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Even if you're buying something that isn't
quite exactly what you envisioned that you would

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like to have, because we get
this idea of buying a profitable platform.

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Once you have a business that is
making money for you and it contains a

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lot of the resources that you need
for whatever it is that you really would

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like to do, you can then
build that new thing, that new concept,

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on top of that existing business,
and you're basically given yourself infinite runway

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because you're already making money from day
one. You're listening to carry Letts's Financial

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00:00:28,440 --> 00:00:34,000
Survival Network, where you get valuable
information you just can't find anywhere else to

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00:00:39,960 --> 00:00:44,920
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gift. Financial Survival Network now more
than ever, and welcome you are listening

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to watching the Financial Survival Network.
I'm your host carry Lets. As we

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to the dog days of August,
you might be thinking what should I be

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doing? Should I start a new
business? Should I buy a business?

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You got some extra cash, you
want to do it in the least risky

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way possible. However, you want
to get the maximum return. And someone

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who's an expert in that he hasn't
been on the show in more than half

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a decade is David Barnett. David's
got about twelve books out there, I

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think, and hey, your latest
book Smarter than a Startup? But among

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them it's how to Sell My Own
Business? I did that invest local credit

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card advantage, Twelve things to do
before you consider selling your business, and

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a bunch of other books too.
David, it's great to have you back

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on the show. Hey, Carrey, it's great to be here. How

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are you today? Excellent? So, looking at your latest book, you

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kind of tip your hand in the
title Smarter than a Startup? Tell us

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about that? Yeah? Sure.
So you know, a lot of people

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want to get into business, and
there's an awful lot of content out there

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about starting a business and what it's
like to start a business, how to

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plan to start a business, and
so the purpose of the book was simply

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to give people a pro and con
of why it might make more sense to

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look at buying a business instead of
starting one, even if somebody has some

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kind of unique and creative idea.
And this is the key, because I've

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witnessed this in my own career,
where someone has wanted to start a new

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kind of business and maybe the market
was improven or they didn't really know what

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the demand was going to be.
And so you guys, you can imagine

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starting a business like that entails even
more risk than the average business startup.

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And so what I've seen people do
successfully is by existing profitable businesses that just

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happened to contain some of the resources
they needed for this new idea that they

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had. And so it's almost like
the idea is to acquire a business that

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can provide an incubation base for the
new idea that you want to explore.

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And it's all about reducing risk at
the end of the day. All right,

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So I've started businesses. Most of
the businesses I've been in started from

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the ground up, but I've done
a few turnarounds, and I can tell

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you that it's easier to do a
turnaround to buy an existing business, even

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if it's marginally profitable or losing some
money a little bit, not humongous losses,

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but manageable losses, and then to
turn it around because you know,

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when you start a new business,
you've got to have a system for everything

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and even though systems are easier than
ever because of the cloud based applications out

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there like quick books online, like
so, like CRMs client to you know,

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management systems. Even with all that, it's easier to get a company

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that's running all right, that has
that has dollars coming in the door,

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even if they're doing things wrong.
Then it is to start from the ground

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up. Well. Yeah, and
I think the thing that you're pointing out

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there is that one of the most
difficult things to get in businesses the dollars

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coming through the front door. And
it's that race to get enough customers fast

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enough that many new startups loose and
they don't quite get to the point they

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need to to hit that break even
point. Or I like to point out

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that you know, once you hit
the break even point and you're breaking even,

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you really haven't broken even because then
you got to recover all the losses

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that you put into it over the
course of time that it took you to

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get to that point. And so
it really is an uphill battle. It's

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hard to get a new business up
and off the ground successfully. Yeah,

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and very few people are able to
keep them going five years or more.

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Right, Yeah, it's true and
so this is why in the book I

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propose the idea of instead of starting, you should be looking at buying,

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even if you're buying something that isn't
quite exact actually what you envisioned that you

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would like to have, because we
get this idea of buying a profitable platform.

