Buy A Business That Already Makes Money

Notes Section

Buy A Business That Already Makes Money

50% of new business fail in their first year! Why not take advantage of a business owner that already has a proven formula for success. Buy a business that already makes money!

In this interview we talk with Ace Chapman, he has a proven track record of success in buying and selling businesses that already have a profit. He can help you connect with business owners that are silently selling their business and can even partner with you on larger deals.

If you would like to connect with Ace please click HERE

Buy A Business That Already Makes Money

Automated: This is boomerincomeideas.apps-1and1.com, the program where we explore options for boomers and seniors who are looking for ways to take charge of their financial future and live the third chapter of their life on their terms. Now, here’s you host, Dan Farnsworth.

 

Dan Farnsworth: Hi and welcome to this week’s episode of boomerincomeideas.apps-1and1.com. In the past we’ve talked to a number of people about starting a new business or buying investments properties to gain income, but what about buying an existing business that doesn’t happen to be a franchise, but has an existing income and profitability that you can take over immediately? Well, there’s a lot of pitfalls that are involved with that and we happen to have an expert on the show today. His name is Ace Chapman with acechapman.com. He has had a great deal of experience in doing exactly that, both with online businesses and offline businesses, so I think you’re going to be very interested in hearing what he has to say. With that let’s welcome Ace to the show.

 

Hi Ace, welcome to the show.

 

Ace Chapman: It’s great [inaudible 00:01:08]. Thank you so much for having me on. I’m excited to jump into talking a little bit about buying and selling businesses.

 

Dan Farnsworth: Yeah. Actually I’m excited to have you on the show because of exactly that. Last week we had someone on that we were talking to about buying income properties and we talked about the difference between something that already had a renter in it compared to buying something that you’re going to have to start from scratch and put a renter in. I know that’s your philosophy with buying businesses, that you like to take over existing businesses that are already generating a profit and go from there.

 

I think that that’s an outstanding philosophy but I also know that in buying existing businesses it can be very much like buying a used car. If you don’t have someone that is checking it out for you and certifying that it’s in good condition you can get really burnt.

 

Ace Chapman: Absolutely.

 

Dan Farnsworth: From what I understand that’s essentially you, right? You’re an Acquisition Consultant. Can you expand on that a little bit?

 

Ace Chapman: Yeah. I spend most of my days looking at deals and in this space, unlike buying a house or buying even a car, there are a limited number of risk factors that exist. If a car is a lemon you’re going to be able to figure it out and look at the engine. It comes pretty natural to a mechanic who’s trained in that field. The thing with business is that there’s a little bit of an art and there are a lot of unknowns. If it’s an offline business, is a competitor going to show up and take half of our business? Are we ready for another economic downturn?

 

In addition to just looking at that business we also want to try to figure out how can we position this business once we buy it so that it’s protected from some of those external factors at the end of the day we don’t have a lot of control over, no matter how great your due diligence process is.

 

As an Acquisition Consultant, I have my own private equity fund. We’re always looking at businesses, buying those businesses, trying to grow them, eventually selling. Then I also do the same thing helping other people buying businesses that are going to be a good match for them and their financial goals.

 

Dan Farnsworth: Okay, great. You work directly with someone who might want to buy a business independently and you go through the process with them, but you also have a fund which we’ll talk about later on, that allows you to participate in some purchase, where that person might be just a passive investor. Is that right?

 

Ace Chapman: Exactly. Exactly.

 

Dan Farnsworth: Okay. Great. All right. Got it. Let’s talk about that in a few minutes but before we do that tell me a little bit about, I read something about your first deal and it was an internet-based deal and it did pretty well. Tell me a little bit about your first deal and then where you went from there.

