Transcription
Hi, I'm Roland Frasier, and I want to talk to you today a little bit about the way to develop the acquisition criteria for how you buy a business. If you want to buy a business, um, it's not good just to start out looking through the listings, going to websites, and seeing what businesses are for sale. Because you're kind of like shopping without a grocery list, right? You end up with things you don't need; you don't know what you want, and you might waste money. You might lose money; you might get a business that you don't even want by accident, just because it looked good.
So today, I want to walk you through the exact process that I use to create acquisition criteria. These are the things that help you understand what to buy, why you want to buy it, and how much you're going to want to spend, what the size of the business is, and some other things. Um, this is one way to do it. I'm going to walk you through kind of the manual way. We also have a way using AI, uh, through a GPT that we created, so I'll see if I can link you to that. Um, but this is really going to take you through that process. The challenge is that most people, uh, go into business acquisitions kind of backwards. Like they see this listing, and it looks good, but they don't really have any clear idea if this is a business that's right for them. So that's why I have this simple, repeatable process so that you can create your own deal criteria before you start searching.
So I'm going to walk you through my "What to Acquire" worksheet. This is going to help you define your acquisition criteria so that you can avoid doing deals that aren't a fit for you, right? And by the end of this video, you're going to know exactly what kind of business makes the most sense for you and how to calculate your acquisition budget.
Um, before I start, I want to talk about what happens if you don't do this right. If you skip this step, the biggest mistake that people make when buying a business is that they're chasing a deal without really knowing if it's right for them, if it's a fit, or they overpay because they didn't set a target profit or a target price. Uh, or they're buying a business that they really don't have any skills to run, but the business is going to require them to run it. So one of the things we'll talk about is like, do you want to run the business, or do you want to have professional management in there? And then choosing a business that really doesn't meet your income goals. If you acquire a business that isn't making enough income to make it worth your while, you're not going to pay any attention to it; you're just wasting your time. So that's why we start with this worksheet to define your criteria first before you look at the businesses, so nothing's going to catch you by surprise and go, "Ah, I have to have that," and you impulsively bought a business. Okay.
Um, I'm going also talk a little bit about the "What to Acquire" framework. Um, as you can see on the sheet, it has um several different categories, and we start with hobbies, interests, and passions. I call it HIP, right? Um, this is so that we can basically be sure that this is something that interests you. So I'm going to take a look and say, um, what what do I want to buy? Well, let's say that I'm interested in, um, uh, well, actually, I'm not going to say what kind of business I'm interested in; I'm just going to say what what are my hobbies, interests, and passions. So let's see, as of late, uh, everyone in my life will tell you that uh I am a pickleball fiend, so I'm going to probably put pickleball. Uh, I'm going to put pickleball, uh, as a PB. I'm also interested in uh photography; I'm also interested in music composition, and I'm interested in synthesizers and travel. Uh, I do generally like business; I'm interested in AI, and uh, what else, uh, general luxury stuff, uh, fashion and pets—we'll call it cats, dogs, animals—and what else? Oh gosh, uh, I do enjoy whiskey. Let's get this to come back to the right side there. We go whiskey, wine. Uh, I think that's good for now, right? Uh, art, art and decorating. Okay, so these are all things that I am interested in; I have hobbies around them, and I'm probably going to be interested in anything that touches on these types of subjects. There's other stuff too, but like that's off the top of my head. Um, didn't rehearse this. Uh, so now I know that if I do something, if I acquire a business that has anything to do with this kind of stuff, then I'm probably going to be interested in it. I'm going to actually also add uh general health and wellness to that. Okay.
Now, the next thing I'm going to do is I'm going to go over to my uh SS and E, my superpower skills and experience, or in this case my ESS, because that's how they set this up. So what what I'm going to do here is I'm not thinking about anything else, just like I wasn't with the HIP. Uh, I'm thinking here about what have I actually done, and what am I actually good at? So here I, uh, I practice law; I know accounting; I know real estate; I know uh finance—finance, don't know how to spell as well as I should—and then uh, let's see, negotiating, oops, see negotiating. Um, what else am I good at? Gosh, um, I'm kind of good at the things I'll just say HIP because I'm kind of good at the stuff that are my hobbies, interests, and passions, and um, let's see, networking, math, languages, writing, and uh, anything else probably, but uh, that's going to be good for now. And I'm thinking like this is kind of like what have you done in your career? What are the jobs that you've had? Do you have any certifications and things like that? I guess I could add uh web programming and uh marketing copywriting and speaking about that. Okay, so now these are things that I'm actually good at, that I've got skills, I've got experience, or I've got superpowers—I'm really good at it, right? And that's what I want you to do too, is to write down those things.
