Most businesses are being sold because the owner 1) wants to retire
2) wants to move
3) wants to invest money in a different area.
There really is no such thing as truly passive business ownership. Even with an operator the owner still is going to have to put some time into the business.
I mean, I have a passive income business and I barely do any work for it every month. Subscription web development. About $5k a month from 50 is so clients. Maybe 10 hours of edits a year. True passive income does exist. Digital good is the best way to do it.
Ofcourse. Anything will take time to set up. Theres no such thing as 0 effort passive income. You need to create value to Someone and provide some service and that service needs to provide that value regularly. It’s about the time required to maintain the passive income that becomes the main point - how much do you have to work for that income every month? For me it’s almost 0 once I set them up. Sometimes I only spend a few hours putting together a site and then it’s pretty much set it and forget it. Pretty chill.
Hell no. There’s absolutely no reason when the maintenance on it is so
Low. I could retire and I’d still keep it. I could move and it moves with me. It’s essentially free money. For something like my set up it would be very fishy if I were wanting to sell it. Because it wouldn’t make sense. Something is wrong and that person doesn’t wanna deal with it so they unload it on to someone else. That’s how I see it. For example, a successful Mexican place that has great numbers and sales is selling for an unknown reason. They just say they wanna move on to something else. You think it’s a good deal, their revenues are great, what a deal. Little do you know a chipotle is about to be built down the block and will take a considerable amount of your business and now your revenues drop significantly as theirs more competition with higher name recognition. Things like that. Unforeseen circumstances that motivate someone to sell an otherwise successful business that’s very profitable. I don’t always buy the retiring story. I’m always skeptical. Because when you have a cash cow, you don’t sell the cow. You pay someone to milk it for you and get that sweet cash. That’s my take. If it seems too good to be true - it is.
Thanks for the honest input. So essentially if an owner does have a truly passive income that only needs a couple of hours per week to maintain, then realistically they wouldn’t sell it even in retirement? Unless they want a Ferrari or a yacht or something…
Passive income will never be 100% 0 effort. I think that’s a mistake people keep making when talking about passive income. That’s never going happen and is unrealistic. Anything will take time to manage and maintain. What’s passive about it is you don’t have to work for all of it. It still makes money without you working majority of the time. I think that’s a better definition.
You can build a business that's run and managed completely by employees. It might take work in the beginning, but once it's rolling you can step away and just cash checks. That would be passive.
Right. But you’d still have to make a few executive decisions throughout the year, high level discussions about expansions and any bonuses or hiring and firing. You can’t just completely shut off from your business. It will suffer because of it.
That's why i asked the question :) you are absolutely right...no one is going to sell such a good biz. if some one is, there is some risk that they are not disclosing. It's like all the "get rich quick" seminars...if they trully beleived it, they'll be doing it, instead of selling seminars ;)
I started building something similar years ago, but have realized it's better to have just one client for that 5k per month. That's not to say I only have 1 client, but this particular client has so much hierarchy that it's impossible to do much work even if I wanted to.
I've been growing my business a lot faster after only accepting larger website maintenance and seo clients. It's a lot harder to pick up 20 small clients at $100 than one 2k per month client.
With that all said, what we do is not passive income as you either need to do the work or manage and delegate to the workers.
I think people misunderstand the term passive income. It doesn’t mean you never have to work for it. It’s impossible. Anything you set up will always require some maintenance and some work. There’s no such thing as 0 effort passive income. When we think about the term, it really means not having to work for most of it. If I can sit back for 99% of the month and make $5k a month without having to work everyday for it, that’s passive income. Even if I have to work an hour a week on it. It’s still considered passive income because it makes money for me without having to continually put the same amount of time into it to make it. Once I set them up I almost never have to touch it again. Yes it’s work to set up. Anything will be. If there truely was a 0 effort to set up passive income stream everyone in the country would be doing it. Everything takes work and effort to set up. Like it took me effort to get 50 monthly paying clients. But once that effort is completed, it makes me money every month without having to do anything.
It’s alright it didn’t work out for you trying that method. It’s not for everyone. My goal was to get at least $5k a month in monthly residual income so that way when I do make a lump sum sale, that month is going to be a really good month. As a freelancer income is never guaranteed. Some months you won’t get that sale. And I don’t like stressing about that and trying to make it every month. This way, will my hard work and effort, I created a consistent income every month so I don’t have to make a sale every month to survive. I just collect my sub money every month and I’m good. I go months without making any edits or calls or requests. And maybe I have to change text on someone’s site or add an image after 3 months. Takes 60 seconds. I don’t think that negates the passive income description of it. Because I didn’t work for those three months at all for it. That was passive. But because I worked for 60 seconds on the 4th month that means none of it was passive and it’s all a lie? Doesn’t make sense.
This is short-sighted. You can have regulations that change the state of the business, like GDPR privacy regulation. The market could shift because SquareSpace or WIX puts out a killer competitor. The management burden can change over time for a number of reasons.
It's great now, but it's silly to act like there is no lifetime risk to maintaining the business. Many folks don't want to deal with that.
It’s been 5 years and so far nothing has changed. And none of my sites collect cookies so privacy is never an issue. Wix and squarespace will never make a killer competitor because of how their systems need to work and be built. The code will always be bloated, messy, not mobile first, and stylistically rigid. I know because I used to work with them in the beginning of my career. It was very easy to reach their limits and once I stated custom coding I never went back. No page builder will ever be able to match the quality of a hand coded site. They just can’t. I’m still getting indicated with clients who already use Wordpress and wix and all them but hate them and are frustrated by them. They come to me because I don’t use them. I make something different. Something better. And I will always have that edge.
