From Software to Concrete Cutting (and $1.4m of SDE)

Summary

Acquiring Minds Podcast Summary

Episode: From Software to Concrete Cutting (and $1.4m of SDE)

Host: Will Smith
Guest: Tom McCormick
Date: June 18, 2026

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Episode Overview

In this episode, Will Smith interviews Tom McCormick, a former software executive who, after a private equity exit at age 52, transitioned into entrepreneurship by acquiring a concrete cutting and coring business. The conversation delves into Tom's motivations, his unique path into business ownership, the nuts and bolts of structuring and closing the deal, his approach to post-acquisition change management, and how he’s transitioned to a more fulfilling lifestyle with a business generating $1.4m in SDE (Seller’s Discretionary Earnings).

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Key Discussion Points & Insights

1. Leaving Corporate Life for Entrepreneurship (04:52–10:26)

• Tom’s Background – Tom spent 30 years in software/consulting, working at Accenture, IBM, and then as GM at a PE-backed software firm.

• Inflection Point – At 52, after a successful exit, Tom didn’t want another “pride-swallowing role within a larger machine” (10:26).

• Inspiration – Discovered ETA (Entrepreneurship Through Acquisition) after reading "Buy Then Build", viewing it as a step-by-step recipe for acquiring a business.

  “Going back to the pride swallowing role within a larger machine really didn’t appeal to me.”
  – Tom McCormick (10:26)

2. Search Criteria and Strategy (12:27–19:15)

• Geographic Focus – Sought a B2B service business in the Twin Cities (Minnesota) to avoid relocation.

• Search Process – Met with six SBA-preferred local banks to build deal flow and financing relationships; serendipity led to a near-immediate lead from a banker.

• Financial Parameters – Had ~$500k liquid, would only put $250–$300k down; targeted businesses in the $2m–$3m range, 10 employees, SDE of $500k–$700k.

  “The prudence of setting a limit... really impressed upon them [the bankers] that I was somebody they wanted to do business with.”
  – Tom McCormick (17:55)

3. “Luck” vs. Skill and Experience (15:00–19:15)

• Felt fortunate: first LOI led to this deal, while friends are still searching.
• Bankers responded positively to Tom’s experience and conservatism ("not a 30-something with more spit and vinegar than experience" - 18:46).

4. Business Profile: Concrete Cutting & Coring (27:13–33:55)

• Business Description – Niche B2B service, supporting union plumbers, electricians on remodeling jobs; 25 employees, $6m revenue, SDE $1.3–$1.4m.

• Revenue Quality – Not recurring in SaaS terms, but “recurring in practice”—20–25 core customers, 2,000 invoices/year, no customer over 5% revenue, no sales effort in years.

• Industry Nuances – Project-based, not highly cyclical, but subject to construction market shifts and seasonality; low backlog (“two weeks out at most”—34:46).

  “I told everybody I’m looking for the least sexiest business I can find...blue collar service kind of work.”
  – Tom McCormick (27:13)

5. Deal Structure & “Rookie Mistakes” (41:21–74:14)

• Challenges:

  • Price: Business was larger than Tom’s original target, requiring creative financing.
  • Used a ROBS (Rollover for Business Startups) to tap $400k from his 401k and $200k in liquid assets.
  • Could not secure a seller note, as the sellers were adamant (“hard no”), but reframed part of the payout as a “consulting agreement” to bridge the gap.
  • Final deal: $6m, creatively structured below the $5m SBA loan cap (consulting agreement as seller's note equivalent).

  "This was really my kind of burn the ships moment...if we go forward with this, this has got to work."
  – Tom McCormick (42:23)

• Negotiation Tactics: Maintained a strong position (“No” on multiple broker requests), which initially saw his LOI declined, but 5 weeks later, the broker circled back and the deal was revived.

• Relationship-Building: Tom’s relatable, rapport-building style (outdoors, hunting, small-town roots) made him the sellers’ favored buyer over passive investor competition.

6. Reflections on Transition & Change Management (75:42–80:42)

• Change Philosophy:

  • Post-PE experience made Tom wary of bringing abrupt changes.
  • Focused first year on building trust, learning the business, and only automating low-risk, back-office functions.
  • Avoided disruption in the field operations—the “bread and butter” of the company.

  “If I institute too much change and too much technology...they’re going to get frustrated and they’re not going to like their jobs anymore. And then I don’t have a job.”
  – Tom McCormick (39:15)

• Incremental Improvements: Started with digitizing accounting (QuickBooks migration), but staged over several years.

7. Ownership Experience and Lifestyle Shift (81:07–87:38)

• Personal Finances: Set salary at $260k with bonuses to $300k—aligned with prior executive compensation.

• Business Fit: Achieved intended “work on, not in” the business dynamic, with a strong management layer and 20+ year journeymen staff handling technical/service execution.

  “I own three skid steers—I've never driven one of them.”
  – Tom McCormick (85:31)

• Working Capital Lessons: The construction sector's payment cycles meant cash crunches, especially in summer; developed more sophisticated tactics for managing payables/receivables in year two.

8. The Power of Seller Relationship (89:30–92:54)

• Ongoing, cooperative relationship with sellers has been key to resolving post-transaction accounting, working capital, and various “settlement” items over more than a year.

  "I don't know how you do that if you don’t have an excellent relationship with your seller and a lot of trust."
  – Tom McCormick (89:30)

9. Vision Going Forward (93:05–96:25)

• 10-year Goal: Own and operate through the SBA loan’s term, then possibly step back or sell; open to expanding via acquisition into related services.

• Lifestyle Aspirations: Hopes business will support a more leisurely lifestyle and facilitate more golf in the future.

  “I don’t want it to consume me. I have one I gladly pour 20 hours into a week. Right. And that was more my thought process.”
  – Tom McCormick (95:20)

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Notable Quotes & Memorable Moments

• On Autonomy:
  "Going back to kinda the pride swallowing role within a larger machine really didn’t appeal to me." (10:26, Tom McCormick)

• On Luck vs. Skill:
  “I've written one LOI in my life...I have friends that have written dozens and not made it to the finish line.” (15:00, Tom McCormick)

• On Deal Structure Creativity:
  “Rather than take a half million out of my pocket...I tried to find a way to reduce that on my end...so I took a different tact to try and get there the same way.” (61:22, Tom McCormick)

• On Change Management:
  “I just need to be patient about how quickly I implement those [changes].” (78:57, Tom McCormick)

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Timestamps for Key Segments

• Corporate-to-Entrepreneurship Pivot: 04:52–10:26
• Search Criteria/Process: 12:27–19:15
• Banking/Financing Insights: 16:13–19:15
• About the Business: 27:13–33:55
• Deal Structure Details: 41:21–74:14
• Change Management Approach: 75:42–80:42
• Owner Experience & Lifestyle: 81:07–87:38
• Seller Relationship Importance: 89:30–92:54
• Vision & Closing Thoughts: 93:05–96:25

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Takeaways for Acquisition Entrepreneurs

• Strategic networking (with bankers) can unlock unique deal flow.
• Strong seller relationships can trump higher, less-personalized offers.
• Be prepared for “rookie mistakes” on your first deal—build in margin for error.
• Post-close change management should be paced and sensitive to company culture, especially in blue-collar environments.
• Creative deal structuring (ROBS, consulting agreements) can be crucial, especially for larger or atypical targets.
• A well-chosen, “steady-Eddie” service business can yield high SDE, strong cash flow, and support both ambitious operators and lifestyle owners.

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For more resources, episode summaries, and webinars on acquisition entrepreneurship, visit Acquiring Minds.

Transcript

[Will Smith]

Today's guest did not want to return to his corporate path as a software executive. At age 52, Tom McCormick was coming off a stint as the general manager of a PE owned software business that exited. He had enjoyed the autonomy of the role after having so much control over where a company went and what they did, said Tom. Going back to kinda the pride swallowing role within a larger machine really didn't appeal to me. So when Tom read buy, then build, it was a parting of the clouds. Tom bought a concrete cutting and coring business, opposite end of the spectrum from selling corporate software.

[Walker Deibel]

And boy, it's going well.

[Will Smith]

Not explosive growth, but the transition was successful. The business is stable and Tom is improving it incrementally. Sensitive to how change needs to be digested by the two decade old organization. We spend a lot of time on Tom's deal structure. Listen for how a little reframing with the seller moved the transaction forward where it would otherwise have died. His adaptability here may be why today he's owner of a business while some of his would be business owner buddies are five years deep in their search. Here is Tom McCormick, owner of Quality Cutting and Coring Regular listeners of Acquiring Minds will have heard the phrase quality of earnings or Q of E countless times. But do you actually know what a Q of E is, what it includes,

[Walker Deibel]

or how to interpret it?