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Once you have a business that is
making money for you and it contains

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a lot of the resources that you
need for whatever it is that you really

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would like to do, you can
then build that new thing, that new

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concept, on top of that existing
business and you're basically given yourself infinite runway

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because you're already making money from day
one. You know, people will say,

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well, what about the money.
It costs a lot of money to

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buy a business. And the fact
is that when you buy an existing business

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that is already profitable, it opens
the doors to a lot more in the

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way of financing opportunities because lenders can
see that the business can afford to make

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repayments. It's when you start something
new that you have no proven track record

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or no cash flow to look at. This is this is difficult. And

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you know, if you've got money
accumulated that you're going to use in your

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startup effort, you can very often
and parlay that money into doing an acquisition.

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So there any secular sectors that you
like right now that if you were

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looking to start a business or buy
one, you would be looking at.

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I'm a big fan of that cliche. The riches are in the niches,

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and so I always tell people that, as far as I'm concerned, one

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of the best things you can do
is look for businesses that don't have a

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high degree of visibility, so industries
that are not really front and center and

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very public all the time. And
look for industries where you're able to get

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healthy margins and you can protect them
in large part because other people just don't

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happen to notice. You know,
very public, very front stage kind of

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business that is doing well. We'll
attract attention and ultimately attract new competitors.

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It's a function of capitalism. Hey, what do you think of the property

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management space? I like property management, and one of the big reasons why

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I like it is because it's a
service business with little in the way of

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capital assets. You basically are making
a real estate play without having to invest

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in real estate. Right now,
it's competitive and you have to have great

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systems and execution. But if you
can do the job correctly and your customers

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are happy, they'll probably stick with
you. It's one of those businesses where

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oftentimes it's not because someone else comes
along and steals your client from you that

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you lose a client. It's because
you did something to upset your customer.

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And a lot of the times I've
worked with people in similar industries where they'll

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describe their sales cycle as waiting for
their competitors to mess up, you know,

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and creating an opportunity for them to
come in. I was going to

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say that, so, like with
property management, people are always upset,

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especially you know, it's just a
huge level of dissatisfaction for a lot of

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reasons. A lot of them aren't
doing what you should be doing here,

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right, So really there, pulling
customers away isn't a big deal because most

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of the customers are looking anyway because
they're dissatisfied with their existing company. Well,

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you know, I've got some experience
in this because I used to own

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apartments and I remember I was looking
at different management companies and then the one

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I chose they really blew me away
because they had a Then this was over

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ten years ago, but they had
a really up to date system, so

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they would send me these detailed reports
at the beginning of the month showing the

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collections and everything they had spent on. And every time they got calls from

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tenants about certain issues, I was
kind of kept in the loop with a

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CC email, and so I knew
what was going on, and I was

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always informed and feel like I was
in the dark. And as in any

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sales or any kind of customer service
management, setting expectations is the number one

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thing, isn't it. And so
if you keep setting expectations and letting people

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know what's going on, it's going
to be harder for them to be upset

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with you. Yeah, and that's
great they had a system in place.

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Although too much information could drive you
a little batty, But maybe that's the

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idea that just dumps so much on
you that you wind up just ignoring it

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and saying they're doing their job until
you find out otherwise. What about this

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concept that buying a franchise, Well, yeah, one of the other books

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that I wrote a few years ago
is actually called Franchise Warnings, and it's

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one of the few books out on
Amazon that actually talks about some of the

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downsides to the franchise business model.
There's a lot of success in the world

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of franchising. You really have to
look at what you're getting for your money.

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You know, when you start a
new franchise location, you're dealing with

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a lot of the same issues that
a new startup has. You have to

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get customers that are being served presumably
by someone else right now, so you

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still have to fight for that in
the front door revenue, you still have

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to find your place in the market. And on top of it all,

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you've got almost an extra layer of
government over your head. You know,

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the franchise or takes a cut off
the top and can dictate to you how

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when you do things and when you
need to spend money on upgrades or improvements

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in this kind of thing. And
so it works very well for some people.