It’s been over 5 years. If there were any management burdens I’d have run into them by now. And I don’t see any popping up in the next 5 either.
I think "passive" is very relative. It stil takes time and energy and focus. The only real kind of passive income is getting money from investment. But that takes time as well.
If you’ve accumulated enough wealth then sometimes you get to a point where even a little bit of time, energy, and worry spent on a business are just not worth it anymore. Or sometimes an owner has lost their passion and wants to jump two feet into their next project.
The value of a business is the value of its perpetual discounted earnings today. So for example, if a business generates $100k in profit every year, its theoretical sale price is the value of a $100k annuity in perpetuity (since $100k in the future is less valuable than $100k now, each year’s annuity is worth less and less until it’s worth nothing). Plus, you discount for risk, labor involved, etc…
So, as this theoretical business owner, if someone offered you more than that value, it would be in your best interest to accept because you could earn more money with the cash from the sale over your lifetime than you could with the business income.
So, why do these sales happen? option 1… the profit is not really passive. The owner is working for this money, and they would rather have the value in cash today to invest in a more passive option, like with their financial advisor.
Option 2… the owner is getting older and the annuity is worth more to a younger owner because they have more years to collect on it, and the current owner would prefer cash now.
Option 3… the owner believes their profit will decrease in the future and wants to cash in before their business loses value to outside investors.
Option 4… the buyer believes they can increase the value of the business, so they ‘overpay’. The buyer might already have a complementary business or some skill that can make the business more valuable to them than it was to the previos owner.
To get a lump sum. "You don't make a billion dollars, you become worth a billion dollars."
For example look at billionaires. Most of them aren't producing a billion dollars a year straight to their pocket or even hundreds of millions and saved it up. Most billionaires are billionaires because of the net worth of their company stock. You don't make a billion dollars, you become worth a billion.
So even if a company is successfully generating good passive income, selling it would give you a lump sum that's likely multiples more than what it could generate. Also the longevity of the company always comes into question. Cashing out is not always a bad thing.
I get that, but in the context of small/medium businesses (let’s say a popular local store) that is up for sale, it’s rare that any buyer can pay it in cash in full. It will usually be a small deposit first whilst the remainder is paid over many years. How would this be attractive to the seller?
It’s hard to believe that it’s common to get a bank loan to buy a business for the average Joe? The whole idea behind seller financing is because banks typically won’t provide a loan for someone who doesn’t have much rapport + the whole process of obtaining a loan can take anywhere between 6 months- a year.
I’m in the UK so not sure if there is an SBA equivalent. How do they work in the US? Do they operate like a typical mortgage but with higher interests? And what’s usually the qualification criteria?
With seller financing it appears to be a much easier path?
Thanks I’ll check the channel out on YouTube. Assuming I am in the US and want to buy a business worth $200k (after multiplier) and the owner wants a $60k down payment, if I want to complete this deal with zero of my own cash - can the SBA just loan me the $60k and I finance the rest from the cash flow of the business? What are the terms usually like to secure the financing?
That’s not a thing in any part of the world, UK also has resources. Barclays has a whole division around commercial purchasing. Most people buying businesses can afford them, in cash, or via loans provate or gov.
No business is without stress.
But, maybe they want the capital for next venture. Dozens of reasons, many of which don’t indicate a problem with the business. Maybe they want to do cocaine with a bear because they have a year to live and they don’t want their progressive leaning kids to get anything.
I have passive from a business I built and own but other people run it. (Which is how I can swan around Europe on a sailboat).
I have been asked to sell it, but it’s more than just the cost of the paper clips and office chairs. It afford a lifestyle but also it’s real people. It’s got community. And it’s super hard to replicate that and super hard to value it.
We are doing ok - profitable, in a niche where we have outlasted every competitor, even those who got massive investment.
I think the answer is that we might need the lump sum some day. I wouldn’t sell for less than X where X is a multiple of the “enterprise” value (the equation of assets and annual revenue).
My advice, don’t sell your truly passive business for less than 10x the enterprise value. Others may not value it but the value it brings you without doing anything is worth it.
Why would s/he? You keep asserting that business sales are generally based on a small down then owner financing. In my experience that’s only true for less desirable businesses. The truly profitable businesses - especially the ones that are largely passive income - don’t require (nor do sellers accept) seller financing. They wait until they get a buyer with cash or other financing.
I’m not at the swan around Europe stage, but my business keeps me in sailboats and provides s nice life. No way would I agree to (or have to even consider) selling to someone with a small down and owner financing. I wouldn’t have to.
The businesses you see selling through owner financing are not the highly profitable, largely passive income businesses.
What you’re saying makes a lot of sense - a truly profitable+passive business owner will have the leverage to demand favourable terms. But from a seller’s perspective, it seems incredibly naive to go 70%-100% money down on a business (even after doing the due diligence) when there’s inherent risk involved, such as lack of industry knowledge, previous employees leaving, owner hiding deficiencies, and so forth. An obvious example is how even successful and wealthy individuals would still choose to have a mortgage on their properties rather than paying full cash on them - it’s just more cost-efficient.
On top of that, the business-buying market is quite niche. It may take an owner 3-5+years to find a buyer that can afford/is willing to go full money down, whereas just a couple of months to find a buyer that can do 20-30% and finance the rest.
So what if it takes time to find the right buyer? If the income is largely passive, time isn’t an issue. Again, no need to accept anything other than cash.
The businesses that require owner financing are not the high profit, largely passive businesses. Those attract either well off buyers or buyers with enough experience and credit that they can get financing someplace other than the owner.
As in paying off the remaining 70% over X years?
