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welcome back to expensive advice once again I'm joined by John Luke Johnson and Matthew Smith how you guys doing good thanks and you yeah very well thanks Adam Matthew how many people call you Matthew no one no one yeah I'll tell you a quick little story they I went to school uh high school with a guy whose name was Matthew Solomon he's actually my best friend Matthew Solomon but he's called tiger and he was called tiger from I think the age of like two he was called tiger was actually in hospital when he was really small and the nurses he's got red hair beautiful ready and he uh he's he's the nurses called him tiger so going going in which is called Tiger Tiger like he writes his name as tiger everything's time and he became a school prefect and they stood up the Headmaster said and Matthew Solomon and people were like who the f is that like no idea who this guy was I'm like oh tiger we know tiger why did you say tiger anyway um a side note so today's episode we're talking about debt so fun I mean debt who doesn't want to talk about debt but no really importantly you know we we're talking about advisory we're talking about trying to sell our businesses and we want to talk about the impact that debt has on the selling process so what is debt very briefly it's just money that is owed so if you you know go look on your balance sheet there's you know use your asset section and the liability section simply meaning this is this is not actually money that is uh owned by the business it's owed by the business to someone else or some other entity and so we just want to understand what that is and how that impacts the value of a business and how that impacts the seller saying hey do I actually want to acquire the stick do I want to be responsible for this or is there other mechanisms I could use to not be responsible for it um and both both positive and negative sometimes sometimes debt and wall structured debt is highly appealing to a buyer they say well I'd rather have that kind of debt than the one I currently have so let me get into there it's got better rates it's got better facilities it's got better relationships got all that kind of stuff I actually want access to that and that could be a huge selling tool but in the conversely it could be a very scary thing for someone to say well I don't want to go near with that then 10 foot pole like let me still it's clear from that um and so debt has this this this very significant impact on the selling process so we want to dive into it I know JL you're going to lead us off so give us a little bit of background into into debt and and kind of how it impacts the selling process yeah so perfect as you alluded to get is inherently Not a Bad Thing uh but when you are buying or selling businesses it's important to understand in nature and the purpose of the debt um to ensure you treat it properly during the sales process so the most important factor in understanding how to deal with debt is obviously the structure of the deal whether we're doing an S sale or a stock sale and we've done a great episode on that so be sure to check that out for more background we won't dive into into that too much now um but it's key to note that sometimes the debt will even dictate which sales structure we go with in order to limited Resco exposure in different scenarios but some quick examples of that would be vehicle financing SBI or PPP loans share the loans or any long outstanding creditors or anything like that as Adam said anyone that you owe money to and the key thing is is the debt linked to the operations of the business or is it non-operating debt so it's good to get a understanding of that as well when you when you're doing your due diligence just just before we go it may also be I want to just touch on one thing I know I know we've done a whole episode on asset and stock sales and stuff I think what you said is you know debt could actually Define it and I thought that I didn't actually think about that until you said it like you know generally we talk about stock sales it's kind of the default is you you're buying a business you're buying the business meaning you're buying the entire business the seller walks away you you buy and you come in when an asset sale is you don't really care about that you just want a particular asset or a particular set of assets or group of assets that you want to take I want to take this website and Run to the Hills with I don't care you know you can take your LLC you can take your employees we don't need that but we just want you know cleverprofits.com we want the website we want the SEO of it we want to move away and where you said dick like if depending how debt is structured you may if someone may say well I don't want all the debt but I still want the asset you know I still want Kevin profits.com I just don't want all this debt so when I was prepared to buy the whole business to have a profits LLC that comes with the the the domain name now not so much actually I'm not interested in that I actually just want the domain and so it's quite interesting how you know that's in the differentiation there is important because again not to write bad not right or wrong it just could result in you fundamentally looking at this thing differently exactly and sometimes you may even elect to take certain liabilities or debt with the assets as well because it may be beneficial so yeah Matthew had someone does that yeah I was just going to say you know we're speaking about the liabilities and the balance sheet but there may be some liabilities that are unrecorded as well so um it's