[Will Smith]

Well, in a webinar today Thursday, Max Lummis and Travis Sadler of due diligence firm LCS will break down the key components of a quality of earnings report. Among many topics, you'll How a Q of E analysis reveals a company's true financial story what makes revenue real, repeatable and sustainable how adjusted EBITDA helps identify a business's actual earning power, common balance sheet risks that can create costly surprises for buyers and the role of working capital debt like items and closing adjustments in a transaction. The webinar is understanding a quality of earnings, what's included and why and it is today. Thursday, June 18th noon Eastern. Link to register is right at the top of this episode's show notes or

[Walker Deibel]

on the Acquiring Minds homepage. Acquiringminds Code Foreign.

[Will Smith]

Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs, and on this podcast I talk to the people who do it. Buying a small business sounds simple.

[Walker Deibel]

Find a company due diligence, Get a loan close. In reality, you wear every hat just

[Will Smith]

to get the deal done. And then the moment you close, you have to throw those deal making skills out the window and learn how to operate. You shouldn't have to rebuild this infrastructure

[Walker Deibel]

from scratch and you definitely shouldn't do it alone.

[Will Smith]

That's why Walker Deibel created Acquisition Lab. What started as an accelerator has expanded into a complete ecosystem for acquisition entrepreneurs. Over six years, the lab's 1200 members have acquired over a billion dollars in businesses. The Lab puts everything under one roof. An active community, deal reviews, post close services, and a dedicated fund helping experienced operators buy larger businesses. If you're serious about buying a business, come see why Lab members have a 40% success rate. Learn more in the show notes [e-mail]

[Walker Deibel]

acquiringminds Tom McCormick welcome to acquiring Minds.

[Tom McCormick]

Thanks Will. Thanks for having me.

[Walker Deibel]

Tom. After a career in corporate, you're now a year and a half into ownership of a concrete cutting and coring business. Not what was on your resume. We'll hear about that. It is going well and we are going to learn how and what your vision is here for the next ten odd years. But let's start off with some background on you, please. Tom sure.

[Tom McCormick]

So I spent 30 years in software and consulting roles. I worked for large companies like Accenture and IBM. I worked for small companies in there as well, implementing software, developing software. Really spent my whole career and thought or thought what was going to be my whole career in building myself into a software executive. And ultimately at the end I worked for a private equity firm firm where I had some stake in the game and we had a successful exit and from that really came the seed money that I needed to fund an ETA search. I didn't know it at the time. As soon as we got bought out I really thought I would look for another software job. And as I looked, I was 52 at the time. Not a lot of people want to hire a 52 year old software executive. So those jobs were few and far between and friends of mine introduced me to Buy, then build and ETA search and I jumped in headfirst and, and started down that path instead.

[Walker Deibel]

Tom, just let's linger a little bit on your 52 year old self with, with all of this experience you're really peaking. I would guess you're, you're on the heels of sort of an exit that we assume you were instrumental in. So you know you had sterling resume. So I guess two questions. First, why do you think it was hard for you to find a job? And second, what does this say about the realities of the risk in a corporate life? A W2 life, particularly as in somewhat counterintuitively as you get more and more Success under your belt, but also older.

[Tom McCormick]

Sure. So, you know, like anything else, as you climb the corporate ladder, there's less and less seats at the table. So this was all post Covid 22, 23. You know, I had taken my role at the private equity is. I took 30% of the business, which was two different software companies, and combine those, putting sales together, marketing together, all of those things combined into one. Something that looked a lot more like one entity and, you know, searching for the next role. I think in particular that role was, was awesome for me. It was exciting, it was new. It was a lot of things that I really enjoyed. I think partially it was me thinking about going back to selling software. Selling software products or projects or things like that was less desirable. Asking, you know, negotiating what my salary would be, what my time off would be. All of those things just were very lackluster to me. I was getting, I was probably more specific in what I wanted or what I thought I had, you know, I had built myself into. So the types of roles that I wanted were definitely higher level roles. I didn't want to be underemployed. I wasn't willing to do something like that and try and, you know, coast my next 10 years of working. I wanted something that would be challenging. But having, being in a large corporation and having seven levels of executive, you know, sign off above you. I had deals I could sell a lot of times, but would get stopped somewhere along the process with people above me saying, no, we don't want to do that. You know, I didn't, I felt like I, I didn't need that and didn't want to work under that anymore. Being able to make my own decisions, push the, the division or practice or company in the direction I wanted to was important to me. And giving up all the control that you do when you take a W2 job, right. If the company, you could do great. If the company does bad, you get laid off. Right. You become a target. I wanted to get. Once I heard about ETA Search, I wasn't that familiar with it, but once I went down that path, I really saw that as being my next step.

[Walker Deibel]

So it wasn't necessarily that it was going to be that the market was inhospitable to somebody like you, but you did have high standards for whatever role you might take. And so those are very in demand positions. They were going to be competitive. Who knows how long it would take to find one and maybe you wouldn't. So, so it would, it would have been a pretty difficult role to find you probably could have done it. But then combined with this, as you contemplated, even if you were able to find such a role, all the stuff that, you know, probably people listening to this podcast all eventually chafe under, which is the lack of autonomy, the lack of control, the lack of it being your own ship. And so really it was sort of the entrepreneur, agency and freedom that beckoned at this point in life.

[Tom McCormick]

Yes, definitely. I mean, thinking of going back to, after having so much control over where, where a company went and what they did, going back to kind of the pride swallowing role within a larger machine really didn't appeal to me.

[Walker Deibel]

Oh, I see. So at the private equity that the role you were coming out of, you felt like you really were captain of that ship or at least had a lot of, a lot of agency.

[Tom McCormick]

Yeah, yeah, yep. I was general manager. I had the CEO and chairman of the board ahead of me. But, but I was given a lot of leeway there to make decisions and, and drive where I want it to. Right, right.

[Walker Deibel]

Okay, well, so ETA comes across your radar, your friends introduce you to it, give you buy, then build the book, which everyone listening will be familiar with. It probably speaks for itself why buying a business was the antidote to what ailed you. But is there anything more, is there anything more to say, anything less obvious about why, why this path?

[Tom McCormick]

I think it was just, I mean, it was really a parting of the clouds for me, reading the book, having it be a step by step program to follow or recipe to get to where I wanted to be. You know, I've been entrepreneurial my whole life. My wife and I owned, while I worked full time, my wife and I owned 30 apartment units at one point. Right. We were doing things on the side. But a lot of that is just unscripted. Right. This was having a script to say, well, if you wanted to go about buying a business, this is the way that you would do it. And here's the steps involved. Follow these. Right. And I was just following them, seeing where that would lead. And I think I was very fortunate in, in the direction it went in. I have friends that have been looking for five years. Right. I really, once I got serious and started looking, it took me about eight months, nine months to find a business and buy.

[Walker Deibel]

Well, that's an important distinction between you and your friends and, and one we're going to explore. Okay, great. So what did your criteria look like for, for the business that you, that you sought? And start with geography.

[Tom McCormick]

You're.

[Walker Deibel]

We, I think you, we heard you say, are you in St. Paul or am I? Am I? Have you said that yet?

[Tom McCormick]

I know he's to St. Paul. Yep. So it was geographically centered. I didn't want to uproot and move anywhere. So the Twin Cities market is a pretty big market. I was looking for a business to business service. And initially what I had scoped out or what I was looking for, I was very broad. I wanted to open the aperture, look at any type of service business. I had certain things, the, I think anything around bar, restaurant, retail, things like those didn't interest me, but. And services for individual buyers or consumers I wanted to stay away from. I really wanted the business to business feel. So I started looking. Really. I started looking by introducing myself to local banks. I went to six local banks that were SBA preferred, sat down with their business lenders, gave them my resume and my portfolio, and told them I intend to buy a business like this in the next nine to 12 months.

[Walker Deibel]

And you did that to line up financing relationships or because you also thought they could be a source of deal flow?

[Tom McCormick]

Well, really, I thought financing relationships, primarily deal flow. Right. I wasn't thinking of as much, but the second bank I went into, I had never met those guys before. And I walk in and they said, hey, we were just talking about you. We have a former banker who had retired and does a little bit of brokering now. And he called us about this business that he's representing and, and we thought of you right away. No idea why, other than, you know, I think we were price wise. We were probably in the ballpark of what I was discussing. But it really that my deal flow came from that bank initially.

[Walker Deibel]

Not sure I've heard that happen before.

[Tom McCormick]

No, I feel very fortunate and almost a little guilty. I think. I've heard some of your guests say that in the past that this struck at the right time and everything aligned and it all worked out for me. And I have friends that are still, you know, I've written one loi in my life. Yeah, right. I have friends that have written dozens and not made it to the finish line and have been working at this a lot longer than I have. So I had all those concerns of, oh my God, this is the first thing I've looked at. Am I going crazy and just jumping at the first thing?

[Walker Deibel]

Right.

[Tom McCormick]

But. But also feeling lucky from the start that, that I was able to get something with some meat on its bones and, and something I think I would enjoy doing and, and be able to see that all the way through.