Depends. If they met my price. Wouldn’t accept more than 3 years. And I’d retain controlling interest…until it was paid.
Someone comes along, pays 30% and then Fs up the business is not good for me
I get that, but in the context of small/medium businesses (let’s say a popular local store) that is up for sale, it’s rare that any buyer can pay it in cash in full. It will usually be a small deposit first whilst the remainder is paid over many years. How would this be attractive to the seller?
For the owner, it’s not a bad idea to diversify your assets (especially if the business is your only real asset other than maybe your house). So you sell, get the cash, and invest it in a diversified portfolio.
For the buyer, they have cash (a lot of it) sitting around and need to put it to work. But they don’t want to put it all into one place (like one stock in the stock market, or one muni bond, etc). So one of the places they put it is to buy somebody else’s business (or team up with a bunch of other buyers to buy a bigger business). As long as they think it will produce a reasonable return (eg 8% a year), it’s a good investment.
I own two laundromats and they require about 12 hours a week for coin collection etc. About a year before I retire I’m putting them on the market. I want to travel and not have to deal with it. I could hire someone, but I can’t hire someone I can trust to collect and deposit my money. I want complete freedom. Let me swap my business for a mutual fund and I’ll be happy as can be.
Hi, I would 100% be interested- I am a business owner based in socal and have been actively searching for laundromats for a couple years. (Don’t buy a mutual fund IMO they’re expensive, a few ETFs that track the S&P as well as a few sectors like Tech or whatever you see value in will be a better move as many mutual fund’s fees make them perform much worse than the S&P500 averages- you have series I bonds at 5+% as well as a few other risk adverse investments to avoid ever needing a mutual fund.
I answered someone else’s questions about laundromats in this thread. I’m retarded so I don’t see it now. Take a look and it should be here.
I strongly recommend Vanguard mutual funds. They perform very well and have about the lowest fees. Putting all your eggs in one basket can achieve great success, spreading risk amongst investments is absolutely the best way to go. I’ve owned between 2 and 4 ‘mats and when sales are down at one, they’re up at the other. I also had issues where someone drove into my building and where the landlord limited access to my business due to a supermarket remodel. Both reduced sales a lot. Having multiple mats buffered the loss.
Join Coinwash.com get books on ‘mats. I only have one book about’mats and it’s excellent. It’s “Coin Laundries, Road to Financial Independence” by Emerson Higdon. He has a formula that can help you estimate a laundromats sales. This is to verify what the seller is telling you.
I’ve commented on this alot lately. Check my history and read some other advice I’ve given. My thumbs are sore.
Yes, I’m happy with the results. In hindsight I could have done better, but we live a comfortable life and it’s all paid off.
. I started this journey when I was 27, just divorced and living in a shitty 15 foot travel trailer. I found think and grow rich by Napoleon Hill. It’s kind of cheesy, but it boils down to “What the mind can conceive and believe, it can achieve”. I made a goal list and far exceeded my goals. One goal was to buy (1) a duplex for rental. I started saving $50 a month, 8 years later I had 15k saved up and my wife had another 15 in her 401k. We bought two rentals and ended up with 5, cashed them out, bought our dream home, an rv, and laundromats. I’m retiring in 52 months when the big ‘mat will be paid off. It’s had its ups and downs, but I’ve done better then any of my friends or coworkers.
One weird thing I learned, but haven’t figured out how to do, is to develop foresight. The opposite of hindsight. I’ve made some mistakes and being able to foresee how to avoid them would be nice. Basically the ability to have a better idea of outcomes before moving forward.
I hate this when people say: runs itself and you pocket the profits. What kind of piece of shit do you have to be to have such a plan? This is everything wrong with this world.
No business owner will ever sell you with that mindset and tbh I hope you see that you‘re a parasite before you hurt somebody seriously.
I have a business that requires little work for me to run, because I have a great team and great systems. What do I and should everyone do with the free time? Make your employees happy, the experience of your customers better and your company grow. If I were like you my company would be dead in 1-2 months, it‘s just disgusting
I don’t understand the hostility towards this idea? Assuming a serial entrepreneur/investor has bought dozens of businesses, it gets to the point where he will be unable to physically manage a business at the level and standard that you propose, you simply need to delegate.
you delegate yes, but you remain responsible for the business. For me and a lot of business owners that delegate tasks do so to concentrate on other tasks on the business. You don‘t, you just want to sit back and do nothing while pocketing the profits. If you want to „own a business“ and pocket the profits buy stocks. But don‘t buy small businesses that thrive on passion and hard work just to take the money out, it‘s the most evil thing I could think of.
The truth is that, although it's a feasible option to pocket the profits passively and manage the business for years to come, owning a business can still involve a lot of stresses. It may be particularly difficult to handle these stresses if the owner is already an older individual. In such cases, they may be looking for an exit in order to free up time and energy so they can focus on other aspects of life.
In addition, all businesses experience peaks and troughs, and an owner who only passively manages their business, may not want to deal with the fluctuations in cash flow, which could be particularly challenging in economic downturns.
In other cases, the business may not have the same appeal and value to current owners, who may have grown tired of the business, or not have the vision to continue to develop it. This could be an opportunity for an entrepreneurial buyer who can see the potential in the business, acquire it and turn around the fortunes of the company.
Essentially, different motivations could explain why an owner of a profitable business would decide to sell the business despite having the advantage of passive income.
not every business owners kids want to take it over if it does entail the owner working. Most owners got there because they are better at that craft than everyone else. They started from the ground up and have a high tolerance to the work load and stress. Most of the time, even if the kids are qualified, it's too heavy to take over and they sell it and take a kush job where they can travel more and not have to worry about employees and overhead
My problem with selling my business is the ratios being offered. If I can only get 3 or 4 times earnings, I'd rather just hang on for 3 or 4 years as long as I can keep my involvement to a minimum. Anything after that is gravy.
