Acquire a Company Using a Leverage Buyout How can you buy a business with no cash of your own? It's actually simpler than you might think. And surprisingly few people know about the strategy - so I'm going to spill the beans on this arcane method right now. The way you do it, is by leveraging the assets of the specific business you want to buy: at about exactly the same time you buy that business. It's called a full leverage buyout: acquiring a company by using the assets and cash flow of that company to finance the purchase. Although the strategy is generally unknown to most Internet nerds and even general business owners: big corporations have been doing it for a long time. And the strategy has become an accepted and widely practiced financing strategy. But never mind the big corporations. For the small business owner or an individual starting with little or nothing: leveraged buyouts can effectively help you skip the 2 to 5 years it generally takes to build a strong company. What this means is that instead of wasting years painfully trying to grow your business with your own money: you can take over an existing business and begin reaping the rewards within literally weeks or a few months. For this reason - many people, particularly those of us who already own our own businesses - experience a paradigm shift after learning about how to do leveraged buyouts; Because we suddenly see the potential for a totally new way to go about building a successful business. We assumed the way to do it was by saving up the initial capital by scavenging every penny and pressuring friends and family to come up with some money. Then by starting the business from scratch and working 15-hour days while putting your savings and everything you've got on the line. As the business grows, any profits are immediately put back into the business with barely anything to show for it personally - and this is continued for however many years it takes for your business to finally start supporting you instead of you supporting it. Then we learned that with leveraged buyouts, none of our own personal cash or credit gets put on the line. And your business can immediately start producing

wealth for you. And that this strategy can be repeated to buy even more businesses and accumulate even more wealth. Owning a business is the ultimate wealth generator but the difference between just getting by and making a fortune in business is your knowledge of modern day business strategies such as the full leverage buyout. How to do a Full Leverage Buyout Here is an the entire process... First Step: Find a business you want to buy As obvious as the first step may be, it's certainly something you will want to think carefully about. Do you have an existing business? Can you buy another business that will complement what you're already doing? Or are you sick of your current business and want to find something new? If you don't have a business already - what's your passion? What are your hobbies? Remember - you're the one who has to open the doors every morning. Find a business you have a passion for. Build a criteria of what kind of a business you're looking for, research and compile a list of the potential companies you want to own - even if they're not for sale. Because some of the best deals never go public - and the key to finding them is to ask. Making an inquiry to a company about buying they're business can lead you into the prime land of opportunity. Other sources of businesses for sale include online marketplaces, directories, newspaper classifieds and business brokers. Let's say you love to ride dirt bikes. But you're only age 19, just a year out of school and you have basically no savings of your own. In fact, you've got bills to pay and some credit card debt. That's okay: using full leveraged buyouts you don't need any of your own money. So, let's find a business in that field.

It just so happens you're friend works for a dirt bike parts manufacturer. And by working within that company he's got some early new information about his boss, the owner, and his intentions to sell the company. Second Step: Interview the seller Once you've identified a business you want to buy (and one that is willing to sell) your next step is to meet the owner and begin an interview. This is a lot easier than a job interview - because you've got all the cards at this point. It's up to the seller to make a pitch to compel you to buy his company. In this example, you setup a meeting with the dirt bike manufacturer through your friend who was actually working for the company. You sit down with the owner to ask some important questions: What's the sales revenue? Mr. Seller tells you, "The business does about $1 million per year." What's the profit? "The profit is $100,000 net after tax. And this is after the owner's salary and my perks." Now you start digging deeper: what's the value of the inventory? What's the value of the equipment? After a brief interview, you and Mr. Seller take a tour of the facility. You find it incredible how much insight you can gain into a business by being in the position of a potential buyer for that that business. Back in his office, you then ask the big question: how much do you want? Mr. Seller: "I want $500,000." Well okay, what kind of terms are you looking for? "All cash" Yikes - that sounds pretty intimidating. Somehow you need to come up with $500,000 in cash you don't have. Yet nothing is impossible, so you pursue the effort to buy this business.