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If you're super creative and innovative and
very entrepreneurial, it may not be

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a good option because you have to
very much color within the lines when you're

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part of a franchise network. But
for some people, you know, if

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you've got a background and experience of
living within someone else's rule set, it

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can work out all right. So, yeah, what about buying an existing

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franchise location that's already producing income.
It's you know that, that's actually one

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of the suggestions that I put in
my book Franchise Warning. So I'll say,

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if you really are in love with
a certain franchise brand, the best

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of both worlds is to find an
existing location that stuff for sale, because

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then you can actually get a peak
at its actual track record, right,

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and it's already got the performance in
place. And it's interesting because resales in

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the franchise world will sell just like
this, just like any other independent business

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will sell for the price is a
function of the cash flow, whereas in

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new location the price is a function
of what it costs to build it open.

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And it's interesting because within many franchise
systems, you can often find resale

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units that are cheaper to buy than
opening a brand new unit. Yeah,

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because it could be millions of dollars
to open the unit, right, hundreds

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of thou Yeah. Especially with some
of these big physical location type franchises like

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restaurants and things like that, you
can spend a ton of money on real

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estate improvements in buildings that you don't
own, and you've got to recoup that

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money over the life of your operation, and you know the capital expense can

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be can be quite high. That's
true. Yeah, all right, So

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what about financing? You want to
do this business, you want to buy

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it. Banks are pulling back now, as we've seen from the banking crisis,

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So that's putting the squeeze on people, isn't it. Well, it's

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becoming more and more difficult. You
know, they're in the United States.

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Anyway, there's still a great deal
of SBA financing being done on business acquisitions.

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If the deal cash flows, bankers
will make the loans. The challenge

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for a lot of sellers is that, you know, they want the prices

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that people were getting in twenty twenty
one, and the reality is that with

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these higher interest rates, buyers just
can't afford that. The cost of the

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money, the higher interest payments have
to come out of the cash flow of

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the business, and most prudent buyers
are pricing in even higher interest rates.

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SBA seven A loans are variable,
and so people buying today are being quoted

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ten ten and a half percent by
their bankers, and I know people are

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planning for another couple of points of
increase, So this means they can't afford

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to pay as much as they used
to. I know that some deals are

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falling apart because of that, but
you know, I believe that for those

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sellers, they're not really paying attention, and it could be that their business

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may be worth even less down the
road at these rates continue to go up.

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Yeah, probably they'll never forget more
money for the business than they'll get

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right now. Right, Yeah,
well, you know it, hindsight is

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always twenty twenty, right, And
twenty twenty one was a fantastic year for

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people to exit. There were all
kinds of government programs who were taking advantage

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of, and interest rates were low, meaning buyers could pay top dollar.

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You know, you've got a powerful
entity out there, you know, the

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central Bank, who is actually trying
to create a recession. And I don't

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know why people don't pay attention to
that, but usually what those guys want

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they get. You think they'll be
successful in creating the recession they're looking for.

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I think they're going to try until
they get it, until they get

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the right formula. Huh yeah,
yeah, Well they're trying to get inflation

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under control. All right. So
you've been at this game for a while,

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David. Going back, if you
could go back to yourself twenty at

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age twenty one, what would you
tell yourself at age twenty one? That's

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00:14:01,320 --> 00:14:07,039
a great question. Carry I would
probably not change anything. You know.

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The path that I've been on that
has led me to where I am today

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has been a pretty good one.
I probably would have told myself to buy

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Brix and sell it a hundred.
How about that. I'd probably been good

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advice back then. I would have
told myself to buy Tesla and never sell

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it at least, but in any
of the hindsights twenty twenty, but as

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far as maybe you could have done
things quicker, more profitably, avoided some

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mistakes. Yeah, you know.
It's it's interesting because every time I want

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to look back at something with a
bit of regret, I realized that part

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of what I learned in that period
of my life is valuable to me now.

