Interesting Data Gigs # 77: Use that "layoff" capital to buy a cash flow business

Key resources to acquire a business in 2024

Author

Marcos Ortiz
January 27, 2024

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Do you want to use your 401(k) funds + a SBA loan to acquire a business? Guidant Financial are the experts in this kind of work. They will work with you end to end from idea to acquisition.

Use that “layoff" severance package to acquire a cash-flow business

Hey, Data geek.

Yesterday I just shared this story on LinkedIn about a close friend’s situation after being part of a layoff in October 2023:

In October, 2023; I was chatting with a close friend who unfortunately was part of a layoff in September 2023, and one thing I saw when I started to ask the right questions was that he was very "comfortable" in his job, and I know he is not the only one.

My questions were straightforward:

- Q1: Did you contribute something impactful to your daily job? A1: No

- Q2: Were you excited every day with your daily job? A2: No

- Q3: Did you ask for more responsibilities? A3: No. I just got my tasks, finished them (like a robot), closed my laptop at 4:00 PM (He lives in NYC), and went home.

After listening to all this, I told him a harsh truth:

"You have been blessed with this layoff, my friend:

❌ You weren't enjoying your daily job. You were miserable there.

❌ You were there for a paycheck. Nothing else

So, instead of being sad about this layoff, see this as an opportunity to do something you enjoy. I know you have dreamed about having your own business. Use your incredible severance package to buy a business, instead of building something from scratch. You will thank me later"

Today, I chatted again with him and saw a sparkle in his eyes.

Thankfully, he listened to me and implemented a plan for it:

✅ Moved back to Dallas, TX (His family is from there)

💰 Started looking for businesses to buy on BizBuySell and LoopNet

🗞 Found an amazing Paper Shredding business which is a cash cow and growing, acquired it using an SBA loan; and he is happier than ever because he has more time with his lovely wife and two kids

😱 Bought his dream car: ELEANOR ( A 67' Ford Mustang Fastback)

I'm so happy for him and his family.

This is why I encourage anyone to unfortunately who has been part of a layoff: talk to your peers, ask for help, chat with your parents, friends, your wife/husband.

You are not alone on this. Men: we are very strong on the outside but many of us, we are suffering in silence. You don't have to do it. Ask for help TODAY.

me

I didn’t share this story before because I thought at first that it was a bragging thing. But after chatting with my friend, he told me: “I am sure that you will help a lot of people out there sharing this”.

So here we are sharing all of it, except the name of my friend to protect his privacy. Let’s call it Kevin and I will share some of his advice in this process.

But what about if you want to replicate that? The main goal of this post is to do precisely that.

Disclaimer: This particular post is intended for people inside the United States.

How I would acquire a cash flow business in the U.S in 2024

Let’s divide this into two different paths here: the digital business path, and the boring business path.

The “Digital Business” Path

What I mean when I mention “digital business” it could be:

If you want to follow this path, before acquiring a business of this kind, you need to figure out several things:

  • What kind of digital business do you want to acquire?

  • Do you want to manage it yourself or do you want to delegate this?

  • How much money do you want to invest in it?

  • How many hours do you want to dedicate to this business every week?

These questions will be crucial for the next step. To make this example more targeted, let’s say you want to acquire the Amazon FBA business in the Baby Care niche listed on Empire Flippers valued at $645,000:

Why Amazon FBA?

  • It’s highly technical, so, it’s perfect for someone with a Computer Science background

  • If you do it right, you can make thousands of dollars, especially if you sell in other marketplaces like Walmart or Google Shopping. Shopify can help you with that

  • The sky is the limit here

How to pay for this business

As I said before, you can take part of your severance package to put a down payment for a business you want to acquire, but there is a better strategy here.

Let’s say your severance package is a 6-month salary cash amount and the total value between the cash, company’s stock, and annual bonus is $500,000.

Let’s you grab 50% of that and you will take $250,000 ready to acquire a digital business.

If you play your cards correctly, you could acquire a $ 1,000,000 business like this one.

