Roland Frasier

6 Key Points for Striking a Non-Cash Asset Deal

How can you acquire an ownership interest in someone else’s business when you are bringing non-cash assets like your knowledge or time to the deal?

How do you structure a deal to let someone else into your existing business as an equity owner when they don’t have cash but do have something else that’s valuable to your company that you want?

We have done several deals including a recent one like this. So I thought I would share one approach that comprises 6 key deal points to remember:

1. Who’s Involved?

What are the roles of each party? Don’t skip details here, not even seemingly minor ones. Think this as LinkedIn, but for this specific deal. Make sure to include full:

  • Job Titles
  • Descriptions 
  • Employment Agreements

2. Detailed Compensation Package Deal Points

Everything needs to be listed and detailed here. Don’t leave anything you know of now to chance and make sure nothing is ambiguous in the compensation package.

If the percentage is to be determined later, be sure to include what it will be based off of and what parties will be involved in making that decision.

This may sound obvious, but you’d be surprised how many deals don’t do this correctly. 

Here’s an example of something we just recently drew up for our last deal:

  • Buy-in for immediate equity + performance-based increases of up to 10%
  • Additional vesting 2.5% per year for four years (time-based component)
  • Plus performance milestones based on revenue (performance-based component)
P.S. If you're finding value from this already, I'm reaching 4+ "Leverage, Exit, Grow, & Scale" Intensive Workshops both on the West Coast and even in London of the next few months. We'll cover deal flow like this and WAY more. The idea is to help you achieve your 3 year goals in the next 12 months (it's doable, we've done it!) If you're interested, you can find more info by clicking the image above.

3. Have a Breakup Clause

Everything’s great, until it isn’t…

It’s important to provide for what happens if things do not work out, so you’ll need to build a breakup clause into the agreement.

In our case, if the other party leaves the business or is terminated, we have the right to buy them out on a pre-agreed valuation formula with pre-agreed terms

4. Pre-Agreed Buy-In is Also a Must

You need to agree on valuation for the buy-in as well. Usually this is done on an EBITDA basis (earnings before interest, taxes, depreciation and amortization) where valuation equals EBITDA multiplied by an industry typical multiple.

Here’s an example of a pre-agreed buy-in using EBITDA:

Let’s say the business is earning $1M in profits and you agree on a multiple of five, then the valuation equals $50,  a 20% buy-in would be $1M (or 20% of $5M).

5. What if the Value is Intangible, AKA Not Cash?

If the buy-in is not for money, but for some additional value they’re supposed to provide, you’ll need to place a value on those non-cash components too.

Here’s how you can do just that:

In this example, the other party’s value is their book of business (much like our most recent deal I mentioned above).

You operate at a margin of 30% profit and the other party’s book of business, or the things they’re contributing are expected to be worth $1M per year, then the first-year value would be 30% of $1M, or $300k.

If the average lifetime customer value (LTV) is 3 years, then the total value the other party’s bringing would be expected to be worth $300k at 3 years, or $900k in LTV.

Additionally, if your company valuation is $1.8M, then the other party’s book of business would  be worth an estimated increase in value of 33%.

$1.8M + $900k = $2.7M divided by $900k = 33%

So, if it goes as you expect, then the other party would receive 33% equity of the agency for bringing these assets/accounts (their book of business).

6. Adjusting for Change Throughout

It’s vital to include language in the deal that adjusts the other party’s equity (continuing the example in #5) based on any variance between what you both thought the value of the book of business (or what they’re bringing to the table) compared what it ACTUALLY is over time. 

Hint: We want to be the teddy bear Leonardo DiCaprio, not “The Reverent” Leonardo DiCaprio (though he did finally win that Oscar… but still)

Here’s how I would contractually adjust for change:

Scenario: after 3 years, the other party’s book of business only turned out to be worth $720k, which is 20% less than the $900k you expected.

Then a fair agreement would be to decrease the other party’s 33% equity to 20%, leaving them with 25.5% of the business instead of 33%.

Final Note:

There are lots of tax issues that come into play here as well as other deal points; therefore, always be sure to secure a successful attorney and advisor to help document and negotiate the deal.

There’s tons of ways to do these deals, so if you have any specific questions feel free to ask in the comments or find me on Instagram (@rolandfrasier), my DM’s are open. 


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How “Inversion Thinking” Will Revolutionize Your Business ( + Make You Millions)

Tell me where I’m going to go to die and I won’t go there.” – Charlie Munger

Not to be morbid, but this is a real thing. By thinking about where you don’t want to go, you’ll identify the problems that will get you where you don’t want to go.  What Charlie is getting at here is something called “Inverse Thinking,” and it can dramatically change your business.

During the most recent War Room Intensive, “Leverage, Exit, Grow, & Scale,” Roland Frasier broke this down to a handful of members and how to implement it into their business right away. What’s more, he provided some all too familiar examples of how Inverse Thinking has paved paths of ultimate success, and when a lack of it has led to quite the downfall. 

