How to 4x a Contracting Business in 3 Years

Summary

Acquiring Minds: How to 4x a Contracting Business in 3 Years

Episode: How to 4x a Contracting Business in 3 Years
Release Date: January 16, 2025
Host: Will Smith
Guest: Mike Heath, Co-Owner of Stateline Products

---

Introduction

In this episode of Acquiring Minds, host Will Smith delves into the journey of Mike Heath, an entrepreneur who successfully quadrupled a small garage door contracting business within three years. Through in-depth discussions, Mike shares his experiences, challenges, strategies, and key insights on acquisition entrepreneurship.

---

Mike Heath’s Background and Transition to Business Buying

Mike Heath began his entrepreneurial journey in real estate, focusing on flipping houses and managing rental properties. However, after experiencing both successes and a significant loss of $80,000 on a real estate deal, Mike sought a more scalable path to financial freedom.

Mike Heath [06:04]: "I liked the mortgage business but taking phone calls to 11:00 at night really didn't fit the lifestyle that I wanted."

Encouraged by a broker friend who had a track record of acquiring over 150 businesses, Mike shifted his focus from real estate to buying established businesses, seeing it as a faster route to financial independence.

---

Acquisition of Stateline Products

The Deal Structure:

In November 2020, Mike and his two silent partners acquired Stateline Products, a garage door contracting business in St. Louis, using an SBA loan of $250,000, requiring only $50,000 in cash from the partners.

Narrator [00:00]: "In the very first year of ownership, Mike and team got it to $7.5 million."

Growth and Challenges:

Mike rapidly expanded the business, increasing revenue from $2 million to $7.5 million in the first year and further to $9.5 million in 2023. However, this aggressive growth led to significant cash flow management issues.

Mike Heath [35:17]: "Understanding the cash flow is the biggest thing."

Cash Flow Struggles:

The primary challenge was aligning vendor payment terms with customer payment cycles. Mike underestimated the cash needed to sustain rapid growth, leading to vendor pressure and a temporary reliance on personal funds from partners.

Mike Heath [04:39]: "We didn't realize if we just had the conversation at the beginning and explained that we weren't able to build, you know, the material dropped early, so we weren't able to bill and it's going to take another 15 days."

---

Incentivizing the Operator: Jesse’s Role

To manage the growing business, Mike brought in Jesse, a trusted employee from a competitor, as the operator. Jesse’s compensation was structured to align his interests with the company’s success, offering equity incentives based on performance.

Mike Heath [21:49]: "We gave Jesse 5%. And the deal was for every $100,000 dollar business netted, we would give him a percent increase up to 20%."

This structure motivated Jesse to drive business growth, eventually increasing his equity stake to over 15%.

Mike Heath [79:55]: "I think he's over 15 though."

---

Lessons Learned from the Initial Acquisition

Mike emphasizes the importance of thorough due diligence, especially regarding cash flow understanding and establishing a line of credit from day one. He acknowledges that better initial systems could have mitigated early cash flow crises.

Mike Heath [74:44]: "Understanding the cash flow is the biggest thing."

Additional takeaways include the necessity of implementing robust systems and leveraging technology to streamline operations.

Mike Heath [76:28]: "Sightline... was really cut her hours by 10 hours a week, just not having to deal with the stuff."

---

Financial Performance and Growth Trajectory

Under Mike’s leadership and with Jesse’s operational expertise, Stateline Products saw impressive revenue growth:

• 2020: $2.5 million
• 2021: $7.5 million
• 2023: $9.5 million
• 2024 (Projected): $4 million
• 2025 (Projected): Over $9 million

Despite the projected dip in 2024, Mike remains confident in the business’s resilience and growth potential.

Mike Heath [33:03]: "It was extremely stressful. We didn't understand the cash flow of the business."

---

Expansion into the Pool Business

In May 2023, Mike expanded his portfolio by acquiring two pool businesses: Pool King Recreation and Florida Pool and Spa. These acquisitions were made with cash and later refinanced with conventional debt, aiming to diversify and stabilize revenue streams.

Mike Heath [83:14]: "We closed on Pool King May 1st and we closed on Florida Pool May 26th. So two transitions at the same time. Chaotic, hectic."

These businesses added significant revenue, with Pool King generating around $5 million annually and Florida Pool anticipating $1.4 million.

---

Insights on Acquisition Entrepreneurship vs. Traditional Paths

Mike reflects on the differences between his hands-on experience and the more formal, education-driven approach of MBA graduates and private equity-backed searchers. He values real-world experience and resilience over academic credentials.

Mike Heath [80:54]: "I feel like I'm paying my tuition right now."

Despite feeling out of depth at times, Mike appreciates the unique insights and perspectives brought by his experiences, differentiating him from peers who rely heavily on theoretical knowledge.

---

Current Status and Future Plans

Today, Mike orchestrates three businesses, having streamlined operations and reduced his active involvement to minimal hours thanks to effective delegation and system implementation. His future plans include further acquisitions, particularly in the commercial service sector, and continued organic growth.

Mike Heath [85:00]: "Pool King is sitting around $5 million a year and Florida Pool is... $1.4 million."

Mike envisions a diversified portfolio with robust revenue streams, leveraging the strengths of each acquired business to sustain and enhance overall profitability.

---

Conclusion and Key Takeaways

Mike Heath’s journey underscores the potential of acquisition entrepreneurship, highlighting critical factors for success:

1. Thorough Due Diligence: Understanding cash flow dynamics and establishing financial safeguards like lines of credit from the outset.
2. Effective Team Structuring: Incentivizing key operators to align their success with the business’s growth.
3. System Implementation: Utilizing technology and structured processes to streamline operations and reduce dependency on individual efforts.
4. Resilience and Adaptability: Navigating financial crises and operational challenges with grit and strategic problem-solving.
5. Strategic Expansion: Diversifying acquisitions to stabilize revenue and mitigate industry-specific risks.

Mike encourages aspiring entrepreneurs to take actionable steps without overanalyzing, emphasizing that imperfect deals can still yield substantial growth with the right mindset and adjustments.

Mike Heath [93:16]: "Sometimes you just got to do it."

---

Notable Quotes

• Mike Heath [06:04]: "I liked the mortgage business but taking phone calls to 11:00 at night really didn't fit the lifestyle that I wanted."
• Mike Heath [21:49]: "We gave Jesse 5%. And the deal was for every $100,000 dollar business netted, we would give him a percent increase up to 20%."
• Mike Heath [35:17]: "Understanding the cash flow is the biggest thing."
• Mike Heath [74:44]: "Understanding the cash flow is the biggest thing."
• Mike Heath [79:55]: "I think he's over 15 though."
• Mike Heath [93:16]: "Sometimes you just got to do it."

---

Further Resources

• Stateline Products: YouTube Channel
• Episode Summaries: acquiringminds.co
• Follow Acquiring Minds on YouTube: Acquiring Minds YouTube
• Subscribe for More Episodes: Visit the website or sign up for newsletters through Acquiring Minds

---

Tune in to this episode for a comprehensive look into the trials and triumphs of acquisition entrepreneurship, and gain actionable insights from Mike Heath’s real-world experiences.

Transcript

[Narrator]

In today's episode, you will learn how one entrepreneur took a small garage door contracting business and quadrupled it in just three years. Mike Heath, along with two silent partners, bought Stateline products in the St. Louis area. It was doing just 250,000 of SDE, split between the husband and wife owners. It did about 2 million in revenue a year. Its best year ever was two and a half million. In the very first year of ownership, Mike and team got it to 7.5 million. In 2023, they pushed revenue to 9.5 million with almost a million dollars of EBITDA. Those headline numbers sound amazing, and they are. But it wasn't without pain. Some of the core features of running a construction business Mike learned the hard way. Namely, cash flow management. What else? And how challenging it is when your vendor's payment terms are shorter than your customers terms. The existential perils of having a bad estimator Cyclicality. Yes, revenue got to nine and a half million in 2023, but this year 2024 revenue will more than halve down to 4 million. But he's projecting it'll be back up above 9 million in 2025. So this business may be boring, but such dramatic swings in sales are anything but also a big contributor to Mike's progress. Here was his operator, a friend he already trusted who was unhappy working in a nearly identical business and looking for a change. Listen for how Mike structured his operator's compensation to incentivize him. Now, despite the pitfalls of taking over a small contracting business, I maintain that this is a remarkable win and one that should be studied, maybe even emulated if you happen to like construction. Mike and his partners bought this business with an SBA loan, so they only had to bring about $50,000 of cash collectively to own a business that just a few years later can generate close to a million dollars in earnings in a good year. Even accounting for down years and Mike's own time working on the business and the equity granted to the operator, that's a remarkable return on equity. See what you think. Here's Mike Heath, co owner of Stateline Products.

[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. Running payroll, paying your bills, closing your books, and producing financials.

[Narrator]

These are critical tasks every business owner.

[Will Smith]

Must do or oversee, but spending time on them distracts you from the leadership in growth work you want to do.

[Narrator]

So let system 6 do it for.

[Will Smith]

You owned and led by a former Searcher, Chris Williams.

[Narrator]

System 6 is a leading outsourced finance.

[Will Smith]

Team for hundreds of SMBs, including over.

[Narrator]

50 searcher acquired businesses.

[Will Smith]

Chris, Tim and the System 6 team.

[Narrator]

Understand firsthand the challenges, the opportunities of.

[Will Smith]

Jumping into a business as its new owner.

[Narrator]

So whether you own your business already.

[Will Smith]

Or have one under LOI, talk to.

[Narrator]

System 6 about how they can give.

[Will Smith]

You time back and improve your financial operations.

[Narrator]

Mention Acquiring Minds and they'll provide a.

[Will Smith]

Free review of your books and Financial.

[Narrator]

Ops, a $500 value.

