Discover and read the best of Twitter Threads about #SMB
Most recents (24)
#SMB Value Tip:
Not all Revenue is created Equal
Cash or Accrual bookkeeping track revenues differently
-Cash is the ACTUAL cash revenue in the bank for the period
-Accrual shows the BILLED revenue (uncollected)
Accounts Receivables helps bridge the gap
Let's explore...👇
Not all Revenue is created Equal
Cash or Accrual bookkeeping track revenues differently
-Cash is the ACTUAL cash revenue in the bank for the period
-Accrual shows the BILLED revenue (uncollected)
Accounts Receivables helps bridge the gap
Let's explore...👇
1/x
Depending on the biz size, accounting may elect for Cash or Accrual books
Many #SMB use Cash books due to its ease of use & practical nature
Larger firms may use Accrual books due to its advanced ability to track assets & liabilities, & match revenues with expenses
Depending on the biz size, accounting may elect for Cash or Accrual books
Many #SMB use Cash books due to its ease of use & practical nature
Larger firms may use Accrual books due to its advanced ability to track assets & liabilities, & match revenues with expenses
2/x
Revenue under Cash is the cash deposited into the account
Revenue under Accrual books is the cash billed to customers but not collected
Accounts Receivable (A/R) should be tracked for both books
But Cash books will NOT show A/R on the Balance Sheet & is tracked separate
Revenue under Cash is the cash deposited into the account
Revenue under Accrual books is the cash billed to customers but not collected
Accounts Receivable (A/R) should be tracked for both books
But Cash books will NOT show A/R on the Balance Sheet & is tracked separate
#SMB Value tip:
How to remove excess or non-operating compensation or increase compensation in the financial statements during the normalization process
Its better to normalize earnings of a potential acquisition b/c you, as the new owner, can change this
👇
How to remove excess or non-operating compensation or increase compensation in the financial statements during the normalization process
Its better to normalize earnings of a potential acquisition b/c you, as the new owner, can change this
👇
1/x Many times owners pay themselves over or under a replacement compensation (mainly due to tax reasons)
Many Owners may be paying family members higher than normal compensation rates
These items should be adjusted to 'normalize' the financial statements
Many Owners may be paying family members higher than normal compensation rates
These items should be adjusted to 'normalize' the financial statements
2/x When buying a company you are gaining control
As a control adjustment you can operate the biz as you please & so its common to make control type adjustments such as normalizing compensation
A compensation adjustment is a controlling adjustment for valuation purposes
As a control adjustment you can operate the biz as you please & so its common to make control type adjustments such as normalizing compensation
A compensation adjustment is a controlling adjustment for valuation purposes
For all you ETA and PE guys out there:
I’ve had close friends and family make exits on their SMBs recently.
Here’s what you need to know about owners’ psyche, motivations, etc.
#ETA #SMB
I’ve had close friends and family make exits on their SMBs recently.
Here’s what you need to know about owners’ psyche, motivations, etc.
#ETA #SMB
Selling is often a sad experience for these guys.
Their work is a significant chunk of their identity.
They know that selling is a good thing (for risk mitigation, estate planning, reward for diligence, etc)
But…
Their work is a significant chunk of their identity.
They know that selling is a good thing (for risk mitigation, estate planning, reward for diligence, etc)
But…
This is their life’s work…
Friend 1: sold after decades in industry
Friend 2: 45 years of building
Friend 3: 15 years of building
Friend 1: sold after decades in industry
Friend 2: 45 years of building
Friend 3: 15 years of building
#smb #investing
Want a quick "back of the napkin" forecasting tool to estimate future capital requirements?
Use the Sales-to-Capital ratio
Total Capital = NWC + PPE, net + Goodwill/Intangibles
(For private co with accel depr use gross PPE)
Explanation... 👇
Want a quick "back of the napkin" forecasting tool to estimate future capital requirements?
Use the Sales-to-Capital ratio
Total Capital = NWC + PPE, net + Goodwill/Intangibles
(For private co with accel depr use gross PPE)
Explanation... 👇
1/x
What is it?
