The Preferred Wealth Creation Vehicle is Business Investment – Buying & Selling Businesses for Profit.
The Process starts with the Acquisition of One Business and then Progresses by Compound Reinvestment of Cash Flow for the Acquisition of Additional Businesses.
Our particular Compound Investment Model is distinctly different from all other forms of compound investing – as all other models focus on reinvesting Profits – usually after tax.
In contrast Capitalis Capital reinvest Cash Flows from each acquisition as soon as practicable.
There is no need to wait 6 months or longer until Free Cash Flow appears. Investments are made Immediately a New Business is Acquired.
There need be no provision for tax and by managing expenditures within a business more efficiently funds can be made available almost instantly.
What might the returns be from this Radically New Cash Management Approach?
Let’s take an example:
Say a business has earnings of $2million which you might pick up in times of recession at a bargain price of a 2 times multiple; that is for $4million.
The prudent investment strategy is an LBO – where the bulk of the purchase price is paid with borrowed funds.
(There are many techniques which might be applied – but for the time-being assume a straight forward SBA loan requiring a 10% deposit from the borrower. In which case $400,000 must be plonked down by the purchaser at settlement. Thus the SBA loan would amount to $3.6million.)
Now Analyze the Cash Flow. $2million a year of earnings works out to be 2/12 monthly, and close to $170,000 in round dollars ( a little less of course but for the exercise Don’t Sweat the Small Change)
Note: The total monthly cash flow would be much higher as earnings get calculated after COGS & operating expenses. It is feasible to capture some of that Cash Flow in addition to Earnings – but for simplicity at this stage just accept the Earnings Cash Flow alone.
On that basis it would be only 3 months before your deposit capital could be fully returned (plus extra).
After just the first month you should have at least $170,000 sitting in the bank account of the business.
At that stage you are armed to proceed on your next acquisition.
Following the same format you target a business earning $1million a year (before tax – EBITDA) and negotiate a price of $2million.
As you have slightly less than the 10% SBA want the Seller provides $300k carry-back finance, and you are away.
Or you could wait until the first week of the next month and produce $200k as your deposit for a loan of $1,800,000
The monthly Cash Flow of your second business just on Earnings should be around $80k.
Now look back to the first business you acquired – pumping through $170k a month Earnings.
Add the Cash Flows from both businesses – you should have at least $250k as a deposit for your 3rd acquisition or split in two for another 2 small businesses as add-ons.
Do your research to see why Add-ons should be on the agenda.
Note: Each additional acquisition should be adding more Cash Flow to your Business Portfolio – enabling you to do bigger & better deals.
Earnings from the 3 deals should be $2m + $1m + $1.25m = $4.25m (ROI = over 1,000%)
At which point do you measure results?
After doing a bit of house keeping I like to improve earnings and when they have doubled sell the businesses for a multiple of earnings usually one or two times more than at which they were purchased.
I never have to pay gains tax on sale of a business. Even if they were only sold for twice the acquisition price the profit is on the initial deposit capital of the first acquisition ($400k).
Thus the capital gain profit should be $8.5m (tax free) – an added 2125%+ ROI.
Add the 2 ROIs together the total return on the initial $400k would approximate 3,125%.
Being truthful – I never have $400k rattling around. In most instances to come up with $400k I would usually borrow that against other assets in preference to cashing in. Which makes the ROI infinite.
Note: One of the 2nd things I do when acquiring a business is to improve its financial efficiency so the improved financials meet the interest expense of borrowings. Of course you should do the numbers on the basis of what your skills allow.
Provided you have starting Capital for your first deal you can get airborne and within 3 months have 3 or 4 businesses under your belt.
Your only limitation to size of deal is your personal financial capacity – for the deposit.
Another variable which will impinge mainly on your first deal is Finance. Your FICO and SBA finance will
There are ways to overcome shortfalls – which simply require dexterity and creativity.
Rather than look at dogs you should look at acquiring businesses with earnings above $500k a year. That puts you in the ballpark for buying businesses for around $1million.
Thus you need $100k of deposit money *(a lot closer to what you might be able to come up with than the $400k required for a $4million acquisition)
It is a worthwhile exercise for you to extrapolate the numbers on a business you acquire for $1million using $100k deposit.
To assist genuine entrepreneurs whose starting capital is way short of $100k there is an Acquisition Equity Partners program which gets you in to the ballgame with a partial equity in a desirable profitable business instead of you remaining outside selling hot dogs.
Of course you will need some capital. The more you can come up with the greater will be the amount of equity you can obtain.If you can not raise say aminimum of $20,000 you will never be able to play this game.
If you can raise to $20,000 of OPM then raising $100k will be a cynch – if you need help with that, can follow simple steps, able to talk with people about money – and have the courage of a true warrior I can equip you to-easily unlock hidden vaults of cash which most business not in the red can access – And can pick tax free extra cash for zero out of pocket, earn 100% or a lot more within 12 months and then parlay the free capital in to a large stake to enter the big end of small business and the bigger world of business at the high stakes tables – with zero risk.
Once you have the knowledge & skills – which are essential – you never again have any problem finding deposit money for deals under $2nillion and provide your FICO stands up you should be able to finance-one deal a year at least. By following a simple business development plan you should be able to use low interest money via SBA loans
Business Growth and accelerated wealth via business acquisition – you can show business owners how to build profits by $100k to $500k – (with you sharing 10% of their gain tax free – to get you in to the players room). The table you can get on to depends on the size of stake you can raise; will you help more than one business improve their profits by half a million dollars and be able to sell their business an additional $1.5million.
What do you say to sharing that – receiving 10% which can be structured as tax free additional capital for your own business – and potentially used as a deposit on your clients business. After all if you help a business owner build the value of their business, how amenable might they be to providing seller finance and a structured acquisition when you offer them more money and hand them an extra $150k as a bonus if they sell their business to you? (We save your clients half the money they would throw away from the proceeds on sale of their business – to anyone but you,
In addition Sellers you buy businesses from also save the 12% commission fee charged by Business brokers – as we buy direct to give business sellers a lot more after tax money in their hand than any other buyer can do.
In high tax states like California – when the Brokers Fee is added to what a seller pays in tax on selling their business the total whittling down of the money get to realize is around 40% of the sale price. A massive sum you can help business owners mitigate – which make most open to the opportunity to increase even further the money they net after tax with an opportunity of tax free additional capital from you when they like the idea of making closee to 50%+ more when they provide vendor finance to you – leaving undrawn capital for 5 years or longer.
Find out what the seller intends to do with the bulk of the proceeds that look like having if they sold to anyone else. Then ask if they would to receive free of tax an investment return of 10% of the enlarged capital will received from you?
The tax status we are able to structure for our Business Partners such as you is opportune for sellers and investors wanting high tax advantaged returns with low and controlled risk.
As the owner ran their business profitably for the past 3 or more years and who we retain as an unpaid adviser they should be comfortable retaining some equity in the business they know with you at the helm- having produced more money for the business in one year than they had over the 3 to 5 years prior
Interested Persons may contact me with an expression of interest – provided you specify – the amount of personal capital you have available right now.