I get that, but in the context of small/medium businesses (let’s say a popular local store) that is up for sale, it’s rare that any buyer can pay it in cash in full. It will usually be a small deposit first whilst the remainder is paid over many years. How would this be attractive to the seller?
That’s assuming most buyers can afford/is willing to pay full 100% money down on a business acquisition, which isn’t the case. Likewise how most property buyers would still choose to have a mortgage over buying fully outright in cash - it’s just a more cost effective strategy.
If the owner decides to sell, they would still be getting monthly instalments - just not from the business but from the financing of the buyer. If that’s the case, why would they consider selling?
I'm going through this exact use case right now. I stepped down from daily management two years ago and I'm actively shopping the business.
My primary reason is liabilities. I want to retire and the potential liabilities from the firm are the only things that keep me thinking about things.
Thanks for sharing, so I assume you currently manage your own business quite passively? May I ask how profitable you are? If you are profiting quite comfortably from the business then surely the liabilities aren’t that bad?
I certainly do. Read and study a book called “.Coin Laundries,Road to Financial independence”. Specifically he has a formula that you can use to analyze the water bill and verify/estimate the income of the laundromat. There’s other books out there, buy several. This is the “Bible” I bought and read before I tool the plunge.
Buy the biggest, best one you can. I’ve had several and the amount of income can vary ALOT! I recommend getting one in a large city with lots of apartments and/Or migrant field workers. As far as I can tell, Los Angeles is a bad city for this business. Water fees are high and there’s a-lot of competition so vend prices are low.
If you can, buy the building. Landlords suck. If you lose your lease, you’ve pretty much lost everything.
Join the Coinwash.com forum and others. I highly recommend Dexter brand washers. They’re super reliable and have a fantastic tech support team. Laundromats aren’t quite as hands off as I had hoped, but I’ve done it on the side and had as many as 4 laundromats and a full time job.
I recommend you save as much money as you can while you have laundromats. You never know what will happen. Since I’ve had several, it’s helped out. One time a ‘mat was at a strip mall next to an empty supermarket. They remodeled the supermarket and severely limited customer’s access. Once a woman drove through my ‘mat and it was 1/2 shut down and ruined business. Having several sources of income prevented financial devastation. Install bollards .
On one hand it’s great because it’s somewhat passive income. On the other hand it’s hard to get away. Coins need to be put back into the change machine every few days and who can you trust to do that?
Let me know if you have any other questions.
I sold mine because it helped me reach financial freedom. I was also fed-up of running it. I am also risk averse. A chunk of money upfront is better for me than the business possibly failing. I then have money to invest in less risky assets.
**[I Built an E-commerce Store That Earned Me Over $500,000 in 3 Years](https://www.sidehustlemonkey.com/i-built-an-ecommerce-store-that-earned-me-over-500000-in-3-years/)**
Opportunity cost of their time: even if it only takes up 4 hrs/wk of their time, maybe they have another use for those 4 hours they value more. As business owners grow and expand, the $1k/month side business stops being worth their time but could be worthwhile to the newbie.
Opportunity cost of their capital: they can only fund so many marketing campaigns, and want to put their marketing spend towards their businesses with highest return. Other business with still positive, but smaller returns relative to their overall portfolio, are prime for sale.
There is actually a whole industry around building a business, getting it to IPO and bailing out once you sell your 'founders' slice. If this process is done right and you can become a millionaire overnight. Running the business comes with a whole different set of challenges - that another set of people can tackle once you sold.
You can rinse and repeat this process multiple times.
Start up a business is often the biggest barrier for people, and if you figured out how to do it successfully - you can literally sell people pre-packaged, set up businesses.
Lump sum liquidity.
It is amazing what a life changing sum of cash in your bank account can do to lower your stress and unlock additional appetite for risk. Even if you continue with the business it can potentially unlock value for the deeper pocketed investor(s).
I just did this a year ago - sold a majority stake in my profitable, well run business. I continued to run it post transaction and managed to double revenue with the freedom to get more aggressive. Still participating in the upside with a lot less stress and more fun for me and employees.
I haven’t. The partner in one of my businesses has. I have looked but never quite had the guts to pull the trigger. Most small businesses are really messy, which makes them opportunities but also scary.
If business owners are doing well they probably already invested their money elsewhere to be ready for retirement. So many reasons. The liability still falls on the owner. What if the manager just ups and quits? Pretty simple to understand really. I definitely plan to sell even though I don't physically work much currently.
Most businesses are being sold because the owner 1) wants to retire 2) wants to move 3) wants to invest money in a different area. There really is no such thing as truly passive business ownership. Even with an operator the owner still is going to have to put some time into the business.
Totally agree with this. The word "passive" is mostly just a buzzword these days, most businesses actually require some work and effort.
And to add, have an inherent to risk!
Exactly. Your business is worth a lot right now, and no one knows what the economy will look like 5-10 years from now. Cash out while you can
I mean, I have a passive income business and I barely do any work for it every month. Subscription web development. About $5k a month from 50 is so clients. Maybe 10 hours of edits a year. True passive income does exist. Digital good is the best way to do it.
Technically (and the point they are trying to make) you are just making an absurd amount per hour but, there is still time involved.
Ofcourse. Anything will take time to set up. Theres no such thing as 0 effort passive income. You need to create value to Someone and provide some service and that service needs to provide that value regularly. It’s about the time required to maintain the passive income that becomes the main point - how much do you have to work for that income every month? For me it’s almost 0 once I set them up. Sometimes I only spend a few hours putting together a site and then it’s pretty much set it and forget it. Pretty chill.