[Walker Deibel]

Yeah. Well, as we hear about the Your negotiation process, we may conclude that there's something about you that was able to get this first deal done. What that differentiates you from your, from your, your buddies? Maybe not. Maybe it is just good luck. We'll, we'll get there.

[Will Smith]

The.

[Walker Deibel]

Can we also hear what your balance sheet looked like? What was your cash position going into this process?

[Will Smith]

Sure.

[Tom McCormick]

So from our, my private equity buyout, that was just under seven figures after paying taxes and things like that, I looked at it and said I really have probably 500,000 that I, that I'm going to put into investments. I don't want to go over probably 250 or 300,000 down. So that limited, you know, I was looking in kind of for a $2 million business, maybe as much as 3 million 10 employees or so. Right. Looking for that SDE. Everybody looks for 500 to 700,000 somewhere in that ballpark.

[Walker Deibel]

Yeah, right.

[Tom McCormick]

That, that was kind of initially containing

[Walker Deibel]

okay, great, which is just kind of typical, typical SBA strike zone. You had about half a million bucks liquid, but you only wanted to part ways or put toward the deposit of this business, half of that. So 250 to 300. So just calling that out to say that many lenders will look for the entrepreneur, you, the buyer, to have what they call post close liquidity, that you haven't spent every last nickel on getting your deal done. You were not going to do that. Not necessarily because that was something your lenders wanted you to do, but just your own prudence. You were still going to be sitting on 250, call it liquid after the transactions, what you envisioned.

[Tom McCormick]

Yep, yep. And I had a couple bankers actually call me out for that and say they appreciated that. They said a lot of people come in, show them their portfolio and say, how much can I borrow? Right. And I was saying, here's how much I have liquid and this is what I'm willing to do. Right. And just the prudence of setting a limit and thinking about it in that terms. Two of the of the bankers I met with were like, that's, that's wonderful. Like, I love hearing that. Right. Bankers by nature are conservative people, you know, but they also see the good and the bad of what can happen with acquisitions or with investments. So seeing that I was holding some back, really, I think impressed upon them that, that I was somebody more that they wanted to do business with.

[Walker Deibel]

Yeah. The other thing about wanting to do business with Utah, they probably just liked what they saw in you. Here you are a seasoned executive versus, no offense to 90% of people listening now, but the, yeah, you know, the 30 something who's, who's got, you know, more spit and vinegar than they do experience, you know, you got, you got a lot of experience. Did you get the sense that they, that they smiled upon that?

[Tom McCormick]

Yes, I had. Out of the six banks, four of them right away said we want to do something with you. Right. The other two said great, if you find something, bring it our way and we'll talk. But you know, I look at this, I wish I would have started this path 15 years ago, but will, I'm not sure I would have had the skills 15 years ago. Right. So it took me this long to get to the point where I'm confident in what I can do and manage and, and accomplish. And I, I've spent a lot of that time in sales roles, not, not used car sales. I'm not a flashy sales guy but you know, just, just being able to present myself well and talk about what I've done and, and be reasonable and logical. Right. That's been my job and my forte most of my life. So I think that really hit home with a lot of the bankers and I had great relationships there throughout my search with those bankers and there were people I could bounce ideas off of and talk to about deal structure and things like that,

[Will Smith]

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[Walker Deibel]

why do you wish you'd done this 15 years ago? Started 15 years ago even if you wouldn't have had the experience?

[Tom McCormick]

Well, because when I got to the finish line I was 53 and had a 5 million dollar loan, right. So I would have preferred to do that earlier in life just to have more time to build and to. And to grow into this. The, you know, the freedoms that I have now as a business owner. I just would have liked to start that earlier. I would say, you know, the last 10 years of my career outside of the private equity experience were somewhat frustrating. Working inside of a larger corporate structure can be difficult. So I, I know, and my wife tells me almost every day, like, I am so much happier now with what I'm doing and what I'm able to do than she's seen me in a long time. Right. Which is huge.

[Walker Deibel]

Absolutely huge. Yeah. It's kind of the thing.

[Tom McCormick]

Yeah.

[Walker Deibel]

Tom, one other criterion, if you will, about what you were looking for was you did want to buy a job despite. Despite everyone.

[Will Smith]

Yeah.

[Walker Deibel]

Avoiding that now, I think that, that, that you wanted, but in fact, that sounds a little bit misleading because you wanted to devote yourself full time to this, but you didn't want to be the guy sawing concrete. You wanted to be working on the business, not in the business. So, in fact, sorry, I'm, I'm, I'm stealing your thunder here. In fact, you think you don't differ that much from many of the listeners, which is they expect to devote themselves full time plus plus to this, but hopefully not in the service delivery and instead working on their businesses. Do I have that right? What did I miss?

[Tom McCormick]

Yes. No, you're right. I mean, going from looking for a job to saying, I, I want to provide my own, when I say I, you know, I wanted to buy a job, really, I wanted to provide my own income, my own insurance, my own stability, my own retirement savings. Right. By acquiring a business. And it is something that I looked at from the start saying, I'm absolutely willing to be a part of this. What I didn't want was to have to stand at my business all day, be the key man of everything going on around it. I did truly want to work on things that would enhance the business, but not in any way be holding up the business. Right. Or being a decision maker. Everything has to come through me. Right. If I take that approach, the company can't really grow. Right. Everybody's turning to me all the time for answers. I'm putting myself in a focal position that I don't really want to be in. So I wanted to buy an organization large enough that it can operate generally on its own, and then I could just work on additional growth or other marketing and sales opportunities to try and move it forward rather than put myself in a middle seat. Right. I didn't want that.

[Walker Deibel]

Though I will say that at the range that you were looking at, the 500 to 700 of SDE, that's usually not going to give you what you want. You're usually as buyer of such a business going to find that there is thin to no management layer and, and you are going to be working in not on the business, at least for a while or at least a high percentage of the time. So. And now as it's turned out, you have found exactly what you were looking for, but you also ended up buying a bigger business. Any reaction to all that?

[Tom McCormick]

No, I, I, I think you're absolutely right. I mean as I looked at some of the businesses initially, I saw that as I had friends that did buy businesses, right. They were smack dab in the middle of them. So looking at how did I, how could I branch out of that or try and find some either I'm trying to find a, you know, a unicorn that is in that same, same type of financial business. But it's, but I don't have to be the guy answering the phones and talking to all the employees and doing everything every day. That got harder and harder to find. And really this initial business that was proposed to me by the former banker as well, that got, as I dug into that, that got larger and larger. It was bigger than they originally thought. The bankers that introduced me originally thought the business itself was bigger, had a higher sde, had that management layer. Right. But started to bring in the question of whether or not I could afford it. Right. It was as I mentioned, I didn't want to come in with a whole lot of investment beyond the 250 or 300 I was willing to part with. This would require considerably more than that.

[Walker Deibel]

Well, perfect segue. Let's hear about this business.

[Tom McCormick]

Sure. So this is a concrete cutting and coring business is very niche. Right. So I think of it most often we're hired by union plumbers or electricians or mechanical subcontractors on large remodeling jobs. So the general contractor may not even realize we're there. Right. It goes out to bid. We want all of this mechanical work done. The mechanical contractor puts in a bid. Buried within that is guys like us to come in and core drill, you know, ten 24 inch holes through 12 inches of poured concrete so they can run all of their equipment. We're not often thought about, we're, we're last minute kind of, hey, we need a guy to come and do this. Right. And we're in and out of those projects very quickly. So it's not something that Shows up on radar. And, and really one of my criteria, I told everybody I'm looking for the least sexiest business I can find. I wanted it to be blue collar service kind of work. And, and I wanted it to be, I don't know, very low profile, Just something that cranks in the background that people have been doing forever and they're going to keep doing. You know, for my IT background I, I wanted to stay as far away from AI or any technological advancements as I could. So this was something that kind of spoke to me. It was just much bigger than I wanted. Right. It was 25 employees and $6 million a year. And their SD was more in the 1.3 to 1.4 range every year. Right. So the sale price wasn't going to be within the window that I wanted initially.

[Walker Deibel]

Great. Although it sure sounds like a, a great business. We'll get, we'll get to the deal terms and how you did the, the story of actually taking it down here in a minute. But let's just talk more about the business itself. The construction, I guess, or, or it's involved in construction jobs, I guess.

[Tom McCormick]

I mean, remodeling, constructing, construction. Yeah.

[Walker Deibel]

This is a category that as you probably know now, maybe you didn't at the time, maybe you did is one that, you know, generally we, we don't like as much because of all the bad working capital dynamics, project based quality of revenue, etc. Did you understand all that or know all that at that at the time? And, and how did you think about it? How do you think about it now?

