No Money Down Alchemy PRO1.0

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No Money Down Alchemy - PRO

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Introduction

The aim of No Money Down Alchemy – Part One was to open your mind to possibilities and as a result

change your mindset. Most people are unaware of the wealth of opportunity all around them.

I suppose the style and tone of the writing in Part One reflects the way that I would have liked the

information presented to me when I first came across it. I believe that I would have understood,

digested and taken action quicker if it had. Anyways, I got there in the end!

The information in Part Two could be heavy going at times so I edited it into short paragraphs and

bullets points wherever possible. The information is based on an audio recording (by Denis McCoy – a

Business Acquisition Expert).

LOOKING FOR JOINT VENTURES:

If you would like a joint venture partner for any deals valued more than £2 million (UK Only), you can

contact Denis and strike up a deal.

PLEASE NOTE: Some fees are payable in advance.



Prospecting for no cash down deals

1. Look and you will find. Cold canvass for hot leads.

2. Advertise for results.

3. E.G: “I want to buy any type of retail business in the London area. Immediate cash available.”

4. Suppliers can supply leads.

5. Business brokers. 6000 of all business are sold through business brokers and are a valuable source

not to be overlooked. Typical broker has ten buyers for every good listing.

6. Convince the broker you are a serious buyer.

7. Act like a successful business person.

8. Make an appointment.

9. Don’t walk in cold.

10. Brokers are professionals and appreciate buyers who treat them as such.

11. Dress correctly.

12. Prepare a portfolio with your resume.

13. Never tell a broker that you have no cash.

14. Always let the broker think that you can raise the required funds for the deal.

15. Create the impression that you are relying on that particular broker, nevertheless you should check

available opportunities with every broker. You cannot afford to rely on one broker.

16. Review your business criteria with the broker as he is best qualified to tell you if the business you are

looking for is available.

17. Check out every listing conceivably of interest to you.

18. Don’t ignore listing because sales appear too low, price is too high, or other terms seem out of line.

19. You have to inspect it to determine whether terms are acceptable.

20. Let the broker know why you decline a business.

21. Stay in constant communication with a broker at least every two or three weeks to remind him you

are a buyer.

22. Don’t forget new daily listings.

23. Always work through the broker on any new listing he presents to you.

24. A good broker can be a valuable intermediary between you and the seller.

25. Approach all brokers in your area. Don’t limit yourself to the largest and most active.

26. Start with brokers who specialize with your type of business, such as restaurants, liquor stores,

hotels, convenience stores, chemists, restaurants, etc.

Good opportunities are advertised.

• There are plenty of winners advertised in your local press if you just know how to read between the

lines.

• Try to obtain back issues of business papers, and observe over several weeks whether there is a

decrease in price or other sign of desperation that can lead to a no cash down situation.



• Look for words that provide clues - owner must sell or illness forces sale. Financing available, terms

negotiable or low cash down are usually signs of a highly motivated seller. As with broker listings you

should ignore quoted price and terms.

• Be analytical. Watch to see how the terms change as the business becomes stale. Prior ads tell you a

story and allow you to track seller anxiety and can provide a valuable negotiating tool.

Who wants a troubled company?

Many no cash down buyers are interested in a company with problems that can be picked up at a

bargain price, turned around and operated or sold at a profit.

If you want to try your hand at revitalizing a near bankrupt business:

1. Check the public records for companies with tax liens against them. Professionals dealing with

insolvent firms consider this a sure sign of financial crisis.

2. Contact auctioneers.

3. Contact court appointed receivers.

4. Contact Dun and Bradstreet.

5. Don’t overlook commercial banks and other lenders. They have many problem accounts that they

will encourage a no cash down deal if they think you will solve their loan problems.

6. You will find plenty of distress situations in newspaper ads and broker files.

Five sure fire sources of leads.

Trade and professional associations

Schools or colleges that train people in your target industry.

Accountants and attorneys usually know when a client is planning to sell.

Business opportunities journals. There are hundreds of businesses for sale nation-wide.

Don’t overlook your boss. Almost 20% of all buyers end up buying their bosses businesses.



Measure the earning power of a business

• Reconstruct the seller’s income statement to determine the accurate current pre-tax operating profit.

• Owner’s salary often inflated to minimize taxes

• Owner perks may be buried in other expense categories.

• Depreciation should be adjusted to reflect the actual depreciation in asset value each year.

• Review each line item until actual earnings have been accurately recast.

• Present earnings means current earnings not projected profits, because the seller can’t sell potential -

that is the new owners’ affair.

• Be willing to pay the seller only for the profits he delivers.

Eight factors that influence business value.

1. Supply and demand.

2. Nature of the business.

3. Risk

4. Down-payments

5. Financing terms

6. Motivation (how anxious the seller is to sell)

7. Personal goals.

8. Cash flow



LESSON 1 : Price is only a number

• An asking price can intimidate the untutored buyer who erroneously believes the business is beyond

his reach.

• Scan the ‘Businesses for Sale’ ads and you will encounter numerous businesses sporting

astronomical price tags.

• Whether £50,000, £100,000 or a £million, you might as well proceed to the comics, because you

cannot scrape together £20 to take your family out to dinner.

• Don’t be intimidated, price is only a symbolic figure, and does not mean the £100,000 will come out

of your pocket.

• In reality the seller is saying I want to receive the equivalent off 100,000. My business can generate

the cash, and your job as the new owner is to see that it does.

• Lets take a sample ad and test it in this light.

• Restaurant for sale. Sales over £500,000. Price £140,000.

• Let’s see how many ways you can create a financial pyramid and gradually build the £140,000, while

making use of somebody else’s money.

• How many ways can you stack your financial blocks to persuade the seller to lend you the entire

£140,000. On the other hand you could borrow £1 from 140,000 people to achieve the same goal.

• Five different buyers competing to buy this same restaurant on ‘No Cash Down’ terms might

construct five different financial pyramids to reach the £140,000. Let’s see what the formulas look like.

Buyer # 1

£75,000 bank loan secured by the business.

£40,000 seller financing.

£10,000 assumption of seller’s liabilities.

£15,000 loan from suppliers.

£140,000 total.

Buyer # 2




£30,000 bank loan secured by the business.

£20,000 investment by partners.

£140,000 total

Buyer # 3

£60,000 re-leasing of equipment and fixtures and fittings.



£3,000 from business broker.

£7,000 personal loan

£10,000 supplier financing.

£20,000 borrowed from business cash flow.

£140,000 total.

Buyer # 4


£40,000 investment by partners.

£140,000 total.

Buyer # 5

£60,000 bank financing secured by the business.


£3,000 loan from business broker.

£2,000 loan from business partner

£10,000 sale of certain business assets.

£10,000 personal loan.

£5,000 borrowed from business cash flow.

£10,000 supplier financing

£10,000 assumption of sellers liability.

£140,000



LESSON 2 : Build from the ground up

Elderly gentleman John was a typical seller: reasonable, willing to listen, but also concerned about

getting his money. We started by asking what financing was available if we agreed to pay the £140,000

for the restaurant. After some negotiation we agree on 5000 or £70,000.

Next question. Ask about the outstanding debts. This usually gets a sharp rebuke. But reason along

the following lines:

“Wouldn’t you, John, wind up with the same amount of money if the buyer assumed your debts

and deducted them from the down payment”.

John had to agree handing us another financing block of £30,000. We immediately locked the

‘assumed’ into place. Now we had commitments for £100,000 minus £70,000 through the Seller, and

£30,000 through assumption of liabilities. We still had £40,000 to get to the top of the pyramid.

One of the ways we could do this was to get John to subjugate his loan of £70,000 behind a bank

loan of £40,000. John would object to this naturally. However you could point out that we didn’t haggle

the price down to £130,000, and maybe even £120,000, but we will pay the full £140,000. But if you

secure a £20,000 by mortgage on the business, John, you will only have to pay the £20,000 to take back

the business if we default, which probably in reality represents the difference between the £140,000

and the reduced price of £120,000 you probably would be willing to accept. John agreed. It would be no

trick to get a bank to loan £20,000 with £140,000 business as solid collateral.

Our financial pyramid began to take shape

£20,000 bank loan secured by a first mortgage.

£70,000 sellers loan secured by a second mortgage.


£120,000

Having negotiated for half an hour we had already secured a hundred and twenty of the one hundred

and forty thousand, leaving £20,000 to achieve.

The top of the financial pyramid is in sight. The next step was to approach John’s suppliers, where

the owner ran a cash account. Ask for a 60 or 90 day account, which will probably give you another

£5,000, leaving you £15,000 to go.



The restaurant had two cigarette machines provided by a vending company, which earned John

£8,000 in commissions. If the vending company would advance John £5,000 he would extend a two year

concession lease, and the vending company could collect this amount from the commissions due to

the restaurant. Rather than risk losing the location, the vending company agreed.

The financing gap narrowed further. We now had £130,000 in place. But we still had £10,000 to go.

Quickly calculating the business grossed about £10,000 a week in sales, the buyer proposed that John

take an additional £5,000 out of receipts instead of paying it to creditors. This increased the assumed

liabilities from £30,000 to £35,000. For the final £5,000 the buyer said I will give you my personal

cheque, if your attorney will hold the cheque in escrow for a few days until the funds clear. The buyer

knew he could borrow the £5,000 he needed to cover the cheque from the sales in the restaurant once

he took over ownership. So the deal was struck and within two weeks the buyer became his own boss,

and reports record sales from his own restaurant.

Now let’s review the financial pyramid.

£20,000 bank loan.

£70,000 seller financing secured by the business.


£5,000 supplier financing.

£5,000 advance commissions.

£5,000 business cash flow to cover buyer’s cheque.

£140,000 total.



LESSON 3 : Ignore down payment demands

Pretend the words “down payment” doesn’t exist, because in reality they have no meaning when it

comes to structuring your 10000 financial pyramid. Here are two reasons why:

1. A seller quotes a down payment demand based on his perceptions of what is needed to

finance the deal, and the “financing blocks” available to finance the deal.

2. A seller quotes a down payment to tell what he wants to walk away with at closing, not to tell

you where your financing blocks will come from.

The words “down payment” means positively nothing except that the seller is trying to dictate

what must come out of your pocket to satisfy his or her idea of a financial pyramid. For example a seller

may put up his business for £150,000. He does some quick calculations and concludes that the buyer can

obtain a £50,000 bank loan and he could finance another £50,000 leaving the buyer to find £50,000. The

buyer may try to negotiate the bank up to £50,000. The buyer may assume seller’s liabilities of £15,000,

and give a cheque for £5,000 to be held for 3 weeks whilst the buyer collects the money from the cash

flow of the business. The buyer may talk the seller into a further £10,000 of financing making a £60,000

seller loan. The buyer may re-negotiate a higher bank loan with another bank to £70,000.

