The LBO Model Applied

The LBO model can be applied to most any type of deal small or big. Why would we want to do this? How can the purchase of a main street store be compared to the purchase of a aircraft parts manufacturer? How can we use the same techniques to buy either one? There is a simple answer to this. The LBO model, by definition, assumes that the buyer does not ...

Outsourcing versus Leverage

Leverage is a better word for Outsource. Did you know that when you buy a business you are essentially outsourcing an entire operation all at once? It may have only two employees but you just acquired and outsourced a whole stream of income in one fell swoop so that you can move on to different projects. What could be more intriguing? I'll tell you what could be more intriguing. That ...

Minimum Cash Flow for Buyouts

Many people ask how much cash flow they need from their acquisition target. When an individual buys a business, the answer is: at least enough to afford you a good living. This may be $75,000 to $100,000 per year. While this may sound low, it is only a minimum and is subject to dramatic increases when acquisition debt is paid off and/or the business is grown. Moreover, the business will ...

Financing a Small Buyout

Buyers of Small Businesses have one major advantage. Their deals are (relatively) hard to finance. This makes the competition that much less. I cannot tell you how many deals I have passed on only to find that the deal is still on the market 2 years later. I cannot tell you how many times someone beat me out with a signed LOI which then fell through within a few months ...

More on Business Valuations

A couple of posts ago I ran off at the mouth about valuations. I promised to say more about it. Valuations are really the most important thing a business buyer can learn early on. Not understanding valuations can handcuff you from making any kind of decision on going forward. If you don't know how much a company is worth, then how can you make an offer for it? If you ...

Why do an LBO at all?

The rewards of doing an LBO are extraordinary. The prestige and financial power is intoxicating. Even the smallest of LBOs can generate huge income for a lifetime. If you follow internet marketing at all, you may be drawn to the current fad of fast money by starting web businesses. In that arena you are a guru and on top of the world if you generate $1.0 Million a year. But ...

Why YOU won’t buy a business.

The following are reasons why you won't buy a business. I am not saying you won't buy a business, but if you don't these will be some of the reasons why and here are some of specific obstacles that will stop you. There are many checkpoints along the path of business acquisitions that can be viewed as pain points. These checkpoints are critical turning points where you have decisions to ...