Buying a Business That Makes You Rich by John Martinka

Author:John Martinka [Martinka, John]
Language: eng
Format: mobi
Publisher: Book Publishers Network
Published: 2013-05-11T14:00:00+00:00

REAL LIFE FINANCING

Following are some short examples of financing strategies and techniques. The overall objective is always to get the deal done, so any financing strategy has to work for both buyer and seller.

• Cash talks—and the buyer knew it. He wanted the business, knew what he could do with it and didn’t want to slow things down. When the seller told him how much he wanted, the buyer agreed and said he’d write a check for half if the seller would finance half—no bank loan. They closed in less than two months, including Thanksgiving, Christmas and New Years.

• Deductible payments—The seller wanted a certain price for bragging rights. The buyer got there by making part of the deal an employment agreement and part of it a consulting agreement. Use this strategy of making tax-deductible payments if the seller wants to stay active and is willing to take payments in this way.

• Manage inventory—The seller loved assets. He loved seeing full racks of “stuff.” The buyer managed the inventory better and in less than one year turned $250,000 of inventory into cash.

• Analyze the assets—A lot of business decisions are emotional. In this case the seller had a fascination with big trucks. The problem was, the business didn’t need big trucks, it needed small trucks. The buyer sold the big trucks, bought small trucks, pocketed the difference and had lower operating costs.

• Buy the AR and AP—Buyers make a leap of faith; the objective is to make that leap off a chair not a roof. Sometimes, though, it pays to take a gamble. Craig made a gamble on accounts receivable and accounts payable. The business’s records were a mess and initial due diligence told him that the company was better at paying their bills than in doing their billing and collecting (technicians running a business was the situation).

After wading through stacks of accounting paperwork, he went to the sellers (multiple owners) and cut a deal. To save time and the hassle of analysis, Craig would take all the AR and AP. They agreed and within a week Craig was doubly rewarded. First, he found unbilled jobs for over $100,000 in the mess of papers and then a couple checks arrived for orders that didn’t show up in the AR. His gamble really wasn’t that big because of his analysis, it was similar to the gamble professional card counters take at the blackjack table. He knew the odds were in his favor.

• Buy working capital—Al and Will were in similar situations. Their deals were at the upper end of their capabilities and the businesses required working capital—over $300,000 in Al’s case and at least $1 million for Will. Luckily, both owners understood the importance of working capital. And, at the size of these deals, it is more accepted for buyers to purchase a full package (whether it’s structured as a stock or asset purchase).

Both deals were in the generally accepted range (3-4 times EBITDA and 3.5–4.5 times profit) and provided the

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