⚠️ What key factors would you consider before buying a company with zero dollars down?

Alex Hormozi skeptically discusses the feasibility and risks of acquiring a business with $0 down, emphasizing the need for industry experience and awareness of potential liabilities. Reflecting on his advice, identify and share the critical factors you would evaluate before attempting such an acquisition. How do these factors align with minimizing risks and maximizing business value? Stay concise, aiming for a response between 25 and 100 words. Then, engage with your peers by commenting on 2 different comments. Lastly, react by liking 3 comments that add value to the conversation.

Cleaned Transcript:

In the video "The Myth of Buying a Business for $0" from Alex Hormozi, he emphasizes that in small businesses, human capital is a significant resource as it directly impacts expenses. Time studies, conducted through an Excel sheet in 15-minute increments, can reveal how time is being utilized in the business. Employees who follow time-study instructions show diverse tasks every 15 minutes, indicating productivity. Time studies can significantly increase productivity without requiring additional time investment. Starting a business with minimal investment is advised, with service-based businesses being a cost-effective option. Zero-dollar-down approaches are suitable for individuals with industry experience or taking over businesses they are familiar with. Consider offering services for equity or a revenue share, as it can be a more negotiable option than equity and may have tax benefits. "Do the unscalable" approach is recommended for faster business growth, as discussed in a separate video. Alex Hormozi, a business owner with a $200 million portfolio, discusses models of acquiring businesses with $0 down, consulting for equity, and service for equity. He questions the feasibility of acquiring a business for $0 down, arguing that most businesses offered at $0 down are not worth buying. Acquiring a business for $0 down may involve inheriting liabilities and lacking knowledge about the business, with potential risks including incurring debt, using complex deal structures, and taking out loans. Hormozi advocates for starting businesses and challenges the assumption that acquiring a business for free is a good idea, emphasizing the complexities and risks involved. He provides examples of successful business acquisitions with functional assets that can be sold, which obtain high earnings multiples, as opposed to acquiring businesses for $0 down. Revenue sharing and consulting for equity models are discussed for structuring compensation in business agreements. Consulting for equity involves providing advisory services in exchange for equity ranging from 1% to 30% depending on the size and volatility of the business. The service for equity model is favored for its recurring work and payment, creating a partnership with a clear deliverable and pricing structure. Differences between buying and consulting processes are highlighted, with emphasis on the need to evaluate operational and execution risks when purchasing a business. 360 interviews and time studies are recommended to uncover any discrepancies in business operations, with insights into the allocation of resources and potential risks. Buying a business with debt may not be worth it, as it often leads to working for the owner for the duration of the debt. A clear vision and operational plan are important when taking over a business to improve its value. Running a business involves many responsibilities such as getting customers, selling, hiring, training, dealing with theft, equipment maintenance, and managing unpaid accounts. Taking over very small distressed businesses can be complex and challenging, especially for someone with no prior business experience. Seller discretionary earnings may not accurately reflect the owner's actual time commitment to the business. Small businesses are volatile, often relying on one primary acquisition stream or key employee, leading to potential failure if that one aspect fails. Entrepreneurship has a dark side, with the potential to work long hours and still end up poorer at the end of the month. Most seller finance deals are personally guaranteed, creating financial risk for the buyer. Acquiring a business in the same industry where infrastructure and processes can be merged can be lucrative. Expanding a business through acquisition is a more viable use of the strategy than using it to get into business initially. Understanding multiples arbitrage and focusing on value-add playbooks can be a more profitable approach to buying and managing businesses. Consulting payments and equity in business are negotiable, but equity may lead to resentment due to not wanting to pay for non-working efforts. Consider being paid a fee for ongoing services instead of equity for a more stable relationship. Taking on risk is a way to get around resentment for recurring payments without recurring work. The story illustrates the value of taking on risk and owning a chunk of the business before providing substantial value. Three ways to receive payments as a minority stakeholder: forced distribution off profit, guaranteed contract or being a W2 employee, and royalty/rev share off top line, with recommendations for small businesses. Alex Hormozi discusses a strategy to increase profitability by purchasing multiple businesses and selling them together for a higher price in the future. He shares an example where he sold one of his gyms for one time's earnings, with a payment spread over two years, and offered marketing services for the first six months to the buyer. Alex points out that buying businesses with zero dollars down usually means buying a job rather than a sellable business. He explains the benefits of equity, including decision-making power, profit distribution, and value upon sale, and suggests that these benefits can be contracted independently from owning equity. Alex raises concerns about consulting for equity deals, citing volatility in small businesses' cash flow, potential loss of relevance if knowledge is transferred, and complications in partner buyout negotiations. He recommends exit clauses or a shotgun clause to protect a consultant's interests in equity deals.

Link to Course Module: https://www.skool.com/acquisitionuniversity/classroom/9e82d8a3?md=a9a87c4085b54e909b86cd11eedb96c7

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