After 3 weeks with giants strides made towards the Q1 sprint goals, somewhat inevitably this week was a bit like baby steps or even standing still. Hence the title of grinding it out.
Still, there’s lots to learn, for example how business brokers can sometimes set an unrealistic expectation in the mind of a vendor. As the saying goes, the first one through the door usually gets shot! That’s how I felt when I had to break it to a self-employed business owner that paying himself £10k per year gives a false picture of the business profitability. Of course, this wasn’t taken so well and we got shot! 😂
There’s more than a numbers update, so time in to hear more as we progress along this sprint challenge.
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Transcription of the show
After 3 weeks with giants strides made towards the Q1 sprint goals, somewhat inevitably this week was a bit like baby steps or even standing still. Hence the title of grinding it out.
Still, there are lots to learn, for example how business brokers can sometimes set an unrealistic expectation in the mind of a vendor. As the saying goes, the first one through the door usually gets shot! That’s how I felt when I had to break it to a self-employed business owner that paying himself £10k per year gives a false picture of the business profitability. Of course, this wasn’t taken so well and we got shot! 😂
There’s more than a numbers update, so time in to hear more as we progress along with this sprint challenge.
Property Chatter
Welcome to the property voice podcast helping you to navigate safely through the world of property investing, get the lowdown and updates, insights and outcomes on all matters property with a splash of entertainment along the way to a property, voice, or the voice to trust among the crowd. Now, let's get started with your host, Richard Brown.
Hello, and welcome to another episode of the property voice podcast. My name is Richard Brown. And as always, it's a pleasure to have you join me again on the show today. Well, if you listen in last week, you would have heard a little bit of background noise that I listened back myself and I think that was quite relaxed, actually, with the sound of water waves to be specific in the background there. So I hope I didn't put you off too much hope you didn't mind that. But as you can gather I was away last week and had a really good rest, lots of good food and just relaxation, really. But obviously, on a spring challenge, it's hard to completely switch off since was doing certain things whilst I was away, answering various questions, and keeping things ticking along. I wasn't working very hard, but I was doing a few things along the way. But the interesting thing is, after a few weeks, I think the first three weeks of literally kind of a bit of downhill with the wind behind you type of run. And the last week has kind of been a bit of an uphill with the wind against us in our face, in truth. And I guess that's inevitable, in many ways, because there wasn't a lot of like, I'd love to come on and just how all this happened that happened to you ever happened. But it was a bit of a grinding weekend away that we've had over the last week. There are some good things that did happen. But I guess we kind of got a bit spoiled by how well things are going in the first three weeks of this challenge. So week four, was a little bit slower-paced, a little bit. Nothing sort of earth-shattering, really, there are some decent things, but nothing earth-shattering. I guess it feels a little bit let down. But I was just thinking about and reflecting before we came on to talk to you today. And I think we're gonna put things in perspective, this is four weeks into a sprint challenge. Okay, it's also the end of the quarter.
So I'm only sharing with you around about half of the timeline of the entire, you know, q1, which is what, this spring challenge is all about, really. So we've been working for the first six weeks of the quarter, six, seven weeks of the quarter. And of course, we'll be working for them during the last six weeks of the quarter as well. But there we go. So I guess, keep on grinding. Maybe that's not the right phrase, actually. But you know, it, sometimes it is a grind, and you just got to keep going because it's worth it. And you can't be 100% you can't perform 100% all the time every single day. I don't think so anyway, some people might disagree with me. But I do believe that sometimes you have to source toughed it out, slug it out, just keep going. Perhaps you're feeling a little bit underwater, wading through quicksand, but you're going to come out the other end. And so I was just thinking, Well, what are the updates I can share with you in terms of the four areas for the goals. And you know, there are some progress things, I'm pleased to say. It's amazing how your mind can get a little bit distorted at times. So let me just run you through. So the first goal area is in mergers and acquisitions. And the strangest thing is the block management and letting agency business that we put an offer in against, it looks like it's gonna fall over. And it's probably important to share actually some of the rationale behind that. So I'm trying to avoid going through business sale brokers for the most part. And, this particular opportunity is a good example of why because let's just put it in perspective, the owner of this is a kind of a one-man-band who is running his business from home. I think it's a bedroom, or a bedroom has been converted into an office, but he's essentially running the business himself. And, you know, he's got a, he's got some hired hands to help, you know, cleaners, gardeners, that sort of thing, because he's running blocks, and a maintenance guy. And I think he's toyed with the idea of having a full-time assistant actually hasn't quite locked that down as being for a couple of people in a year. So essentially, it's kind of a one-man band and trying to get an extra pair of hands to help. And so that's fine. I've got nothing against that, but it's basically a job. for him. It's not a business. If it was a business, he would be employing someone and just overseeing what they do. And you know, checking in and we have some sort of dashboard reporting and to essentially be overseeing the day-to-day operations, but he's in the thick of it.