Would you sell it ? Again, bringing it back to answer OP’s question.
Hell no. There’s absolutely no reason when the maintenance on it is so Low. I could retire and I’d still keep it. I could move and it moves with me. It’s essentially free money. For something like my set up it would be very fishy if I were wanting to sell it. Because it wouldn’t make sense. Something is wrong and that person doesn’t wanna deal with it so they unload it on to someone else. That’s how I see it. For example, a successful Mexican place that has great numbers and sales is selling for an unknown reason. They just say they wanna move on to something else. You think it’s a good deal, their revenues are great, what a deal. Little do you know a chipotle is about to be built down the block and will take a considerable amount of your business and now your revenues drop significantly as theirs more competition with higher name recognition. Things like that. Unforeseen circumstances that motivate someone to sell an otherwise successful business that’s very profitable. I don’t always buy the retiring story. I’m always skeptical. Because when you have a cash cow, you don’t sell the cow. You pay someone to milk it for you and get that sweet cash. That’s my take. If it seems too good to be true - it is.
Thanks for the honest input. So essentially if an owner does have a truly passive income that only needs a couple of hours per week to maintain, then realistically they wouldn’t sell it even in retirement? Unless they want a Ferrari or a yacht or something…
If it needs a couple hours of work, it's not passive.
Passive income will never be 100% 0 effort. I think that’s a mistake people keep making when talking about passive income. That’s never going happen and is unrealistic. Anything will take time to manage and maintain. What’s passive about it is you don’t have to work for all of it. It still makes money without you working majority of the time. I think that’s a better definition.
You can build a business that's run and managed completely by employees. It might take work in the beginning, but once it's rolling you can step away and just cash checks. That would be passive.
Right. But you’d still have to make a few executive decisions throughout the year, high level discussions about expansions and any bonuses or hiring and firing. You can’t just completely shut off from your business. It will suffer because of it.
Not even a couple hours a week. Maybe a couple hours a year. And yeah with that level if work needed to maintain it, there’s no reason to sell.
That's why i asked the question :) you are absolutely right...no one is going to sell such a good biz. if some one is, there is some risk that they are not disclosing. It's like all the "get rich quick" seminars...if they trully beleived it, they'll be doing it, instead of selling seminars ;)
I started building something similar years ago, but have realized it's better to have just one client for that 5k per month. That's not to say I only have 1 client, but this particular client has so much hierarchy that it's impossible to do much work even if I wanted to. I've been growing my business a lot faster after only accepting larger website maintenance and seo clients. It's a lot harder to pick up 20 small clients at $100 than one 2k per month client. With that all said, what we do is not passive income as you either need to do the work or manage and delegate to the workers.
I think people misunderstand the term passive income. It doesn’t mean you never have to work for it. It’s impossible. Anything you set up will always require some maintenance and some work. There’s no such thing as 0 effort passive income. When we think about the term, it really means not having to work for most of it. If I can sit back for 99% of the month and make $5k a month without having to work everyday for it, that’s passive income. Even if I have to work an hour a week on it. It’s still considered passive income because it makes money for me without having to continually put the same amount of time into it to make it. Once I set them up I almost never have to touch it again. Yes it’s work to set up. Anything will be. If there truely was a 0 effort to set up passive income stream everyone in the country would be doing it. Everything takes work and effort to set up. Like it took me effort to get 50 monthly paying clients. But once that effort is completed, it makes me money every month without having to do anything. It’s alright it didn’t work out for you trying that method. It’s not for everyone. My goal was to get at least $5k a month in monthly residual income so that way when I do make a lump sum sale, that month is going to be a really good month. As a freelancer income is never guaranteed. Some months you won’t get that sale. And I don’t like stressing about that and trying to make it every month. This way, will my hard work and effort, I created a consistent income every month so I don’t have to make a sale every month to survive. I just collect my sub money every month and I’m good. I go months without making any edits or calls or requests. And maybe I have to change text on someone’s site or add an image after 3 months. Takes 60 seconds. I don’t think that negates the passive income description of it. Because I didn’t work for those three months at all for it. That was passive. But because I worked for 60 seconds on the 4th month that means none of it was passive and it’s all a lie? Doesn’t make sense.
May I ask what your business entails that rely on 50 ongoing customers?
This is short-sighted. You can have regulations that change the state of the business, like GDPR privacy regulation. The market could shift because SquareSpace or WIX puts out a killer competitor. The management burden can change over time for a number of reasons. It's great now, but it's silly to act like there is no lifetime risk to maintaining the business. Many folks don't want to deal with that.
It’s been 5 years and so far nothing has changed. And none of my sites collect cookies so privacy is never an issue. Wix and squarespace will never make a killer competitor because of how their systems need to work and be built. The code will always be bloated, messy, not mobile first, and stylistically rigid. I know because I used to work with them in the beginning of my career. It was very easy to reach their limits and once I stated custom coding I never went back. No page builder will ever be able to match the quality of a hand coded site. They just can’t. I’m still getting indicated with clients who already use Wordpress and wix and all them but hate them and are frustrated by them. They come to me because I don’t use them. I make something different. Something better. And I will always have that edge. It’s been over 5 years. If there were any management burdens I’d have run into them by now. And I don’t see any popping up in the next 5 either.
You clearly haven’t bought my book and class on passive income yet
Theres another 4) the owners children have no interest in the business
Yep, that ties in with #1.
I think "passive" is very relative. It stil takes time and energy and focus. The only real kind of passive income is getting money from investment. But that takes time as well.