[Tom McCormick]

Yeah, no, great question. I, I didn't come in knowing a lot about any of this, to be honest. Right. I, I, but I learned quickly along the way. So as I met with the broker, as I started to look over P. Ls right. I started to discover more and more about the business. So you're right in that it's not a recurring revenue situation where people are on subscriptions or something like that. However, at the same time, I would say it is recurring. We've got 25 customers that only ever call us. Right. So we get all of the business that they need for concrete cutting skills. Right. We get all their business, some of them. We're doing 50 invoices a year with just that one customer. At the same time, it's very broad. We send out about 2,000 invoices a year. No one customer makes up 5% of our revenue. So there's really no customer concentration from a risk standpoint that's spread out pretty Nice. But it is, it is not strictly speaking recurring or what we like to think of as recurring. Right.

[Walker Deibel]

So the profile of your customers sounds great. And that revenue, that's $6 million of revenue. What did it look like historically? Had it been pretty steady, Eddie, or was it only recently at that size or what?

[Tom McCormick]

No, it was very steady. And that was something that gave me a lot of confidence. Right. So I asked for financials again. I make several rookie mistakes through this whole process. Right. But I asked for financials. They came back with seven years of PNLs and balance sheets. I could see the kind of pre Covid buildup. I could see the COVID effect. And then every year since then they were very, very steady at 6 million of revenue and somewhere between 1.2, 1.4 of take home. So I'm looking at a 20 plus percent earnings to revenue. Right. Which is extremely healthy. I like the way that the revenue is all spread out. We do work for probably four or five hundred customers in a year. So the diversity of all of that revenue was very, very good. And they told me they hadn't done any sales effort in the last seven or eight years. So this was just answering the phones. Right. People would call in and they brought in 6 million a year. They had 25 years of good reputation in the Twin Cities market. There's only three cutters really that are, that are in, that are our size, I should say, that are this big and can do large complex projects. So there was no reason for me to think that any of that was at risk or going to change with a change of ownership.

[Walker Deibel]

And the again, the diversity of jobs and customers is fantastic. So the customer concentration seems to be a non issue. But again, cyclicality is something that if you're, if you're in the construction market, big markets will build more or less in given years. And you said you could actually see that. They gave you so many, they gave you seven years of P. Ls that you, you saw some of that flexing up or down based on what was going on Covid and pre covered.

[Tom McCormick]

Right.

[Walker Deibel]

Just talk us through that. Do you, do you feel like the business will contract a lot in a year where the economy pulls back and in construction follows?

[Tom McCormick]

Yeah, I did kind of the, I can't remember what the calculation is called. Right. But I had looked at this to say how much would it need to shrink before my loan payment becomes more difficult to make. Right. So I had kind of looked at that and said, boy, it would need to shrink significantly. So it does rely on economy. But I also came into it saying, well, if they haven't done any sales effort in a long time, certainly there's some market share I could steal from other providers by just applying a sales effort.

[Walker Deibel]

Your background, happily.

[Tom McCormick]

Right. So yeah, right. We, you know, what, what revenue could we get if we actually tried? Right. So right now we were just getting 6 million by answering phones. Seems like we should be able to grow that. Right? So that gave me some confidence, I would say the one thing about it, so having this broad base, having so many customers, having all of that and seeing the history of it is great. The scary part about it and the seasonality of it is that everybody in construction says, well, what's your backlog? How many contracts do you have signed and how much work do you have pending out there? And for a $6 million business, that should be significant. Well, at any one time we only have about two weeks of work scheduled out, right? We're the last phone call. Can you be there Thursday? Can you be there Monday? We don't sign contracts. Out of all of that work, we sign maybe four or five contracts a year. The rest of it is tnm. And it's kind of understood, you know, please show up on this day and do this or that. And we do. But there's no underlying contract. And I had come from IBM being very contract heavy, right? Doing contract reviews, writing contracts, change orders, kind of all of that paper chase into an environment where almost nothing is contracted. Right. That honestly, that scared the hell out of me, Will. Right? That is, how do we continue to do business? How do we know that business is going to be there? And what I had to come to terms with was it's always been there, right? It's got years and years of established returns. All of that seems to work. My job coming in at that point was don't screw it up. Let them do what they're doing and see if you can help on the top end with some growth or on the bottom end with some operational efficiency. But the business itself actually works as a largely non contracted, last minute, no backlog scheduling, right? It works. It's scary at times, but it definitely works.

[Walker Deibel]

Well, it's interesting, Tom, because as long as that phone keeps ringing and that's the big if, although historically it has, but as long as that phone keeps ringing, in fact, this, that what you just described, all of these dynamics here actually make it probably an easier business to manage. It's pretty simple. It's almost like residential plumbers. I mean, you're basically being Dispatched for just a couple hours to a full day sort of thing. So it probably has the motion almost of like a home services business. Yeah.

[Tom McCormick]

I mean if you do the math on the 2,000 invoices and $6 million. Right. That's an average of 3,000. And some of our invoices are really 40, 50,000. So that tells you a lot of our jobs. Where that median invoice amount is. Right. Is closer to 1500. So that's a lot of two, four, eight hour kind of jobs. Yep. We'll have some where the floor in a warehouse fails and we gotta go cut and remove. 20,000 square feet. Right. That'll take a couple weeks. But the rest of it, it's a lot of small jobs, which is a scheduling nightmare. Right. It jobs cancel every day and get or get pushed every day. One of the things as a software guy that I, that I looked at the business and thought, I can help out here. They've got, we've got a calendar book and we write down every person's name and every job in the calendar book every day and it changes ten times a day. So that thing's covered with whiteout. Right. It's. But we're scheduling people and equipment and jobs in that thing every single day. Going through our list of guys, make sure everybody's got someplace they're going to and assignments change throughout the day. So we just send out one assignment at the end of the day. I would love to see that turned into software. But I'm also fighting. My guys are good, hardworking, blue collar guys. A lot of them don't own computers. If I institute too much change and too much technology in a short period of time, they're going to get frustrated and they're not going to like their jobs anymore. Right. And then I don't have a job, so I need to be careful about how quickly we bring in some of that change. I know it'll make us more efficient, but at the same time I just need to be, I need to kind of hit pause on what I want to do. Make sure we've got the right people in place that can handle the technology that we're going to implement and then start taking those baby steps.

[Walker Deibel]

Well, we're gonna hear a little bit more about this change management on the other side of the transaction itself. We still haven't heard how you, how you did your deal. Let me just ask about this little black book, as it were. So is the whole business really in that thing? I mean, you lose that book and what Happens.

[Tom McCormick]

Oh, my God. We've got. Actually, when I came in the. They showed me a closet that had the previous 23 years of black books, of everything that they've scheduled and what they've, what they've always done. So we've got, we have job tickets as well. Right. We could go back and recreate if we, if that went up in a fire, we could go through job tickets and figure it out. But, but we don't nearly have the technology backup that I would like to see in place. Right. For some safety and security.

[Walker Deibel]

Sure. Okay. Tom, so it's a bigger business than you were looking for. But. But frankly, it just sounds like a great business, one that, that searchers who recognize what a rare kind of SDE level that is would just move heaven and earth to, to take down as you did. So let's hear how you did it.

[Tom McCormick]

Yep. Well, so as the size of it became more clear and talking with the banker friends that I made, Right. I was really saying, hey, is there some way I can get there? Right. You've got my portfolio and what would I need to do? I was really fearing I'm going to have to put every last nickel into buying this business. And one of them said, well, have you thought about a Robs? And I hadn't heard about a Robs. Didn't know what that was. Right. But the rollover for Business Start can be applied to acquisition and they put me in touch with somebody that does that type of business.

[Walker Deibel]

Tom, pause real quick to define rob for the audience. It's tapping your 401k tax without being, without incurring the tax penalty to move that capital into a business. Acquisition Robs allows for that. It's quite technical and cumbersome. So there are third party vendors who manage the process for you. Go ahead.

[Tom McCormick]

Yes, thank you. Yeah, it's what it did for me. As I looked into it then, I was looking at this 2 to $3 million cap and the business I could buy based on my liquidity. But if I turned to my 401k and did an investment from there as well, that really opened it up where this was. I knew this was going to go for, you know, $6 million, five and a half at least. The buyer was asking for seven or eight. You know, I had no chance of getting there personally if I didn't use my 401k. So it brings in another level of risk, as you mentioned, Complexity. Right. So SBA process already has some complexity. Now you have a Robs with an sba. Right. I Had to be very sure that this was the business I wanted and that this was going to be successful. This was really my kind of burn the ships moment. Like if we, if we go forward with this, this has got to work. Right. So it put a little more pressure on me, but it also opened me up to get out of the normal target area of a lot of ETA searchers. Right. So I was very, very fortunate also that the, the sellers did not want to go to sale publicly. So they had just reached out. This broker was, was reaching out to people he knew, bankers he knew, looking for investors, but wasn't able to list it on biz by sell. Right. Or through a local brokerage. So I knew I had their attention. If I approached them in a very limited capacity, they aren't going to have 20 people reaching out to the broker, which is really what I needed as a first time buyer. I know I'm going to be slow through this process or slower compared to a seasoned investor.

