Luke Bolton
69 posts
Ok, here is the thread! 🧵
How did I send 34,000 emails and buy one business?
It took a long time, but in the end, I bought a great business that had >200 employees.
Bookmark if you are searching for a business to buy!
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An entire MBA fits on one page.
But you better know the math cold.
Like & comment if you want the excel.
6 topics:
*1) Unit economics*
This builds from product-level unit economics to company financials.
Quantity per unit, growth in units.
Price per unit, growth in pricing.
Cost per unit, marketing spend per unit.
Get you return on ad spend (ROAS), customer acquisition cost (CAC), LTV/CAC, gross margins, unit contribution margins, and more.
This model sets up two diverging products:
A higher gross margin (GM), higher marking cost, low pricing power, low growth product.
Against a lower GM, better pricing power, better growing, lower unit market cost product.
To show how the dynamics of the two play out over time.
*2) Accounting*
Unit drivers flow into revenue, variable COGS, and variable SG&A.
Then to EBITDA, EBIT, EBT, Net income & EPS.
Simple cash flow statements & balance sheets reconcile D&A to inflation-adjusted replacement CapEx, debt levels, & GAAP PP&E.
You have to be fluent in accounting to look at public companies.
Not because accounting itself matters.
But because accounting can obscure what matters.
And your task it to translate GAAP into meaningful business logic.
*3) Operating ratios*
Unit drivers output financials, financials output overall business ratios.
Revenue growth, EBITDA growth, EBITDA margins.
Contribution margins (= change in profit over change in revenue).
Net debt-to-EBITDA, net debt % of EV.
*4) Valuation*
You can drive valuation on multiples or a DCF.
Which are equivalent:
The discount rate minus the growth rate determines the 'terminal multiple.'
Using a P/E instead of a DCF simply uses next year as the terminal value.
This model drives value from the DCF, and maps that to the multiples to show how they connect.
*5) Corporate finance & DCFs*
DCF math attached using the CAPM.
The summary is a beta from historical returns, add the cost of debt.
To get the WACC - the theoretically correct discount rate.
DCFs are extremely assumption laden - you can get out almost whatever you want.
But realistically.
Your banker (or analyst) will make the math work out to a 7-13% discount rate.
Depending on the risks, industry, markets - and what they want to achieve.
*6) Sensitivities & the hard part*
The last section sensitizes the equity value and multiples to unit and price growth.
Bringing unit drivers full circle to valuation outcomes.
Ultimately, the hard part isn't the math.
You have to be fluent in the math, its nuances and its limitations.
If not, you will lose out to those who are.
But once you are, you also have to shift focus.
To the hard part.
Which is always in filling in the numbers.
If you're investing, that means thoughtful views on unit drivers; on how, when, and why they shift.
And if you're building, it means making the numbers on the page happen.
That's all for now.
Like & comment if you want the excel.
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I write a lot of threads about #SMBTwit topics like search funds, SBA-funded acquisitions, and operations.
Here is a live list of my threads to date:
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Investing checklists are amazing
Want a free copy of the one I use?
Download it here (enter $0 to get it free):
brianferoldi.gumroad.com/l/zWXye
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Warren Buffett. Peter Lynch. Charlie Munger. Philip Fischer.
All of these super investors use checklists.
I spent hours studying their criteria.
Here’s the ultimate list of investing checklist questions (all yours for free):
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No metric captures what I need to measure cashflow performance.
So I created my own.
It’s called Maintainable Free Cash Flow.
Here’s how it works:
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I created a 12-month goal-setting template for 2023.
This template will help you create a 12-month action plan to accomplish your goals.
Normally $15, but I'm sharing it for FREE for the next 24 hrs only.
Reply "goals " below, and I'll DM you the link to download the template.
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Stage 2: Craving
The second stage of the habit loop is all about how you interpret the cue. It's about the prediction you make and the meaning you assign to the cues in your life.
Make a different prediction and you'll take a different response.
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(Thread)
I spent the last 6 years researching, writing, and thinking about habits. The culmination of this work was my recent book, Atomic Habits. (Now a NY Times best seller!)
In this thread, I'll share tweets from myself and others that illustrate some key lessons I learned.
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There’s never been a better time to buy a business and build life-changing wealth for your family.
But you might be getting discouraged by some pretty big lies going around.
This thread highlights 5 of them - and uncovers the truth.
Hope it helps you in your search!
A 👇🧵
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8 TED talks that will teach you more than a 4-year degree:
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$70 trillion of Baby Boomer wealth will be transferred by 2030.
Economists are calling it "The Great Wealth Transfer."
A quick guide to what's happening and how you can benefit:
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How to build an interactive Excel Dashboard (step-by-step): 📊
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Indicators of a Strong Acquisition Candidate.
Great checklist when studying serial acquirers/roll-ups.
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