https://www.youtube.com/watch?v=52tcB5FopAg

1 00:00:00.000 --\> 00:01:00.000 in this video i'm going to explain to
you how you can get paid for your business tax-free without giving up
any equity so hi if you're new to the channel my name is alex shimozzi i
own acquisition.com in a portfolio of companies that is about 85 million
a year and i have nothing to sell you i just made this channel because a
lot of people are broke and i do not want you to be one of them so
welcome to mozi nation so today the topic is going to be talking about
debt and this is going to be one of the more interesting chats we've had
because this is something that i have spent a lot of time learning about
and probably not in the traditional sense of like you know personal
finance but more so in the kind of mergers and acquisition sense of how
debt is used right and so one of the first things that i had to
understand what as like as a business owner is understanding why we want
to sell a business because a lot of people want to exit their business
because it seems like this big aspirational goal and as somebody who has
now exited six different businesses i can tell you it's not nearly as
inspiring there's the story of the exit and there's the reality of the
exit the reality of exit is that you've got transition documents not all
of that cash is up front most of

2 00:01:00.000 --\> 00:02:00.000 the time you're gonna have earn outs
you're gonna have seller financing that's involved you have to roll a
certain percentage of equity and you've got uh and then finally you've
got cash once you have cash you have bonuses distributions you've got uh
financing costs that are associated with the act transaction costs and
then finally you have your chunk of money but wait there's another 20
that's going to go to uncle sam and then you're left with x right and
sometimes x is very different from the enterprise value of what you've
sold out and so one of the things that i can tell you about the
wealthiest people that i know who are all over 10 figures is that the
wealthiest people in the world they buy and they build and most times
they don't sell even though us as entrepreneurs we have this dream of it
it's usually because we're trying to get out of some sort of pain right
because i have realized this that the times that i want to sell is when
i'm in the most pain the times when i don't want to sell is when i
everything's uh going well and so what i should be doing is figuring out
how to get out of pain rather than trying to you know it's like there's
i think there's a chinese saying to kill a mosquito with a cannon right
which is like it's overkill it's like hey why don't we just solve the
problem by hiring the one or two people you need to hire rather than
sell the entire business right and so one of the things i want to
introduce today along that

3 00:02:00.000 --\> 00:03:00.000 concept is how can you still get paid
or de-risk because for most business owners or entrepreneurs the
majority of your net worth is in your business right and so or
businesses and so if the majority of your net worth is in this thing
that's a high-risk asset class i'd like to ideally share uh some of that
risk with other people and so there are multiple different debt
functions you can use but i think the easiest analogy for this is a
house okay or an apartment building doesn't really matter so let's
imagine you have a house and let's imagine that you started this except
this house you were able to build without land and you were able to
build it just using your own money and you actually built it yourself
all right so you paid money out of pocket month over month over month
and you slowly started assembling this house piece by piece by piece
right and then you started getting tenants inside of it right you got
little tenants in here and you know for us those are our customers but
it functions more or less the same way you got these people that you
you've been slowly filling it up and so now all of a sudden this thing
spits out cash flow every month just like a rental you know apartment
unit might the

4 00:03:00.000 --\> 00:04:00.000 similarity here and i'm using this
analogy because it was the one that made the most sense to me is that
everything up to this point you own 100 in cash all right this is equity
that you have in this house now in a normal home or you're a real estate
investor you would say hey i would like to get higher returns because i
can get all you know 80 of this financed through a bank right you can
get a loan in the form of debt and so the example here is let's say
you've got a one million dollar uh business you've got a one million
dollar business right which we'll still use is this house right if this
business over the next five years goes to two million dollars a year
right or two million dollars in value excuse me then you would have 2xed
your net worth right because you own 100 of this thing now what if you
were able to have your 1 million dollar thing and then split it into you
keep 20 in the business right and then you get a check for 800 000 now
realistically i'll tell you what the

5 00:04:00.000 --\> 00:05:00.000 the more realistic outcome of something
like this might be uh and there are two ways to do this but let's say
that you did uh 30 and then 70 right so then this would be 300k and this
would be 700k okay so that's that's what we would get so this would be
70 and this would be a loan now here's what's cool because this is a
loan against your building this is not income which means you guessed it
it's tax free so remember before i talked to you earlier if you were to
sell a business you probably have to keep a certain percentage in
because no one's going to you know just most people are not going to
want you to have a full exit especially if you're a smaller business and
so you would have this 80 but then this 80 would then get nixed and cut
it's not going to be all cash anyways but even if it were all cash you
then have to pay 20 right of that of that amount which would be 16 off
um from whatever that number is which you know for math sake let's you
get 760k but you have to take the 20

6 00:05:00.000 --\> 00:06:00.000 out so you have 560k after taxes and
with you holding your 20. so this is what you'd get but here's what's
crazy is that through debt you can get a seven hundred thousand dollar
loan and still own the darn thing but here's what's cooler you now have
your one million dollar business that's growing to two million dollars
for example but then you have this this seven hundred thousand dollars
that you have a loan from off of this that you can also still try and
grow you know let's say two million dollars in that same time period and
now you own the delta which overall your net net worth is now 3.3
million versus the original 2 million you had before and so there are
two ways there's a lot of ways that you can you can take out a debt in
the company you can do minority you can do majority you can do dividend
recap there's more things that that i can get into but fundamentally
just understanding that from an exit perspective this changed the way i
saw business is that if you don't want to sell because you want to keep
your thing forever totally fine but as you're keeping it it's just like
an apartment building you can still refinance

7 00:06:00.000 --\> 00:07:00.000 at regular intervals as the as the
value of the property or as your business grows so that you can then
then excuse me take this money out de-risk yourself and put it in other
assets because let's be real we have all been through a crazy last
couple years anything could happen and so for you to de-risk a little
bit um i think for many is a beneficial thing and candidly it's also how
every ceo of a publicly traded company lives is they don't they never
sell their equity or some of them but majority of the time they're not
selling their equity they're living off of loans that are asset based
they loan against the equity that they have and the the stocks grow tax
free because they compound and then the loans are locked in which you
can then refinance them later because now the asset is worth more and so
you basically just gained that money for truly for you don't even have
to pay it back uh or even if it was uh the same price overall you
actually still got a discount because you didn't have to pay income tax
on the loans you took against your assets right and so um i wanted to

8 00:07:00.000 --\> 00:08:00.000 explain this because in my mind i
didn't know a way to uh to to have any kind of de-risking event for
myself without selling the business uh i just didn't know if there was
another way and so i'm making this like i make everything in this
channel is because a lot of people are broke and i know which one of
them and i've learned you know a fair amount in the in the transactions
that we've done and growing the companies that we have and i just want
to share those lessons to you guys so hopefully enjoy this hopefully
this is a frame shift or perspective in terms of how you see the equity
uh growth in your business how you ultimately can can grow your net
worth faster in a lower risk environment um that way and i'll tell you
one more thing i was talking to a private equity managing partner and he
was saying how for some of our companies for example he was like you
guys don't even have uh you have you have negative leverage he said you
have cash on your balance sheet he's like it's ridiculous he said you
should be taking loans against that equity so that you can redeploy it
and and do x y and z and so uh it was just a very interesting
perspective i thought i would share it with you um it's something that
we look

9 00:08:00.000 --\> 00:09:00.000 to uh you know continue to do uh in our
businesses and i figured i would share it with you because i love you
guys and keeping awesome so enjoy this video enjoy the next video and
i'll see you soon bye