[Will Smith]

The team at Aspen HR recently published a short white paper targeted at searchers Entitled A New CEO's Guide to Human Resources. It lays out the key items you should be thinking about as you transition into CEO and owner of the business you bought. The link to download that is in the show notes Aspen HR is a professional employer organization or peo which provides HR compliance, flawless payroll, robust HR technology and Fortune 500 caliber benefits, all for a fraction of the cost compared to using multiple vendors. Reach out to Aspen HR for your complimentary HR diligence checklist and benchmarking analysis. Go to AspenHR.com or contact Jenny Theere directly at [e-mail]

[Walker Deibel]

and when you anticipated the purchase price being over 5 million, as you know the SBA loan limit was at 5 million.

[Tom McCormick]

Yeah.

[Walker Deibel]

So how, how are you expecting to get beyond that, beyond the $5 million limit? Above and beyond the fact that you're going to have to tap your 401k for just the, the, the deposit or the, the, yeah, deposit, yeah.

[Tom McCormick]

Down payment. Yeah. So the, you know, the, the broker in my first meeting with him said what an incredible wonderful business this is. And, and he's right. But really overselling it and saying this is seven and a half, $8 million. Right. Could you qualify for that? And I said oh absolutely. Which isn't true, Will, but none of that needs to get hashed out in the first meeting. Right. So I say yeah, if the financials of the business support it, I can absolutely get qualified for that. But then it's get me the financials and then let's start talking to bankers and let's dig deeper into it and see how much we believe in this thing before it would ever come to the point of saying, well, how much can I qualify for? Right? And I certainly don't need to have that conversation with their broker. So a lot of that I put on my sales hat, right? Presented myself as somebody that could do this and moved forward through the process knowing that as soon as we hit a red flag at any point here, I can drop out. But until that time, I want to keep this guy's attention. I want to keep the seller's attention, right. And I want to give myself every chance of getting to this finish line. Now, you're right. The SBA limit of 5 million was very clearly in front of me. I didn't believe the 7 or 8 million he was talking about. And I knew I wasn't going to extend myself that far. But I thought, it's going to be five plus and we're gonna have to do something that again, is gonna be risky. But the 401 makes it a lot easier to be able to do then. Right. I was sitting with about 1.2 in my 401k. Right. That gives me without coming close to emptying it. I've got some funds there that I could apply that would put us in the ballpark.

[Walker Deibel]

Great. Now, as I recall, actually, your first attempt at the business was a failure or they went a different direction. So tell us the story, please.

[Will Smith]

Sure.

[Tom McCormick]

So after two months of, I, you know, I asked every question I could possibly think of. I was the nervous first time buyer. We did a visit to the business after hours with the sellers. Um, we really looked at everything pretty thoroughly. And then at that time, my wife and I were on a vacation. We, we went to visit my brother in Alaska and we drove the Elkan highway from Alaska back to Minnesota. That's a 55 hour drive. That's a five day quest. So I'm going, I'm also going through acquisition. I'm. It's a gorgeous drive, but any, any free minute I have, I'm thinking about nothing else.

[Will Smith]

Right.

[Tom McCormick]

I can't get this acquisition out of my head. At one point, my wife took over driving and I wrote the loi in the car on the way back. Right. So I just felt like, I got to get this out. I've got time. So that's where I did it. And I wrote it for less than what they were expecting. Right. I wrote it at 5.8 and I included a Seller's note and, you know, went through all of the. All of the safeguards that you would normally put in there, exclusivity and business valuation. And. Right. You can really get good. I took some standardized things off the Internet. I took an LOI that a friend of mine uses and I kind of Frankenstein what I felt good about and wrote that up and sent it to the broker. Right. So 5.8, seller's note, me putting a little bit down, but I was trying to get to the point where I'm only putting 5% down because we got a 10% seller's note. Right. So how could we work this so that I can still get there and just tuck in underneath that $5 million limit? So that was my first attempt. I got an immediate call from the broker saying, I see what you have here. I want to talk to you about some of the notes. You know, seller's note, we wouldn't agree to. Would you take that out? And I said, no, 5.8 is too low. Would you make it 6.8? And I said, no, business valuation, we don't want to agree to. Would you take that out? And I said, no, exclusivity won't work. We've got two other investors that we're talking to. We're just not as far in the process. So could we remove that? And I said, no. And they said, your offer is good for 10 days. Can we extend it to 45? And I said, no. Right. I knew I was the only one with an offer on the table. Frankly, I was hoping for some sort of edit and response. But I don't blame the broker. Everything he asked for is in his seller's best interest. None of it was in my best interest.

[Walker Deibel]

So were you negotiating there, Tom, or were you. Were your nose hard nose?

[Tom McCormick]

I was positioning. Right. So it wasn't hard nose. I would never do any of this. But it was. I know I'm ahead of the other two investors they were talking to. Why would I agree to anything that makes their life easier at that point? I would love for them to agree to what I put on the table, and if they agree to it now, we can go forward and close. I don't want them, frankly, to talk to other investors and get further down the road with them and get outbid. So I had no intention of changing my offer at that time. I sent it to him. He said, great, I'll talk to my sellers then. Thank you. And he called me back later and said, we're going to pass. Right. So we think we can get somewhere else with the other sellers. We want to at least follow that process through or the other buyers, you know, so we're going to move forward and we're not going to respond to your loi. And as much as you're not supposed to get emotional about these things, right. You're just supposed to move to the next deal. It was eating away at me, right. I looked at other businesses. I went through probably a half dozen other ones that I looked at seriously but never wrote an offer on. And then after about five weeks, I wrote the broker an email just thanking him for working with a first time buyer. And if he comes, you know, I'm sure you have your buyer at this point for this business, but if you ever come across something else, please keep me in mind. And he called me back right away and said, I'd like to meet. I talked to the sellers, let's get together after the weekend. Right. So I knew that to be a counter, I spent the weekend spreadsheeting everything from 5.8 to 6.8, trying to figure out where they were going to come in and how I could possibly get comfortable with it. And, and we sat down on Monday and he said, you're at 5.8. If you move this to 6, we can't do the seller's note. Right. We gotta figure out something else and we would move forward.

[Walker Deibel]

You had met the sellers before?

[Tom McCormick]

Yes, on several occasions. So the broker was good about being the first gate that I walked through. But after I asked for financials, I sent probably 25 questions of why did this jump up 20% from this year to that year or decrease by 20%? A lot of financial analysis on their P and L because I had managed P Ls before. And just to say here's a bunch of questions I have. And he got out of the way and said, the sellers feel comfortable, you know, I think you guys should sit down together. And so we had probably two or three of those meetings. To be honest, Will, I think the relationship with the seller was probably a big reason why my offer was chosen and why they wanted to go forward with me. Being that it's a family owned business and they'd been around 25 years, something very important to them was that the guys that work here will be able to retire here. Right. They wanted a place that all of those people would always have jobs.

[Walker Deibel]

And so you think that the other buyers in line, I guess fill in the gaps there, what had gone on?

[Tom McCormick]

Yeah, I found out afterwards like the other buyers were strictly Investors, they don't want to come to the business, right. They'll invest the money. They want somebody else there to run it. They don't want to be involved at all. And I think it was just too impersonal for the sellers. First time I got together with them, I, I asked for the meeting and the broker said it's going to have to wait a few days because they're fishing. Right. So when we got together and sat down at a coffee shop, my first question was, where'd you go fishing? What did, what were you guys fishing for? How did that go? Right. Oh, my God. You fish. Yeah, I fish. Right. And we, I, I spent a lot of time really building rapport with them to be not just an investor, not just a potential buyer, right. But somebody that they get along with and, and could talk to and could relate to. You know, I grew up in small town, hunting, fishing, playing sports a lot like they did a lot like all the guys here do. Right. So being relatable was really one thing that I felt was really important. It's something that, that I've been able to do to a. With a lot of people in my career. And so it's kind of my natural thing to, to try to relate to them and, and talk to people. And if it's, if it's sports or if it's outdoors, camping, anything, right. It's stuff that I can relate to and start to grow a relationship. And I do feel like that's a big part of how I, how I ended up winning this was by relating well with the sellers. And another thing being, I want to go there. I want to be at the business every day, right. I want to meet the people. I want this to be where they retire. I don't want them leaving. Right. If they all leave, I don't have a business will. Right. So it's very important to me that I grow those relationships. And they saw that luckily for me, and I was the one that they wanted to deal with that relatability.

[Walker Deibel]

Tom, I just find myself wondering, was it just a happy coincidence that you had these features in common, the, the affinity for the outdoors? Kind of. From a similar background, Sure. I assume as a seasoned sales guy, you always look for some way to relate to your counterparty. In this case, it just, that what that was just showed itself. But, and so that was, that was lucky. But, you know, if it hadn't been that, you know, if I had been trying to buy this business. So I just, I guess the question is, are you always able to find something to relate on. I mean, that is kind of such a good approach at Salesmanship 101. It's such a good approach. But what if it's not there? What would you tell, what would you tell some of the listeners who often feel a chasm culturally between themselves and a seller they're trying to work with?

