How to Find Businesses for Sale Highest Cash Flow
Summary
TLDRIn this video, business broker and commercial lender Leo Landover teaches viewers how to calculate cash flow for a business purchase using his Deal Analyzer workbook. He uses a live business listing as an example, discussing the importance of understanding the type of cash flow (SDE, EBITDA, etc.) and analyzing the deal's financials, including the asking price, revenue, and seller financing options. Leo emphasizes the significance of cash flow post-purchase and how it can replace a day job income, providing a comprehensive guide for potential business buyers.
Takeaways
- πΌ The video is a tutorial on how to calculate cash flow for a business using a deal analyzer workbook.
- π The presenter, Leo Landover, is a business broker and commercial lender who helps buyers purchase profitable businesses.
- π° The example given is a boat rental company with an asking price of $820,000 and a cash flow of $320,000.
- π The video emphasizes the importance of understanding the type of cash flow being presented, such as SDE (Selling Discretionary Earnings), EBITDA, etc.
- π’ The business has been operational since 1984, indicating a long-standing and potentially stable business model.
- π² The presenter discusses the potential for seller financing and the implications it has on the deal's financing and cash flow.
- π The video includes a detailed analysis using a deal analyzer tool, which compares the seller's asking price with the buyer's potential costs and cash flow.
- π¦ The presenter explains the concept of Debt Service Coverage Ratio (DSCR) and how it affects the viability of the business purchase.
- π The video also covers the impact of different financing scenarios, such as SBA loans and seller carryback loans, on the buyer's cash flow.
- π The potential for high cash on cash returns and cap rates is highlighted, especially when leveraging financing to minimize upfront investment.
- π The video concludes with an offer for viewers to obtain the deal analyzer tool used in the tutorial for free.
Q & A
What is the main focus of the video?
-The main focus of the video is to demonstrate how to calculate cash flow for a business using a deal analyzer workbook, with a specific example of a boat rental company.
Who is the host of the video?
-The host of the video is Leo Landover, a business broker and commercial lender.
What is the asking price of the boat rental company mentioned in the video?
-The asking price of the boat rental company is $820,000.
What is the reported cash flow of the business?
-The reported cash flow of the business is $320,000.
What does the acronym 'SDE' stand for in the context of the video?
-In the context of the video, 'SDE' stands for 'Selling Discretionary Earnings', which is an estimate of the cash flow available to a business owner.
What is the significance of the business being in operation since 1984 as mentioned in the video?
-The significance of the business being in operation since 1984 is that it indicates the business has a long history, suggesting stability, established customer loyalty, and goodwill.
What does the video suggest about seller financing?
-The video suggests that seller financing can be a good or bad sign depending on whether the seller can justify their cash flow via tax returns. It advises caution and careful analysis of seller financing deals.
What is the role of the management team in the business as discussed in the video?
-The video highlights that the business has a self-sufficient management team, which implies that the owner is not required to be heavily involved in day-to-day operations, allowing for absentee ownership.
What is the significance of the business being a 'tour and rental' business as per the video?
-The significance is that the business combines both rental services and tour operations, which may affect its valuation and the way potential buyers evaluate the deal.
What is the importance of the 'Deal Analyzer' tool mentioned in the video?
-The 'Deal Analyzer' is an important tool because it allows potential buyers to analyze and compare financials of a business deal side by side, helping them make informed decisions about purchasing a business.
What is the potential monthly cash flow from the business after servicing the debt as discussed in the video?
-The potential monthly cash flow from the business after servicing the debt could be approximately $17,500, based on the calculations presented in the video.
Outlines
π Introduction to Deal Analysis for Business Acquisition
Leo Landover introduces a video tutorial on how to calculate cash flow for a business purchase using his Deal Analyzer workbook. He emphasizes the importance of understanding cash flow to replace one's day job income and offers a step-by-step guide. Leo, a business broker and commercial lender, focuses on assisting small business owners and W-2 employees looking to buy profitable businesses. He discusses the need to analyze deals from different perspectives, considering factors like the asking price, cash flow, and financing options such as seller carry or SBA loans. The video also mentions a specific business for sale, a boat rental company, with an asking price of $820,000 and a cash flow of $320,000, highlighting the ambiguity around what exactly constitutes cash flow.