[Will Smith]

Check out system6.com, link in the show notes or email helloystem6.com Mike Heath, welcome to Acquiring Minds.

[Mike Heath]

Hey, I appreciate you having me on, Will.

[Will Smith]

Mike, you and a couple partners bought a very small garage door business. Tripled it in about three years, though it hasn't been without some fetal position moments. You are now also in the pool business with another acquisition. So we're going to hear kind of a trajectory of somebody who pivoted out of real estate into business buying and is is moving pretty quickly and I think it's fair to say sees his career doing this going forward. Let's get into it. Mike, how about some background on you first, please?

[Mike Heath]

Yeah, I grew up in St. Louis, Missouri. It's about 30 minutes south of the city. Went to school at University of Missouri, St. Louis. Studied accounting, business and business administration. After that, went down to Bogota, Colombia. Was supposed to be a four month trip. Ended up turning into three years. Came back to St. Louis. I got into insurance. I did mortgages for a while. I liked the mortgage business but you know, taking phone calls to 11:00 at night really didn't fit the lifestyle that I wanted. Went the corporate route for about five years. Working for a roofing manufacturer gave me a little bit of structure and it was great. But you know, I didn't really see myself climbing the ladder. I wanted a little more ownership. And then that's where the garage door company came into play. That was back in 2020 and I was still working for Malarkey Roofing products at the time. And we ended up buying the business while I was still working for that company. But it happened during COVID so we were working from home the majority of it. So I was doing all my sales calls in the beginning of the day and then dealing with the garage door company whenever I had time.

[Will Smith]

Well, Mike, but tell me where real estate investing came into this because that was what you had started doing kind of as your, as your entrepreneurial outlet, correct?

[Mike Heath]

Yes, yeah. So I was flipping. Well, I was. Yeah, flipping houses. I had a couple buy and holds. You know, the whole idea was that I'd flip my way to being able to buy rental properties. And it was going well. I mean, I did. I did pretty damn well on a handful of these properties. But, you know, when you're working a 9 to 5 and then doing this on the side and I'm making, you know, two, three hundred dollars a door, it's just seeing the path to what everybody tries to shoot for. And this is financial freedom. It just seemed like such a long road. And that's why I started doing more of these flips. And the flips, you know, I did a handful that were really well, and then I had one that put me in the hole. We probably lost. Well, I say we. I lost probably about 80 to $100,000 on it.

[Will Smith]

Wow.

[Mike Heath]

So it was a kick in the teeth. We got through it. You know, my dad, he's a retired carpenter right now, so he, you know, really saved my butt on that and got me through that difficult time.

[Will Smith]

But, you know, And Mike, that 80 to 100 grand that you lost on that deal, was that more than the sum of all the profits you. You earned from the previous successful deals? I mean, did it eat up everything you'd built so far?

[Mike Heath]

No, no, not all of it, but it just definitely hurt. And it was a little. It was. It was discouraging for sure. But, you know, the attitude was that, like, you know, I made a hundred on. I made a couple hundred on the other properties that I had done. So I knew it was just a cost of doing business. And I made a couple mistakes, learned from them. You know, it's cost of the tuition and just was ready to push forward. But the. The business buying, you know, I have a friend that's a broker that had been, you know, every time we get together, he's telling me about all these deals and talking about the people that were buying these, and most of them were executives that were retiring. They still want to stay in the game. And it just sounded really exciting. And the amount of money that they were putting into the deal was about the same amount of money that I was putting into real estate to buy these properties. And you can do it through hard money. You can do it. You know, if you have the cash and the capital, you can always, you know, put that in for the down payment. But it just seemed like it was the same process. And these loans were, you know, seven to 10 years, you could go SBA and do 25 if there's real estate attached to it. But it just seemed like there's a lot more money over here than what I'm doing with real estate. And I know that you can make a ton of money in real estate through multifamily flipping. It just, it didn't, I don't know, it was something that was new to me. And I knew the brokers. One of his friends, he's an investor and he owns probably about 150 businesses. And we were at a bar one day and I was, you know, curious. I was asking him questions and I said, you know, look, I'm. I'm investing in real estate. And that's how I see my path of getting out of my nine to five. Why do you buy businesses? Because everybody tells me that these things, you know, most the failure rate is like 95%.

[Will Smith]

He's like, yeah, Mike, startups. Sort of.

[Mike Heath]

On a startup. Yeah, yeah, okay. He's like, you know, he's like, on a startup. Yeah, that's true. He's like, but if you buy a business that's been around for 10, 15, 20 years, the failure rate's much less. He's like, you obviously have to do your due diligence on it to make sure all the records are straight and everything's, you know, is what they say it is. But he's like, mike, you can pay these things off in three to five years if you buy the right business. He's like, and think about that. He's like, you can. If you set it up properly and you get somebody to run your business, you could be making 150, 200, whatever it is, and with the same amount of money that you'd have to put into a real estate deal. He's like, that's why I buy businesses. And he's like, some of them fail. He's like, that's true. He's like, but worst case scenario, you file bankruptcy, two years later, you just go do the same damn thing again. So it kind of blew my mind.

[Will Smith]

Only two years.

[Mike Heath]

That's what he said at the moment. I, you know, I don't know what. After you file bankruptcy, I don't know what the period of time is to be able to build up your credit back up. But yeah, I mean, that's what he told either.

[Will Smith]

But I know it's. It's more than two years. But anyway, point remains. There's a. You can recover. It's. It's brutal, but you can recover.

[Mike Heath]

Yeah, that really changed a lot of things for me. So I started talking to the broker and I said, look, like, you know, I've got sales business development experience. You know, I came from blue collar. I know that I can speak it. I can also do the white collar thing. But, you know, if you see something that fits what you think I can handle, please just send it my way. You know, janitorial business came along. I looked at that. I actually went under contract with it LOI and the guy was able. He let me run his business while I was under loi and after doing it for about a month, we were doing commercial cleanings, you know, TJ Maxx, stuff like that. And I just didn't want to deal with it. You know, the type of employees that we were dealing with. The business made about 150 to 200 grand a year. It seemed. It seemed good. It's just. I didn't really want to work in that space.

[Will Smith]

Well, well, tell people why not? Because that is a. That is an appealing space on its face at least, because it's recurring revenue that. That basically it's B2B recurring revenue. You get these contracts. Why didn't you like it?

[Mike Heath]

The employees that were coming in that I had met, a lot of them were taking the bus routes. And in St. Louis, the bus system isn't really the best. Public transportation is not really the greatest. A lot of the employees were getting rides from friends and family. It just, you know, we were doing cleanings down in Springfield, Missouri. And I remember one day the person couldn't get to work, so I had to drive all the way down to Springfield, Missouri to go do this cleaning by myself. And you had to repair all the equipment? You know, the owner didn't really. It was a small business. It was him and his wife that were running it. And it just. I wanted something that had a little bit more of a system in place. And he always had a high, you know, a problem with high turnover. Yeah, it just didn't really seem like it was a good fit for me at the time. And maybe I just didn't know much about buying businesses and what you really had to deal with because found out later that's sometimes you gotta jump in and get your hands dirty. So.

[Will Smith]

But yeah, eternal as well, right? These cleanings happen during the night.

[Mike Heath]

They can happen at night, sometimes early in the morning, 4:00, 5:00 in the morning. They're there before the store opens up. And they're easy. I mean, it's. You know, looking back, I would think it would have been A great business. But at the time it just, with me working a 9 to 5 and then doing this on the side, it just didn't make much sense. Okay so, but yeah, looking back, it probably would have worked out.

[Will Smith]

And then Mike, this, this. So it was this conversation with your broker friend and this local guy who's bought 150 businesses. You said, yeah, that that opened your eyes to this and that that was. And so you're seeing this guy, this exemplar of this, of this path. 150 businesses. So obviously that's an inspiration. So you say. So the napkin math makes sense. And here he is sitting in front of you having done it and presumably been very successful at it. And so after that, that, that's your, that's your kind of ETA eye opening moment and you, and you run after it pretty much. Okay, great. Okay, sorry. Just wanted to make sure it was, that that was the genesis. I'll get questions from time to time about being able to work in the business first in some capacity or a guest will have, have some sort of structure like that. How did you, how did you work that? You got it under loi. And then, and then the owner just said to you, feel free to come working. Was it compensated? Tell us more about how you were able to try before you buy.

[Mike Heath]

It wasn't compensated. And I just said that I wanted to get a feel for what the business was like to see if this was a good fit for me. And the broker said like, you're more than welcome to try to see if he'll be, he'll be willing to do this. He's like, I doubt it. Most sellers do not want, you know, a potential buyer to be working in the business. He was fine with it. And he let me come in and honestly I was, I was setting up new accounts for him and we actually opened up two new accounts or two new locations with TJ Maxx while I was trying this out. It was ridiculous, but he was like, yeah, just go ahead and do it. And he's like, we've got this person down in this area and you can just tell them when they need to be there. So I was running the damn thing. I mean, I was looking for employees. I was doing everything that, you know, an owner of a company would do, which was surprising. And then we got to the end of the due diligence period and I told him that, you know, I think I'm going to back away from this. This isn't a good fit for me. I think the business ended up going under because he was just done with it and he wanted to go do something else. But, yeah, mistake on his part. I would never do that if we were selling a company, you know, because.

[Will Smith]

Why was it a mistake? Because he. He checked out even further once you were in there, and he just hoped and kind of behaved as if it was going to close, and then it didn't.

[Mike Heath]

Yeah, 100. So, you know, and he had already introduced me to the employees. Hey, this is the new manager. He's going to be, you know, he's gonna be working with you that. With, you know, on your schedules, contact him. I had the employment agencies calling me. I had T.J. maxx calling me, telling me that people weren't showing up after we had already. After I had already told them that I'm not. Not interested, you know, all the accounts. He basically transferred everything over to me like he had already sold the business. So, yeah, it was a mistake on his part, I think. You know, I. I'm not sure what the conversations were with broker, but, you know, I would imagine they advised him against it, but he was just at, you know, he was just done with the business and he wanted to move on, so he was willing to let it, you know, running the ground or, you know, hopefully, if everything worked out, I was going to end up buying it. But it didn't go that way.

