A term we use: “Beer Money”
LEARN OUR LINGO
01/05
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We thought we’d introduce ourselves by letting you in on how we talk. What we’ve learned is that shared culture (including shared shorthand) is a superpower.
So, over the next few emails, we’ll walk you through the language that defines us, one phrase at a time.
First, what does Permanent Equity do? We use 30-year committed capital to invest in small, profitable companies that care what happens next and hold them for the long haul. Usually they’re family- or founder-owned, often the owner is thinking about the future (theirs and the business’s), and we plan to stick around for decades rather than years.
“Small” is doing a lot of work in that line. We mean companies throwing off roughly $3 to $25 million in free cash flow (you’ll meet that term again in this email). These are real, durable businesses that are valued by their customers, but have room to grow if bottlenecks can be addressed. If you want the specifics, our investment criteria lay it all out.
Back to the terms:
“The way we measure the value of a business is in terms of how much Beer Money it produces. Not ACSOI, not EBITDA, and certainly not Adjusted EBITDA. Because Beer Money is the money, all of the accounting shenanigans and GAAP yada yadas aside, that you have leftover at the end of the day that you can withdraw from a bank account to buy beer with.”
Optimize for what’s leftover at the end of the day, and a surprising number of other decisions get simpler.
In other words, Beer Money is the one figure that can’t lie to you (unlike EBITDA, etc., which can be massaged). So, find the number that’s impossible to fake, and build everything around it.
The full guide to Beer Money (including why the best businesses to own tend to be “small, but important”) is here.
NEXT UP
The most honest thing we’ll tell you about the companies we buy (hint: it involves a knife fight).
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