So that's one of the challenges you sometimes face in this business is somebody believes is selling a business, but they're actually selling a job in reality, and so you've got that hurdle to overcome, they don't see it that way. They think they've built up a great business. But the only way that you can take over that business is if you replace them. And that brings me to the second point because he wasn't paying himself a proper salary, you've got above the line and below the line earnings with the company. So above the line earnings is what's taxable in your profit and loss accounts. Usually, that salary could be other things, but essentially, it's a salary. And he's taking a minimum salary, which is, again, good tax planning, good practice, if you're running a business, but it's not so good, actually, if you need to sell that business, and then somebody needs to come in and replace that person. Because if you're paying yourself, say, 10,000 pounds a year, for a job, that really would cost 30 40,000 a year for somebody else to undertake, that's probably a minimum, plus all their own costs, their benefits, for example, potentially overheads, expenses, sick leave, it said training, all of that stuff gets added on top of that. So probably looking at closer as a 50k as a total cost of employment to replace him, he's paying himself 10. So there's a 40k def deficit effectively in the profit. So whilst he thought he was making something like 75,000 80,000 a year profit, when you kind of add back the cost of replacing him in the business, you're probably looking at more like 40,000 a year profit, something like that. Now, I'm probably being generous there as well. So then you've got this disconnection, because they're going to value the business, probably a multiple of profit, but they, and by the way, the business broker is probably going to tell them a higher multiple of profit than what we're prepared to pay. So that's one of the reasons I don't really like going through Business Brokers because they're probably cooking it up and saying, you know, and cooking up the expectation level amongst the vendor as well. And then the second thing is exactly what I've just said that usually self-employed people or people running their own business, they deliberately don't pay themselves a big enough salary, and they'll take their main earnings in dividends, which is below the line.
So if we throw the dividends back into the equation, or the salary back into the equation, they're in, you know, we have an adjusted profit position. And that's going to create a bit of stress if you like. So, I'm not saying it's dead, dead in the water, but let's just say that being early to the party, and having to break that news to them, you know, doesn't make you miss the popular. So that was an interesting exchange effectively that we had with that business owner. And there's probably going to be one that sits in the pipeline, and you're probably gonna have to wait for him to realign his expectations, possibly, he's had another offer. And, you know, good luck, if that's the case. But you know, that's, that was the situation as we saw it. And I think there was, there was another point I was gonna make about the business broker scenario. The other thing, when you're buying a business, you've got two main options, you can either buy the assets, and the goodwill of the business, which is effectively the customer base, and any contracts they've got in place, and potentially some physical assets, potentially some intangible assets, like brand names and websites and things like that, you can buy the assets and leave everything else behind. And that is a simple way of buying a business and is more is relatively risk-free, because you're not taking on any of the obligations of any of the liabilities, and especially any contingent liabilities that might be lurking. And that's one way, the second way is to buy the business lock, stock, and barrel. And that's to acquire the shares effectively. Now, when you're buying the shares, you're buying everything, you're buying the assets and the liabilities, you're buying the brands you buy, you're just buying at, you're taking over the entire business operation. And if there are some merits in doing that, but there's also some risk. So if you if you're buying the entire business, you're stepping into the shoes of the owner, and you don't know what they've done, these liabilities are potentially lurking, for you to pick up in the future, you know, it might be a lawsuit or something like that, or, you know, refund requests, all sorts of things could be lurking.
