Moment 137 Finance Isn’t Rocket Science! The 2 Simple Skills Billionaires Use Everyday Codie Sanchez

Summary Notes


In a podcast conversation, the host and guest Cody discuss the intricacies of buying and operating small businesses, emphasizing that financial know-how and industry competence are less critical than understanding deal-making and seller motivation. Cody, leveraging his background in finance and journalism, debunks the complexity of finance, illustrating that the principles of large deals apply to small transactions, as evidenced by his first acquisition of a laundromat. He details the importance of recognizing a seller's readiness to sell and the potential for creative deal structuring, such as seller financing. Cody also advises listeners to leverage personal strengths and existing expenditures when considering business purchases, advocating for the use of "gateway drug businesses" to gain experience in deal-making, which can fundamentally alter one's perspective on ownership and wealth creation.

Summary Notes

Taking the First Step in Business Acquisition

  • The first step is often the hardest due to uncertainty and the unknown.
  • The speaker emphasizes the importance of learning how to take that initial leap into buying a business.
  • The speaker at age 29 or 30 bought their first business and shares insights on the process.

"You fascinated by the first step people take? Because the first step seems to be the hardest, that first step to buying that first business."

The quote highlights the speaker's interest in the initial step of business acquisition, acknowledging the difficulty and significance of starting the journey.

Learning Through Inquiry and Deals

  • Speaker B, with a background in journalism, leveraged their skill in asking questions to learn about finance.
  • Realized that the scale of the deal does not fundamentally change the process.
  • The speaker's revelation that small deals are structurally similar to large deals led to the pursuit of smaller business acquisitions.

"I'm pretty decent at asking questions and then figuring out who are the right people that could get me the answers."

The speaker attributes their ability to learn about finance and business deals to their journalistic skills in asking questions and seeking information from knowledgeable sources.

Scale of Business Deals

  • Speaker B observed no material difference between deals of varying sizes.
  • This insight prompted the speaker to consider smaller deals that matched their available resources.

"I realized there's no difference, like materially between a billion dollar, 100 million dollar, a $10 million deal and a $1 million deal."

By recognizing the structural similarities across deals of different magnitudes, the speaker was encouraged to apply the principles of large deals to smaller, more accessible ones.

First Business Acquisition: Laundromat

  • Speaker B chose a laundromat for their first business due to its operational simplicity and low time requirement.
  • The transaction cost of $100k was manageable and did not pose a risk of bankruptcy.
  • The business could operate independently, with an operator to handle any issues.

"One of the first deals I did was a laundromat deal, because I figured, well, you don't need somebody to run it full time."

The speaker selected a laundromat as their first business to buy because it didn't require constant supervision, aligning with their time constraints.

Finding a Business to Buy

  • Initially, Speaker B lacked a structured approach to finding business deals.
  • Identified the easiest and least risky type of small deal to pursue.
  • Collaborated with an acquaintance experienced in operating laundromats to find and manage the first business.

"No, the guy. So basically what happened? For my first deals, I didn't have a framework, so it was just, hey, I do these really big deals. Could I do a smaller deal?"

The speaker describes the informal process of finding their first business to buy, emphasizing the lack of a systematic approach and relying on personal connections.

The Secret of Finance and Business Operations

  • Finance is often made to sound complex to maintain a competitive edge.
  • Learning to do deals is not inherently complex.
  • Understanding the operational aspects of a business, like a laundromat, is crucial.

"First, you have to learn how to do deals, which is not really that complex. We just make it sound complex in finance, because financial lingo is like the moat around how we make money, right."

The speaker reveals that the complexity of finance is overstated to protect the industry's profitability, suggesting that deal-making is accessible with the right knowledge.

Reasons for Business Owners Selling

  • Older business owners may be willing to sell profitable businesses due to fatigue or desire for change.
  • Public misconceptions exist about why owners would sell profitable businesses.
  • Speaker B encountered skepticism about the legitimacy of their deal and the profitability of the business purchased.

"Old. These are 68 year old owners of a business that have been running this laundromat, plus a bunch of other small businesses in the vicinity for 2030 years."

The speaker explains that the previous owners of the laundromat were advanced in age and had managed the business for decades, which contributed to their willingness to sell.

