Different structures have very different return profiles
Silent Profit-Share
You own a fixed % of the business. Operator runs it. You receive your % of profit after the operator takes market salary.
Preferred Return + Carry
You get an 8% preferred return on capital first, then split remaining profit 80/20 with the operator. Standard for institutional-style deals.
Debt + Equity Hybrid
Half your capital is a 9% interest loan to the business. Half is equity. Lower upside, much lower downside.
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The business + your stake
These shape the size of the cash flow you'll share
Business SDE (annual)$200,000
Seller's Discretionary Earnings - cash flow before owner pay
$75K$400K$800K
Your Equity Stake35%
Your % of profit distributions (after operator comp)
10%35%70%
Hold Period7 years
How long before the business is sold (your exit)
3 yrs7 yrs12 yrs
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See your scenario
Get your full breakdown plus the BBC private deal feed
Projected Net IRR
18.4%
Base case, after operator comp + taxes
Total Cash to You
$614K
Distributions + exit
MOIC
3.1x
Multiple on capital
Steady Distribution
$3.4K/mo
After ramp + tax
Scenario Range
What changes if the business does better or worse than expected. Real businesses don't grow in a straight line.
Down 20% Year
9.2%
2.1x MOIC
Base Case
18.4%
3.1x MOIC
Up 20% Year
25.1%
4.2x MOIC
Year-by-Year Cash Flow
Base case, net of operator comp and 28% effective tax. Year 1 reflects acquisition + transition ramp.
Year
Distribution
Exit Proceeds
Cumulative
vs. Other Asset Classes
Long-run annualized returns. SMB equity is illiquid and concentrated, but the return premium reflects that.
This Deal (base)
0%
S&P 500 (avg)
10%
REIT (avg)
9%
Private Credit
8%
HYSA / T-Bills
4%
What we're assuming
Operator compensation: The operator takes a market salary first (15-20% of SDE, minimum $60K). This isn't profit you share in.
Year 1 ramp: Most deals distribute little to nothing in year one (acquisition costs, working capital build, transition). We model year 1 at 25% of steady-state.
Tax drag: 28% effective on distributed K-1 income. Actual rate varies by state and bracket. You should run your scenario with your accountant.
Exit value: SDE grows 3% per year, business sells for 3.5x SDE at exit. Capital gains and state tax drag exit proceeds by ~20%.
What this doesn't model: Operator failure, customer concentration loss, recession-cycle downturns lasting multiple years, or fraud. Use the down-20% scenario as a conservative floor, not a worst case.
See real deals structured this way
The Business Buyers Club is where Hedgestone's vetted deal flow lives. See actual pitch decks, financials, and partnership terms.