π’ Analyzing the Boat Rental Business Deal
The video delves into the specifics of the boat rental business for sale, discussing its strong cash flow and long-standing presence in the market since 1984. Leo appreciates businesses with a proven track record and the ability to generate loyalty and goodwill. He also touches on the potential benefits and risks of seller financing, suggesting caution due to the possibility of inflated or inaccurate cash flow figures. The video outlines the business's operations, including airboat tours, dolphin watching, and manatee swimming, and mentions the separate consideration of real estate in the deal. Leo uses his Deal Analyzer to compare the asking price, revenue, and cash flow, calculating a 2.56 multiple of the seller's discretionary earnings (SDE), which he considers a good sign.
πΌ Financial Breakdown and Market Comparison
Leo continues the analysis by discussing the financial aspects of the deal, including the seller's willingness to finance up to 70% of the purchase price and the implications of different loan terms on cash flow. He calculates the annual debt service and the debt service coverage ratio, emphasizing the importance of these figures for both the buyer and the bank. The video also compares the business's valuation multiples to industry standards, suggesting that the deal is competitively priced. Leo offers strategies for negotiating the purchase price based on market comparisons and discusses the impact of different down payment scenarios on cash-on-cash returns and cap rates.
π Final Thoughts on the Business Acquisition Deal
In the concluding part of the video, Leo summarizes the financial analysis and reiterates the strong cash flow potential of the boat rental business. He highlights the attractiveness of the deal, especially considering the high cash-on-cash return and cap rate. Leo also mentions additional tools and resources he uses for a comprehensive deal analysis, including personal cash flow analysis and global debt service calculations. He invites viewers to reach out for assistance with business acquisitions and announces a limited-time offer to give away his Deal Analyzer and cash flow calculator to subscribers.
Mindmap
Keywords
π‘Cash Flow
π‘Deal Analyzer Workbook
π‘Business Broker
π‘W-2 Employee
π‘Seller Financing
π‘SDE (Selling Discretionary Earnings)
π‘Amortization
π‘Debt Service Coverage Ratio (DSCR)
π‘Cap Rate
π‘Multiple of Cash Flow
Highlights
Introduction to calculating cash flow using a deal analyzer workbook
Demonstration of analyzing a specific business for sale
Explanation of how much cash flow is available after purchasing a business
Potential for a single deal to replace one's entire day job income
Importance of analyzing deals from a buyer's perspective
Discussion on the ambiguity of cash flow figures and what they might represent
Assumption that the cash flow figure represents Selling Discretionary Earnings (SDE)
Analysis of a boat rental company business with a 40-year history
Presentation of the business's asking price and cash flow figures
Consideration of the business's longevity as an indicator of stability
Discussion on the implications of seller financing and its potential risks
Details on the business's operations, including airboat tours and dolphin watching
Explanation of the Deal Analyzer tool and its use in comparing business figures
Calculation of the business's price multiple based on SDE
Discussion on the potential for seller financing and its impact on down payment requirements
Analysis of the annual debt service and debt service coverage ratio
Market comparison and the importance of understanding industry valuation multiples
Calculation of cash on cash return and cap rate with different down payment scenarios
Offer strategies based on market multiples and potential negotiations
Final thoughts on the attractiveness of the business deal and its potential as a profitable investment
Offer of a free deal analyzer tool for subscribers
Transcripts
by popular demand in today's video I'm
going to show you exactly how I
calculate cash flow using my deal
analyzer workbook on just about any
business for sale out there I'm going to
give you a specific example and I'm
going to show you how much cash flow is
there after you buy the business and in
one deal alone could replace your entire
day job income let's get to it
[Music]
everybody Welcome to my channel I am
your host Leo Landover business broker
and Commercial lender helping you buy
and scale a profitable business if you
are a small business owner looking to
scale your business by buying another
profitable business or if you're a W-2
employee trapped in the rat race wanting
to get out by purchasing a profitable
business you are in the right place
please subscribe to my channel don't
forget to hit the Bell you'll be
notified every Thursday when a new video
comes out just about every week I get um
emails
um
from viewers just like you ask me to
analyze deals and um and I get emails
every just about it several times a week
um asked me to analyze deals so I wanted
to do it again and this one is actually
from Biz by cell and the the the the
whole objective of this video is
actually how to teach you how to analyze
deals by yourself because regardless
everything has it's in perspective it
doesn't really matter what the asking
price or the cash flow is will it work
for you will it cash flow if you need to
get some debt whether it's seller carry
or a SBA loan you're gonna have to
finance a deal if the deal doesn't make
sense after you get some debt uh
financing then then basically you waste
your time so this I'm going to analyze
this deal that I've already run the
numbers but I want to teach you guys how
to go about doing this this is straight
out of this by sale and this video is
actually
um this listing is actually alive this
is a live listing it's actually for sale
you can you know you can actually Thomas
Peter is the actual uh broker uh we're
we are recording this video February 28
2020 uh three and this is a live deal so
if you want to go for it that's fine
I'll tell you what I like about it and
then we're gonna look at the numbers
side by side and so you can have make an
educated decision so with that said
boot rental company uh
business for 40 years
um so here are some of the the numbers
the one 820 000 that's the asking price
with a cash flow 320 000. now
cash flow is such a ambiguous area uh
what we don't know right now is whether
the cash flow is selling discretionary
earnings or is it ebitda or is it just
net income was it ebit earnings before
interest in tax we don't know that but
let's assume that that would be the
owner's own cash flow so let's assume
it's sde for selling discretionary
earnings so here's what I like about it
very healthy cash flow at least on paper
um is basically the cash flow is almost
like 30 cents for every dollar of
revenue revenue one uh million and cash
flow this is a well-run business here's
one thing I like about it in business
since 1984.