always wise to do a bit of a due diligence on any company that you looking to acquire there might be some yeah yeah you know it's called the blind spot for a reason because it's blind you can't see it so you know it's like you know yeah that's probably the scariest thing is you know you buy something and you you accept what it is and you carry on and what if it's not that what if there's a tax lien that was never disclosed never found never you know he never picked up in due diligence and all of a sudden six months into running your business the IRS is freezing your bank account and asking you to pay them a whole bunch of money like just the impact that can have is massive and yes it may be maybe very low risk like chance of it happening but the risk is huge like because if it does happen it could you know it could fundamentally affect your whole business you could just have no business left so that's so important to to be thinking about things that aren't recorded exactly yeah and uh there are four principal ways to treat death yourself um so obviously otherwise too um but mainly we'll look at either the buyer can assume they did I take on the debt um and continue playing paying off the debt on a monthly basis till it reaches maturity uh the seller could also pay the debt prior to closing um the seller could also negotiate with current lenders to to reduce the debt prior to clothing and closing and it be specific scenarios why that would make sense and then lastly the debt can be deducted from the proceeds of the sale of the business now uh it might sound very similar to a buyer assuming the debt but we'll get into the specifics around uh the last one a bit late as well too many questions too many questions so let's dive in because you're probably going to answer all of them and then and then I'm going to be you know actually I read an interesting thing I want to talk about this I read an interesting thing who said it I think Jeff Bezos said it he said that they they at Amazon I can't remember when it was they're interested they they implemented a structured at Amazon where you you couldn't use PowerPoint presentations and you had to write out your proposal or whatever it was in in like a letter form and there were two reasons first was he believed when you write fully you process thoughtfully and it's highly beneficial to actually fleshing out the thought that you have as opposed to Bullet pointing it and then secondly at the beginning of a meeting they would give everyone time to read the document so you don't send it beforehand because then you have no guarantee who reads it or doesn't read it and so you say okay we're going to take 10 minutes everyone stop and just read it no questions read and he said it does tooth that does two things is you know not everyone's everything and secondly you make people read it start to finish so that when you're in PowerPoint one they don't ask you the questions that you address in PowerPoint five and then you get all frustrated so just read the whole thing and then ask your questions so as I said that I was like I read that just the other day Jeff Bezos and I thought that was a good little after nothing new debt in a business but it's about running a business surely it's helpful okay so dive in four of them let's break it down let's start at the top one uh buyer assumes the debt in the business yeah so this typicalizes when you're doing a stock sale as the buyer will take over the shares the business and you hit all the obligations and and liabilities of a company so in this uh scenario it's important uh to factor the value of the debt into the final purchase price so for example if you value the business on a ebitda multiple to arrive at a certain Enterprise Value uh all topics we've discussed in in previous episodes um you take the eBay there are times the multiple get to the Enterprise Value um and then you'd look at what additional cash is in the business and what debt is in the business and you'd add the cash and minus a date to get to the final amount that you that you would pay for the business if you don't factor in uh the debt you haven't taken into account in the ebitda nor in the final purchase price you end up paying a certain amount inheriting an obligation that you've still then need to settle in the future so you almost double paying for something um and so that's why it's important as well to understand that uh on the flip side if you're vetting the company on a multiple of profit this is typically after interest charges so then you wouldn't necessarily deduct the debt from the from the value of the company in that scenario because then you'll be double Counting yeah I think it's also just yeah it's important to note if you if you're buying the stock of a business you are technically assuming the debt it's in the business you're taking over the stock um we'll talk a bit about shoulder lines just now where that debt is actually owed to a shareholder but you know whether where the debt is owed to another third party by buying the stock you aren't in essence assuming that debt and so there may not be some sort of formal agreement that gets armed or anything regarding that debt specifically but by buying the stock you are assuming it so it's important to be cognizant of how does that impact what I'm paying and just to bring back the you know the unrecorded liabilities if we don't know what's sitting on the books or something's not sitting on the books are we factoring it into the price we're willing to pay for the stock and while we you know that's where it without going back into asset versus stock sales it may make sense to do