Sales to capital (S/C) ratio looks at how much revenue a company generate per $1 of capital
$1mm of revenue using $600K of capital equates to a 1.66x Sales to Capital ratio
Why does this matter? 👇
What is it?
Sales to capital (S/C) ratio looks at how much revenue a company generate per $1 of capital
$1mm of revenue using $600K of capital equates to a 1.66x Sales to Capital ratio
Why does this matter? 👇
2/x
Observations:
- The ratio is industry specific - unit economics influence & bound the ratio
- For established co's, the S/C ratio is fairly stable & can increase over time
- For young co's, it is generally low, but will increase over time
Observations:
- The ratio is industry specific - unit economics influence & bound the ratio
- For established co's, the S/C ratio is fairly stable & can increase over time
- For young co's, it is generally low, but will increase over time
After my deal pursuit fell through, I let myself wallow for a day and jumped back in. I knew I needed to do something different, I needed added tools and process and I needed to sift through data faster. I also knew I needed different sources of input
I’m ashamed to admit (bcuz it now seems straightforward) I activated two new approaches: outsourced search to an offshore assist AND lots of cold outreach. I know, things I should’ve been doing since the beginning. My first opp came on too quick and I got complacent
I engaged a VA on Upwork. He was a great guy from Bangladesh. Took us a week or 2 to hit our groove but he got to where he was putting up 100s of cold leads a week. I also started cold networking on my own. I called everyone in my network with any connection to finding a biz.
The ETA space has never had this much action.
I will give a few anecdotal examples from the last several weeks:
➡️ 2 friends contemplating an acquisition in 2023 fly out from California to Dallas for the SMB Dallas event hosted by @SMB_Attorney & others. 1/x
I will give a few anecdotal examples from the last several weeks:
➡️ 2 friends contemplating an acquisition in 2023 fly out from California to Dallas for the SMB Dallas event hosted by @SMB_Attorney & others. 1/x
➡️ On a weekly basis, I am receiving DMs on Twitter from undergraduates at major U.S. universities asking me what they can do to present well to lenders for being qualified to buy a business
➡️ DMs coming in from Bankers & PE professionals looking to leave finance. 2/x
➡️ DMs coming in from Bankers & PE professionals looking to leave finance. 2/x
➡️ Moms reaching out that are looking to buy a business after being stay-at-home mothers for a period of time
➡️ Former SBA lending professionals reaching out about buying SMBs (some with very strong personal financial statements). 3/x
➡️ Former SBA lending professionals reaching out about buying SMBs (some with very strong personal financial statements). 3/x
Common misconceptions about SBA loans:
📌 Misconception: You always have to pledge a lien on your house
➡️ Reality: The lien is only required if you have 25% or more equity in your house. 1/x
#sba #smb #acquisitions #entrepreneurs #independentsponsors
📌 Misconception: You always have to pledge a lien on your house
➡️ Reality: The lien is only required if you have 25% or more equity in your house. 1/x
#sba #smb #acquisitions #entrepreneurs #independentsponsors
*Continued*
📌Misconception: When you're buying a business, your 10% down payment needs to be all cash
➡️ Reality: You have the ability to do 5% cash (based on the total uses of funds) if the seller holds 5% on Full Standby as a seller note. 2/x
📌Misconception: When you're buying a business, your 10% down payment needs to be all cash
➡️ Reality: You have the ability to do 5% cash (based on the total uses of funds) if the seller holds 5% on Full Standby as a seller note. 2/x
📌 Misconception: Anyone in the ownership group has to personally guaranty the SBA loan
➡️ Reality: SBA's requirement is that any 20% or more owner of the business has to personally guaranty. 3/x
➡️ Reality: SBA's requirement is that any 20% or more owner of the business has to personally guaranty. 3/x
➡️ One casual observation from my trip in Costa Rica: there are entrepreneurs everywhere
➡️ At restaurants, waiters have side hustles doing sales to sign people up for local excursions
➡️ At the beach, it's an entrepreneur trying to sell you juice or a beer. 1/x
➡️ At restaurants, waiters have side hustles doing sales to sign people up for local excursions
➡️ At the beach, it's an entrepreneur trying to sell you juice or a beer. 1/x
➡️ This is not a political post but is simply my own opinion: America should take note of the hustle in countries like Costa Rica
➡️ If you lose your job, instead of seeking unemployment or sitting and playing Xbox, start shoveling snow or mowing lawns. 2/x
➡️ If you lose your job, instead of seeking unemployment or sitting and playing Xbox, start shoveling snow or mowing lawns. 2/x
➡️ There is a ton of opportunity out there, and there are many potential markets, services, and clients that need various things
➡️ Start hustling a bit more and complaining a bit less
➡️ If you aren't happy with your job, start a side hustle and turn it into your main hustle
➡️ Start hustling a bit more and complaining a bit less
➡️ If you aren't happy with your job, start a side hustle and turn it into your main hustle
One of the most popular phrases that you will see on SMB Twitter is the "Silver Tsunami," alluding to the massive wave of retiring baby boomers selling their businesses over the coming years.
