When Codie Sanchez left her high-paying Wall Street job a couple years ago after burning out, she had learned that true success meant building streams of income that don’t require you to trade your time for money.
After spending years working in private equity and helping investment firms raise money to buy out companies, she knew that the best path to financial independence was owning businesses that produced consistent cash flow, but that she didn’t have to operate on her own. Specifically, she decided to focus on what she calls “boring businesses”– tried and true business models like laundromats and car washes that aren’t as sexy as starting the next Uber or AirBnB, but they are reliably profitable.
Since then, the now 35 year old investor has built a portfolio of 25 businesses that she has acquired. Her portfolio generates eight figures in passive revenue and more than 800,000 people are following her journey on TikTok. Her investing newsletter and community, Contrarian Thinking, where she shares ideas and tips on building wealth through buying and selling companies has grown to more than 100,000 subscribers. Below she breaks down her strategy for where to find companies to buy, how to know what they’re worth and how to use little of your own cash.
Grit Daily: What are some of the places you look for businesses to buy?
Codie Sanchez: The truest answer is you can look anywhere to buy a business. That could be online through a traditional website like BizBuySell and Flippa or from an email or Twitter solicitation you receive from a business offering their services but many of my best deals have been off-market. You gotta do the research to find these deals and when you do find them, do your due diligence!
I think the key is finding the right business to buy or invest in. In order to do that, I look for businesses where I would be a client myself and ask is the business currently profitable? Are there areas of opportunity to improve operations to grow faster and can I add value to the business if I invest?
What strategies can one use to buy their first business when they have limited cash to put down?
CS: The long answer is yes, businesses can be bought without a lot of capital. I’ve done lots of deals with zero dollars through things called revenue share or profit share, which basically means that I take over a struggling business that is having problems and pay them from the revenue or profit that I create. We do this in lieu of actually giving money often.
Another avenue is through seller financing. 60% of all businesses are acquired through seller financing which basically means that you use the future profits of the business to buy the business from the business owner and pay the owner back over 2-5 years. This means that you can often buy a business without having hundreds of thousands or millions of dollars. The same thing is true with SBA loans. I think most of my wealth started when I very first began understanding SBA loans.
What’s a good formula for determining what a business is worth?
CS: It has to be profitable. Most important, hands down. I don’t invest in dreams. I invest in companies that are profitable today at a multiple that is at its current level of profit. I’m looking for straightforward and simple everyday businesses, many of them do not have moats around their businesses and are instead something where many players are in the same space; such as lawn care or house cleaning. The main things that are important in business acquisition are; the price I’m buying at, confirmation of profits, ability to have a solid operator in place, and a
belief and thesis that the business will continue to profit for the next 10 years. This is the difference between investing in dreams versus reality.
Any advice on finding an “operator” to run the day-to-day of the business I buy?
CS: You want an operator who is preferably a proven industry expert to help manage daily operations and you need to ensure that there is enough business profit to hire said operator and still hit your personal profit goals. A site like Glassdoor can help you budget for an operator.
Conducting a search can be expansive—post on Indeed or Linkedin—or targeted—go to your future competitors. When I interview anyone for the job I look to understand their experience; if their core values will fit my team’s culture; what their long-term goals are and if I can align with them; and their behavioral assessment.
How do you keep on top of which sectors you want to invest in?
CS: Just like any business, I want to know if it is currently profitable and has the potential for long-term growth. In the next market cycle, I want to diversify into small managers across 10-15 different fund families such as SMB, turnarounds, billboards/outdoor, psychedelics, or other niche sectors.