Warning: Never value a business based on “potential”

Business acquisitions are a double-edged sword.

At this point, Acquisition Ace has helped hundreds of regular people buy profitable small businesses and successfully break free from their 9 to 5.

But on the other hand...

I’ve also seen even more people outside of the Acquisition Ace community who know just enough about acquisitions to be dangerous to themselves.

And because they only know just enough to get started...

They end up falling face-first into a bad deal that drains their life savings and takes years to become profitable.

Thankfully, a lot of the acquisition “money pits” that people fall into are easily avoidable if you know what to look for.

The most common one?

Valuing a business based on its potential instead of its performance.

Why shouldn’t you value a business based on its potential?

Because “potential” is meaningless!

People trap themselves into bad deals when they find a business that might not be optimal, but seems like it has a ton of room to grow.

They see all the little things they could do to make this business better and get fixated on that.

The problem is, almost every business has “potential” (big air quotes there) in the right hands.

That’s why shows like Bar Rescue exist. Jon Taffer finds a failing bar, he comes in guns blazing, yells at the staff to get their act together, tears the whole place apart, and renovates every aspect of the business until it’s booming.

This makes for entertaining TV, sure.

But it’s not a viable strategy for 99% of people reading this.

And it’s not a viable strategy for me either!

There are people out there who can buy a struggling business and turn it around. But this requires a rare and specific combination of skills. So don’t factor that into your plans.

Focus on this instead...

1. Focus on existing cash flow

Specifically, focus on the last three years of performance.

Hard data is the only thing that matters.

2. Focus on stability

We do not want to buy into a fixer-upper!

My students and I only look for businesses that are growing year over year, steadily, with solid operations and no crazy ups and downs in their revenue.

This is also why I love “boring” businesses like laundromats and car washes.

They’re simple to manage, easy to hire for, and bring in consistent recurring revenue because people will always need them.

Want me to send you high-quality acquisition and investment opportunities?

I occasionally find deals that I think my subscribers (you) might be interested in, and send the details in a broadcast to this email list.

To get access, just fill out the free 2-minute survey below.

👉 I want to buy (or passively invest as a silent partner into) a small business

Or, if you’re selling your business and are actively looking for buyers, tell me more in the survey below and we’ll reach out if there’s a good fit:

👉 I want to sell my small business

Onward,

— Ben Kelly