 

Ace Chapman: As a teenager I was always a business nerd. I was one of these guys that just was curious about business and how it worked, Wall Street, and so I joined a stock market simulator back when that was a new thing. I loved the idea that you could take this play money, you could invest it in the real stock market, they give away prizes and all of that. The downside was that the site was always crashing, the people running the business were unresponsive to customer issues, and it was pretty frustrating. Even on the forums people were like, “Man, this is just ridiculous. This is such a great business, I love it, but it’s a pain that it doesn’t work half the time.”

 

I reached out to them to become an intern over the summer and I’m like, “Obviously they need the help in their business because they don’t have time to get back to people.” They wrote back and they said, “We’ve moved on to a whole new business. This is a side project for us. It’s really getting on our nerves. We want to sell it. Let us know if you find anybody who just wants to buy it and then you can be an intern for them.”

 

Dan Farnsworth: Okay.

 

Ace Chapman: I was really just curious about the numbers. I wanted to know what were they solvent for and how much money was it making and all that? I was like well, I may somebody who will tell me about the numbers and what’s going on with the business.

 

Dan Farnsworth: I think it’s just kind of funny how they said if you want to keep your free job you need to go find a buyer for this business.

 

Ace Chapman: Exactly. “Go work for free right now and find us a buyer.”

 

Dan Farnsworth: All right.

 

Ace Chapman: They wrote back. They basically were making 60,000 a year and were selling selling for 70,000. I know anything about business valuations but I figured, I was at school.

 

Dan Farnsworth: That’s a pretty good deal.

 

Ace Chapman: Yeah, I was in a school that cost 120,000 over the course of four years and my friends were getting out with jobs making 30,000 a year. I’m like, “Okay. They’re paying 120 and four years of their life for 30. This sounds like a good deal.

 

I started trying to figure out how could I pull this off? Because I was a broke college kid. I had 3,000 dollars saved up from the summer before. The difference between 3,000 and 70,000 is a lot of money when you’re a 19-year-old kid. I slept on it thinking, “There’s just no way I could ever buy this thing.” Then I decided to give it a shot so I reached out to them. I asked them, “Hey, if I got you half of the money would you give me time to pay the rest of it?” They said, “Sure. We’d be willing to do that.”

 

Then I had a buddy who had some money. Went to him. I was like, “Hey, I have this thing. Would you be willing to put 15,000 in it?” Or actually I went for 30 and he was like, “I would do 15.” The rest of it I actually went and took some credit cards and got some cash advances and made up that difference of about 17,000. That was my very first deal. People ask me all the time, “Weren’t you nervous it wasn’t going to work out?” I didn’t have time to be nervous about that because the thing that I was most nervous about was one of those credit card statements making it to my parents’ house. They would have definitely flown up to my college and murdered me.

 

Dan Farnsworth: If I understand correctly you grew that business but a base of 10,000 subscribers to 250,000 subscribers? Is that right.

 

Ace Chapman: Yeah. Yeah. That’s correct. It was a pretty amazing experience. I was able to make some money out of the deal but I learned the lesson of not selling quick enough. In 2001 we had the first Dot-com crash. Before that we had seven figure offers to buy the site. We were just growing, everything was looking great, and here I am a 21-year-old kid like, “This is going to be it. I’m about to exit from this business and it’s all done.”

 

Then the crash happened and quite honestly that’s probably what led me to the career that I have now because I became very trigger happy. If I wanted to buy a business after that I was ready to sell.

 

Dan Farnsworth: Following that experience until now, how many deals have you done?

 

Ace Chapman: At this point personally, I’ve made about 50. A little over 50. 30 deals that are internet-based businesses and 17 or so deals that are offline.

 

Dan Farnsworth: Okay. All right. When you say personally those are all your deals?

 

Ace Chapman: Yeah.

 

Dan Farnsworth: What about people that you’ve helped buy businesses?

 

Ace Chapman: Some of those are included in that because I invest in their businesses when we acquire them together. I actually partner with the people that I work with and I honestly put my money where my mouth is. The main reason that I do the consulting for other people is because I want to invest in more of these deals so that gives me an outlet to be able to do that. Some of those are in there and then total between all the deals that I’ve just done consulting on and invested in and all that is over 100 businesses.

