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Newsletter #0002 - How to Value ANY Business
Nikolas Hulewsky
March 01, 2025
I hope you had your coffee, drank your redbull or took your Ritalin because today is PACKED with value! In this newsletter you will:
Learn how to value your FIRST business (with my custom tool)
Learn how Erik Kaiser CRUSHES the memory; what changes Eric Pacifici (SMB Attorney) is seeing in deal valuations; why after a 7 hour meeting, a billionaire offered Chris a job!
Watch me pick apart a $2M (purchase price) furniture business with $1.5M in cash flow
Learn if you can buy a business without having any assets
The No-BS Guide to Valuing Your First Business
Buying your first business is terrifying. You’re excited to get in the game, but you can’t afford to miss. You want to “buy a great business at a fair price”… but how do you know what a fair price is?
This guide walks you through how to value any business—especially your first one.
1. Minimize Your Downside Risk
Buying a business is exciting. You’ll build wealth, get some status, and (hopefully) make serious money. But let’s be real; your #1 goal is NOT losing your shirt.
Worst case? You could:
🔹 Lose your house
🔹 Go bankrupt
🔹 Wreck your reputation
🔹 Tank your marriage
🔹 Destroy your confidence
50% of all businesses fail within 5 years
Not fun. So yes, dream big, but treat this process with respect.
2. You’re Not a Fund—Yet
This is your first deal. You don’t have a track record.
That means:
❌ No fancy talk about “synergies” or “vertical integration”
❌ No paying for potential, only what the business is doing TODAY
Your job? Underwrite the business as it is, not as you think it could be.
3. Forget About Multiples
Throw out everything you’ve heard about multiples. Why? Because multiples only reflect what other people paid (past tense). And the only buyers using multiples?
✅ Sophisticated industry operators
❌ Idiots
Since you’re neither (yet), focus on what YOU can afford to pay.
4. What Actually Matters: Cash Flow
Forget valuation formulas! Cash flow is king so you need to understand:
💰 Revenue (Money coming in)
💸 Expenses (Money going out)
🏦 Debt Payments (What you’ll owe after buying)
Cash Flow = Revenue - Expenses - Debt
Identifying the best Cash Flow proxy for a specific business is THE most important step in this process. Here are a few of the many proxies for Cash Flow:
- EBITDA
- NOI
- Profit
- Taxable Income
Don't be prideful here. Find a CPA, financial whiz, mentor or investor to help you calculate the right number!
Once you have this number, you need to add in anything NEW you will implement into the business and anything the SELLER is currently doing. Here are 3 questions to get you started:
👉 If I took over today, how would the business perform? Not last year. Today!
👉 What’s the owner actually doing? Most small business owners are involved. Will you need to hire someone to replace them?
👉 Is this business seasonal? If 60%+ of sales happen in one quarter, you need to see a full cycle before buying.
5. Setting Your Valuation
You are ALMOST ready to crunch the numbers but first we need some information from the bank:
📌 Loan rate
📌 Loan term & amortization
📌 Debt Service Coverage Ratio (DSCR)
📌 Cash Down (required & preferred)
Pro tip: Most banks will lend at 1.2 DSCR—but for your first deal, we want to underwrite to at least 1.6 DSCR. Why?
The J-Curve
See that “J” looking curve above? That’s your cash flow dropping post-close while you get up to speed. You start with $350k. After cash down to buy and transition the business, you drop to $56k in the first quarter.
That’s tight.
The Model
Now that you’ve done all your homework, lets plug the numbers into our calculator.
It's an easy process:
Step 1. Enter Purchase Price and Cash Flow Proxy
Step 2. Enter loan Term, Amortization Period and Rate
Step 3. Enter the your DSCR range (max 1.2)
Step 4. Evaluate your Returns and iterate
TL;DR: The Valuation Cheat Code
✅ Minimize downside risk
✅ Ignore industry multiples
✅ Base your price on cash flow, not hopes and dreams
✅ Work with a financial expert to model your deal
✅ Assume things will go worse than planned
Want to see the exact valuation tool I use? Here’s a link
Nikonomics Weekly Roundup
🎙️ Guest: Erik Kaiser
Erik lived in China to build his own factory and develop hardware from scratch—because why not?
Business: Founder of Glamcor & Riki Loves Riki, $17M net worth, 85+ country distribution
💡 Insight: Erik built his empire without investors, funding each venture through bootstrapped profits—“eat what you kill” mentality.
Model: Incubates brands (beauty, consumer goods, AI) using existing infrastructure, now launching “Crush the Memory,” an AI-powered voice recorder.
❌ Biggest Mistake: Scaling too fast after COVID, losing money despite $18M revenue—now restructuring for profitability.
🎙️ Guest: Eric Pacifici
Valuations are shifting, and private equity is pulling back;meaning now is the time for first-time buyers to strike.
Business: Co-founder, SMB Law Group, closed over 200+ small business acquisitions and more than $1B in transactions value
💡 Insight: If you’re buying a business, don’t let seller-friendly terms ruin your deal. Eric breaks down common legal traps and how to avoid them.
Model: Fixed-fee legal services for SMB buyers, disrupting traditional billable-hour law firms.
🚩 Avoid This: A confession of judgment clause can bankrupt you overnight. Eric explains how buyers unknowingly sign their own death warrants.
🎙️ Guest: HoldCo Bros with Chris Koerner
Chris ran six AI app builders head-to-head to see which could code a calorie-counting app with zero human intervention. The winner might surprise you.