The financial pyramid will now look as follows:

£70,000 bank loan (increased from £50,000)

£60,000 seller financing (increased from £50,000)

£15,000 assumption of liabilities.

£5,000 from business cash flow

£150000 total.

If it doesn’t happen as mentioned above, then we just design another financial pyramid using still other

financial blocks that will be available. There are literally thousands of possibilities and accommodations

available to you. Perhaps another bank will lend £70,000 if the existing bank won’t. Whittle away at the

price using smaller financial blocks.



LESSON 4 : Make your own miracles

When dealing with this business, try brainstorming. Some of the ideas may seem stupid, but out of

it will come creative solutions. One imaginative man always came up with a barrage of possibilities.

Let’s sell stock in the company.

Let’s lease out the basement.

Let’s rent out the side wall and roof for advertising space.

Let’s sell memberships to everybody in town for £10 a member, where they would be entitled to

one free dinner for every dinner purchased. Imagine selling 4000 memberships like this.

Let’s sell off some vending areas.

And so on

LESSON 5 : The deal dictates the financing

Each deal will have different assets. For instance one business held patents and copyrights on its designs

and sold these off in countries and in various areas to others who wanted to manufacture and market

them. They also received undertakings for royalty payments which were bankable. Other businesses had

good leases in prime positions and were able to lease off concession stands. Others had a unique food

or food combination which could be franchised off. These are just some of the areas that could also be

looked at. All these ideas could be added to the financial pyramid.

LESSON 6 : Build a strong financial pyramid

The best financial blocks:

Provide the longest payback period.

Carry the lowest interest rates.

Require little or no collateral.

Demand no personal liabilities.



No one source of financing will display all these characteristics. Bank loans offer long payback

period, but require personal liability on your guarantees. Taking over seller’s debts ordinarily avoids

personal liability but may require a fast pay back and strain cash flow. Partnership funds overcome each

of these unfavorable points, but require you to give up equity in the business.

LESSON 7 : Can it really work for me?

Every approach to no cash down deals outlined above can work for you. Every case proves that

many others with no unique talent bought successful businesses without cash. There are thousands of

others who have landed their own business using the same ‘No Cash Down’ formula. But most

importantly you have to believe it can work for you. You have to do what many others have done and

that is practice. One man persevered, making 32 offers on businesses before he struck it rich with a deal

worth 2.5Million.

LESSON 8 : Example

RAISE £600,000.000 TO TAKE OVER A FREEHOLD

HOTEL:

- Cash flow £900,000.00 pa

- Hotel has two bars, 100 cover restaurant, well equipped gymnasium with sauna and swimming pool, 40

rooms, 2 x Conference rooms. Located in town centre with parking for one hundred cars.

£300,000.00 - l00% loan against bricks and mortar @ 10.00

£100,000.00 - Seller financing 7 years at 6.5%

£1 10.000.00 - Avelising @ ll%

£60,000.00 - Re-leasing of equipment @ 10%

£30,000.00 - Assumption of seller liabilities interest free

£10,000.00 - Business broker interest free for one year

£20.000.00 - Supplier financing at 0%

£20,000.00 - Borrowed from cash flow.

£5,000.00 - For one year’s advance rental for vending machines.

£9,000.00 - Lease of 25 car parking spaces in advance for the year

£8,000.00 - Sell 400 @ £20.00 memberships in restaurant

£60,000.00 - Sell 200 memberships in gym @ £300.00 on negotiable promissory notes

£8,000.00 - Sell combined parking/restaurant/Gym membership to 25 regs @ £320.00

£70,000.00 Investment by partners



£40,000.00 Bank loan 10%

£20,000.00 Lease out conference facilities in advance on

Negotiable promissory notes

£5,000.00 Sold right to advertise on serviettes & table cloths.

£875,000.00 Excess on requirement of £275,000.00

Average interest on this total amount is 5.88% or £51,500.00 p.a. £4291.66 a month

Referring to your professional adviser on all matters, use some of the excess funds to purchase your

second hotel or business using the same methods. Each method is different but each have in common

raising one hundred percent of the purchase price using capital from sources other than the buyers own

cheque book.

Here is another example of a cash pyramid. Put the biggest items in your pyramid first.

Seller Finance £40,000.00 Bank Loan Secured by business @ 11% £40,000.00 Assumption of seller’s liabilities @ 6% £20,000.00 Loan from suppliers £15,000.00 Investment by partners £20,000.00 Re-leasing of Equipment 7% interest £25,000.00 Loan from Business broker £ 3,000.00 Borrowed from business cash flow £10,000.00 Personal loan @11% £ 7,000.00 Holding Company shares to seller 2.5% £15,000.00 Sale of 400 memberships @ £20,00 £ 8,000.00 Lease out Kitchen after hours for 6Months £ 4,000.00 Start selling x 2 Franchises across country £50,000.00 Sell advertising 2yrs on Table Cloths/Serv £ 3,000.00

TOTAL £260,000.00



Engineering concern producing Trelli Dor Security gates and specially developed opening and closing

gates for driveways and factories etc. Both items are patented. The asking price for the business is

£550,000. It has a turnover of £1,250,000.00 and a net profit of 20%. Assets, including machinery and

trucks are valued at £180,000.

Seller Finance £150,000.00 Bank Loan £110,000.00 Re-Finance of Equipment £100,000.00 Assumption of Seller’s Liabilities £ 90,000.00 Loan from Suppliers £70,000.00 Partners 20% payment £110,000.00

Seller receives 300 in holding Company valued at £800,000

£80,000.00

Borrow from business cash flow £40,000.00 Personal Loan

£10,000.00

Loan from Business Broker £5,000.00 Sale of 2 x Franchise/Royalty/Manufacturing rights £110,000.00 Sell Manufacturing/Franchise/Royalty rights into foreign countries

£110,000.00

Discount bills for 6 months guaranteed royalties @ 80%

£ 50,000.00

Rent out storage area £ 10,000.00 Sell all 7 x Installation trucks to new Sub-Contractors

£30,000.00

Sell all 4 reps cars to them £28,000.00 Total £1,103,000.00

Key Points

• Anyone can buy with no cash down once they know how.

• Price is only a number - you reach it with creative financing.

• Build your financial pyramid one step at a time using everyone else’s money.

• No two deals are alike.

• Match the financing to the deal.

• Design your own pyramid - sellers do not think in no cash terms.

• Always start from the ground and work your way to the top.

• The seller can receive his money with no cash down deals.

• Use creativity to find your building blocks.

• The no cash down formula does work if you believe in it and effectively use it.



Men from the East

These are people who you may appoint; who go in to make offers on a business or property that may be

overpriced. This way you can test the lower levels of the price the seller is willing to accept without you

being present. It is also a way of physiologically getting the seller to accept that he will be getting a

lower price. When you come in and offer a slightly better price than all those who have gone before, but

lower than the seller was originally asking, he will probably be primed to accept.



Financial Tools

Financial tools are about creative finance and can be anything that furthers your case to acquire or take

control over a business. The following extensive list is by no means the end but the beginning. Day after

day people come through to ask me whether an idea will work. Whilst it is difficult to make an off the

cuff decision, my answer is always to try it.

Two Name Paper or Guarantor

Bankers love this because they have two signatures to back up the loan, consequently the banker is

more certain of getting paid. Get a supplier or your seller to sign. The seller could be one of your best

people to get to sign the paper after all he will receive any money that is coming to him, plus he will

have guarantees in respect of the business. Recently one of our delegates took over a business and

obtained such guarantees from the seller. If the seller wants to sell then he is going to have to consider

signing to help smooth the way to a sale.

LIC (Letter of Credit)

In a letter of credit the lender substitutes his credit rating for yours.

L/C’s come from:

Commercial Banks.

Export - Import banks and lenders.

Commercial finance firms

Factoring firms

Certain government- sponsored banks abroad (especially export)

Private lenders of various types.

A letter of credit from one of the above sources can enable you to move quickly when trying to close a

deal. It can be almost used like cash because the seller can anticipate actual cash in the event of you

defaulting. This instrument will give you a big advantage over other buyers because it will impress the

seller and his assistants and as a result will add credibility to your dealings.



Factoring firms

Certain government- sponsored banks abroad (especially export) Private lenders of various types. A

letter of credit from one of the above sources can enable you to move quickly when trying to close a

deal. It can be almost used like cash because the seller can anticipate actual cash in the event of you

defaulting. This instrument will give you a big advantage over other buyers because it will impress the

seller and his assistants and as a result will add credibility to your dealings.

Visit Your Banks.

If you want to be a deal maker you should be in front of the bank manager doing presentations up to

90% o of the time. Try another approach. Instead of asking for a loan say ‘I am looking for a financial

partner to take our business onto the next step in it’s development’. ‘I do not want a deposit

relationship. I want a full relationship with the bank which includes overdraft facilities, foreign exchange

and leasing plus I want to attend your various functions. The functions will enable you to strike up

relationships and therefore contacts with people that the bank regards as important to their business.

Always Use The Correct Bank

One of the most helpful financial tools which we can recommend is the ‘Money Facts’ Monthly

Handbook of Business Finance (UK only – locate a similar type of publication for your country). It is

important that serious LBO players take a subscription in this magazine because it clearly lays out what

type of loans the various banks are involved in. For instance if you wanted to make a loan on a garage

you would be able to find out which Bank during this period regards it as their favourite type of

business, or which bank will give up to 100% loans on nursing homes during this month. All this is clearly

laid out in ‘MONEY FACTS’ in respect of the main categories of business. This type of information can

help you stop wasting time doing presentations to banks which will not under any circumstances do

business with you during that month, because what you want to open doesn’t fall into their loan criteria

for that period. What must be understood is that the situation changes month to month, so you will

need a subscription.

To Make Money You Must:

Get control of a sum of money.

Make good choices as to how you will use the money

Pick profitable projects.

Keep constant watch over the project in which the money is employed.



Ways You May Get A Loan After Being Turned Down.

Get a friend, business associate relative or seller to co-sign your loan application.

Get a professional co-signer to co-sign your application

Borrow collateral such as stocks, bonds, real estate, etc

Rent collateral from firms wanting a better return.

Get and use a contract for future payments as collateral for your loan.

Get a lender to guarantee your loan so you can borrow more from others.

Obtain a second mortgage on property to get a 100% loan

Bankers Acceptances/Avelising

A Bankers Acceptance is a promissory note which you give to the bank when they loan you money. The

bank in turn sells the note to a depositor, person or firm. Lets say you borrow £50,000.00 at 12%

interest. Then the bank sells the note to a depositor for 119 days @ 1000. The bank keeps the difference

in interest of20o in this case, and gets back it’s £50,000.00. which is loaned to you from the depositor.

