The adjusted EBITDA for the staffing company between 2019 and 2023 is as follows:

- 2019: $302,000
- 2020: $457,000
- 2021: $1,030,000
- 2022: $297,000
- 2023: $215,834 (Jan to Nov 22)

There are also some potential addbacks that weren’t included, but just by going off of the broker’s deal analysis, these are the numbers that were shared. The average EBITDA just based off of 2020, 2021, 2022, and 2023 would be approximately $500,000.

-$1M purchase price
-$300k left in the account for working capital out of the $1.1M cash in the business
-Seller takes the remaining 800k cash
-Seller finances ($1M) over a 10 year period at 8% interest which would equate to $12,132.76 paid out monthly.
-A total of 120 payments of a grand total of $1,455,931.13 ($455,931.13 of interest)

-$2M total purchase price
-$1.4M cash up front (70%)
-$600,000 seller note for 3 years at 8% interest (30%) This is seller note 1, that is detailed below.

*All seller notes must have a corporate guarantee and personal guarantees from both buyers at 100% each.
All cash in checking, savings, money market accounts, and AR is to stay with the seller.
Post-Sale seller would do some consulting on a limited basis at a determined dollar amount per hour or price per project. This is TBD in due diligence.

*If you wants $300,000 of the cash for working capital, then seller will want the total purchase price to increase to $2.3M
We could do a separate seller's note for the $300,000 to be paid at the end of 12 months. This is seller note 2, that is detailed below. (Let me know your thoughts on this.)

Seller Note 1:
$600,000*8%=$48,000.00
$648,000/36=$18,000.00 per month for 36 months

Seller Note 2:
$300,000*8%=$24,000
$324,000/12=$27,000 per month for 12 months

*I am using the amount of $300,000 for working capital because that is the amount that we used in their offer.

We usually start off by going with current SBA interest rates.

$1.4 million financed over 10 years at 11.5% interest would look like this…

Payment Every Month: $19,683.36
Total of 120 Payments: $2,362,003.46
Total Interest: $962,003.46

$600,000 seller’s note payable over 3 years at 8% interest…

Payment Every Month: $18,000.00
Total of 36 Payments: $648,000.00
Total Interest: $48,000.00

If we opted for $300,000 working capital payable over 1 year at 8% interest…

Payment Every Month (After 1 Year): $27,000.00
Total of 12 Payments: $324,000.00
Total Interest: $24,000.00

Taking the average EBITDA of about $500,000 and divide that by 12 months, the monthly profits would be $41,667.00. Subtract that by the monthly SBA debt payments of $19,683.36 + payment to the seller of $18,000.00 = $37,683.36/mo.

Our net profit for the first 12 months based off of the average EBITDA would be $3,983.64. However, if we also added in the $300,000 of cash that we would need to start paying back, those $27,000/mo payments would now put us at -$23,016.36/mo!

These calculations are also off of the EBITDA, not net profits. It could look much worse for us…

We are entertaining a cash offer range between $1.4 million and $1.6 million plus and earnout between $200,000 and $600,000 (paid out over 3 years if 2X revenue is achieved). Let’s take a look at the math below in this scenario…

-$1.4 million paid out over 10 years at 11.5% interest:
Payment Every Month: $19,683.36
Total of 120 Payments: $2,362,003.46
Total Interest: $962,003.46

-$1.5 million paid out over 10 years at 11.5% interest:
Payment Every Month: $21,089.32
Total of 120 Payments: $2,530,717.99
Total Interest: $1,030,717.99

-$1.6 million paid out over 10 years at 11.5% interest:
Payment Every Month: $22,495.27
Total of 120 Payments: $2,699,432.52
Total Interest: $1,099,432.52

Net Profit relative to each scenario:
$21,983.64/mo @ $1.4m cash
$20,577.68/mo @ $1.5m cash
$19,171.73/mo @ $1.6m cash

With Earnout, let’s just take the middle number at $400,000, paid out over 3 years at 8% interest, and triggered after doubling the revenue of the company with assumed similar profits:

Payment Every Month: $12,534.55
Total of 36 Payments: $451,243.66
Total Interest: $51,243.66

Payment Every Month: $18,090.92
Total of 24 Payments: $434,182.00
Total Interest: $34,182.00

Payment Every Month: $34,795.37
Total of 12 Payments: $417,544.46
Total Interest: $17,544.46

Additional Net Profit:
$29,132.45/mo with 36 month payments
$23,576.08/mo with 24 month payments
$6,871.63/mo with 12 month payments

After our last chat with the sellers, even thought we have had great rapport, they were quite firm on their counteroffer. However, if we believe the company is strong and has a lot of upside potential, then the goal with our counteroffer back should be the best case that could work best for both sides.

Keeping in mind that they already have a successor within the company who will run it with us supporting her is solid, and there is a proprietary software component that we could potentially segment off to turn into a SaaS product for an additional revenue stream by white-labeling it to other staffing firms.

Let’s see what happens…