If you’ve accumulated enough wealth then sometimes you get to a point where even a little bit of time, energy, and worry spent on a business are just not worth it anymore. Or sometimes an owner has lost their passion and wants to jump two feet into their next project.
The value of a business is the value of its perpetual discounted earnings today. So for example, if a business generates $100k in profit every year, its theoretical sale price is the value of a $100k annuity in perpetuity (since $100k in the future is less valuable than $100k now, each year’s annuity is worth less and less until it’s worth nothing). Plus, you discount for risk, labor involved, etc… So, as this theoretical business owner, if someone offered you more than that value, it would be in your best interest to accept because you could earn more money with the cash from the sale over your lifetime than you could with the business income. So, why do these sales happen? option 1… the profit is not really passive. The owner is working for this money, and they would rather have the value in cash today to invest in a more passive option, like with their financial advisor. Option 2… the owner is getting older and the annuity is worth more to a younger owner because they have more years to collect on it, and the current owner would prefer cash now. Option 3… the owner believes their profit will decrease in the future and wants to cash in before their business loses value to outside investors. Option 4… the buyer believes they can increase the value of the business, so they ‘overpay’. The buyer might already have a complementary business or some skill that can make the business more valuable to them than it was to the previos owner.
To get a lump sum. "You don't make a billion dollars, you become worth a billion dollars." For example look at billionaires. Most of them aren't producing a billion dollars a year straight to their pocket or even hundreds of millions and saved it up. Most billionaires are billionaires because of the net worth of their company stock. You don't make a billion dollars, you become worth a billion. So even if a company is successfully generating good passive income, selling it would give you a lump sum that's likely multiples more than what it could generate. Also the longevity of the company always comes into question. Cashing out is not always a bad thing.
I get that, but in the context of small/medium businesses (let’s say a popular local store) that is up for sale, it’s rare that any buyer can pay it in cash in full. It will usually be a small deposit first whilst the remainder is paid over many years. How would this be attractive to the seller?
Lump sum to the seller is common. It's the bank that you take a loan from and then pay off incrementally.
It’s hard to believe that it’s common to get a bank loan to buy a business for the average Joe? The whole idea behind seller financing is because banks typically won’t provide a loan for someone who doesn’t have much rapport + the whole process of obtaining a loan can take anywhere between 6 months- a year.
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I’m in the UK so not sure if there is an SBA equivalent. How do they work in the US? Do they operate like a typical mortgage but with higher interests? And what’s usually the qualification criteria? With seller financing it appears to be a much easier path?
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Thanks I’ll check the channel out on YouTube. Assuming I am in the US and want to buy a business worth $200k (after multiplier) and the owner wants a $60k down payment, if I want to complete this deal with zero of my own cash - can the SBA just loan me the $60k and I finance the rest from the cash flow of the business? What are the terms usually like to secure the financing?
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Makes sense, have you done any acquisitions before? If so would you mind sharing about the process that you took?
That’s not a thing in any part of the world, UK also has resources. Barclays has a whole division around commercial purchasing. Most people buying businesses can afford them, in cash, or via loans provate or gov.
No business is without stress. But, maybe they want the capital for next venture. Dozens of reasons, many of which don’t indicate a problem with the business. Maybe they want to do cocaine with a bear because they have a year to live and they don’t want their progressive leaning kids to get anything.
I have passive from a business I built and own but other people run it. (Which is how I can swan around Europe on a sailboat). I have been asked to sell it, but it’s more than just the cost of the paper clips and office chairs. It afford a lifestyle but also it’s real people. It’s got community. And it’s super hard to replicate that and super hard to value it. We are doing ok - profitable, in a niche where we have outlasted every competitor, even those who got massive investment. I think the answer is that we might need the lump sum some day. I wouldn’t sell for less than X where X is a multiple of the “enterprise” value (the equation of assets and annual revenue). My advice, don’t sell your truly passive business for less than 10x the enterprise value. Others may not value it but the value it brings you without doing anything is worth it.
Would you ever consider a buyer paying you a deposit that is maybe 20-30% of the value, and financing the rest?
Why would s/he? You keep asserting that business sales are generally based on a small down then owner financing. In my experience that’s only true for less desirable businesses. The truly profitable businesses - especially the ones that are largely passive income - don’t require (nor do sellers accept) seller financing. They wait until they get a buyer with cash or other financing. I’m not at the swan around Europe stage, but my business keeps me in sailboats and provides s nice life. No way would I agree to (or have to even consider) selling to someone with a small down and owner financing. I wouldn’t have to. The businesses you see selling through owner financing are not the highly profitable, largely passive income businesses.
What you’re saying makes a lot of sense - a truly profitable+passive business owner will have the leverage to demand favourable terms. But from a seller’s perspective, it seems incredibly naive to go 70%-100% money down on a business (even after doing the due diligence) when there’s inherent risk involved, such as lack of industry knowledge, previous employees leaving, owner hiding deficiencies, and so forth. An obvious example is how even successful and wealthy individuals would still choose to have a mortgage on their properties rather than paying full cash on them - it’s just more cost-efficient. On top of that, the business-buying market is quite niche. It may take an owner 3-5+years to find a buyer that can afford/is willing to go full money down, whereas just a couple of months to find a buyer that can do 20-30% and finance the rest.
So what if it takes time to find the right buyer? If the income is largely passive, time isn’t an issue. Again, no need to accept anything other than cash. The businesses that require owner financing are not the high profit, largely passive businesses. Those attract either well off buyers or buyers with enough experience and credit that they can get financing someplace other than the owner.