Sellability of Small Businesses

  • Many small businesses are not sold but shut down due to owners' lack of awareness of their sellability.
  • Selling a business is often financially more beneficial than closing it down.
  • The speaker's personal experience with their uncle Eb and their own businesses highlights the common oversight of sellability.
  • The concept of "gateway drug businesses" suggests that initial small business ownership can lead to further deals and a changed perspective on business opportunities.

"Tons of small businesses for sale that will never sell. And I tell a story about my uncle Eb, who had a small business that was exactly that, that he closed down, which, by the way, costs you money, as opposed to selling, because he had no idea his business was sellable."

This quote underscores the missed opportunity many small business owners face when they are unaware that their business could be sold rather than closed, often at a financial loss.

"Once you learn how to do a deal, you'll never see the world the same again. It will change your entire perspective on everything."

The speaker emphasizes that learning how to buy and sell businesses is a transformative experience that alters one's view on business and opportunities.

Importance of Industry Competence in Business Acquisition

  • Competence in a specific industry is not deemed necessary for buying small businesses.
  • Understanding the financial aspects of a business, such as balance sheets and profit and loss, is more crucial.
  • Networking and consulting with industry experts can compensate for a lack of personal expertise.
  • Fear of the unknown should not deter potential buyers as acquiring knowledge is easier than often perceived.

"Not REALLY, no, not at all."

This quote illustrates the speaker's belief that industry-specific competence is not essential for acquiring a business.

"Can you read a balance sheet? Can you understand profit and loss, which is not that difficult to understand?"

The speaker suggests that financial literacy is more important than industry-specific knowledge when considering buying a business.

"I think it's really easy for somebody to tell you why things won't work. It's actually quite hard to convince somebody that they're capable of doing something."

The speaker addresses the common fear and negativity that can prevent people from pursuing business opportunities, advocating for a more optimistic and proactive approach.

Financing and Deal Structuring in Business Acquisition

  • Small businesses can be acquired with minimal or even no upfront capital.
  • Creative deal structuring, such as performance-based payments or seller financing, can facilitate business purchases.
  • Seller financing is common in small business sales and can be mutually beneficial for buyer and seller.
  • Persistence and skill in deal structuring can lead to successful business acquisitions without substantial personal investment.

"I've bought a business for $3,000. I've bought a business for $8,000, and I've bought many, many businesses for $0."

This quote demonstrates the speaker's experience with acquiring businesses with little to no initial investment, challenging the assumption that large capital is needed.

"60% of them sell with some component of seller financing, which just means if, let's say somebody manages your property here, let's say that that property manager makes one hundred k a year profit."

The speaker explains that seller financing is a prevalent method in small business sales, offering an alternative to traditional financing.

"I'm going to buy the business by giving you $300,000 over five years. Right. So I'm going to keep a percentage of the profits and I'm going to give the rest to you."

This quote provides an example of how seller financing can work, with the buyer making payments over time from the business's profits.

Deal Making and the Art of the Possible

  • Understanding the construction of deals is crucial for success.
  • Deal making is not a zero-sum game, especially in small business transactions.
  • It's possible to structure deals where both parties win.
  • Knowledge of deal making can significantly impact wealth accumulation.
  • The language of deals is not commonly taught, which disadvantages the "little guy."

"The real key here is knowing the art of the possible as it relates to deals, the way you construct your deals so that you win."

The quote emphasizes the importance of understanding what is achievable in deal making and structuring deals in a way that ensures personal success.

"There's plenty of ways to make sure it's a win-win."

This quote highlights the potential for creating deals that are beneficial for all parties involved, contrary to a zero-sum perspective.

"This is why people are poor, because nobody teaches us the language of deals."

The quote suggests that a lack of education in deal making is a barrier to wealth for many people, implying that better financial education could lead to greater prosperity.

The Role of Persuasion and Saleswomanship

  • Persuasion and sales skills are critical when approaching business deals.
  • The key to sales is not about convincing but finding people who are already interested.
  • Effective sales strategies involve identifying trigger moments and genuine curiosity.
  • Understanding what a motivated seller looks like is essential.
  • Convincing sellers that you can be a responsible steward of their business is a crucial part of the process.

"How important is learning to sell, and how can we be better salespeople?"

