The 3-Lever Deal Framework | 333

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Transcript

SPEAKER_00 0:00

Welcome back to the Business of Beers Podcast, your daily dose of strategies, tools, and tips to help you build an eight-figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.

SPEAKER_01 0:16

All right. So then how do you pitch it? I think is a good one. You know, I've talked about a couple ways, just kind of in the in the last couple minutes here, but just to like wrap it up, wrap this part up at least. Which is I I pitch it in, first of all, figuring out what are their goals, what are their timelines, like what would they do if they don't sell? Like I would find out, you know, have they tried to sell it? Like you want to ask as many questions as you can to really, really understand kind of the mindset of where they're at. And then I mean, I like to, it's a little easier for me that if it's your first one, it may be a little bit more of a challenge, but once you do them, to you to kind of like establish, I'm gonna say it's like, I don't know if it's so social proof isn't the right way, isn't the right word, but like this idea that like, hey, listen, I've done this a bunch of times, you know, like I can say, right? Like I've done this 25 times. Like this is how we buy these things. And it's and sellers love this to to finance it for a couple reasons. And then we can get into it, right? You could keep the part out and just say, listen, this is this is like what is great for you, right? We can get you a a higher price than cash, which is true. Like if I was gonna pay cash for something, I'm gonna pay way less than if I get terms on it. So I can get you a higher price. We can get you, first of all, this thing could be really quick. Like I could get this deal done in 30 to 45 days, right? We're gonna have no, we're gonna have no like um colonoscopies of like tax returns and all this crap. Like I'm gonna be I'm gonna be it's gonna be it's gonna be really simple. And your employees are not gonna find out because once again, we don't have to do all that stuff. You're gonna get to defer taxes and I'm gonna pay you interest instead of the bank. And by the way, you're gonna have all these documents and protection. So if I don't pay you for whatever reason, you get to keep all the money that I pay you, plus you get the business back. Okay? Like, and like they're like, all right, like I've been doing this for 20 years, like if I had to come back and like run this shop again or run this whatever business again, like I could do that. I don't want to do that, but I could, right? Because it's something they know. So once you understand their goals, once you understand their timelines, then you can walk through and kind of ask discovery questions to really kind of dive into this. Uh, you know, when I'm doing it, it's not every single seller gets every single like pitch. For some of them, it's time. All they care about is time. They don't even care about any other stuff. All they care about is time and it and it's the way to do it. Other ones, it's higher price. We work through that. So, like, anytime you're selling, you really want to like find out what what's important to them and then speak to that versus like what do you think it's gonna be? So let's talk about what you are not gonna do. We are not gonna use any words that a finance bro would say. We're not gonna say amortization, we're not gonna we're not gonna talk about like the discounted cash flows. Honestly, I'm not even gonna talk about interest rates in the beginning. I'm not gonna talk about um uh I'm not gonna talk about like, well, depreciation wouldn't really count here, but like basically I'm not gonna talk about any of these fancy stuff. I am gonna talk about one one thing, which is cash from me to you. All of my conversations are simply this cash that is gonna leave my pocket and and go into your pocket. That is the only way that I that I negotiate and structure these deals. And then yes, all that other stuff we figure out on the back end. But like like you kind of heard earlier when I was like telling some of these stories, I I I find a business that I want. Okay, and so like let's say I have a store that is um I don't know. It's for easy math, uh it's making 100k in profit. And we gotta figure out, hey, what what is this thing worth, right? And so in my mind, I'm like, all right, it's worth three times, right? So in my mind, I think this thing is worth $300,000. So to start, I will simply make an offer that has three parts. It is the down payment, the monthly payment, and the number of months. Those are the only three things I talk about. All right? Down payment, monthly payment, number of months. So I think this thing's making 100k. I say, hey, I I would pay 300k for this thing. So I will start. Usually I say 50k down because I don't know. The number works. I've literally bought a $2 million business, another one that was like $500, another one that was $600, another one that was like $400. I don't know. I've I've I it's like four deals if it's always $50K down. So then what I'll do, I'll just take $50K down. This is like literally what I do. And then I'll subtract $300 from it. Or so, all right, so it's $250, right? So I have $300 minus that, $250. Then I'll think to myself, all right, what do I think I could afford per month? And I'd say, uh, I don't know, I think this thing can afford, usually it's roughly half the profit. So in this case, if it's making 100K, I'd say, like, all right, I could afford a 50K, so it's like 4K a month, but like, you know, I want to I want a lesser number than that. So I'll just take this and I'll just divide it by like, let's say 3K. All right. So my goal is to make a 3K payment, and then that would be 80, let's just call it 84 months. Whoops, not money sign. So this is how I would start the deal. So I'll give you $50,000 down and I'll give you $3,000 a month for $84 months. And so if they got out the calculator, you know, $84 times three is $100 and $252 plus $50K. That would be $302,000 of total payments. So that's the pitch. I'll buy your business, I'll give you $50,000 down, I'll give you $3K a month for $84 months, $300 and $2,000 total payments. And then we wait for the response. And sometimes the response is is a couple different ways. Sometimes they say, well, that's way too much, or that's way, you know, way too much. They never say that. Uh they'll say, that's way too little. You know, I want, I don't know, $400,000 of total payments. So sometimes they'll start with that, with the total payment number. And then I'll say, okay, great. How about we do $50K down? And I'll give you uh $4K a month for um, hold on, I gotta do some math here. So we take $400 minus the $50K, that would leave me $350 divided by 4. That'd be 88, 88 payments. How's that? That gets you to 400k. 50K down, 4K a month for 88 months. And then they'd say, all right, well, I want my money sooner. Like I don't want to wait, what's 88 months? That's like uh what's that, seven years or something? Uh and they're gonna say, well, I want I want to get paid in I don't know, five years, right? And so I'd say, all right, so they want to get paid in five years, so I'll put 60 here. And I just like I just like work the numbers to say, all right, I still want to put 50k down, but like what do I gotta make my monthly payment? And maybe that other number has to go a little higher. And so I'd say, all right, uh maybe, maybe I say, let me try to get them to like 350 here. That means I need 300k in payments, uh, divide uh divide that by 60, that would be what, 5K a month? I think I did that right. Yeah.

