THE PLAYBOOK 2.0
How to Buy a Business worth Millions with $0 of your own money.
Bookmark and consider this thread your 𝕏 SMB MBA
This is 100% possible.There are many variations of this, but this structure is super reliable and just works...🧵
First, for this to work, you need three things:
1) Good credit
2) have some relevant skills that lead bankers/investors to believe you're capable of running the business you want to buy
3) willing to sign on the line for a huge loan with an unlimited personal guaranty
You're gonna search for and find an established, profitable business that's eligible for an SBA loan, and get 100% of the money by structuring a deal kinda like this:
-10% from an investor that likes you and wants to be your minority partner
-80% SBA loan
-10% Seller Financing
You're gonna look for a business that has as many of these attributes as possible- this is the "sweet spot" where the best deals are twitter.com/ClintFiore/status/1710626128812224639
But how do you even find a biz to buy?
Good news, I wrote a guide on how to find one:
twitter.com/ClintFiore/status/1748709301407842713
But once you find one, how do you know how to determine what it's true SDE (Seller's Discretionary Earnings) are, and how to value it???
Good news, I wrote a thread on how to value a main street business:
twitter.com/ClintFiore/status/1659931778319273984
For this example we're going to say you found a nice business doing 750K in SDE (Seller's Discretionary Earnings) and you can buy it for 3X SDE, or $2.25M total. $750K is the total available to pay yourself to operate the business, service debt, and for profit distributions.
Your investor is someone who believes in you personally, has cash, and likes making money.
You are going to offer them an AWESOME deal to put up all the cash you need. Offer them 15-18% ownership, (worth 337-405K) for $225K. Key is keep them <20% or they'll have to PG it.
Investor loves the deal because:
- They get to buy in at a "discount"
- Not very risky because it's a long-established business and you're a stud operator.
- Cash flow distributions will be awesome, immediate ROI.
- Downside limited to what they put in, and upside is unlimited.
SBA Requires an unlimited Personal Guaranty from someone and everyone >20% has to sign it. That's gonna be you.
Taking on the PG risk and willingness/responsibility to work full time running it is the justification of why you deserve your majority spot.
Now let's get the remaining 90% of the money you need figured out.
This will be debt in two notes.
- SBA Loan for 80% let's say 10 years at 10% interest. Annual payment = ~$285K
- Seller Financing for 10% over say 7 years at 7% interest behind SBA. Annual payment = ~$41K
When smoke clears you own ~83% Investor owns ~17%. The cash flow looks like:
750K
- 120K for your salary to run it full time
- 285K SBA Note
- 41K Seller Note
= 424K Annual Pre-Tax Earnings
Investor gets 17% of that = $72K = 32% ROI on their cash.
You get $352K + $120K salary
With Zero growth, just keeping it steady, you're making ~$472K/year and investor is making 32% cash on cash return.
In 7 years, Seller note goes away and you're making $502K/year and investor is making $83K/yr or 37% on orig investment.
In 10 years with ZERO growth, SBA loan is now paid off, and you're making 83% of the $750K profit = $623K/yr and investor is making $128K annually FOREVER from their original $225K investment.
PLUS your equity is worth $1.87M and investors' equity is worth $383K.
But, if you grow at say, 7% per year, the numbers are so much better at the 10 year debt free point:
Biz is now worth $4.5M or more. Your equity is $3.75M and investors' stake is $769K.
And you enjoy ~$1.5M cash flow annually of which you get $1.25M/yr and investor gets $250K.
Summary: look for deals between $1-7M asking price and with an earnings multiple of 2-4X and it will generally pencil out sexy like this.
Line up your investor FIRST.
Get an SBA lender to pre-qual you together 2nd, then GO SHOPPING.
This is the best wealth building hack I know if you're in your 20-50's age range and want to go from low to multi-millions Net Worth in <10 years.
Live off your salary and reinvest your profit distributions into other investments and back into your business for best results.
No, this isn't easy.
Yes, there's real risk here. If you screw this up you can go bankrupt.
But most win. This is high odds of success if you do your part, buy right, and operate the biz well, and I can't think of a better way to level up this big in a shorter timeframe.
Please share and bookmark if this was helpful, and I'll try to answer as many questions as I can below.