How to Model an IRR Hurdle Catch-up Provision for the General Partner (GP)

There are a few ways this kind of waterfall can be built and it simply depends on the operating agreement in place and the exact language. Different styles and language can mean different modeling formulas and different results. I will discuss what I've done in the template below.

A Real World Example of Why Preferred Equity Can Be Beneficial over Common Equity

 With real estate in a bit of a tumultuous time because of interest rates, a real world example has come up that illustrates some of the benefits of having preferred shares vs. regular common share. There is no exact definition of what 'preferred' actually has to mean, but it is usually attached to special treatment compared to common equity shares.

Public-Private Partnerships (PPPs) and the Construction Industry

 A public-private partnership (PPP) is a contractual agreement between a government entity and a private sector company to finance, design, build, operate, and maintain public infrastructure projects or services. PPPs are typically used for large-scale projects that require significant investment and have a long-term impact on the community, such as transportation systems, energy facilities, water treatment plants, and hospitals.

Determining Pricing for a Lumber Business

 Lumber retailers usually purchase wood from sawmills or other vendors / suppliers and then sell it to customers at a price that is greater than their costs. That gross profit margin needs to cover all fixed expenses. We are going to talk about pricing strategies here today.

What Are Variable Expenses for a Cruise Ship Business?

 In a business, there are fixed and variable expenses. Generally, the variable expenses will change with revenue (more revenue means higher variable expenses and vice versa). The type of expense will vary depending on what business you are analyzing and if you are looking at the cruise ship business, there are a  few main costs that will be different depending on the volume / activity levels.

When Will all the Gold be Mined?

 It is impossible to predict with certainty when all the gold that can be mined will be mined, as it depends on a variety of factors such as technology advancements, economic considerations, and environmental regulations.

A Story About Seller Financing as a Method to Sell Your Business

 One interesting business story about using seller financing to sell a business is that of Jimmy Smith, the former owner of a successful packaging company called XYZ Pack. In the late 1990s, Jimmy was looking to retire and sell his business, which he had built up over 20 years.

How Much Money Can You Make from a 3D Printer?

 I've done a full financial model for 3D printing, but that doesn't give you an idea of the actual potential revenues that people do make in such a business. It is just a financial planner for anyone to plug their own assumptions into in order to produce a cash flow analysis / DCF Analysis and general pro forma. So the question is, how much do 3D printing businesses make and what are some popular niches?

5 Steps to Starting a Successful Construction Business

Starting a construction business requires a range of business skills, such as financial management, marketing, and sales.

What Should the Preferred Return Be in a Joint Venture Real Estate Deal?

 The generally acceptable preferred return rate in a preferred equity real estate deal is typically higher than the risk-free rate of return, which is the return an investor can expect to earn from a completely risk-free investment such as a US Treasury bond.

Advantages and Disadvantages: Vending Machine Business

 I've talked a bit about starting businesses that are low management and low stress. Boring businesses are sometimes the best cash flow generators. Vending machines fits this mold.

Multi-Family Investing Strategies: Real Estate

 There are many successful multi-family real estate business ideas that one can consider. Keep in mind there are many factors that will effect your ability to be profitable in this investing game, but you should have some general strategy and some competitive advantages. Here are a few approaches:

IRR Hurdles are Superior in Evaluating an Investment

 The Internal Rate of Return (IRR) is a widely used metric for evaluating investment opportunities because it provides a single number that summarizes the profitability of an investment. The IRR takes into account both the magnitude and the timing of cash flows associated with an investment, which makes it a superior method for evaluating investments compared to other metrics such as the simple payback period or the return on investment (ROI).

Financial Modeling Techniques for Mobile App Business

 Financial modeling is an essential aspect of building a successful mobile app business. Often times these things have giant scale and if the expected conversions / lifetime value of a customer are not estimated correctly it can mean big losses. The management team must understand if their marketing and advertising is going to be worth it.

Preferred Equity Explained in Simple Terms

 When a company wants to raise money, it can do so by selling a portion of itself to investors. This is called equity financing. Preferred equity is a type of equity financing that gives investors some special privileges. What are those privileges? Well they could be all kinds of things and there is no single 'correct' meaning here. The term is just trying to say, 'hey look, that equity is treated differently and comes along with this and that'.