Thus the bank has it’s £50,000 back and can lend it to someone else. Bankers call this making money on

money. You get into Bankers acceptances through your local bank. If you are happy to pay the interest

the bank will usually be happy to roll the loan over.

Holding Company

Offer the seller shares in the holding company. You must sell the dream by showing him how you intend

to grow the business fast with the object of taking the whole thing onto the stock exchange in three

years at which time he will walk away with big money in his pocket. Giving away equity which costs you

nothing or very little, but it can help you take over huge businesses for little if he goes along with your

proposition. For instance if you did not have a portion of the money to take over a business you could

offer the seller 500 in your Holding Company if it was valued at say £100,000.00, to satisfy his

requirement for a £20,000.00 payment which you don’t have.

See end of this manual for an example of a holding company.

Here are some good reasons to borrow money.

Speed

Interest is usually tax deductible

Much less work

Help others by putting the money to work

Thousands of money sources

Get more later

Pay off time can be extended

Loan costs are low

Little or no selling is needed



No fees are required by most lenders

Financing is possible.

Loans carry built in motivation

Loans can be used in almost any business

Borrowers are welcomed by the best of lenders

Getting Money from Tax Haven Lenders

Use offshore tax havens. Successful people often have access to funds the normal person seems to

ignore. The tax havens are a logical choice because volumes of money are deposited with them and it

has to be used so that it can attract interest.

Getting Money from a Tax Haven:

It is estimated that on the Netherlands Antilles there is up to $450 Billion lodged in the banks. It is

currently estimated that there is more money going through the Cayman Islands than New York on a

daily basis. With this type of money available they have to have a use for it in order to generate interest.

Major libraries usually have copies of the Bankers Almanac in which you can find out all the major banks

in the world.

Getting Money Off-shore:

Is often easier than from local sources.

Can be faster than from local sources (but isn’t always)

May be easier for unusual products

Usually involves fewer people.

Can usually be done via mail or cable.

There Are A Number Of Major Tax Havens:

The Cayman Islands

Nassau, The Bahamas

Bermuda

Panama in the Canal area



Liechtenstein

Switzerland

Certain Pacific Islands

Jersey

Nevis

St Kitts

Get A List Of Tax Haven Banks And Financial Institutions

• Write to each tax haven institution outlining your project and the amount of funding

needed.

• Give details on how the financing is to be repaid, and the timing of the payments.

• Furnish details on who you are, your experience and the accountants, lawyers and other

people who will be assisting you.

• Supply photos, drawings and other data that might help in their decision.

• Always find out if the lending institution you are approaching is in lending mode and what

their preferences are.

• Most tax havens will not deal with loans of under £100,000

• Real estate and other business loans are the only types of loans considered by havens.

• Be business like in all your dealings - it can mean acceptance.

Negotiable Promissory Notes

Have a lawyer draw up your first Negotiable Promissory Note. Supposing you want to sell a

service or item for £1,000.00 . To speed up sales offer the client to pay $100.00 in cash then

allow him to pay over a year or two. Take the note/bill to a discounter and he will pay you up to

80% of the face value.

What are Emission Rates?



What does Emission mean?

It means that if you borrow £100.00 you will only get £92.00. The higher the emission on your

loan the more money you get.

00 £

98 98

96 96

85 85

How To Borrow Money Without (It Collateral, Credit or Capital?

• When you don’t have money you need co-signers. These can include friends, relatives, other

businessmen or you can find them by placing an advertisement in business magazines, national

and local press or the internet.

• Start looking now before you need the money - it helps.

• Don’t wait until you need the money.

Venture Capitalist

Make bigger loans and are usually companies

The British Venture Capital Association

Essex House 12-13 Essex Street London WC2 3AA

Tel 0171 240 3846 Fax 0171 240 3849

Business Angels

Make smaller loans and are usually individuals.

Private loans for business loans for your deals.

Try private lenders. Offer them a better rate than they can get from the bank. You can offer them

security by Avelising (see Avelising). Avelising will cost them a few percentage points but because of

Avelising the return of their money is guaranteed by the bank.

Commercial Bank

*Definition of a commercial bank



Commercial banks are designed primarily to finance the production, distribution and sale of goods

i. e. to lend short term funds as distinguished from the service of lending long term or capital funds.

Compensating Balance Provides Great Leverage:

Encyclopedia of Finance Definition

Compensating Balances connection with the extension of credit to a borrowing customer, the

customary practice of commercial banks is to require an average balance of usually about 200o of the

amount of the loan. Thus, when a loan is made to a customer ‘s account, the customer may draw up to

80% of the amount of the credit.

The usual ratio of loan to deposit is 5x the deposit at the bank. For example £20,000 x 5 £100,000 loan.

Sometimes this figure can go as high as x 10.

Loans From Private Lenders:

1. Can be obtained faster

2. Will usually cost you little more

3. Are short - 5 years at the most strain on cash flow.

4. Seldom involve credit checks

Are mostly for real estate, however Avelising can increase this percentage can range into millions.

Here Are A Few Loan Hints

• Find out what the loan companies preferences are

• Pick your lender based on the type of loan you want.

• Identify the name of the chief loan officer with whom you should be dealing.

• Write a full history of yotir business. Do future income projections. Otherwise have a pro-forma

statement done by your accountant.

• Apply when you are ready. Negotiate all the terms such as the amount, the term and the

interest rate.

Time deposit method.

This is one of the most helpful of tools. This is where a lender, who takes no risk, deposits an amount of

money in a savings account. This money is put there purely to boost your credit rating. It is not an

“offset” against your loan. It is there purely to enhance your credibility. Also you assume no

responsibility for this amount. However it may enable you to get the loan you are seeking.



Advantages of “Time Deposit Method”

1. No contract is needed for deal

2. Charges made are usually tax deductible.

3. The loan can help you expand

4. Your credit rating remains high

Types of properties Insurance companies prefer:

• Farms

• Blocks of Apartments

• Commercial structures

• Leasehold properties

• Industrial factories and buildings

• Garages and parking structures

• Office buildings and industrial structures

• Motels, hotels, and recreation centres

• Chain stores and gas stations

• Hospitals and nursing homes

• Churches and synagogues

Take a second mortgage or re-mortgage your property.

Easiest way to raise money quickly. Never forget your home as a source of funds.

The best finance “Open ended loan”

An “Open ended loan” is where the lender approves a loan for more than you originally requested.

For instance if you want an amount of £150,000.00 but the lender approves £200,000.00. This can give

you wonderful flexibility.

Blanket loan

This is a loan that covers the property. Let’s suppose you have six buildings, roads, a dam and a mill on

the property. You will be able to use this loan at your discretion. This makes it much

easier. These different types of loans help make it easier for you to understand that there are many

types of loans you can negotiate for.

Standing Mortgages to help you make money in real estate. A standing mortgage is one that is paid

off over a number of years. The capital amount is not paid back until the end of the

loan. Supposing you had borrowed £100,000.00 at 80o then you would only pay the interest at

£8,000.00 per year. At the end of the last year you would pay the £8,000.00 plus the £100,000.00 or

you would re-negotiate the loan. You would either then pay more or less interest on the re-negotiated

loan.



THE IMPORTANT POINTS ABOUT STANDING MORTGAGES ARE:

YOU ARE BETTER OFF BECAUSE YOU HAVE:

• Control of an income property which earns money for you, while

• You probably have not put up any cash of your own but you are getting income, while

• Your payments (usually only once a year) are low, compared with your income, and

• Your property can be going up in value during the term of the standing mortgage, and

• You get income-tax deductions for the interest you pay out, while you also get

• Depreciation deductions, further saving you on your income taxes.

Where will you flit d such mortgages:

• Insurance companies

• Private lenders

• Look in the Yellow Pages

• The reference section of the library

• Attorneys

Tap one of the largest Blocks of money in the World

Where are the largest blocks of money in the world today?

Many people think that they are in the Arab world - Morocco, Algeria, Libya, Egypt, Sudan, Syria, Jordan,

Iraq, Iran, Saudi Arabia, Oman, Dubai, U.A.E, and Sana’ a. So would it be possible for you to get any of

this oil money for your business? Yes, it might be possible - if you approached the organisations by mail

and presented them with:

• A good business description

• Estimates of future income and profits

• A statement of the amount of money you need

• Plans and timetables for repaying the money

To start your search for oil money, take these lucky steps now and watch the results you get:

• Get a list of Middle East and North African banks

• Decide which country might like your business deal

• Write to all the banks listed for that country. Go to your main library and get the names, fax

number, telephone number, address and main officers in the bank from the previously mentioned

‘BANKERS ALMANAC’

• If you don’t get the results you seek try another country



• Keep trying until you get the money you need

Getting Arab loans often requires:

• A local partner in the state concerned

• He will help you with local laws, customs and procedures.

• The partner only gets a fee

• You can get names of suitable agents from the banks

• Don’t change agents.

• Pick your agent carefully

Don ‘t forget, you can get lists of foreign banks in the reference section of the library In the U.S alone

there are over 10,000 banks. The total worldwide figure is far higher than that. You will consequently

have a far better chance of raising the loan you want even if you fail locally.

3 steps to loan success

• Leave the amount out of your application.

• Allow the loan officer to suggest what the loan should be.

• Always be courteous even if your application is turned down. It is not unknown for the bank to

return and offer the loan. But if you burn your bridges with a bad attitude they won’t.

Suggested projects:

Income producing real estate

Manufacturing plants making important products

Transportation, shipping and airlines

Banking and other credit services

Wholesale and retail food

Printing businesses

Big shopping centres

Manufacturing firms needing expansion cash

Office buildings.

Bring together the money sources and guarantees

• Find out how much you need

• Get names of suitable lenders.

• Ask if the bank or loan institution you are dealing with are in

lending mode

• Ask the lenders if they loan on your type of project and how

much they will loan

• Learn what guarantees they want

• Take steps to get the security they want



• Think of ways to get the security they need

• Use unusual and offbeat ways to get the security.

Suggested sources of guarantees

• Banks Avelising

• Commercial lender or finance co.

• Loan company

• Individual with a job, business or assets

• Insurance companies & Pension funds

Why do the above want guarantees?

• Making a guarantee doesn’t cost anything

• It requires no outlay in cash with a safe loan a guarantee is never enforced.

Five steps to obtain a guarantee.

• Prepare a short description of the business, say a page at the

most.

• Project the turnover for five years

• List all the expenses you anticipate over the next five years.

• Briefly describe your experience and any associates. If

management is in place briefly describe their experience and

qualification.

• List the money you will be requiring over the next five years.