[Will Smith]

Gotcha. Okay. Okay, next. Carry on to the next business.

[Mike Heath]

All right, so Stateline came around, I think, at the beginning of 2020, and Covid was going on. And we looked at the business. So the business was for sale for 250,000. It was making 250,000 a year. The owner wasn't paying himself or his wife a salary, so they just lived off the income from the business. So it was a 1x deal. It was small. Revenue was probably about 2.5. And. And that was consistent, you know, year over year, even through Covid. They were essential workers. So he did not stop. He actually picked up. Um, but, you know, he Never got over 2.5 in revenue because he said he was happy. He's like, 250 for me and my wife is just more than enough. We don't need anymore. He's like, if you want to grow this thing, he's like, all you got to do is take on the contracts. So. So at the time, you know, the.

[Will Smith]

Broker, he was retiring, Mike.

[Mike Heath]

Yeah, he wanted to retire.

[Will Smith]

What do the following acquiring minds guests all have in common? Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursam. They all went through the Acquisition Lab, the accelerator in community for people serious about buying a business. But they represent just a sliver of the Lab's success stories. The number of deals across the Lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value. The Acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the book that introduced so many of you to the very idea of buying a business. The Lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker, deal team introductions and an active community of serious searchers. Check out acquisitionlab.com link in the notes or email the Lab's co founder, Chelsea Wood. Chelsea buy, then build.com and so 250,000 and it's being, is in SDE and it's being sold for 250,000. Now of course, one of the first things that we always look at in an SDE situation is what it would cost to replace this individual and just to look at the business truly as kind of a standalone entity and not require you being the owner operator, even if your plan is to do that for a while or indefinitely. So 250, minus what this guy, what his market rate would be and minus what his wife's market rate would be, would be their replacement cost. What do you think that would have been if you ballpark?

[Mike Heath]

I mean, was she full time? She. No, she only worked probably 10 hours a week.

[Will Smith]

Okay.

[Mike Heath]

So I'd say that we could probably get somebody for probably about 30, 35,000 to do the books with the revenue that he was doing and then for to replace him, it would be somewhere around 80,000. So, you know, you're looking at maybe about 150,000 net if we had to replace him. But you know, so my role in the thing I found I had a friend that was working for a competitor and he had reached out to me probably about two or three days before the opportunity presented itself. And you know, he was working for them. He was basically running all the operations. They weren't paying him what he should.

[Will Smith]

Get paid working for another business, not.

[Mike Heath]

For unrelated to the local competitor in the garage door business. Ah, so okay, they did, they do commercial and retail or in residential. And you know, the owner was checked out. Jesse was running the company or running the business. He wasn't doing the books or anything like that, but he was doing all the estimating. He was actually going out and doing, you know, doing some of the installs on the doors, doing the repairs. He Had a lot of industry knowledge. He's been with them for three years and he just wasn't making what he wanted to make. And he knew that he was worth more, but he just wasn't getting the opportunities. And so he reached out to me, just asking, he's like, do you know anybody that's looking for a sales guy, looking for somebody you know can handle ops? And, you know, I told him I'd keep an eye out. And then three days later, here comes this opportunity. I'm like, man, I don't know if the stars are aligning or not, but this opportunity just came up if you're interested. This is kind of like, it's not a startup. It's been around for 17 years. But you just reached out to me yesterday looking for something. You've already got the skill set for it. So why don't you come on as operator, we'll buy this business and we'll start you out at 60 grand. It's more than what you're making right now. And if this thing goes the way that we're hoping, you'll get a profit share and then eventually increase your salary as the business grows. And so what we did with him is we gave them 5%, 5% equity. There were two other partners. We did an SBA loan for 250, and it was $50,000 working capital. So we went through the SBA and it was a 15% down payment, 10 year amortization. Then the. Yeah, so that's how we ended up doing the deal. Gave Jesse 5%. And the deal was for every 100,000 doll business netted, we would give him a percent increase up to 20%.

[Will Smith]

So, but, but per year, $100,000. So if he did one year, he generated an extra $100,000 net. You give him an additional point of equity right then that he keep forever. What if he just kept, oh, up to. Sorry, up to 20%. He's capped permanently there. He could never, no matter what he earns for the business after that. Correct, gotcha.

[Mike Heath]

Plus a 5% bonus. So it was. Yeah, 5% on the net. So if he, you know, if we made, you know, a hundred thousand dollars, he's going to get a $5,000 check at the end of the year plus another 1% on his equity, up to 20%.

[Will Smith]

So he, so from his perspective. His perspective, he has the opportunity to own 20% of this business, earn his way to owning 20% of this business, and enjoy. And, and indefinitely enjoy 5% of the earnings every year, Correct?

[Mike Heath]

Yep.

[Will Smith]

Plus salary, obviously, and, and being paid better than his current position. And this is essentially the same position, although probably, I mean, he'll have a better boss, one hopes. Yeah, yeah, exactly. Okay, great. And so let's just go back to the numbers on the business again real quick. Now that we have all of that. Thank you for that detail. $250,000 of SDE. So minus now, Jesse's going to come in for 60,000. Let's just keep off his 5% just to keep things simple. So that's 190 of SDE. And then you said the bookkeeping was going to be probably 30 or $40,000. So let's, let's just go to 150 for easy math, roughly. So you're buying a 100 and a business that could earn for you as owner $150,000 a year for 250. So while that's a very small business, 250 SD. And by the way, that again, that SDE is really going not just, not just, not just paying one person's salary, but one and a half. The owner and you know, his wife's part time, very small. But the ROI, the unlevered ROI on this is called 150 over 250. So it's 60% unlevered ROI. Now, I'm simplifying still because you're, you know, you're probably going to have a J curve and want to reinvest some of those earnings in the business. There's probably a lot to improve, etc. But just napkin math. Tiny business, but phenomenal. I mean, obviously. I mean, basically it was, you know, it was listed for being sold for 1x multiple phenomenal ROI. Why was it being listed for so little?

[Mike Heath]

I think because the husband and wife were still working in the business. I mean, he was putting in anywhere from 50 to 60 hours a week. She was putting in 10 to 20. So I mean, he was on the road. He was out there doing the installs. I think the man was in his 70s at the time when we took over. So he just, he's a road warrior. And you know, we do jobs, we can do jobs up in Boise, Idaho. We'll go all the way down to Miami. I mean these, these, they're, we're, we're across the United States.

[Will Smith]

Oh, wow.

[Mike Heath]

So it was, I think that's the reason why it was priced so low. And being a, being new construction and project based, you don't have. He had consistent income, but it was just not reoccurring revenue. So I don't think that he got the multiple that most of these businesses would get if he had reoccurring revenue.

[Will Smith]

Yep, yep. Yeah, well. And if he's working is that much, you just to be conservative, probably want to think about replacing him with two people, not one. So actually the 150,000 in expenses to replace him and his wife is probably. That was probably an underestimate. It's probably closer to 200 or more.

[Mike Heath]

Yeah, no, and I would imagine, and the idea was that I would come in and I would put the systems in place, eventually replace his wife that was handling the books. If she did a good job, we were going to leave her in there because she still wanted to make. Have a little bit of spending money to go to the casino and the. So, yeah, I mean, it sounded fine. We had come up with a rate and I, like I said, it was around 35,000 a year and she was going to give us six months to let us get through the transition period. So she was going to work with me and help get that together. But after we got into it, you know, first day was a big eye opener. Jesse was overwhelmed. I was overwhelmed because we were on QuickBooks Desktop. She had dial up Internet. She had never sent an email in her life. Everything was done through snail mail. I mean, it was just the amount of work that was going to be needed to get us up to date. So I didn't have to drive to their house or wait for the mail to come in to send us our profit and loss for the month. She was, she was a, she's a very nice person, but she was just not meant for that position. She did good the way that they operated. But, you know, to run an actual business, there was no way that we were going to be able to keep her.

[Will Smith]

So. Mike, let me stop you there. Two questions. First, what did your diligence on this business look like?

[Mike Heath]

Yeah, so as far as the due diligence. Yeah, we just, we reviewed the bank statements, looked at the tax returns. Everything matched up. It's a little different between the cash and an accrual because we the re. There's about a 10% retainer that the GCs hold back. So we had to match up to see that money was actually coming in in previous years. So, you know, if he did, you know, $2 million in 2018 and they held back 200 grand, we would. Had to make sure that it was showing up in 2019 because all that money was being held back from it. So.

[Will Smith]

And so you guys are subs you work for GCS on almost all your work.

[Mike Heath]

Okay, yes.

[Will Smith]

And, and just to, to press a little bit because you, you're so overwhelmed and by what you find that she, she doesn't use email. As one example, you didn't in your diligence push to go see the office or somehow get inside the business. Obviously you weren't going to do it like you did with your TJ Maxx cleaning company where you could operate it for a while. But is there a learning here or was there no way you could have diligence how she was, how she was doing the books?

[Mike Heath]

I don't think we probably could have pressed a little more as far as seeing the office. There was no office. They worked out of their home. So it was home based business. And again we drop ship everything so there's no inventory. So that made things easy as far as that goes. The equipment that he had, we saw the trucks, you know, there's only a handful of trucks that he had. He had a trailer. You know, there, there wasn't really much to see as far as equipment.

[Will Smith]

Yeah.

[Mike Heath]

But yeah, if we would have had a better understanding of how she actually operated, that would have been helpful or at least prepped us whenever we walked in day one.

