How To Make ANY Deal Work In Your Favor

Newsletter · Aug 04, 2024

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An entrepreneur's recipe for sweet success

4min Read

Understanding this law is basically a secret weapon to putting together a deal of ANY kind.

If you’re going into a search for a business to buy and you’re not familiar with this law, you’re going to get taken advantage of.

I’ll break this down on a basic level, but I can’t stress enough how important it is to go into every deal you look at thinking about this and how it will apply.

Bottom line is if you can’t make this law work, you can’t make the deal work.

But BEFORE I do, a note from our sponsor…

Me.

I write and produce this newsletter (and this one) all out of pocket. I do this for multiple reasons.

I am absolutely obsessed with entrepreneurship. I just can’t help it. I see business opportunities wherever I go and want to build a platform to share the value with others
I’ve had to learn what I’m sharing with you the hard way. Hundreds of books, tens of thousands of dollars (close to one hundred thousand) spent on coaching and mentorship. Far more business failures than worth mentioning… I want YOU to be able to skip the line. It’s important for you to have your own personal journey, BUT if I can nudge you in the right direction, I’m going to.
Your network is your net worth. I’m producing this content because I believe in the power of connection. And furthermore, reciprocity. And I’d encourage you to do the same. Build your network now and the net worth you want will follow.

Back to your regularly scheduled programming.

👉 The Law of price and terms.

Essentially “The sellers price and your terms” OR “your price and the sellers terms”.

The caveat is that there will be some hair on every deal, it’s just a matter of what you’re willing to deal with.

If you’re looking for a perfect deal, you’re always going to be looking. Sorry. 🤷🏻‍♂️

So what does this look like?

Think of it like a Venn diagram. On one side it’s the goals, needs and desires of the seller and on the other side it’s the goals, needs and desires of the buyer. In the middle is where the deal will happen.

Another way to think about it is “The more risk the buyer is taking, the less reward the seller is receiving" OR "The less risk to the buyer is taking, the more reward for the seller receives.”

When you apply this in real life, it’ll come out through negotiating the purchase of a deal. The more you understand what we’re talking about today, the more of an upper hand you’ll have during these conversations.

If you take ANYTHING away from this email, it’d be that you have options. The “sticker price” is not the end all.

Now let’s look at the variables that make up your “options”.

For price, it’s simple:

High price or low price.

But for terms, this is where the combinations allow for creativity.

Cash
Stock
Earn outs
Seller finance
Rolled equity

You can play with some or all of the above to make up the structure of your deal.

I will dive so much deeper into all this in the community we’re building including bringing in lenders, brokers, investors, and other experts to speak about it. But if you want more until then, shoot me an email and let’s talk.

Here’s an example to show that one deal can be structured in many ways.

A business with $310k EBITDA

Option 1 - ALL Cash

3x EBITDA valuation = $930k

$930k upfront

Option 2 - Cash + Seller note

4x EBITDA valuation

1.5x cash up front ($465k)
2.5x seller note ($775k, 5yr term, 7% interest)

Total proceeds

Cash = $465k
Seller note principle = $775k
Seller note interest = $271,250

TOTAL = $1,511,250

Option 3 - Seller note ONLY terms

5x EBITDA valuation

5x = $1.55M (5yr term, 7% interest)

Total proceeds

Seller note principle = $1,550,000
Seller note interest = $542,500

TOTAL = $2,092,500

The pattern you’re seeing here is as the money increases for the seller, the terms get better for the buyer.

This is not a one size fits all scenario and as with a lot of the stuff we cover, it’s an art, not a science.

The more we talk about it and the more you can see real life examples, the easier it’ll be for you to identify the possibilities when you’re looking on your own.

Because I don’t want you drinking through a firehose and forgetting anything here, I’ll leave you with these bullet points to think through. 👇

Interest Rate: These are negotiable when dealing with seller financing. As of today, low end being in the 6-7% and the high end being 8-10%.
Term / Maturity: 3-5 year term / OCCASIONALLY a note could go as long as 10 years. Occasionally.
Amortization: try and ask for the longest amortization possible. Usually "Interest Only" or "IO."
Market Norms for seller financing % of Purchase Price:
5-10% for SBA Deals
10-30% for Brokered Deals
Can do up to 100% on the most creative / off market / motivated seller deals
Just because the CIM / Seller asks for all cash, doesn't mean they're getting it.

Recently we’ve been diving deeper into the SMB space with the content I’m sharing here. Don’t be fooled though.

Understanding business in this way can only help you with your start up.

At one point you might want to sell or to acquire another business similar to yours for a “roll up”. If you build with the future in mind, you’ll set yourself up for success.

If you have deals you're looking at and want help breaking them down, I'd be happy to take a look. You can email me screenshots of the listing with the name cut off if you want to keep it confidential.**🤫

And if you are working on a deal and need help taking it down, I can help connect you with someone in our network that might be interested in investing with you. Myself included if it fits our buy box.

Until next time...

Stay in the fight,

My best tweet of the week:

@kevinasrx

IKEA might be a close second to Disneyland for some weekend family fun. Haters will hate, but the kids had a BLAST.

And whatever you might think about their meatballs or furniture quality, you can’t deny that IKEA is a behemoth of a company.

And everyone likes a good origin…

https://twitter.com/i/web/status/1815073510613782535

10:17 AM • Jul 21, 2024 ↗

My favorite tweet of the week:

@ShannonJean

How to attract luck:

Be Curious

Help Others

Be Social

Say Yes More

Ask For Help

Create your own Curriculum

I broke down how I have used each method in my Saturday email - link in comments. 👇👇👇

https://twitter.com/i/web/status/1815499187133599946

2:28 PM • Jul 22, 2024 ↗