Preferred Return Joint Ventures and Exit Strategy Implications

 Preferred return structures can have a significant impact on the exit strategies for joint venture partners. Here are some key factors to consider when planning an exit in the context of preferred return structures:

What Does it Take to Get a Manufacturing Plant Built?

 A manufacturing plant requires some large investments to get built. The timeline and cost of building a manufacturing plant can vary widely depending on a variety of factors such as the size and complexity of the facility, location, regulatory requirements, and the availability of labor and materials.

Preferred Equity vs Debt Financing

 The waters can get a little muddy when modeling out deals with preferred equity, mezzanine debt, and/or traditional debt financing. Let's look at how these things differ.

Why is a 3-Statement Model So Important in Financial Modeling

 I took the first 7 months of last year to add 3-statement models to all the financial forecasting models I had built up to that point (from 2016 to the end of 2021). It was a big pull and helped increase the value of the templates I have to offer. Prior to this, I had most of the line items that would be needed, such as all items required to get down to cash flow, but didn't have a comprehensive and consistent output report. Now, I do and I include it in all future bottom-up startup financial models as well.

Small Business Valuation Template: Includes Sensitivity Analysis

 How do you value a small business? Well, there are a few very common ways to do this and all of them have to do with the expected cash flow / earnings or revenue of said business. This is a nice printable one page valuation template you can use to get a sense of what a business could be worth. The spreadsheet comes in a pre-formatted Excel and Google Sheets version.

What Does FMCG Mean and Financial Forecasting

 Fast-moving consumer goods (FMCG) refer to products that are typically consumed or used on a daily basis and have a relatively short shelf life. These products are generally low in cost and sell quickly, hence the term "fast-moving."

Best Locations for an Assisted Living Facility

 When considering the best areas to build or acquire an assisted living facility, there are several factors to take into consideration.

Partnership Strategies: Platform and Developer

 Partnerships between developers and platforms can be beneficial for both parties, as they can help to increase visibility and reach for the developer's product and provide new and innovative features for the platform. Here are some strategies for successful partnerships between developers and platforms:

Management Techniques for Running an Auto Repair Shop

 Running an auto repair shop can be a challenging task, but with effective management techniques, you can improve efficiency, productivity, and customer satisfaction. 

Best Locations for a Self-Storage Facility

 There are several factors to consider when determining the best locations to build a self-storage facility. Here are some of the top considerations:

Competitive Advantages of the Biggest Mobile Home Park Operators in the United States

 There are several mobile home park operators in the United States, but here are some of the largest ones and their competitive advantages:

Disadvantages of Starting a Laundromat Business

 Starting and running a laundromat business has its advantages and disadvantages. Here are some of the disadvantages to consider:

Explaining IRR Hurdles in Real Estate to a 10-Year Old

 Well, imagine you and your friends want to start a lemonade stand business. You all decide to chip in some money to buy the ingredients and supplies, and then sell the lemonade to make a profit.

What Industries Utilize Seller Financing The Most?

 Seller financing is a financing arrangement in which the seller of a product or property provides financing to the buyer, rather than the buyer obtaining financing from a traditional lender like a bank. Here are some industries where seller financing is commonly used:

Tips to Save Money as a Construction Business Owner

 As a construction business owner, saving money can help improve your bottom line and increase profitability. Here are some tips to save money:

Pros and Cons of Starting a Golf Course

 Starting a golf course business can be a lucrative and rewarding endeavor, but it is important to consider both the advantages and disadvantages before embarking on such an enterprise.

Marketing Strategies: Car Wash Business

 The best marketing strategies and spend amounts for a car wash business will depend on several factors, including the target market, location, competition, and budget. Here are some suggestions to get you started:

Open Banking and How it Effects the Lending Industry

 Open banking is a system that allows customers to share their financial data securely and easily between different financial institutions through Application Programming Interfaces (APIs). It provides a platform for third-party providers to access customers' banking information with their consent, making it easier for them to offer personalized and innovative financial products and services.

Downsides to Starting a Used Car Dealership

 Don't let the negative rule your decision, but it should inform it. Starting a used car dealership business can be greatly profitable and a life long source of great cash flows. Nothing comes for free though and nothing is easy so here we can talk about some of the downsides to this business.