(NOTE: Roland’s Leverage, Exit, Grow, & Scale Intensive was such a hit, we’ve added THREE more of these intimate workshops in 2019. We have a few spots left for qualified business owners in August, September, & December. Let us know if you’re interested and the links above have additional information on each.)

No Revenue? No Problem?

Roland guided us through a journey where Inverse Thinking would have saved a ton of money, and most importantly a ton of time, inside his direct mail company. The business was going through a rough patch–revenue was down and the team was out of ideas. 

The two largest areas of costs for direct mail is obviously printing & postage. Therefore, to cut costs, the team decided to stop mailing for a period of time.

It actually worked, sort of.  But not really. 

Initially, costs fell and revenue was generated due to all the millions of pieces of mail already in circulation. But eventually, that dried up and they were performing worse than before the production shift. 

These things can happen, even in this extreme example But could have been prevented by incorporating the practice of Inverse Thinking…

The image above is from the slide deck used throughout this intensive and as an illustration for this specific example. 

Roland’s direct mail team could have utilized this three question series to avoid this problem by starting in reverse. 

Instead of creating an immediate solution to fix the problem, they learned to start with preventive solutions first. It’s vital to not only stop the slow bleed, but assure the system is stitched up so it won’t happen again. 

(NOTE: the full clip in the video above expands on 3 more examples and additional information on how to incorporate this type of practice into your systems.)

Eyjafjallajokull + 7 Figures

No, that’s not a typo.

This is the name of a volcano that erupted about 10 years ago, shutting down all travel for two weeks. Coincidentally, Roland happened to be vacationing Italy at the time. 

With no way to return home, Roland goes on to explain how Inverse Thinking turned a disaster into a fantastic success story. 

Instead of standing pat and waiting weeks for the next flight out, he decided to find a way to try a product launch.

Due to ample experience in the market, Roland’s previous assumptions were it would require to either have a product or build a list by investing a hefty sum of money into it. 

Instead of running either of those notions, he ended up earning $1,265,000 on a $1,250 investment…  

By spending a few full days pressing into every scenario launching a product could be effective, Roland was able to 1012X the investment selling a product called “Mainstreet Marketing Machine.” 

It’s amazing what you can accomplish if you just have the time to do it.

One Core Idea

These two examples show both ends of the spectrum. But they illuminate one core idea:

In every decision, identify what the opposite of what you want is in every situation and work backwards from there. 

The practice of Inversion Thinking will change your business, your personal life, and even make you a few extra bucks along the way (or millions). 

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Reverse Engineering Uber’s Disruptive Model for You to Copy & Use

One of the most overused terms across all industries is being a “disruptor.” So many already successful companies continually set their sights on this: 

  • “How can we disrupt the market?” 
  • “We need a disruptive idea to really put us back on coarse this year.”

The reason it’s so prevalent in the business today is because the uber successful companies (pun intended) transformed an already mature market and profited in such a way they’ve become the model home of the landscape we’re in. 

 At my most recent War Room Intensive, “Leverage, Grow, Buy & Sell,” we discussed just how brands like Uber & Airbnb did just that and how you can do it too. We’ve shared the full session on this in the video above. 

(NOTE: need some insight or even just interested in attending Roland’s Leverage, Exit, Growth, & Scale Intensive? When they aren’t 100% filled with War Room members, we sometimes offer them to qualified business owners. In fact, we have a handful of seats left for the next two coming up.)

Regardless of the “disruptive” principals Uber established, it still falls under one of the 14 business models every business I’ve come across does. 

You wouldn’t think that “Landlord/Tenant” applies to Uber, but it does. The landlord owns the car in this example, and the tenant is both Uber (for putting the passenger there) and the passenger. 

What’s interesting is when you start mixing and matching these business models with different pricing models, you can get really creative. Here’s how Uber did it:

There’s about 14 basic pricing models to use. Uber’s primary business model was “Broker: Connect Drivers with Passengers” and their primary pricing model is “Volume.” Uber charges a 15-30% broker fee for connecting drivers with passengers. 

As for the secondary models, Uber’s business model here is “Landlord/Tenant: Drivers Rent Car Space” and “Tiered Based on the Type of Car Requested.” Connect that with Uber’s secondary pricing model, “Volume: Distance & Miles.” and “Time of Day Premium (surge fees. Everyone’s favorite.) 

Uber’s third model was rolled out when they created an Affiliate Program to pay out Referral Fees to New Customers,” and did the same for new drivers. 

While it sounds like Uber was disruptive, they simply did something unique in a mature market. You can take these business & pricing models and mix & match them for your business, the same as Uber did to become so “disruptive.” 

(NOTE: the full clip in the video above also details how Airbnb did this too and even more insight into how you can effectively disrupt like these two companies did in their industries.)

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