So there's more risk in terms of buying the shares, but there are some other benefits too. So there's he was weighing a buy, am I buying the business? am I buying the shares? Now, sometimes? Well, not sometimes, in this case, in this particular example, I'm digressing here. I hope you find this interesting. But in this particular case, we're buying the shares, okay, so when you're buying the shares, you're buying everything. And yet this particular business owner wanted to keep all the cash in the business. So there was a reasonable sum have money in the bank account. And they said, well, we're selling you the business. But without the cash. Now, you can negotiate that that's not unusual, but you need to specify in advance, then that basically is called zero cash zero debt basis, you can, you can do that. But the standard procedure, when you're buying the shares of the company, is you're buying everything. So you're buying the assets, and you're taking on the liabilities. So now obviously affects the value of the business, depending on what the assets and the liabilities add up to. Now, in this particular case, the cash there was a reasonable amount of cash, and there wasn't a lot of liability. So there was a positive, you know, balance in the cash and therefore positive assets that we were stepping into, and that form part of our valuation. So lo and behold, of course, we submit our offer, you can probably see where this is going, now, we've gone well, we need to reduce your profitability because you're not paying yourself in a salary. We're probably valuing the, we're probably gonna use different multiple profits multiple to what your advisor has suggested. And you know, I'm not going to criticize them. But you know, they're obviously talking up and we're kind of looking at what it's worth to us. So you've got two negatives there. And then the third one is what our offer is for the shares of the business, which includes all the assets and liabilities. And they said, Well, we want to keep the cash. Well, okay, you can keep the cash, but that reduces our offer by the equivalent of cash. And then like that, so long story short, we were aware a part of that particular one, and I'm just elaborating on this particular conversation or this exchange, because it's very relevant, if you're looking at buying selling businesses, of course, you know, to understand these things, and to work your way through them. So that was a bit frustrating because we'd spent about a time and I think the report was good initially with the business owner, and indeed, with the broker, but the eggs kind of were a bit apart, let's just say that. And that's fine. You know, we're building a pipeline of business, we don't expect to win everything we're going for, in fact, we want everything we go in for winning, everything we go in for is the wrong attitude, isn't it? We don't want to be overpaying for these businesses. We want to be paying a fair price. So we have our own view on a fair price. And the owners have their view on a fair price. And they don't always meet and of course, sometimes they're in competition as well. But it's still frustrating because you spent a lot of time on these things. So that was that one is, you know, I don't say is dead, dead dead. But you know, probably not, we're probably not gonna proceed with it. Let's put it that way.
So that was one acquisition. The second one I told you about last week, we got into the final position. Now we're kind of still there. In a way, I think the owner is looking for a confirmation that we can genuinely move relatively quickly, which, which we can. And so we've given that assurance. And so I don't have the update as I'm talking to you today, but I'm expecting them to go Yeah, fine. You know, because they set the timescale? And that's, that's what I mean. So we can you work quickly I along with these timescales. And that was probably outside of what we expected, we'll be able to move out. So that seems okay. But I don't have the answer as I sit here today. So there's that one. And then there was the business I told you about where we're lining up a conversation that hasn't happened yet. But on the good news side of things with the mergers and acquisitions, my business partner is has pursued an alternative industry acquisition, I decided I was gonna stick with property. But she wanted to also look at opportunities in another sector, she's more familiar with herself, which is marketing. And she's submitted an offer, she's been, you know, described as the preferred bidder, or the preferred buyer. There. So that's, that's gone in. So that's good news. Good news for her. So we've got something to celebrate this week on the mergers and acquisition side of things. So hopefully, that will be well received. They don't she doesn't know what the other bids looked like. But as the preferred buyer, I think she'll be given an opportunity to sharpen the pencil, so to speak, if it's necessary, but I've been involved in her offer, and valuing the business and how to position it. So you can blame me, I suppose if it doesn't work. But yeah, that's been good fun. So I've enjoyed doing that. Anyway, that's the mergers and acquisition side. So a little bit sticky. But, you know, it's still good overall. And you know, whether we if we've taken three giant leaps forward, maybe it's one side step sideways or backward this week, that would be the sort of overarching theme. And next up, we've got the blocks and portfolios. And, again, it's like now we've made some good progress with three of the offers I told you about last week. And we were we're getting stuck on proof of funds. We've now unblocked that but literally by the time I just before I came on to record this, so we were just putting across the proof of funds it took a week. I think he's taking all the week actually in total, but last week, I didn't have the proof funds. I was expecting to have them and he's taking them Another week to get them. But the owner is overseas as a finance director involved. And yeah, it just was a bit sticky. So we had to sign some bits of paper there to just give everyone the assurances they need. And then we've got the proof of funds. And literally, that'd be winging its way across now to support our formal offer. So you know, maybe next week, what the response on that one is. So that's kind of just progressing, if you like the same three offers I told you about last week, just as a recap, one is about 6,000,001 is about roughly 7 million. And the other one is about 750,000, for multi-unit blocks that are all completed, actually pretty much all completed. So that's good. And we've got something like 20, other blocks and portfolios in the pipeline to review. And literally today, I've reviewed, I think, seven or eight of those discarded, so I think it was eight, so discarded six, and that leaves two that we're actively going to the next stage of due diligence. So we'll see how that goes. But they look quite promising the two.