Third Step: Negotiate the Deal Now is when the real negotiations start. The key to any successful negotiation is to find out more about what the other side wants. So you build the relationship even more by asking more down to earth questions. What do you intend to do after you sell the business? What is your vision for your company, after you sell the business? You find out that the owner is ready to retire and wants to see his business passed down to someone responsible who will grow the company and keep it a striving business for a long time to come. So you assume if the seller wants to retire, surely they would appreciate an extra stream of income to help compliment their lifestyle. Given this factor; and if you can prove to the seller, that because of your passion for the industry and willingness to commit long term, that you are indeed the best person to own the business - you might just be able to get some more flexible terms, while making them just as advantageous and satisfying for the owner. After about 4 weeks of negotiations and building a bond with the seller - you've finally hammered down some more realistic terms that work best for the both of you. Mr. Seller still wants $500k but he agreed that he would accept $150,000 cash down. And the remaining balance of $350,000 would be paid with a note that would be payments of principal and interest monthly for 15 years. Great! Payments on the 15 year note should be easy: once you take ownership of the business, you step into the owner's salary and perks, and that's going to take real good care of you and your lifestyle. And then from that $100k net after tax profits - you can easily make the payments on the $350k note payable over 15 years and still have profits left over. What you are worried about: is how to make the $150,000 up front cash payment. Fourth Step: Get an Asset Based Loan The key step now is to find an asset-based lender.

You already are familiar with these types of lenders. If you have ever gone to a car dealership to buy a car with monthly payments - you've just finished a negotiation with an asset-based lender. Because if for any reason you didn't make the payments on that loan, the dealer would take that car back. The car is an asset; the collateral on the loan you made. There are lenders out there who will make asset based loans not just for individuals who want to buy vehicles - but who will lend out money to businesses and take back as collateral for that loan any form of business asset: cars & trucks, machinery & equipment, accounts receivable, or land. So you investigate further into the dirt bike parts manufacturer you want to buy and it's current assets. Inside the business, which has a total purchase price of $500,000 - there is $300,000 worth of machinery, equipment and accounts receivable at liquidation value. Liquidation value is the estimated amount of money that an asset can quickly be sold, such as in the event of a company bankruptcy. So you find an asset based lender. He agrees to take your $300k worth of assets and loan you up to 80% of the liquidation value, or up to $240k. The catch of course is that first you have to actually own those assets. So close! If only there was a way to perform a deal where you could take out a loan for the value of assets in a company you were about to buy... Well, you're in luck. Because that my friend, is the essence of a full leverage buyout. Fifth Step: The Swing Loan After a little more research you discover that you can go to a bank - and get what's called a "swing loan." In other words, you can borrow a $150,000 from a bank in the morning. Give that to the seller: making the business yours. Then in the afternoon take the assets within the business you just bought, pledge it to the asset based lender raising $240k from them and from that $240k immediately repay the bank $150k and have $90,000 left over. Not bad!

So you go to a bank in your best business suit and reveal to the Senior Loan Officer your grand plan. He sits back very politely listening to your grand plan. When you're all finished revealing the plan he leans across the desk and looks at you from the corner of his thick black glasses. Mr. Banker says, "Great plan you have there... but you don't really expect us to loan you this kind of money? You don't have the type of credit to even allow us to consider lending you $150,000 no matter how great your plans may be." So you've come this far only to be presented with another challenge. Getting someone to trust you for one day with $150k. Fortunately this will be the last challenge you'll need to overcome - and there is an easy way to go about it. It's called "double escrow." "Mr. Banker," you say. "I understand I don't have the credit for this loan - which is why we're going to make this transaction right here so the money will never leave your bank. Because the moment you make that loan: that same instant I'll pay the loan off, and also that same instant I'll put $90,000 of my money into a checking account in your bank as additional incentive to help me facilitate this transaction." Now that's pretty hard to refuse: it's a no risk deal for the banker. Sixth Step: Double Escrow Now we're playing like big boys. In fact, doing a seemingly impossible business deal is not so hard once you realize that it is indeed possible and break it down into a simple strategy. You have the banker setup two rooms at the bank. Room A and Room B. On the day of closing there are three people in Room A: The seller, you the buyer, and the banker. Sitting on the table in front of you were all the legal documents to legally transfer ownership of the company from the seller to you. You both sign the dotted lines, exchange your copies and then the banker hands you a check for $150,000 made payable to the seller. You take the check, give it to the seller - and the moment the seller touches that check: the deal is done. You are now the legal owner of that business.