Get the seller to guarantee your financing

He is the obvious person to do this since if he is a motivated seller he could prove to be the easiest mark

because he has faith in the business as he knows it best plus he will be the one who will be receiving any

payments from the sale. He will also be receiving the business back if things go wrong so he has least to

loose. The other great advantage is that his guarantee will cost you little or nothing, where others

supplying the same guarantee could cost you up to 1500 and more.

Second mortgages over property

Raise a second mortgage over property to make up a shortfall in funds. This is OPM (Other peoples

money). Because you are using money which belongs to others.

What can creative skills achieve

• Makes you the owner on a going business for signing a few papers.

• Gives you a big income fast, maybe in a couple of weeks



• Allows you to pyramid your wealth into new profitable projects.

Debtors

Debtors can be discounted with factoring houses. It may be worthwhile to come to an agreement that

you collect his debtors for a fee after he has handed over the business. The fee can be used to offset the

purchase price.

Asset Development

Where one is short of collateral why not place an advertisement in the paper ‘LIVE RENT FREE’ Phone

Offer applicants a rent free situation provided you can use their properties as collateral. To sweeten the

deal you may have to offer them a better than usual rate. So if someone owns a property worth £250K

with only £30k outstanding then the £220K may be acceptable to the bank. If you want £500K then you

may require two or three properties.

In the case of the £220K you may be able to offer him £1800 a month. You may also offer these people

equity in the business. Other sources of Assets that can be used Luxury cars, Boats and aircraft. These

items are usually slow to move, especially in a recession. To offer to pay the loan costs or a monthly fee

may be worthwhile for the owner to participate.

Bartering: The easy option?

Under certain circumstances one could join in a barter deal. This could be for exchange of assets, goods

or services and is designed to overcome a short fall in the price. For instance one may be short of

£10,000.00 to make up an overall price of £200,000.00. It may be agreed that you will give a car,

caravan, land, shares or some service of equivalent value to make up the shortfall.

Raise Loans against anything you have

Raise funds by refinancing things that are paid up. This includes cars, planes, antiques, yachts or

anything that has value that will raise the funds to close.

Self-Liquidating Loan.

This concept is rarely used but can be useful if you have deals in excess of £10Million. Here you ask the

seller to raise a line of credit against his business or some assets. The funds are lodged in a blocked

account. They are then put into a program. These programs have high returns which mean than in 180

days a large part of the original loan can be liquidated. If the final payment can be delayed till after the

end of a year. Experience has shown that the right program will completely liquidate the loan and the

asset may be free and clear. The seller has to play a full part in this program and be kept fully informed.

It requires the purchaser to identify a valid program that gives proven results.

Different types of financing between businesses

1. Negotiation of extended credit from say 30 days up to 90 days or more.



2. Consignment stock which is only paid for when sold. Even organise this payment for 30 days or more.

3. Inventory sold with a trust receipt which may or may not bear interest.

4. Inventory supplied using a trade acceptance . This usually bears interest.

5. Your accounts receivable financed by the supplier.

6. Inventory sent to you and secured in a bond warehouse until drawn.

7. Your accounts receivable financed by supplier through a factor.

8. Supplier lends equipment to you.

9. Supplier leases equipment to you

10. Supplier sells you equipment by financing it over a long period

11. Cash loan to you to supply goods from supplier, or supplier co-signs note on a loan.

12. Short term note to you

13. Term note to you

14. Term loan to you for any business purpose.

15. Cash investment in your business by the buyer.

16. Sell off of site in shop.

17. Rent out shelf space in supermarket to suppliers. They pack their own shelves.

18. Outright purchase of the entire business.

Professionals know a bank views the loan application based largely on these three points:

1. Character. Do you have a history of good credit?

2. Cash Flow. Does the business offer sufficient cash flow and profit after expenses to pay back the

loan? You may have to prove the numbers work.

3. Collateral. What collateral is there if your loan goes into default? Will the bank have sufficient

collateral to recover the balance owed.

To overcome these concerns draft your own professional loan proposal.

1 ) Credit and Personal History (character)

Name and Address

Family status



Employment history

Experiences in related business

Education

Personal assets

Personal liabilities

Military status

Bank References

Credit References

2) Financial information on the business (Cash Flow)

Brief Description of the business

Brief history of Business

Tax returns for two years

Projected cash flow statement for loan period

Summary of proposed business changes

Lease or proposed lease terms.

3) Collateral

Business Assets

Acquisition cost or replacement cost.

Liquidation value of assets

4) Proposed Loan

Amount required

Loan period

Interest Terms

Identification of Guarantors

Collateral to be pledged.

Addressing these points provides the banker with everything he needs. When you present him with this

information he knows he is dealing with a professional. Have your accountant prepare the financial

information. He may feel more comfortable with this. Make sure the numbers work. If your loan

requires payments of £2,000.00 monthly and your cash flow shows only £1000.00 being available then

your application will fail.

When the Bank says “NO”

Find out if you can what the flaw is. If it is terminal, drop the idea of buying that business. If you still

believe in the project, try and find out what they feel the problem is. If not, get together with your

accountant to see if he can detect the flaw in your proposal. Then if he gives the all clear hawk it from



bank to bank. If you still get turn downs talk to professionals in the industry. Push all your bankers for

reasons why. The project may be a lemon so best to get out of it. Go onto something else.

Negotiate the best loan terms.

1. Interest

2. Demand the longest loan period possible

3. Pledge only the business assets as collateral

4. Don’t falsify your loan application.

5. Don’t grant additional collateral.

6. Don’t borrow personally

7. Don’t settle for the first loan offer

How to borrow a Down Payment from a bank

Down payment loans are short term. Never disclose it is for business. They turn you down every time.

Why? Because they are conservative and believe that a business buyer should invest 40 to 5000 of their

own funds towards the selling price, Of course if every entrepreneur followed such advice then some of

our huge industries would not be here today.

The reasons you need a personal loan:

1. You need cash to remodel your house.

2. Your wife needs plastic surgery

3. You are going back to school to get your master’s degree.

Should you need a bigger loan:

Try multiple loans from various banks.

Be ready to pledge personal assets: Stocks, Life Insurance, Automobiles, Bank books

Persuade friend or relative.

If you borrow say £30,000.00 to purchase your business, repay yourself as soon as possible from the

cash flow and take the money and pay off the loan. Once you have achieved this you have done a ‘no

cash down~ deal. 30 day loans are a form of Bridge financing

Repay them from the business cash flow by-

• Selling off excess inventory/stock

• Ask the suppliers for 60 days

• Defer your own salary.

Points to remember



• Seller Financing beats bank financing

• Banks are all different. Try and match your deal to the right bank.

• The three C’s - Credit, Cash Flow and Collateral.

• Know how to structure a deal and you should achieve 10000 financing.

• You are worth more than you think. Your signature may get you the money you want.

Partners?

Only take them on if you know that they can handle problems. If they are difficult to deal with before

becoming a partner you have no idea how bad things can become when they become a partner.

Professionals in the industry could be a better bet.

To find capital:

• Put your lawyer and accountant to work

• Advertise in ‘capital needed’ columns.

• Promote your deal. Tell everyone.

• Beware of little old ladies in Tennis shoes. Not a good idea.

Their investment objectives rarely tie up with yours.

• Avoid close relatives.

• Run away from emotional cry babies.

• Hunt successful retirees who have succeeded in the same type

of business.

• People who benefit from your business. Suppliers.

Positive elements a Venture Capitalist looks for:

• Marketable product with long term need.

• Management team should be successful! professional in their

approach and have solid business backgrounds.

• Entrepreneur should be willing to invest in his own venture.

• Business plan should be realistic.

Going Public

Sell shares on the aim market and make millions. This is a whole section by itself and you should contact

the aim market for details.



How to turn a seller’s nightmare into a dream business?

There is no such thing as a “bad” business. Just bad management. Recently we were called in to see a

shop whose owner was approaching 70. Even if he wanted to close the business because

of lack of a sale, he couldn’t because he had a long lease on the main shop which he would have had to

pay. The business was very busy and had footfall (customers) in the shop which was ongoing and

surprisingly busy. Outside deliveries were an unexpected plus, yet the business was not making the

profits that it clearly should be making. The outside deliveries were a growing side of the business. The

customers visiting the shop had decreased. He was not doing any outside promotion other than Yellow

Pages. It had an annual turnover approaching £600K per annum. On looking around, after having asked

the owner many questions about the business and after having taken copious notes we went away to

consider the proposition.

Firstly the owner was by his own admittance past it. He desperately wanted out but had had no

offers to buy because it was considered too complicated. He was willing to do a deal with the devil. He

had reduced the price to this end. First and foremost he was running a split operation. His best staff

were located in the other small business which was situated at other premises about 150 yards away.

His main business consequently had had to employ more inexperienced people and a manager to help

him cope. The shop floor was over stocked and looked overcrowded. A basement area which could

easily have been used for sales and display was being used for stock. He had a large office upstairs which

could have been used for stock and later on as the business developed also used for display. He had a

further room to organize the deliveries. All these rooms were short of shelving.

He had good contracts and a unique business concept yet he was not developing it because he

had enough. Our decision was to close the smaller shop and leave a sign together with a map in the

window showing the way to get to the other shop only 100 to 150 yards away.

Offer better discounts on the college books as a result of the savings affected by closing

the smaller shop. Move all the stock from the smaller shop to the downstairs basement

area.

Reduce staff by two. Also move a portion of the overcrowded stock in the main shop

down stairs.

Include some seats and chairs in the now less crowded shop, so that people could brow

se in some comfort.

Inaugurate a monthly promotion campaign to existing clients and take more names as

clients come in to include on the database.

Activate a Web site and promote it on every promotional piece including invoice and

Yellow Pages.

Focus on boosting the growing delivery side of the business.

Re-negotiate the shop rent with the landlord.

Put spot lights in the window to attract attention.



Introduction of more profitable lines.

These were just a few of the changes which would not only enhance turnover but increase profits

significant. But the most important thing was to let the present owner out because he wanted no more

of the business.

Three proven ways to detect if a company is in trouble:

1. Visible signals

2. Financial Statements

3. External Information

What to look for:

• Shortage of stock

• Slovenly attitude

• Abrasive to customers

• Offhand attitude by staff.

• Manager/owner never at business, always to be found at the race track or pub

• Business located in wrong area. Acquire it for pennies, relocate to a better locality and sell it for

a huge profit.

• Illness and human weakness can destroy a business

If you have a business problem rarely can you rely on your accountant or Lawyer to help.

For example in one of my businesses I was doing a huge turnover, but the costs were starting to exceed

the cash flow. The accountant had no remedy, but confirmed that I had paid and got in more stock than

I needed. My answer was to redesign a new structural system which saved me £60,000.00 per month.

