This week’s Misfit Entrepreneur is Jonathan Jay. Jonathan is a serial entrepreneur. He dropped out of college at 19 to start his first business and since then he has built and sold businesses in everything from publishing and digital marketing to education. During the pandemic, he made 48 business acquisitions alone.

Jonathan is a prolific deal maker who has a passion for teaching others how to buy and sell businesses. Through his company, Dealmakers, he and his team have helped over 12,000 clients from beginner to seasoned entrepreneur succeed in finding, acquiring, and/or selling businesses. He is also the author of the best-seller, Business Buying Strategies. In the book he shares some of his best secrets on how to buy a business with no money and that is one of the many topics I want to focus on with him in this episode.

https://dealmakers.co.uk/​

Jonathan dropped out of college at 19 to start a business. He spent several years bouncing around surviving as an entrepreneur. A few years later he had a publishing business that was doing OK when someone came along and offered to buy it and he realized that he would make money selling it than owning and operating it. This was an “aha” moment for him.

“In business, so many people are business operators who work every day to operate the business, where the real freedom and real money comes from selling businesses.”

Jonathan says that It is much easier to sell businesses that you have bought vs. built from scratch. Over the last 20+ years, he has sold companies and bought them. During the pandemic, he bought 48 businesses and has turned around distressed business making all the mistakes possible in his journey.

For the last 6 years, he has been teaching others how to buy their first while limiting the risk in doing so.

Why should someone consider buying a business vs. starting one?

• Jonathan has done both.
• It is very exciting but hard work to start a business from scratch and most fail as well as take a lot of capital.
• Buying a business is also very exciting that has been in business for a least 5 years is an easier way to go because it has everything and has proven it can sustain itself.
• Buying a business with cashflow makes money from day one instead of going through the struggle to get cashflow.

How do you find a business to buy?

• You are not finding a business as much as you are an owner.
• Owners are who you work with on a deal.
• Most go to a business broker which is like a realtor for a business.
• At the 8:15 mark, Jonathan does a good job going through the challenges with working with a business broker.
• Jonathan does not recommend going through a business broker.
• Jonathan teaches his clients to look for businesses that are not listed with brokers.
• You want to find a motivated seller who is looking to get out of the business.
• If a seller is motivated, does that mean it is a bad business? It can, but you would not buy a business that is failing.
• People have all kinds of reasons for selling a business. It could be retirement, or a health issue, or maybe a divorce. There are all kinds of reasons for sellers to be motivated.

Where do you find motivated sellers?

• We don’t know who they are.
• You must cast a wide net and go to a number of business owners, but need to do it smart.
• The approach that Jonathan teaches is to write and send them a letter. It is very scalable because you can send out a 1000 letters to businesses types you are interested in buying.
• The people call you from the letter that may need the solution you are offering.

What happens when you find a business owner that seems like a good fit?

• You will look at lots of businesses.
• Ideal you want a business that is B2B, that has good assets and is not dependent on the owner.
• Your first acquisition should be a $1 million on more business.
• Why? It is harder to buy small businesses than large ones as larger business are more stable and have a better management structure. They have systems and processes in place and good financial reporting.
• You then need to negotiate price, and this is the tricky part.

At the 16 min mark, Jonathan walks through his negotiating technique.

• Instead of making an offer, ask the seller, “How much do you need?” Not what they want.
• No one gets what they want these days but tell me what you need.
• They will give you a number and whatever number they say, you shake your head (flinch) and give a look of “this is not going to work.”
• You let them drop the price and keep shaking your head until you get to a price that is reasonable and fair.

How do you negotiate buying the business without putting all your own money on the line?

• You must work out what the business is worth to you. What do you want the business to make?
• You will need to look at a lot of variables such as hiring a CEO to run the business in place of the former owner.
• What are you prepared to pay for a business based on return from the profit it produces. This is typically between 2-4 years. So, you would pay a multiple based on that.
• If you cannot finance the acquisition, then you cannot buy it. You can use this in your negotiation with the buyer. If we cannot finance at that price, we cannot buy it.
• You then work together to make it work – maybe it is buying out of cashflow or small amount up front that you can do with a loan and then payments over time, etc.
• You can also get a loan against the accounts receivable for the business and use that to help fund the sale or even asset financing based on what the business owns.

Talk to us about the mistakes you made and what you’ve learned…

• Jonathan has made them all.
• An element of vendor finance should be part of every deal. Be wary if the owner is not wanting to put any skin in the game.
• The deals that have gone the worst are when Jonathan has just written the check for the business.
• Agreeing to pay the number a business owner needs without negotiating is not a good idea. Everything is negotiable. No is the most powerful word in negotiation. Every time Jonathan had not negotiated, he has lost money.
• Be careful not to underestimate how difficult integrating multiple businesses is to do.
• Make sure you are ready for what happens after the deal is closed and prepared to own the business.
• Do not become emotionally involved in the deal be the emotional buyer. The solution to this is deal flow. Having a number of businesses in your pipeline that you can make deals with solves the problem. Having options gives you power.

What are 2 of the best lessons you’ve learned to succeed as an entrepreneur?

• Jonathan has never had a job but would not change his journey at all.
• Jonathan is positive and believes the best is always ahead. It is hard to be in business and be negative.
• The most successful deal makers are the people that hang out with other people doing the same thing.

Tips to scale and grow a business?

• The ideal situation is you buy a business you don’t have to do anything with and just keeps on making the profit you are looking for.
• The reality is that we want to be involved. But, we need to be careful in the way we “tinker” with things.
• But, there is always opportunity to gain economy of scale or increase profit through cost reduction or find an easy way to increase revenue per customer, etc.
• Find someone who lives and breathes modern marketing and social media and hire them to be focused on internet marketing.
• One technique that does not involve using the internet is a joint venture with a complimentary solution that has clients that would want your product or service.

 

Best Quote: In business, so many people are business operators who work every day to operate the business, where the real freedom and real money comes from selling businesses.

 

Jonathan's Misfit 3:

1. Build your self- belief and self-confidence to be independent.
2. Save money. Cash is king. If you have cash you have a buffer or can weather a storm or take advantage of an opportunity.
3. Buy property. It is true asset and place to borrow against in the future.

 

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