unknown 7:20

Right?

SPEAKER_01 7:21

So it's just this conversation back and forth and back and forth to kind of just land on these numbers. And at the end of the day, you know, 5K a month would be 60k a year. If the business is currently making 100, I might think that's a little too like tight uh on having cash flow out the door. But um let's just let's just say we'd land on that. I could raise the down payment, right? The other option is I say, all right, I'll give you 100k down, you know, then 4K a month for six months or whatever, whatever the math ends up being. But these are the levers. And I found that if if I start speaking in those terms, down payment, monthly payment number months, total payments, that that is how they respond. Because it's just easier to think about just this concept of like the cash flow from me to you, cash flow from me to you. Once we agree on those things, so let's say let's say we come to that agreement, which was um um 50K, 50K down, um and 5k a month for uh 60 months. All right, so that is that is the like the terms of the deal, quote unquote. Then what to to get the purchase price, and I I've created some calculators online, I I I could I'll try to link them below. But like honestly, I use one of these like really simple uh mortgage calculators. I'll make the years, what is this, five years, I'll make my payment five thousand dollars a month, and then I'll put in some random interest rate, like uh like like five percent. So in this case, I I do this math, I put a five percent interest rate. It's telling me that the purchase price is about three hundred and fifteen thousand dollars at a five percent interest based on all these factors, right? Of $50,000 down, five years of payments, $5,000 a month. But the funny part about the interest rate here is like it it doesn't really matter what it is. Because if I did the same thing and I said, all right, let me make the interest rate 10%, I change the interest rate to 10%, the purchase price goes down to $285,000. But guess what? The math's still the same in terms of like it's still $50,000 down five years and five thousand month. Or I I do the reverse, where maybe I'll put a really low interest rate, like like a two percent. You can't do zero for like IRS reasons and stuff, but like you can do pretty close to it. This would put it at about three hundred and thirty five thousand. And again, it's all the same payment terms.