The Single Most Important Consideration When Buying a Beer Wholesaler?
The deal has to cash flow.
What this means is that the stream of cash flows from the acquired business (once combined with your existing business) must be enough to cover the acquisition debt payments.
In other words, money in must be greater than money out.
Simple. Obvious. Often overlooked.
Here’s a hypothetical example.
- New business purchase price is $20 million
- Estimated annual cash flow from the new business is $1.5 million
- Bank loan is $15 million, 10 years at 6% interest
- You come up with the remaining $5 million in equity
- Based on the terms of the bank loan, annual debt payments are $2 million
In summary:
- Money in from new business $1.5 million
- Money out to make loan payments $2 million
- Money in of $1.5 million minus money out of $2 million = Uh oh
This hypothetical example is overly simplified, but the main point remains the same: money in must exceed money out.
Do this next
- Watch the short explainer video below
- Download the amortization schedule – you can plug in the different numbers and the model will update
- Learn more about the Beer Business Finance Association: We are a network of beer business owners and managers focused on improving profits, cash flow, and business value
