Buying Discounted Cash Flow
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Buying Discounted Cash Flow
The secrets are not always sexy…
This is a post from my friend, contributor, and partner, Ryan Niddel.
You can find this post (and more like these) in the Levels of Wealth resource group. To read more of Ryan’s work, go here.
1600% ROI below….
HINT: it’s not crypto
The boring, unsexy, small business is the gateway drug to larger deals.
I’ll break one down for you:
Type of business: Simple blog
Years in business: 4
Yearly revenue: $120k
Yearly profit: $89k
Asking price: $220k
Purchase price: $148k (1.67x EBIDTA)
Cash down at close: $29k
Owner finance: $24k @ 0% for 18 months = $1350
SBA loan: $95k at 6% for 7 years = $1390
Assuming 0 growth:
(not possible, I’ll share why in a moment)
$7415 in free cash flow - $2740 in debt service = $4677 in SDE (sellers discretionary earnings)
In 6.5 months the initial capital contribution will be back in my hand.
Or
I invested $29k to make $54k this year, not a hateful ROI.
But as the greats always say, “but wait, there’s more”
The site has had no significant monetization. None.
No educational offerings, no affiliate offers to speak of, not much of anything.
I have already lined up:
blog contributors
affiliate relationships
social managers
and am mapping out a simple educational offer for $27 (fits the tribe)
The mailing list is 15,000 strong and the site receives 100k visitors a month.
Keep following -> I’m almost to the good part.
Let’s assume a paltry 30% growth.
(most businesses I get ahold of experience 80-120% yearly growth…a proven system and small ego make that a reality)
The 120k in revenue = $156k after the first year.
Assuming the same margins = $115,600 yearly profit or $9630 per month.
(Keep in mind, I am not “running” this business, it is being ran for me)
In year two the $156,000 = $202,800.
$202,800 = $150,300 or $12,525 per month.
Now I will sell the business.
The original owner has been made whole, and I have been made whole…the SBA will have about $68k left.
With two years of 30% growth the business would command a higher multiple.
We will keep it simple and say 2.2x EBITDA or $330,000 roughly.
$330,000 less $68k for SBA = $262,000
$262,000 on the exit + $125k year 2 net + $100k year 1 net is roughly……
Drum roll please:
$500k
I will have invested $29k of my own money to yield a return of $500k in 24 months.
While crypto is great…
Business ownership and leverage will always proved the greatest returns.
1624% ROI
315% Annualized ROI
Well there you have it. The more you learn the more you realize how much money there is to be found.
Ryan and I are teaming up to teach a bit of this (likely Q1 2022) and are looking for businesses to acquire in the E-Commerce space. If you would like to team up, shoot a reply back here or post it in the comments.
Also — if you didn’t catch this on Twitter, the team just started a brand new YouTube channel documenting the behind the scenes of my business life. Like fine wine or any other collector’s item, this will get better with time. I will take you into meetings, trips, and decisions as I make them.
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