I threw out pop rivets and their guns and compressors and replaced them with self tapping screws. This

also saved on drill bits. I also changed the way I was advertising which saved me another £30,000.00 per

month. I changed the way my product were painted and saved on twenty staff. The new structural

system saved on 50 staff plus we started to supply agents and franchisees throughout the country. All

this returned my business to huge profits monthly and enabled me to clean up the opposition. The

lawyers and accountants could not advise me on these things. They could only confirm thai the historical

books were correct at the time. They were amazed at how I turned the business around.

What me in trouble? This is the best business since sliced bread?????

Very few business men will admit they are in trouble. Don't therefore try and back him into a corner.

Many have tried to. Rather flatter him. Build him up. Make him eat out of your hand. Tell him how you

want to build on what he has already done.

If a company has £ 150.000 in assets and £ 150,000 in liabilities



What should you pay the business? Clearly £L

Put Cash In His Rocket.

Offer him payments over a couple of years, even offer him employment.

Formula for takeover of problem companies

1. Calculate outstanding debts.

2. Agree to accept debt for all or part of the purchase price.

3. Leave the seller where possible as the guarantor to the debt as well.

4. Supposing the debt in a business is £150,000 and the assets add up to only £100,000.00

5. Who wants it?

6. Reduce the debt to £30,000.00 through negotiation with creditors. Along the lines. If we let the

company go bankrupt you may get £5,000.00. If you allow me to continue you will get this

£30,000.00 over the years.

7. Alter paying the creditors you still have a business worth say £70,000.00. Raise a loan against

this. So you still have equity in die business of £40,000.00.

8. To back up your belief of what the assets are worth find an auctioneer to give an assessment.

Points to negotiate on

• Price

• Business assets to be sold

• Duration of Financing

• Interest on notes

• Security for notes

• Personal guarantees on notes

• Sellers agreements not to compete

• Assumed liabilities

• Brokerage commissions

• Closing dates

• Leases Of the seller is the landlord)

• The seller's guarantees.

• % financing by seller

• Duration of seller financing

• Assumption of sellers debts

10 rules for successful negotiations



Investigate seller position:

• Find his motivation why does he want to sell?

• Identify his problems and pressure points.

• Always bargain from his point of view.

Say ‘I can see your problem’ ‘Looking at it from your point of view’ ‘How can we make this deal fit with

your needs, do you have any ideas?’

LISTEN DON'T TALK

When you listen you pick up valuable clues. When you talk you tip your hand. Encourage the seller to

explain his situation. Ask questions. Draw your opponent out. You will not only receive information

useful in negotiating a better deal but helpful to improve your relationship.

DIVIDE AND CONQUER BY ADDRESSING MULTIPLE ISSUES ONE AT A TIME.

Where multiple issues exist or where multiple problems exist, separate them and discuss and resolve

each individually. Larger problems become more manageable when divided into their smaller

component parts and each part can then be considered individually.

ADDRESS EASY ISSUES FIRST AND PUT PROBLEM ISSUES OFF UNTIL LAST.

Don't get stalled on one particular issue or on one aspect of the deal which is the most difficult to

resolve.

WORK WITH THE SELLER TO CREATE A JOINT SOLUTION

Encourage the seller to participate in the proposed solution.

Draw him into die process. Work with him to identify the problem. Ask his advice. Literally work

together with the seller so both parties can feel an ownership in the solution.

PUT YOURSELF W THE SELLERS POSITION

Consider the seller's point of view. Does your proposition satisfy his needs, goals and objectives? What

are the alternatives to satisfy those needs and thus create an acceptable deal for the seller as well as for

yourself?

DE VEL OP MUL TIPLE SOLUTIONS

Walk into negotiations with all the possible alternatives in mind, but don't rely on your solutions alone.

Ask the seller for his idea on the processes for resolving issues you cannot resolve between you. Neither

you nor the seller should be limited to your own solutions. Brainstorm with advisors and associates until

all the possible solutions are explored and discussed.



DEAL ONLY WITH THE DECISION MAKER

Don't engage in two step negotiations where your opponent later clears e\cry point with a partner,

attorney, spouse or other alter ego. Find out in advance whether your opponent shares your authority

to make a deal and if not insist that the decision makers be present at negotiations.

BE PATIENT

Make the element of time work for you, not against you.

If you suddenly have a sticking point in your negotiations

If suddenly you find your seller sticking on one point, leave that subject immediately and go onto

something else. Get some more yes's. Then return to the original sticking point. If he still seems to

object once again go onto something else.

Keep doing this until he accepts this one original sticking point. If he still digs his toes in then you will

have to face up to this one and handle it. Start out by reviewing yours and his progress. Point out all the

points of agreement and try and depreciate the significance of this problem in view of everything else.

Holding companies the best of free assets.

The big businesses such as I.C.I. American Express or B.A. simply swap pieces of paper called shares.

Such equity is a painless way of taking over any business. The argument usually revolves around the

value of the shares that are to be swapped. This will of course affect the proportionate share holding in

the holding company. For instance if I wanted to purchase a company valued at £100.000.00 and 1 was

£20,000.00 short, I may offer the seller a share in my holding company which will be worth in the near

future £10 million making the present shares offer to him for his business valued at say £200,000. This

would be a tenfold increase and it could happen in two years.

This is how it could work.

Assume that we have negotiated to a point where we have £20,000 outstanding on the deal. The seller

has already been appraised of the fact that you have your money tied up in high performance

instruments off shore for the next six months giving 20% monthly return on your capital monthly.

Reluctantly you will allow him to have 10% of your conglomerate with an issued share capital of

£10million which within two years will be worth £1 million.

The £20,000 will then be worth £200,000 as you keep on taking over businesses during that time. He will

therefore have a tenfold increase in his money.

You have got to give him the confidence that you can do what you say.

This usually emails giving him only enough information to whet his appetite and holding your council on

details which could frighten him away from your proposals.



NATURALLY YOU WOULD NOT PROPOSE SUCH AN ARRANGEMENT IF YOU WERE NOT SERIOUS SO

THERE SHOULD BE NO PROBLEM. HE SHOULD BENEFIT AS LAID DOWN IN YOUR PROPOSAL FOR HIS

PARTICIPATION IN THE HOLDING COMPANY.

ACCOUNTS RECEIVABLE.

Where a seller has accounts to collect after the transfer make it a part of your deal that he allow you to

collect his outstandings for a fee of say 10% or 15%. If he has £40K outstanding then contact a discount

company and find what they would charge for a loan against these accounts. They might offer you an

emission rate of 85%. You would therefore have an interest free loan of £40K x 0.85 = £34K. Interest free

because your seller is paying you a collection fee of say 15%. It may not always work out this way. He

may only offer you 10% and the loan fee may be higher or Emission rate may be less.. The important

thing is that you will have access to this money in the short term.

As the money is collected the seller receives his share less the 10 or 15% collection fee and you pay the

loan company from the money you borrowed. You may be able to replace these repaid accounts with

others and keep your balance at a constant level thereby letting the business pay for your Loan. Always

check up with your accountant to make sure that you are not getting into financial trouble. Make sure

that your accountant doesn’t have a knee jerk ‘No’ response to everything you suggest. Many have

found that this is a problem with their present accountants once they start creative financing

techniques. Replace him with some one more open minded if in your opinion he is cramping your new

style of doing business.

BE PREPARED TO TAKE A WALK.

Don’t become emotionally committed to a prospective acquisition. You defined your limits on

acceptable terms before you started negotiations and if an acceptable deal cannot be reached, be

prepared to walk away.

Life insurance can finance your business

Use your policies to back up loans. Insure your life for the value of your shares

The Gradual Take Over

Staff take the business over from the retiring owner. This usually entails the owner allowing a reliable

staff member to take over the business over a number of years, paying him back out of a share of the

profits.

Lease a business - a new take over trend

Service businesses are ideal for this type of take over because they have few if any real assets. Banks will

not fund businesses with only goodwill.



Less control = More Control

More control is less control - The case for many branches.

There are many examples of this. Who has more money and time, the man who has one shop or the

man who has twenty? He runs his businesses through a series of managers who have to give him

weekly, monthly, quarterly and yearly reports. A glance from these reports will give you the picture of

that business when related to the rest of the businesses or branches in the group. For instance if bad

debt for the group were 2.500 then if one of the branches showed up on the report as being at 500, the

local manager would be told immediately what he must do and when by. He will do it to keep his

position in the group and his career intact. The businesses will be trading across a spectrum of successful

and poorer areas. This way, optimal trading conditions can be developed.

Careers to keep staff the secret of business success.

Grantors promotes businesses at the door. I asked one of their directors how he kept their staff at such

a difficult job. He said give them a career path. The banks do this and get away with paying their staff

little. The retailers have done the same thing.

So at the bottom of the pyramid is a huge lowly paid staff. Towards the top you have a group of better

paid individuals and at the top comparatively well paid people. But if you had to average the total salary

bill and divide it amongst all the staff the average pay package is low. Things might be a bit better now

for individual staff, but that is only because the banks have cut their staff substantially. The banks, big

retailers, post office and franchisers have epitomized the maxim of less control more control. This is true

because the directors and shareholders often never see a branch yet it runs successfully.

Why bring all this up? Because No Cash Down enables you to buy many businesses.



A synopsis for sources of money

Building societies

Insurance company

Commercial Banks

Investment Trusts.

Insurance Companies

Lawyers

Pension Funds

Individual Lenders including sellers

Mutual funds

Conventional Mortgages

Family Loans

Insurance policy loans

Employer backed advances

Finance companies

Personal loan companies

Second mortgage

Car Loans

Asset Finance

Line of Credit (usually from a bank on an asset)

Credit Cards

Borrowing from a trust of which you are a beneficiary

Borrowing against an inheritance

Assuming, or buying subject to an existing loan

Seller finance

Seller backing for loan. Very good source for help.

Giving Broker a note on commission he is owed.

Checking account overdraft privileges

Corporate finance as arranges for staff or participation in schemes such as the coal scheme.

DTI loan guarantee scheme.

Pawn brokers

Selling stocks and bonds

Cash in savings bonds

Education loans such as DTI ‘Career Development Loans’

Scholarships, fellowships.

Government Grants

Selling of land.

Have owners of property loan them as collateral for which you pay them a fee.

Boats, planes, helicopters, expensive and classic cars for collateral.



Options

Venture

Business Angels

Venture Capitalists

Investments Clubs

Start your own investment group.

More Sources of Funds

Try to get every credit card you can get hold of so that you can delay payments.

Spin out your bills making sure that you don’t run foul of their accounts departments. Always

pay something

Check all accounts for overcharges. This also spins out the payment date by weeks and months

and often results in reductions.

Apply for property tax refunds.

Have your Electricity, gas Telephone sewer and water utility bills checked for over charges. A

large proportion are wrong.

