Buying your first business? These 3 mistakes can ruin the deal before you even take over.
In this episode of JackQuisitions, Jack Carr breaks down the three biggest mistakes he sees first-time business buyers and acquisition entrepreneurs make when searching for a company to acquire.
Jack explains why debt and project-based construction businesses can be a dangerous combination, why understanding the seller matters more than trying to look like private equity, and why attempting to buy a business with zero money can severely limit your deal flow. He also breaks down the “J Curve” and why having cash left over after closing matters just as much as funding the acquisition itself.
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In this episode, Jack covers:
• The 3 biggest mistakes first-time business buyers make
• Why Jack avoids buying construction businesses with debt
• The cash flow problem with project-based businesses
• Why reading the seller can make or break an acquisition
• How first-time buyers accidentally destroy broker relationships
• The reality behind zero-money-down business acquisitions
• Why having cash reserves after closing is critical
• How the J Curve affects new business owners
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These are the three biggest mistakes that I see business buyers and acquisition entrepreneurs make when they're trying to acquire their first business. And I'm going to help you so you don't make those same
mistakes. Starting it at number three by a commercial construction business. The golden rule of if you're taking on any debt in any way, shape, or form is do not buy a construction business. Because when construction is good, it's good. You make money. It's a wonderful business. I'm not talking crap on construction. What I am talking crap on is doing project-based work while having a monthly payment that you have to make to the bank because the bank doesn't care if your vendors don't pay you, your bank doesn't care if you're on a net 90 terms with the GC. So the cash cycle is so slow on construction, mixed with its pure project-based work that if you have a large construction component in this business that you're looking to buy, the answer is hell no. Do not buy a construction business with
debt. Number two is going to be read the room, man. I can't tell you how many times I've talked to sellers and they blatantly make fun of buyers and say, I'm not selling to that guy. This is their legacy that they're talking about. This is their friends that have been working with them for 30 years and they've been taking care of their families and they know their kids' names and they support their kids' soccer team. And the buyer shows up in some Gucci flip-flop. Read the room. If you're going into a construction or a service, home service business or a business that has a lot to do with kind of the guys who are wearing boots and jeans, show up in boots and jeans. This is not, don't show up as a white-collar guy. Don't show up in a suit and tie. Don't have your blazer. Don't wear your fancy Rolex. You're not trying to show off to the buyer. You're trying to show the seller that you will be a good buyer and that you will host their business well and that you will do a good job at fulfilling or continuing their legacy. That's what they want to see. You have to read the room, you have to paint the picture as being a good buyer that matches what the seller was looking for. That's gonna be the key here. I can't tell you how many deals I've seen lost because the buyer wanted to pretend that they're private equity or pretend that they were this big shot from New York. And the answer of the day is like the guy doesn't want a big shot from New York buying this business. He just wants a guy who's gonna take care of his business, give him a little bit of money to exit, and move on. So that's number two. Read the room.
So number one is they try to come into this with zero dollars. I'm sorry, I love zero dollar down deals. Don't get me wrong. You can get a zero dollar down deal, somebody lobs you that hell Mary, you're good to go. Take it, take it and run with it. That's great. You've had you've hit the holy grail. But for most buyers, there's going to be so many limited opportunities. You're not gonna have any opportunities if you don't have any money. Your PFS need personal financial statement needs to show that you have some money. And if you don't, you need to show that you have investors. And if you don't, go work a W-2, save up some money, or do a startup. Start something up, save up your 6K and go start that business that competes with the big guys. The answer to buying is not pretending and LARPing that you have money because what that's gonna happen is it's gonna burn all of the brokers in your area. They're not gonna want to work with you, they're not gonna take you seriously if you show up saying, Hey, I wanted to do zero dollar down, seller financing only. They're not gonna email you back and they're gonna put you on the do not talk to ever again list. And then last but not least, like it puts you as a buyer in a really bad spot because your your pool of potential businesses gets so small. So the only people who are willing to generally willing to do zero down deals are going to be people who are running really bad businesses and they're in a really bad spot. And so, yeah, maybe they'll take the gamble of nothing versus selling you their really bad business. And so it's gonna be much harder to find a good deal. You're not going to find good deals, uh, you're going to get desperate and then you're going to do a bad deal. It's just not a good thing to do, it's not a good path to put yourself on. Save up a bit of money,
get yourself ready. The other end of this, right, is like you need the money just in case the business goes south anyway. It's called the J curve. The J curve is the idea that once you take over a business, it takes a little while before the business actually starts to produce because you're still learning. You bought a business in pitcher frame setting. So you can buy that business and you can learn to be a good pitcher framer. You can learn to be a good pitcher framer business owner. You don't have to actually do the trade. You can learn how to run the trade, but it takes a while to be able to understand the business to a level that you're comfortable. And that is the J curve. You need a little bit of money to support yourself. Make sure you have it in the bank. Don't even go down this road of buying businesses if you don't.
Those are the three biggest watchouts for new first time buyers. If you like what you heard, like, sub, share. So keep listening, and I'll catch you next time.