an asset sale where we can completely you know remove that risk yeah yeah and I think that to me the big risks they are um you know as you said you you assume it that's uh you know it's it's assumed it's you know you you take over the LLC or the business entity whatever it is and if that is debts associated with it it's now yours you're the owner of that so you're the therefore liable for that debt I mean obviously there's agreements that can include excluding that's what we're talking about here and we'll talk about them but if they're not explicitly excluded or included they are assumed to be included because that is attached to the entity that you are purchasing and so yeah it is important and I think you know I cannot be probably cannot reiterate this enough it's the ones that we don't even know about um that therefore it's in there it's not written anyway there's no there's no exclusion of it because it's it's and it's unknown therefore by default is it is included because it exists even though you don't know it exists and so you as a buyer automatically assume that whether you know it or not and just the risk of that is is infinite so just being aware of that is is important okay so moving on we we then talk about um a seller looking to settle any debt prior to a sale so they decide we don't want to carry this debt on the books we want to get rid of it to probably bolster the price of the sale probably bolster the value of the business and they obviously then take the knock off having to settle that and whatever they can do their own internal math of I rather settle this and potentially get higher value and win at the end of the day they're doing those internal things but Josh some of the other pieces involved with selling that debt well with closing the debt before exactly so this this is usually either initiated by the by the buyer or the seller so as you mentioned the seller might see some some benefit up in the value cleaning up the books about the buyer Also may insist that they don't want to deal with with the admin of of managing this debt um they might have their own Finance instructions in place they could benefit from and refinancing certain things once it's in their hands um so they they want to take over a clean set of books um so you'd move to as part of the closing of the deal settle those uh those dates but this can obviously only happen if there's actually reserves in the company itself to settle these debts but one thing that people often Overlook when determining a value of a business is not understanding that there's usually a penalty clause for settling dead early and if you don't factor that in you could lose out on the purchase prices that I could end up paying more or if it's not factored into the overall budget price of the business it could be a mismatch between the value you you're kidding and watch it what you're actually playing so it's important just to understand that as well yeah that makes sense that's relatively simple I think you know you know obviously the circumstances on each case will decide how you go about that um so yeah and then the the next one is a seller negotiates with lenders to reduce the debt um now I think this one's quite interesting so yeah give us a breakdown and I can ask some questions yeah so let's just find the scenario yeah the business has long outstanding characters that are outside of the normal payment terms so YouTube view this as non-current the liabilities outside of of the normal work and capital cycle of the business so therefore it's considered debt um and maybe the business is struggling about and it can't actually afford to pay that debt and outside of of an actual sale the business might be liquidated so the salamide Indian scenario to to sell the business and as part of a sweetener for the creditors is to say look we'll pay you uh cents in the dollar um to in order to clear the state so that the business is then more attractive for a new buyer and as part of that sale there could be an agreement that um the new owner of the business will bump in more more money into the business and continue to grow the business and work with this creditor therefore generating more income for the Creditor uh in the long run as opposed to looking for an overall settlement and liquidating the business prior to a sale or anything like that so working out uh renegotiation or reduction of that debt is is probably beneficial for for all parties involved in that sense yeah it just highlights to me that the nuances that exist you know you just don't know I mean what you've explained makes complete sense you know there's a creditor sitting here he's looking staring down the barrel of not getting paid anything because this business is about a you know file for bankruptcy or whatever it is so they're not going to get anything all of a sudden business owner comes and said actually look I'm trying to sell you know if I could clear your debt and I'll get a better selling price if you come to an agreement I'll pay you you know half of what I owe you whatever it is whatever it is like yeah that's so true it just make like you if you look at that picture you go oh and then you know that's there's clearly an option of negotiation there that's that's not an unfounded thing and this happens every single day time and time again you know the the con in Commerce in business world is people are negotiating they they want to get what they can get out of certain things whether it's the full value or not the full value and so just I think to me the takeaway is they just it could be different to everyone you know your set of circumstances could