Buying a Cashflow Positive Business

In middle of 2020 at the height of the COVID pandemic I decided it would be a good idea to acquire a brand (ha). I’m wired like that, once I have an idea in my head it’s a hundred miles an hour until I succeed or fail. I like to think I have some analytical thinking and caution that goes along with that, but once the seed of the idea has been planted in my head I nurture it.

I’m not necessarily a stranger to buying & selling businesses, or business assets. 2020 was the year that my largest business to date was acquired by a private investment group. But earlier on, I irregularly traded business assets. I sold my first blog for a couple of thousand, a sports platform we built we sold for a loss and I bought a small web design business many years ago.

In the next five years there’s going to be a huge opportunity to acquire businesses for those that want to play the game. There’s a couple of things to this; firstly with the number of boomers looking to retire is peaking and they have long-standing businesses they want to sell. Additionally, the reality is that most businesses fail. And those that do ‘okay’ tend not to last very long. So if you have the opportunity to acquire a business that has been a sustainable, proven business over a number of years that is incredibly valuable. It allows you to leverage the hard work that’s already been undertaken to build the business and frankly avoid the very high chance of failure that startups have.

However, it’s not something I have done a lot of in the last few years despite being better placed from an experience, capital and system perspective. It became a weekly habit of mine to search databases for businesses that were looking to exit.

Around April of 2020 I came across a brand that really interested me called Whisky & Stone (W&S). Catchy name, I like it. It was an eyewear brand focusing on the category of computer glasses, which essentially blocks the blue light from your screen and reduces eye strain, headaches and many studies have shown it can also improve sleep. It sparked my interest because less than 18 months earlier I was in Hong Kong at the Global Sources trade expo meeting with a supplier about creating some anti-blue light computer glasses. Unfortunately after much discussion, the idea fizzled out as many do. Having that experience and some knowledge around the technology and specifications meant that I was well prepared for what was ahead.

As a side note, for any product-based business owner or those looking to crack into it, I cannot recommend the Global Sources trade expo in Hong Kong enough. The first time I attended the expo in 2015, I was that excited I was shaking and had to sit down for a few minutes. It’s like Disney Land for entrepreneurs. The benefits of meeting suppliers and potential suppliers face-to-face is incredibly beneficial. It builds trust, you can touch and feel product samples, get a clear indication of potential costs, communicate more clearly your ideas and ultimately come away with a concise plan to move forward with. If nothing else, for me it’s a wonderful opportunity to spark new ideas. Each time I go, and I’ve now been 10 times since my first visit, I take a notebook with me and when I leave it is always filled with new ideas, business cards, and contacts and I leave with a renewed energy.

After going through the W&S listing multiple times, I did a little bit of research on the brand and it all looked solid from a brand perspective. The social media pages were really strong, it seemed like there was a good brand at the forefront and a decent enough email marketing list. There were issues though, it looked like the sales had dipped pretty drastically which was an issue.

I scheduled a call with the owner to have a general chat about the business. The business was based on the Gold Coast but the owner took the call from his living room in the USA. It turns out he had to move to the US for his full-time work and thus the business had suffered as a consequence. It was run by two brothers who were clearly talented and put in a lot of effort to grow the brand. The stock they had remaining was being held in a warehouse and often is the case – was costing them more money than they were making due to the dip in sales.

You’ll often find with some eCommerce businesses is that they hit the big-time with a successful Facebook ad and the sales go through the roof, then they come crashing back down to earth for whatever reason. There’s two things to consider here, there’s potential for those businesses to bounce back that have actually built reputable brands because they will likely have really strong social media accounts and a large email database after investing significantly in digital advertising. But some businesses (often crappy dropshipping businesses – don’t even get me started) don’t invest in the brand and are just looking for quick sales. That’s a massive red flag. I wouldn’t touch a business like that with a 10ft pole. The chances are you’re going to be inundated the day you takeover with emails saying ‘where’s my order?’. This was not the case with W&S. It was a reputable brand, selling quality goods that were shipped from the warehouse in Gold Coast.

After chatting with the owner I went away and eventually made an offer. It was significantly less than the asking price (half, actually) but the offer was justified – sales had dipped, he had moved overseas and needed to get out and I was offering it a good home where the brand could continue to live on and flourish. After a tiny bit of back and forth we had settled on the price, locked in a simple one-page contract and settled on a handover date.

I make it sound simple, because it was. No funding necessary, no lawyers, it was all really simple to facilitate and we were both very clear about the terms. Now, this was an asset-only sale. Meaning I did not buy the ‘company’ itself, I bought all of the assets within the company such as the stock, the branding, social media accounts, email database, customer service apps, website etc. For those that aren’t familiar with these sort of acquisitions, this is extremely common. Mostly because of the legal risks of which I won’t go into too much here because I am not qualified to, but essentially if I bought the whole company I’d be liable for any financial obligations that I may not have been aware of that come up such as unpaid bills, supplier invoices or possibly even legal proceedings. Buying the assets is a much simpler and safer way to go about it for a business of this size.

A few things to note about the business;

  • It was doing regular sales still (albeit significantly less than it once had)
  • There were no ’employees’ other than the owners
  • The amount of stock on hand was approximately 900 units (quite a lot).
  • They were paying too much to get the product produced and with my contacts I knew I could get that down significantly
  • The product itself was superior to many of its competitors

I can’t tell you what I paid for the business, but I’ll say this: it’s probably going to go down as one of my best purchases because the price I paid was less than the value of the stock on hand. That’s a massive win for me, and it’s a win for the owner who had to get this off his hands as he was now overseas.

Once the business was in my possession there was a couple of things I did straight away:

  1. I had to get the stock from the warehouse on the Gold Coast into my 3PL here in Melbourne. This actually cost me quite a bit because I didn’t realise it was actually quite a few pallets and had to go by a dedicated truck. This was an unexpected expense that I had to occur but it wasn’t a big issue as far the context of the deal goes. Once the stock was SKU’d and into the my warehouse, it was game on and orders could go through my system and directly to the customer.

    As I was driving up to the warehouse to check all the stock and chatting with the crew there, they couldn’t believe the deal that had been struck, for that amount of stock, and as we were talking for a couple of mins my phone dinged for a sale only a couple of minutes into owning the business’ assets. Nice feeling.
  2. I had to change the website. There wasn’t necessarily anything wrong with it per se, but having a web design background you pick up on things. After changing a few things around, updating imagery and copy it was good to go.

Fast-forward 12+ months, the sales have been consistently running through the business and producing positive cash flow every single month. I’m not going to lie to you, the sales aren’t life-changing, but the effort that I have to put in to run the business is realistically maybe an hour a week if that. The ROI and return on time is out of this world.

The plans going forward with W&S is to bring it together under one umbrella with a number of other related brands to share resources, knowledge and to scale up.

I have launched T7C Ventures (www.t7c.com.au) which is a private investment property which will look to acquire eCommerce-based businesses in the sports, fashion & lifestyle areas to bring together resources to collectively scale them.

If you would like to learn more about the acquisition, have a question or want to discuss please feel free to get in touch with me here.

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