He Bought His First Business With No Money Left to Pay His Workers
He had no money left to pay his workers until the man who sold him the business lent him the money to run it.
Joys of Compounding · Brent Beshore - Adventures in Permanent Equity - [Joys of Compounding, EP. 34]Two weeks before closing on his first business, Brent Beshore, now the founder of the investment firm Permanent Equity, realized he had missed something basic. He was about to hand his savings to the seller, a man named Mark, leaving the company with no cash to pay employees.
He had come into the deal flush and unprepared. At 28 or 29, he had just earned his first seven-figure sum. Beshore recalled the giddy feeling, saying, "We can fly anywhere on Southwest Airlines anytime we want," and "We have the most money in the history of the world." He also knew he had no background in investing and was far beyond his understanding.
That inexperience had been obvious from the start. When his lawyer said they had to do diligence, Beshore did not know what the term meant. He searched the internet to learn it. He had signed a letter of intent and moved toward closing, without arranging any financing to operate the company after he owned it.
So he called Mark and asked the awkward question: after the purchase price was paid and the company accounts were emptied, how would wages be covered? Mark asked if he had a line of credit. Beshore said no. Mark told him the business would immediately fail. Beshore agreed the deal seemed dead, and admitted he had no idea what he was doing.
Mark rescued it. He graciously gave Beshore a line of credit on the very business he had just sold him, lending the buyer the cash needed to keep that business running. The old owner funded the new owner so the paychecks would clear.
The deal went on to do very well. Other businesses Beshore owned outside of it also started doing well, producing cash flow. Wanting to know how people actually make money, he made studying his full-time job for about a year. He printed out every Berkshire Hathaway shareholder letter and every memo from investor Howard Marks, reading for hours each day, highlighting each idea he did not understand and refusing to move on until he had mastered it.
Questions people ask
What is a line of credit and why did the business need one?
A line of credit lets a business borrow, repay, and borrow again up to a set limit, much like a credit card for a company. Buyers often use one to cover payroll and bills in the weeks after a purchase, when cash is tight. In this case, the seller provided it himself.
How common is it for the seller to lend money to the buyer?
Seller financing means the seller helps fund the purchase, often by accepting payments over time or lending operating cash back to the business. It is common in small business sales because banks may be reluctant to lend. Here, the seller gave the buyer a line of credit on the business he had just sold so it could keep operating.
Who are Buffett and Howard Marks, whose letters he studied?
Warren Buffett's Berkshire Hathaway letters and Howard Marks's memos are widely read guides to value investing, risk, and patience. Both stress buying good businesses, avoiding heavy debt, and thinking long term. Beshore later built Permanent Equity around holding small companies for decades rather than flipping them.