5x your profits with this simple strategy

Let’s talk profitability for entrepreneurs.

Most business owners are incredibly dissatisfied with how much cash they can pull out of their business.

They might be turning millions of pounds, but can’t put any of it into their personal bank account.

Building a business organically takes so much time.

BUT there is another way to extract profits from your business much quicker. Here’s how...

The problem

The harsh reality is that most businesses fail. In fact, only 5% of businesses make it to their ten-year anniversary.

Around half of them fail within the first year. 80% of them are gone by year five.

Not great statistics.

Even if you do get to that 10-year anniversary and your business does seem to be making money on paper, it’s very hard to extract it into your personal bank account and have an amazing lifestyle.

But this simple strategy can help you do just that.

You’ve got a business, and things are going well. You’re organically growing the profits, maybe by 5, 10, or 15% year on year.

Then you end up reinvesting so much of your profits back into the business to grow it even further - hoping that one day, at the end of the rainbow, there’s going to be a pot of gold for you.

What if we could speed that process up? Here’s how:

Step One: Buy-in the profits, instead of growing them

You might be thinking, “That sounds a bit complicated. I’ve never bought a business before.”

Let me just tell you my humble beginnings.

I literally started as a clown, performing at kids’ birthday parties. I’ve got no snazzy university degree, and I’ve never worked for an investment bank. I’ve just learned this stuff over 20 years.

Buying profitability was lifechanging for me. But what’s the risk?

Risk comes from not understanding what you’re doing.

Imagine driving a car for the first time, and how scary it was to move that machine when you’d never done it before. But after a year, it doesn’t seem risky at all.

The risk diminishes the more you do it. It just becomes second nature.

But how do you begin the daunting task of buying profitability?

Step Two: Identify a good business model

You could find a profitable business that has no staff and is all run by a single person who knows everything. Avoid those types of “key-person” businesses at all costs.

Think of your business as a medieval castle, surrounded by moats. These moats protect your castle from invasion or, in this case, things going wrong.

Business protection (moats):

A little bit of money from a lot of people, a lot of the time. Don’t buy a business where one big customer makes all the revenue.

Predictable cashflow. Owning a restaurant is very unpredictable. There may be lots of people who buy from you regularly, but they might decide to go to a new restaurant that opens in town.

Meanwhile, a supermarket like Tesco or Sainsbury’s has lots of regular customers – and a loyalty scheme to keep them coming back. That’s very predictable cashflow.

That’s why I love Costco’s business model so much. They’ve got people paying them £80 a year to use Costco, so they can predict people are going to make best use of their money.

Check out my video on Costco’s secrets for success below:

Location-based businesses. I own zoos, day nurseries, ice cream and coffee shops.

Those location-based businesses mean someone can’t just come on my patch.

I’d much rather own an ice cream shop than an ice cream van, because someone else could just buy an ice cream van and start doing the same round as me. I’d have no protection over the streets, but I do have protection around a building.

Exit appetite. This is one of the best moats around your castle.

It’s whether other people’s money (i.e. pension funds, private equity or big financiers) want to buy into your industry.

If you build a chain of care homes for old-age pensioners and you’re making good profits, you will have a list of people who want to buy into your business.

You should be building a business to sell, even if you have no intention of selling it. That discipline will make you build something far more profitable.

If there’s exit appetite, you know you’re on to something really good.

Brilliant management teams. Once you’re starting to generate profits, a business owner’s next job is to become a full-time recruiter. You’ve got to be on the hunt for talent.

Building a talented team to run the day-to-day business will make it so much more profitable.

You can then focus on growing your business, rather than operating it.

For example, I bought an ice cream company a few years ago. It was selling over a million pounds-worth of ice cream to more than 1,000 independent customers. Some of those were also branded up as the same company.

I bought Rossi Ice Cream manufacturing, and there were also Rossi shops. I knew I could absolutely explode the growth of this business if I bought some of those ice cream shops.

Supplying to my own shops as a direct manufacturer and benefitting from all the direct-to-consumer margin, I could have the best of both worlds.

For example, Nike has really cottoned on to that in recent years. They were a wholesaler, selling shoes to shops like JD Sports. Now, they’re making a horrific amount of sales directly from the Nike website.

I thought, “how can I do that with my own business?” So I did!

So, I bought the Rossi Ice Cream parlour, which was making £250,000 profits a year.

Rather than taking 5 years to slowly grow the direct-to-wholesale business, I could buy in the profits at the stroke of a pen.

Me outside the Rossi Parlour in Southend, Essex. (Photo: Ben Shahrabi)

I firmly believe you could do that. I put £250,000 in, borrowed £1 million from the bank. Within a year, I’d got my money back.

Now, the Rossi Ice Cream business is £250,000 more profitable every year, on the basis of an acquisition.

You don’t have to be Nike to make this work. Just start by buying one business at a time. 

Step Three: Buy the right business

Here are my top tips for buying the right business

• Buy past performance, not future potential. It’s really important to find businesses that are established, and more than 10 years old.

• Buy businesses, not jobs. You want to live by the philosophy that entrepreneurship + management = success. You’re the grower of the business, not the operator. If you’re buying a business that is profitable and has been around for a long time but doesn’t have a management team, this could be a great opportunity.

• At least £1 million in revenue. That means you’ve got enough fat in the business to ensure you can afford a management team. If you’re using debt to service the business when you’re buying it, you need to make sure there’s enough profitability to service that debt.

But how do you make those deals without £250,000 and access to bank finances to buy a business from scratch? You have to get creative.

Step Four: Vendor finance

Buy a business and use its cash flow and profits to pay the vendor (or seller) off over a period of time. That means borrowing a lot less from the bank, if at all.

It’s hugely tax efficient for the vendor and it gives you added security, too.

WATCH this video I made all about vendor finance:

In the UK, vendors only pay 10% tax on the first £1 million of a business sale, and then 20% after that, through Business Asset Disposal Relief.

It’s another great way to grow your company quickly, and it has benefits all-round.