 

Dan Farnsworth: Okay. All right. Who finds these deals? Do you or do you have some people who are out searching for you? I guess what I really mean by that is if I was someone who said, “Ace, I’m interested in finding a business to buy.” Do I just give that to you or do I go find it then I come to you and say, “Okay, here’s the business that I’m looking at. What do you think?”

 

Ace Chapman: Most of the deals that are on the market that people find aren’t the best deals. We know at just an inherent level when it comes to anything, whether it’s a house, a car, any kind of deal, the very best deal is never going to be on the market. If you have a Rolls-Royce for 25,000 there’s not need to advertise that. You talk to a couple people, it’s going to be sold. The difference with businesses is not even the average deal usually makes it to being marketed. The reason is because business owners want to keep it a secret that their business is for sale and the last thing somebody who owns a great business wants to do is start to advertise it for sale and they don’t really need to.

 

A lot of times they’re going to their account and they’re starting to network behind the scenes and as we all know we just show up to the business one day and voila, there’s maybe a sign, “Change of ownership.” That kind of thing. It’s like, “How did that happen?” It’s all behind the scenes and we do a lot of underground advertising to create that deal flow.

 

Dan Farnsworth: Take me through an anatomy of a deal. Again, I come to you and I say, “Ace, I have 100,000 dollars to invest in a business. I want to buy something that is going to generate as much cash as possible. First of all, what kind of return on an annual basis can I expect a business that I’m investing 100,000 dollars in to return? Secondly, where do we go from there? Do we start searching for a business? Do you have something in place already? Have you already done due diligence on it or do we start that then?” Tell me your actual work flow?

 

Ace Chapman: Yeah. The very first thing we do, you come in, you want a deal, you’ve got a certain amount of cash that you want to invest, and you also have an idea of what the cash flow is that you want to get in return. We also want to make sure that the business that we buy is a good fit for you. In addition to finding out a little bit about your background, a little bit about your complete financial situation, we want to do some personality testing and some skillset testing. That’s going to give us an idea of, when we’re looking at a business, what are you bringing to the table?

 

When we find a deal our goal is not just to find a deal that is making good money right now, we want to find a deal where when you come in with your exact mix of personality and skill sets and drive and what you enjoy doing in that business, it’s going to skyrocket that business. We’ve seen time and time again, a lot of times where the person doesn’t feel like the business is going to be right for them and we convince them otherwise and they get in. It’s like, “Yes. Thank you so much. This is definitely the right fit.

 

Because naturally we have all these different personality types. There’s some people that are naturally bent towards marketing. There’s some people that are naturally bent towards tech in the business, or numbers and finances in the business, or operations, or HR. All those things. When we sit across from a marketing person, sits across the table from another marketing personality person, they start talking about the business, everything is about marketing and they both enjoy it and think, “Man, this is the business that I want to buy.” That marketing person sits across from a tech person or a numbers person, operations, like, “Everything in this business is all about numbers.” But it’s not about that business, it’s about the person running it.

 

I’ll give you a quick example, then I’ll go through these other steps pretty quickly. We had a lady who had that exact background. She was in marketing, was a marketing consultant and we looked at a business that had never done any marketing. It was built by two programmers who had built this business. Because it was an amazing business they had taken this thing and grown it. They were pulling a quarter of a million dollars a year without ever spending a single dime on marketing. They just every day focused on improving this product.

 

We get on phone call and that’s what they tell her needs to be done at the business. They’re like, “This is the way this business works. You got to be improving the programming here and doing some work with the programming there. We always had this project that we wanted to work and more programming, programming, programming, programming.” She gets off the phone, she calls me. “This is crazy. That was a complete waste of time. Everything in this business is all about programming.”

 

I had to tell her, “You can outsource the programming.” They’ve done 99.9% of everything that can be done with the programming and now it just needs to be marketed. She’s grown that business from half a million dollar business to a 1.6 million dollar business. It’s just about finding that right match.

