Jack Spooner: How do I Leverage Other Peoples’ Money for Buying a Business?

Wednesday, March 18, 2020

How do I Leverage Other Peoples’ Money for Buying a Business?

Robert Hirsch from Freedom Factory discusses ‘How To
Leverage On Other Peoples’ Money for Buying a Business’.

Listen to the podcast, watch the video, or read the
transcript below.

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Transcript of Podcast

Hey everybody, Robert Hirsch from Freedom Factory here, and I
want to answer a question that we get a lot, which is, how do I pay
for a business. Now after doing this almost exclusively for 20
years, all you do is see these deals go through. And what looks
normal to me is really different to a lot of my fellow
entrepreneurs.

And so I was with a group of entrepreneurs speaking to them last
night. And what they told me is they said, Robert, I don’t have 2
million sitting around to buy a business, you know, maybe a private
equity guys or venture capital guys, or more successful
entrepreneurs. But that’s not me. And I thought about it and I gave
a little bit of a chuckle and I realized that they’re probably not
the only entrepreneurs that think this. And so I wanted to talk
about different ways to pay for a business. So there’s a couple
ones that are pretty interesting. You can do it either through
equity or through debt. Right?

Robert Hirsch business broker from Freedom Factory So let’s start with equity. So equity, you can
put together an investor round to acquire a company. You can secure
it by the business. For me, I do better with just a few investors,
not a lot of little ones – the friends and family. And that can be
nice for smaller things.
But for me, I like one or two sophisticated investors if I’m going
to raise an equity round. But the reality is, I think for most
businesses this size, I liked debt for in 90% of applications, and
we can talk about what the difference looks like in a little
bit.

So there are different types of debt. My favorite kind of debt
when I’m buying a business is seller financing. So if the seller is
selling a great business, and you’ve probably seen some videos of
mine talking about the difference between you’d rather buy a great
business at a good price and a good business at a great price. So
if you’re selling a great business and the seller is confident in
their business, they’ll be happy to take a note on it.

Sometimes it’s as little as 10 or 20% when you’re trying to
bridge the gap. Sometimes it’s as much as 90%. I’ve seen 90% solid
carry just secured by the business, and if you’re not successful,
the business goes right back to them and they like their business.
So they’re happy to do that.

There’s also bankers, but it’s so funny, the old Axiom about
bankers wanting to lend you money, when you don’t need it, and
don’t lend you money when you need it. In my experience, that’s
been true. If you’ve got a successful business, the lending of
money on it, but they’re going to want you to collateralize it with
your other business in most circumstances.
So bankers are there, and if you’ve got a great banking
relationship, maybe it works out well. But what I’ve seen work out
the best is small business loans or SBA loans, small business
administration loans. And you can do it as with as little as 10%
down. So if you’re buying, let’s say you’re buying a business three
X and it’s 2 million, that means it throws 666,000 a year in free
cash flow.

And if you can buy that for $200,000 you look at stock
valuations and things along those lines, but when you’re buying a
business at three X and you’re putting 10% down, as an
entrepreneur, I can’t think of a better deal than that. An SBA
loans had their own restrictions. You have to put a personal
guarantee on it. I think they cap it at $5 million currently. We
can talk you through all the complexities of what that looks like,
but SBA loans are great. And then, the big thing in terms of the
plan that you put together is talk about your stupid human trick or
the one thing you do better than anybody else.

I’ve talked about it many times in the past and I’m pretty good
at sales and marketing. That’s all I do. All I do is sell
businesses. And if I look at a business that has a superior quality
product but a sales problem, well that’s a great fit for me because
I can fix it like that. Or maybe you’re a software engineer from
MIT and you can build great software programs and you’ve got this
business is on fire, but your software program is held together
with duct tape and bubblegum. Well, you can come in and solve that
problem right away. So when I buy a business, I try and be
strategic about buying a business that fits my skillset.

And remember, when you’re buying a business, you don’t have to
have $2 million to write a big check. And sometimes ironically,
buying a business is cheaper than building it yourself. If you’re
buying 666,000 and free cash flow for 200,000 I would have a hard
time building it for that. So I hope this stimulated your
creativity.

If you have any questions about that, why don’t you give us a
call up, freedom factory or anything else and we’ll be happy to
walk you through it. I’m Robert Hirsch. Thank you so much for
watching. Please like and
subscribe and we’ll see you soon.

Contact Freedom Factory

Freedom Factory
5500 Greenwood Plaza Blvd., Ste 230
Greenwood Village, CO 80111
Phone: 844-MAX-VALUE (844-629-8258)
https://www.freedomfactory.com/
https://g.page/freedom-factory-denver

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