In this thread, I am going to cover how to capitalize on the Silver Tsunami 🌊 as a prospective entrepreneur or searcher that is looking to buy a business within the coming years.
1 - Attend the ETA Conferences
➡️ There are 3 large annual ETA conferences - Harvard, Chicago Booth / Kellogg, and the Southeastern ETA conference (UVA, Duke & UNC)
➡️ Each of these conferences is filled with searchers, service providers, investors, and lenders
➡️ There are 3 large annual ETA conferences - Harvard, Chicago Booth / Kellogg, and the Southeastern ETA conference (UVA, Duke & UNC)
➡️ Each of these conferences is filled with searchers, service providers, investors, and lenders
There were a lot of folks in this picture that I didn't get to meet.
If you spot yourself here, comment with your background, what brought you onto SMB Twitter, and what you're looking to do in the space in 2023 👇
#sba #smb #acquisitions #entrepreneurs
If you spot yourself here, comment with your background, what brought you onto SMB Twitter, and what you're looking to do in the space in 2023 👇
#sba #smb #acquisitions #entrepreneurs
I'll go first:
➡️ Introduced to SMB Twitter in the spring of 2022 by @SAOliver_Atty (thanks, Scott!)
➡️ Joined the space to share information about acquisition financing within the SBA space
➡️ Looking to help 30 entrepreneurs close business acquisitions this year
➡️ Introduced to SMB Twitter in the spring of 2022 by @SAOliver_Atty (thanks, Scott!)
➡️ Joined the space to share information about acquisition financing within the SBA space
➡️ Looking to help 30 entrepreneurs close business acquisitions this year
I tag @SMB_Attorney - you're next!
It's a new year, and a new opportunity to welcome new people to the #SMB community. If you're looking to buy a business and aren't sure where to start, here are a few key terms you'll see on here to help get you started: 🧵
“ETA” is the standard abbreviation for “Entrepreneurship Through Acquisition”, which describes the practice of buying and growing an established small or medium business (SMB).
Buyers can be individuals or small groups, organized into “search funds”. This term refers to an investment vehicle usually formed by one or several individuals (the “searchers”), together with a small group of aligned investors to find, acquire, and lead a privately-held company
1/ Per @SBA_Matthias here is a short thread on my experience and understanding of using a ROBs rollover to finance an #SMB acquisition. Note I have not completed this process yet but am learning a ton as I go.
2/ It almost seems too good to be true that you can use your hard earned 401k capital tax free and penalty free to finance your way into being an SMB entrepreneur but it is true.