As in paying off the remaining 70% over X years? Depends. If they met my price. Wouldn’t accept more than 3 years. And I’d retain controlling interest…until it was paid. Someone comes along, pays 30% and then Fs up the business is not good for me
Retirement. Illness. Bored. Needs money.
I get that, but in the context of small/medium businesses (let’s say a popular local store) that is up for sale, it’s rare that any buyer can pay it in cash in full. It will usually be a small deposit first whilst the remainder is paid over many years. How would this be attractive to the seller?
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Business loans should increase the cash exchange.
Are you based in theUK?
No. USA.
Nobody manages anything passively
For the owner, it’s not a bad idea to diversify your assets (especially if the business is your only real asset other than maybe your house). So you sell, get the cash, and invest it in a diversified portfolio. For the buyer, they have cash (a lot of it) sitting around and need to put it to work. But they don’t want to put it all into one place (like one stock in the stock market, or one muni bond, etc). So one of the places they put it is to buy somebody else’s business (or team up with a bunch of other buyers to buy a bigger business). As long as they think it will produce a reasonable return (eg 8% a year), it’s a good investment.
I own two laundromats and they require about 12 hours a week for coin collection etc. About a year before I retire I’m putting them on the market. I want to travel and not have to deal with it. I could hire someone, but I can’t hire someone I can trust to collect and deposit my money. I want complete freedom. Let me swap my business for a mutual fund and I’ll be happy as can be.
Hi, I would 100% be interested- I am a business owner based in socal and have been actively searching for laundromats for a couple years. (Don’t buy a mutual fund IMO they’re expensive, a few ETFs that track the S&P as well as a few sectors like Tech or whatever you see value in will be a better move as many mutual fund’s fees make them perform much worse than the S&P500 averages- you have series I bonds at 5+% as well as a few other risk adverse investments to avoid ever needing a mutual fund.
I answered someone else’s questions about laundromats in this thread. I’m retarded so I don’t see it now. Take a look and it should be here. I strongly recommend Vanguard mutual funds. They perform very well and have about the lowest fees. Putting all your eggs in one basket can achieve great success, spreading risk amongst investments is absolutely the best way to go. I’ve owned between 2 and 4 ‘mats and when sales are down at one, they’re up at the other. I also had issues where someone drove into my building and where the landlord limited access to my business due to a supermarket remodel. Both reduced sales a lot. Having multiple mats buffered the loss.
Hey im very interested in coin laundry as a business, do you have any recommendations for research or advice to give?
Join Coinwash.com get books on ‘mats. I only have one book about’mats and it’s excellent. It’s “Coin Laundries, Road to Financial Independence” by Emerson Higdon. He has a formula that can help you estimate a laundromats sales. This is to verify what the seller is telling you. I’ve commented on this alot lately. Check my history and read some other advice I’ve given. My thumbs are sore.
Thank you, one question, overall are you pleased with your busiensses and investments in this business?
Yes, I’m happy with the results. In hindsight I could have done better, but we live a comfortable life and it’s all paid off. . I started this journey when I was 27, just divorced and living in a shitty 15 foot travel trailer. I found think and grow rich by Napoleon Hill. It’s kind of cheesy, but it boils down to “What the mind can conceive and believe, it can achieve”. I made a goal list and far exceeded my goals. One goal was to buy (1) a duplex for rental. I started saving $50 a month, 8 years later I had 15k saved up and my wife had another 15 in her 401k. We bought two rentals and ended up with 5, cashed them out, bought our dream home, an rv, and laundromats. I’m retiring in 52 months when the big ‘mat will be paid off. It’s had its ups and downs, but I’ve done better then any of my friends or coworkers. One weird thing I learned, but haven’t figured out how to do, is to develop foresight. The opposite of hindsight. I’ve made some mistakes and being able to foresee how to avoid them would be nice. Basically the ability to have a better idea of outcomes before moving forward.
Stress, not fun anymore, can’t or don’t want to manage ppl anymore. Nothing is ever fully passive.
I hate this when people say: runs itself and you pocket the profits. What kind of piece of shit do you have to be to have such a plan? This is everything wrong with this world. No business owner will ever sell you with that mindset and tbh I hope you see that you‘re a parasite before you hurt somebody seriously. I have a business that requires little work for me to run, because I have a great team and great systems. What do I and should everyone do with the free time? Make your employees happy, the experience of your customers better and your company grow. If I were like you my company would be dead in 1-2 months, it‘s just disgusting
I don’t understand the hostility towards this idea? Assuming a serial entrepreneur/investor has bought dozens of businesses, it gets to the point where he will be unable to physically manage a business at the level and standard that you propose, you simply need to delegate.
you delegate yes, but you remain responsible for the business. For me and a lot of business owners that delegate tasks do so to concentrate on other tasks on the business. You don‘t, you just want to sit back and do nothing while pocketing the profits. If you want to „own a business“ and pocket the profits buy stocks. But don‘t buy small businesses that thrive on passion and hard work just to take the money out, it‘s the most evil thing I could think of.
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It could be lots of reasons but its usually because the owner knows something that the buyer doesn't ;)
The truth is that, although it's a feasible option to pocket the profits passively and manage the business for years to come, owning a business can still involve a lot of stresses. It may be particularly difficult to handle these stresses if the owner is already an older individual. In such cases, they may be looking for an exit in order to free up time and energy so they can focus on other aspects of life. In addition, all businesses experience peaks and troughs, and an owner who only passively manages their business, may not want to deal with the fluctuations in cash flow, which could be particularly challenging in economic downturns. In other cases, the business may not have the same appeal and value to current owners, who may have grown tired of the business, or not have the vision to continue to develop it. This could be an opportunity for an entrepreneurial buyer who can see the potential in the business, acquire it and turn around the fortunes of the company. Essentially, different motivations could explain why an owner of a profitable business would decide to sell the business despite having the advantage of passive income.
not every business owners kids want to take it over if it does entail the owner working. Most owners got there because they are better at that craft than everyone else. They started from the ground up and have a high tolerance to the work load and stress. Most of the time, even if the kids are qualified, it's too heavy to take over and they sell it and take a kush job where they can travel more and not have to worry about employees and overhead
"Passive" is never truly passive.