Meanwhile in Room B, there are two more people: another banker of the same branch and your asset based lender. Sitting on the table in front of them are documents you signed before you went into Room A, but you signed those documents as if you were the owner of that business. So the moment you completed the deal in Room A, the banker in Room B can hand these documents to your asset based lender. The asset based lender then hands him a check for $240,000 made payable to you. The banker then takes it to the teller window, deposits it to your account, and immediately deducts the $150,000 swing loan. Leaving you with $90,000 in cash. Congratulations, you've just purchased a business with none of your own cash. In a nutshell, the full leverage buyout strategy is to arrange a loan with an asset based lender, for the amount of the value of the assets in the company you want to buy, effective immediately upon the moment you take ownership of that business. You then arrange for a swing loan at your bank. The proceeds of the swing loan is to be paid directly to the seller to give him the down payment - making you the owner - and once you are the owner your asset based loan is automatically activated, and a portion of the asset loan instantly pays off the swing loan. None of your own cash or credit The way you buy a business with no cash of your own is by arranging an asset based loan and a swing loan connected by a double escrow. And you can do it without good credit. The deal is setup so you win, the seller wins, and the banker wins.

Financial Documents to obtain from the seller of the business (Certified for 2-years)

1. Statement of Financial Position: also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time.

2. Statement of Comprehensive Income: also referred to as Profit and Loss statement (or a"P&L"), reports on a company's income, expenses, and profits over a period of time. A Profit & Loss statement provides information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state.

3. Statement of Changes in Equity: explains the changes of the company's equity throughout the reporting period. (optional)

4. Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities.

Resources (Great places to find businesses for sale): 1. www.globalbx.com

2. www.bizbuysell.com

3. www.businessbroker.net

4. www.bizquest.com

5. www.buybusiness.com

6. www.businesstradeboard.com

…and of course, local “Business Brokers”! (By the way, don’t let them tell you

that it can’t be done! It is there legal responsibility to present ALL offers to the

seller. Hint: Tell them that you “reserve the right to accompany all offers to the

seller”.)

The following pages are an outline to prepare a loan package plan to financial

institutions. Use this as a guide and format to arrange your proposals. Always

keep the following three things in mind when requesting financing:

1. How much you would like to borrow.

2. How the money will be used.

3. How you plan on repaying of the loan (terms).

LOAN REQUEST

SUMMARY

APPLICANT/BUSINESS NAME: DATE: _______________ APPLICANT/BUSINESS ADDRESS: TELEPHONE: CONTACT PERSON: CREDIT REQUEST: PURPOSE:

SUMMARY MATURITY/TERM: SOURCE OF REPAYMENT: 1. Primary: 2. Secondary: COLLATERAL: GUARANTORS: SUBORDINATIONS:

MANAGEMENT

KEY PEOPLE

1. Title:

Name:

Responsibility:

Time with Organization:

Ownership (%):

2. Title:

Name:

Responsibility:

Time with Organization:

Ownership (%):

3. Title:

Name:

Responsibility:

Time with Organization:

Ownership (%):

4. Title:

Name:

Responsibility:

Time with Organization:

Ownership (%):

MANAGEMENT

RÉSUMÉ Name:

Address (Home):

