🔑 A small business acquisitions driving 400% returns per year

May 15, 2024

Welcome to The Business Academy.

I'd like to tell you a story of a very successful small business acquisition...

Meet my friend Jeffrey.

Jeffrey started his career working for JP Morgan in investment banking.

He was really good at his job. He worked on the largest deals for the firm including taking Dell private with Michael Dell, and spinning out companies from the holding company IAC.

Then Jeffrey spent two years doing small business acquisitions as a head of M&A for a holding company. His personal goal was to learn enough to buy a business using SBA.

Two years ago he found a gem on a business listing website called BizBuySell. It was a company that had been listed on the website for almost two years, but for some reason it never sold.

It was a nice business. With a dependable customer base, and good employees.

It was an elevator company for high-end residential homes. This company has been in business for over 100+ years.

Because the business had been for sale for a long time, my friend Jeffrey got a great deal.

The business was generating $400k in profit per year.

He offered to pay $2 Million (not cheap), but with a lot of structure on the deal.

He got a $600k seller note to be paid over 10 years. Principal payments on the seller note only started two years after the acquisition.

He got a $1.4 Million loan from the SBA (paid over 10 years, at a floating interest rate).

And to buy this business my friend Jeffrey put up $200k. That’s a lot of money but he got a pretty good deal because here’s what happened next.

Jeffrey took over the business and implemented a CRM software to track his customers. He hired a few more technicians, and he invested in local SEO.

The number of leads started pouring in for his business.

Elevator repair is a good business. It can run at a 40-50% gross margin.

The company is an exclusive vendor for the elevator company they represent in their area. So all the elevators they built in the last 100 years must be serviced by Jeffrey’s company.

It’s been a lot of work for him. He starts work at 7am so he can start working alongside his technicians, and he works until 7pm most days. And sometimes weekends too.

But here’s the beauty of this story...

Because the business grew it started generating $50k-100k in monthly cash flow for him. This means he was able to get a full return on the money he invested ($200k) in only a few months.

The business is continuing to grow and Jeffrey doesn’t see a ceiling for it yet. It’s easy to see how he may have his debt fully paid off in the next couple of years, and then he will own a business making him over $1 Million in profits per year.

Pretty cool outcome…

Have a great week,


ps: If you're too busy to buy and manage your own business, soon you will be able to invest alongside of our deals. You can sign-up here to learn about these deals as they come up (for accredited investors only).

Some useful definitions from the story above

Seller Note - this is the business seller playing "the bank". It is very common in small business acquisitions that the sellers offer a loan, with interest to the buyer of the business to facilitate the complete of the deal

SBA Debt - the US Government has a program that helps people finance the purchase of small businesses. If you structure the deal the right way you can put down 5 or 10% of the money for the deal, and get a loan on the rest. Be careful you will need to personally guarantee this loan. So if it fails, the bank will take all our personal assets.

Investment Banking - for most of my life I thought these were people who worked inside of banks like Wells Fargo. Investment Banker is a fancy name fo a broker. They mostly raise money for companies, or they help sell businesses to other investors.

CRM Software - a software to track your customers (eg: Salesforce is a software for this)

🔑 One great read

The Secret Gold Rush - In 1848 Gold was discovered in California which led to a mass migration of people seeking riches. Boats dropping off passengers were looking for some way to make money on their route back which sparked a second gold rush...

The US agriculture segment was growing, and with it a dire need for fertilizer. The untouched islands in route to California were covered with thousands of years of Guano (bird poop) free for the taking. Guano is full of nitrates (great for plants)

So the boat captains would load up on Guano and bring it home to sell.

This quickly devolved into pandemonium, people and countries fighting over islignas.The US Government stepped in to pass the Guano Islands Act. This act gave US citizens the right to claim any islands as US territory that was not owned by another country. Hundreds of islands were claimed as US territory through this act...

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.