The Guide to Leveraging Money, Time and Yourself in Acquisition Entrepreneurship
Leverage is the reason some people become rich and others do not. – Robert Kiyosaki
Leverage has the power to help you succeed. There are many different ways to build wealth using leverage. One that most people are familiar with is flipping real estate. You use debt provided by a bank to purchase an asset with a small amount of money down. Add value to the asset. Sell it for a higher price than what you originally paid, which gives you back your initial investment and a profit. Business acquisition is a lesser-known asset that allows you to buy an existing business that is profitable, add value, and sell it for a higher price than you paid for it. Leverage can make big ticket assets that once seemed out of reach a realistic option.
This guide will detail three different types of leverage available to help you build wealth. It will explain why and how leverage is used in acquisition entrepreneurship.
Leverage Money: Why Is This So Important?
Leverage is the strategy of using borrowed money to increase the potential return on an investment.
Most individuals you see who attained financial freedom did not start out wealthy. Many started out by using leveraged money to obtain an asset or build a business. Leverage can significantly increase your purchasing power when searching for a business to buy. The key is making smart decisions on the amount of leverage to use. Being overleveraged is risky.
When using leverage, you want to reduce risk as much as possible. It is important to be selective in what kind of business you buy. Avoid industries that have high failure rates or could easily be erased by large corporations like Amazon. Using smart leverage and being selective creates a calculated risk. This is the goal when buying a business.
There are multiple ways to finance a business acquisition. The current owner could provide a portion of the financing. A bank could provide an SBA backed loan. In some deals, both of these options are offered. We can jump into details on which is best in future posts. I do prefer an SBA pre-approved business because my thought process is banks are evaluating the risk for me. They have vetted the business and think it will be profitable enough to cover the loan over time.
Leverage Time: Essentially Time is Money.
Time leverage is achieving the biggest results in the least amount of time. In the case of acquisition entrepreneurship, it is all about finding the fastest route to the results you want. If your ultimate goal is to have financial freedom and retire early, you need to leverage time. Buying a business accomplishes this in two ways.
First, you are skipping the startup phase and making money from the beginning.
Second, you are increasing your earning potential by starting early in your career when salaries are usually lower. More money in exchange for your time creates faster wealth.
Let's take a look at this concept in more detail. Below is a chart that emphasizes the value of time leverage in the first 15 years of your career.
*Employee salary data is based on 2020 US Census average income of a new college graduate entering the workforce and the assumption of a 4% annual raise.
As illustrated above, the fastest way to achieve wealth is by buying an existing business. In the graph, the future acquisition entrepreneur works as an employee until age 30. This is the age they buy an existing business. Their earnings immediately increase. They are also able to skip the first five years as a startup entrepreneur when income is low. The business grows over time as they add value and increase profit. At 38 years old, this individual decides to sell the business at 3.5x earnings and makes an additional $1,600,000 after paying off the initial SBA loan from acquiring the asset.
The total lifetime earnings of this individual are $2.88 Mil by the age of 38. A new study released by Georgetown University found that the average adult with a bachelor's degree will have lifetime earnings of $2.3 Mil and obtaining a master's degree only increased that number to $2.7 Mil over the span of an entire career. The entrepreneur in the above example worked for 13 years and earned more than most people do in a 40-year career. That individual now has the financial freedom to decide how they would like to spend the rest of their life.
Note: Once you have successfully passed the transition phase of changing ownership in your new business, time leverage will take on another meaning. After you understand the inter-workings of the business, you can create systems that allow you to get your time back. In our company, I was able to build systems which used technology and other people's time allowing me to be in the office only a few times a month. My remote work week consisted of less than 10 hours a week and our profits never suffered. More on those strategies in another post.
Leverage Yourself: You are Your Greatest Asset!
Every person has unique skills and education to bring to the table when purchasing and running a business. Some people are excellent at marketing, while others are better at creating systems to make things more efficient. Each skill can be used to add value to a company you are building. You can leverage your skills and abilities to create the value add that will grow your new business.
Self-awareness is key. If you are looking for ways to determine the skills you can leverage, a good place to start is through understanding your unique personality traits. Knowing your skills and inherent attributes will help you find the right business to buy. For example, I know that my skills are in fixing internal systems and creating ways to be more efficient. My skills are not in marketing and sales. When I searched for a business to buy, I used that knowledge of myself to find a business with solid sales that needed help with systems to drive more profit.
Leverage your education and developed talents to become a successful acquisition entrepreneur. Be confident in yourself and your abilities. You don't need the big idea to be a successful business owner. You just need to use the power of leverage to help you acquire, build and add value to an organization. If you have the desire to learn and the perseverance needed to lead, you can be a successful entrepreneur.
Comments