just be uniquely and they'll probably are there's no there's very very rarely are there two businesses that are exactly the same even if you think of the franchise model you know McDonald's here and a McDonald's there they are by Nature exactly the same but they're going to be different there's going to be differences there's going to be nuances between the two of them um and just understanding them I think that's that's that part we went I think in our first ever episode of advisory we said the job here is to remove blind spots to you know to create Clarity around something that is very complex and when you have people who have done it before they know what questions to ask and that's just highlighted yeah this you know there's probably thousands of different ways and approaches you could approach this problem and different deals you could put in place and structures you can put in place to get to your outcome but you've got to know you've got to know you've got to know that they're available to you you've got to know that you can do them so I think that's makes sense what you're saying but I think to me the bigger picture is like this complex Anything Can Happen you've got to be open to different possibilities definitely yeah okay then the last one was debt uh deducted from the proceeds of the cell and so you kind of alluded to the fact that this is kind of like assuming the debt but there's a difference here yeah exactly so where the buyer doesn't want to assume the obligation continue with uh the monthly prepayments they could withhold a portion of the proceeds and use that to settle the debt so that's obviously different from factoring it into your purchase price on the balance of things you might end up in in the same position with money that's that's flowing out in the value of the business that you're getting but the proceeds and the purchase price are not necessarily always always the same thing and again there could be certain benefits or actually penalties from paying off loans ahead of its majority date as we alluded to earlier but there could also be benefits in terms of a time value of money obviously understanding that when you're paying off a loan over 12 months was was interest overall amount of money you're spending is about higher than uh than paying it or for over a shorter period so there could be that that sort of benefit as well that you want to achieve at the closing date as opposed to keeping this uh this load on the books okay I want to ask a question that's I don't know I'm pretty sure we could answer but let's talk about taxes for a second because I can imagine that this could play a big impact on some on some tax pieces here and and my brain went in this you know I think Mac you you this is your world more than mine and more than probably jail and eyes together is you you understand some of these tax nuances even you know it doesn't really matter where it is geographically in the world there's going to be tax consequences but if you're saying you know if you're bundling this value as as all proceeds to a from a from bias putting all you know five million bucks into this thing to buy it that is all deemed as a purchase price and it's going to be taxed a certain way if you took out 500 000 settled debt and you only paid the proceeds of 440 4.5 million same amount of money at the end of the day but I would assume a very very different taxable outcome because one one is all proceeds to a sale and one is some you know debt refinancing or just repayment which has their own tax consequences usually not significant but then the proceeds have their own do you want to talk a little bit about how that could make a big difference yeah so you you spot on that these have big tax consequences depending on which method you're dot um it's not as straightforward as saying well I assumed it instead of paying cash that I'm gonna the seller's gonna pay less tax it's actually not the case at all like let's say I'm a seller and I decide I'm going to sell my business for a million dollars and it just happens to have 200 000 in debt and John Luke he pays 800 000 in cash and assumes the 200 000 and so essentially he's paid a million dollars the fact that he paid 800 in cash and assume 200 doesn't change the fact that I received the benefit of one million dollars and so I'll still pay tax based on that one million but where it does become very interesting is where and we're probably going to touch a bit on this now is where they're shareholder loans so where I've got a business and um let's say again we'll use the example where the camp where the business is worth a million or the company itself is worth a million um but that inside that company I've also extended Advanced a loan of a million and so the company is the business is worth a million but it has a debt of a million so technically if we were to just sell the stock on its own it would be worth nothing because it has a Business Insider of a million but a debt owing to this to the current owner of a million um and so when Jean-Luc comes along and wants to buy it he could buy the stock for zero but he could also buy my loan and if you were to buy my loan he would pay me a million dollars because my loan is worth a million dollars and so that's where how are we structured from a capital point of view as an as an owner can have a big impact on what sort of tax consequences you have and often you would prefer as an as an owner you'd prefer to sell the debt so if I was if let's say again we go back to that example I'd much rather be selling debt than selling my stock or equity for Value because majority of the time if I've