So in terms of meeting our criteria, and what we're looking to achieve, as always, it's never straightforward, there's usually something that we need to get our head around, whether it's the size of the unit or the freehold position, or whether it's being completed, or you know, there's something so we need to get comfortable with that. And make sure that we're okay, so But I think one of those blocks is available for about three-quarters of a million that sort of level. And the other one is for family memories, good memories, correct me about 4.7? I think it is, we need to just double check that one. I think I'm just gonna look it up. Now while I'm talking to you. So it's got more rigid? Maybe this isn't the best podcast, but I'm having to look things up. But I noticed a significant discount. Oh, no, no, sorry, I got confused. That's why I wanted to check as I wasn't sure myself is now it's about 10 million. So there's quite a difference in size there. So there were boxes, you know, boxing above our weight in terms of what we were used to in the past, we've kind of valuation but we've now gained, we are now gaining access to other sources of funding, which are allowing us to tap into our higher threshold. And it's interesting actually, because when you soaring in the sky, there are fewer obstacles in your way, essentially. So the higher you go, the less there is for you to hit. Obviously, you can, if you fly like a bird, there are trees in the way sometimes and then there are tall buildings. And then there's, you know, jet aircraft, but the higher you go, there are fewer and fewer things that you can run into. So I think that's it's an interesting one, isn't it the fact that we're looking at, you know, property values block values of up to about 10 times really what I was looking at about a year ago.
So that's, that's a very significant development. So that's blocks and portfolios, and she's trying to think of anything else to update you on there. We want to get those three offers security if we possibly can, those two extra ones I've just told you about think we're going to progress and do some more in-depth due diligence before deciding whether we're gonna offer or not, but they've definitely passed the first test on those ones. Yep, the thing that's up. And that kind of ties in really too private financing. So that's an interesting one, we've got a high net worth syndicate who've offered to review our propositions, let's just say that coming up towards the end of the month, so that's going to be quite a key meeting is going to be a critique, let's say of what we do. So I'm expecting perhaps to be a bit beaten up, let's say, in going into that, I wouldn't say it's a Dragon's Den environment, it's a Dragon's Den environment. Let's face it. So that would be interesting to see how we get on with that. And but I think it'll be a valuable experience, you know, I'm not necessarily expecting, like, come out with money and investment. But I'm expecting that we'll come out with, there's a minimum, you know, some great feedback on our proposition and how we show we're presenting ourselves and how we go forward from there. So that's pretty encouraging. Great. So I think it also gives me a bit of a deadline to work to in terms of the investment memorandums and things like that, and then the pitch deck. So I'm looking forward to doing that piece of work, which is possibly being putting off a little bit because, you know, you've, you have to go through a bit of an iterative process to get that, right. There are usually multiple variations before you settle on the final version. But I'll pull my finger out and get that done, because I've got about two weeks to polish it up, really. So that's the blocks of the portfolio and sorry, the funding side of things to think about as the funding side of things. And I think, you know, to be honest, if any of these deals, especially these, you know, six 710 million deals come through, we have smashed our goals, frankly in every respect It's in terms of blocks and portfolios and private funding. And if we do get the offer accepted on the rental business, I alluded to earlier, the mergers acquisitions will, kind of we are, we're already at two and a half x, what we set ourselves as a target for the beginning of the year. And I revised that to 3 million. So we'll pretty much do it with that transaction, frankly. So that is great. Frankly, it's really good. So that leaves me with just the book to update you on. And I'm really pleased because just before I came on air, I thought, well, I need to just toss up the word count. And I framed my goal for the book as writing 50,000 words before the end of March. And I'm going, to be honest with you, the last two weeks are pretty difficult. And they weren't difficult anyway, you're gonna hear in a second, but they were difficult because I was amused using the 8020 rule, that the book I'm writing on property finance 80% of the content, I kind of know, right, I already know, some is in my head, or I've got it documented in some other way. And I'm just piecing it together. So 80% of the job is, is either pulling it out of my head or just pulling it out of a document that I already have somewhere that I've created for another purpose. And of course, I need to stitch it together, I need to make tell the story, I need to you know, give a case examples and things like that. And that's the extra 20% really, and then sometimes it's extra research as well that I need to do, or what's current about me, you know, I'm I also date. So that's the 8020 rule that I've been working on it. To be honest, I've been flying with most of the chapters with them in the book. But I came to this one chapter and I kind of was encouraged to include this chapter in the book. And I was honestly shying away from it. And one big part of it is because it's about taxation, and you know, taxation is one of those subjects isn't it is that it's constantly changing. It's incredibly detailed.