[Tom McCormick]

Sure. I think my approach would have definitely had to change if they said, you know, we go to opera twice a week and enjoy 17th century French poetry. Right. I would not have a lot in common with that. Right. So I would struggle there. I would need to find another way to relate. Right. They have kids, I have kids. Right. We've both been married a long time. We could talk about that. I would try and find something else. The fact that they're from a small town in Minnesota, I'm from a small town in Wisconsin. We both have lots of family. Right. You, you grow up around lots of friends. They work with those friends. It, you know, other than, other than having two different football teams we cheer for, that's pretty, that a lot of it is the same. Right. A lot of it is outdoors and hunting and fishing and stuff like that. So I, I, I, I agree. You know, if I think I was lucky here in about four or five different ways, and one was having small town, you know, very authentic people that I was dealing with. It really helped my trust level too, to know that. Right. That you don't get many shifty people in a small community that that becomes known very quickly. They are very honest, hard working people. I could trust what they were telling me when I asked questions about their business. So I think that relationship was really huge in all of this for me.

[Walker Deibel]

Yeah. And it has continued to play a role post acquisition, which as we'll hear.

[Tom McCormick]

Yeah, it definitely has. I'm surprised how long, but yes.

[Walker Deibel]

Okay, Tom. Great. So let's return now to the deal structure.

[Tom McCormick]

Sure. So knowing I was working with the limit on the 5 million and I had some funds from 401k but I wanted to limit my exposure there as well. Right. I still was talking to them about a seller's note. You know, I've got to get my bank note down to 5 million, but the sale price we agreed on was 6. So rather than take a half million out of my pocket and a half million for my 401k, I was trying to find a way to reduce that on my end. Right. So it really came down to they, they had a hard. No. I tried again at a seller's note and that was a hard no. So at that point I pivoted and said, well, let's do a consulting agreement instead. Right. So outside of the, outside of the purchase agreement, we would have a consulting agreement on the side that would have

[Walker Deibel]

similar, of similar size to close the gap.

[Tom McCormick]

Now that, yes, actually, I think I, yeah, I, I tried to make it very similar for them. I think for them as I went through the process and kind of read what they were thinking, that 6 million was a magic number for them. Right. So I have to get there. Walker says this in the, in the book. Right. If you're really stuck on a number, I can get there as long as I have all the time in the world to pay that. Right. So what are the things I can control and change on my end to try and get you there if you're stuck on that number? So they didn't like a seller's note and we said, all right, what about a consulting agreement? So I took a different tact to try and get there the same way. I still had to put in a significant chunk, you know, over 10% myself, between my 401k and personal funds. So I shifted 400,000 out of my 401k and I put in another, almost 200,000 out of my investment dollars. Right. My liquidity. When you do this with a robs, you have to form a C corporation. Right. So my C Corporation is owned 70% by my 401k and 30% by my wife and I. Right. So that's, that was structure I just had to deal with if I, if I needed to go the rob's route. I knew I had to go the rob's route to get to a deal this size. Right. I felt like throughout this process I kind of got pushed into where I had to be. But those things I'm willing to deal with, right. The double taxation people are worried about with the C corp. There's ways for me to work around that. I can buy additional vehicles and assets. And this is a very asset heavy business. So I can do things like that to reduce my earnings in the business to the point where I'm not suffering any double taxation.

[Walker Deibel]

And that split of ownership between your robs and you and your wife personally was proportionate pro rata with the respective contributions the 400,000 year OBs put in. The $200,000 that you guys put in comes out to call it roughly 70, 30. Okay.

[Tom McCormick]

Yeah, yep.

[Walker Deibel]

And the returning to this seller note slash consulting agreement wrinkle. Pretty interesting. First of all, they're hard Knowing the seller note, did that give you pause from a risk perspective? Meaning it's a bad signal coming from the seller?

[Tom McCormick]

Yeah. Most of what I read, most of what your guests talk about, everybody loves having a seller's note on there because it gives commitment. Right. From the seller to ensure your success or have some skin in the game on your success. So at first it did frightened me quite a bit. Right. I went into why that was. Their reasoning was, you know, we just don't want to have something that's going to be subordinate to the bank loan. Right. But I know their broker was a former banker. He knows how this works, Right. He knows there's no way around that with the seller's note. I didn't understand why he wasn't being more. Trying to get them to be more reasonable about the seller's note. But the way I looked at this was, okay, so you don't want a seller's note that would be subordinate to the main loan and take future payments. Right. In order to get to your $6 million number. So what I proposed in the consulting agreement, to me felt just the same. It's taking future payments, right? You're not going to get $6 million upfront, so you're agreeing to take future payments. If anything were to happen with my bank loan, that would be my first priority. So by default, you're subordinate to my bank loan. I didn't understand the difference necessarily, but they seemed okay with it. So we restructured. Right. We took a different tact through a lot of this talking to this seller. You know, there'd be things that came up. And I would continue to say to her, you know, that's probably a concern for later. We should talk about it again. I feel like two reasonably minded people could come to an agreement and she'd say, oh, yeah, I agree. Like, let's address that, you know, when this comes back from the bank or when this happens or that happens. So it was always very amicable between us. It was always a, an atmosphere of collaboration to get to, you know, this is what my lawyer needs. Right. Or this is what my real estate broker is telling me, or this is what. Whatever. Right. But you and I can agree, like, we could sit down and agree to something like this, right. I felt, you know, their willingness to operate that way and my willingness to operate that way went a long ways to iron out everything that came up and bring us both to the finish line that we'd be happy with.

[Walker Deibel]

Well, again, probably also a benefit of the rapport that you'd built to date at this point. So just going back to the consulting agreement. So really, in some sense, from your perspective, it, it really felt like a seller note, but it was repositioned as a consulting agreement. You know, basically deferred payment post acquisition to your seller for a certain sum. But positioned that way they could get, they and their broker could get comfortable with it. And, but, and yeah, that's right. Now, obviously the, there are material differences between a true seller note and this quasi consulting seller note consulting agreement thing. Like a seller note can be, well, at the time could be used toward your equity. Now it can't without the seller also personally guaranteeing the loan. So that's kind of neutralized this technique. But this was before this was all happening before that rule change. So it could have contributed to your.

[Tom McCormick]

That's right.

[Walker Deibel]

Equity, which you talked about. So you needed to come to the table with more equity.

[Will Smith]

So that also, though lenders like to

[Walker Deibel]

see a true seller note for the same reason that it shows it signals alignment. The how did your lender get comfortable with their. With there not being a true conventional seller note here at this time?

[Tom McCormick]

Right. I was still stringing along three banks and I had to go back to the banks and tell them my seller is not going to agree to a seller's note. So we're going to have to figure out is that something that you're comfortable with? And one of the banks raised their hand and said, no. Right. We're going to step out if there's no seller's note. I said, I'm definitely going to. I'll invest the. I think we came in about 11%, but I said, I'll do that portion of no seller's note. One of the banks backed out. The other two banks said, we like the financials. And, and I was luckily in a position then where I could say, I'm going to make my, my banking decision on Friday this week and I need your best and final in. In terms of a rate sheet. Right. So I really was lucky in that they saw the same thing I did in the value of the business, the liquidity. And I could kind of push those banks to say, you know, I know what the SBA rate average is in my area. I'm asking you to come in significantly under that. And you know, there's more than one of you at the table. So I was lucky enough to be able to push that back to the banks that stayed involved and they fought it out between themselves really well.

[Walker Deibel]

You're obviously very comfortable in a negotiation Tom, even, even as a rookie rookie doing. Buying. Buying a business. Okay. Anything more to say on the deal itself? If not, let's turn our attention to the last year and a half.

[Tom McCormick]

Sure. I, I mean, I would say throughout the deal, I, I look back now and I see several rookie mistakes. Right. I agreed to a sales price, not a multiple with accounts receivable. I don't think we talked about that. I bought their accounts receivable. So this business requires a lot of operating capital. Right. We're going out and paying labor and paying to the union and doing a lot of work and going through a lot of materials and fuel and things like that that I don't get paid for for 60 days, right. 75 days sometimes. So part of my deal with the bank was I wanted to buy the accounts receivable. You know, one of my rookie mistakes, I agreed to a sale price, not to a multiple plus your accounts receivable, which I should have structured. I should have said, I'll pay 3.5 on the multiple that we agree on and then I'll buy the accounts receivable. On day of closing, I agreed to 6 million, thinking a million of it would be accounts receivable. It only ended up being 950,000. Right. I take the loss on that. I paid. Talk about a rickety mistake. I paid 100% for the accounts receivable, which is idiotic. Right. It's taken me a year and a half to get to 98% received on all of that outstanding invoices. I don't know if I'll ever get the last 2%. Right. I never should have paid 100% for the accounts receivable. I should have negotiated that differently. So as I look at the deal, there's plenty of things for a first time buyer to understand differently. And I was just naive to it. Right. And missed it going through the process. I have a, a mentor or a mentor group of friends that, that we work through this and I've gotten back to them saying, you know, yeah, we probably could have done this better. And they've said, yep, no, we, we missed that. Right. So, but I wasn't afraid to make a mistake in that process. I knew the strong financials. Did I lose some money there? Absolutely. I did well. But I knew it was recoverable. Right. None of it was so tenuous that if I, if I missed out on 50,000, the business would go belly up. But I know on the next deal it's, I'm going to be a little smarter just from what I Went through.

