This healthcare company was buying another manufacturer and I showed them how they could purchase this manufacturer with pre-tax money and sellers dollars. This was approximately a $5 million purchase. We offered $250,000 down and $75,000 a month until it's paid off with offsets coming at the end. For lack of performance, the after tax cost was going to be over $9.2 million, including state income tax. They were going to have to get an SBA loan of $3.5 million after a $500,000 deposit and a $1 million seller note. All of their business assets would have been leaned, as would have, would have all the equity in their house and their primary residence. And there were two of them as they were partners. Now they have no liens and their after tax cost will be only $2.71 million. Because of the structure I developed on their behalf a net savings of $6.6 million more than the entire purchase price.

A real estate investor was wondering how he could optimize his real estate holdings and still retain ownership and get most of the money tax free without giving up control. This property was worth approximately 13 and a half million dollars. The debt on that was approximately $5 million.

We looked at three scenarios. Do they just retain the property? Do they sell the property at today's rates or do they keep the property, refinance it with new ownership and get the money tax free? So here's how it played out. If they were to have kept the property, they would've had a de minimis future return on the investment. And the reason is most of the increase in the value had occurred earlier on and because of it was now fully leased out and no longer a value opportunity, their net projected rate of return would've been under 3%, barely keeping up with inflation and certainly under inflation after income taxes.

So that was a non-starter to keep the property. What would happen if we sold the property? Well, there'd be transaction costs that usually would run, in this case close to 10%, so almost over a million and almost a million and a quarter. And then they would have to pay off the mortgage and then they would have to pay capital gains taxes. Oh, sure, there could be a 10 31 exchange. However, that merely kicks the tax liability down the road and eventually somebody's going to have to pay that tax. Even if there will be a potential step up in basis at death, still there would be some tax owed and the bigger the value of the real estate growth, the more the tax would be owed.

The third option, we decided to sell this property not for 13 and a half million dollars, but for $15 million. And we're gonna do it in the following way. We're going to raise seven and a half million dollars from investors and we're gonna borrow seven and a half million dollars from the bank. With a simultaneous transaction. We will have paid off the $5 million remaining mortgage and retained a seven and a half million dollars remaining mortgage such that the owner now would get $10 million and we're able to get that money through a a tax free because the new investors would be buying a convertible debt structure. I created a de insure for them where they would get 4% of the cash currently, plus a preferred additional 4% over the term of the ownership, which is rejected to be seven years plus, they would get all the proceeds of the profits upon sale.

The owners are retaining a substantial percentage of this property, 20%, and the owners would be getting all 15 million minus their mortgage or $10 million with no transaction costs. There'd be some costs of raising the capital perhaps, but only on the seven and a half million. 'cause The bank already embeds that into their loan proceeds. We estimate that would be approximately two to 3% of the seven and a half million dollars. So effectively they're getting just shy of $10 million tax free. That money would grow at whatever rate you think it would grow at in whatever alternative investment you think you might put it in. At the end of the seven year period of time, that $10 million now becomes a substantially higher number. And we used a 6% growth rate and they were close to about $14 million. At the end of seven years, the investors would have gotten approximately nine point a half percent internal rate of return based on this structure. And the bank debt was completely paid off at the end of seven years by a sale to a third party or by a repurchase of the owners with a refinance with the bank. All in all, the owners did substantially better achieving approximately a 12 to 13% rate of return. The investors achieved a better than most other investment opportunity with preferred returns and di minimis risk. And if the risk became heavy, then they would be able to convert their loan to equity.

All in all, everybody comes out better. Everybody is happy.

This case study is about a turnaround opportunity. It was a company that's been doing about three and a half million dollars per year and wound up owing several millions of dollars both to the IRS and to private creditors over the period of time. Because the owner made the critical error of effectively buying his jobs, he would bid out the jobs at such a low rate to get the gross revenue that he was unable to extract a profit from them because his cost of delivering the product and service exceeded whatever profits he may have enjoyed. In fact, he went negative to the point where he owed almost a million dollars to his suppliers and over a million and a half dollars to the IRS having failed to make payroll taxes.

He was referred to me by another client who was good friends with him and I agreed to take him on in the turnaround capacity. We structured an arrangement whereby he would change his offerings such that he would never have below a 33% gross margin on any sale. We eliminated lots of his overhead expenses such that he went down from approximately 25% in overhead to about 12%, even to the point where he's operating out of his house and garage and, and all the other employees are remote.

