Main Street Millionaire - 2 Flashcards
1
Q
What is the significance of the joke about the two young fish?
A
It illustrates how we often overlook the obvious, such as the prevalence of money in our lives.
2
Q
What was the author’s perspective on money during his upbringing?
A
He grew up in a household where money was scarce, and he believed debt was for poor or foolish people.
3
Q
How does the author describe the general belief about money?
A
He states that money is often perceived as scarce, despite it being all around us.
4
Q
What is the author’s aim in this chapter?
A
To teach how to understand money to buy cash-flowing businesses without using personal funds.
5
Q
Define debt in simple terms.
A
An IOU with repercussions.
6
Q
What is the common misconception about debt?
A
That it is inherently bad and should be avoided.
7
Q
What is the saying in investing regarding cash?
A
‘I like to use cash, just not mine.’
8
Q
What is the Profit Payback method also known as?
A
Seller financing or creative financing.
9
Q
Why would a seller agree to seller financing?
A
They may be unable to sell their business otherwise or prefer to receive payments over time.
10
Q
What was the example deal involving Matt?
A
Matt bought a $500,000 business with seller financing, paying $4,000 monthly after a $50,000 down payment.
11
Q
What are typical terms of seller financing?
A
- Average term length: 3 to 10 years
- Average percentage down: 10 to 50 percent
12
Q
Why might seller financing be beneficial for sellers?
A
- Attracts more buyers
- Offers potentially higher sale prices
- Provides immediate cash flow
13
Q
What are potential downsides of seller financing?
A
- Higher price than bank financing
- May be tied to the seller
- Potentially higher interest rates
14
Q
What strategy can be used to negotiate a seller financing deal?
A
Presenting a better financial outcome for the seller compared to traditional bank financing.
15
Q
What was the author’s initial business venture?
A
Buying laundromats.
16
Q
What was the outcome of the author’s first deals?
A
He learned from mistakes but still made money.
17
Q
What percentage of Brandon’s businesses were seller-financed?
A
More than 90 percent.
18
Q
Fill in the blank: The Profit Payback method allows buyers to use the _______ of the business to pay for it.
A
[profits]
19
Q
True or False: The author believes that debt can be a lever to lift the world from poverty.
A
True.
20
Q
What does the author suggest about the timeline of seller financing deals?
A
They can often close much faster than traditional bank loans.
21
Q
What is the Profit Payback method?
A
A way to roll up your sleeves and engage in business deals effectively.
It emphasizes practical engagement over theoretical analysis.
22
Q
What is the most important deal according to the text?
A
The first deal you do.
Getting it right can change your life.
23
Q
What are the two main questions to ask about debt?
A
- Will the return on what I’m using debt for pay more than the debt service? 2. What happens if I can’t cover the debt service?
These questions guide responsible debt management.
24
Q
According to Charlie Munger, how can smart men go broke?
A
Through liquor, ladies, and leverage.
Leverage refers to the use of debt.
25
How do wealthy individuals typically use debt?
To buy cash-flowing businesses and fund their growth.
## Footnote
They understand how to leverage debt effectively.
26
What is the key insight from Warren Buffett regarding risk?
Never risk what you have and need for what you don’t have and don’t need.
## Footnote
This highlights prudent risk management.
27
What is seller financing?
A debt strategy allowing you to buy a business with little money down.
## Footnote
It's commonly used by wealthy individuals.
28
What is an SBA loan?
A government-backed loan program for purchasing small businesses.
## Footnote
It can cover up to 90% of the purchase price.
29
What are some requirements to qualify for an SBA loan?
* Credit score of 680 or higher
* Minimum 10% down payment
* No criminal history
* No ongoing federal debt
* Industry or managerial experience
* Bankrupt-free record from the past three years
## Footnote
These help ensure the borrower is capable of managing the business.
30
List some benefits of SBA loans.
* Lower down payment
* Longer terms
* Easier qualifications
## Footnote
These factors make SBA loans attractive for new business owners.
31
What are some cons of SBA loans?
* Time-consuming process
* Potential higher rates compared to local banks
* Inflexible payments
* Personal guarantee required
* Need for decent credit
## Footnote
These drawbacks must be considered when applying for SBA loans.