started this business My Equity won't have a basis or you know for capital gains purposes whereas my debt will unless we've written that debt down um so generally if we're selling if we're selling stock it's going to give rise to some form of Capital Tax taxing event and so I'd prefer not to sell it for that much money where's my debt I'm almost certainly going to receive the the face value of that debt and so if I sell if I've got a a loan extended to my company of a million and I sell it four million I'll won't have to pay any tax um so that's where it becomes so powerful in a negotiation um in that in that same example if we were to go down an asset sale we could the the seller could end up paying a lot more tax than had they gone down the stock and sale of debt sale um so it becomes really interesting on the structuring side of a deal um when there's debt involved sorry I know that was a bit better you know it's so important because we um this these things are real um you know the IRS doesn't just sit around and go you can do whatever you want to do we don't care we know that's not to be true they want their power to flesh as every tax Authority in the world wants their pound of Flesh and we can sit here and we can complain about it we can say it's not fair we can cry to the wolves come here no one cares okay there's legislation in place it is what it is whether you like it or not um the the job is less so you know get upset about it and also we've just got to figure it out we've got we've got a plan for these things and it's not just you know if you put your blinkers on and you go one plus one equals two and you believe that only one exists only one exists and therefore only two can exist that's fine but when you start to realize that there's a lot more variables out there there's a lot more things that play a difference and if you just structure the deal differently you could actually make a lot more money because of these peripheral things that is why advisory is so important and we you know we've said that in our first ever episode yeah we said the purpose of advisory is to you know find the skeletons in the closet answer the questions ask the questions that I'm being asked fact figure out what is truly happening create a full picture and he has another prime example is the job of an advisor is to say whoa what other options do you have available let's have let's have all the permutations on the table and what is the most effective this may be the best from a seller's perspective this could be from a buyer's perspective this could be good from this this this you've got to weigh up all those pros and cons all the positives and negatives and you've got to decide which is the best one for you and it's not clear-cut it's not just oh my there's a piece of paper that says my business is worth a million therefore I'm going to get paid a million from Joseph down the road it's never that it's it's infinitely more complicated so thanks for sharing that and yeah and hopefully it didn't go over too many people's heads um and there's a small word kind of does like that's what even doctors do you know your job here when I walk into a doctor's office if I've got to go have knee surgery hopefully I never have to but my job isn't to understand what the hell the guy's talking about okay my job is to understand can you help me can you give me to the outcome that I want to get to and so don't get don't get hung up on trying to understand it all just get hang up on hey what's the outcome I'm looking for and can I find the people that can help me get there so let's just move on to um shareholders loans he alluded to the briefly met um and I think that's you know it's debt but it's also owner's debt so it's now carries other factors to it so let's break it down a little bit yes I think Matt covered quite a quite a good portion of it now in in explaining just the nuances with regards to to the tax around it but it's important to understand when you are looking at a balance sheet what the debt is and if a child is dead then it's specifically unique and there's different ways to to deal with it um as we said you can request the loans to be settled as part of the closing um but one thing that that sellers are always shy about or not happy about is if they leave the business and they still have a claim against the business they no longer have control over the operations of the business and if that person then runs the business down it's not generating as much profit they're not guaranteed they actually get paid that that loan out um so when you lose control over that claim it can be quite daunting so that's why you might want to sell the debt um your loan claim as well as uh the shares in the business and obviously you balance the pricing between the two um or that the new or the the buy of the business can also just take that claim over as well so the business still has the the liability to to the new owner um or or just settle it at the time of closing in some instances they might even understand that uh it was actually really Equity all along and just capitalize it into equity and just sell the business as is without actually settling any of that of that debt yeah I think it's uh I mean it's this happens all the time I mean there's very solid transaction where there isn't a shield alone in some shape or form whether it's odor or owing to the company um and a variety of things can take place we've also seen where companies refinance that debt because as a seller I think I agree with J with JL here that if I'm selling my business and I'm no longer going to be in control of this business I'll prefer