Arizona Small Business Investment Return Analysis

 

Arizona Small Business Investment Return Analysis By Gush And Associates.

 

A Small Business can yield big returns with low costs!   Big risk too.  Manage the risk well and become the ‘millionaire next door’.   As a buyer, acquire a small business to enjoy big returns. As an owner, position yourself to share in the big profits yourself. More on that point later.

The list of returns for small business are listed below. They are big!  25% to 50%! If you’ve watched the hit show ‘Shark Tank’, you observe they play actively in this small main street business market. There is a reason why!  Big returns!

Two critical components required to drive growth for a small business are 1-access to capital, and 2-access to an established sales channel to drive sales. Most small businesses are weak or fail in these two regards.  That’s where the Sharks come it!

The Sharks buy small businesses for 2.5x to 3.5x cash flow, add capital as needed, open key established sales channels, and away they go. The business explodes.

There are strategies where a small business owner can play the same game.  Bring on a capital partner, or a strategic partner with an established sales channel.  Sell a minor or major share.  And, do consider using earn-outs and seller carry strategies to.  They allow you to capitalize on near term upside and defer taxes. Most small businesses are not prepared for a sale, and the owner may be financially better off not selling but executing other strategies. More on that later.

Below are the returns for small businesses and typical investments in a range of asset categories from CDs and Treasuries.

 

 

Main Street:            Returns

$2-5 Million             23%               (4.4x SDE)

$1-2 Million             30%               (3.3x SDE)

$500k-1 Million      38%               (2.6x SDE)

<$500k                      50%               (<2x SDE)                                                                             

 

 

2018 Inflation:          1.9%

 

 

CDs                             Returns          Multiple/Type

-1 Year CD Rate:        1.19%             (Nationwide over $100k, under 1.10%)

-5 Year CD Rate:        2.10                (Ever Bank, Capital One 2.0%)

-10 Year CD Rate:      2.95%             (Discover, Chase 1.46%)

 

 

Treasuries

-5 Year T-Bond:         2.74%

-10 Year T-Bond:      2.85%

-30 Year T-Bond:      3.01%

 

 

Immediate Annuity:  (Principal and Interest)

60 year Old:                6.0%

65 Year Old:                6.7%

70 Year Old:                7.7%

 

 

REITs

Vanguard VNQ           7.8%              (Real Estate REIT)

 

 

EquitiesStocks:  Vanguard ETFs as benchmark sample. 10-Year delivery average/yr.

VT-World                  6.87%

VTI-US Total           10.78%

VTV-Large Cap        9.78%

VOE-Mid Cap          11.50%

VBR-Small Cap       11.09%

M&A Market

Middle Market          10-16%         (8-10x EBITDA plus)

Small $5 -50 Million  16%                (6.1x EBITDA)

 

 

(Sources: Bank CDS, Treasuries, Insurance Annuities, Vanguard ETFs, IBBA, BizbuySell)

 

 

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