For example: instead of putting the cash directly for the down payment, I would do something differently here:

  • Create a new business through Doola (an LLC is OK for this, although you should know the perfect time for a company for funding for this is at least two years)

  • Then, using the Employee Identifier Number (EIN) of your company, apply for a new bank account in Mercury (I use it personally for this newsletter)

  • Deposit the cash in this bank account and apply for the IO Credit Card 

  • Schedule a meeting with the Mercury team to explain you want to acquire an e-commerce business with the card. Ask if this is possible

If you can’t acquire the business with the Mercury card; an alternative here could be to let the cash in there, and apply for a Ramp credit card.

Then repeat the process of scheduling a meeting with the Ramp team about what you want to do.

Kevin’s advice # 1: 

❝

The whole idea here is to use your cash as “leverage” or collateral and use the cards to acquire the business. This is just another example of OPM (Other People’s Money).

Kevin
❝

The whole idea here is to use your cash as “leverage” or collateral and use the cards to acquire the business. This is just another example of OPM (Other People’s Money).

Kevin

Working with Traditional Banks through SBA loans, Credit Cards, or a Line of Credit

Another route to explore could be going to traditional financial institutions like American Express or JP Morgan Chase (especially if you have a bank or card with them), and working with their cards or perhaps a line of credit for your business, or even a SBA loan.

Some of my favorite 0% APR Credit Cards are:

Kevin’s advice # 2:

❝

Or perhaps: you can go with a local bank or credit union and work with them. Sometimes it’s better to work with these institutions because they have fewer requirements than big banks like Chase or Bank of America.

Kevin

Using Your 401(K) funds to acquire a Business

Did you know about this option here?

Many people don’t know about this option but is a possibility here. The basic idea is to use the funds inside your 401(k) combined with a SBA loan to acquire a business.

In that way, you can use less cash from your side. I’m not an expert in this area, so, my recommendation is to chat with the Guidant Financial team and discuss your options with them.

2 Key Steps Before Acquiring the Business

But before anything:

Now, if everything is OK for acquiring the business, prepare your LOI (Letter of Intent), and send it to the seller.

Work with the team you create between the due diligence + accounting firm and the seller

What to do right away after acquiring the business

If I acquire an Amazon FBA, I would partner with an expert in the field, and work with them to grow the business and make it more efficient and cost-effective.

The whole idea is to bring the business to the next level without sacrificing a lot of profitability on it.

Some ideas to explore:

  • Partner with an Amazon FBA expert like Jon Elder, and perhaps launch new products on the Amazon store

  • Create a Shopify store for the business and sell directly to customers. Partner with experts in this space like Nik Sharma and his Sharma Brands team

  • If the business has a good email list, perhaps making this more efficient, could create a new revenue avenue

Kevin’s advice # 3:

❝

If you want to take one single advice from me in all this process, take this one: Partner with experts or mentors who walked the talk. That’s the key. The whole idea of acquiring a business is grow it in a sane and steady way, testing several wats and selecting the ones that work well for the kind of business you will buy. That’s why a mentor with real experience is crucial here.

Kevin

Other places to find digital businesses

The “Boring Business” Path

When I mention a boring business is a business with a physical location or more “traditional”.

Examples?

  • Laundromats

  • Car washes

  • ATM routes

  • Landscaping

  • Waste Management and Disposal

  • Gas stations

  • Self Storage facilities

I love this kind of business as well because many of them are recession-proof and work in any season.

How to Pay for a Boring Business

There are a lot of ways to do it, but my favorite method to do it is your cash + seller financing + through an SBA loan.

The percentage doesn’t matter here, but what matters here is the structure of the deal.

Why this makes sense? Through seller financing, you get the business owner involved from Day One, and through the whole process.

So, they are more interested in making it happen; especially for those people who want to retire.

A very good example of a business deal is this one shared by Sieva Kozinsky (Partner at Enduring Ventures).

You can see an example where the seller financing note is way bigger.

Again: the percentage doesn’t matter here, but the actual movement of involving the seller in the process.

I highly recommend subscribing to his newsletter called “Business Academy”.

It’s an amazing resource, especially if you want to buy a business shortly.

