Negotiating business deals

From: alexhormozi

Negotiating effective business deals, especially for acquisition, can significantly accelerate financial growth and mitigate risk [00:06:01]. Building strong entrepreneurial skills is paramount, as these cannot be taken away by external factors like divorce, government, revolution, or financial crises [00:09:01].

Skills Over Assets

When starting with limited resources, focusing on skill development is crucial. After losing everything, one individual recounted making $110, 000 in c a s h co ll ec t e d s a l es t h e f o ll o w in g m o n t h, d e m o n s t r a t in g t h e p o w ero f inh ere n t s ki ll s < a c l a ss = " y t - t im es t am p " d a t a - t = "00 : 00 : 20" > [00 : 00 : 20] < / a > . T h eses ki ll s a re in v a l u ab l e an d p ro v i d e a f o u n d a t i o n f or b o u n c in g ba c k, a ssee n w h e nan e n t re p re n e u r w i t h$ 1100 in a bank account recovered after having six gyms [00:09:17].

Investment Strategy: Acquiring Businesses

Wealthy individuals often demonstrate a preference for acquiring assets for less money out of pocket, often through creative strategies, and tend to be more risk-averse [00:01:09] [00:09:38]. They prioritize guaranteed small returns with no risk over potential huge returns with guaranteed risk [00:11:00].

Business Acquisition vs. Real Estate

Consider two scenarios for investing $50,000:

Buying a House: You might put 10% down on a $500, 000 h o u se, in c u rr in g am o n t h l y m or t g a g e l iabi l i t y < a c l a ss = " y t - t im es t am p " d a t a - t = "00 : 01 : 37" > [00 : 01 : 37] < / a > . T hi sre q u i ress i g ni f i c an t s a v in g so v er t im e (e . g ., f i v eye a rs a t$ 60,000/year) [00:02:00].
Acquiring a Business: Instead, use the $50,000 to acquire an existing business. This approach can yield a much faster increase in income [00:02:23].

Finding Business Opportunities

Contact Brokers: While brokers often list businesses at retail prices, they can provide an idea of available businesses and price ranges [00:02:35].
Direct Approach: To avoid retail pricing and negotiate better deals, reach out directly to business owners, especially those in industries you understand or enjoy [00:02:43]. Many owners, even those making substantial profits, may be tired and willing to sell for a lower-than-expected price, even if not formally listed [00:12:34].

The Negotiation Tactic: “Agree on Price, Then Agree on Terms”

A key negotiation strategy is to first agree on the purchase price, and then negotiate the terms of payment [00:03:40].

Example Scenario:
- Find a business making $250,000 in annual profit [00:03:08].
- Agree on a purchase price of $625,000 (2.5 times earnings, often below retail for direct deals) [00:03:19].
- Terms Negotiation:
  - Seller Financing: Propose that the seller finance a significant portion, such as three-quarters of the deal (e.g., $437,000), payable over several years (e.g., three to five years) [00:04:10] [00:05:08].
  - Bank Loan/SBA Loan: Secure a loan for the remaining amount (e.g., $200, 000), u s in g yo u r ini t ia l$ 50,000 as a down payment (25% of the loan amount) [00:04:47].
- Outcome: You acquire a business generating $250, 000 ann u a ll y w i t hanini t ia l c a s h o u tl a yo f o n l y$ 50,000, significantly upgrading your income from, for instance, $60,000 [00:05:34].

Case Study: Acquiring a Gym for Zero Down

An entrepreneur, having previously invested $40, 000 f or a f i rs t g y man d$ 250,000 for a second (which didn’t yield more profit) [00:06:32], learned to apply this strategy:

Opportunity: Identified a gym owner who needed to sell due to a family crisis and was looking for a buyer [00:07:20]. The gym included expensive equipment [00:07:32].
Negotiation: Agreed on a price (around $40, 000 -$ 50,000) [00:07:39]. Then, negotiated terms to pay over 12 months, resulting in no money out of pocket at the time of acquisition [00:07:46].
Results:
- The gym generated $51,000 in sales within the first 30 days, effectively paying for itself immediately [00:08:13].
- It became a cash-flowing asset acquired for nothing [00:08:45].
- Later, the gym was sold for 1.5 times more than the agreed-upon purchase price [00:08:36].

This demonstrates how a patient approach and the “agree on price, then agree on terms” strategy can lead to acquiring cash-flowing assets with minimal financial risk [00:12:02] [00:12:59].

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