Today at a Glance
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Let's Buy a Business together
Hey there, before I start, I want to let you know an absolute fact that many people still don't understand. The U.S. tax law is heavily rigged in favor of business owners and people who buy real estate. To put things in context, Warren's Buffet assistant pays more tax than he does. Thus, I highly recommend participating in owning or investing in a business and buying and investing in real estate.
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Being a health and wellness enthusiast, the key aspect to staying mentally and physically healthy is knowing I don't have an enormous tax bill every year and having a machine working with me at all times to grow my enterprises.
If you're new to this newsletter, this will be very compelling.
For context, all my writings come from my first narrative experiences. I'm an avid real estate investor across 3 asset classes, and I have invested in several cash-flowing businesses.
πCouple FACTS I want you to know:
Now let's buy a company, by the end I want you to tell me if it's a good buy or bad buy.
P.S. Here's several hundred businesses for you to look at:
βLink to businessesβ
I'm underwriting a landscaping company in Florida today:
ANNUAL:
GROSS SALES: $9,102,578
NET PROFIT: $2,587,735
ASSETS/FF&E: $1,012,025
ASKING PRICE: $6,750,000
KEY POINTS:
*Over $1M in assets & up to $750K in working capital included in the sale
*Experienced and reliable management team in place
*Currently has over $4M in upcoming contracts in place
Initial Thoughts:
A 2.6 multiple( Asking price/ net profit) is fantastic to be under 3x at first glance.
There's a high enough gross sales and net profit for room for error. (Yes you always want to bake up some fucking up cost when investing in anything new)
There's an extensive arbitrage to hire labor at a relatively inexpensive rate in a state that has a ton of green commercial hotels and homes to landscaping.
The question I always ask π§ : Will robots and AI take over this business in the next 5 years?
I personally don't think so.
A business like this has great room to hire an awesome operator that you can put your full trust in.
We'd find an operator for $250,000 who can be an integrator for your visionary thinker.
When raising money for a deal like this, I could have very favorable terms for investors to get their principal and cash flow returns from day 1.
Investors love day one returns ( :
Here's how I would structure this:
Seller Carry: $1,500,000 at 5% Interest and paid off in 5 years.
Loan amount $5,250,000
85% Loan to Value: $4,462,500
15% Down payment: $787,000
Monthly payment 8.5%: $55,927
Interest only: $6,250
Monthly Cash Flow:$215,644 a month
Monthly Cash Flow after Debt: $153,467.
Capital raise: $1,200,000 ( Down payment, operating cost, loan cost)
Let's target a 80/20 split and target a 15% return back to investors pro rata, ( they get paid first) then we can go 50/50 on profits till we pay them off.
Key Note:
Assuming 0 Growth and 0 decline:
I would pay $180,000 a year back to investors.
That would be $15,000 per month
We would still make $$138,467 a month.
Math: $153,467- $15,000 per month= $138,467
I don't know about you, but making $138,467 without any of your own capital sounds epic to me.
Now lets grow this company and here's how:
π Brand π
Below are logos of 3 businesses that serve burgers or coffee. (I'm a huge Philz Coffee fan FYI.)
The first thing I think about these 3 logos below is
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"That is the distinction between the mom and pop burger or coffee shop"
In a landscaping or any service base business, why would you not always make sure you speak to the person in charge at the job and ask them, "Did I do everything to a 100% of your liking?
You are validating your success of your work leaving no room for errors, no room for bad reviews, and no time for a customer trying to come after you.
Employees: I got fired from my first job in retail. I worked at Hollister when I was 16, I know here's when you giggle π
The tag line to every single person who walked into Bettys 1( Left top corner of the store) was : Hey What's Up Welcome to Hollister.
My manager comes in.
I say : "Hey Hailey How are you!" It was first instinct because I know her.
She said "Hi" with an awkward stare and walked to the back room.
When I got off my shift at 2pm that paid me $8.50 cents per hour, I was fired that day.
I didn't follow the chain of command.
I was confused at the age of 16 but grateful at the age of 32 to understand why I was fired.
Large companies are large for a reason. They have systems that everyone must follow like an army.
If you don't follow you should be let go.
When the system gets to loose so does the business and things fall between the cracks.
Hollister, I thank you for letting me go.
So then I got a job at Abercrombie at 17 and remembered the tag line...
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Till Next Friday,
Sam Mahmoodβ
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P.S. There are 2 ways I can help you ππ
Click Hereβ
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