A new promoter, who is a Bizar Financing graduate, took over the race event and called me with the following challenge: he needed $500,000 immediately from an investor to cover the upfront expenses to promote the race and to cover additional expenses until revenues from the event kicked in. The bad news here is that the chances of finding an investor for that amount of cash on such short notice (immediately) is Slim or None…and Slim just left town. For ease of reference, I will refer to my graduate as Mr. Promoter.
Refining the Challenge.
The first step is to whittle down the amount of money that is needed immediately and spread the rest out over as long a time as possible. During a 45 minute phone call I asked him strategic questions that discovered his real need was $250,000 immediately and the balance could come in at the rate of approximately $50,000 a month for the next 5 months.
The second step is to look at the players who were already in the game and who could be dealt with on a short fuse. During the phone call, I also discovered that: Lotus took a loss on 16 cars it had provided to race competitors for the old promoter. Concerned about their corporate image, Lotus had taken back the cars and refurbished them back to “like new” condition. Mr. Promoter had made a deal with Lotus to buy the 16 cars for $500,000 and he would sell them to race competitors at or near the market price of the cars which in the aggregate would be about $1,000,000. Lotus agreed to warehouse the refurbished cars and release them as sold by Mr. Promoter giving him the opportunity to earn a $500,000 profit when and as the cars were sold.
While the cars would be sold over the next four months, this could not solve Mr. Promoter’s cash flow need of the $250,000 immediately.
My Bizar Solution.
When the cars are sold, finance companies will loan 80% of the market value against each car as collateral for the loan. Instead of waiting until the race competitors buy the cars, the cars could all be bought now by other entities already working with Mr. Promoter which had an interest in the success of the Racing Series. On the date of the purchases each buyer signs the finance papers and gives Mr. Promoter their check, which collectively totals $200,000, and they become the legal owners of the cars. The finance company gives Mr. Promoter cashiers’ checks totaling $800,000. Mr. Promoter gives Lotus a check for $500,000 and Lotus is fully paid.
So far it looks like the buyers of the cars are collectively out-of-pocket $200,000. Not so fast, this is Bizar Financing. Follow the money. Mr. Promoter has received $1,000,000 ($800,000 from the finance company and $200,000 from the buyers. Mr. Promoter has paid $500,000 to Lotus leaving him with $500,000 in cash. At the same time Mr. Promoter gets his profit of $500,000, he makes $200,000 in loans to the buyers of the cars so that they are not out-of-pocket any cash. Mr. Promoter enters onto a 5 month buyback agreement with the buying entities for the price they paid for the cars (unless resold to race competitors sooner), interest carrying cost until
repurchased and token profit for their trouble. Remember all of these buyers have a stake in the success of the Race Series and that’s where their real profits will be. All of this happens while the cars continue to sit in the Lotus supplied warehouse.
Mr. Promoter is left with $300,000 of cash in his checking account that he can use to cover the $250,000 of upfront expenses which require immediate cash and the first months $50,000 of expenses.
Over the next 4 months, the cars are sold to race competitors. Each time a car is sold for market price, the proceeds pay off the 80% loan on that car to the finance company and the 20% loan from Mr. Promoter to the first buying entity. Mr. Promoter then delivers the car from the Lotus warehouse to the race competitor. The net payoff to Mr. Promoter will be reduced by the interest carrying costs to the finance company, but the few months’ interest will be negligible. The 20% paid back to Mr. Promoter over the 4 months that the cars are being sold to race competitors is approximately $50,000 per month ($200,000 divided by 4 months) which is the extra monthly cash flow needed by Mr. Promoter to produce the Race Series.
When the last car is sold to a race competitor all loans will have been repaid and Mr. Promoter will have received $1,000,000; paid Lotus $500,000, paid $250,000 of upfront costs, paid $250,000 in monthly cost and all of the initial car buyers are whole. But, where does the money come from to pay the interest on the finance company loans and the token profit to the initial car buyer entities? Once the expenses of promoting the race were covered by this method, Mr. Promoter had other revenue centers (many were joint ventures with his initial car buyer entities) that he implemented from the expense money that more than covered the small amount of interest carrying costs and token profit to the initial car buyers well before they were due. Mr. Promoter is able to put on the entire event, make a huge profit with no outside investors and never has to use his own cash. That’s how Bizar Financing works.
If you want to see more results of Bizar Financing, check out my free 25 minute online video at www.gettingrichyourway.com.