11 traps to avoid when buying a business

published3 months ago
6 min read

Greetings GirdleyWorld!

Today, in 5 minutes we’ll cover:

  • Something I learned recently
  • 11 traps to avoid when buying a business
  • 3 things that caught my eye this week

Let’s dive in!

By the way: Do you know someone hiring developers? Do you want $1500? My company Codeup is offering $1500 for referring one of our developer grads to a job. Fill out the form here and tell them I sent you! I’ll pay in Chili’s gift cards.

Something cool happened to me last week

I got invited to something pretty special last week.

I know people go to events like this one (technically a mastermind-style retreat).

Ours was people doing what I do – working at the intersection of social media and business.

It was 10 hand-picked people. The format was simple. We spent some “get to know you” time.

Then, we focused one at a time on each person’s biggest challenge.

For me, I wanted feedback on what we’re doing with social media to scale my impact.

For others, it was different problems.

But, all were personal, important, and impactful.

I walked away with (a) new friends and (b) new perspectives I didn’t have before.

If you can do something like this, I recommend it.

I was dubious about it going in. But my mind was changed from the experience.

It’s a worthy bet that it can pay off for you 10x or even 100x.

So you wanna buy a business?

Bad news first: it can go VERY wrong.

And if it does, it can put you in the poor house.

Good news: I can help you.

I’ve built and bought a bunch of businesses. Plus my podcast Acquisitions Anonymous looks at business listings every week. In 2022, I studied over 1,000 businesses for sale. This year I’ve lost count.

For me, running a healthy business is essential to my well-being. Maybe you feel that way too. So the thing I hate is seeing people buy themselves a problem they can’t get out of.

Here are 11 traps to watch out for when you’re buying a business.

I’ve seen people fall for all of them. And it’s not pretty.

1. Buying yourself a job

We looked at an event planning business once.

Good revenue, great customers. But the owner/CEO managed 100% of the relationships.

He had to, or else his employees would leave and take his customers.

Any owner will always be trapped working in this business.

2. Ask: Why am I the lucky buyer?

You’ve heard it before: if something’s too good to be true, it probably is.

We looked at a franchise for sale for CHEAP. It seemed like an amazing deal, but…

All the other franchisees had passed on it.

It turned out to be a crap concept.

You can turn this on its head and ask, “Why did everyone else pass?”

3. COVID blips

A business’s value is set by its future cashflows and profits.

You predict those based on past performance.

But COVID created once-in-a-lifetime situations and government stimulus.

Sure, that mask manufacturer might have had a great couple of years…


Get connected to owners looking for exits.

Rejigg is a platform built for searchers who want to meet directly with small business owners. They have an in-house team doing outreach, finding owners who are excited to meet with people ready to buy their companies. Searchers who join their platform often have a dozen meetings in their first month of joining the platform. Their sweet spot is $500k-$10m in revenue, but they have other opportunities as well.

Get started on their platform to fill your calendar with owner meetings. Rejigg does the calling - you do the closing.

4. Seller fishing expeditions

We looked at a marina for sale not long ago.

It was an intriguing offer (lots of moats). And at first, it looked great.

But then we dug into the seller profile.

They were a type that would only sell at a “Crazy High Offer or Nothing”.

People like this will waste your time.

5. Exploding real estate

We looked at a great coffee shop recently.

And of course, retail is all about location. So we checked the lease:

  • In a growing area (yay!)
  • Under market rent (yay!)
  • Lease runs out in 18 months (uh-oh…)

Guess what happens to the rent (and profits) in 18 months?

6. Unfinanceable businesses

Sometimes the problem isn’t the business, but with the funding.

I looked at a B2B services business earlier this year.

They have 3 big problems with financing:

  • Too big for SBA loans (usual max is $5mm)
  • Bad 1st half this year due to Ukraine war
  • No hard assets

Lenders said, “We can’t underwrite this now.”

7. Peaked

We looked at a fleet of Bitcoin ATMs.

These things have been printing money for the last while.

But drug dealers use them, so regulatory scrutiny is heating up.

When the government comes for these…

At best, it will be the biggest headache of all time. At worst, it’s game over.

But the seller wants you to pay like that’s not coming.

8. Buyer-business fit

Bill D’Alessandro and I looked at a ski rental shop for sale in rural Colorado.

Solid business, with room to grow, at a reasonable price.

But you have to move to rural Colorado.

That can get lonely.

A business must be suitable for the life you want.

9. Not owning your customers

We looked at an FBA Amazon business priced right.

But any Amazon business has a problem:

You don’t own the customer relationships.

Amazon chooses what products to show them, so you live or die by the algorithm.

Significant risk is an understatement.

10. High degree of difficulty

Some businesses are just plain hard.

We looked at a casino in Costa Rica. It could be great.

But not if you don’t speak Spanish or know all the rules.

Others (like contracting) are HARD because of cash flow. There are easier ways to get rich.

11. High working capital requirements

Picture this:

You buy a business for $1mm.

Only to discover it needs $5mm in inventory to operate.

Suddenly this “cheap” business needs more cash than the purchase price.

If your pockets aren’t deep enough, this can be big trouble.

Want more like this?

It’s good to practice before you buy. If you want to get some virtual reps in, check out the Acquisitions Anonymous podcast.

We do short episodes (about 30m) twice a week, breaking down a new business every time.

(Spoiler alert: most of the time we don’t like the deal!)

Listen on Apple, Spotify, YouTube, or Twitter I mean X!

3 things from this week

Appetizer: I’m having a great time making the GirdleyWorld video show. This week’s episode is about How to ask World-Class Questions. I’d love your feedback!

Main: That “mastermind” retreat-type thing I mentioned earlier... the whole thing was put together by Sahil Bloom — and he wrote up his 10 key learnings from the event.

Dessert: Sometimes the responses you folks send me are hilarious.

(To be clear: this IS the Chili’s coupon email list. Just waiting on them to provide the coupons.)

Now get out there and build, grow, read, learn, or… heck, it’s the weekend. Maybe even say hi to your family? Have an incredible week!


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