There are so many if buts maybes, you know it's and circumcise people's individual circumstances affects their tax position. In so many ways, it makes it a really difficult chapter to write. So I was resistant to include taxation within this book on property financing, but taxation is one of the ways in which you can help raise funding or safe funding for your property investments. So I think it's right, it's going to be there. Because my definition of property finance or property financing is not just vanilla buy to let and bridging finance and perhaps development finance. Otherwise, it would just be a three-chapter book. Or it'd be very, you know, three very long sections going into dreary details. And that's not what this book is about 15 chapters, and three of which of those vanilla topics. And the rest are really interesting things, alternative ways of looking at things creative financing, you know, not nontraditional ways, basically of looking at financing. So this chapter will be included, grants, soft loans, and taxation. That was what I was going to write, I set out to write that two weeks ago. And the 8020 rule that I'm talking about. I've probably shared a social media post today saying I was you know, it was more like 5050 rather than 8020. I'm probably being generous there, frankly. Because with things like grants, and taxation, and government-backed loans, which I'm calling soft loans, that is constantly changing, and especially now, of course, when we're, you know, trying to go through a pandemic and then recover from a pandemic. We've got the budget, I'm still rereading what, you know, the Chancellor came out within the budget, and just finding new things all the time and, you know, things are being reworded, things are being re-launched, things are being tweaked. And so it was a torturous chapter. But the good news is, well, you're supposed to be one chapter. But the, I suppose the good news or the bad news is, I've managed to write about 13 and a half 1000 words for this one chapter. Now, clearly, that's too much too many, for typical chapters, about 3000. Words, approximately, it can be slightly less sometimes could be slightly more Other times, you know, sort about 3000 words. So obviously, 13,000 is huge. And so decided it's not one chapter, it's at least two, it could be three. So but I think there needs to be a little bit of wordsmithing that goes along to trim that back. So and where am I going with this, I'm going to give you an update because if I counted the 13 and a half 1000 words, then I've broken my goal because I'm 51,500 words written to date for the book. So I've achieved my goal effectively in terms of word count. So I'm going to press on obviously and keep pushing and trying to crack out the remaining chapters. It could well be the book is longer than 50,000 Well, they're new the book doesn't belong in the 50,000 words, but you know, obviously need to be careful how long it is. But I think you know, 13 and a half 1000 words for the combined chapters on grants, soft loans, and taxation might condense down a little bit, actually, after a little bit of editing, and a bit of support from Helen, who's going to look at my while editing effectively, so. But again, I guess Pat's on the backside Pat's on the back because of achiever goal is the long and short of it. I've broken the 50,000-word count target for the books for the book. And so I'm pretty chuffed about that. Because I didn't realize until I sat down just before recording this. So that's one tick. And therefore, it's also time to reset that goal. And so I'm going to push on, think I've got two weeks left of the month. And my average writing rate is about three to 5000 words at a weekend.
So I'm going to, I'm going to stretch my goal to 60,000 words by the end of March. That's what I'm going to do. So there you go. You heard it from here first. So 60,000 words before the end of March, we'll see where that takes us in terms of the overall word count for the book, suspect it's going to be, you know, a little bit above that, actually now. But so there we go, I can reset the goal. But I can give myself a little credit card. I, you let me a little bit of credit. Thank you. I'm sure you will. So that's it. So there we go. It's an interesting one, isn't it this week, because sometimes progress is measured in giant strides. And sometimes progress is measured in smaller steps. And sometimes you're standing still, but still making progress. And I think that's what this week is really looked like. So the first few weeks were giant strides. I think this week, there's been a couple of small steps. But there's also been a little bit of standing still in many ways. And she's holding firm, and you know, perhaps taking stock before pushing on again. So I think that's the overarching thing. I hope this is interesting, you know, share really over six weeks is obviously interesting for me, because I'm getting to hold myself to account I'm having to every week, keep tabs on what I'm doing and the progress. And of course, you know, want to make sure that I've got something to say when we have this little share as we do. So I hope that is interesting for you to hear this, these insights, as it is for me to kind of experience it. And if I'd quite like some feedback, so why don't you just give me some feedback, drop me a line podcast at the propertyvoice.net if you would like to give me some feedback on how this is being gone these four weeks, and I'll be happy to take it. But that's really my cue actually to draw a close to this particular episode. So you know how to reach me if you want to talk about today's show feedback, as I mentioned, or talk about anything to do with the property at all. And the show notes are going to be over the website, thepropertyvoice.net as well. And yeah, I guess that's it, really. So thanks very much for listening once again this week on the property voice podcast. And until next time, is Josh.
Thank you for listening today. Now head over to thepropertyvoice.net. For more inspirational content and get updates through our mailing list. Join us next time on the property voice podcast and if you enjoyed the show, please don't forget to rate us on iTunes.