so 39 40 years uh in business which is
what it says here so I like businesses
that have been around for a long time
they already worked out all the kings of
any startup that they've been able to
build loyalty and Good Will over a long
period of time and basically what you're
taking it off is you're taking it off in
owner stands for we're going to find out
why
so let's read on I do like the fact that
it's seven up to 70 on our finance now
when it an owner is willing to finance
could be really really good or really
really bad
um and it's really really bad if if they
cannot justify their cash flow via tax
return so you cannot get an SBA loan so
then you start doubting whether the
numbers are real so I I say that look at
the seller financing with with uh
with a magnifying glass uh and be very
cautious of it but at least on paper it
looks I'd like it if it makes sense okay
I'm gonna show you why uh this deal this
is a fantastic opportunity for a buyer
to acquire recognized boat rental and
tour business in Citrus County uh so
this is Florida 40 years profitable
clearly airboat airboat dolphin watching
and manatee swimming uh tour business
enjoys so this is a tour business okay
um
so I'm just trying to figure out which
category we're going to push it up when
we do the evaluation so it's both rental
and tour okay so not all the next you
know the the the codes or the SIC codes
show up in the valuation so we got to
figure out which one we're gonna Peg
ourselves to
um there isn't real estate involved but
it is not for sale it is not part of
this deal it's a two-acre commercial
property for sale at least now if it was
to be lease that would be an agreement
it would be a lease agreement that the
buyer would have with the seller the
seller gets to keep the real estate
portion and you get to lease it back to
them in a five-year
um lease agreement or such
um if the if the seller is willing to
sell it to you that would be a separate
transaction different transaction from
the business so it will be two different
deals closing concurrently
um and that's a play if you want to uh
some people I know some people are
always interested in and almost always
looking at deals and buying the real
estate
I don't think that should be uh your
only you know if the business makes
sense on its own and what happens when
you grow you may outgrow the real estate
so not you buying the risk real estate
is not always a good thing so anyway so
there's there's some property there's
there's there's real estate involved
I like the fact that there is a
self-sufficient management team spells
out absentee ownership
uh or say my absentee owners anytime
that you have a management team in place
means less work for you for the owner
you're truly buying a business you're
not buying yourself a job so that as as
I talk about in my videos often uh okay
so
the facilities is to acre with three
buildings
um
now although the real estate portion is
it's it's a separate deal what would be
for sale are they we're going to have to
look at the assets which doesn't you
know a listing a business listing in
bits by sale or any other uh business
websites not necessarily going to tell
you what all the assets that are
involved
um I'm assuming I'm going in thinking
I'm going to do an asset purchase not a
stock purchase what regardless of
whatever legal entity they have it's
going to be an asset purchase so we're
going to purchase the assets we're going
to cherry pick the assets of the
business along with the Goodwill and
we're going to figure out how much
that's worth to us but it's only worth
to us if it's generating enough cash
flow you need the assets to generate the
cash flow okay so so far so good so
let's go ahead and put this side by side
here and what you're looking at here is
my deal analyzer I have a buy side deal
analyzer that I have perfected over a
period of time I've been working on this
type of situation for years analyzing
deals and I started coming up with my
own assets this is my intellectual
property so
um what we've done here is we're putting
the the the numbers side by side so 820
000 is the asking price this is coming
from the seller side this is going to be
our side and we're going to compare it
side by side
820 000 on a million ten thousand in
revenue and we have the straight from
the listing at three hundred and twenty
thousand dollars worth of cash flow but
it sells me right away this is a 2.56
multiple of sde now you know from me
from all my videos that it's all come
all businesses I'll say 90 plus percent
of business itself or a multiple or
either sde or ebitda if it is a business
less than half a million dollars worth
of cash flow it would be sde in this
case I like what I see I like 2.56
let's move on this is what the deal is
as per the uh the seller they're saying
that they're willing to finance up to 70
percent of the deal or 574
000 on 820 000 which means that you
would have to come up with 30 down or
two hundred and forty six thousand now
if you have that cash flow and you get
the seller to carry it then you're not
in an SBA loan and that may be good it
really depends right we don't know
enough
um this is the annual Debt Service what
I've done is I usually I usually