💡 Insight: Chris built a 7-figure AI tool in one night—proving that if you’re not using AI to automate tasks, you’re leaving money on the table.
Model: Uses AI tools like Replit to rapidly test and build software for real-world business applications
The Bet: A billionaire literally offered Chris a job on the spot after a 7-hour meeting. His response? You’ll have to listen to find out.
Deal of the Week
Pros
✅ Strong Cash Flow – $1.5M cash flow on $3.9M revenue suggests solid margins.
✅ Established Reputation – In business since 2000, survived major downturns.
✅ Prime Location – High-traffic highway (40,000 cars/day), ample parking, near major brands.
✅ Real Estate Ownership (Optional) – 45,000 SF facility on 3.25 acres presents an asset opportunity.
Cons
❌ High Purchase Price – $2M (excluding real estate and inventory), all-in could exceed $7.5M.
❌ EBITDA Not Listed – Unclear how much of the $1.5M cash flow is true profit.
❌ Owner Dependency – Owner appears critical to customer relationships.
❌ Cyclical Industry – Furniture sales can be recession-sensitive.
❌ Operational Complexity – 12 employees and inventory-heavy operations.
❌ Inventory Not Included – $1M+ in additional cost.
❌ Lease vs. Buy Unclear – Real estate offered but also mentions leasing, creating uncertainty.
Price Analysis
Business Price ($2M, 1.3x cash flow) – Fair if cash flow is stable, expensive if it’s a peak year.
Inventory ($1M) – Should be included in negotiations.
Real Estate ($4.5M) – High unless generating additional income.
All-in Cost (~$7.5M total with real estate & inventory) – High for a $3.9M revenue business unless there’s major upside.
Why I Hate It:
🚫 High Complexity – Inventory, 12 employees, and a showroom make this a high-touch business.
🚫 Capital-Intensive – Requires $2M+ upfront, plus inventory and possibly real estate.
🚫 Unclear Growth Potential – Difficult to scale beyond local foot traffic, and e-commerce would be costly.
🚫 Owner Dependency – If the owner is the key driver, revenue could dip post-sale.
🚫 Real Estate Risk – Tying up capital in commercial property reduces flexibility.
Why I Like It:
✅ Strong Cash Flow (If Consistent) – $1.5M in cash flow is appealing if stable.
✅ Local Monopoly Potential – If it dominates the market, there’s some protection.
✅ Possible Turnkey Business – If a GM is in place, it could be semi-passive.
Final Verdict: 3/10
It’s capital-intensive, operationally heavy, and lacks scalable upside. If I’m going to buy a brick-and-mortar business, I’d want:
- Higher-margin, lower-capital operations
- Easier scalability through digital channels
- Minimal owner involvement required
If I had industry experience and were interested in this deal, here are the 3 BIGGEST questions I would need answered:
1. Is the $1.5M Cash Flow Consistent or a One-Time Fluke?
Why it Matters: Priced at 1.3x cash flow, but if it’s a one-off spike, the valuation is inflated.
What to Ask:
- Can I see 5 years of P&Ls and tax returns?
- Has revenue been growing, flat, or declining?
- What’s driving this success—sustained demand or temporary factors (e.g., stimulus, supply chain disruptions)?
Deal Impact: If cash flow fluctuates, I’d negotiate a lower price or walk away.
2. How Dependent Is the Business on the Current Owner?
Why it Matters: If the owner is the “face” of the business, revenue may drop once they leave.
What to Ask:
- How involved is the owner in daily operations, sales, and vendor relationships?
- Who manages the biggest accounts?
- How would customers react to a new owner?
Deal Impact: If the owner is too integral, I’d need a transition plan, seller financing, or a lower purchase price.
3. Should I Buy the Real Estate or Lease It?
Why it Matters: The $4.5M real estate decision drastically affects the deal.
What to Ask:
- What are the market lease rates for comparable properties?
- Does the property generate rental income, or is it a pure expense?
Deal Impact: If leasing is significantly cheaper, I’d opt for that and keep capital liquid. If the property is income-generating, buying could make sense.
Final Thought
If you have industry experience, cash flow is stable, the owner isn’t mission-critical, and the real estate terms are favorable, this could be a solid buy. If any of those break down, the risk outweighs the reward.
Biggest AI Stories of the Week
Ask Me Anything
Great question! The short answer is yes, you can still qualify for an SBA loan, even with limited personal assets. In fact, I bought my first business with almost the EXACT same profile ($200k and no other assets).
Some key factors to consider:
Equity Injection – Having $200K to put down is a strong position. Most SBA 7(a) loans require 10-20% down, so depending on the business price, your capital might be sufficient.
Personal Guarantee & Assets – SBA lenders prefer borrowers with strong personal financials, but they don’t require a specific minimum in liquid assets. What matters more is your credit score, experience, and the business’s cash flow to support loan repayment.
Collateral Requirements – SBA loans are “cash flow loans,” meaning the business’s financials matter most. If personal assets are limited, lenders may still approve your loan but might require additional collateral, like a lien on the business assets.
Debt-to-Income Ratio – If your personal financial obligations (debts) are low, that helps offset the lack of assets.
Lender Variability – Some banks are stricter than others. Working with an SBA-preferred lender or an SBA loan broker can increase your chances of approval.
Ultimately I’m not a loan officer. If you want a more in depth look at your personal situation, reach out to Bruce Marks, Matthias Smith or Heather Endresen. They’re all great.
Each week, I’ll be answering a question sent to me via Twitter, Speakpipe or [email protected].
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