[Walker Deibel]

And so how should you have done it, Tom? What would the proper way of doing this look like?

[Tom McCormick]

Well, yeah, I would've sat with them and agreed. Here's the multiple I'm seeing, here's the add backs I'll give you credit for, and here's the ones I'm not going to. Right. So we're coming out to a $1.3 million earnings. I'm going to agree to a 3.5 multiple, and then I'm going to buy the accounts receivable on the day of closing. Right. That would have got me more value. And I should have said I'll pay you 90% or 85% of your accounts receivable on the day of closing. But then I own it. Right. I don't need to keep track of payments that come in. Was that before acquisition, after acquisition and funneled those off to them. If I had it to redo, I would have done a multiple and accounts receivable at the day of closing, and I probably would have saved 75 grand, 100 grand, something like that off the. Off the price of the deal.

[Walker Deibel]

Well, it. Well, yeah. And scheme not to sneeze at a hundred thousand dollars, but in the grand scheme of things, that's not that big of a

[Tom McCormick]

difference.

[Walker Deibel]

Yeah.

[Tom McCormick]

Yep.

[Walker Deibel]

Okay.

[Tom McCormick]

Yep.

[Walker Deibel]

And we haven't talked multiple, but. And multiple is nuanced, but effectively it was a little bit over 4x6 million dollars.

[Tom McCormick]

But with the accounts receivable in there. Right. So.

[Walker Deibel]

But we would consider the accounts receivable working capital that is. That is necessary for the business to function. So it, it should come with. Yeah.

[Tom McCormick]

So then I'm a little over four. The way I looked at it is that that's operating capital I need, whether I borrow it from the bank or just buy their accounts receivable. I definitely could have been more crafty about the way that I did that, but it was. I look at, as you know, the earnings to sale price was more around 3.5 and then operating capital of a million dollars on top of that.

[Walker Deibel]

Yep. Well, that way. Or just calling it 4x ish or a little bit over 4x for a business of this size, I'd say, and kind of quality, it seems like a very fair price. A very fair price to have paid. So especially, you know.

[Tom McCormick]

Yeah, I'm. I'm ultimately happy with it, despite all of my mistakes.

[Walker Deibel]

Well, in your.

[Will Smith]

Your.

[Walker Deibel]

Your mistakes don't seem that severe anyway, Tom, especially for a first timer. Great. Okay.

[Tom McCormick]

Right.

[Walker Deibel]

Just got you for a couple more minutes. Let's hear. So we, we touched earlier on the change management and how you have the sensitivity to not just come in there digitizing everything and, and, and making it all, quote, more efficient that you're, you're kind of throttling things as you, as you roll them out prudently. We, we hear that sometimes searchers can be naive and just sink their teeth into everything and make all these changes on, you know, as quickly as possible. And that typically backfires. People resist it. They alienate their employees.

[Tom McCormick]

Right.

[Walker Deibel]

So anyway, let's hear a couple of changes that you have made and just generally, is there a strategy, is there that you can articulate about when you make changes or is it just kind of feel when it's an appropriate time to make a change?

[Tom McCormick]

Sure. You know, I would say my, my apprehension around change really came from my private equity experience, which was ultimately very good for me. It was very good for the private equity. But I was sensitive to the people in the companies that we purchased. That was not a good time for them. Right. They went from small family owned businesses to something that felt very corporate and that's what I was trying to avoid coming in. So I spent a lot of the first year getting to know everybody on the team, getting to know all the field workers, talking to them about where they live, what they do on their free time. Right. Growing a relationship with everybody really was kind of my first priority. And I've since looked at, you know, we use QuickBooks and QuickBooks Desktop and we should move to online. And if we move to online, all the bills can become automated through an email, you know, an email address and entered into the system. We enter them all by hand, we print out everything that comes in and stuff it in drawer somewhere. Right. The amount of paper we go through and time we spend filing paperwork is probably, you know, an fte like it's, we, we could reduce a lot of this, but I'm on a plan that would probably take two to three years to really get to that future vision. And it's all kind of stopgapped. Right. So when we move to QuickBooks online, you know, it's going to take a couple months for us to all get familiar with what that looks like. Then when we put in an email address and have all the bills rerouted, it'll probably take a year to receive all the bills through that email address. Right. But all of that I'm intent on staging over a certain amount of time to get to something that would be a lot more efficient. We've got time to do that, I don't need to be in a rush, and the last thing I can do is screw up any of the operations here. I just need to be patient about how quickly I implement those.

[Walker Deibel]

Didn't you tell me that one of your frameworks is where you are making changes is typically back office, and the things in the field is where you'll, you'll touch things dead last sort of thing. Say more about that.

[Tom McCormick]

Yes, my trans. Sure. So my, my transition meeting when we first bought the business, I was very careful to say, you know, I don't have any change planned. Every, I need everybody that's working here to continue working here, and we're not going to introduce a lot of change individually. I met with everybody and the people in the office. I said that's not entirely true. Like, if there's things we can do with the, the inner workings of the business, we're going to do that to become more efficient. But what I don't want to do is affect the field workers. Right. So where this goes, when we're, when we assign a job and send somebody out to a job, I don't want their, anything we do to make their job more complex. I want them to go out, cut and remove concrete, you know, toss it in the dumpster, bring it back to the shop, or pour concrete back over what we've done. I don't want to make it any more difficult for the field because they're our bread and butter and they got to be happy. They can't be frustrated. Right. That would fall back on us. So I'm more than happy to address things in the office and try and make things more efficient there. I'm very hesitant to do any of that with the field workers.

[Walker Deibel]

Tom, circling back now to the earnings, the healthy earnings of this business. 1-3-1 4, you've got your big SBA loan, but can you share how much this is paying you, how much you're taking home? And is that how you think about that, how that squares with what you were making in your corporate career, et cetera?

[Tom McCormick]

Sure. So I've made my take home pay very similar to what I, what I was making as an executive. I'm paying myself 260 with, with a bonus to get me to about 300 a year. Right. Based on performance, there's more cash flow in the business. Right. So I'm not taking that initially. We do have more depreciated assets than I realized in the, in the first year and a half, we've had to buy three vehicles And a, and a diesel saw. Right. Those are. It's probably another 175,000 of, of spending that I've done. But as I'm going through this, I'm watching very carefully that, you know, cash flow accumulates, that my accounts receivable continues to grow. We're about to go into our, our second summer with me at the helm. And summer is a very, very expensive time for us. It's where the majority of our hours come in. We just don't get paid for those hours till October or November. Right. So we're coming into kind of a cash flow crunch time frame for us. But yeah, I think it's, I think everything is operating as it should or as it was planned. I haven't seen any huge changes. Demand is down a little bit, but we're talking like 5%. And last year at this time, I think our demand was down 10%. And then the rest of the year it overperformed 10%. So everybody in the business just tells me that this happens. It fluctuates. If you're down a little bit at the beginning, you'll be up at the end. If you're up at the beginning, you'll be down at the end. It all tends to work itself out. So I haven't seen anything significant in the operations different than what I expected.

[Walker Deibel]

What about what you've learned, Tom? And I'll be more specific about concrete. You know, you came in as a software guy and now you're in a very blue collar cutting concrete business. So what have you learned there, if anything? And how does that play out? And then on working capital, let's return to that question. We've touched on it a couple times, but let's address it directly because you just mentioned it again. It's a, it's, it's a challenging one in your business. So concrete first, please.

[Tom McCormick]

I've learned quite a bit about, you know, what we do and how we do it. I've been out on job sites with the guys. We're taking video and, and getting pictures. We've created some social media LinkedIn page, a Facebook page where we're displaying some of that stuff. And we're coming up with a social media strategy. I've learned a lot about, again, kind of operating this from a P and L standpoint. I've learned a lot about the cost of those types of things and how that works. The business itself seems very solid. As long as there's construction going on, we're something that we're one piece of that Puzzle. And we're probably the smallest piece will. Right. So if somebody's doing a hundred million dollar remodel of a building, we might be the smallest line item in there. That's good and bad. I mean, I look at it, at it as a good thing.

