Business Acquisition Process – Successfully Acquire A Small Business No Money Down


Welcome to this YouTube channel on how to
buy businesses no cash down. I’m Carl Allen and I’ve been buying businesses for almost
25 years. More than 250 deals in 17 countries. This playlist is all about deal specification.
So what type of business do you want to buy? The sector location the size of the deal your
design role in the business and how you bring your passion your business skills and experiences
to bear. Here’s the next video in the sequence. There are five in total. Now remember the slide from the original web.
Once you acquire a business whether you bought into it or not grooming it for sale by systematising
it and then make it irresistible to others will jack up your exit multiple. And just
to remind you. Some businesses do sell for crazy multiples because they are so highly
coveted by the wider market. When you snap a competitor’s heels It’ll just take you out
for a big number. Microsoft paid 8 to 2 times the profit for Skype. I’ve paid forty four
times in the past for Mercury Interactive when I was a pay and Johnson and Johnson got
tired of a cleric. It’s an X lodge and sort them out for 63 times operating profit already
but the Facebook WhatsApp deal defies all logical thinking. But 1000 times the profit
was very very nice for the founders. I’d love to get a thousand decks as a multiple ROI
business eventually but chances are it’s not going to happen. A busy 5 weeks from now will
still put you in the 0.2 percent bracket. Finally let’s quickly look at how we translate
this back to the current size of business to target. This will be calculated in terms
of annual sales revenues currently And as you recall this is one of the two important
filters we apply to all the opportunities originated over the next few weeks. The first datapoint that you need is the average
profit margin for your particular niche. You may already know this. However if not you
need to find out if you’re working for a business in the nation already. Go get a copy of your
businesses like just accounts. Look for the operating profit or the e day number. This
is the profit from normal operations so it’s pretax and before the deduction of any interest
depreciation charges. Now in this example the average EBIT margin is 15 percent. So
divide this into the profit number. So $800000 divided by 0.25 or 15 percent and you have
5.3 330 million. That’s the size of the business you need at the time you want to sell it.
And in our case here it’s at the end of 2007. So just under three years if you can’t get
any accounts. You’ll need to do some research on line later in the trading. We’ll look at
specific online databases for financial information. We do Manta, Who is etc. but since this analysis
is just to give you an initial stay the wealth creation plan and the definition of the approximate
size filter we only need an approximate number. One very quick way you can do this is go and
look at the operating profit numbers for public companies. So pick several publicly traded
businesses that do something similar to your optimal expertise passion combination. Let’s
assume you’re looking at the ITC hardware sector. So let’s take Cisco now you could
find this data on hundreds of free sites but I often use Yahoo Finance. It’s FREE. NS got lots and lots of great data. So type
Cisco in the search bar and you’ll see the steps you are now down at the bottom left
side of the screen you’ll see a section for financials. Click on the income statement
and that will tell you the operating profit so you’ll need to calculate the margin percentage
of each day or operating profit to sales revenue. So in Cisco’s case take the nine point three
four five billion dollars of operating income or profit number for 2014. That’s the latest
published full set of accounts. Then divide it into the total sales number which is forty
seven point one for two billion. So if you do the math that’s ninety point eight percent.
If you do this several public companies and neonate then take an average that will be
more than good enough for this exercise when we do get into the financial modules in Week
4. We’ll get into this in more detail. Now before
we leave the exercise just out of curiosity let’s calculate Cisco’s valuation as a profit
multiple. We’ve talked about 5 x has been a very conservative place to start. Let’s
see where Cisco are. You’ll see here that Yahoo kindly gives us Cisco’s pay a price
earnings ratio of sixteen point ninety six for valuing the business. Now that’s great
for a public company but it’s not the way that private companies are valued. We use
operating profit number. Now you’ll see that Cisco’s market valuation is just under a hundred
and forty nine billion dollars. Now ordinarily there are some adjustments that we need to
do this number and we’ll cover that later but for now as a proxy let’s calculate what
that 149 billion dollar value ways as a multiple of Cisco’s operating profit. So if we take
the 149 billion market cap value which is the share price multiply by the total number
of issue chairs and divide it by the nine point three four five billion dollar current
annual operating profit the multiple is fifteen point nine x so way more than 5 x. Obviously
Cisco is a great company and that’s reflected and its probably valuation. But it just goes
to show how you are regality by your industry goes a long way in setting your valuation
multiple. So I just wanted to give you that flavour for now. And as I said we’ll go much
much deeper into valuation on financial analysis later in the course. So returning back to
wall size filter for the wealth creation plan we ended up with a 5.3 3:3 million dollar
revenue number in three years from now. So the final step is to translate that back to
today’s numbers. Now you may want to be conservative and apply
no growth whatsoever until you know exactly what your target business looks like. However
in this example the business was in I.T. storage software for small businesses and the acquirer
was very very confident of a 33 percent total growth over the three year period. So that
translates it back to 4 million dollars today was just 5.3 330 million divided by one point
thirty three. So that’s it for this module next so what’s the financial planning module
for the existing business. Since this is your first business you will say how a bolt on
acquisition can turbocharge your wealth creation. So that’s it for this particular video the
next video and this playlist will follow. And please check out all the other playlists
and videos for everything you need to know to learn how to buy a business. No cash now.
In fact I crammed everything that you need to know into a special 90 minute web in our
title 3 Insider Secrets to buy a profitable business insider. 99 days without cash or
knowing how to run a business and here are the three big secrets the three killer trending
topics. Think of these hurdles to becoming a business owner. First I’ll share exactly
what the 10 steps are to buy a business and you must follow these in order. It’s really
critical. Second hour show you lots of case studies of deal structured using OPM other
people’s money and it’s no more typical than high skill math. And finally I’ll show you
how you can get others to operate their businesses for you so you can do other things like spend
time with the family or buy other businesses whilst enjoying the cash flow that your new
business is generating for you. So to register for this groundbreaking training just click
on the link underneath this video on YouTube or type in this link into your browser. I’ll
see you on air sometime in the next week. Until then bye for now.

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