[Will Smith]

Well, and, and was there part of you that on day one is overwhelmed as you were to discover that, you know what, how much work there was ahead of you? Did you not also see that as meat on the bone value that you were going to be able to add and, and you know, really make this into a much more appealing business and profitable, probably efficient business?

[Mike Heath]

That was the idea that we were going to make this more efficient, you know, and my thought was, you know, she's working 10 hours a week. I could easily go get a, you know, either a third party to handle the books or I can get a bookkeeper to work part time and they can just handle all of it. And then we would just need somebody to manage the lean waivers with the GC or with the vendors and the GCs. It didn't really seem like a lot. And honestly, like it's not looking back or what I know now. It's, it's not that. It's not that difficult. We've got the people in place and they can easily handle it. There's programs like Sightline that can help manage lien waivers. There is technology that you can put into this. And that was the idea on my end is like going to be a lot of work up front and then I can hire myself out or Hire somebody to, you know, get in this place once we have the cash to be able to hire these people. So yeah, I mean it was, that was the idea with this. And when the previous owner told us, he said there's, you know, there's endless amounts of work and he was still working through Covid. That was good enough for us to pull the trigger.

[Will Smith]

Yeah, well, the other thing here to say is that it's such a small business. You know, there's always this tension about buying small versus buying large. Buying small. One's first intuition is that seems less risky because there's just less money at stake. On the other hand, it's a, it's generally going to be a more fragile business, maybe a glorified job for the owner. And so it seems like a good, it could likely, the smaller the business, more likely could just go to zero. Bigger business, on the other hand, intimidating, feels riskier because there's so much more money at stake, but it's more of a robust business and much less likely to go to zero. So there's that tension there. So just, but just kind of leaning on the former, not the latter, where this feels low risk kind of is. I mean, it was $250,000 for this business and you had partners. Can you say more about how, you know, everyone's financial contribution to the $250,000 or I guess to the down payment? The SBA loan was for 250. So what was your equity injection?

[Mike Heath]

37,5. So across.

[Will Smith]

Across you and two partners.

[Mike Heath]

Yes. So it really wasn't, you know, for us, I mean the attitude was like, look, this, we know it's small, it seems, sounds like it's got legs on it. Worst case scenario, we all have to, you know, come up with, you know, split 250,000 three ways to go and pay the debt back to the bank. And it just, it, it didn't really, it seemed like it had more positives than it had negatives. And if it was going to fail, then it wasn't going to, wasn't going to put us in the hole that much.

[Will Smith]

Well, I think this is a good, a good example of the logic there. When the, that risk profile I just gave the two, two ways of looking at a small business versus a big business. I'm convinced by your logic here. Worst case scenario, this thing goes to zero and you guys are each out whatever 250 divided by three. Ish. Now, now I guess on the other hand, to really get, just to really analyze this. Yes, that risk is mitigated 250 divided by three. But it's also your upside is also mitigate or is also a third of what it would otherwise be. So you have less risk, but you also have less reward because you have these partners anyway. Very interesting. But, but, but I, I, I, I haven't even mentioned the thing that you've now mentioned twice, which is the strongest signal of all that there's a lot of work for this business to do. There's a lot. It's at least according to the owner, who's going to be biased in telling you this. He wants to sell you the business, but if we take him at his word, there's a lot of growth to be had here. So you can quickly have a much bigger business and just have this really, really attractively low entry point.

[Mike Heath]

Yeah, absolutely.

[Will Smith]

And Mike, what was your plan in terms of keeping your, your W2?

[Mike Heath]

Well, I, I didn't think the work was going to be that much. I figured maybe 20 hours a week and I can do that on the side. I didn't mind. You know, I've worked, I've been accustomed to working two, three jobs, you know, my, since I was 16. So it's just my nature. So I really didn't mind putting the hours in. If there was going to be some upside to this then. And with the idea that we were going to be able to hire out, I could do this for six months to a year and then hire myself out and we would have somebody operating it. So, yeah, I didn't really think that the work was going to be as much as it was. But the problem that we had was we told the owner, beef this business up and take on as many contracts as you possibly can. He did exactly that. So he went from 2.5, his best year that he's ever done, and we did 7.18 the first year that we, in 2021 that we took over. So, yeah, it was extremely stressful. We didn't understand the cash flow of the business. Working with gcs, you know, you're on, you know, we bill for material on the 25th of every month. So as soon as that material drops, if it drops on the 24th, then, you know, 45 days later, after we bill, we're going to get that money. But if it drops on the 1st, it's going to take, and we can't build to the 25th. It's going to take 60 days. Well, we're on a net 30 to a net 60 with most, most of these vendors. So, you know, whenever You've got a material bill of $800,000. It's a little bit of pressure and I've got vendors screaming at us, telling us that they're going to cut us off if we don't come up with money. And we didn't realize if we just had the conversation at the beginning and explained that we weren't able to build, you know, the material dropped early, so we weren't able to bill and it's going to take another 15 days. We didn't understand that they were willing to work with us if we just had those conversations early. So, yeah, we got, I was in a few fetal position moments going through that, because we had material bills over a million dollars that we didn't have the working capital, we didn't have a line of credit. Established ownership group had money, but they didn't have that much money. So we got ourselves into a few pinches in the first year that we took over.

[Will Smith]

Wait, let's, let's, let's unpack this a little bit. Yeah, so when you talk about materials, so obviously that's the garage door materials, the stuff that you use to do the project, you have your own vendors for those, you buy those on 30 day terms. Call it so for all these. And so you've grown, you've tripled now from 2 1/2 to 7.18 or almost tripled. Actually, when I said you tripled at the beginning, you more than tripled because I was, I was pegging it to the nine and a half number that I've just spoiled for the audience that you get to the next year in 2023. Um, so that would have been almost quadrupling it anyway. So you're growing like crazy. You got to buy all these materials and then you're not. So you're, but you're not then collecting. Then you get pinched because you owe your vendors after 30 days, but you're not getting paid for, you know, 45, maybe 60 days. Very kind of simple cash flow. Not simple to belittle it, but kind of classic cash flow problem. And so you, your vendors are now telling you this becomes so acute that your vendors now telling you they're going to cut you off. So this is also a classic case of growing so fast is, is actually can be quite precarious because you get into these cash flow problems. Is that just the nature of what you had to endure or did you do something wrong, that if you had been more experienced, you would have done better?

[Mike Heath]

If we were more experienced, we would have Understood that if you miss the 25th, you can't build to the. The next month on the 25th. That was a problem that we got into, and we missed a couple billing dates. Again, I was relying on the previous owner's wife to do this, and the communication was just poor between us. And she was frustrated because we were trying to get her to, you know, use QuickBooks online, and she was still mailing out lien waivers, you know, through mail. She didn't know how to, you know, again, I mentioned that she didn't know how to use email. So everything was just delayed. It was slow. So we. Yeah, that was. That was a huge problem. And not understanding the. The cash flow. If we would have understood how that worked, we would have had a line of credit day one, because, you know, the banks still, they'll extend the line of credit. I believe it's 80% of the receivables. But we didn't know what we didn't know at the time. And that put us in a huge pinch. Thankfully, we were able to get out of it. We. We had ended up borrowing money from the ownership group. I think it was.

[Will Smith]

When you say the ownership group, you mean you ownership group. You mean you and the two other partners, correct?

[Mike Heath]

Yep.

[Will Smith]

So you guys lent more of your own personal cash into the business to get you through.

[Mike Heath]

Yes. Which was a difficult conversation with them because, you know, we're only six months into this business, and I'm already asking them for over a hundred thousand dollars to get through this period of time. But I knew that money was coming in, so that's how I convinced him. I said, look like, you know, we've got 150 to 200 grand. That's going to drop. That's going to get us back in the positive. We'll be able to pay this back within three to six months. If we don't do this, we're going to lose the business, and then we're going to owe. We're going to default on our contracts, and this is just. We're going to get sued, and this is going to be a huge problem. So that's the other side of the risk is if you don't perform, gcs can come after you and they'll end up hiring another sub, and then you got to pay the difference of whatever the sub's going to charge. And typically, if they're coming in the last minute, they're going to charge a premium. So, yeah, a lot of risk that we took on that we really didn't understand what we were getting into.

[Will Smith]

And Mike. So the learnings there would be. When you're in a business like this with these kind of unfavorable cash collection cycles, make sure that you. That you bill on your own internal schedule. Like, like you need to. Yeah. Don't. Don't let you know. Sending out an invoice slip. And by the way, this 20 billing on the 25th thing, is that some sort of industry standard or something? Or is that. Was that just your own internal date? And why couldn't you just be sending invoices on, say, a rolling basis? Every time materials landed at a GC's project, you just bill them right then.

[Mike Heath]

That's. You had till the 25th to do it. So that's how we do it now. As soon as that material drops, we're billing. But, you know, again, we just. The, the person that was operating the. The books and dealing with the lean waivers, she just, she just wasn't consistent. They didn't really have to worry about it. They missed a billing date. It wasn't a big problem because they had cash that they could float the business with.

[Will Smith]

Yeah.

[Mike Heath]

With us, since we didn't have that. You know, she just wasn't. She was just very lax on this. She really didn't care so much. She didn't have any skin in the game anymore. And so. Yeah.

[Will Smith]

Okay. Okay. And the. Say more about the line of credit based on receivables, which you now you weren't able to take advantage of to get you through this fetal moment, but you now know would have been a possibility. Say more about what that is.

[Mike Heath]

So the. I mean, we're going through this right now because we're trying to get a line increase on our line of credit because we've got a lot of jobs coming up in 25. So typically the bank and I could be wrong on this, but the. I believe it's 80% of the accounts receivable. So we bill out. If we bill out, you know, $2 million worth of material or whatever, and we got all these jobs lined up. They'll give us 80% of that money on a line of credit. So we were able to get that through the bank. But the problem is it just takes time. They need to collect tax returns. They need to collect all of our information from the ownership group. Some of the owners, since they're silent partners, they've got other businesses. It just took forever to get it done. Obviously, we were all rushing around because time was of the essence and we had to get it done or we were going to default, so we were able to pull it together. The line of credit really helped us out and got us through the next two years because we were still waiting on retainage to come through to use that to grow the business and to pay the employees. But the. Yeah, it.