Phone (Home):

Personal Statistics:

Position with Organization:

Responsibilities:

Work Experience:

Significant Accomplishments:

Educational Background:

Military Background:

BUSINESS AND HISTORY 1. Description of the Business: 2. History of the Business: 3. Explanation of Current Business:

BUSINESS AND HISTORY 4. Products: 5. Customers: 6. Resources: 7. Competition: 8. Current Banking Relationship:

INDUSTRY STATISTICS AND DATA 1. Standard and Poor's Industry Survey: 2. US Industrial Outlook: 3. Other:

BUSINESS GOALS Short-term/intermediate goals (zero-three years): Goal: Plan: Timing:

BUSINESS GOALS

Long-term goals (three years or more): Goal: Plan: Timing:

FINANCIAL REVIEW

SUMMARY OF PAST FINANCIAL DATA 1. Source of Data: Statement Date Prepared by Type/Option 2. Operating Results: Statement Dates

Sales:

Net Profit:

Net Profit/Sales:

Industry:

FINANCIAL REVIEW

SUMMARY OF PAST FINANCIAL DATA Balance Sheet Detail: Statement Dates

Debt/Worth:

Industry:

Working Capital:

Current Ratio:

Industry:

PROJECTION OF FINANCIAL STATEMENTS AND SUPPORTING INFORMATION

SUBMITTED BY: SUBMITTED TO:

ACTUAL PROJECTIONS DATE

PERIODP 1 NET SALESR 2 Less: Materials UsedO 3 Direct LaborF 4 Other Manufacturing ExpensesI 5T 6 COST OF GOODS SOLD

7 GROSS PROFIT& 8 Less: Sales Expense

9 General and Administrative ExpenseL 10O 11 OPERATING PROFITS 12 Less: Other Expense or Income (Net)S 13 Income Tax Provision

1415 NET PROFIT16 CASH BALANCES (Opening)

C 17 Plus RECEIPTS Receivable CollectionsA 18S 19H 20 Bank Loan Proceeds

21 TotalP 22 Less: DISBURSEMENTS: Trade PayablesR 23 Direct LaborO 24 Other Mfg EpenseJ 25 Sales, Gen'l & Adm. Exp.E 26 Fixed Asset AdditionsC 27 Income TaxesT 28I 29 Dividends or WithdrawalsO 30N 31 Bank Loan RepaymentS 32 Total

33 CASH BALANCES (Closing)34 ASSETS: Cash35 Marketable Securities36 Receivables (Net)37 Inventory (Net)3839 CURRENT ASSETS

B 40 Fixed Assets (Net)A 41L 42A 43N 44 Deferred ChargesC 45 TOTAL ASSETSE 46 LIABILITIES: Notes Payable - Bank

47 Trade PayablesS 48 Income TaxH 49E 50E 51 AccrualsT 52 CURRENT LIABILITIES

53545556 CAPITAL STOCK Net Worth for 57 SURPLUS Partnership or Individual58 TOTAL LIABILITES AND NET WORTH59 WORKING CAPITAL

PROJECTION OF FINANCIAL STATEMENTS

SUBMITTED BY:Spread in Thousands (000)

Spread in Millions (000,000)

PROJECTION PROTOCOLS

SALES FORECAST USE SPACE FOR Consider COMMENTS

1. Previous years business 2. Estimates

a. Sales Department b. Purchasing Department c. Production Department; and

3. Allowances for a. Economic Outlook b. Government regulations c. Market d. Styles e. Peak periods.

INDICATE FACTORS USED IN PREPARING PROJECTION

1. Average Receivable Collection Period in Days __________ 2. Inventory Turnover in Days __________ 3. Trade Payable Turnover in Days __________ 4. % Federal Tax to Profits before Tax __________ % 5. Depreciation per Year $ __________ 6. Total Officers’/Partners' Monthly Compensation $ __________