 

Dan Farnsworth: Okay. That brings me to my next question. I know that you have a preference for online businesses as opposed to offline businesses. A lot of people my age, boomers, and this is boomerincomeideas.apps-1and1.com. A lot of my viewers would have a reticence to actually buy an online business because we believe in the old adage, “If you can’t cook don’t open up a restaurant.”

 

Ace Chapman: Yes.

 

Dan Farnsworth: In this case you mentioned this woman bought this business, she didn’t know anything about programming, and she was able to grow the business. If you were looking at an online business, what do you need to know that will keep you out of trouble? In other words, do you need to know programming? Do you need to know how to deal with ISP and service providers and FTPs and all those kinds of things or can you outsource all of that and just say, “I’m going to concentrate on marketing” for instance?

 

Ace Chapman: Absolutely. Absolutely. When you’re buying any business what’s going to end up happening is we want the training to come from that seller. it’s just like a new job. They’re going to give you the on-the-job training and this is what it takes to make this business successful. The mistake, and I think it’s a lot tougher for somebody to start an internet business because there’s just an infinite amount of things that you have to learn. I’m hearing people all the time who’ve taken a Facebook marketing class, they’ve taken a how to start a podcast class, they’ve gone out and figured out some email marketing and how to do webinars and just on and on and on. Snapchat and then the new thing comes out. Musical.ly.

 

It’s just endless. When I tell them, “Hey, you can let all of that go.” It’s like taking this backpack with all of these skills. We just want to find a business, going to find a business that’s working, that’s making money every month, and then we’re going to have that person show us what they’re doing in that business that’s making it work, and then outside of that we’ll test things here and there to see so that we’ll continue to grow, but it’s not a matter of needing to be an expert really at anything.

 

The real expertise that I have is finding the deals, doing due diligence, being that deal maker. I don’t want to know how to program. I don’t want to know how to do marketing. I want to buy a great business that has some staying power and then I want to guide that ship.

 

You take a business like this where we’re in the process of buying this business right now. It’s called Minimalist Watch. It’s a very simple business built by some folks out in Utah that grown the business. It already gets a certain amount of sales just from SEO and work that they’ve done without us doing anything. Our goal just becomes to, how can we grow from the foundation that they’ve already built?

 

Dan Farnsworth: Okay. I got it. In the online world there’s some unique things that you wouldn’t find in a traditional business as far as doing your due diligence and trying to figure out whether they’re lying to you or whether it’s real information. Tell us some of the gotchas. Tell us some of the things that you look for specifically that will tell you immediately whether or not the information that you’re seeing is real or it’s fabricated or it’s a composite of a lot of different sites. I understand a lot of times guys that are selling an existing site have a number of sites and they’re showing you traffic that’s being generated from all of those sites and they haven’t extrapolated that one site that you’re actually looking at buying. Tell us a little bit about that.

 

Ace Chapman: Number one, I will say I still love offline deals. I own some offline business and when it comes to offline businesses the due diligence actually is tougher than the internet businesses. A lot of times you have cash that’s coming into that business. It’s easy to do some things with. You have people that their books aren’t really that good. The systems in the business and where the business is coming from is a little bit more sketchy. It’s actually more simple to do due diligence on the internet businesses, which is one of the reasons that we’ve been excited to include that in the portfolio.

 

There are a couple of things that you can do to stave that kind of thing off with them pulling scams. Number one is we want them to be in the deal with us. Any time you do a deal it’s going to have some owner financing in it. They’re not going to get all their money until we know that we’re making money. That keeps you out of the crosshairs of just you putting everything on the line and they’re gone with your money and you’re out of luck.

