FANG = Up 400%+. Laundromats = $67k in Your Pocket.
The biggest wealth transfer from main street to Fortune 500 we've ever seen, so we buy main street.
We are amidst a wealth transfer that will have vibrations for decades.
I thought when we started our cannabis fund that would be the greatest wealth transfer I’d see in my lifetime; I believe there is now another. A rather more unfortunate one.
The Big Get Bigger, The Small Die
As told to me by the gentlemen who created the most recent SBA loan program, here’s what happens usually in small business land:
There are 30mm small and mid sized businesses in the US
600,000 close down each year
1mm new ones pop up each year as well
Before Covid-19, we had 10,000 baby boomers retiring a day… oh and by the way 19% of them own a small business that will either get wound down or bought.
In addition this year we have a confluence of events that only accelerated this phenomenon. We have record baby boomers retiring AND a global pandemic AND a government enforced shutdown AND social unrest. 2020 is a real Karen.
So it’s no surprise we are seeing record numbers of small business closures as evidenced by you driving down just about any strip mall or main street. I was just in Anacortes outside of Seattle and saw it myself:
We’ve talked about this before, and the opportunity that exists perhaps for the first time in our lifetimes to buy businesses with zero or little money down (at scale) because people need ways out. That’s why we started Unconventional Acquisitions, to teach people how to buy small businesses. It’s called Micro PE and we’ll break down an example below.
But the real thing that just gets me all hot and bothered is this:
The biggest companies out there are getting bigger…
If you aren’t tracking what is happening with tech company takeover, I am hardly the first to call this one out.
Bloomberg hitting on it, Reuters piles in:
Scott Galloway below highlights Facebook, Amazon, Netflix and Google and their particular breed of massive growth.
Or if you really want to scare yourself look the FANG vs S&P500 longer term.
No wonder Bezo’s looks like he has muscles now, he bought ‘em.
In fact, more people have Amazon Prime than go to church or own a pet in the US. We are quickly becoming a for the people by the FANG.
Meanwhile, the little guys are tired and beat up.
But this isn’t supposed to be a depressing news article highlighting injustice.
Here, we do things about opportunities—both dark and light.
So, what to do about Main Street getting clobbered.
First of all, let me tell you where my money isn’t while at all time highs—the stock market. There is a complete deviation of economic reality to stock market speculation right now.
My money is in non-correlated asset classes, cannabis, essential services, camping sites (that’s a fun story) and cash flowing assets.
How To Invest In A Business: WARNING it’s SUPER SEXY.
How sexy you ask?
Ya baby… coin operated laundromats, that’s what we’re talking about.
Here’s a breakdown of a deal my gent will run that we may buy. Just another funky business idea for non-correlated cash flow.
My deal: Buying a Laundromat
- $67k profit a year
- Buy w/ $0 of his own cash
- Use $100k in seller financing (using future sales to pay off owner)
- Finance Rest w/ Equipment loans
First Why Laundromats?
Simple - customers do the majority of the work washing and drying their clothes
Little labor - means training, on-boarding, and labor is relatively minimal
Upfront cash - customers pay upfront, makes accounting and tracking easier
Recession resistant -people always need clean clothes
Good ROI - laundry industry has a 20-35% ROI and nearly a 95% success rate, according to Speed Queen (eek, not sure on 95% but maybe directionally).
Inventory. - Unlike a restaurant, convenience store, or grocery store, laundromats have very little physical inventory.
No Seasonality - Not seasonal or weather-dependent.
You (or in my case my gent and our operator) have to run a laundromat. ;)
$200k price tag - BUT I’m going to use seller financing and a small upfront like $20k. Learn more about how to structure deals w/o capital like this —> UA.
Low barrier to entry - lots of laundromats out there.
Get Your Hands Dirty. You're a plumber, electrician, businessman, marketer, janitor, and a million other things all rolled into one. Or you do what I do and give an equity split to an operator to run it for you and you front the cash.
Set Costs keep on rising - utilities and rent don’t go away.
Customers - This is a unique client set, I have someone else do the coin collection, security, oversight etc. Because well… crackheads.
Here’s a high level of how the balance sheet looks.
It’s about the same over the 5 year period I requested, variable from $50-70k.
They wanted $200k and would finance through seller financing $125k.
I said, that’s cute. I also want Bloomberg’s balance sheet but sadly he won’t give it to me.
So, given there are 2.5M businesses for sale and he wants a deal, I would negotiate down to only $67k or so for a buying price but let’s say I couldn’t get that deal done and went with his. This is how that would work:
I would negotiate down the price (bc you know world is burning), I’d give him a small down payment, and structure a deal to do the rest of the payment over three years. Lots of ways to get seller to do this that we talk about at Unconventional Acquisitions, I like structuring them so the seller wins too on the upside. If you want to buy a business you should join our Mastermind. Click that link.
Let me show you why this is so intriguing… even at his price:
For this deal, I would make about $5,583 a month as the buyer. We got a good multiple of 1.86x. Then, I am at breakeven in 3 months for my initial cash down and my Cash on Cash Return is 268%.
Read that again. WE’D MAKE IN YEAR 1: 268%.
Then again because I like to get paid on the closing AND capitalize the business so I can hire an operator to do all the things I don’t want to do.
I get an equipment loan potentially for the $135k worth of laundry equipment and an SBA loan (they’ll do 90% of the revenue typically).
Which gives me $100kish AT CLOSING on a laundromat in my bank account.
Then I start the process to go, find another one, and use those proceeds as the cash down.
DISCLAIMER: Devil Is In the Details
There are 10 steps to buying a small business w/ seller financing or creative structuring. This is just one of them. You have to find the deals (origination), analyze them (due diligence) and on, but my job here is to OPEN YOUR MIND. Open it to the things us on Wall Street make billions on that YOU on Main Street, never do.
If you want to see how Private Equity heads become billionaires, don’t look to Wall Street, look to Main Street. They buy boring businesses, they turn them around and optimize them, then they cash flow off them.
This is a triple sided win. Business owner gets to retire, you get to cash flow, and employees get jobs as we optimize and grow.
This is the difference between TRADING stocks where someone has to lose for someone else to win. While building businesses, all can win.
Is it EASY? No. Is it SIMPLE. Yes. There is a recipe. Let’s get cooking. Oh and F Fang.
If you want to buy a small business using little or no money down (ewww doesn’t that sound scammy, except whatever, it’s the truth) sign up for our course —> www.unconventionalacquisitions.com. Or the newsletter on there is Free.99.
Questions everything (and stack revenue streams),
Follow along for more at: Biz Buying:
I’m experimenting with Twitter (@codie_sanchez) talking about Contrarian arbitrage; investing, income stacking, biz building unconventionally, so let’s connect. Or follow along about Cannabis w/ Entourage Effect Capital!
DISCLAIMER: This is the be an adult section, not advice, just what I did. Said otherwise: This article is presented for informational purposes only, is an opinion, and is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investment vehicle managed or sponsored by Entourage Effect Capital, LLC, Codie Ventures, LLC or its affiliates. All material presented in this newsletter is not to be regarded as investment advice, but for general informational purposes only. Day trading and investing does involve risk, so caution must always be utilized. We cannot guarantee profits or freedom from loss. You assume the entire cost and risk. You are solely responsible for making your own investment decisions. We recommend consulting with a registered investment advisor, broker-dealer, and/or financial advisor. If you choose to invest with or without seeking advice from such an advisor or entity, then any consequences resulting from your investments are your sole responsibility. Reading and using this newsletter or using our content on the web/server, you are indicating your consent and agreement to our disclaimer.