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And maybe maybe that's the lesson.
It's just no matter what you live

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through, you know, look for
the value that you're generating for yourself.

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It's funny today, you know,
I promote myself on YouTube and for example,

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and you know, earlier in my
life I was actually on the radio,

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and so part of that experience helps
me today. You know, I

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went through a career of owning a
business brokerage office. It was a crazy

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up and down roller coaster of cash
flow. It gave me all the gray

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hair I have. But living through
that experience gave me the knowledge understanding that

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I need today to do the consulting
work that I do. And so I

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think, as long as you are
learning and developing yourself, even if things

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seem rough, take what you can
out of it. There's a great book,

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you know, Gene Simmons, the
bass player there for Kiss. He's

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got that great He's got a book
called Me Inc. In which he describes

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his own journey back and forth between
self employment and employment, you know,

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and his advice to people is to
always be doing things that develop yourself and

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take a job. If you can
develop yourself and learn something from it,

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build upon that in your next enterprise. And I had just thought that book

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was amazing, and I would I
would repeat the same kind of sentiment,

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you know, that you live through
things and you'll learn along the way.

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He will. Hey, my father
always used to say, anytime you go

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into a new business, you're gonna
pay for lessons, right absolutely, yeah,

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Yeah, and you're either going to
pay with time or money one of

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the two, but you're going to
pay right Yeah, So hey, your

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top just before we go top three
businesses, segments, industries, if you

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will, that you would be looking
at if you were going to buy a

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business. Now, if I was
going to buy a business, I would

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be looking at again, things that
cannot be delivered by Amazon number one.

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So you don't want to be competing
against these big trend trends in the marketplace.

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So something that can't be delivered by
Amazon, I would be looking at

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something that would leverage AI at the
small business level. So AI is being

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put into everything right now. You
know, big companies are using it in

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a lot of different ways, and
so if you're in the world of small

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business trying to compete with big companies, you're probably going to be at a

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disadvantage. But if there is some
reason why your industry is always going to

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be dominated by small business people like
yourself, a vastly diversified ownership of enterprises,

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then you want to look for something
where you're going to be able to

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employ AI. So think about something
like auto repair. There's always going to

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be auto repair. It's likely always
going to be small, local, independent

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businesses. But is there you know, something like auto repair where AI could

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come in and really help you if
you're open to it and open to experimenting

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and implementing new things quickly. So
that would be the second thing. And

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the third thing, like I mentioned
before, is good margins. You know,

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gross margin is probably the most important
line on the P and L,

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and too many people, I think
don't understand that. You can get into

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a lot of trouble in business if
you don't understand your margins, understand where

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you should be for your industry and
defend that margin properly, or build a

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reason why people want to or choose
to or need to keep doing business with

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you over competitors. Right, all
right, well, hey, they really

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appreciate you coming on. Tell us
where we find you, how we connect

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with you on the web these days? Sure, I can always be found

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at David C. Barnett dot com. It's my blog site. There's an

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email list there that people get signed
up to, and if you're interested in

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learning more about buying, selling,
financing, or managing small and medium sized

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businesses. My YouTube channel has over
six hundred videos, almost entirely created by

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questions that people have submitted and I
put the audio of that onto the podcast

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feed. So if you just look
up David Barnett Small Business, you'll find

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me all right excellent. The link
is in the show notes this interview on

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00:18:57,000 --> 00:19:00,799
Financial Survival Network dot com. Make
sure you click it. While you're there,

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00:19:02,119 --> 00:19:06,039
go sign up for your free newsletter. David. Always enlightening, always

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interesting speaking with you, learning things
about businesses that I didn't know. We

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will definitely talk to you again,
and we won't let half a decade or

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more go by. Sounds good,
Carrie, Thank you, thanks for listening

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to carry Lets's Financial Survival Network,
your solution to today's trying times. For

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00:19:23,680 --> 00:19:30,680
the latest, go to Financial Survival
Network dot com. Financial Survival Network now

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00:19:30,039 --> 00:19:30,920
more than ever