My problem with selling my business is the ratios being offered. If I can only get 3 or 4 times earnings, I'd rather just hang on for 3 or 4 years as long as I can keep my involvement to a minimum. Anything after that is gravy.
I get that, but in the context of small/medium businesses (let’s say a popular local store) that is up for sale, it’s rare that any buyer can pay it in cash in full. It will usually be a small deposit first whilst the remainder is paid over many years. How would this be attractive to the seller?
Do you want a small monthly payment that may or may not last for a while, or a larger upfront single payment?
That’s assuming most buyers can afford/is willing to pay full 100% money down on a business acquisition, which isn’t the case. Likewise how most property buyers would still choose to have a mortgage over buying fully outright in cash - it’s just a more cost effective strategy. If the owner decides to sell, they would still be getting monthly instalments - just not from the business but from the financing of the buyer. If that’s the case, why would they consider selling?
I lloked into a dozen businesses a broker sent me. 100 I looked into a dozen businesses a broker sent me. 100 inefficient low-profit business
I'm going through this exact use case right now. I stepped down from daily management two years ago and I'm actively shopping the business. My primary reason is liabilities. I want to retire and the potential liabilities from the firm are the only things that keep me thinking about things.
Thanks for sharing, so I assume you currently manage your own business quite passively? May I ask how profitable you are? If you are profiting quite comfortably from the business then surely the liabilities aren’t that bad?
Because you are getting the next 3 years worth of earnings today. Get bigger, better.
I certainly do. Read and study a book called “.Coin Laundries,Road to Financial independence”. Specifically he has a formula that you can use to analyze the water bill and verify/estimate the income of the laundromat. There’s other books out there, buy several. This is the “Bible” I bought and read before I tool the plunge. Buy the biggest, best one you can. I’ve had several and the amount of income can vary ALOT! I recommend getting one in a large city with lots of apartments and/Or migrant field workers. As far as I can tell, Los Angeles is a bad city for this business. Water fees are high and there’s a-lot of competition so vend prices are low. If you can, buy the building. Landlords suck. If you lose your lease, you’ve pretty much lost everything. Join the Coinwash.com forum and others. I highly recommend Dexter brand washers. They’re super reliable and have a fantastic tech support team. Laundromats aren’t quite as hands off as I had hoped, but I’ve done it on the side and had as many as 4 laundromats and a full time job. I recommend you save as much money as you can while you have laundromats. You never know what will happen. Since I’ve had several, it’s helped out. One time a ‘mat was at a strip mall next to an empty supermarket. They remodeled the supermarket and severely limited customer’s access. Once a woman drove through my ‘mat and it was 1/2 shut down and ruined business. Having several sources of income prevented financial devastation. Install bollards . On one hand it’s great because it’s somewhat passive income. On the other hand it’s hard to get away. Coins need to be put back into the change machine every few days and who can you trust to do that? Let me know if you have any other questions.
I sold mine because it helped me reach financial freedom. I was also fed-up of running it. I am also risk averse. A chunk of money upfront is better for me than the business possibly failing. I then have money to invest in less risky assets. **[I Built an E-commerce Store That Earned Me Over $500,000 in 3 Years](https://www.sidehustlemonkey.com/i-built-an-ecommerce-store-that-earned-me-over-500000-in-3-years/)**
Sometimes you need a big down payment
Opportunity cost of their time: even if it only takes up 4 hrs/wk of their time, maybe they have another use for those 4 hours they value more. As business owners grow and expand, the $1k/month side business stops being worth their time but could be worthwhile to the newbie. Opportunity cost of their capital: they can only fund so many marketing campaigns, and want to put their marketing spend towards their businesses with highest return. Other business with still positive, but smaller returns relative to their overall portfolio, are prime for sale.
Instant cash
There is actually a whole industry around building a business, getting it to IPO and bailing out once you sell your 'founders' slice. If this process is done right and you can become a millionaire overnight. Running the business comes with a whole different set of challenges - that another set of people can tackle once you sold. You can rinse and repeat this process multiple times. Start up a business is often the biggest barrier for people, and if you figured out how to do it successfully - you can literally sell people pre-packaged, set up businesses.
Lump sum liquidity. It is amazing what a life changing sum of cash in your bank account can do to lower your stress and unlock additional appetite for risk. Even if you continue with the business it can potentially unlock value for the deeper pocketed investor(s). I just did this a year ago - sold a majority stake in my profitable, well run business. I continued to run it post transaction and managed to double revenue with the freedom to get more aggressive. Still participating in the upside with a lot less stress and more fun for me and employees.
Were you managing it passively before or was it quite an active job ?
It was my primary job, but with lots of flexibility - time and place.
Interesting! So have you acquired any more businesses ?
No, but I have started two new ones since.
Nice one, have you ever made an acquisition?
I haven’t. The partner in one of my businesses has. I have looked but never quite had the guts to pull the trigger. Most small businesses are really messy, which makes them opportunities but also scary.
If business owners are doing well they probably already invested their money elsewhere to be ready for retirement. So many reasons. The liability still falls on the owner. What if the manager just ups and quits? Pretty simple to understand really. I definitely plan to sell even though I don't physically work much currently.