Hey Biz-Buyers,
This is where we share some of the best insights, tips, and stories from Main Street and our private biz-buying community.
🚨 Now brace for impact…
Our mindset-shifting BigDeal podcast is coming to your earbuds Tues, April 9th.
As part of the launch, we’re giving away a 30-min. call with Codie + more than $5,000 of tech prizes.
For instructions on how to win, sign up here.
(And if you’ll be in Austin on April 9th, you may want to grab a ticket to our live launch event. There are a limited number of spots…)
But now, back to our regularly scheduled programming.
Let’s get down to business.
Today, in 5 minutes or less:
Buyer tip: don’t get too fixated on multiples, says Clint
Multiple this, multiple that.
If you’re into entrepreneurship through acquisition, there’s a good chance you’re hearing “multiple” multiple times per day.
As you should.
Because it’s really important.
But get this…
“It’s not just ‘what multiple are you paying’ that determines a good business deal,” says community facilitator and business broker Clint Fiore.
Okay, so then what does?
“I think 3 other things quickly tell me how much I like an SMB deal, and perhaps are more important than multiple,” he says.
(Fair warning — the following terminology could get a tad technical for total beginners, but keep learning and you’ll be up to speed before you know it.)
So, those 3 things:
1) Cash on Cash Return – “How quickly can I get the cash I put into this deal, back out? Many times good deals get 100% or better CoC returns. If it’s under 30-50%, I’m getting less and less interested.”
2) DSCR (Debt Service Coverage Ratio) – “What’s the ratio between available free cash flow post-closing vs the debt service payments? Most banks want 1.2 or better, but that’s too thin for my liking. I want a 1.5 minimum, and preferably substantially higher.”
3) Out of the Woods Time Calculation – “I made this one up but look at it every deal. It’s how much time will it take me, if I throw all available Free Cash Flow after Debt Service at reducing debt Principal, until I owe less on this business than the Tangible Assets are worth at Fair Market Value. Or phrased simply, you’re out of the woods when you could sell all the ‘stuff’ the business owns and wipe out all business debt without it impacting your personal assets.”
As for that Out of the Woods formula, here’s Clint’s explanation:
“(SDE – annual debt service) / (Total Debt – FMV of Tangible Assets) = Years till Out of the Woods. The faster the better, but I typically want this to be less than 2 years until I’m safe from exposure to loss of personal assets on PG’d debt.”
See? You survived. Technical, but not rocket science.
Our recommendation? Look up any of the terms you didn’t know, then come back and read this again.
SMB Buyer Insights you won’t find anywhere else…
We recently surveyed hundreds of people in our biz-buying community.
We asked them about:
- Family status
- Net worth and income
- Employment status
- Motivations for business ownership
- Target income from an acquired business
- Time & resources spent on acquisition efforts
- … and more
Then, we wrote about all of it in our 2024 Small Biz Buyer Insights report for the SMB community.
But be sure to download the report for FREE:
It’s loaded with unique and valuable insights — survey data, expert perspectives, and market research from our community, our friends at Live Oak Bank, and others.
1 (new) community book recommendation
One of our community facilitators just finished reading this practical book on the 12 habits of valuable employees — a “great little book,” as he put it.
Inside, he says, are practical tips on:
- “Simple daily practices to master essential workplace skills”
- “Ways to apply the habits to benefit your team, department, and company”
- “Guidance for employers seeking to inspire value in their workforce”
Let us know if you add it to your list.
7 (new) things we’re hearing on Main Street…
Here’s a cool thread on what it means to buy a great business at a FAIR price
Innovation! This all-female auto repair shop offers mani-pedis while clients wait
Thank you, Gen Z: more and more youths are entering blue-collar fields
This CEO made a list of home service verticals ranked from most institutionalized to least
Raising prices? A look into one landscape operator’s process for charging more
Good to know: don’t know the difference between basic financial verification and a QoE? Read this and find out
Once you do that… then you’ll understand this biz-buyer joke
Who’s looking to buy a biz?
A partial list of REAL people who began their Contrarian Community journey in recent weeks (and why they did), lightly edited for clarity…
🤝 An account strategy team leader
“Although the corporate world has been kind to me, due to my background, I have a soft spot for local business and I want to make that transition.”
🚌 An RV manufacturing professional
“To build generational wealth, freedom of time, and meaningful impact”
🏥 A medical operations digital solutions leader
“I’m passionate about making a positive impact in the lives of professionals through cutting-edge digital solutions. Acquiring a business in this space will allow me to scale my impact while achieving the freedom to control my own time and future.”
🏢 An occupancy planner and real estate investor
“Freedom of my time… I want to be an involved, present mother.”
🏦 A VP of a financial services company
“At the end of my life, I will define my success by the amount of people that have become better off because I have lived.”