calculate right right away I make some
assumptions now this is if if uh if I
would want the interest rate to be no
more than seven percent uh over a
10-year amortization but demorization
may be less if the amortization is you
know 60 months which is five years it's
gonna change our numbers drastically now
what I like about the SBA when they're
funding deals is that they actually have
a 10-year amortization which means it
lowers your interest in principal
payment over a longer period of time
which helps you with cash flow and this
is all about post closing cash flow in
liquidity for you so but you know this
is mirrors the SBA so of course you know
at 10 years to pay a seven percent
interest rate your payments will be 79
000 a year of principal and interest to
the owner which means you have a debt
service coverage ratio of four to one
that is fantastic that is amazing I
doubt that it's going to be that because
no seller is going to want to carry a
deal for 10 years and most likely going
to be uh 60 months okay and if it is 16
months we want to try to see if we can
get it at five percent uh which means
it's gonna so you can everything is
negotiable
uh so even the note for the seller would
be part of the deal that you would have
to negotiate uh and you can build in
some contingencies some Club back
Provisions if something doesn't perform
what I like about seller carry deals is
that you have a little control if the
business does not perform and the seller
has to be very confident in their
business to back up a seller note
so all things considered right now there
is something else here now so beer is in
the eye of the beholder of course we go
to the market if you do but figure out
try to figure out what the other
businesses like it are selling for in
this particular case we want to know hey
what does the so what I'm going to show
you guys here is you're stuck and trying
to figure out how to actually buy a
business
let me help you I do this every week and
I love to help buyers acquire their
first business all you have to do is
drop me a comment below
or send me an email my email address
will be in the description section of
this video let's work together creators
okay which is what they are right
they're they're a tour company uh this
gives you the size of the industry the
next code the SIC code the number of
businesses out there the analyze revenue
of the aggregate of all those businesses
in the marketplace
I what I want to see is the rules of
thumb well how much of the businesses
this business are selling for two times
sde for smaller companies two to four
times sde for I would imagine bigger
companies three to five times ebitda or
three times ebit
this is a business that is under 1
million in net sales which is the
valuation medium value uh it says 2.41
uh multiple of sde in uh 2.57 multiples
of ibra okay that's pretty good all
right so let's be back so that's how we
got to these numbers right here
so 2.41 2.57 and you know what I want if
I'm representing the buyer I want to be
aggressive to see if we can even get a
bigger deal this is already a pretty
good deal as it is but what if we offer
2.35 percent that means that our offer
would be a 752. let me let me tell you
what happens when let me show you what
happens when we actually change our
offer multiple based on the multiple of
sde say we want it to go three times we
really wanted it because it's a really
good business and we know there's going
to be competition we wanted to offer
three times cash flow you notice what
happens to our price our offer would go
to 960 000. why would you want to pay
more than what the asking price is
that's between the buyer and the seller
and beauty is in the eyes of the
beholder
it really is the buyer who sets the
price we look at the comparable sales to
give us a a a yardstick a measuring line
but as I had said you know I would want
to always offer a little less see
because it all comes down to cash flow
so back to the 752 000 these numbers
carry over from the other side our cash
flow stays the same this is the original
deal we will get it at 2.35 now here's
where things get a little more
interesting now say you don't have 246
000 worth of down payment and you want
to have a loan you want to have an SBA
loan that will amortize over 10 years
well in that case your cash out of
pocket would go to ten percent so
instead of putting 246 000 down you
would put 75 000. now see what and this
matters when you look at your cash on
cash return which is you know this is a
traditional a real estate investing
um
kpi key performance indicator so in the
original scenario your cash on cash
return is 77 not bad that's 246 on the
820 000. but look at what happens as you
put less money down you have higher
leverage and your cash on cash return on
the same is 225 000 per year of cash
flow on 75 000 down payment that's
incredible that's phenomenal your cap
rate is 42 percent now for those of you
who are coming from the real estate
world and fixing flipping and and buying
a single-family residences and or or
even multi-unit uh multi-family where
you know you'll be lucky to get you know
six percent cap rate you're looking at
42. owning a business bids owning real