[Will Smith]

Wait, wait, which line of credit? A different line of credit?

[Mike Heath]

Well, the line of credit that we applied for in the beginning of whenever this all started. So the ownership group, they put their money in to help us get through that period of time to pay the employees. And then the line of credit came through to help take care of the vendors that we needed to pay for the material. So I don't have the exact timeframe of when the line of credit went through, but we were able to. The line of credit saved us.

[Will Smith]

Oh, I'm sorry. So you did get the line of credit, but because it took time as it. As a stopgap, you guys had to put cash in, correct?

[Mike Heath]

Yeah. We didn't start the line of credit process because I called the bank and I said, look, the owner told us that we only needed $30,000 a month or $30,000 in working capital to operate the company. That was because that was his average payout to the employees that wasn't to pay for the material. So we didn't know that we, you know, the way that the, the way that the cash flow cycle worked as far as billing and then getting, you know, getting payment for the material in 45 to 60 days, we didn't understand that we had to have money sitting on the side to be able to pay this. If it took them a little bit longer to go ahead and pay the GC to pay us for the material that was dropped. So whenever we started the process, we were already in a pinch. Vendors were already yelling at us. And then we started the process to get the line of credit. So after having several conversations with each one of the vendors, we explained to them, you know, what was going on, we were going to get paid. We billed out on this date. We showed them the contract, show them the billing, and spoke with the gcs. So they were comfortable with that. And then the line of credit, you know, came through and paid them off.

[Will Smith]

Gotcha. Okay, okay. And getting a line of credit based on receivables, this is, this isn't factoring. You still receive the money, right?

[Mike Heath]

Correct. Yep.

[Will Smith]

It's not like the bank takes over those invoices. I a guest who will have aired a number of weeks before this conversation airs. Jonathan Tupper bought an asset based lending company, and factoring is one of the things they do. And factoring is, is basically, I guess, selling your, your invoices.

[Mike Heath]

It's like 60 cents on the dollar or something. We looked into that, trust me. I mean, we were, we were at that time where we needed to figure something out, but that was going to put us at a further loss. So we couldn't, you know, that wasn't, it wasn't a great option, but it was still an option. But thankfully that line of credit came through and we were able to get through that period of time.

[Will Smith]

An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank.

[Narrator]

Instead, the broker pairs you with the.

[Will Smith]

Right SBA lender for your deal based on industry terms, risk thresholds, then helps.

[Narrator]

You navigate the process better than many lenders themselves do.

[Will Smith]

Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the country's top 10 SBA lenders. So he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA and search space. Our niche is his niche. You'll see Matthias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring minds guests. To learn more and get in touch, go to PioneerCapitalAdvisory.com or click the link in the notes. How fetal was this fetal position moment? I mean, were you, how worried did you get? What was the. Give us if you would a picture into this dark moment?

[Mike Heath]

Yeah, it was pretty miserable. Like I said, my wife, she's, she's from Bogota, Colombia, and we were up in, we were up in Jersey to visit her brother. And I'm sitting on, you know, we're waiting for the train to come and I get a call from the previous owner yelling at me, saying that we owe $600,000 to one of our vendors or they're going to cut us off. And I, I, you know, we, the communication with his wife wasn't there and we missed the billing date. And he said, you know, like, this business is going to go under if you don't get your, together. I mean, he's screaming at me, telling me I'm an idiot. You know, we didn't know what we were doing. And, you know, how dare you be up in a different city when you should be focused on this business. And I, I had a panic attack right there. You know, I'm Sitting there. It's supposed to be a nice, happy time to go visit her brother that I've never met. And it's cold in the winter, sitting there waiting for the train, and I'm just blank face staring at the sky, like, not knowing what the hell to do. So, yeah, it was, it. It wasn't fun, I'll tell you that. But, you know, I think that's, you know, being an entrepreneur, I think a lot. I mean, it takes grit. You got to push through it, you know, like failure isn't an option. And if it is failure at the end of the day, then, like, you got to do everything you can to make it hurt less than what it would. So I got on the phone, started calling banks, explained the situation, what was happening, and that's when we started the line of credit process. But, yeah, it was, it was a stressful time. And thankfully, my wife, she's been there for me throughout this whole process and talked me off a ledge. And it's. It's been good. It's nice to have somebody by your side to, to get you through the hard times.

[Will Smith]

Well, and just to add insult to injury, the fact that the owner is calling you and yelling at you when really this is kind of due to an oversight of his wife's. Right.

[Mike Heath]

Yeah.

[Will Smith]

We clear on that?

[Mike Heath]

Yeah, no, 100%. And I mean, it's. That's another story with her. We were kind of held hostage to keep her around because we really needed the previous owner to train Jesse. But her attitude was if she's not working in the business, neither is he. So we had to keep her on for almost a year and a half and, well, probably about a year dealing with this, the books being screwed up, none of it made sense. We didn't know what the hell we were making on the jobs. She couldn't do job cost accounting, let alone, you know, use an email to send me over, you know, the lien waivers that we needed. We needed to get out. So it was. It was a challenging time. We ended up getting through it. But, yeah, so, I mean, you could put the blame on her, but at the end of the day, we should have known what we were doing and we should have cut ties with her from the get go.

[Will Smith]

Yeah. And Mike, say just a little bit more about your partners, the partnership group, you and two others. The two others, what is your. Can you share what that split looks like, what the division of responsibilities looks like?

[Mike Heath]

So the idea, like I mentioned in the beginning, this was supposed to be an investment. And I Told them that I would get my hands dirty and I get the system set up in the back and I would just take. I would keep track of my hours and then here was my hourly, you know, pay. And so that was the idea behind it. And they were going to remain silent partners. This was purely an investment for them, and it still is to this day. You know, they'll. We've got a weekly phone call that we do with the investment group just to update them on what contracts are coming through and how profitable we are on the jobs. But they all, you know, both of them run separate companies and several companies. So the. That was the idea from the get go is they would remain silent partners. And then eventually, once I got the system set up, that would be the same thing for me. And then if I had to stay in the business, I would end up taking a small salary. But in the beginning, we didn't have the money, so I wasn't taking any money from the business. I just kept track of my hours and I'd get a payday at the end of the year if there's any profit left over.

[Will Smith]

Did you ever get compensated for that?

[Mike Heath]

I did.

[Will Smith]

Okay, all right, so you're so. So they're never. They're going to be pretty passive or almost totally passive other than this phone call. And you are working toward that. But in the meantime, whatever you have to do in the business, you'll be compensated for on an hourly basis. And then. Yeah, and then I. And then I guess. And then I guess you said there was also a stipulation that if you couldn't become fully passive, there would be. It would settle out at some salary for you.

[Mike Heath]

Yes, correct.

[Will Smith]

Okay, so let's keep hearing how things have gone. So you were growing like crazy. Reason for this cash flow crunch that was. I think you said 7.18. Did you say in 22?

[Mike Heath]

Yes, 21. 7.18.

[Will Smith]

Ah, okay.

[Mike Heath]

Because we bought it in November. We bought it in November 2020.

[Will Smith]

Okay. So going like gangbusters. This is a. And then what happens in 22?

[Mike Heath]

22 was the same thing. We did 7.75. The we were. We had gotten rid of the previous owner's wife from handling the books. We brought somebody in from the competitor, same place that Jesse came from. She was unhappy with the owner and how he treated the employees. She wanted something that she could work from home from a little bit part time. So she came on. She was fantastic. We ended up working with our CPA firm and her to get the books in order because the books were so screwed up. So she really got us to a place where I didn't have to deal with the billing, I didn't have to deal with the lien waivers, I didn't have to deal with any of that. It was still. We didn't have a system in place at the time, so it was still not perfect. And later on in 21, we ended up bringing a consultant in. It was a friend of mine. She had ran her father's GC company for 15 years. So she came in and helped us create a process, create systems. And by the time we finished up, it was probably about a two month stint with her. By the time we finished up, she's like, what are you going to do for this position? Because you're still working a nine to five and there's still a lot of work to be done. And I said, well, you know, are you looking? You're, you know, what are you doing right now? And she's like, well, I'm not, I'm not working, but I've got two kids at home and, you know, I'd be willing to put in, you know, part time or even possibly full time if you guys can handle it. And yeah, that was. We ended up hiring her and started out at like a, you know, competitive wage, but, you know, the promise was that she could work from home. I didn't care when she worked as long as she was available. If she needed to take her kids to school, she needed to pick them up, do anything, doctors visits, we don't care. You got unlimited pto, you can work anywhere in the world. You know, you don't have an office or give you health insurance. So she came on and she replaced me. She does it 10 times better than I would do it, you know, having that job.

[Will Smith]

She's doing admin, back office, everything that's not. Yeah, all everything. Basically running the company stuff that's not the crews themselves, not the projects themselves.

[Mike Heath]

Correct.

[Will Smith]

Out of the field.

