Mindset Makeover: Overcoming Entrepreneurial Challenges In Business Acquisitions
Business buyers taking action Hey Biz-Buyers, I can think of only one good excuse why you shouldn’t pursue business ownership: You don’t…
Read More >>Unconventional Acquisitions•
January 2, 2021
Investing through the acquisition of small businesses is another route to passive income. Right now we believe it is one of the best routes based on the market and opportunity. One initial mistake buyers need to avoid when they are looking for more passive investment opportunities is to make sure they are buying a business and not a job. See E-Myth Revisited or The Cashflow Quadrant for more information on what that means. (Book links are Amazon affiliate links. If you use them we get a small commission for the referral, feel free to search them on your own if you prefer.)
Essentially it comes down to leverage. More importantly it comes down to human capital. Your ability to find, hire, and retain a top team to operate your business will determine the level of passivity in your investment.
“I am convinced that nothing we do is more important than hiring and developing people. At the end of the day, you bet on people, not on strategies.” – Lawrence Bossidy
Profit vs. Pay
We know we drill it into your head but we’ll say it again for the kids in the back!! Make sure there is enough profit in the deal to afford your quality operator to run your business and still achieve your own personal profit goals. A site like Glassdoor can help with your research. For instance, if I were buying an auto repair shop, I would likely need to pay someone $60K a year with some bonuses to manage the business according to them.
1.) Experience in the trade and leadership experience. Dig into their experiences with them by having them run through every job on their resume. What did they do? What did they love? What did they hate? What would they have done differently?
2.) Culture – Do they fit the core values of your company? Better yet, do their core values align with yours?
3.) Goals – Do their future goals align with the opportunity? I don’t want to have to hire another person in a year if they outgrow this job unless I have somewhere for them to move up, and they can hire their replacement. This isn’t just about their compensation goals. What do they want their life to look like in 3-5 years? How can they see this position helping them to attain those goals?
4.) Behavioral Assessment – I am a huge believer in using a behavioral assessment for hiring especially in leadership roles. Not every role requires the same behavioral patterns, but people have different natural patterns and using an assessment like the DISC or Myers-Briggs will often help determine if they are a good fit for the position. It’s not to say if they are not a job match that they cannot succeed, it just means they will be consistently asked to do things outside their natural behavior pattern and over time that can wear on people. I have personally found that the right assessment match is a strong indicator of success in a role. There are no right or wrong answers on these assessments. Different jobs are a better match for different patterns. One is not better than the other. This course is not meant to teach about behavior assessments, but they are a great resource, and if you are hiring operators I would suggest taking a course on how to use and interpret these reports.
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You can learn by your own experiences or the experiences of others. We find others less costly.
You can learn by your own experiences or the experiences of others. We find others less costly.