How a Preferred Return Investment Fund Works

A preferred return investment fund is a type of investment fund that prioritizes the distribution of returns to its preferred investors before distributing any returns to its other investors. Preferred investors typically receive a fixed rate of return or a percentage of profits before any other distributions are made.

IRR Sensitivity Real Estate Template: Occupancy vs. Exit Cap vs. Hold Period

 Performing Internal Rate of Return (IRR) sensitivity analysis is an important part of real estate deal analysis. It involves examining the potential impact of changes in various assumptions on the IRR of a real estate investment deal. By performing IRR sensitivity analysis, investors can evaluate the risk associated with different scenarios and make informed investment decisions. I think occupancy and hold period are the most interesting variables to isolate.

Interesting Franchises to Open Up

 The expected growth of franchise locations can depend on various factors such as market demand, industry trends, and franchisee interest. However, here are some franchises that are expected to experience significant growth in the next 10 years:

The Most Popular Subscription Marketplaces

 There are lots of kinds of marketplaces that offer subscription services. I'm going to focus on some of the most popular so you can see their strategies and approaches. Sometimes it is easier to understand a business model when you look at it from the view of companies you use and understand.

How to Maintain Good Occupancy Levels in your Assisted Living Facility

 Ok, so you have invested in the best construction team and built an amazing assisted living facility. You spared no expense, but now you need to fill the rooms. Having a high occupancy rate doesn't just happen automatically. There are some things to do in order to minimize vacancy rates over time.

Financial Modeling Techniques Driven Off Headcounts

 There are several modeling techniques that can drive revenue off of headcounts, including:

Impact of Adding a Subscription Service to Your Product

 The impact that adding a service to a product can have on margins can vary depending on a variety of factors such as the type of service, the industry, the competition, and the pricing strategy.

How Does Accounting Work in Preferred Equity Joint Ventures?

 In a preferred equity joint venture, accounting works similarly to any other joint venture. However, there are some unique features that must be considered when accounting for preferred equity investments.

Primary Journal Entries for a Construction Company

 In a construction company, you would typically see several different types of journal entries depending on the nature of the transaction. Some of the main journal entries you may see in a construction company are:

Types of Preferred Equity

 Preferred equity is a type of investment that gives the holder priority over common equity shareholders in terms of receiving dividends and in the distribution of assets in the event of a company's liquidation. There are several different types of preferred equity, including the following:

Car Wash Business Sustainability: Chemical Waste Reduction and Efficient Water Usage Practices

 Reducing chemical waste and water usage in your car wash business can have both environmental and financial benefits. Here are some tips that can help you achieve this goal:

Apartment Building / Self-Storage / Multi-Family Real Estate Underwriting Model - Includes Joint Venture Waterfalls

 I love this template. If you are involved in real estate acquisitions, new construction, or perform real estate underwriting for apartment buildings, multi-family, or self-storage, this template will be useful to you. Anything that has units and monthly rent can be plugged into the assumptions. With this robust deal analyzer that focuses on value-add metrics, you can easily see the full financial picture of potential real estate deals.

When are Lending Businesses At Highest Risk for Failure?

 There are several factors that can make it difficult for a lending business to make a profit, including:

Joint Venture Structure: Cumulative Distributions

 A lot of the financial modeling I do around joint venture focuses on real estate and preferred returns, preferred equity, and IRR hurdles. However, one type of joint venture deal that is more common in other business sectors is the cumulative distribution hurdle approach.

Opportunity in Mobile Home Park Investing

 Let's explore where there is opportunity in mobile home parks. Do they just print money? Just like any real estate asset class, there is risk and reward. Jumping into mobile home parks requires strategy just like anything else.

Accounts Receivable Optimization: Reducing AR Days

 Accounts receivable days is just the average length of time it takes to collect on an invoice. Simple terms, this just means if you submit an invoice to a customer, how long does it take that customer to pay you? As your customer counts rise, this because an important focus and has important implications for working capital, growth, and general reduction in the need for expensive financing options (interest expenses).

The faster cash is collected, the faster it can be re-invested into your business.

Building an Accounting System in Excel

 One of the coolest spreadsheet templates I've ever build was this financial statement producer. It does almost everything you can ask and has logic/formulas built in for all accounting journal entries possible. It works with accrual or cash basis as well.

What Makes a Good Payroll Spreadsheet?

 Excel and Google Sheets are great for all sorts of things. Calculating payroll is one of them if you are a small business.