SUGGESTIONS FOR PREPARATION OF PROJECTION Other Estimates needed for each period of the Projection are underlined below. Blank lines in Projection are to accommodate unusual items of significance. References to the Divisions of the Projection are abbreviated as follows: PL – Profit and Loss Statement CR – Cash Projection Receipt CD – Cash Projection Disbursements BA – Balance Sheet Assets BL – Balance Sheet Liabilities In the first column, record the actual PROFIT AND LOSS STATEMENT and BALANCE SHEET of date immediately prior to projection period. In each subsequent column covering a projection period (month, quarter, etc.):

1. Enter on date line, projection period covered and ending date thereof.

2. Complete PL, recording NET SALES, less all discounts and allowances; showing costs and expenses as indicated. "Compute NET PROFIT OR LOSS.

3. Record in CD on lines indicated, PL entries for DIRECT LABOR. OTHER MF'G EXPENSE, SALES, GENERAL and

ADMINISTRATIVE EXPENSE and OTHER EXPENSE, less depreciation expense included therein. Record in CR, OTHER INCOME (PL).

4. Combine FIXED ASSETS (per prior column BA) and fixed asset additions, subtract depreciation expense and enter result in FIXED ASSETS (BA). Record cost of fixed asset additions in CD.

5. Combine INCOME TAX PROVISION (PL) with INCOME TAXES (per prior column BL), subtract payment of income tax and record result as INCOME TAXES (BL). Record income tax payment in CD.

6. Combine NET PROFIT or LOSS (PL) with SURPLUS or NET WORTH (per prior column BL), subtract DIVIDENDS OR WITHDRAWALS, record result as SURPLUS or NET WORTH (BL). Record DIVIDENDS or WITHDRAWALS in CD.

7. Record CASH (per prior column BA) as CASH BALANCE (opening) (CR).

8. Combine RECEIVABLES (per prior column BA) with NET SALES (PL), allocate resulting total between RECEIVABLE COLLECTIONS (CR) and RECEIVABLES (BA) per average collection period (Factor 1 above). Combine TRADE PAYABLES (per prior column BL), with cost of material purchased (less discounts), allocate resulting total between TRADE PAYABLES (CD) and TRADE PAYABLES (BL) per turnover of payables (Factor 3 above).

9. Combine INVENTORY (per prior column BA), cost of materials purchased (less discounts) and DIRECT LABOR and OTHER MFG EXPENSE (PL), subtract COST OF GOODS SOLD (PL), record result in INVENTORY (BA).

10. Review all items in prior column Balance Sheet (except CASH and NOTES PAYABLE—BANKS) for which no entries have been made in present period BALANCE SHEET. If there is no change in these items, transfer to present period BALANCE SHEET. If items are changed, reflect changes through CR or CD. Carry deferred charges (BA) and accruals (BL) without change.

11. Foot CASH PROJECTION: If cash deficiency indicated, enter amount to adjust in BANK LOAN PROCEEDS (CR); Combine this adjustment with NOTES PAYABLE BANKS (per prior column BL) and enter as NOTES PAYABLE—BANKS (BL); if excessive cash is indicated, and NOTES PAYABLE—BANKS (per prior column BL) appears, provide BANK LOAN REPAYMENT (CD); reduce NOTES PAYABLE BANKS (per prior column BL) by this provision, entering result as NOTES PAYABLE—BANKS (BL). Refoot CASH PROJECTION and enter resulting CASH BALANCE (closing) as CASH (BA).

12. Foot and balance BALANCE SHEET.

• For Manufacturer projections substantial increases or decreases in inventory during projection period. Enter as title on Line No. 5 (PL ) "INCREASE OR DECREASE IN WORK IN PROCESS AND FINISHED INVENTORIES" — record increase in red, decrease in black.

FINANCIAL STATEMENTS

OTHER INFORMATION 1. Sales Agreements: 2. Lease/Purchase Agreements: 3. Permits and Licenses: 4. Insurance: