Main Street Millionaire - 1 Flashcards
1
Q
What is the main question to ask before buying a boring business?
A
What type of boring business is right for me?
This emphasizes the importance of personal alignment with business choices.
2
Q
What are the key factors to consider when buying a business?
A
Financial needs, risk tolerance, lifestyle preferences
These factors help ensure the business aligns with your personal circumstances.
3
Q
What is the cost range to acquire a Level 1 business?
A
Less than $1 million
Level 1 businesses typically require lower investment.
4
Q
What is the expected annual revenue for a Level 1 business?
A
Less than $300,000
This reflects the smaller scale of Level 1 businesses.
5
Q
What types of businesses are examples of Level 1?
A
- Laundromats
- Vending machines
- Self-serve car washes
- Self-serve storage centers
- Camping sites
- Mailbox centers
These types of businesses are generally easy to manage and require minimal training.
6
Q
What is the time commitment for a Level 1 business?
A
10 to 30 hours per week
This level allows for part-time management of the business.
7
Q
What is the annual salary range for a Level 1 business owner?
A
Less than $200,000
Reflects the earnings potential at this level.
8
Q
What is the expected profit range for a Level 1 business?
A
Between $50,000 and $200,000
This indicates the financial viability of Level 1 businesses.
9
Q
What is the cost range to acquire a Level 2 business?
A
Less than $5 million
Level 2 businesses require a higher investment compared to Level 1.
10
Q
What is the expected annual revenue for a Level 2 business?
A
Less than $3 million
This reflects the larger scale of Level 2 businesses.
11
Q
What types of businesses are examples of Level 2?
A
- Contractor/trades
- Cleaning services
- Education (preschools)
These businesses often require more management and operational complexity.
12
Q
What is the time commitment for a Level 2 business?
A
10 to 40 hours per week
This level may involve hiring an operator or manager.
13
Q
What is the annual salary range for a Level 2 business owner?
A
Less than $750,000
Reflects the earnings potential at this level.
14
Q
What is the expected profit range for a Level 2 business?
A
Less than $1 million
Indicates the financial viability of Level 2 businesses.
15
Q
What is the cost range to acquire a Level 3 business?
A
Less than $10 million
Level 3 businesses require significant capital investment.
16
Q
What is the expected annual revenue for a Level 3 business?
A
$3–$10 million
This indicates the larger scale of Level 3 businesses.
17
Q
What is the expected profit range for a Level 3 business?
A
$1–$5 million
Reflects the financial potential of Level 3 businesses.
18
Q
What is the expected annual salary for a Level 3 business owner?
A
$300,000–$1 million
Earnings can vary based on the owner’s role.
19
Q
What types of businesses are considered high-risk and should be avoided?
A
- Restaurants
- Hotels
These businesses have high failure rates and complexities.
20
Q
What is a key characteristic of digital businesses?
A
Build once, sell forever
Digital businesses have lower costs for additional users and better scalability.
21
Q
What are examples of consumer services?
A
- Roofing
- Landscaping
- Pool cleaning
These services are sold directly to individuals (B2C).
22
Q
What defines labor-moated businesses?
A
Require unique skill set, certification, or training
Examples include accounting and legal services.
23
Q
What is a real estate enhanced business?
A
A business with a significant portion of the acquisition price assigned to real estate
Examples include laundromats and car washes.
24
Q
What is the average selling price for restaurants compared to other small businesses?
A
$198,000 for restaurants, $800,000 for average small businesses
This reflects the higher risk and failure rates of restaurants.
25
What is the failure rate of restaurants in their first year?
60%
## Footnote
This highlights the high risk associated with restaurant businesses.
26
What is the failure rate of restaurants after four years?
80%
## Footnote
This further emphasizes the risk involved in the restaurant industry.
27
What is the average cost of a restaurant in the United States?
$198,000
## Footnote
This is significantly lower than the average cost of a house, which is around $800,000.
28
What percentage of restaurants fail in the first year?
60 percent
## Footnote
This statistic highlights the high risk associated with starting a restaurant.
29
What is a key reason banks are reluctant to lend to restaurants?
High failure rates
## Footnote
The restaurant business is known for its challenges and high turnover.
30
How are hotels described in relation to business?
Real estate with too many parts masquerading as a business
## Footnote
This emphasizes the complexity and asset-heavy nature of hotels.
31
What is advised before investing in a hotel?
Start with a small version before going mega
## Footnote
This approach mitigates risk in an expensive industry.
32
What are the characteristics of retail storefronts according to the text?
