of course but not an in-depth understanding. This has improved dramatically and I will continue to invest time in getting better at these things.
📬 Rolling Fund (email me)
Cash buyer vs a mortgage. Having a fund of money waiting to go and buy a business would give me more leverage. It's just like buying a house. If you've ever been a first-time buyer you'll know this feeling. Every house you like gets bought by a first-time buyer. They can move much faster and sellers favour the apparent security.
I'm not going to stop doing deals but I am going to pursue having a fund in place that will allow me to move faster on these types of deals.
If you're interested then reply with the word "rolling" to this email and we can chat.
That's it for today but there is a lot more to come.