3/ This is a great option for those who are not sitting on enough capital to make a down payment and use SBA financing and/or do not want dilute ownership or go through the process of raising capital. Also note: this is only an option for owner operators not searchers TBE
*The Dallas Meet Ups - a post*
After having my inbox flooded with DM's, I wanted to put out a post on the Dallas, TX meet ups on 1/12 & 1/14 so that there is a central post with the details 1/x
#dallas #texas #smb #acquisitions #entrepreneurs
After having my inbox flooded with DM's, I wanted to put out a post on the Dallas, TX meet ups on 1/12 & 1/14 so that there is a central post with the details 1/x
#dallas #texas #smb #acquisitions #entrepreneurs
📌Thursday, January 12th happy hour
➡️Hosted by @search_invest
➡️RSVP link: searchinvestgroup.com/events
➡️Contact to bug with questions: @SparrWesley 2/x
➡️Hosted by @search_invest
➡️RSVP link: searchinvestgroup.com/events
➡️Contact to bug with questions: @SparrWesley 2/x
@search_invest @SparrWesley 📌Saturday, January 14th meet up
➡️Location: The Rustic (3656 Howell Street Dallas, TX 75204)
➡️Time: 7:00 PM CST - TBD
➡️Folks to ask questions to: @SMB_Attorney @ClintFiore @KHendersonCo @ConnorAbene @CTW_SMB
➡️RSVP: See below Tweet 👇
➡️Location: The Rustic (3656 Howell Street Dallas, TX 75204)
➡️Time: 7:00 PM CST - TBD
➡️Folks to ask questions to: @SMB_Attorney @ClintFiore @KHendersonCo @ConnorAbene @CTW_SMB
➡️RSVP: See below Tweet 👇
Business acquisitions financed through SBA loans have very specific requirements that need to be followed. In this thread, I will dive into a few such requirements🧵 👇
#sba #smb #acquisitions #entrepreneurs #independentsponsors
#sba #smb #acquisitions #entrepreneurs #independentsponsors
1 - Complete Change of Ownership:
➡️ As the SBA's guidelines currently stand, if you are buying a business as an external buyer (someone that doesn't currently own equity in one), you are required to completely buyout the seller(s). No exceptions.
➡️ As the SBA's guidelines currently stand, if you are buying a business as an external buyer (someone that doesn't currently own equity in one), you are required to completely buyout the seller(s). No exceptions.
2 - Consulting Period for the Seller(s):
➡️ SBA guidelines currently enable a seller to stay on for up to 12 months following the date of the closing of a business acquisition. The terms of the consulting arrangement must be approved by your lender & lender's legal counsel.
➡️ SBA guidelines currently enable a seller to stay on for up to 12 months following the date of the closing of a business acquisition. The terms of the consulting arrangement must be approved by your lender & lender's legal counsel.
SMB Searcher Meet & Greet Calls - 30 minutes ($20)
➡️ Discuss high level factors that are important in the SBA loan approval decision making process
➡️ Walk through a waterfall acquisition model and discuss how deals are structured with common & preferred equity. 2/x
➡️ Discuss high level factors that are important in the SBA loan approval decision making process
➡️ Walk through a waterfall acquisition model and discuss how deals are structured with common & preferred equity. 2/x
➡️ Walk through how debt service coverage works and how to think about it with evaluating deals
➡️ Cover how to think about sources and uses with SMB acquisitions (what is SBA allowable, what is typical in acquisition structures). 2/x
➡️ Cover how to think about sources and uses with SMB acquisitions (what is SBA allowable, what is typical in acquisition structures). 2/x
➡️ Discuss the process of working with @PIONEERCAPADV for your SMB acquisition financing
➡️ Discuss when a bank is required to take a lien on your house.
➡️ Cover the concept of a full standby seller note and when it makes sense for your deal. 3/x
➡️ Discuss when a bank is required to take a lien on your house.
➡️ Cover the concept of a full standby seller note and when it makes sense for your deal. 3/x
What Is a Personal Guaranty and When Is It Required with an SBA Loan? A 🧵 👇
#sba #smb #acquisitions #entrepreneurs #independentsponsors
#sba #smb #acquisitions #entrepreneurs #independentsponsors
1 - When SBA Requires the Personal Guaranty
➡️ Any 20% or more owner of an applicant business is required by SBA to personally guaranty an SBA loan. No exceptions. 1/x
➡️ Any 20% or more owner of an applicant business is required by SBA to personally guaranty an SBA loan. No exceptions. 1/x
2 - What Does a Personal Guaranty Mean?