estate for cash flow 10 times out of one
so all right let's keep going and try to
be as if you can talk as fast as I can
so you can keep up all right so
here's what happens you have a uh your
down payment of 70 uh two thousand and
by default this blue line says really
where I
what I want anybody everything else is
built in formulas
um if it's everything all you have to do
is punch in the the light blue cells and
everything else is spit out now
um
those buyers who work with me one-on-one
those in my they get to use this now for
you guys I would have a modified version
now if you want to work with me and get
to see the real deal absolutely reach
out to me because this is something that
I've been working on for a long time so
I'm very careful as to who I share it
with but does it work absolutely so you
have here a
90 SBA loan and now here's some of the
oh by the way there are other things
that are having shown you in this this
is just the deal analysis portion there
is a use of proceed which you know goes
um
there is a lot more formulas here there
is a pretty concern when you do analysis
on the actual deal the illegible passive
income for those owners who own real
estate and they're paying rent to
themselves there is a global
um
there's a a global Debt Service
calculation which you know it's it's
it's there's a personal cash flow
analysis there's all kinds of things
here so
I don't want to confuse there and
there's other indicators and things that
I really we really don't have time to go
over and this supposed to be quick video
uh but look let's keep going so at 75
000 down payment on ten percent on on
our offer of 752 000 you have a loan for
676 a 100 or 90 LTV our annual Debt
Service
um
actually you know what this is gonna be
right here this is gonna be zero
and this is going to be 90 see so what
happens is this is a bank loan and what
it does it pulls that information from
the other use of proceed sheet and it
brings it to the four now SBA Loans
right now about ten and a half percent
Prime is seven and a half I think and
then
um and usually the prime plus the uh
Delta which is what the lenders live on
uh could be anywhere from Two and a half
to three points so ten and a half is is
basically a very safe calculation
because if you can make money on that
I'm sure that even if the rate is if the
rate is better than that then you're
you're doing much better than cash flow
but do not get stuck on the rate the
rate is really irrelevant what you're
looking at is the cash flow on each and
every deal
um you
buy a business when it's the right time
to buy a business regardless of the rate
just like you would buy your dream home
whenever you're ready to buy it
regardless of the rate you buy when
you're ready to buy and you look at a
deal by deal basis to see what numbers
so that's what exactly what we're trying
to do right now we're looking at the
cash flow look
annual cash flow after Debt Service so
we begin with the 320 and we have a
hundred and nine thousand dollars worth
of annualized interest in principal
payments our debt service coverage ratio
is more than ample this is a really
really good deal for the bank this is a
really really good deal for you look at
our annualized cash flow 210 411 cash on
cash return is 280 percent cap rate is
42 percent the difference between the
two scenarios is 20 000 more
yeah about twenty more thousand dollars
even at a ten percent interest rate with
zero carry
so and and things can get a little more
interesting if you want the seller to
carry and there's going to be a
moratorium on the seller from the SBA
that the seller is not going to get paid
or no for two years to help you with the
cash all those things get more
complicated I want to keep it simple so
can you imagine buying a business where
the analyze cash flow is nearly 21 well
in this case what is 210 000 a year
divided by 12 your cash flow is 17 500
per month after you service the debt
after you run your business on a
four-year business I say this is a great
deal and this is a great opportunity
this is I would say buy this deal or
deals like this uh and that is really
what I'm all about helping buyers buy
their dream first business and get out
of the rap race and become the CEO of
your own company guys if you really like
this video please comment your comments
are very very helpful and I'll keep
making videos like this all right
bye everybody limited time I'm giving
away my deal analyzer my cash flow
calculator this is a tool that has been
downloaded probably hundreds of times in
the last few months by viewers just like
you what it allows you to do is exactly
what we did in today's video with all
the bells and whistles it is my gift to
you for being my subscriber the link
will be down below thank you so much for
watching my videos
Browse More Related Video
The ACCOUNTING BASICS for BEGINNERS
How To Read And Understand Financial Statements As A Small Business
Flussi di cassa: calcola i movimenti della liquiditaΜ aziendale tramite il rendiconto finanziario
How To Value a Business for Sale (Mergers and Acquisitions)
Hack to Find Multibagger Stocks π€ Cash Flow Statement & Fundamental Analysis of Stocks | Harsh Goela
Tek Derste Finans ve YatΔ±rΔ±mΔ± ΓΔren
5.0 / 5 (0 votes)