Is Now a Smart Time to Buy a Business? This Entrepreneur and Investor Says Absolutely
Entrepreneur and investor J Scott firmly believes the next couple of years will be the greatest time to buy a business. The current market is like the 2008 real estate boom, and if you’re smart — you can get in while costs are low.
You don’t need a boatload of cash to buy a business. J Scott describes two options that don’t require much money upfront.
The key skill set needed to make this work is smarts on how to run a business. You can learn industry specifics along the way.
If someone told you this just might be the best time to buy a business, you’d probably chuckle. 2020 hasn’t even been a good year to leave your house — let alone make a big investment.
But J Scott begs to differ.
“Right now is, I believe, the greatest opportunity for entrepreneurs and potential business owners in the history of this country,” he says.
J is a successful entrepreneur, investor and advisor. You might recognize his voice from The BiggerPockets Business Podcast. He’s also published four books on real estate investing, which have sold more than 150,000 copies.
I had the chance to interview J and tap into his wealth of knowledge. He walks me through the differences between starting and buying a business (and why the latter is actually smarter), why right now really is the best time to make this move, and how to dive in with little to no money down. He even shares some of his go-to advice to help you succeed.
Starting a business vs. buying a business: What’s the difference?
J is largely known as a real estate guy. After watching too much HGTV, he and his wife, Carol, were inspired to invest in their first flip in 2008. Since then, the power couple has bought, built, flipped, sold and held more than $60 million in property across the U.S.
Although J is still dabbling in real estate, he’s recently started buying businesses, too. These businesses primarily complement his real estate endeavors. For instance, he bought a water, fire and mold remediation company.
So how exactly do you decide whether to start or buy a business? Naturally, J compares it to real estate: In most instances, flipping a house is going to be less expensive and lower risk than building from the ground up.
“It's going to cost more, it's going to be more headaches, it's going to be more risk to take a business and start it from the ground up than it is to go out and find a business that's already running,” J explains.
A viable business already has established systems and processes, employees, a revenue stream, customers and vendors, which will save you a ton of time, money and operational headaches.
Why the next couple of years will be the best time to buy a business
Again, J, being the real estate guru he is, compares buying a business right now to buying real estate back in 2008.
“A lot of us missed the boat on real estate in ’08, ’09, ’10 and ’11,” he says. “What I see in 2020, 2021 and 2022 is a very similar confluence of events in the business world, and I think the next two or three years are going to be for business entrepreneurs what 2008 to 2011 was for real estate entrepreneurs.”
Why? Well, think about it this way. Before the pandemic, there were about 32 million small businesses, J says, citing data from the U.S. Census Bureau. He groups the owners of these small businesses into three categories:
Business owners who were struggling before the pandemic and trying to decide whether or not to shut things down. COVID-19 forced a decision: It’s time to call it quits.
Business owners who are in their 60s and are ready to retire sooner than later. After the pandemic, they won’t want to start over, so they’ll want to sell. (J says before the pandemic, there were something like 7,000 business owners retiring each day.)
Business owners who aren’t ready to shut things down now and aren’t ready to retire, but they’re struggling due to COVID-19 and might consider closing over the next few months.
Between these three categories of business owners, J predicts there will be millions of businesses shutting down in the next six months or so.
“This is a huge opportunity,” he says. “There are plenty of businesses out there that are still viable, where the business owners are just going to shut it down because they're distraught. They don't know how to sell a business, or they don't know their business can be sold.”
Some owners might even be happy to basically give their business away — as long as you promise not to fire all their employees. While some of these businesses might be floundering, a smart entrepreneur can turn things around with an investment of $50,000 or so.
“I think the number of businesses that are going to change hands at very, very low prices over the next year or two or three is in the millions,” J says. “There going to be a lot of people who are going to look back five years from now, and it's going to be just like we're saying, with the 2008 real estate boom, ‘I wish I had gotten in during that time.’”
How to buy a business with little to no money down
Here’s the neat thing about buying a business: It’s pretty easy to do with little or no money down. J suggests one of two approaches:
1. Get a business loan.
➞ These are different from other types of loans because you can borrow money for up to 90% of the value of the business. That means you’re putting very little money down. (Look into loans from the Small Business Administration.) Plus, with business loans you typically only have to sign a personal guarantee for 25% to 50% of the loan.
So if something goes wrong, you won’t have to pay back the entire loan — only the percentage you guaranteed. Compare that to real estate, where you generally have to sign a 100% personal guarantee.
2. Use seller financing.
➞ This is something he’s done in real estate, but it translates into the business world. In fact, he says it typically works even better for businesses. Here’s how it works: Say you want to buy a business for $200,000. If the owner owns the business outright, strike up a deal to pay for the business over the next two, five or even 10 years — whatever you can negotiate. Now you’re paying no money out of pocket, and you simply make smaller monthly payments to the owner.
3 pieces of expert advice
J shared a great deal of advice when it comes to buying a business. Here were some of my favorite takeaways you can apply to your next venture:
1. You don’t need to be an expert at anything other than business
When J quit his corporate job in Silicon Valley and jumped into real estate, he really didn’t know much about the whole real estate part of the operation. However, he knew how to run a business, and that’s all it took.
“As a business owner, I think this is the key piece: You need to be able to admit your shortcomings, and then you need to be able to hire those people who can fill those roles you can't fill yourself,” J says.
J learned about real estate along the way — enough to eventually write four books on the matter.
It would have been the same if he decided to invest in a chocolate shop, a car dealership, a restaurant — you name it. “A business is a business is a business,” he says
2. If you’re partnering up, make sure your financial goals are aligned
In the real estate world, J admits he’s not a big fan of partnerships, but when it comes to buying a business, he sees a lot more value in having a partner.
When you’re running a business you’ve got to have someone who’s really good at growing the revenue. That’s your marketing and sales expert. Then you’ve got to have someone who’s really good at the operational piece — someone who can ensure the day-to-day operations are as efficient as possible.
But before you tap someone as your business partner, you need to have larger discussions about your financial goals.
If one partner wants to make $1 million a year but the other partner is good with $100,000, your goals obviously aren’t aligned. This, J says, can be devastating to both the partnership and the business.
3. You can do more than one thing
When J worked at eBay, then CEO Meg Whitman used to tell everyone to “embrace the ‘and.’”
For J, that means you don’t always have to choose between one thing or another — you can do multiple things at once, if you want. For instance, he’s still dabbling in real estate but also buying businesses right now.
The key for J is to create good business systems and automate as much as he can upfront, so he can make the best use of his time.
“I try to be opportunistic,” J says. “Right now, I see the biggest opportunity is in business, so I'm focusing on business — but we're still doing flips, we're still looking for buy-and-hold, we're still doing some real estate. We're doing both until we see exactly where the opportunities flesh out.”
This article is based on an episode of Entrepreneurs Circle, a podcast featuring entrepreneurs and business owners discussing mindset, goals, vision, tips, and strategies on how to crush life and business, hosted by Erik Cabral, a real estate investor and owner of the On Air Brands creative agency.
