📍 So you want to acquire a business, but you don’t know how. I’m going to show you right now, how I did it.
First you have to figure out what type of businesses you’re going after. I was particularly interested in publishing companies with affiliate partnerships, the lack UX and UI tastes, but we’re doing pretty good in terms of seller’s discretionary earnings.
You can start to reach out to specific businesses that fit your criteria by sending them emails. Here’s an example of one that I sent, and then you can see the response that I got back. This is actually a pretty good way. A lot of people will do this, but sometimes you don’t get all the information upfront.
Another way to go about this is to just talk to brokers. Here’s a broker listing sites, quiet light brokerage. You can actually see all the different information and here’s another one. The international.
There’s a lot of other types of brokers size here. You can see, but the problem with all of this is that you have to go onto the site and you have to look at the information and so one of the ways that I address this was to build a scraper.
This scraper, it really, really gets all the key information that I was looking for. The name, the revenue, the earnings, the asking price and the source. And so with additional calculation, I was able to identify certain types of businesses and even going against the criteria but that’s earning ratio for greater than 2.0, earnings a million or more, multiple 2.5 or less, I was able to have my spreadsheet pull out the ones that go after. And here you can see all the ones that in green were the ones that I specifically felt were perfect for me and went to the next step, which is to get the perspectives.
The prospectus is basically a broker’s way of packaging up all the information about the businesses, about the deal that you can essentially review and tell yourself, do you want to go forward or not?
Now this particular business that I went after was a $2 million business. I did not have $2 million, but I did know how to structure deals. Here you can see some of the ways that you can do it. You can use seller financing, cashflow loans, et cetera, et cetera.
When you are using these other deal structures, it’s really good to adjust the variables to see what does that do to your coverage ratio? Coverage ratio is just a way to say, will the debt that you will bring on to buy the business, be able to sustain the business itself without hindering the net profits. Here, you can see a target coverage ratio of 1.5 or greater is really what you’re going after.
Next, you just start to talk to particular banks or financial institutions to circulate the deal. And if they like it, then they will be very interested in partnering with you. I ended up actually partnering with someone who had the proof of funds that I needed to move forward. And I then brought to the team, the management team to get this deal into the next step.
Here’s a letter of intent. The letter of intent is non-binding and basically tells you that you’re interested in buying the business. The seller agrees to it. You guys sign it.
Move on to the next phase was getting an advisor and advisors helps you through the due diligence process of all the accounting, the financials, et cetera.
Here’s an operational due diligence checklist, which shows everything, not only the operational side, but also the financial due diligence.
Luckily I had a team of virtual assistants were able to assist me. We had a Trello board, we kept track of everything and they were able to review thousands and thousands of affiliate partners as well as websites to validate that the information that the seller was providing was actually accurate.
We projected all of the information into a financial model by taking into account all the different operating expenses, the team, the revenue, and modeled out what the future will look like using past data.
We then put together an amortization schedule, which is really just a way to showcase the seller into the investor or bank what they’re going to get paid every month.
We put together a pitch deck, which outlined everything about the deal, because we wanted to secure a million dollars from an investor. And after reviewing this with them, they were able to give us a term sheet, which explains what we are getting from them.
After that you get a asset purchase agreement, which is signed, it spells out everything that you’re going to buy. And once you sign that you have acquired the business. If you like this process and you want to do more, let me know. And we’ll basically go through this whole thing with you and by the next business with you.