to have that debt repaid either by the purchaser or taking the taking excess cash reserves out of the business and settling that debt before I sell the stock another way is for the company to go out and get third-party debt so go to a bank raise that finance and use that Finance yeah essentially refinancing it um so these are all things that people should be thinking about leading up to a sale what is what is the composition of my balance sheet looked like and how is that going to impact the sale exactly yeah and then just I know briefly on um you know a lot of this is somewhat negated in some ways if you do an asset sale because you you now saying we're actually not going to try and take over everything we're just going to isolate things but you did allude to earlier um that sometimes you want a couple debt with assets so you know okay I want the assets I'm not necessarily interested in like Stock and Barrel the whole thing but I want these particular assets and it is sometimes beneficial to take the debt attached to those assets could you just break down that a little bit yeah so you might have equipment or vehicles or even a mortgage on a property that's coming with with the company it might not necessarily make sense to to settle all those debts prior to closing you might want some excess cash resources in the business and not use that all up on on debt on on day one uh also if you have existing debt attached to those assets it might be easier to finance new assets going forward at a cheaper rate or or bundle uh the different debts together and get cheaper financing on on new assets or things like that so sometimes it is advantageous to to have debt and I also think in some instances if we if we're just looking at the asset Finance we have no choice but to take over that debt because the bank's not going to let the seller sell the property without the purchaser assuming that debt um or having the debt settled so in some instances you know it's the only card we can play yeah if you can't settle the debt up front then you're gonna have to take it without it yeah that makes sense yeah thanks guys that that's super helpful and I think the the bigger part is um again going back to what I said earlier is there's so many permutations here and you know that's one of them there's there's many other ones it's you know to go and and just uncover all this stuff go and do the exercise don't make any assumptions and that's I think that's a big thing about advisory is it's harder to make assumptions because we're not the business owner and so a business owner has been wrapped up in this business form number of years they've got a certain set of beliefs a certain set of way they think how they think about money how they think about the money is transferred whether that's a shareholders loan or whether it's Equity they've just got this way of operating and when advisors come in they don't have all those preconceived ideas or Notions and they're kind of looking at this thing and just asking questions of okay well you know why is this a shelter zone or is inequity is this is this is this necessary debt or unnecessary debt is this does it even relate to the business or not like is this completely unrelated that's just actually sitting in on the balance sheet over here and so those questions become hugely important and the last thing I want to wrap up with and I'll let you finish it off jail is is this this known debt and we spoke about it earlier is you know blind spots and the thing the thing about blind spots it makes them hard as they're blind you don't know they're there so you know hindsight's 2020 when you look back and you go should have realized that there was a tax lien on the business and maybe wouldn't have done the deal but it's too late uh so just talk a little bit about these unknown things and how you know how do we how do we go about navigating that yeah so obviously all the all the treatments and things we've discussed uh we've been chatting about is is dealing with the known did um and what's been disclosed to us as part of the person so we have to play some Reliance and a seller disclosing all the debt and then it's been accounted for correctly but obviously that's not always the case and there's obviously additional risk associated uh with undisclosed states that we don't know about now natural ways to to mitigate this is putting in specific warranties in the silent purchase agreement um but to understand that there's also a doctrine of successes liability which means assumed or unassumed or known or unknown a buyer is inherently responsible for any debt that's attached to that company and the seller could have taken their money and walked away and then pops a creditor that says hey actually you know that business owes me money and you might go and say well that wasn't me that was the previous owner but that doesn't really matter it's all about the company itself being valuable for the states as I said putting specific qualities in place and obviously the last draw would be to go back to the southern agreement and put in a claim for fraud but you know that's going to be a long route to walk with more legal costs so that's why it just becomes vitally important for you to dig as deep as you can with regards to understanding all the data that exists when when you are buying the stock of the company yeah and it goes back to that notion I think of uh sorry matters goes back to that notion of um uh you know anything can happen all these permutations and you know you want to get to know what you're buying you want to get to know the people that you're buying from it's not a piece