32
What is customer acquisition for $0?
A strategy where you acquire customers from closing businesses without upfront costs.
## Footnote
It often involves creative agreements with previous owners.
33
How did Brittany acquire revenue for her gym during the pandemic?
By helping closed gym owners sell their clients to her business for a revenue share.
## Footnote
This created a win-win situation for both parties.
34
What is a revenue share acquisition?
Acquiring a business by offering a percentage of future revenue instead of upfront payment.
## Footnote
This is common for turning around struggling businesses.
35
What does 'acqui-hire' mean?
Buying a company primarily for its employees rather than its assets.
## Footnote
This strategy is beneficial in acquiring talent.
36
What was Drew Sanocki's approach to acquiring websites?
He paid one dollar for websites losing money and promised revenue sharing.
## Footnote
This allowed him to turn around failing businesses effectively.
37
What is the significance of the quote from Warren Buffett about risk?
It emphasizes the importance of not jeopardizing essential assets for unnecessary gains.
## Footnote
This principle is crucial for sound financial decision-making.
38
What is acqui-hiring?
A combination of acquisition and hiring.
39
What is a win-win situation in business?
Both parties benefit from the agreement.
40
What is the process for acquiring employees from a closing business?
Pay a finder’s fee or revenue share for employees who stay.
41
What are the two main considerations in analyzing deals according to Buffett?
* Will I make money?
* Do I want to work with these people?
42
What is the Blank Page Start trick?
Writing simple terms of a deal on a blank page before involving an attorney.
43
What should you do before bringing in an attorney during negotiations?
Get both parties to sign the blank page with preliminary terms.
44
What is the typical price range for small businesses based on net annual profit?
1 to 5 times their net annual profit.
45
What is price anchoring?
When a seller has an inflated idea of their business's worth.
46
What should you do to avoid emotional pitfalls during negotiations?
Name your price first.
47
What is the purpose of a Letter of Intent (LOI)?
To propose buying a business and align expectations.
48
What does a purchase agreement represent in a business deal?
The legally binding document detailing the sale terms.
49
What is an operating agreement?
A document outlining business structure and management roles post-acquisition.
50
What is the difference between an asset purchase and a stock purchase?
* Asset purchase: Only assets are bought.
* Stock purchase: Entire company, including assets and liabilities, is bought.
51
What are the four categories for allocating purchase price?
* Furniture, fixtures, and equipment (FF&E)
* Inventory
* Noncompete agreement
* Goodwill
52
What is goodwill in a business acquisition?
An intangible asset accounting for the excess purchase price.
53
What should you do to ensure you have a good attorney for business deals?
Ask for recommendations from mentors or accountants.
54
What is a common cost range for legal documents in a business deal?
$3,000 to $25,000.
55
Why is it important to have your own documents when buying a business?
To avoid bias and ensure the terms are favorable to you.
56
True or False: The LOI is a legally binding document.
False. It can be nonbinding.
57
Fill in the blank: A _______ indicates that both parties are serious about the transaction but are not legally committed to proceed.
nonbinding LOI.
58
What is the ideal approach to negotiating price with a seller?
Set a realistic market-based price to avoid emotional attachment.
59
What should you consider regarding business structure when planning to buy a company?
Consult your attorney for the best structure based on your goals.
60
What is the significance of leaving a positive final impression in negotiations?
It reinforces interest and respect for the seller's business.
61
What is the advantage of using a midsize law firm for business transactions?
They often have specialists for various legal needs.
62
What are the four categories of assets typically allocated in a business purchase?
* Furniture, fixtures, and equipment (FF&E)
* Inventory
* Noncompete agreement
* Goodwill
## Footnote
These categories help determine tax implications of the purchase price.
63
How is Goodwill defined in a business context?
An intangible asset that accounts for the excess purchase price of another company, including proprietary or intellectual property and brand recognition
## Footnote
Goodwill is not easily quantifiable.
64
What is the tax implication of how you allocate the purchase price of a business?
It can vary significantly depending on the allocation between different assets.