 

The other thing is when you’re doing the due diligence you want to make sure that you’re logging into all of those accounts, want to make sure that you’re the person, that you’re not looking at anything that’s … At the beginning it’s just to get you interested in the deal but you’re not depending on some PDFs, you’re depending on video proof, you’re logging into those accounts and you’re making sure. You can easily create a report from Google Analytics that just shows this tracking and that kind of thing, but Google knows where the traffic is coming from and to, so I can log into Google Analytics and instantly see, “No, this traffic really is to that site and this traffic is to this site.”

 

Everything online is very easily trackable and so we have this 88 point process that we walk through of things to check to make sure that everything is on the up-and-up before we move forward on the deal.

 

Dan Farnsworth: Okay. You actually go through this due diligence process with the buyer and you do it to a point where both they and you are satisfied that you have all the information that you need to actually move forward or not, correct?

 

Ace Chapman: Exactly. Exactly.

 

Dan Farnsworth: I got it. I think that sounds great. Tell me just a little bit about Partners Equity Fund where you actually provide an infrastructure for people to invest alongside you into companies that have management already in place. This is, I guess, truly passive income, is that right?

 

Ace Chapman: Yeah. The thing there is I go out, we get a ton of deal flow in. We work with some other folks where we’re investing in those deals. Then we have the fund that’s the deals that we’re buying ourselves, we’re growing those businesses and building a portfolio. Right now we’re starting our largest fund which is a ten million dollar fund and the goal is to buy some things that are very complementary. It’s one of the things that’s powerful in this space is we buy two watch businesses and then we buy a clothing business, which we’re actually doing right now, and one of those businesses may have 200,000 Instagram followers. Another one may have 90,000 and then the clothing may have 300,000 and we start to cross promote all of those, that grow those together.

 

It’s been really neat. What we’re able to do through the consulting program is connect people who are in separate deals. Within the fund the neat thing is I have to get two people together. I’m an investor in both of those and I can connect them but it’s up to them what they want to do. In the fund we can buy those complementary businesses and tie them together and have them cross promote and grow each other as much as we want.

 

Dan Farnsworth: Okay. One last question. You mentioned that you have this outline that you go through both for the person that you’re dealing with as well as the business or the company that you’re looking at. Give me an example of someone who was going to be a client of your but you took at look at the personality, the outline, and you said, “You know what? You really should not be in business. You really need to just go get a job or something because being in business is not right for you.”

 

Ace Chapman: Yeah. There’s one personality type and it’s really the people that have a really low risk [inaudible 00:24:58]. We’ve had a lot of success and we’re looking at, as we were going through this fund thing on the larger fund, we went through all the history of all the deals and basically had a 96 percent success rate with the businesses. But, there’s 4 percent that didn’t go well and if you’re in that 4 percent and a deal doesn’t go well you don’t care about Ace’s 96 percent. You have to get into this understanding that there is some risk. We’re buying things at a two multiple and so with those people we actually, which is another thing with the fund, we guide them towards the fund because in that environment, that 96 percent success rate becomes a really huge win, because if we can buy things at a 2 multiple and it’s a 40 percent, 50 percent return, that’s been really powerful there. We’ve got that diversification.

 

Outside of that if you have that entrepreneur’s spirit and you understand, “Hey, two out of 10 of these things are going to be successful over the course of 10 years.” If I start from scratch and you’re comparing that, you know. The people that love this are the ones that are going down a path, that are going to start something, where in all likelihood it was going to take a bunch of money, take a bunch of time away from their family, have the missed opportunity of being in something else and take all of that risk and have the majority chance that they were going to fail, and then you come to this side. That risk profile loves this. They love this. The people that don’t want to take any risk, they should invest in the fund.

 

Dan Farnsworth: Ace, I think this has been a really good conversation. I think it’s been really informative and I think that the viewers are going to enjoy it. We’re going to put information in our note section with your link and information about your business and your company so that they can get in touch with you directly. One last thing, I just want to thank you for your time and thanks for joining us on the call.

 

Ace Chapman: Thanks so much, Dan. I appreciate you having me on.

 

 

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