This is the type of business that Kevin bought in Austin, Texas: a Paper Shredding business valued at $710,000, doing $208,000 per year in cash flow.

How he structured the deal:

  • Kevin put $142,000 of his cash (20% of the sale price)

  • The seller put $142,000 in a financing note (another 20% )

  • an SBA loan of $426,000 (the remaining 60% of the sale price)

After the sale, Kevin sat down with the former owner of the business and identified 3 fantastic opportunities to expand the business and generate more revenue:

  • Bought a new box truck for the business, hired a new driver, and started collecting new loads from new clients in the area. Potential additional revenue: $15,000 per month 

  • The website of the business was very old, and it almost didn’t have any reviews in its Google My Business profile (GMB). He partnered with an agency created a new website, and updated the business cards with the link to GMB. After that change, in two months, they got 12 new corporate clients: Potential revenue of this: $27,500 per month

  • Some of the existing clients shared with Kevin that it would be awesome to work with his company if he provided waste management services as well. Kevin took their advice to the letter: bought a 100% financed dump truck (I didn’t know you could do that), hired a new driver for this new truck (the former owner was key on this hiring efforts), and started right away collecting waste from the corporate clients. This new line of business could be even more profitable than the paper shredding part. Potential revenue: $12,000 per month with huge growth potential to at least $35,000 per month

Simply fantastic, right?

There are a lot of ways to do this, but my advice if you will do this: Find a mentor who has done this before.

The best tips I can share with you here as a starter?

I don’t know if you know Ben Kelly, so let me give a quick overview of who is Ben.

Ben Kelly is just a regular guy who has built an incredible portfolio of businesses with little cash of his own, and he teaches people how to do it with a community of entrepreneurs.

What Ben is doing inside this community is simply remarkable. This is what you will find there for just USD 87 per month (this is a steal for the value you will get from it):

  • $3,950+ WORTH of video training modules (including sneak peeks from Ben’s high ticket mentorship program).

  • DONE-FOR-YOU RESOURCES to save you time, money, and years of false starts.

  • UPDATED NEW TRAININGS MONTHLY (ie. fresh modules, teachings, and lessons are helping Ben grow his portfolio to over $1 Million in cash flow.

  •  LIVE ZOOM CALLS with Ben and special guests to answer your biggest questions and help you through any roadblocks.

  • Everything you need to acquire your first business makes over $100,000+ per year in cash flow with little to $0 from your pocket.

So, if you are thinking of buying a new business, especially a traditional business, I highly encourage you to join Ben’s private community ASAP.

Other resources from Ben:

2. Subscribe to Helen Guo’s SMB Deal Hunter newsletter

Helen Guo is another of my favorite creators in this space, and if you subscribe to her newsletter, you will find a ton of value because she will act like a “business curator” for your hunting.

But don’t get this wrong: She has “walked the talk” as well.

In every deal she shares in the newsletter, she gives a quick overview of why she likes the business, and that’s very valuable, especially for you if you are starting in this journey.

Here is an example:

But even more interesting, it’s the SMB Deal Hunter+ platform, where she shared all the deals with more detailed information and contacts.

Another insane valuable platform for just $99 per month ($82 per month if you pay annually)

I strongly believe that if you use these two platforms at your disposal, you could find that incredible business to be acquired by you.

Like I said before: we are in times of actions, not words. Start now. Don’t wait for the next layoff.

Conclusions

Being part of a layoff is a very painful and traumatic experience, and if you part of one, you can be part of a second layoff. That’s a hard truth to swallow, but it’s a real threat.

But perhaps this could be seen as an opportunity to follow the “entrepreneur” route. This route is not easier (sometimes it’s even more challenging), but at least no one can fire you for your business if you play your cards in a good way.

Even better: you can acquire a good business, put a manager in place and you can apply for another job as a Software Engineer, and enjoy the second source of income of the business.

That’s precisely the strategy that Ben and his community peers are following.

Marcos out

Tool of the week: Guidant Financial

Do you want to use your 401(k) funds + a SBA loan to acquire a business? Guidant Financial are the experts in this kind of work. They will work with you end to end from idea to acquisition.

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