We were able to save his house, avoid him having to go to prison and renegotiating with the IRS and improve his sale structure so that he has approximately $300,000 worth of working capital by the end of the year to pay down the, the debts. $25,000 a month was going to pay down the debts. We negotiated for $5,000 a month to the IRS. We negotiated for $6,000 to go to some random suppliers and the rest to go to the other suppliers and the IRS. In two years, he was out of debt completely except for the long, long-term loan to the IRS, which they were happy to deal with. Kept him current on his payroll taxes and he was able to save some money and build his business back up.

Southeastern Mechanical Services company had two elderly partners, one in his eighties, one in his seventies. The 70-year-old had two sons in the company. The 80-year-old was afraid to sell the company because he feared for his own mortality. If he were to sell the company, he feared he would die. He was the controlling partner with 51%. They had no dispute resolution mechanisms in their partnership agreement. They had no buyout provisions in the partnership agreement that Did not require multiple valuations, multiple attorneys, multiple expense and multiple brain damages.

They hired me to solve the problem. We were able to permit the managing voting rights partner to remain in the game to stay, keep retain in office while giving authority and control to the younger partner who is then able to structure away for the sons to take over the business. This required no bank debt, no cash, just a simple amending and restructuring of their shareholder agreement. We put PLA processes and systems in place and now this company is thriving.

A Mid-Atlantic law firm of substantial size had been struggling in terms of profitability. As many professional services types of companies suffer, most of the earnings are delivered to the producing professionals, high level producing professionals. And these individuals had no serious accounting mechanism to identify what their cost of direct costs were in the cost of services sold and how to manage the administrative costs and allocate them properly without ex damaging the income to the producers, especially the primary producer. They were extracting approximately 33% of every deal they engaged in.

And the first thing we did was suggest that they go to 39.6% because at the time, that was the highest Ordinary income tax rate. Now it's at 40.8%, which is the 37% federal plus a 3.8% Obamacare tax. That extra 6.9% On the deal cost them precisely zero customers. They provided some extra value in there that was not legal time and all of a sudden profits started to flow to the bottom line. It's not, it's in, in a way it's similar to having A Increased their fees on an hourly basis by some 20%. Considering inflation has gone up in the last several years, by well over 40%, that's a, an effective discount to the customers. Not one customer balked about the new pricing structure because they were all success fees anyway. And, and part of the value add was the lawyers were able to increase the value of the deals in excess of their increased fees.

Then we purchased another law firm using no cash and effective earnouts that were completely deductible to the owner and taxable to the recipients. This increased the total revenue substantially and increased the net income substantially to the point where we had almost a 30 fold increase in the valuation of this law firm in a matter of a few years. The owner then sold this law firm to a much bigger private equity finance law firm. Got a hundred percent cash on the valuation with a very good multiple for that industry on the order of four and a half times of true net profit, not simply total owner benefit. Plus the seller was able to negotiate to well, I was able to negotiate on behalf of the seller that the seller would retain an additional three years of 15% Of the company's fee. Revenues would go to the seller for three more years, almost completely doubling his initial sale price.

Ask this, is this additional effective earnout while not being, while being income, not being income taxable is capital gains taxable. The initial cash amount is completely tax free. And we structured it that way by having the buyer lend the money to the corporation on a convertible note that they can convert at will over certain periods of time so that they do not have a significantly impaired balance sheet. Their initial investment was the same amount after tax. The buyer, the new buyer, the seller's company then turned around and re loaned that to the seller individually, who has a long term 30 year deur note back to the company that he was selling, which is now simply a shell because of the asset purchase from the buyer. And the seller of the company would then owe to his shell company approximately 5% on per year on the cash he's re on the millions of dollars of cash he's receiving for the sale of the company. That 5% will be deductible to his personal income and become income taxable to his now shell company.

And then at the end of 30 years, the seller will owe either the balance of the note, which would be a hundred percent since it's an interest only 30 year debt. Simple interest or owe the Inc the, in the income tax on the forgiveness of the loan, whichever is less. And of course the, for the income tax would be far less and that amount would come out of his taxable estate. And in 30 years, that amount will have an inflation effect of something like 30 cents on the dollar. Comparatively speaking.