Then we're going to the third category, which is what are the biggest needs, concerns, or desires that is causing you to want to acquire a business right now? Now, if you haven't acquired a business before, if you don't own—actually, if you don't own a business right now already, then um you're probably just going to be circling "first platform." Okay, that means that you're looking for a business to buy from which you may grow through acquisition or do other things. Okay, so if you don't already own a business, it's going to be first platform, but if you do own a business, there's generally challenges that you're facing or needs that you've got, and that's what this is designed to identify. So let's say that you already have a business, and um you've got a decent-sized uh business, but you would always like to get more market share, and particularly you'd like to get more leads, and you would like to be making uh more profits. So I'm going to circle market share, leads, and profits, and that's going to tell me uh the kinds of businesses that I might want to buy.
And then last but not least, I'm going to come over here to the financial price target, and I'm going to say what amount of income do I need or want this new business to generate for me? So most people will say not less than, let's say, 10,000 a month, which is 120K a year. Uh, our growth budget is how much money do we want to have the business able to throw off to grow the business, and let's say that we want that to be uh $10,000 a month also, uh, or 120K a year. And that means that my EBITDA target has to be uh 20K per month or uh 240K per year. So my price target is going to be a multiple of one to five times that. So let's just round up to 250 and say my price target is going to be somewhere probably between 250K and 5 * 250K, which I think is 1.25 million. And that's going to tell me what the price is that I'm going to want.
Now then, I'm going to go back through this, and I'm going to say, okay, I've got some pretty good information now. Um, I want this business to have something that meets my hobbies, interests, and passions; something that also works with my experience, superpowers, and skills; I want it to solve the biggest needs that I've got, and I want to be sure that it is within the financial target that makes this whole thing worth doing. So I might go back through here and say, um, I would be okay with a business that had to do something with pickleball—probably not music or synthesizers—probably not travel—definitely general business categories; I'm interested in uh AI; I like that—uh, luxury stuff, fashion—that's too fickle—probably not—what about uh some of these other things like pets? Nah, I don't really want to be in the pet business. Whiskey and wine sounds like regulation. Um, so art decor, maybe health and wellness, cuz I definitely like that. And then I go back over here, and I say, I can definitely use my law, my accounting, uh my finance, negotiating, uh the things from my HIP—hobbies, interests, and passions—my network; I can use pretty much all this stuff, maybe writing and uh marketing and copywriting. Okay, so all of that stuff I can use with the business.
Going to be sure that it ticks off the things that I want here: market share, leads, and margin, because I already own a business, and I know that it needs to be generating this in terms of uh money. Okay, so now when I go and I look at my listings, I've got guidance; I've got a map from the document that we've created here. I'm going to be looking for businesses, and I'm going to search the terms—let's say I go to BizBuySell; I'm going to search pickleball; I'm going to search AI; I'm going to search health and wellness—and then I'm going to say what can I apply that I have to the business? So let's say it's a pickleball court. Well, I can use my law, my accounting, my real estate—actually get to add one more—real estate, finance, negotiation, networking, all of the marketing—I, I can use all of those things with my new pickleball court business. Um, I and it might be a pickleball uh paddle business; it might be pickleball manufacturing; it might be commodities like the pickleballs themselves; it might be uh a franchise about uh facilities; it might be a system; it might be media and content on how to; it might be a coaching program; might be a live coaching or virtual coaching. So might be any of those things. So that's a pretty broad spectrum of business, and I get to use my skills, superpowers, and experience related to something that I like. I can uh go after market share and leads. So I want whatever I acquire, cuz let's say I already have a pickleball business in this case. Um, I want to say how can I get more of the market share? Well, I can buy my competitors, direct or indirect, uh, or I can uh get more leads by acquiring media, or I can get more margin by acquiring up and down the distribution and manufacturing or production chain for pickleball, right? So I'll look at companies that meet all of those things, and they need to be generating about 240K per year minimum in profit in this example. That's how I would go about doing that. So that's all you need to do: take this uh take this sheet, go through that, and you've got your acquisition criteria. And if you don't want to do it this way, you can do it the shorter way using RGPT. I hope that was helpful, and uh we'll see you in the next video.