A financially independent entrepreneur says there’s an overlooked but ‘incredible opportunity’ for young investors to buy businesses right now — and they’re not as expensive to acquire as you may think

• Grant Sabatier built his wealth by stashing up to 80% of his income into low-cost index funds.
• If he lost everything and had to start from scratch today, he might not focus on index funds.
• Rather, he’d invest in building his own business or he’d buy a pre-existing one.

Grant Sabatier, the founder of Millennial Money, has changed his investing style over the years.

In the early 2010s, he employed a “index-first strategy,” investing up to 80% of his earnings in low-cost index funds. His discipline and consistency paid off, and he went from being worth almost nothing to having a seven-figure net worth in five years.

He recognizes the significance of the timing: The decade of the 2010s was the longest bull market in history, “so I was able to really benefit from a lot of that compounding,” Sabatier said, adding that he has since diversified his portfolio to include real estate, start-ups, websites, and even collectibles like watches.

While index funds are ultimately what propelled him to financial independence in the first place, he would not choose the same path if he had to start over today.

“I’m still very pro low-cost index funds for almost everyone,” he told reporters. “I think it’s clear now that 7-to-8% forever inflation-adjusted compounding returns are very, very bullish — and everyone’s saying it, from Charlie Munger to Morningstar to Fidelity.” Everyone is being much more cautious in their growth projections.”

Lower returns imply that index funds will not grow as much, and investors may need to save and contribute more to meet their goals.

As an investor, you should always consider the best way to put your money to work — and in today’s environment, Sabatier believes that is investing in a pre-existing business or starting one from scratch.

“I’m very, very pro-entrepreneurship as an accelerated path to financial independence, beyond index funds and even real estate, which is traditionally held up as the fastest path,” he went on to say. “I think business ownership is really where it’s going to be for the next 10 to 20 years.”

Buying ‘recession-proof businesses’ from boomers

According to Federal Reserve data, the baby boomer generation controls half of the nation’s household wealth, with private businesses accounting for a sizable portion of their assets. More businesses will be available for purchase as this generation ages, which Sabatier sees as an opportunity for young investors.

“Acquisition entrepreneurship is rapidly growing as a field because there are just so many great businesses to buy,” Sabatier said, noting that business school graduates are increasingly foregoing traditional finance and consulting jobs to buy small businesses.

He recommends using BizBuySell, the “Zillow of businesses,” to find out about available businesses in your area. Gas stations, FedEx freight routes, vending machine businesses, and car repair shops are all available for purchase.

When deciding what type of company to investigate, consider home service businesses such as an HVAC or electrical company. According to him, these are more durable and “recession-resistant,” as “you always need heat and electricity, plumbing, and HVAC.” Some previously unsexy businesses are now very appealing and interesting to a broader group of investors.”

Another type of business he seeks is one that is resistant to climate change: “What businesses can you buy that are best equipped to adapt to climate change issues?” he asks.

He also advised avoiding the restaurant industry because the margins are typically low.

How to buy a business

So you’ve decided to buy a lawn care company — how do you finance it? How exactly do you obtain it?

It is not as difficult or expensive as you may believe.

Sabatier explained that you have several choices. You can start with seller financing, which is when the buyer and seller agree on the terms — such as the down payment, interest rate, and term length — and sign an asset purchase agreement.

“Because people are people, you can go to that boomer who owns the landscaping business and say, ‘Hey, I want to buy this.'” “I have this amount of money,’ and then just pay them back over time,” Sabatier explained, adding that the down payment can be negotiated: “For a $600,000 lawn care business, with seller financing, you might only need to put down $10,000 or $15,000.”

He recommends applying for an SBA (small business administration) loan if you don’t have enough money for a down payment.

Another option is to apply for a bank loan. While getting one from a large bank like Chase or Bank of America may be difficult, “this is exactly the type of thing that a local credit union or regional credit union wants to lend you money for,” Sabatier explained. “Go in and talk to your local old school banker and show them the business and show them your business plan.”

You could also consider approaching a private lender.

“There are people out there who have money, whose entire business is just loaning other people money to get an interest return on it,” Sabatier said in an e-mail. Begin by asking family members, family friends, and peers for recommendations on where to find a private lender.

If you are unable to secure funding and do not have sufficient savings, Sabatier recommends establishing a relationship with the business owner and asking to form a partnership to purchase half or a portion of the business.

“It’s almost like renting-to-own in a way,” he explained. “You come in and buy a portion of it, and then you work with someone for two to five years to fully transition ownership.” In most cases, that will only work if you’re the young gun coming in and approaching someone older who you may know or who takes a liking to you, so it’s a little more of a gray area, but it can happen.”