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(3.75 minute read)

1. Regret
2. Working Capital
3. 1 No-Money-Down Strategy
4. Pop Quiz!

1 No-Money-Down Strategy for Buying a Business

(Exchanging Your Expertise for Equity)

TL;DR (for the highlight lovers)

• What business skills do you have?
• Profit creates taxes.
• Operating agreement is key.
• 75% is greater than 100%?
• Full article below.

💬What She Said💬

📣📣Listen Up!

Let's Buy a Business: Working Capital with Patrick McMillan​

1 No-Money-Down Strategy for Buying a Business

(Exchanging Your Expertise for Equity)

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This requires no money, BUT, it does take a skill.

What skills do you have that business owners need?

Marketing skills perhaps?

Are you good at establishing standard operating procedures?

Accounting, bookkeeping, raising capital?

This is consulting work in exchange for equity.

Under the right circumstances, you may be able to not only bill for your services, but also earn a percentage of equity, anywhere from 5, up to 25 or 30%, maybe more, for meeting certain milestones that you determine.

I'm in discussion now with three business buyers where I may be doing financial due diligence work and deal support in exchange for a small piece of equity.

You would definitely be working here and the naysayers will tell you this is just another way to get a job, but don’t let them rain on your parade. This can be a great way to get in the game! And owning a small piece of a business could make you the prime buyer for the entire company down the road. Or the two of you can sell the business together.

One of my biggest warnings here would be around taxes. Be careful not to get yourself into a situation where you have taxable profits, due to your ownership percentage, but no distributions to pay that tax bill. For example, if you own 25% of the business, you will have to pay taxes on 25% of the profit, regardless of whether that company keeps the money in the business account, or pays it out to the shareholders.

Distributions, the shareholder payouts, do not happen automatically just because there is profit made by the business. A simple clause in the operating agreement can remedy this. Operating agreements are going to be imperative and you may want an attorney to help draft that document.

As you consider exchanging your expertise for equity, give a lot of thought to exactly what type of business, and more importantly, what type of owner you want to work with.

I would also work in a “get to know you” or dating period before the equity kicks in. This will give you a chance to see if this is really a good fit or just another bull headed owner that won’t listen to a new idea.

Beyond the finances of a business, the most important part of getting a deal together is building rapport. This includes getting the seller to know and trust you, but also figuring out what the seller really wants. There are probably as many ways to approach this as there are businesses.

One way would be to find companies that want to sell in the next couple of years and use your skills to help create more value for that current owner, as the company moves from just a going concern, to a transferable asset.

Another way could be to find a business that's currently for sale where the seller is leaning more towards the tired stage, than the retired stage, and would be rejuvenated by having a partner with your skills to help grow the business.

A third way would be to find companies that are stalled in their growth and need your help to get to the next level, even though selling may not be on their radar.

This is how the math and that conversation should go with a potential deal of this nature:

Okay, you probably want to rephrase that a bit…

Other benefits of exchanging your expertise for equity can include:

• The opportunity to do your due diligence from the inside.
• This partnership aligns incentives between you as the consultant, and the owner.
• You and the original owner can then sell the company together.
• The original owner may buy your equity back, because the new version of their business is so much better than it was.

Tips to keep in mind:

• Do a dating phase before equity kicks in. Maybe 90 days.
• Make sure your new equity position can’t be diluted. Another operating agreement clause.
• You still need a solid “buy box” of the type of companies you’re willing to work with.
• Vetting the seller, who is becoming your business partner, is much more important than in traditional deals.

What questions do you have?

Hit reply and ask me anything!

Love ya!

🧐Pop Quiz🧐

(TRIPLE WAMMY!)

1. Who was the first woman in Hollywood to become the head of a major production company? 2.Who was the first visibly pregnant woman to appear on American TV? 3.Who saved Star Trek by ordering a second pilot show to be made?

(Reply to this email with your answer. First closest answer gets a mention in the next issue:-)

Last Issue's winner: Lacey Darnell!

Only 8.4% percent of women make $100,000 a year or more.

Wanna chat?

1.Connect with me and other buyers in the FB group.

2. Schedule a business buying strategy session here.

3. Respond to this email. I read them all:-)

4. Join the waiting list for the next launch of Acquisition Expressway, the 5K business buying system!

🏍🏍🏍🏍🏍🏍🏍

Thanks so much for reading... Peace Out!✌🏼

Della Kirkman, CPA
dellak@shift-n-gears.com

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