➡️ All of your personal assets are along for the ride on your deal. If your deal goes sideways, the bank essentially can go after everything that you own. 2/x
➡️ All of your personal assets are along for the ride on your deal. If your deal goes sideways, the bank essentially can go after everything that you own. 2/x
One question has comes up when I speak with clients and prospects on a weekly basis is why some lenders offer fixed rate SBA loans, while others offer variable rate SBA loans. In this thread, I do a deep dive to explain the reasoning 🧵 👇
#sba #smb #acquisitions #entrepreneurs
#sba #smb #acquisitions #entrepreneurs
1 - How SBA Loans Work
➡️ SBA is a risk sharing program that involves 3 parties: 1) the Borrower, 2) the lender & 3) the bank
➡️ SBA is a risk sharing program that involves 3 parties: 1) the Borrower, 2) the lender & 3) the bank
2 - How SBA Loans Work (Cont.)
➡️ SBA insures (guarantees) a specific portion of the SBA loan amount. This is insurance for the bank to insure against the chance that the borrower defaults. For loans over $150,000, the SBA insures 75% of the loan amount.
➡️ SBA insures (guarantees) a specific portion of the SBA loan amount. This is insurance for the bank to insure against the chance that the borrower defaults. For loans over $150,000, the SBA insures 75% of the loan amount.
In this thread, I am going to explain how you can take advantage of the 'Silver Tsunami' in the SMB acquisition space by using a commercial loan broker for the financing process of your SMB acquisition 🧵
#sba #smb #acquisitions #entrepreneurs #independentsponsors
#sba #smb #acquisitions #entrepreneurs #independentsponsors
1 - Historical Backdrop
➡️ Trillions of dollars of businesses will change hands within the coming decades. Many of you have read threads on this topic from @SMB_Attorney @girdley @Codie_Sanchez & others
➡️ Trillions of dollars of businesses will change hands within the coming decades. Many of you have read threads on this topic from @SMB_Attorney @girdley @Codie_Sanchez & others
2 - Financing the Acquisition
➡️ One of the factors that goes into the process of buying a business is acquisition financing. You have 2 options with this: DIY approach or working with a commercial loan broker.
➡️ One of the factors that goes into the process of buying a business is acquisition financing. You have 2 options with this: DIY approach or working with a commercial loan broker.
We chose to buy a fence franchise for $700k (all cash), underwriting:
- 18 month payback
- 3.0x 5yr MOIC
- 70%+ "IRR", although don't think that's as applicable here
- High confidence in brand & operations
Here's why we chose it 🧵👇
- 18 month payback
- 3.0x 5yr MOIC
- 70%+ "IRR", although don't think that's as applicable here
- High confidence in brand & operations
Here's why we chose it 🧵👇
We have a preference for "home services" + Repair & Remodel (R&R) bc:
1) Regardless of recession, consumers will have to do maintenance on their homes/buildings.
2) Remodel/improvement on existing homes should stay strong w/ the housing mkt locked up & affordability problems
1) Regardless of recession, consumers will have to do maintenance on their homes/buildings.
2) Remodel/improvement on existing homes should stay strong w/ the housing mkt locked up & affordability problems
We are actively looking for home services #SMB, but also like a strong franchise. They can give the operator a proven model, brand equity, speed to market, off-the-shelf playbook, & scaled supply chain.
Credit: @franchisewolf, gotta check him/her out!
Credit: @franchisewolf, gotta check him/her out!
A seller note on full standby "incentivizes the owner to help you for the life of the loan and helps create a higher cash on cash return for you as an entrepreneur" - Fady Ebeid, a searcher that worked with Pioneer Capital Advisory LLC
#sba #smb #acquisitions #entrepreneurs
#sba #smb #acquisitions #entrepreneurs
1/x: Why is a full standby seller note, and why do I need one for my SMB acquisition? In this 🧵 I will cover the answers to both of these questions.