[Mike Heath]

Yeah. So she. So now it's, you know, I. My hours went down for probably 20, 30 hours a week to five hours a week and most of the time less. So she handles the majority of the meetings. She provides updates on the contracts. She's dealing with the licenses that we have to get. She deals with all the lien waivers and coordinates everything with the bookkeeper that's handling the stuff for us. She's dealing with Jesse, you know, she helped him organize things. We got a project manager that's underneath him right now. You know, any of the Phone calls that we get. I mean, we're dealing with laborers that are on the road 95% of the time. So it's a special, special type of person that's willing to do this. And it typically comes along with, you know, drug, alcohol problems, you know, family issues and stuff. So I used to get all those phone calls. I don't get any of those phone calls anymore. So she took off everything off my plate. She's phenomenal. We ended up getting an office admin. You know, the office admin was her sister and she had worked with her father's company as well. So she was well versed in the contracting world. So, you know, right now she is helping with the schedules because most of these guys are either staying in hotels or Airbnbs. She goes through our credit card expenses to make sure that the guys aren't overspending. We've got a team in place now and again. It's taken off everything off my plate. You know, I typically make the bigger decisions. If we get into a pinch, you know, jobs are overlapping. Do we sub? Do we try to do this ourself? If we're subbing, you know, she'll make phone calls out to all the subcontractors in the local area to be able to do this. Yeah, she's. She's phenomenal. She really changed the business for us.

[Will Smith]

And it. What is her title? She kind of coo. I mean, she's.

[Mike Heath]

I mean, you could call her CEO, Director of Operations.

[Will Smith]

But. But Jesse reports to you and she reports to you. So they're kind of.

[Mike Heath]

Jesse reports to her now.

[Will Smith]

Ah.

[Mike Heath]

So.

[Will Smith]

Okay.

[Mike Heath]

Yeah.

[Will Smith]

Okay.

[Mike Heath]

So Fallon, she. She feeds me, you know, any information that I needed to know. I've got a few things that I want to know on a regular basis or on a weekly basis, where we're at when the jobs are going to be completed. What do we have coming down the pipe? Jesse feeds all this information. Her. They have separate meetings and they review all this stuff just to make sure that we're staying on track, make sure that the licenses are coming through so that we can, you know, we can actually perform on these jobs. It's everything. Right now, I just kind of handle the finances and we do projections. I work with a bookkeeper to. To do forecasting to see what the next year is going to look like. Which is a little difficult in the new construction world because since it's project based, it's hard to gauge. But we know how many contracts have been bid. We know where we're having final conversations and then we know what, what's been won. And then I report all that. She holds a meeting for the investor meeting on Tuesdays and she presents all that information. So she'll either run the meeting or I'll run it myself and just give them a quick update and. Yeah, so I mean it's, it's really, she's really taking everything off my plate and just turn this into a business. I mean we're a small, lean, mean team, but the fact that, you know, they can work anywhere, they can take vacation anytime they want as long as they're getting done what they need to do, I don't care if they're working 20 hours or 10 hours, we still pay them the same. So the company's doing well enough to be able to do that. And the flexibility in their schedules, in my opinion, that's what's keeping them around, keeping her around, keeping the team around. I mean, you know, yeah, I mean it's, it's nice. They all get paid. Well, they get paid what they have, you know, get paid sitting in an office and with the flexibility like that, like it's, you can't find that at most companies.

[Will Smith]

Mike, Some follow ups on what I want to get to, into now is a little bit of the, of the kind of the business itself and its appeal or not. I heard you just talk about how in project based land it can be a little bit different, a little bit difficult to make projections. And typically we are told that construction businesses are, you know, project based work, unappealing, very cyclical, unfavorable cash flow, cash collection dynamics as we've already talked about. And hard to, hard to predict the flow the from year to year, how the business will go, tied to the economy, et cetera, tied to construction. However, one thing that Sam Rosati recently said to me, he's in the commercial fencing business and did a roll up there and just partnered with private equity. Big success. Is that in project based construction, one of the appealing characteristics of it is that you actually can see pretty, you know, I don't know, six months into the future or you can get a pretty good sense of what your revenue looks like for the next six months because that's how long it takes to bid and win a job. Maybe it's not six months, I don't remember what the figure was, but you have some more visibility into revenue than you know, maybe a home services business that's for, for consumers. And while you get paid immediately, when you have your plumber dispatched to unclog a Toilet. You don't you, you really don't know what your revenue is going to be six months from now. Although you can look at historicals, of course, but in your case, you actually have a pretty tight handle on, I think, you know, the next few months of revenue. Six months?

[Mike Heath]

Six months.

[Will Smith]

Is that fair? Can you react to that?

[Mike Heath]

I mean, right now we can. We know for 2025 we're going to be. We already have 4 million on the books and we've got probably another 4 or 5 that have already been bid out. We're having final conversations. So, you know, when somebody asks us, you know, like, what do you project to make, you know, next year? I mean, the ownership team's asking this all the time and I got to tell them, I'm like, well, right now we got 4 million on the books. These jobs can be pushed up or pushed back because it just depends on when the GC is ready for us. We've already bid out X amount of dollars. We've got an 80% chance to win this. It always could fall apart at the end, but we're always bidding and you know, and based on our availability, like if we, if it falls when a project is starting, we always have the opportunity to sub a job out and just manage it. So six months is realistic for us. But the problem, problem with these and working with the GCs is that they can, these jobs can get pushed up or they can get pushed back. So like in 2023 we did 9.52 million in revenue. So huge year for us. But then this year to date we're at 3.34, so a huge drop off. But we knew this going into 2024 because in election years, for whatever reason, there's always a slowdown. And that information came from the previous owner, said if you plan on doing what you did last year, he said it's probably going to be cut in half. So we still are profitable, well, barely profitable at that number. But you know, we knew this was coming and since we paid the business off, as long as the employees are paid for us, I really don't care. Obviously I want to be making profit. We're not running this business to make nothing. But if we've got to suffer for one year and not make any money, it's not a big deal for us.

[Will Smith]

A few things to say. So I feel like your exciting roller coaster from 2023 to this year, you said how much in 23? The revenue 9.

[Mike Heath]

9.52.

[Will Smith]

9.529 and a half million dollars and just a reminder to everybody that this was from a business that more than two and a half million in its very best year. So that's where, you know, you, you almost have quadrupled it. Okay, but nine, nine and a half last year and now you're looking at four this year. So, so it's dropped by more than half. But you just explained why you're comfortable with that. But that is a, you know, perfect example of why construction revenue can be not appealing. These, these swings from year to year. So exhibit A on that, but also exhibit A on the fact that you knew going into this year your seller told you you're going to have a bad year, it's probably going to be dropped by half. He was remarkably close in his prediction. And so, so, and you had that visibility even as 23 ended, looking forward in 24. So you do have this, this luxury, if you will, of visibility of revenue in the construction world. This is, I'm harping on this, Mike, because this is, this is news to me. All I'd ever heard was complaints about quality of revenue in construction businesses. But this strikes me as a pretty powerful feature of, of this. And now looking forward into 2025, you have a really good, you have a really good sense of, you know, you can calculate to within a pretty reasonable margin of error where you're going to land.

[Mike Heath]

Yeah. And I mean a lot of that information comes from the gcs. We've got tight relationships with a handful of them and we develop relationships with the project managers and supers. So, you know, they're telling us what's coming down the pipe and telling us what, you know, what they're expecting and you know, if it's, if it's affecting them, it's affecting us. So, you know, one way around it this year that we were able to not have any gaps in the schedule is we filled it with install, so we were the subs for subcontractors. So we just provided installation work for them. We also are a distributor for a handful of doors, so we still bring in some money through that. But we were able to get through the year and still have a little bit of profit to share at the end of the year. But it's not, I know with project based companies it's a challenge and again we've experienced it. Jobs get pushed up, they get pushed back. It's just being able to be flexible and since we've got, you know, a small team, we're able to do that. The one thing that we don't Want is these guys to be sitting around. So we approach this year with the attitude that if we got in a pension, we had a month or a two month gap, we were willing to cut their hours down but still pay them to sit. Obviously we would put them in training or we would do something so that they're not just sitting around getting paid. But we had enough margin in the jobs that we did to be able to allow that to happen. Because if they sit, they're going to go find something else.

[Will Smith]

Anything more? I did want to just ask you directly about quality of revenue. Have we, have we covered it? Well, let me frame the question with this. So separate interview that will have aired a few weeks before you is with Jordan Dubin who's rolling up garage door businesses around the country. And they've moved very quickly and they've, and they've acquired a lot of EBITDA in a very short amount of time. But they're very strict in their criteria around the revenue mix and they'll only look at businesses, garage door businesses that are doing less than 10% of install work and fully 90% or more needs to be service because of quality of revenue and because of whomever might want to acquire them in the future, they're going to have a similar, kind of a similar very high standard. So, so react to that. Do you, do you wish you were doing more service? Is it something you're trying to shift that revenue mix to do more service or are you guys a construction company and you're at home with that?

[Mike Heath]

You know, I'm fine with how the business is doing. If we do in between 7 and 9 million, that's fine with us. This is, would say it's a lifestyle, I mean it is kind of a lifestyle business for the ownership group. But you know, the opportunities for growth, you know, we can sub, we can take on, you know, we've already looked at a handful of service based companies and that would be, it'd be an easy add on because the new construction businesses would be a feeder to the service business. And we really don't want to get into residential because just specifically in St. Louis there's a lot of competition. You have a lot of chuck in the trucks that are willing to, they put up a website and they've got a, you know, it's a one man van that can go out there and knock out a garage door at half the price that you can because they don't have the overhead. We don't really want to get into the residential side. But if we were going to acquire something else. I would want something that's heavy on commercial repairs or commercial service. Because as we're doing these, as we are doing these new construction projects and having relationships with the GCs and the ownership group, we could be selling service contracts at the same time.

[Will Smith]

Yeah.

[Mike Heath]

And that, that is where the money's at. So if we were to go do a roll up, where we're going to buy, you know, acquired additional companies, that's the route that we would probably go.

[Will Smith]

So you do feel that the money in this industry is in contracts, service, and specifically commercial?

[Mike Heath]

I would say that we, if you're looking at a subcontractor, business margins are lower than what most subcontractors make. But the service, from what I've understood with my operator, he, he said from day one, if we're going to take this anywhere, we need to be doing commercial service.

