In this video, Carl Allen introduces a wealth creation model, designed to help dealmakers plan the number of business acquisitions needed to meet their financial goals. He uses a template that allows users to input variables like revenue targets and growth rates to project outcomes over a set period.

Carl sets a sample wealth goal of $20 million over four years and targets businesses with $1–5 million in annual revenue. He emphasizes focusing on profitable businesses with a minimum 15% cash flow margin, aiming for steady growth of 15% per year through operational improvements like enhanced marketing and product expansion.

The model helps users calculate annual profit margins, factoring in debt service and owner profit withdrawal rates, ranging from 40–60% of net cash flow. Carl suggests starting with a business at a 15% profit margin, with expectations that it will reach a 23% margin by year four due to economies of scale.

He then details the exit strategy, where an increased revenue and profit margin would yield a higher EBITDA, allowing a sale at a higher multiple. In the example, an initial acquisition price of $1.125 million could generate a net exit value of over $6 million after debt repayment.

Finally, Carl explains that dealmakers can adjust their parameters to determine the number of deals required to reach their wealth target. He shows how minor adjustments to growth rates, hold periods, and profit reinvestments can make significant impacts on overall wealth accumulation.

Full Transcript:

Hey, guys. Carl Allen. Wanted to do this quick video for you to show you how this wealth creation model actually works. So this is a really cool template to use when you’re looking at how many deals that you need to do over a period of time to hit your wealth creation goal.

So let’s assuming your wealth creation goal is pretty lofty. It’s twenty million dollars, and you wanna hit that within four years. Right? So that’s quite an aggressive goal.

A lot of dealmakers have that. That’s absolutely fine. And then the next thing that you wanna do, and bearing in mind, everything in blue, you’re gonna be populating. Everything else is not in blue.

Don’t touch it. So the, so let’s say you’re gonna target businesses annual revenue three million dollars. Right now, you wanna be doing deals in the one to five million range in terms of revenue. You can go higher than that.

In some cases, you get a lot more competitive, price action at that level, private equity firms, trade buyers, all those different things. Then below a million dollars in revenue, you’re really buying a job. Right? It’s just to be an owner investor of a really, really tiny business.

So if you stick to the one to five million range, you’re gonna be good. So let’s say it’s three million dollars, and, really, you wanna be buying businesses that have got great cash flow. So absolute minimum, fifteen percent margin, and you can, you can drop down there to calculate that. And then, obviously, as the owner of the business, you wanna grow it.

Right? Whether you’re operating it or whether you somebody else operating for you, you want to, put some growth in. So let’s assume you’re gonna go to fifteen percent per year through more marketing, more leads, more customers, all those different things, new products. So fifteen percent growth.

And then you want to think about, well, how much profit do I want to take out of this business, per year as the own. Right? So that’s gonna be annual profit net of the debt service. So the business generates a profit.

You’re gonna be spending some of that to pay for the acquisition of the business. Then whatever’s left, what how much of that you’re gonna take? You might wanna take a hundred percent. You might wanna take eighty percent.

You might wanna take forty percent. Never take a hundred percent, which is why that’s not an option. So you’re gonna be taking between zero. You might wanna keep reinvesting the money to grow, but you’ll probably be taking, I would say forty to sixty percent of that, of that net cash flow as your income, as your money as the owner of that business.

Right? So then what the model does, it calculates, what the EBITDA is of the business you’re buying, which is basically the annual revenue multiplied by the margin. Nice and simple. And then what we’re also then gonna do is and this depends on the sector that you’re in in a lot of cases, but also depends on the size of the business.

And I’ve given you a little guide here on the right hand side based on average kind of multiples and an average kind of profit, what you should be paying for. So in this example, four hundred and fifty thousand dollars is the EBITDA, the day you buy it. Really, that’s gonna be at around a two and a half times multiple. Right?

But, however, when you scale it and it’s larger, the exit multiple is going to be bigger. We’ll get to that in a minute. So in this example, let’s do four fifty of profit. You’re buying it for two and a half times.

So that purchase price is gonna be one point one two five million. And I’m gonna assume, for this example, that you’re gonna finance that over ten years with some form of debt at ten percent interest rate. Okay? So that’s your deal.

Then what happens is you grow it. So one business, four year growth, fifteen percent annual growth. You’re gonna end up with revenues at around the five point two five million dollar mark. We’re also gonna assume that as you scale, your profit margins are gonna improve about two percentage points per year because when you buy a business and you scale it, your overhead doesn’t necessarily have to change that much.

You’re gonna get better economies of scale when you, when you’re bringing products and things into the business to resell all those different things. So you get a lot of synergies when you scale a business. So we’re buying it at fifteen percent. If you grew that business fifteen percent per year times four, you’re gonna be at least twenty three percent profit margins, if not a lot higher.

But let’s keep it this conservative. So we’re gonna sell a five point two four seven million in revenue, twenty three percent margin. That gives us an exit EBITDA of about one point two million. And then at that kind of level, looking at the chart, we’re gonna be able to sell for at least a five times multiple.

So That’s gonna give us an exit value at just over six million dollars, but then we’re still gonna be carrying some of the debt load from when we bought it. Right? So if we finance the deal over ten years, let’s say you did an SBA loan or something like that or a ten year annuity deal, for example, you’re gonna still owe six tenths of the money. So the model calculates all that.

Right? So it’s netting out six seven five as the debt, that’s that’s gonna actually be paid down from the closing payment. You’re gonna get so you’re gonna get net proceeds of about five point three six million dollars. And then what the model does, it calculates how much income you’re gonna earn over time in addition to that exit.

So it takes the profitability.

It nets out the debt service you have to pay and then applies that forty percent of what’s left. So you’re gonna make about one point three million in change as well. So if you add the net proceeds on exit, five point three five nine plus the one point three zero seven, you’re gonna walk away over this four years, one deal with about six point six million dollars. Right?

So then if your goal is to make twenty million pretax over that four year period, all the model does is it takes that goal and divides it by the total cash benefit. So in this example, it would be three deals that you would have to do. Right? Let’s say your financial goal was was only ten million.

You think that’s gonna be enough for you. Right? You’re gonna do the same thing. You’re only one and a half deals. Right? Or if you think, well, what would have to be true for me to swing this with just one acquisition?

Maybe you’d extend it to five years. No. To three years. Yep. So three years, this would work.

Let’s say you wanted to do something crazy. Right? So let’s say you wanted to make fifty million fifty million dollars with those smaller deals over three years, gonna take you ten deals, which might be too many. So you might think, well, actually, let’s say I’m gonna work this for seven years.

Now we’re down at three point three three three point three two. So how many deals would we have to do at that level to hit fifty million dollars, in three years? We only wanna do three. So maybe we grow the business a little bit faster.

Right? And that gets us way below the three deal requirements. So have a play with this. This is really, really cool.

Click the link. You’ll be able to download it and have a play with it as well. And, yeah, look forward to chatting you about it. So, I will see you guys soon.

Until then. Bye for now.