#91 Seven Finance Terms You Need To Know To Get Rich - BigDeal Recap
Podcast: BigDeal
Published: 2025-09-05
Duration: 12 min
Summary
In this episode, Cody Sanchez emphasizes the importance of understanding key finance terms to build wealth, particularly through small business acquisition. He shares insights on how to identify lucrative business opportunities and the financial metrics that matter.
What Happened
Cody Sanchez kicks off the episode by challenging listeners to reconsider their risk levels in relation to their wealth aspirations. He argues that small business acquisitions are one of the most overlooked avenues for building wealth in America. Using his own experiences, he encourages listeners to envision themselves as successful business owners, much like 'Cody,' who transformed a small business into a thriving venture.
The episode dives into seven essential finance terms that can empower aspiring entrepreneurs. First on the list is free cash flow (FCR), which Sanchez defines as the cash remaining after all operating expenses and capital expenditures are accounted for. He stresses the importance of focusing on this number for business success. Other critical terms discussed include net profit, working capital, and EBITDA, providing listeners with a comprehensive framework for understanding how to evaluate and value small businesses effectively.
Key Insights
- Free cash flow is a crucial metric for assessing business health.
- Understanding the difference between cash suck and cash flow businesses can guide investment decisions.
- EBITDA serves as the gold standard for determining the true operating profit of a business.
- Small business acquisition is a fast track to wealth that many overlook.
Key Questions Answered
What is free cash flow and why is it important?
Free cash flow, or FCR, is the cash left over after all operating expenses and capital expenditures have been paid. Sanchez emphasizes that if there's one number to obsess over in a business, it should be FCR. This metric is crucial as it indicates the actual cash a business generates that can be used for reinvestment, growth, or owner distributions.
How can I identify cash flow businesses?
Cody highlights the distinction between cash suck businesses, which provide services first and receive payments later, and cash flow businesses, which get paid before delivering services. Cash flow businesses typically rely on recurring revenue models, such as subscriptions, which provide a steady stream of income and reduce risk. Understanding this difference is key to making informed decisions about which businesses to invest in.
What does EBITDA stand for and why is it significant?
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Sanchez describes it as the gold standard for operating profit and a critical figure in dealmaking. By focusing on EBITDA, potential investors can gain a clearer picture of a company's operational performance without the noise from non-cash expenses and financing, ultimately aiding in valuing the business.
What is a leveraged buyout?
A leveraged buyout (LBO) involves using borrowed funds to acquire a business, similar to how one might finance a home purchase with a mortgage. Sanchez notes that private equity firms often employ this strategy, using the assets of the acquired business as collateral. Understanding LBOs is vital for anyone considering purchasing a business with minimal upfront capital.
How does seller financing work?
Seller financing allows buyers to pay the seller over time, often at a lower interest rate than traditional bank financing. Sanchez points out that this method can sometimes enable individuals to acquire businesses for little to no upfront cost, making it an attractive option for aspiring entrepreneurs without significant capital. This strategy can facilitate smoother transactions and align interests between buyers and sellers.