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Episode Summary
You’ve built a company that runs on your energy, and now you’re staring at the math of getting out. The bank wants a number. The buyer wants a number. Your retirement wants a different number. And somewhere in the middle is the question nobody is sitting at the table asking with you: what does this actually look like funded? I got John Thwing back on to walk through what’s changed in the SBA 7(a) world and why it matters for owner-operators thinking about transition. John has done somewhere north of 600 SBA loans, runs out of Live Oak Bank, and treats financial statements like a story instead of a scorecard. We got into the bathtub metaphor for the income statement and balance sheet, why working capital and CapEx are the two assumptions that quietly kill deals, the three profiles of buyers he sees (self-funded, searcher, strategic), and the 2023-2024 SBA rule changes around partial buy-ins that finally let a seller roll equity, stay involved, and exit on a five-year glide path instead of a guillotine. Real numbers from a recent deal: a 6.5x multiple on $2.5M of adjusted EBITDA, 40% buyer equity, fully leveraged debt, deal funded.
Top 10 Takeaways
- Your income statement is the spigot. Your balance sheet is the tub. Distributions are water out of the tub, not the spigot.
- If your company can’t fund itself when things go bump in the night, you are the fallback position.
- Buyers always need more working capital than sellers, because they carry more leverage and less experience on day one.
- Trends tell the story. Revenue down with earnings up is not sustainable, and every smart lender knows it.
- Target the probable deal, not the possible one. Passive ownership and zero-equity acquisitions exist as anecdotes, not as plans.
- Solve problems on your side of the table. Raise your own capital instead of relying on seller sweeteners you don’t control.
- Leverage is a slow bleed. Liquidity is a fast bleed-out. Most owner-operators are most exposed to the second one.
- Adjusted EBITDA means truly adjusted: your salary, replacement salaries, working capital, replacement CapEx, and growth CapEx.
- Sellers compare new risk to current risk. They should compare it to other alternatives, because doing nothing is also a risk position.
- The SBA partial buy-in finally lets you sell a slice, stay involved, and transition over years instead of in one fell swoop.
Sound Bites
“On my best day in treasury management, I could make a controller’s life 1% better. When you close an SBA loan, it’s often life changing.” (@TBD) — John Thwing
“100% of the companies on the planet that I’ve ever met are underpriced. Meaning in some corner of the business, there’s something you could charge more for.” (@TBD) — John Thwing
“Leverage is a slow bleed. A liquidity crisis is a fast bleed out. You want as much leverage and capacity and capital as you’ve got available during transition or growth.” (@TBD) — John Thwing
“If you’re a true entrepreneur, it means problem solving things that you can control, not things somebody else will control. Better to own 60 or 80 or 90% of something than 100% of nothing.” (@TBD) — John Thwing
“Sellers’ risk increased very slowly over time. The buyer is taking a big risk leap on day one. They think the buyer is stepping into their risk profile, but they’re not at all.” (@TBD) — John Thwing
About This Episode
John Thwing is a Senior Loan Officer at Live Oak Bank, one of the country’s largest SBA 7(a) lenders, where he has built a career funding lower middle market acquisitions in the $1M–$10M+ enterprise value range. He started in the mail room at Northwestern National Bank in the early 1980s, worked his way through home mortgage, retail banking, and treasury management before landing in the SBA division, and has now closed somewhere around 600 SBA loans. John is one of the lenders Ryan trusts most to walk owner-operators and acquisition entrepreneurs through the messy reality of what a deal actually looks like funded. This episode covers the 2023 and 2024 rule changes to partial buy-ins that quietly opened up a new transition path for owners who don’t want a clean exit on day one.
Resources Mentioned
- Live Oak Bank — John’s bank; leading SBA 7(a) and pari passu lender. — liveoakbank.com
- Walker Deibel — Referenced on acquisition entrepreneurship and deal structures
- Mike Felsen — Referenced as a recurring iBD guest on CEO transitions
- Craig Rutledge — Referenced on executive compensation plan design
- Nick Bradley — Referenced on lifestyle businesses
- ITR Economics — Referenced on demographic and economic trend forecasting
- Jeff Buettner — Referenced from a recent episode on ESOPs, private equity, and recapitalizations
Connections
Phase + Module:
- Module 2 — Expand Knowledge — Understanding capital structure, debt, equity, and what flavors of capital actually fit your situation
- Module 3 — Owner’s Playbook — Where the transition conversation lives inside the ownership operating system
Milestones:
- Milestone 6 — Transaction Value — Net proceeds after debt, taxes, working capital, and reinvestment, not the headline multiple
- Milestone 5 — Market Value — Where the four or five multiple conversation actually gets pressure-tested
- Milestone 8 — Quarterly Boardroom Rhythm — Where transition options get reviewed before the seller is out of energy
- Milestone 22 — Company Bonus Pool — The short-term incentive layer that aligns a CEO before equity is on the table
- Milestone 24 — Long-Term Value Plan — Phantom stock and equity participation for the integrator running the company
Concepts referenced:
- Normalized EBITDA — The starting point, not the finish line
- Three-Statement Model — The closed loop John reads as the story of the business
- Free Cash Flow — What’s left after working capital, taxes, CapEx, and debt service
- The Owner-Operator Trap™ — Why the spigot turning off is the actual risk
- Enterprise Value vs. Equity Value — What a multiple buys you vs. what lands in your bank account
- The Multiple & WACC — Why more debt lowers cost of capital but raises liquidity risk
- Net Debt and Working Capital — The two assumptions that quietly kill deals
- Capital Allocator — The seat the owner has to sit in to make any of these trade-offs intentionally
Related episodes:
- Ep. 492 — Ryan Tansom - How to Analyze Your Margins and Gross Profit — Reading the gross margin chart before the buyer or banker does