Have you bank account checked. Once again high proportions are wrong.

Look for stashes of traveller’s cheques, and foreign currency which may be still awaiting to be

collected.

Sell personal property that is no longer required.

Recover deposits left with landlords and utilities.

File insurance claims for vandalism and theft.

Collect un-collectable debts.

If you have prepaid too much against your mortgage or loan ask for it be repaid

Send invoices for sales or services not yet collected

Pledge accounts receivable as security for a loan

Sell the accounts receivable to factors

Raise a bill and have it discounted on the discount market.

Make an offer to settle long draw out lawsuits at a reasonable price now so that you can get

your hands on the money which may be needed quickly.

Tax Refunds

A Comprehensive checklist of seller warranties include:

1. Seller has good and marketable title.

2. Assets are sold free and clear of liens and encumbrances.

3. Seller has full authority to sell and transfer the assets.



4. Seller, as a corporate entity, is in good standing

5. The seller’s financial statements present fairly and accurately the financial position of the

company as of its date and there are no material adverse changes thereafter.

6. Contract rights and leases to be assigned are as represented and in good standing.

7. There is no material litigation pending against the company.

8. All licenses and permits required to conduct the business are in good standing.

9. There are no liabilities other than as represented.

10. The use of seller’s name does not infringe on the name of any other party.

11. All equipment and fixtures are in good working order.

12. The buyer must think about every event upon which the deal depends, as the buyer is the one

who imposes most of the conditions.

13. Licences and permits can be transferred.

14. There is no materially adverse change in seller’s financial performance prior to closing.

15. All required letters are obtained, i.e. valuators, appraisers, other pertinent professional bodies,

etc.

16. Satisfactory financing for the transaction is obtained.

17. The seller’s warranties and representations shall remain accurate and true at closing.

18. Required approvals by governmental agencies are obtained.

19. The seller has performed all its affirmative and negative obligations.

20. The seller provided all required documents contemplated by the agreement at closing.

21. An assignment of lease or new lease on terms acceptable to buyer is obtained.

22. The agreement must specify the stock interest being transferred with certain warranties relating

to the shares of stock, including the following:

23. There are no outstanding proxies or other assignment of voting rights.

24. The shares will represent at the time of closing a stated percentage ownership of the

corporation, all classes of stock inclusive.

25. The shares are fully paid and non-assessable.

26. Any restrictions on transfer imposed by the bye-laws or otherwise have been waived, allowing

for transfer.

27. The seller has and shall deliver good title to said shares free of encumbrances, pledge or other

liens.

28. Warranties

29. The most important provisions in the stock agreement are the warranties relating to the legal,

financial and business affairs of the corporation. The buyer will have these warranties only to

rely upon if misrepresentations are discovered.



A checklist of common warranties include:

1. The corporation is not a party to any contract nor subject to termination at will without penalty

(except as may be delineated).

2. The corporation is in good standing (and in all jurisdictions if a foreign corporation).

3. The financial statements annexed to the agreement accurately and fairly represent the financial

condition of the corporation as dated and there have been no material adverse changes since.

4. The corporation has good title to all the assets or properties used in connection with the

business (except for those confirmed as non-owned).

5. The corporation is not a party to any litigation (except as may

6. be delineated).

7. All required tax returns have been filed and all monies due paid and there are no known audits

or notices of audit pending.

8. All contracts (principal contracts to be specifically identified are in good standing and not in

default or threat of termination.

9. The corporation has no bonus, profit sharing or pension plan (except as specified).

10. There are no known proceedings against the corporation by any governmental body or agency.

11. The corporation has and shall maintain insurance (as specified).

12. All leases are in good standing, without modification or amendment.

13. There are no liens or encumbrances against any asset of the corporation (except as may be

delineated).

14. Agreements

15. Under a stock transfer the affirmative and negative covenants are much the same as those

found in asset transactions. In essence the covenants, when dealing with stock transfers, will

have to be expanded to protect the buyer from major changes in the legal and financial

structures of the corporation which is to be acquired

16. Common undertakings usually provide that until the corporation is taken over it will not

undertake:

17. Issuance of new shares.

18. New mortgages.

19. Charter or by-law amendments.

20. Extraordinary disposition of assets.

21. Extraordinary contracts.

22. Extraordinary purchases.

23. Distribution or redemption of shares.

24. Extraordinary improvements.

25. New compensation plans.

26. Defaults on contracts.

27. New indebtedness.



Due diligence must be performed by the buyer on any property or business being purchased. We

suggest you obtain the services of the following professionals to help you in you efforts to check out any

opportunity:

Always use a lawyer to check and draw up your agreements.

Use an accountant to check the figures

Employ or give a specialist equity to help you check the business out and help you to run it if

you know little or nothing about the business you are entering.

If you have little or no funds, offer each one something that costs you nothing financially, because it is

free, offer them equity. Remember in the end it is you that has to make the decision about whether to

go ahead or to wash it out.

Do not prevaricate – top people assimilate the information quickly and form their decisions fast. Others

take ages to make their decisions and often lose out because of this.

Wriggle Clauses

When making offers you should always include one or more wriggle clauses, so that if you find the seller

or his agent has been less than honest regarding the turnover, profits, stock, assets or anything which

conflicts with the actual state of the business. The wriggle clauses you include should only allow you out

of the deal.

For instance such a clause may go as follows:

This agreement is subject to the buyer being able to secure a loan at a suitable rate of interest.

This offer is made subject to the current turnover and figures being acceptable to the purchaser.

This offer is made subject to the profits being acceptable to the purchaser.

Draw up a number yourself and work with your lawyer to incorporate them into your final agreement.



Creating great wealth with partners

In order for you to get past your “ beginner status” we suggest that you start practising immediately as

a “LBO” practitioner and at the same time attempt to start co-opting people into your partnership. In

the meantime identify potential deals so that you will have a suitable project to put before your new

partners. As always we suggest that a professional should be consulted to make sure that no laws are

being infringed. Many businesses also have freehold as a part of their assets. Sometimes the freehold

may be worth more than the business, or the business maybe one that does not appeal, it may not be

something that you want to run yourself. If the freehold is large, the partnership may consider leasing or

selling off the business and receive rent from the occupying business.

As a partnership usually pools resources and therefore has more money, credibility and/or collateral it is

as a result often easier to purchase far larger businesses then you would normally go for. In practice one

should always ask the question “ would I buy it on my own? “. If the proposed acquisition does not

receive a “ yes “ to this question then do not proceed by participating in the proposed partnership to

purchase that business. Just because you are joining others it does not mean that the acquisition will be

successful, or that the partnership would be successful. If anything, because it is a partnership one

should be even more circumspect.

Selling a partnership to others can be one of the most important pieces of salesmanship that you

have ever undertaken.

Your enthusiasm, professionalism, and presentation could mean the difference between success and

failure. Previously prepared documentation such as a business plan, pictures, charts and accounts is an

absolute must.

Working capital

Many companies need fixed assets to manufacture products. These can include machines, factories, plus

many other items which the company owns. The business also needs working capital to pay for the day-

to-day running expenses, such as bills which are raised to pay for materials and services. Working capital

is what the business owns which is either cash or could easily be turned into cash minus what it owes

and which need paying shortly.

For instance in certain types of businesses (manufacturing ) working capital is: the value of the cash in

the business as well as cash held in the



bank; the stocks of the company, such as steel waiting to be turned into finished product’s waiting to be

sent to customers; the debtors of the company - businesses or individuals who have received

goods/services from the business but have yet to pay for them;

Minus

money owed to the bank which might need to be repaid within the next 12 months; what it owes to

other businesses for goods and services and that it has received but not yet paid for (creditors); other

monies owed such as to the government in tax or to shareholders in dividends.

There is a formula to calculate working capital. It is defined as the difference between current assets and

current liabilities (terms which are found on the balance sheet of the business).

Working capital is the value of net current assets. This is the current assets of the business left over after

the current liabilities have been taken away.

The working capital cycle

Every business has a working capital cycle: cash on hand or money in the bank, purchase and received

materials and components from suppliers or creditors, hired labor to manufacturer it, finished and

manufactured goods in stock, goods sent out and services provided, debtors payments received, Cash at

the Bank. Payments on loans, taxes and dividends to be made.

If your business is a manufacturing operation and uses raw materials and components, some are paid

with cash, some are delivered on account by creditors and payment only made 30, 60 or 90 days later.

To complete the work the business also hire workers and equipment. The products are sold to

customers who usually get 30 days to pay for them. So customers become debtors to your business.

These customers will then pay the business. The cash coming into the business has to pay for the raw

materials that the have been bought. It also has to pay for the wages of it’s workers, it’s overheads,

taxes, repayments on loan and dividends to shareholders. So current assets like cash, stocks, debts and

liabilities such as credits and bank loan repayments are constantly going round the financial system of

the business.

The need for working capital



To survive, businesses need working capital. Current assets left over after allowing for current liabilities,

has to pay for the day to day bills of the business. ft is considered good practice in the average business

for assets to be between 1 1/2 to 2 times the value of current liabilities. This allows a business to cope

with any sudden crises. For instance, the bankers might suddenly decide to ‘call in’ it’s overdraft (ask for

it to be repaid). It may also happened that a major customer might go bankrupt and go out of business

leaving unpaid bills owing to the business. If it has enough current assets compared to current liabilities,

it will be able to carry on paying it’s day-to-day bills, even though working capital is reduced.

Working capital and cash flow problems

Problems with shortages of working capital can be different from cash flow problems. A business, for

instance, might have a large amount of working capital if it’s stock levels are very high and it owes little

to the bank. But if it doesn’t have enough cash to pay its day-to-day bills, then it faces a cash flow

problem. On the other hand, a business might have a hundred million in the bank in cash today. It is

cash rich today and it has no cash flow problems. But if it has to pay a bill for 200 million in a week’s

time and its other current assets like stocks are worth only 50 million, then it has a working capital

problem today. It doesn’t have enough current assets to cover its current liabilities. As a result, it is likely

to get into financial difficulties in the future.

Current ratio

Another way in which a business can find out whether it has enough working capital is for it to work out

its current ratio.

This is the ratio of current assets to current liabilities:

current ratio = current assets

current liabilities

The higher the ratio of current assets to current liabilities, the higher the amount of working capital in

the business. The higher the ratio, therefore, the safer is the business. The part of the

balance sheet which shows the working capital for this business:

Working capital for XYZ manufacturers

cash 35.6

debtors 75.2

stock 51.8

current assets 162.7

bank overdraft 3.9

bank loans 4.7

trade creditors 13.8



other creditors 41.8

current liabilities 64.2

working capital 98.5

As at 31 st December, 1990, the current ratio for the company was a 162.7 million divided by 64.2

million, which is equal to 2.5 to 1. As already mentioned, accountants usually advise that a typical

business should have a current ratio of 1.5 to ito 2:1. If it is less than this, the business runs the risk of

not being able to pay its bills and going out of business. XYZ looks a very safe business with the current

ratio of 2.5 to 1. However, the business doesn’t want too high a current ratio because current assets

earned a little or no interest and money might be better used elsewhere.