#sba #smb #acquisitions #entrepreneurs
#sba #smb #acquisitions #entrepreneurs
2/x: Definition & Explanation:
➡️ A seller's note on full standby is defined as a note on which no payments of principal or interest are made for the term of the SBA loan
#sba #smb #acquisitions #entrepreneurs
➡️ A seller's note on full standby is defined as a note on which no payments of principal or interest are made for the term of the SBA loan
#sba #smb #acquisitions #entrepreneurs
I bought my family catering company in the middle of the COVID pandemic.
I broke down in tears on more than one occasion in 2020-2021.
I honestly don't remember entire months at a time.
Here is a dose of reality for first-time buyers.
A 🧵
I broke down in tears on more than one occasion in 2020-2021.
I honestly don't remember entire months at a time.
Here is a dose of reality for first-time buyers.
A 🧵
🚨Buying a company is hard....
💣Buying a family company is harder...
You have to manage emotions on both sides of the table and come out the other side getting along. Your happiness depends on it.
💣Buying a family company is harder...
You have to manage emotions on both sides of the table and come out the other side getting along. Your happiness depends on it.
I did everything against the norm in buying my first biz:
💥Stock sale to help with seller taxes
💥Timed the sale to help the seller
💥Didn't include 100% of the COVID slump
💥Etc...
💥Stock sale to help with seller taxes
💥Timed the sale to help the seller
💥Didn't include 100% of the COVID slump
💥Etc...
Closing an SBA loan for an SMB acquisition does not need to be hard.
In fact, it should be easy, and the process should involve as little friction as possible. 1/x
#sba #smb #acquisitions #entrepreneurs
In fact, it should be easy, and the process should involve as little friction as possible. 1/x
#sba #smb #acquisitions #entrepreneurs
As a self-funded searcher, your time is incredibly valuable.
By the time that you have a deal under LOI, significant time and energy has gone into the search process including sourcing the opportunity, and negotiating the LOI with the seller. 2/x
By the time that you have a deal under LOI, significant time and energy has gone into the search process including sourcing the opportunity, and negotiating the LOI with the seller. 2/x
So where are these banks that are approving these SBA loans, and do all of them require 1.50x DSCR? 3/x
#sba #smb #acquisitions #entrepreneurs
#sba #smb #acquisitions #entrepreneurs
How to calculate the amount of cash flow the bank thinks your #SMB target will create....
Net Income
-Extraordinary income events - PPP forgiveness, abnormal gains on sale of assets, insurance proceeds, etc.
-The amount you will be paying yourself as an owner
+The amount the seller paid him/herself
-Extraordinary income events - PPP forgiveness, abnormal gains on sale of assets, insurance proceeds, etc.
-The amount you will be paying yourself as an owner
+The amount the seller paid him/herself
+Extraordinary expenses - legal fees, moving expense, engaging the seller broker, etc.
-Maintenance capex that required a cash call but didn't make it to the income statement
=Cash flow your lender thinks is available to service the proposed loan
-Maintenance capex that required a cash call but didn't make it to the income statement
=Cash flow your lender thinks is available to service the proposed loan
Tomorrow an SMB entrepreneur will close on a business acquisition with 80% bank financing for a ~$3.1 million enterprise value business.
In this thread, I will share some highlights of the story. 1/x
#sba #smb #acquisitions #entrepreneurs
In this thread, I will share some highlights of the story. 1/x
#sba #smb #acquisitions #entrepreneurs
On August 10th, @PIONEERCAPADV received a cold call from the searcher
"Hi this is [searcher's name]. I came across you on Searchfunder wanted to learn more about your process, etc"
Introductory discovery call takes place. Searcher gives high level overview of target co. 2/x
"Hi this is [searcher's name]. I came across you on Searchfunder wanted to learn more about your process, etc"
Introductory discovery call takes place. Searcher gives high level overview of target co. 2/x
On September 11th, the searcher executes an engagement letter with @PIONEERCAPADV for PCA to source the financing for the business acquisition. 3/x
