News & Events
Twenty 'X' in Twenty Four
ENLIGN DEAL TEAM | 10/27/2022
"Twenty 'X' in Twenty Four" you ask. Jeff what does that even mean?
First, the numbers used are approximate as to not reveal the client's identity.
What "Twenty 'X' in Twenty Four" means is that if you have moderate financial means and relevant business experience with an experienced M&A Advisor you can turn a $150,000 down payment into a $3,000,000 net gain in just twenty four months. Yes, you read that right. After all expenses and commissions you can start with $150,000 and two years later have $3,000,000 pre-tax.
This isn't meant to be an masters level course, so I will keep it simple. If it sounds interesting after reading, feel free to contact me and we can discuss in greater detail.
So, why isn't this one of those 'if it sounds too good to be true' ideas?
Because I have a client that has done it AND he's doing it again.
This is how it goes:
I sold a clients VOIP managed services business for a LOT of money. He was and still is in his 30's, so retirement wasn't interesting to him. We were careful when negotiating the non-compete on the sale as to not cause any future problems with his already planned acquisition. He hired me to research, evaluate, value and negotiate the purchase of another tech business. The seller's broker gave an MBA in what not to do as a business broker, but that's another story. We were finally able to come to terms with the sellers. The purchase price was $1,500,000 with a 10% down-payment = $150,000.
My client went about putting the proverbial right people in the right seats on the bus. That meant some people changed roles, some people were removed and top talent was installed. "Top Talent" was critical because this owner was only going to spend two hours a day on this business with the remainder of his time on another business he owns. This ultimately was a perfect fit for the strategic buyer because he had put a management team in place that would minimize disruption during transition that didn't even require his role be replaced. He was working on the business and not in the business.
It took about a year to get the team optimized and running the way he wanted. Sales started to take off, referrals were coming in, existing clients were signing purchase orders for larger and larger projects. COVID hit and the company was forced to go 100% virtual which turned out to save costs, increase morale and maximize efficiencies.
At about the 18 month mark he asked me to again to represent him in the sale of this business. I valued the business using the market approach using industry standard recasting methodology at $4,500,000 and took it to market.
It is currently under contract and scheduled to close exactly two years minus one day from when he acquired it.
Now, here's what's really interesting and why he's going to repeat this process again (and again). In fact, instead of one business every 2 years he's planning to do one business alternating each year an acquisition and sale every 24 months off cycle.
In this transaction he turned a $150,000 down payment with an SBA 7(a) commercial business acquisition loan into $4,500,000 exit AND paid himself a solid six figure salary the entire time while only working 2 hours per day (from home) for the company! That's a net gain after legal and broker fees of $3,000,000 in twenty four months. I'm no mathematician, but I can run a calculator and that's a 20x gain in 24 months.
The lesson here is that you can start a business, but it will take years to get it to a $1,500,000 valuation or you can buy a successful business for $1,500,000 with $150,000 down which should be generating around $500,000 of annual seller discretionary income. Then optimize and grow it and sell it in 24 months receiving a 20x net return on investment. Buying and operating until retirement does not generate the maximum return on the business owners time or money.
This works with smaller businesses as well, but the business has to be positioned to scale. If you'd like to become a serial entrepreneur and earn similar returns contact an experienced M&A Advisor to manage the process for you. Your highest and best use of time is not trying to value, market, negotiate, interact with attorneys and accountants during the process of selling a business. You need to be focused on growing the business and hiring "Top Talent" to maximize your financial return while freeing up your time to do what you do best.
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