65
What is the primary risk of forgoing a business partnership agreement?
It can lead to significant problems and misunderstandings in the partnership.
66
What is a common mistake first-time business buyers make regarding partnerships?
Partnering with whoever is in front of them.
67
What does the article by Ben Franklin suggest about choosing partners?
Choose partners who have more knowledge and experience.
68
What are the characteristics of BAD PARTNERS?
* History of losses
* No long-term partners
* Need you to win, while you don’t need them
* Say they do 'strategy'
69
What are the characteristics of GOOD PARTNERS?
* History of winning
* Long-term games and friends
* Will win regardless, but choose you
* Say they do whatever is necessary
70
What advice is given regarding having difficult conversations with potential partners?
Your success is a direct result of the number of difficult conversations you are willing to have.
71
What is one key step to take before entering a partnership?
Run a complete background check and chat with ten others who have done business with them.
72
Fill in the blank: Partnerships are easy to get into and _______.
hard to get out of.
73
What is a crucial factor in negotiations according to the author?
Controlling the terms of the deal.
74
What does the phrase 'You can have my price and your terms, or my terms and your price…but you can’t have both' imply?
In negotiations, one must prioritize either price or terms, not both.
75
What is the significance of using terms in negotiations?
Terms can control the price and structure of a deal.
76
What strategy did a friend use to negotiate a lower price for a business?
Proposed milestones that adjusted the price based on the business's performance.
77
How can being likable impact negotiations?
Being likable can often lead to better negotiation outcomes than simply being good.
78
What is an effective tactic to use when a seller names a higher price than expected?
Wince or show a reaction to compel the seller to explain their price.
79
What does the saying 'Those who can wait, win' suggest about negotiation strategy?
Patience can be a powerful tool in negotiations.
80
What can be inferred from the advice to expect people to turn into the worst versions of themselves when money is involved?
Money can change people's behavior negatively.
81
What should you do if your partner's performance does not meet expectations?
Incorporate clawback clauses for work or milestones in agreements.
82
What is a fundamental rule for partnership agreements?
Add an operating agreement with specific expectations and triggers.
83
What is the significance of a seller explaining how they arrived at their price?
It provides vital information and puts the seller on the defensive.
84
What phrase does the author use to push on a problem during negotiations?
How am I supposed to do that?
85
What should you do if a seller wants an inflated price?
Inform them that the bank won’t loan that amount at their profit level or provide recent sales of similar businesses.
86
Who is Sam Zell and what is he known for?
A real estate magnate known as 'the grave dancer' for reviving companies and properties at low costs.
87
What does Sam Zell prefer over meeting people behind a keyboard?
Meeting them in their warehouse to observe their behavior.
88
What is the sunk-cost fallacy?
The belief that one must proceed with a deal due to time and money already invested, even if it has poor terms.
89
What is meant by 'walkaway number'?
The predetermined limit at which you will exit a deal.
90
What is a key takeaway from Peter Drucker's quote referenced by Sam Zell?
We suffer from knowing the numbers.
91
List three truisms for doing deals mentioned in the text.
* He who wants it least wins.
* Choices. Give yourself options.
* If it’s not in writing, it never happened.
92
True or False: Negotiations typically occur between nine and five o’clock.
False
93
What drives the price associated with a business acquisition?
The allocation between equipment and goodwill.
94
Why do sellers want to assign more value to goodwill?
Higher goodwill results in lower taxes.
95
What should buyers prioritize in valuation segmentation?
Assigning as much value as possible to equipment rather than goodwill.
96
What are NDAs and noncompetes used for in business deals?
To prevent the seller from opening a competing business immediately after the sale.
97
What must buyers ensure regarding historical liability?
They are free from liability for incidents that occurred before ownership.
98
What is a non-solicit clause?
A clause preventing the seller from recruiting the buyer's staff.
99
Fill in the blank: 'He/she who talks most ______.'
loses.
100
Fill in the blank: 'He/she who asks the most ______.'
wins.
101
What is the emotional impact of signing a document as a business owner?
It is both terrifying and exhilarating.
102
What does the author suggest about the journey of ownership?
It involves pushing one's capacity to its limits.
