He Slashed $150,000 Off The Price And Still Brought More Cash.

A buyer called me the week before his closing, pretty pleased with himself. Six weeks of back and forth and he had moved the seller $150,000 off the asking price. He wanted to know if he should push for one more concession.

I asked him what his cash to close was. He told me. It was higher than the number he had started with.

He had won. He had just won the wrong thing.

What He Won And What It Cost Him

The deal was a service business asking $1,500,000 on $500,000 of owner earnings. Three times earnings, which is right at the edge of where I stop looking. The broker had it framed the way brokers frame everything: here is the price, here is what the bank will do, bring ten percent and we can close in ninety days.

So he did what almost everyone does. He treated the price as the only thing on the table. Six weeks of comps and counters and one walkaway threat later, the seller came down to $1,350,000.

Run that out. At $1,350,000 on a standard structure, the bank carries $1,080,000, the seller carries $135,000, and you bring $135,000. Your debt costs you about $181,600 a year. Your coverage sits at 2.75 times, and it holds at 2.20 times if revenue drops twenty percent. Those are good numbers. He earned them.

And he wrote a check for $135,000 to get them.

Now hold the price at the original $1,500,000 and change nothing except how the pieces are arranged. The bank still carries eighty percent. The seller carries fifteen instead of ten, and five of those points go on full standby, meaning no principal and no interest for the life of the SBA loan. That standby slice counts toward your required injection. Your cash drops to five percent of the price.

Your cash to close on that version is $75,000. Sixty thousand dollars less than the version he spent six weeks fighting for.

He negotiated for six weeks and paid $60,000 for the privilege.

Price Buys Coverage. Structure Buys Cash.

Here is the thing nobody explains, and it is the reason that buyer got confused about what he was doing.

Cutting the price shrinks the loan. A smaller loan means a smaller payment, and a smaller payment means better coverage. That is what price buys you. It buys you room to survive a bad year.

Changing the structure does something different. It moves money from your pocket into the seller’s note without touching the total. Your payment barely moves. Your coverage barely moves. What moves is how much of your own capital is sitting in the deal on day one. That is what structure buys you.

Which is why the restructured version is not automatically better. At $1,500,000 with the standby slice, your coverage is 2.48 times and it lands at 1.98 under a twenty percent stress test. That is a hair under my two times bar. Better cash position, thinner cushion. The price version has the cushion and eats the cash.

Neither one is free. Anybody selling you a structure trick as a way to get something for nothing is skipping this part.

The answer is that you ask for both, and you ask in the right order. Take the price to $1,425,000, which is a five percent move most sellers will make in an afternoon rather than six weeks, and put the standby slice in the structure. Now the bank carries $1,140,000, your coverage is 2.61 times and holds at 2.09 under stress, and your cash to close is $71,250.

Better coverage than the restructured version. Half the cash of the price-grind version. Your owner cash flow after debt and after replacing yourself with a manager runs about $233,000, which means you have your money back in under four months.

After 35 years of watching these negotiations, the pattern is almost always the same. The buyer arrives with one lever and pulls it until it stops moving. The seller, who has usually done this before or has someone advising him who has, is perfectly happy to let him.

Ask In The Right Order

The sequencing matters more than the arguments do.

Open on structure, not price. Ask what the seller is willing to carry and on what terms before you ever say a number about price. A seller who has already agreed to carry fifteen percent has told you something about his confidence in the business, and he has done it before the conversation turned adversarial. Once you have argued about price for a month, asking him to also carry paper feels to him like losing twice.

Then take a modest price move. Not a heroic one. A five percent ask that you can support with one specific reason beats a fifteen percent ask backed by a lecture on multiples.

And know which lever you actually need before you walk in. If your coverage is thin, price is your problem and you should spend your leverage there. If your coverage is fine and your cash is the constraint, structure is your problem and grinding the price is theater.

That is a five minute exercise, not a six week one. Put the deal in at the asking price, then again with the structure changed, then again with both, and look at what actually moves. You can do all three passes through DealScore Pro before you send a single email.

Know what you are short on before you decide what to ask for.

What This Means For You

If you have a deal in front of you right now, run it three ways this weekend: at the ask, at the ask with a standby slice in the carry, and with both a five percent price move and the standby slice. Whichever number moves the metric you are actually short on is the thing to negotiate first, and everything else is noise you can trade away later.

The whole method is built on this idea: the deal you are handed is not the deal you have to take, and the terms are more negotiable than the price. I walk through the full framework, including how the structure gets built and where it breaks, in the free 28-minute masterclass.

See you Tuesday.

Mike

Want to see how I stress-test every deal against cost shocks, revenue dips, and hidden liabilities before I'd put a dollar at risk? I walk through the entire Bulletproof method in a free 28-minute masterclass.

Forward this email. Tell them to grab Mike's free book - Real Estate Is for Suckers: Buy a Business Instead. Same framework Mike uses to stress-test every deal.