This question sets the stage for discussing the significance of sales skills in business transactions.

"Sales is a fallacy. I don't think sales exists."

The quote challenges the traditional concept of sales, suggesting that successful sales are more about discovery than persuasion.

"You're purely discovering what they truly feel. And then you are going to be the person that enables them to have a retirement in a way that no government can."

This quote emphasizes the importance of understanding a seller's true desires and positioning oneself as the solution to their needs.

Path to Success for Aspiring Entrepreneurs

  • Aspiring entrepreneurs should seek to understand the mechanics of business success.
  • Learning from successful business models and strategies is key.
  • Young professionals with ambition can look to established entrepreneurs for inspiration and guidance.

"I'm going to play the role of a 25 year old. I'm working in a job. I got a little bit of disposal income, but not a ton. I'm listening to you, Cody, and I'm going, I want some of that."

This hypothetical scenario represents the aspirations of young professionals who desire to achieve the level of success seen in established entrepreneurs.

"You got a holding company, right?"

The question seeks to understand the structure and scale of the successful entrepreneur's business ventures.

"70 million. So your holding company does about 70 million revenue. You've got a fund as well?"

By inquiring about the revenue and the existence of a fund, the dialogue provides insight into the financial scope of the entrepreneur's operations.

Financial Scale of Entrepreneurial Ventures

  • Discussing the revenue and size of business ventures gives an idea of the scale at which successful entrepreneurs operate.
  • Understanding the financial aspects of these ventures can inform and motivate aspiring entrepreneurs.

"70 million."

This quote reveals the revenue scale of the holding company being discussed, indicating the level of success achieved by the entrepreneur.

"Small ten."

This quote specifies the size of the fund associated with the entrepreneur's business, further illustrating the financial dimensions of the ventures.

Identifying the First Step to Entrepreneurship

  • Evaluate your current skill set and professional focus to identify your "unfair advantage."
  • Consider acquiring a business that aligns with your expertise and current expenditures.
  • Turn liabilities into assets by leveraging your industry knowledge and contacts.

"What I'd say is don't buy a laundromat. I talk about laundromats. I actually need to change that. I need to tell somebody I bought a different first business because it's a terrible business to buy."

This quote emphasizes the importance of choosing a business that complements one's skills and experiences rather than opting for a generic or easily understood business that may not be a good fit.

"I would say you should use your unfair advantage. And if you're in the content business, don't buy a boring business in the traditional sense."

The speaker suggests that leveraging one's unique skills and position within a specific industry is crucial when considering entrepreneurship.

"Look around you and see what you pay for and what you currently utilize already and then try to get a percentage of that business if not buying the whole thing."

The advice here is to assess current expenses and find ways to convert them into revenue-generating assets, possibly by acquiring a stake in the businesses one already patronizes.

Executing a Pro-Level Business Deal

  • Identify services you already use and determine if you can become a significant contributor to their business.
  • Propose a partnership or acquisition that benefits both parties by expanding the business's client base.
  • Use your existing expenditures as leverage to negotiate ownership stakes.

"I did a deal back when I was doing more video production in my last company where I bought a podcast and video production company."

This quote illustrates a successful example of turning an expense into an asset by acquiring a company in a field where the speaker had existing expertise and could add value.

"I'm going to double your revenue by introducing you to these people and I pay you, let's say $3,000 a month. Now, what if we're just going to wipe that out?"

The speaker details a strategy where they used their current business relationships to bolster another company's revenue, thereby creating a mutually beneficial partnership.

Leveraging Relationships and Market Position

  • Approach business deals by first understanding the potential partner's financials and market position.
  • Assess whether your contribution to their business is significant enough to warrant a partnership or equity deal.
  • Build relationships with business owners to explore succession planning and potential acquisition opportunities.

"I think the probably pro way to do that would be one, you'd approach them and you'd kind of get an understanding for their business."

This quote suggests a methodical approach to business deals, starting with a thorough understanding of the potential partner's operations and financial health.

"How can you become the solution to what that avatar is looking for? How can you become the son to the father? How can you become the buyer to a really anxious seller?"

The speaker advises on positioning oneself as the ideal successor or partner to a business owner, potentially leading to a favorable acquisition or partnership deal.

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