High overhead, cash flow issues, and inventory management challenges
## Footnote
Retail businesses often struggle with profitability and cash flow.
33
What is the future of retail according to the text?
Online shopping, except for high-traffic experience-based areas
## Footnote
Experience-based stores focus on creating memorable interactions rather than just selling products.
34
What is the primary risk associated with consulting firms?
Key person risk
## Footnote
The departure of a key consultant can jeopardize the entire business.
35
What is a significant challenge in the consulting business model?
Playing the RFP game
## Footnote
This involves doing free work to prove capability to prospective clients.
36
What can enhance the stability of a consulting firm?
Having multiple key consultants and productized services
## Footnote
This reduces reliance on individual consultants.
37
What is a key risk when buying a personal brand?
Key person risk
## Footnote
The original owner's engagement often diminishes after the sale.
38
What should you consider when buying a personal brand?
Buy the rights to their likeness
## Footnote
This can help maintain brand continuity post-sale.
39
What is a common misconception about Fulfillment by Amazon (FBA)?
It's easy and low-risk
## Footnote
Many sellers face significant challenges and risks with Amazon's control over their listings.
40
What is a major disadvantage of drop-shipping via Amazon?
Amazon controls everything
## Footnote
This includes pricing, product visibility, and account management.
41
What is the primary reason to avoid dry cleaning businesses?
Toxic chemicals and high cleanup costs
## Footnote
These factors contribute to increased operational risks.
42
What is the rule of thumb when considering businesses to avoid?
Avoid deadly businesses
## Footnote
These typically have high failure rates and asymmetric risks.
43
What is the first step in uncovering your Zone of Genius?
Identify your passions
## Footnote
Understanding what you love helps in finding the right business fit.
44
What is meant by 'skill stack'?
A unique combination of skills that enhances your business capabilities
## Footnote
Being in the top 10 percent in multiple skills can provide a competitive advantage.
45
What is an important consideration when reflecting on your skills?
Avoid focusing on turning around failing businesses
## Footnote
This can lead to unnecessary challenges and stress.
46
What type of network should you consider when evaluating business opportunities?
A diverse network including family, friends, and professional contacts
## Footnote
This can provide support and resources for your future business.
47
What is an example of a business John considers based on his skills and network?
A plumbing company
## Footnote
John's skills in logistics and technology can complement his brother-in-law's plumbing expertise.
48
What might John consider as his Zone of Genius?
Running a plumbing company
## Footnote
John feels a connection to plumbing and related services.
49
What are some plumbing-adjacent businesses John discovers?
* Commercial plumbing
* Residential plumbing
* HVAC services
* Septic tank installation
* Landscape architecture firm
## Footnote
These businesses could complement John's plumbing niche.
50
What is the main purpose of the Zone of Genius sheet?
To explore potential business ventures and identify what fits best for you
## Footnote
It helps in recognizing strengths and aligning them with business opportunities.
51
What is a common misconception about buying businesses?
There is no such thing as a 'good business to buy'; there's only the right business for you
## Footnote
This emphasizes the importance of personal fit in business acquisitions.
52
What are some questions to consider when describing your Ideal Owner Experience?
* What is the one outcome that would make you consider this a win?
* What impact would achieving that result have on your life and your business?
* What might get in your way? How will you overcome that?
* What geographic region do you want the business to be in?
* Which sectors are you most comfortable in?
## Footnote
These questions help clarify personal goals and preferences in business ownership.
53
What is the purpose of defining your Deal Box?
To establish specific criteria for what kind of business you are looking to buy
## Footnote
This helps streamline the search process and avoid distractions.
54
List some criteria to include in your Deal Box.
* Valuation
* Asking price
* Revenue range
* Profit range
* Margin
* Sector of business
* Geographic region
* Owner or operator preference
## Footnote
These criteria help in filtering potential business acquisitions.
55
What is the Ideal Annual Income example provided?
$250,000
## Footnote
This is the desired cash income from the business deal.
56
What is the Minimum Annual Income example provided?
$120,000
## Footnote
This is the minimum cash flow needed to proceed with a business deal.
57
What does the 100-50-10 to 1 rule refer to?
Look at 100 businesses at a high level for every one you buy; analyze 50 at a secondary level; do deep due diligence on 10
## Footnote
This rule emphasizes the importance of thorough evaluation in the acquisition process.
58
What is a common reason business owners are ready to sell?
They may feel burned out or disillusioned with their business
## Footnote
The case of Carl illustrates this point, as he is tired of running his coffee shop.
59
What is one key question to ask business owners to gauge their interest in selling?
How many of you would sell if the right offer came along?
## Footnote
This question reveals the latent willingness of owners to sell, even if they aren't actively seeking buyers.
60
What does the author suggest about integrating new acquisitions?
Smoothly integrate new acquisitions to ensure everything works together
## Footnote
This is crucial for the long-term success of merged businesses.
61
What is the Secret Seller Phenomenon?
At any given time, more than 60 percent of all business owners would consider selling for the right price, the right terms, to the right person.
62
What are the Seven Ds of why sellers sell?
* Death
* Divorce
* Disease
* Distress
* Dullness
* Departure
* Disagreement
63
What is a common emotional challenge for retiring business owners?
Transitioning from 'owner' to 'retiree' can be emotionally tough.
64
What percentage of baby boomers have no retirement savings?
Forty-five percent.
65
What motivates many baby boomer business owners to sell?
They are ready to retire, are burned out, or have no successors.
66
What is the importance of the Walking Billboard Strategy?
Every time you meet someone, tell them you buy businesses to increase potential deals.
67
What is a key characteristic of most business owners regarding their age?
78 percent of small-business owners are male.
68
What is the suggested approach when meeting potential sellers?
Develop a relationship and convince them you will respect their business and employees.
69
What is the typical method for finding business sellers?
Door knocking and networking with local professionals.
70
What should you do with your credit card and bank statements in the context of finding potential sellers?
Pull them together into a spreadsheet and focus on small companies you paid recently.
71
Fill in the blank: The cash goes to the ______, not the mouse clickers.
door knockers
72
How often should you check in with potential business sellers?
Every forty-five days.
73
What is often more important to sellers than the monetary value of their business?
Their legacy and the well-being of their employees and customers.
74
What is the typical online presence of business-selling websites compared to real estate?
Only about 20 percent of businesses are sold online, compared to 90 percent of homes.
75
What kind of businesses should you target when looking to buy?
Small businesses that do less than $10 million in revenue and are in professional services.
76
What is a common misconception about finding motivated sellers?
That they are only found online; many are off-market.
77
What role do intermediaries like bankers and business brokers play in finding sellers?
They can provide leads and connections to potential sellers.
78
What is a suggested method to keep potential sellers engaged?
Ask for permission to keep them updated and regularly check in.
79
True or False: Most business owners want to advertise their desire to sell online.
False
80
What is one way to visualize finding motivated sellers?
Just as you might find unexpected opportunities in a new environment.
81
What is a potential outcome for sellers when their business is purchased?
A stream of income to help them ease into retirement.
82
What is the significance of building real relationships with business owners?
It's crucial for successfully buying their business.
83
What is the importance of face time when discussing business acquisitions?
Building real relationships with owners is crucial for successful discussions.
84
What is one effective method to initiate conversations with business owners?
Physically visit their businesses or contact them via phone or email.
85
How should you approach asking questions to business owners?
Warm up to them and allow them to warm up to you before weaving in questions.
86
What question can you ask to learn about a business owner's background?
How did you get started in the business?
87
Which question explores the owner's motivations for their line of work?
What inspired you to choose this line of work?
88
What question can reveal the owner's previous experiences before their current business?
What were you doing before this?
89
What is a good question to understand the owner's passion for their industry?
What do you love about being in this industry?
90
What question can help identify the owner's favorite part of their business?
What’s your favorite part of running this business?
91
What should you ask to learn about the owner's regrets in their business journey?
If you had it all to do over again, what would you do differently?
92
Which question addresses the challenges faced by the business owner?
What’s the toughest part of being in the business?
93
What is a key question to understand customer relations from the owner's perspective?
What is the most important thing for your customers to know about you?
94
What question can help you gauge the owner's daily routine?
What’s a typical day like?
95
Which question can uncover the owner's thoughts about selling their business?
Have you considered selling the business? How come?
96
What question can provide insight into the owner's future aspirations?
What are you hoping to do next?
97
What is an important aspect to discover regarding the owner's values?
What is most important to you—Your legacy? Your employees? Your customers? Your sales price? Your reputation?
98
Why is it important to be clear about your motivations when speaking with a business owner?
The seller may be interested in your motivations and capabilities.
99
What should you be prepared to answer when a seller asks about your interest in their business?
Have a good answer ready about why you admire their business.
100
What is a crucial factor in getting to know business owners?
Getting them to like you.
101
True or False: Owners prefer to sell their business to someone who dislikes their line of work.
False
102
What can often take time to learn about a business owner's motivations?
Their true motivations may be nuanced.
103
What skills are important to convey to the seller during negotiations?
Your skills, passion, and level of expertise.
104
Why do sellers want to ensure their business goes to a good family?
Because the business is often the product of their blood, sweat, and tears.
105
What can increase the seller's willingness to negotiate?
Being a great fit to take over the company.
106
What is the best predictor of future behavior?
Past behavior.
107
What should you focus on when discussing your work history with a seller?
Relevant accomplishments that prove an upward trajectory.
108
What is the Venmo Challenge?
A method to secure partial ownership of a cash-flowing business for zero dollars through conversations.
109
List the three desires of small business owners.
* They want to make more money.
* They want to do less stuff.
* They want to do things smarter.
110
What is the Zone of Genius mentioned in the text?
The area where you can provide real value, such as marketing.
111
What is a 'sweat equity deal'?
An agreement where one party provides value in the form of work in exchange for a share of profits.
112
Fill in the blank: Jane charges an average of $______ per cleaning.
300.
113
How did Codie propose to help Jane grow her cleaning business?
By increasing her number of cleanings and raising her prices.
114
What percentage of additional revenue does Codie propose to take from Jane's business?
25 percent.
115
What was Lisa Song Sutton's significant business insight regarding cash flow?
Investing in self-storage or mailboxes to ensure steady income regardless of market conditions.
116
What did Lisa learn from her friend Greg about running a shipping center?
Mailboxes provide steady, recurring revenue.
117
True or False: Lisa’s friend recommended that she start her own shipping center to be more profitable.
True.
118
What did Lisa offer to the owner of the shipping center in exchange for learning about his business?
To shadow him for two weeks, document his operation, and provide SOPs.
119
What was the revenue of the shipping center Lisa was interested in?
$1 million per year.
120
What did Lisa document during her time at the shipping center?
Every step in the pack-and-ship process.
121
What were Lisa's build-out costs for her two new locations?
$40,000.
122
Fill in the blank: The postal business is increasing at a rate of ______ percent a year.
5.3.
123
What was Lisa's strategy for finding locations for her new mailbox business?
Search in gentrifying neighborhoods with no competition.
124
How did Lisa's experience as a real estate attorney help her business venture?
It enabled her to negotiate reasonable leases.
125
What was the average monthly payment Lisa noticed she was making for her own postal box?
$20.
126
How did Codie propose to automate Jane's payment system?
By creating a system to avoid chasing payments.
127
What was the potential additional revenue for Jane if Codie helped her grow?
$100,000.
128
What was Lisa's first step after gaining experience in her business?
She left the owner with her SOPs and set out to find locations.
129
What types of neighborhoods did Lisa search for her new business locations?
Gentrifying neighborhoods with no competition.
130
How much did Lisa spend on build-out costs for her two locations?
$40,000.
131
Who did Lisa hire in the north for her business?
Military spouses.
132
What was the hiring strategy for Lisa's location in Spring Valley?
She hired cocktail waitresses and swimsuit models.
133
What was Lisa's revenue in her second year of business?
$300,000.
134
What did Lisa define before starting her business?
What kind of Owner Experience she wanted.
135
What does the term 'due diligence' refer to in the context of buying a business?
The process of evaluating the business before buying it.
136
What is the 20/80 principle in business acquisition?
20 percent drives 80 percent of every business.
137
What are the four critical financial questions to ask before buying a business?
* Can the business afford its debts?
* Is there enough margin to pay for management?
* Are there funds left for future growth?
* Does it generate sufficient profit for personal income?
138
What does SOWS stand for in evaluating businesses?
Stale, Old, Weak, Simple.
139
What does 'stale' mean in the context of SOWS?
A business that hasn't kept up with the times.
140
Why are old businesses considered appealing for acquisition?
They have faithful customers and repeat business.
141
What is the significance of weak competition in business acquisition?
Your target company is stronger compared to its competition.
142
How can technology improve a boring business?
By implementing billing software, customer relations management, and outsourcing.
143
What does BRRT stand for?
Cash-flow, Recession-resistant, Raise prices, Technology.
144
What type of business model is preferred in the BRRT method?
Cash-flow businesses.
145
What is a 'cash-suck' business?
A business that requires work first and hopes for payment later.
146
What is the importance of profit margins in evaluating a business?
They need to cover operator costs and personal profit goals.
147
What is the minimum annual profit desired before buying a business?
$200,000.
148
What does the saying 'Trust but verify' imply in business?
Always ensure the facts before proceeding with a deal.
149
What was the focus of the cannabis company Lisa considered investing in?
Manufacturing edibles, pre-rolls, concentrates, and topicals.
150
What is a key indicator of a strong business according to the text?
Consistent revenue growth.
151
Fill in the blank: The longer a business has been around, the more likely it is to _______.
survive.
152
What was the initial investment amount made in the cannabis company?
$12 million
153
What was the expected growth of the California cannabis sector?
$5.2 billion
154
What was one of the new product lines planned by the cannabis company?
Vape cartridge line
155
What major issue did the CEO face shortly after the investment?
Running out of money
156
What unethical actions did the CEO take with company funds?
* Renting apartments for mistresses
* Paying family members for nonexistent jobs
* Funding drug parties
157
What phrase summarizes the moral of the investment story?
Trust but verify
158
What is the first phase of due diligence called?
Truth Telling
159
What are the four ways sellers may not tell the truth during due diligence?
* Lie
* Omit
* Obfuscate
* Not know the truth themselves
160
What type of documents should be requested during the preliminary evaluation phase?
* Three to six years of financials
* Annual expense breakdown
* Annual revenue breakdown
* Asset and equipment list
* Photos of location
* Lease
* Overview report or summary
161
What is the second phase of due diligence called?
The Full Monty
162
What additional documents should be reviewed in the in-depth due diligence phase?
* Cash-flow statements
* Contracts
* Business structure and bylaws
* Insurance
* Competitor information
* Cash management
* Company credit score
* Professional services agreements
* Legal issues
* Employee data
163
What is the significance of determining the break-even point during due diligence?
To understand how long it will take to recover the investment
164
What should you do if you discover discrepancies in the financials during due diligence?
Use them as a bargaining chip in negotiations
165
Who should be part of your deal team during the due diligence process?
* Attorney
* Accountant
* Subject matter expert
166
What kind of risks should be evaluated in the due diligence process?
Sector-specific risks and market forces
167
What is the first rule of making money according to Warren Buffett?
Don't lose money
168
What should you avoid doing when looking at a potential business deal?
Falling in love with a single business
169
What is advised against when considering your first business deal?
Doing a recourse, personal-guaranteed loan
170
What is an acceptable margin for businesses according to the text?
30-plus percent is good; 20 percent is average
171
What is a significant red flag in a cash-based business during due diligence?
Owner reports less income on tax returns than financial statements
172
Fill in the blank: Due diligence should be conducted before starting any _______.
negotiations to buy a business
173
True or False: The seller will have ample time to gather documents for due diligence.
False
174
What is the general guideline for business profit margins?
A 30-plus percent margin is good, 20 percent is average, and anything less than 10 percent should be a concern.
175
What type of companies do private equity firms prefer?
Nimble, asset-light companies.
176
What is a leveraged buyout (LBO)?
When buyers borrow part of the purchase price against the new company’s assets or cash flow.
177
What must cash flow do in relation to debt repayment?
Repay the primary debt, down payment, pay for a manager, and then pay the owner.
178
What is a common issue many businesses face regarding cash?
Most businesses don’t know how much cash they have on hand or how long it would last if sales stopped.
179
What should you ensure regarding profit when buying a business?
There should be enough profit to hire an operator who reports to you.
180
What should you do if the seller is not forthcoming with financial information?
Drop the deal.
181
What is the importance of downside scenario planning?
It helps to assess profitability under adverse conditions.
182
What does EBITDA stand for?
Earnings before interest, taxes, depreciation, and amortization.
183
Why do good investors scoff at EBITDA?
It does not account for the cost of maintaining depreciable assets.
184
What is a red flag when dealing with a seller?
A super-pushy, antsy seller.
185
What is the Transfer Risk Strategy?
To do a deal with as little money down as possible and with creative financing.
186
What is the recommended approach to presenting an offer to a seller?
Present an informal proposal with a realistic valuation and an offer for seller financing.
187
Fill in the blank: Cash flow is simply the amount of money _______.
coming in and leaving the business.
188
True or False: You should fall in love with a deal that can’t love you back.
False.
189
What should you do before signing a deal?
Run your terms by experts.
190
What is a standard operating procedure (SOP)?
A step-by-step playbook that lays out how to do something consistently and efficiently.
191
What is a key consideration when assessing potential partners in a deal?
Imagine every partner you have will leave you high and dry.
192
What should you do when negotiating to avoid unfavorable last-minute terms?
Hold the line and avoid falling in love with the deal.
193
What is the role of an owner in a business?
To grow the business by attracting more customers, getting existing customers to spend more, or raising prices.