The acid test ratio.

Stock is part of the working capital of the business. However, it might be difficult to sell off stock quickly

if this business faced a cash crisis. For instance, XYZ might find it difficult to sell quickly half its stock

valued at 51.8 million for 25 million if it suddenly needed the cash. Even if it succeeded, it might have to

sell it at such a low price that it didn’t get anywhere near 25 million for the sale. A better measure of

whether a business has enough working capital might be the Acid Test Ratio. This excludes stock from

current assets in calculating the ratio of current assets to current liabilities:

Acid Test Ratio

Current assets-stock

Current liabilities

Like the current ratio, the higher the acid test ratio, the safer is the business and the less likely it is to

become insolvent. At 31 st December, 1996, XYZ company current assets minus stock were 162.7 million

-51.8 million~11O.9 million.

The acid test ratio was 110.9 million divided by 64.2 million , which is equal to 1.7:1.

This is very different from it’s 2.5:1 current ratio.

A typical business should have an acid test ratio of between 0.5:1 and 1:1. Again, XYZ company looks a

very safe business with its Acid Test Ratio above the text book norm.



How to solve problems in businesses

I have found many problems in businesses which prevent the enterprise from making a good profit.

These problems quite often can be associated with the timidity of the owner, rather than problems

associated with the industry concerned. Many business owners believe that to have the lowest price will

always secure work. Whilst this may be true in some instances, it also means that the business

constantly works on margins. This of course can mean lower profits or no profits or even a substantial

loss. I am constantly coming across businesses worth between the 600,000 and a million pounds

turnover which are obviously under charging for their products. This under charging is reflected in their

profits, and as a result no buyers are interested. It is clear that in many instances profits can be

enhanced in these businesses merely by increasing the price of their products without too much effect

on the sales. For instance a five per cent increase in the price at an art wholesalers would not affect

sales too much, however, five percent on the million pound turnover would not be too adversely

affected but the profits would be enhanced by a healthy £50,000 per annum. If this five per cent figure

were increased to 10 per cent, maybe 10 per cent or hundred thousand in turnover would be lost, but

the net profit would be enhanced by £90,000 per annum.

Stock

Stock is another area in that can eat into profits. Many times I have gone into businesses where the

stockholding is probably sufficient to cover two years of sales. The owner is beside himself with worry

because of a lack of profits, yet his stockholding is truly vast. To one of these gentlemen I suggested that

he should reduce his stock so that he could benefit from more profits. Because of some opposition in

the town he had also fallen into the trap of also reducing his profit margins, resulting in himself and his

wife earning less than some of the staff.

Staff

Over staffing is also a prime cause for low profits. Before taking over a business always make sure that

staff levels can be reduced in case of need. The cost of such reductions should be assessed prior to

taking over business.

Theft

Theft can be of one of the major reasons for low profits if it is not controlled. One man I knew found it

very difficult to control theft once it had started in his business, and it was the ultimate reason for his

subsequent bankruptcy.

Assets

I have often been invited to buy a business which has more assets than it needs. The machinery

available within the business was sufficient to have started at least one or more branches. The way to

handle this is to either sell the excess assets or go-ahead an open a further branch with the equipment.

Selling the equipment can overcome an immediate cash flow problem.



Large debtors book.

I often see that companies insist on opening accounts before they also apply what could be a cash buyer

of the product. If all sales are credit sales then the business will always have to pay interest and be in the

bank manager’s hands due to a need for an overdraft. One business that I was running only received

money due for payment 30, 60 and 90 days after completion of the work. As a recession was

approaching, I appealed to the representatives that from now on we would not affect their cash flow

adversely, provided they helped us with ours. I also told them that the best deals from then on would

have depositors of between 20 and 100 per cent of the value of the job. Much argument ensued,

however, within three months this policy had reversed a £200,000.00 overdraft into a £200,000.00 cash

on hand situation. So instead of paying interest we were receiving interest because we were receiving

up to 90 per cent of our money in advance. A further result of this policy was that at the end of the

recession, out of over 30 companies that were in the industry and in opposition to us, only three were

left. Our company had become by far the largest and strongest in the area.



Fundamentals

This section will give you some ideas that LBO practitioners may benefit from when they take

over the running of a business, in which they want to cut costs to boost profits. Whilst these ideas may

not apply to your particular business, the principles remain the same. The principle is — look into every

aspect of your business to see whether you can achieve any cost saving changes.

Accountants and lawyers are absolutely essential when you are acquiring a business. The accountants

can check the figures, which are usually historical and reflect the actions of the owner up to the end of

the trading period shown in the figures. What the figures do not show is what can be done to improve

the profitability of a business. The following are examples of actual actions the writer took over a period

of time to improve one of the businesses he owned. It is for this reason that we recommend bringing in

a specialist in the industry that you are choosing to get involve with especially if you have not had

experience in that type of business previously.

Supplementary Information

Following are a few of the actual incidents and the results of actions I took in my own company. The

savings started to take effect almost immediately in some cases once the problem had been identified,

and they boosted profits to a very high level. Admittedly I have rarely chosen to follow the crowd, rather

they have followed me. It is for this reason that I patented or copy righted all my work to frighten them

off. If your business were enjoying a ten percent profit and you found a way of reducing your costs by

ninety thousand a year, your profit would increase to possibly fifteen percent. To achieve the same

percentage increase your sales would have to be increased by nine hundred thousand to make the same

fifteen percent. That is why the actions you take in this section can be the most immediately rewarding

if you want to boost profits without increasing your spend on advertising.

For the first few years of my working life whilst I was employed by other companies in a senior

management position, my total focus was always directed towards making the sales graph point

upwards in as near a vertical position as I could get it. In this, with the full participation of the staff, we

were successful as my branch or region always won the competitions. This was not too difficult as the

people who ran the other divisions were not marketing orientated. On the other hand I slept, ate and

drank sales and marketing. I read about the subject constantly and trained and worked with my staff to

achieve spectacular results. Head office personnel often came into my region to talk to me about my

ideas.



It was natural therefore when I started my own business that I carried this enthusiasm for sales and

marketing into my new business. I was rewarded spectacularly initially with substantial growth rates and

profits, which could pay for my two hundred per cent and more annual growth. My focus on sales and

marketing was such that I was guilty of neglecting the daily monitoring of the fundamentals on which

the business stood. These fundamentals included all costs such as purchases, wages, salaries, rentals,

maintenance, vehicle expenses plus anything else that contributed to the escalating costs in a business.

At a certain point the costs associated with these fundamentals started to catch up and threatened to

overtake the profits generated from sales. There was a basic reason for this and that was that our

market had suffered a proliferation of opposition companies. Good, indifferent or bad, they were

starting to force us to cut prices when quoting for work. After seven years of being in business I was

looking through my Profit a

It was within about half an hour of discovering this fact about the rivets that our very large compressor

used in the factory to drive the pneumatic riveting guns and other equipment broke down.

The service engineers confirmed that it would take a week to get the spares and then repair it. There

was not an equivalent one to hire or buy anywhere in the City. I immediately issued the hand riveting

guns, however they also broke down within a couple of hours. To think through this major problem

which had suddenly developed, I left the chaos of the factory and went home for a swim in our pool. I

had hardly been there for half an hour when I remembered that nearly two years before a man had

given me a sales presentation at my offices concerning the use of self-

tapping screws.

I immediately changed, and drove down to where I remembered their factory was. They had the ideal

of solution to my problem. They also had an added bonus in that each screw had a steel drill form at its

end. This did away with the need for drill bits. In the normal rivet operation like we were running, the

artisan has to first drill and then place the rivet in the hole. He then has to insert the rivet mandrill into

the small orifice at the bottom and then pull two or three times on the pneumatic rivet guns trigger to

pull up the rivet. Using the self- tapping screws we were going to save many man hours plus tens of

thousands of pounds on equipment. The cost of each self- tapping screw was only one fiftieth the price

of the imported rivets.

I immediately purchased 10,000 self tapping screws and on my way back to the factory I purchased 30

portable electrical screwdrivers with back-up batteries for recharging. I had one further job to do, and

that was to convince the factory staff and installation teams that this system was both faster and better

than the one we had been using based on rivets. This was not going to be easy because of the profitable

trade in rivets that had been established. The acceptance of the new self-tapping screw based system

was of paramount importance to my business.



The very next morning I was at the factory early and stopped all the teams loading the day’s work. I had

an emergency meeting during which I presented the new system to them. As I had expected, no one

supported me in the application of the new system. To brighten up what was clearly a hostile

environment to the concept, I had previously planned to hold a competition. I asked for the fastest

installation team. I offered the whole factory a deal, whereby if Michael’s team, the fastest and most

experienced, could beat me and my chosen team, then the rivet based system would stay, and Michael

and his team would win fifty pounds between them. If the team which I would be leading won, then my

three men would share fifty pounds between them, and the self tapping screws based system would be

immediately applied in all operations within my business. The factory, all the teams and Michael’s team

willingly accepted the challenge. They expected to win, and so did all of the staff. Clearly Michael’s team

was highly experienced and efficient as they did the job every day. Besides being the boss and owner of

the business I had always been a white collar worker.

We selected all of the components required for the erection of a double carport with rainwater disposal,

roof cladding and legs. The start whistle was blown. My team was finished in 10 minutes whilst the

opposition team were still completing the structure before installing the roof sheeting and rainwater

goods.

My secret weapon was that for every five operations they performed, I only had to do one. The self

tapping screw based fixings had now been proven. Immediately I withdrew all the compressors,

pneumatic riveters, manual rivet guns and drill bits from the trucks and factory. I then issued in their

place electric screwdrivers and self tapping screws. The savings on rivets alone amounted to thirty one

thousand five hundred a month as the self tapping screws only now cost three and a half thousand.

As the installation teams were being paid by the square metre, they soon realised great income benefits

from the new system as they were able to install more square metres daily.

To realize all these savings and make the decision to implement it took only 24 hours. From that time on

I made a habit of researching a project within my business every month to improve our product and cut

costs. I’ll give you some further examples in the following pages.