of paper so many people say What's the value of my business oh the value you know ran a round of multiple approach if you get your value to be four and a half million dollars it means nothing okay it's just a number it's a starting point there's so much that needs to happen around that and here's just one example of like hey can we are we comfortable that we are sure that there's nothing else here have we are we comfortable with the due diligence we can do are we comfortable do we trust this person do we trust what's being disclosed to us or is this just is this person just trying to you know get out as quick as they can and there's all these factors that are real you know this is a deal this is a deal with a lot of money that are real and so we've got to take them into account so Matt you were going to say yeah I was just gonna say I mean the number one way to mitigate this risk is to opt for an asset sale we we just pick and choose exactly what we can see and everything else stays behind with with the with the seller but if we have no choice but to go with it with a stock sale I would just say that some of the common areas where we see um unrecorded liabilities are around tax so getting an understanding of what taxes are coming up or going to be June that say the next 12 months or historic tax treatment that's been applied but may may have been incorrectly applied and so what is the likelihood of the tax authorities picking up that app subsequently and and raising a liability for it and then also around employees so are there any sort of long-standing employees that may have uh packages that get paid out on their retirement that's sometimes not accounted for on the balance sheet and so just to be mindful of that you know you don't want to buy a company and 10 people resign the first year it just happens that way and you're not having to fit fit these you know large compensation package retirement packages um that were infected into the purchase price and then also just the last thing is to ah just hopefully you've got a DD team that's doing a lot of this work for you but to just have a look at well how's this company being financed over the last few years has it been financed through loans from I don't know third parties or the owners well is it predominantly being financed through historic profits and as you apply that sort of Investigation you should be able to see where there's maybe a gap um which could be facilitated by this undisclosed liability you know your friend down the road with a lot of money who sold his business and lent you this money and but it's not being disclosed correctly on you know this on the seller's balance sheet so have a look at historical financing of the business just in general and that way you'll be able to hopefully pick up on on any undisclosed liabilities so interesting you mentioned that we we busy onboarding a client now not in the advisory space but uh in the um the digital marketing agency do really really well um probably a couple of million bucks a year um and they're just they're really cash strapped at the moment they're really struggling they don't have a lot of cash and they they first they run on a cruel based accounting system and their profits are like six hundred thousand dollars for the year and you're like okay well okay six hundred thousand dollars in profit no money in the bank okay there's a whole set of questions arise you know you go okay what's happening and try to uncover it and couldn't find anything and all we did is went back to 2020. and we kind of found the source of in 2020 they they did a lot of um distributions to themselves in to the point where they actually kind of drained any cash reserves they had and then if you just run in an accrual base are cool and cash always a little bit different and if you use that starting point you could track right the way through till now so it was two years later where this where the differences and what they're saying they're doing actually from an operational standpoint and what their cash is you can track the difference and it was just it was interesting because I'm sitting there going they're going to ask me questions around I don't know any money and then I've got to pretend like I'm a clever human being and I've got to know what's going on and so I had to go do this exercise and it was so insightful to see and just as you were talking like yeah that makes sense let's go do an exercise go and go go back and look what is what has actually happened here and that will paint the picture that's why finances what is why you have accounting you're just painting a picture of what has happened in a business to gain Clarity of where it is now and what it is worth now so it's super helpful inside thank thanks for sharing that matters and I don't think it's a hard thing to do in saying you know that's that's due diligence right there you know you can look at something for yet a day 10 months whatever it is or you can go back and look at five years and you're gonna get a very different picture and probably a more realistic one based on that anything else you guys want to add around around debt and businesses I think that's all all good for me as I said in the beginning that's not always a bad thing so don't be scared of it just know how to how to deal with it guys thanks for your time greatly appreciate it a little bit on dead day we've got some others coming up soon around uh buying and selling businesses so um yeah if you're listening to this and you've got any comments let us know we'd love to answer some of those questions but uh until we chat again cheers Cheers Cheers Adam thanks