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Hey Reader, I hope you're enjoying the new YouTube show!

(4.0 minute read)

1. Who loves you...
2. Dig Deeper: Who owes the company money?
3. This issue's sponsor-Rapid Fire Listing Review Package.
4. ​$152K for 6 Months of Work?​
5. Pop Quiz- Pepperidge Farm cookies.
6. More ways to connect.

​$152K for 6 Months of Work? ​

TL;DR (for the highlight lovers)

• Watch the Full Episode: Cash or Crash!?! Episode #4​
• 30% profit margins
• Estimated SBA 7(a) loan payments
• A 4.95X SDE multiple
• Operates May through October
• Final verdict: Cash or Crash?
• FULL ARTICLE BELOW

💬What She Said💬

“It’s not your job to like me, it’s mine.”

🪏Dig Deeper🪏

(Due Diligence Tip)

Too much accounts receivable can ruin a deal.

A business can have fantastic sales…

and still have cash flow problems…

when clients don’t pay, or don’t pay on time.

It’s called accounts receivable.

And I want to know:

• Who owes money?
• How much do they owe?
• How long have they owed it?

Because sales don’t pay the bills.

And customers that don’t pay, aren’t worth buying.

This newsletter is brought to you by:

Get CPA eyes on your target business listing

— with red flags identified–

BEFORE the $10,000+ price tag of full due diligence.

Get the details--Rapid Fire Listing Review Package​

​$152K for 6 Months of Work? ​

Can this business afford to pay its own loan payments?

(a snippet from episode 4, minute 3:00)

​
One of the biggest mistakes business buyers make is getting caught up in the price they want to pay, but not thinking whether the company can afford the acquisition debt. That’s the third step in our Rapid Fire Listing Review Process that we use to decide whether a business listing is worth our time or not.

In the previous segment, we calculated the SBA loan payments and they came to a whopping half a million dollars!

Now don’t tune me out and think that there’s no way you can afford over half a million dollars a year in loan payments. These payments are meant to come from the business.

The business must be able to pay for itself.

And you don’t qualify for this loan based on your job or your W-2. The business qualifies for this loan. That’s the beauty of buying an existing profitable business.

So the third point of our Rapid Fire Listing Review is exactly that: Loan Coverage. And banks can have pretty strict guidelines.

They usually like to see enough free cash flow from the business to cover the annual loan payment 1.25 times or more.

So, can the cash flow of this rafting business cover the loan payments? The cash flow is stated as $707K a year from the listing information and we calculated the loan payments at $555K a year.

So yes, the rafting company can stay afloat even with the huge debt payments!

The cash flow seems like it’s way more than the annual loan payment, but what is that loan coverage ratio? In other words, how many times can the cash flow cover the loan payment?

We take 707,000 divided by 555,000 which comes to 1.27.

Phew! We just squeaked by that one and our fuel tank is filling up!

Since we’re talking about the bank, this is probably a good place to mention that the seasonality of this business can be quite appealing to us as buyers, but it will present cash flow challenges that other businesses don’t typically face. And the lender will want to see your written plan, your budget if you will, to see how you plan to manage this challenge, and keep up with your monthly payments without drowning during the off season.

Check out the full episode here and tell me if you would buy this $3.5 million dollar Wyoming river rafting company.

🧐Pop Quiz🧐

Who founded Pepperidge Farm cookies after discovering Belgian chocolate biscuits while traveling in Europe?

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

Last Issue's winner: Dan Walkowski

Caitlin Brown was the first female “over the wall” crew member to win the Indy 500 race.

More ways to connect:

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

Connect with me and other buyers in the FB group.

Other interesting items: Here​

🏍🏍🏍🏍🏍🏍🏍

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

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

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