[Will Smith]

Okay. You mentioned the loan, the SBA loan, that you'd paid it off, I think. Did you.

[Mike Heath]

We did say.

[Will Smith]

Can you say, say more about that? That's. That was quick.

[Mike Heath]

Yeah. So I believe we paid it off in either late 22 or 23. You know, it was. We were knocking down the loan. We had the SBA and we had the line of credit. So I think at the time we had enough cash flow coming in to just go ahead and pay it off. It might not have been the best decision because we were using the line more. But at. With the sba, you paid it off.

[Will Smith]

With the line of credit.

[Mike Heath]

Well, we had cash, but that meant that we're relying upon the line of credit because it made up all of our cash. We were relying upon the line of credit. But you know, whenever we, I don't remember what the term is with the bank, but as you know, while we're using this line, if we have cash in the bank, then they're just going to go ahead and move the cash to pay off the line. So it was going to reduce the amount of interest that we were paying on the loan or, you know, on the line of credit. So it just seemed like it would make sense and a hand, you know, all three of us had properties that were tied up with the sba. So if the business would default or whatever, they would go snatch up the properties. So we wanted to get our rentals freed up. So that was the reason why we made the decision to do it. We could have stretched this out over 10 years and paid a low interest rate on it, but we just wanted at the time, some of us, personal situations we just wanted our properties freed up.

[Will Smith]

All right, Mike. Well, so just, just to level set us for where the business is at here. Where, where the day after Thanksgiving. So coming in toward the end of 2024, you'll have a light year this year in the 4ish million range. That's down from 9 and a half million in 23. But it looks like you're going to get back to in that range in 25. So you have a 9, let's call it a 9 million dollar business that could swing. But, but let's, we could add, let's average what you're projecting for 25, 20 and then 24 and 23. So what is that? Nine plus nine and a half is 18 and a half for 22 and a half. So call it seven million is the average revenue grown from two and a half million when you bought it in 2020. So you've almost tripled the business. And again, I'm, I'm being ungenerous because I'm using this low year as part of that average. Yeah, almost triple the business. But you also have this team. You got Jesse, an operator who's now got a lot of experience in this business. You have the woman who take, has taken over duties for you. You just, you, Mike, are working five hours a week. Your loan is paid off. What are, what are margins in this business? If, if his best year was two and a half million and he was doing 250 in SD. SDE. Two and a half thousand. Sorry, two and a half million in revenue. 250,000 of SDE. 10% ish what our margins look like.

[Mike Heath]

I mean with, with the overhead that we have now. Again, whenever he was bidding all these jobs. So it sounds great to go do 7.75 or 7.18 and 21. But we weren't making anything because he was bidding these jobs with the overhead that he was operating at previously. So at the end of these years that we're doing this, we were making 2%, 1% net. Jesse took over the bidding process and the previous owner didn't feel that he could get any more for the work that he was performing. But we were actually able to double, if not more and double that. So double the gross profit margin. So we were able to get a lot more money for the work that we were doing because he was just the lowest bidder on half these projects. So whenever we changed, that started to reflect at the end of 22 and then in 23, Jesse had been handling all the bids that he had done in 2022. So we operate currently on every single project. Our net net is around 9%.

[Will Smith]

So sometimes from the whole business. So your, your net income margin at the end of everything? 9%. Wow. So 9. So like next year, 9% on $9 million is, is $810,000.

[Mike Heath]

Yes.

[Will Smith]

Phenomenal. Okay. And, and in a business that you are, by the way, did you ever quit your W2?

[Mike Heath]

I did, but I quit whenever I took over the pool companies that we bought in May last year.

[Will Smith]

May of 23.

[Mike Heath]

Yeah. So I was working, double dipping and working, you know, a job and running a business on the site and still flipping houses.

[Will Smith]

So no.

[Mike Heath]

Yeah, it's chaotic. Right.

[Will Smith]

We're going to hear about the pool for just a minute here as we wrap up. Point is, do you feel validated in going down this path? $800,000 coming off a business that you work five hours in. Now you granted you have to split that 800 across two partners across three partners. So. But even still, that's going to be 250 for you if we're doing it basically at a third. Third or third. A third, no doubt on the business paid off the debt. I mean, seems, seems. And let's not forget your entry point into this business. You said what, what was it? 36, 5, 37 5.

[Mike Heath]

I think I put in 12 5.

[Will Smith]

You put in personally 125 to be generating now somewhere between 250 and $300,000 a year.

[Mike Heath]

Yes.

[Will Smith]

So are you. So how does, so is that as happy as it sounds? You're not smiling.

[Mike Heath]

No, I mean it's, I am. I mean it's, it's been great. You know, the, I think, you know, the three way split, I think it's, it worked out, you know, I've got, you know, there was my tuition paid and I'm happy with tuition paid.

[Will Smith]

Meaning you're, you know, small business operator. Exactly.

[Mike Heath]

Yeah. I mean I've been through the headaches, I've been through the fetal position moments. I know how to deal with the stress now. You know, it's, it was, it was hard, you know, dealing with that. You know, my wife and she experienced a lot of these things. It caused family problems and stuff. But you know, I can deal with it. And you know, I'm running three companies right now, so obviously I can, I can handle the pressure, you know, the way that things are cut up at the moment. I don't think that, I don't think that if, if it was today and I was going to look at this company, I Don't think that I would bring in a partners, especially with the low down payment needed for it, but especially since they're silent partners. But at the time it was necessary and you know, the way the operating agreement was written, it's, you know, it is what it is. Yeah, but yeah, looking forward, if I was going to do this again, you know, the, the split would, would be different.

[Will Smith]

Yeah, right, because, because you put in whatever 12, you said 12 and a half. Right. And have a third of those profits. Whereas you could have put in 3 times 37. 5 and had, you know, fully 800,000 coming out of the business. And obviously in our world a lot of self funded searchers use equity, excuse me, take investor equity and then don't, don't have full ownership of the business. But typically that's when the, they're really going to need more money. This was such a small business. You probably could have found that 375 yourself.

[Mike Heath]

Yeah, absolutely. I mean I had, I had the cash to do it myself. It's just, you know, whenever you've never done this before and having people that are, you know, already owned, businesses that are experienced and you have a lifeline you can call, you know, you spread the risk a little bit, it just, it just feels better. Even if they're silent partners for whatever reason, it just still feels better that you've got somebody that you can call totally any time of the day to talk to about it.

[Will Smith]

Yeah. And also in that moment of that cash flow crunch that you had, you were able to spread out the infusion across the three of you. Otherwise if you'd been a sole owner, you would have had to bring all the money, all that stopgap on yourself, which would have been pretty burdensome. Okay, and how old are you, Mike?

[Mike Heath]

I'm 39.

[Will Smith]

39. Great. Any takeaways that we haven't given attention to? Any learnings from this, this adventure we, we just talked about, We've talked about so many of them. But any that you want to articulate.

[Mike Heath]

Explicitly here, understanding the cash flow is the biggest thing. I mean if you don't, I, I've heard some of your other guest. I can't remember the guy's name, but I think that he got into a cash flow crunch and you know, wasn't able to get out of it. But understanding, you know, how the, the cash flow operates in the business is number one getting that line of credit day one. I mean, you have to have it even if you don't need the money. I mean these two other Businesses, we don't need the cash. But I've taken out as much as I possibly can on the line of credit in case we get into a pinch. Things happen. You never know what's going to happen. You know, getting keyman insurance in case the worst thing does happen. To cover yourself. Because if we, if something would happen, Jesse, it would be a problem, but we would be able to pivot to. I mean, the, the team would be able to handle it, but we would be able to pivot to a subcontracting model. So it wouldn't, you know, kill the business. But, you know, just having these things up front and, you know, understanding how to, you know, to do the due diligence better than we did would have been, you know, those are the takeaways that I would say that are needed. And small businesses, sometimes they're small because the owner wants them to be small. They don't really care for growth. They don't have any ambitions to get any bigger. So I wouldn't look past them. We've, you know, these other two companies that we acquired, they've got a ton of growth potential. We bought them, obviously, at higher multiples and higher price, but, you know, there are some gyms out there that all they really need is just somebody that's willing to put in the work and put systems in place and something that the previous ownership never did.

[Will Smith]

And the systems you put in place have been successful. So starting to use email would be one system and getting on QuickBooks. Anything else? Any other systems to talk about? You mentioned the loan waiver stuff that they're. Excuse me, the lien waiver. There's a.

[Mike Heath]

Yeah, sightline. It's. It's pretty fantastic. The, the amount of hours that we're getting put on the bookkeeper was more than what she wanted. So this technology was able to help streamline some of the, the lien waivers that were getting sent out. People are people, and they're not, you know, you send an email out, they might get busy, swamped, and they just look past it. And for us, time is everything. So, you know, she didn't have to continually send emails out to get these lien waivers signed from them. So it's, it's really cut her hours probably by 10 hours a week, just not having to deal with the stuff. So that was huge. You know, the, the bidding platforms was more, you know, I. Square foot, it's free to an extent. And then we got another bidding platform just to be able to get access to all these jobs. So, yeah, we do have technology in place now. I'm sure there's more that we could implement, but for right now, this. We're good with what we've got.

[Will Smith]

And when you talk about implementing systems, this is mostly what you mean.

[Mike Heath]

Yeah, I don't. I don't really, outside of getting a. We have a project manager that's in training right now. So that's. The next step for us, is to take off some of the work off Jesse's plate. And then once that's done, you know, if we're going to get any bigger than 9 million, 10 million a year, we're going to have to bring in, you know, additional crews and probably explore that subcontracting model more.

[Will Smith]

The subcontracting model where you guys actually sub yourselves?

[Mike Heath]

Yeah, we would sub out the labor, and then we would fly in a. A foreman to oversee. So whether that's just flying in once a week, or he would just stay on the job to make sure that they're doing it according to our standards. That's.