[Walker Deibel]

Not going to beat you up on price.

[Tom McCormick]

That's right. Right. So. So for us it's, you know, I've learned kind of where we are in the, in the chain, in the feeding chain. And you know, we're not dealing with a lot of general contractors. We're certainly not dealing with owners of the businesses. The owner hires the gc, the GC hires the sub, the sub hires us. Right. So we're pretty far down the chain, you know, which is a form of insulation for us.

[Walker Deibel]

So you haven't had to learn too deeply too much about concrete, and that hasn't been a problem. You're not a concrete expert, okay?

[Tom McCormick]

That's right. No, I've got, I mean, I've never cut concrete. I put it this way, I own three skid steers. Well, I've never driven one of them.

[Walker Deibel]

Right.

[Tom McCormick]

So I do, I do want to get out and do a little bit more, but I haven't had to get into that side of the business at all. I understand it well enough and I have guys that really understand it well. Right. So a lot. My journeymen have an average of 20 years of experience. They're very, very good at it. And if I'm on site with them, I'm the last guy that should be.

[Walker Deibel]

And so your vision to be working on not in the business has come to pass. You're, you're adding value at the, at the owner level, at the, at the, at the strategic level. You're not, you're really not involved in the service delivery that really is running itself.

[Tom McCormick]

Right? It is. It's important to me that I come to the office and that I talk with the guys every day and that I'm involved, they know I'm involved. Right. I don't want to be a remote investor. I want them to know they can come to me and I want to be here if they've got any questions. Plenty of them have borrowed equipment and trucks and things like that for their own personal use. At times it's important to me from a relationship standpoint that I'm that guy. But I am not a key man in our operation. I go get a loan when we need a new truck. Right. I'm doing all the reporting to financials. I'm leading the Insurance audit. Right. It's actually a lot of it is the crappy work of having a business. Right. That I'm taking lead on. I don't. I don't need to be in the operations. I'm not out there estimating jobs. I'm leaving that to the experts that we have. And I'm doing stuff behind the scenes.

[Walker Deibel]

It's working just like it should, Tom, the working capital. So what have you learned about managing. Yeah, Working capital in a business like this, which. Which has very frankly, bad working capital dynamics.

[Tom McCormick]

Right. I mean, I've. I've learned a lot of the construction industry operates the same way in that. In the seasonality of it. My first summer, I went about paying all my bills in 25 days and making sure everything was paid up and working fine. And I suffered a cash flow crunch. Right. All of our customers, when we got into the middle of summer and their expenditures are high, they pushed out my invoices to 60 days or 75 days in which they paid them. So I'm smarter coming into this season of how to manage my cash flow, understanding what things have to be paid on time and what things will cost, just as, you know, the same amount if I pay them in 60 days. Our customers and our customers did that to me the first year and helped me learn kind of what it takes and how you operate in construction. So if things. If push comes to shove, right. I'll make all my loan payments. I have certain vendors that I know I need to pay no matter what. And then I've got other ones that are, you know, that will wait the same way that I will wait for that revenue to come in. So different strategy coming into the second summer than it was in the first summer.

[Walker Deibel]

And your good relationship with your seller has continued. And that actually played out in the working capital, in the accounts receivable and how that was allocated. Right.

[Tom McCormick]

It really has one very surprising point to me. On day one, we started a financial settlement spreadsheet between the seller and I. We threw a pizza party to introduce everybody and to meet the new owners and things like that. I didn't have credit cards yet, right. From my bank. So she put all that on a credit card and we entered it into a spreadsheet and we started settling up at the end of each month or every two months of what she paid for that I should have, or I paid for that she should have. There were property tax refund checks. There were, you know, just one thing after another that we've had to settle. It went on for Over a year. I don't know how you do that if you don't have an excellent relationship with your seller and a lot of trust. Right. So I could email her today and say, hey, we received this. Right. That was from this thing or that thing and that's really one of your costs. And she'd say, yep, put it in a spreadsheet and then we'll sit down and talk about it and settle up. But that's gone over a year. I'm shocked at how long it's taken to settle all of that out. A lot of transitions you see as a four week, six week kind of owner will be involved and then we'll go on our separate ways. That's not at all the case here. I'm not sure how other transitions go, but. But we've had to stay in touch for financial reasons, if nothing else.

[Walker Deibel]

I'm searching for an answer in my mind. I mean, certainly the dynamics of working capital and accounts receivable and so on. There can be a formalized process that's of course written into the, into the purchase agreement and post acquisition. True. UPS and the like, but, but some of the littler stuff and kind of. It sounds like overlooked stuff that, that maybe isn't even really about true. AR and ap. You guys are also settling out. And I don't quite know how that would. I, I agree with your question.

[Tom McCormick]

Yeah, I didn't, I didn't have that teaching or that understanding going into it that we would continue to be settling things. You know, they, they got charged property tax for the year before and they, and they fought it and, and sure enough, the pro, the county came back and said, yeah, you're right, we'll reduce it by this amount. And they sent them a check for $3,000. Right. But really I was on the books at that point, so they sent me a check for $3,000, but it was property tax paid for last year. So we prorated it. Right. And said, well, we closed in November. Here's her prorated portion of it, my prorated portion of it. All of those little settlements, right. We've made adjustments for and we've made sure it was fair. And we both agreed on it and we've. At different times we've said, okay, like you spent 9000 here and I spent 7000 here. And really I owe you 2000. Right. Or you owe me 2000, then we'd settle it out. So that's a learning from this whole process.

[Walker Deibel]

Last question, Tom. What's the vision here? Is it to do this until retirement. Is it to build a concrete cutting empire? Is it both?

[Will Smith]

Sure.

[Tom McCormick]

So certainly for me, from the start it's been. I would want to own the business for at least the 10 years of the loan if I could pay the loan back and own the business free and clear and have it available to sell. I haven't had personally a lot of clear strategy on where we go from there. Do I hand this off to one of my kids to run? To be honest, I probably really only want to be here for about five of those 10 years. I'd love to play more golf. We've got vacations we want to take. I see it over time as we would be transitioning it. But even since our there's adjacent services that we could start to offer to get into concrete scanning, to get into more demolition work. Those are things that other people in our industry offer in addition to concrete cutting. Just since our pre call Will, I've had two conversations with other businesses that are for sale or going for sale. That would be great acquisition targets for us to tuck in and to continue to expand. So to be honest, I'm looking into that right now. Right. What does that look like and could we afford to do that? How does that broaden the services that we offer and what does that look like in the market? So I'm not ruling out expansion. I didn't buy it with this great idea of I want to double it. Right. And I want to have it explode. But I am looking at, to stay competitive and to get ahead of our competitors. Do we continue to purchase additional businesses or offer additional services that we haven't offered to this point.

[Walker Deibel]

That sounds like a lifestyle business, Tom.

[Will Smith]

Right.

[Walker Deibel]

And not that there's anything wrong with that, but it does. But, but you've said explicitly that Maybe in years 6, 6 through 10, this facilitates a golf habit.

[Tom McCormick]

It does. Right. I see this as a great precursor to me getting better at golf. So far to this point in my life, more golf has not meant better golf. But. But I would love to turn it, turn my path in it into more of a lifestyle. But it would be somebody here at the helm. And you know, my kids are. Two of my three kids have graduated college. You know, do one of them sit in this seat? You know, how do we. How do I do that? I don't know yet. I don't have a transition plan for it. But. But I do see myself taking a step back after a few years. I don't again, I want to work on it. I. I don't want it to consume me. Right. I, I wasn't looking for a business that I'm going to go pour 60, 70 hours in a week. Right. I have one that I gladly pour 20 hours in a week. Right. And that was more my thought process.

[Walker Deibel]

Well, I'm glad it's working out so well for you, Tom, because often we joke that people get into this to have more control over their time. And the joke, of course, is that how naive is that, that a small business can consume you. And then the answer is, yeah, but at least I control my time versus my boss or my W2 job controlling my time. And that, that's, that is that. I agree with that point. But, but in fact, having a business where you don't, where you don't. Buying a business where you don't have to have it consume your life, at least for the first year or two, is an even better outcome, if that's what you want.

[Tom McCormick]

Yeah.

[Walker Deibel]

So congratulations. We'll link to you, put your LinkedIn in the show notes if that's the best way for people to reach out.

[Tom McCormick]

Yep, absolutely.

[Walker Deibel]

Great. And we thank you for coming on Acquiring Minds.

[Tom McCormick]

All right, thanks, Will.

[Walker Deibel]

Thanks, Tom. Hope you enjoyed that interview.

[Will Smith]

Don't forget to subscribe to the Acquiring Minds newsletter. We send an email for every episode

[Walker Deibel]

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[Will Smith]

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[Walker Deibel]

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[Will Smith]

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[Walker Deibel]

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[Will Smith]

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[Walker Deibel]

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[Will Smith]

all the technical nitty gritty of buying a business.

[Walker Deibel]

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