Steelpurchasers

One of our biggest purchases was steel in the form of hollow square and hollow rectangular

sections. We were the biggest purchasers of this type of material in our state. In one year we had

suffered three escalations in the price of the steel sections. The first was a twelve percent increase

followed by another fourteen per cent and yet another fourteen per cent. Our supplier said he could not

see his way clear to give us any further discount. Shortly after that discussion I was idly doodling on a

piece of scrap paper whilst on a phone call to a supplier of galvanised flat sheeting. The size of the

sheeting that I was buying was four metres long by one-and-a-half metres wide. As I was waiting for the

final quote because I was purchasing a lot of sheeting, for something to do, on the scrap paper I divided



the total perimeter of steel on a fifty by twenty hollow rectangle, being a total of one hundred and fifty

millimetres, into one point five metres.

I found that I could get ten widths out of it. I suddenly realized that the mill that was supplying us with

the hollow square and hollow rectangular sections was making an excessive profit out of my business,

and was in actual fact threatening the very survival of my business, hence my previously mentioned

interest in a discount. I found that the cost of the steel in this new coiled flat steel was only about five

per cent of the price the mill was currently charging me.

I immediately designed a new structural system, which I patented so that no one could copy me. I also

went out and bought, at an auction of distressed shipments of machinery, the biggest press brake in the

country at that time. The press brake cost me a low four thousand. I also had a slitter made so that I

could cut the coiled steel into various widths and lengths for the different sections. Once the new

system was implemented, the cost of my steel purchases dropped from a high of nearly ninety thousand

a month to less than five thousand, a saving of nearly eighty five thousand per month.

Painting of the structures.

Every structure that we sold was finished off in a white paint. We sold this finish to all our

customers. At one stage we had 24 hand painters, however due to competition we had to find another

method. We finally replaced all of the hand painters with two men operating a dip tank. This method

produced a superior finish at a fraction of the man hour costs, however it did not solve the on-site

problems. These site problems included scratches in the paint when the structure was erected, which

then had to be touched up. To do this, brushes were used by the installation teams, who in the process

of touching up the scratches often dripped paint on to walls and floors of a customer’s house. The

customer would return home and rightly refused to pay for the job until the offending drips of paint had

been removed.

On occasions the whole tin of paint was upset on to the floor. Often I could have as many as

three to four and more complaints emanating from the paint touch up work on site. On a particular day

the complaints were so bad that I decided that no more painting would be done in my factory. My

normal practice has always been to take the staff with me on any such decision, however I knew that

the eleven full-time salesmen we had in both the domestic and commercial fields would have opposed

any such move. My decision was not without some thought and previous experimentation. To apply the

paint on to the galvanized material we have to remove the coating of wax (put on the steel by the

factory to protect the steel) by immersing the sections into phosphoric acid for three to four minutes.

This etched the surface so that the base coat and the paint could remain attached. Often the staff would

go off to tea, or luncheon and leave the sections immersed in the bath of acid. This extended period

destroyed the galvanized surface. I had noticed on some structures that we had recently erected that

the light passing through the white fiberglass roof sheeting was picked up by the beautifully finished

mirror like surface of the galvanize steel and looked white in any event.



The next day after my decision these structures started to leave my factory without white paint. It

took over a month before I received one complaint from a client who had noticed that his structure had

not been painted. The representative who sold it brought up in the sales meeting. They were all

shattered when I told them that we had stopped painting structures over a month previously.

Even if they had not noticed I certainly had because I had ceased to receive all those calls from

upset clients, who would not pay us due to the paint drips. This action helped my company in many

ways. Firstly we saved time by not having to constantly go back to site to remove unsightly drip marks.

Secondly our cash flow was helped immensely because we could collect the balance owing as we didn’t

have many jobs that had to be serviced. Thirdly we saved nearly ten thousand a month on paint, plus

the saving on wages. Fourth the constant assault on our good name for poor service disappeared. Fifth

the clients received a better product and I stopped wasting my time handling phone calls about

unsatisfactory paint problems. Another aspect of holding stocks of paint on the installation trucks, was

theft. Once the paint had been removed from the trucks, so had the temptation to pinch the paint.

Fibreglass sheeting.

My wife and I had been away on one of the few holidays that we had managed to take over a 10 year

period. When we returned we found that we were seventy thousand pounds short in our stock. We

immediately took steps to stem the flow and erect substantial fencing around the factory. One day I was

at my factory and I was watching our suppliers’ large fiberglass sheeting truck reverse back in through

the gates, something caused me to go down and inspect the stock. I caught the two men unloading the

truck as they ran towards the sheeting stocks. I insisted that they put their load down. I then counted

the sheets that they had been carrying and the balance of the sheets on the truck. The total was nearly

50 streets short of the invoiced number. If they had got to the sheeting stack and dropped their load in

they could have said that the 50 sheets were already in the stack. No wonder they were running to off

load the sheets. It was primarily through this incident that I decided to produce my own fibre glass

sheeting. I had a machine designed and engineered so that we could produce this sheeting on a

continuous basis. Our savings effected on the suppliers cost to us, was approximately seventy per cent.

As our fiberglass sheeting bill was equal to the cost of steel that added another fifty thousand to our

bottom line.

Flanges

We purchased flanges, which were cut a hundred and fifty millimeters square and had four holes

drilled in them, one at each corner. On the same day as the above fibreglass truck arrived and was found

to be short, we had 300 flanges delivered. I saw the truck arrived from my office, and I rushed down to

inspect the delivery. Only 180 flanges were found on the truck although we had been invoiced for 300.

Galvanized steel roof sheeting

Just before my holiday we had secured a large contract to install over a hundred carports. They

required a specially painted finish and so we ordered over four tons of sheeting to do the job. The



sheeting arrived and was found to be nearly 50 sheets short also. The fibreglass sheeting, galvanised

sheeting and flanges all arrived after the day I got back from holiday. Whilst all these events happened

in another country where it was often said “If it is not nailed down it will disappear”, one should not

become too complacent if you want to remain in business. A friend of mine, a business owner, who

joined us on the same holiday, ultimately lost his business through theft. The losses he sustained caused

him ten years of financial trauma.

Banks and overdrafts

Banks are an important part of the business community. They grease the wheels of industry by

providing funds. On occasion you may find that you have a bank manager who is negative about you and

your business. When I was young I once had the same fate. After a very bad incident where he bounced

all my cheques, even though he knew we were keeping substantial funds in a savings account where it

attracted interest at his bank. I immediately went out and found another bank, which increased our

overdraft from the twenty thousand, that the previous bank manager would only give us, to two

hundred and fifty thousand. This happened the very next day. So if you are having difficulties with your

present bank, hawk your business around to the banks to see what sort of better deal you can negotiate.

Reducing bank charges

My business now had a two hundred and fifty thousand overdraft in 1985. Interest rates were

creeping up to 12 per cent and we had heard rumors of them going up to 20 per cent. In the event they

went up to 240o by 1987. I recognized that if such a condition did occur the chances of the business

surviving were very thin. And as previously mentioned this all came to my attention when I was looking

at my profit and loss statement. I was determined to do something about it immediately. The first thing I

did was to change my method of banking. Instead of banking all my cheques into my bank account,

which only served to increase my bank charges, where possible we decided to put the funds directly into

our creditor’s accounts by depositing the funds into the local branch of the supplier’s bank. The balance

of the funds was deposited directly into our normal account whilst the overdraft existed.

Obtaining deposits

Our practice of obtaining deposits on work to be done was a bit haphazard. Some

representatives collected deposits and others didn’t. In a series of sales meetings extending over a

period of five months we impressed on the salesmen how important it was to get deposits. We made it

very clear that if they collected the deposits we would always ensure that they received a minimum

monthly amount. Should they not help us in our efforts to obtain the deposits, then no help would be

forthcoming. The message was clear, “if you screw up our cash flow, we will screw up your cash flow”.

Those who participated were given their commissions in advance in proportion to the size of the deposit

they obtained. Whenever a contract was brought in we never failed to expect a deposit from the



representative concerned. Those who didn’t started to get less leads as we passed them on to those

who did get deposits in.

The measures may seem extreme, however, we were playing a serious game which if we lost would

mean the loss of all the jobs and of course the business itself. At the end of six months we had paid off

the two hundred and fifty thousand overdraft and in actual fact now had money in the account of over a

hundred and ninety thousand. The total swing from 250,000 OlD to 190,000 in the Bank totalled

440,000.

As the interest rate for borrowings reached an unprecedented 24 per cent, our saving was clearly in

excess of 90,000 per annum. This unpopular policy saved the business and all the jobs.

Opposition companies that had continued to offer repayments of 60 and 90 days on the work were all

wiped out. When I brought this policy in all my representatives said that we would go out of business

and the opposition would get all the business. Our representatives were well trained and understood

our business as many had been with me for 13 and 14 years. We also offered a better quality product,

for instance when the opposition was using a hollow square section of 75mm by 25mm, we were giving

them a section of 220 millimetres by 80 millimetres. We could afford to do this because our own factory

produced the sections at a 20th of the cost of the section from the mill. We had further outflanked the

opposition by selling 250 franchises and agents who we supplied from our factory. These section and

roofing supplies in the end were exceeding our installation revenues. Once again we had gone against

the trend of giving credit when all our opposition were doing it.

Reverse Logic

To be successful and as an exponent of reverse logic you have to

sell when everybody else is buying, and buy when everyone else is selling. On the other hand if you

follow the mob like lemmings you will be lost. To be a successful L B 0 practitioner when everybody else

pays a deposit, you don’t even have the word ‘down payment’ or ‘deposit’ as a part of your vocabulary.

You do not know what the word means because the only Wording you understand is OPM meaning

’Other People’s Money’.

LBO means that you replace the need for your own cash with other people’s money, together with

ideas, strategies, concepts and sources. Once you can do that you’re well on the way to becoming one of

the great movers and shakers of the world.

Theft in a business.

I have often referred to theft being a cause of business problems. Theft can wipe out any business. I

have had a lot of experience with this aspect of business. I was given one particular job and told” If we

can’t stop the theft problem in that branch we are going to have to close it down”. I did solve the

problems, but I was not popular with the staff, however I was effective. As I have mentioned, in my own

business I strenuously crossed swords with the theft demon.



There was an interesting report shown on BBC 1 on September 1999 at 7.3Opm under the title of ‘The

Crime Squad’. Sue Lawley opened a shop in Glasgow at the St Enoch shopping centre. When they cashed

up after a few days trading, they found that out of a turnover of over £800, £342 was stolen, or 4200 of

the turnover. The cameras picked up people walking away with all sorts of goods. The cameras also

showed people moving goods around the shop prior to moving them out.

During the program, it was estimated by security experts that staff pilferage was equal to customer

theft. This has been my experience. At most of the businesses with branches that I was responsible for,

staff theft was greater than customer pilferage.

Conclusion

If you wish to return a business to a healthy profit the problem of theft has to be aggressively faced up

to and dynamically handled.

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