Chapter 6: Identifying characteristics you want in the business
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- established
- profitable
- probably should look for a dull business
- same customers every year
- growing slowly
- i.e. enduringly profitable
- don't buy a troubled business because the price is low
- customer retention after purchase is crucial
- slow growth
- high growth means new customers will outnumber old ones
- new customers bring new demands and new troubles
- new customers without no history have no loyalty
- high growth attracts new competitors
- new competitors + new customers with no loyalty = low prices
- high growth business = higher purchase price, bigger risk of failure, more work
- low growth + dull = less risk, less worry, less work, lasting relationships with customers, recurring revenue, lower marketing and sales costs, fewer surprises, and cost less to buy
- slow and steady wins the race
- buy a dull business and live an exciting life
- appropriate size
- between $750k and 2m in annual pre-tax profits is ideal
- big enough to financially reward your efforts
- larger sizes attract private equity money and raises price and reduces returns
- good match for your skills
- general management skills wrt people, marketing, production, legal, accounting
- make sure seller doesn't have a rare skill that will be hard to replace
- don't buy if company cannot be understood after due diligence
- good match for your lifestyle
- location of business
- family life
- buy a business, not a job
- make sure customers value the products and services of the company and not the sellers (and in the future your) contributions
- individual providers should be swappable when they move on
- it should continue to generate income when you retire
- ignore passion for the business -> you want a dull business
- be passionate about making money and building a life you want
- don't confuse hobbies and social causes with a good business
- ignore the price of the business since it is not restricted to how much money you have in the bank
- the higher the price the lower your percent ownership but this is a percentage game so that's fine