[Will Smith]

We've.

[Mike Heath]

We've been successful with that. So it's. It's an option, but it also takes away work from the installers that we have on our crews.

[Will Smith]

I think one other thing to call out, we. I mean, we did at the top, but just to re. Reiterate, is the value of having Jesse. So when this deal came along, you had an operator that you trusted because he was a friend who had the exact necessary experience to be applied as operator of this business. So that. That, as you put it, that was an alignment of the stars. I'm not sure there's a lesson there other than to point out that there was some good fortune here.

[Mike Heath]

I would say the lesson there is that if you've got somebody on salary, it's easy for them to walk away, but if you've got the equity piece tied in, you know, the 5% with the potential to earn more, that was, I wouldn't say the hook, but that's what kept him around when things got tough.

[Will Smith]

Yeah.

[Mike Heath]

So, you know, like, hey, you're making this. But, you know, look at the potential. If we bid these jobs correctly, you know, you could be walking away with a 5% bonus. And when you get your full equity stake in the company, 20% of the profits, you could easily be making 300 grand a year. So for somebody that wasn't making more than 60. And that's the potential now. That's why he's here.

[Will Smith]

Yeah. And so it was $100,000 of extra earnings, additional earnings that he earned. He got another percentage point of the business. What is that number up to now? What is his ownership up to?

[Mike Heath]

I think he's over 15 though.

[Will Smith]

Over 15. Good.

[Mike Heath]

That's great.

[Will Smith]

Good for him. What about you had said to me that you hear all these people or you hear a lot of people on the podcast and you have a, you have some communication with the Washington University where et. There's an ETA course or I guess. Yeah, a course or program. And so anyway, you're exposed to MBAs who are doing this, doing ETA entrepreneurship through acquisition and the, the models and the technical speak of EBITDA and so on. And you didn't, you don't come from that background. React to. What is your reaction when you see some of those folks approaching this? From a guy who doesn't come as a guy who doesn't come from that background and has been successful over these last 4ish years doing it, you know.

[Mike Heath]

It'S speaking the language. I definitely feel incompetent sometimes when I'm talking to these guys because they, they rattle off ebitda, ste all these acronyms and it's like, and I'm not scared to say, look what, you know, what do you mean by that? Or what does that stand for? Um, so it, it's just they, they have all the, the experience, the knowledge that they're gaining from these universities that are teaching them ETA and teaching them how to go about raising money, talking to private equity firms, whether they're going to do their own search or they're going to join up with private equity. You know, I, I've met with a handful of private equity companies and just I, when I, when I speak, when I talk to these guys, I definitely feel like that I don't have the vocabulary to communicate with them on a level. But I, I don't have, I'm not nervous or I'm not, I'm more than willing to just go ahead and say, look like I, I don't understand what the hell you're talking about. Like, can you break it down to me? Like I'm a 5 year old and you know, several of them said, you know, whether you are going to do this on your own or you're going to join up with a PE down the road, like, you know, you've got the grit, you've got the determination to go ahead and get after it. This the kind of person that we're looking for. It doesn't matter if you graduated, graduated from Harvard or Washu or whatever. It's Going to be these kids that are getting out thinking that they're going to go conquer the world like they definitely can, because they've got the education behind it, but they don't have the experience. And I feel like that gives me a leg up over these kids that are getting out because, you know, yes, you're got a prestigious university behind you, but, you know, I've got the experience behind me. And so it does feel a little weird, you know, networking with some of these guys. But, you know, it's been nice because they're reaching out to me, asking me questions. How did you go about doing it? And I think the one thing that stands out between myself and them is just experience and willing to stick it through when things get bad. You know, what's the oh scenario look like? And are you willing to deal with that pressure and the problems that come up from it?

[Will Smith]

Mike, take us home by telling us about this latest acquisition or latest acquisitions.

[Mike Heath]

So May 2023, we acquired pool King Recreation, which has been around for 42 years. And Florida Pool and Spa. Not in Florida. They're based out of Maryland Heights. Previous owner called a Florida Pool because he had a partner that was from Florida. Not the best for SEO, but you know, it works out. So we closed on Pool King May 1st and we closed on Florida Pool May 26th. So two transitions at the same time. Chaotic, hectic. Still running another company, but it's been, we've had a lot of hurdles, a lot of challenges, but it's been great. They did have the team in place, which was very different. They had the technology Pool King obviously had. You know, they were still dated with a lot of the ways that they did. You know, they ran their leads. So we've been, we've changed a lot of things and we are still in the process of improving systems, but it's been going good. It's different. You know, I'm more involved with Pool King on the. I'm almost a. I'm doing a lot of general manager type. That's kind of the role that I'm. I am here. Florida Pool is the team's running. We, we moved around a lot of people, we had to let a few people go. But we have a good team in place right now and I, if I wanted, I could probably spend two hours a week there, maybe less. But we're in growth mode. So, you know, 7:00 in the morning I'm up at Florida and then around 8, 9 o'clock I'm over at Pool King and yeah, it's been, it's been a busy year or busy what, 19 months.

[Will Smith]

And what is the combined revenue of those two pool businesses?

[Mike Heath]

Pool King is sitting around 5 million a year and Florida Pool is. We're going to hit 1.4. So his best year with Florida Pool was probably about 1.2. So we've grown that company, Pool King, we bought it post Covid so there was an enormous drop off from the revenue. They were probably doing over six. So we dropped about a million dollars in revenue. So it's, it's been a bit of a challenge to see that drop off. We knew it was coming. We bought the company at like a 2x with revenue. Right now it probably. It's about a 4x that we paid for it. And then Florida Pool, we paid a 4x on that. So it's, it's been good. But yeah, Pool King, it's to see what the company looks like. Post Covid has been stressful, but there's a lot of things that we can change as far as the systems and efficiencies to get us back up to where they were.

[Will Smith]

And did you buy these businesses with an SBA loan and partners?

[Mike Heath]

So the gentleman that I mentioned that owned 150 businesses, he. They had this deal under contract. The operator that was going to come in, he had some family issues that he couldn't execute on the deal. And so the deal was going to fall apart. And I had mentioned that I was out looking him and I had a conversation and just said that look, I'm ready to take the next step. I want to get a little bit more management experience. I don't really have much of a role at State Line anymore outside of just making bigger decisions. So I was ready for it. And we made that decision probably February 2023. And we ended up paying cash for both the deals just to be able to close before the busy season started. We wanted to catch all the upside so we paid cash and it's a 4,951 split. So I have minority ownership in it. And the. We refinanced after we closed on the deal. It took probably about three, four months to get the refinance done, but went conventional with the refi. We have a seven year loan on both the businesses. We kept them separate. I know some people would disagree with that because one service based and the other one is retail. So they feed a lot of business to each other and it would make my life easier if we brought them together. But the attitude is that we want to keep Them separate, because if one business fails, it's not going to drag the other one down. So there is potential down the road to go ahead and put these two together once we're comfortable with that. But they're both performing really well separately. And. Yeah, so it's been. I'm trying to think of anything else with the deal.

[Will Smith]

So your partner, who is the gentleman with 150 businesses, presumably has done well for himself. So he. You guys bought these two businesses in cash. His cash. And then just so you get the deals done and then promptly refinance them with conventional debt, not SBA debt. And how much did. Did he take out or you guys take out?

[Mike Heath]

20%. Yeah. So how much do the 20% you took out?

[Will Smith]

Okay, gotcha, gotcha. No, you took out 80% and left 20 in.

[Mike Heath]

Yes. Yeah, sorry, sorry.

[Will Smith]

Yeah, right. Okay, great. And then the split is 49.51.

[Mike Heath]

Yeah, gotcha, gotcha.

[Will Smith]

And what's your plan with those?

[Mike Heath]

There's been.

[Will Smith]

I mean, are you building a holds co here, Mike, or. Or buy and hold or what?

[Mike Heath]

It wasn't really the intention. I mean, it's a buy and hold. You know, my partner, he. He likes to keep businesses. He doesn't like to just flip them. It's always a potential that we could do it, but with the number of companies that have approached us to purchase them, there's a lot of baby boomers that are getting out of the business. Private equity doesn't typically like the retail side. So since we're already doing this and if we were able to cover more territory in the St. Louis market and over in Illinois, there's definitely a lot of potential there. Again, I've already had several conversations with a handful of companies that would like us to take over. They've seen what we've done with the companies and, you know, it's a small community here. They all talk. So the, the. There's a lot of positive. There's. There's a lot of positives that they have communicated to these other companies that they thought that we would be a good fit. So it's just a matter of time to take them down and having the right price in mind. So, you know, doing a roll up would be great. Taking on some new pool routes with the service company. We can expand organically. We've got a handful of product lines that we could add to Pool King. So organic growth, acquisitions when the time's right. But, you know, the pool industry, it's. It's an easier. It's an easier business to Understand, if I had to go out there and I had to learn all this stuff and do it myself in case something happened, it would be easier for me to do this than the garage door business. So I see more potential there. And the fact that there are several companies identical to us that we could acquire, it just seems like there's more legs on this than what the garage door business has at the moment.

[Will Smith]

Great. Mike, anything else to add about your story? Anything we didn't talk about?

[Mike Heath]

I mean, there's. We could probably do another podcast on the pool companies because there's plenty to tell there. But, you know, I. I think a lot of people get hung up on the equity splits and stuff. And, you know, for me, since I didn't really come from this background and I didn't have the ETA education on it, you know, I feel like I'm paying my tuition right now. So sometimes if the deal isn't perfect, you know, my attitude with these companies is that if I can grow them, hire myself out, and then go do it again in a more favorable deal and have majority ownership, I mean, that's, that's my path and that's what I'm planning on doing. So sometimes the deals, you know, maybe they don't pencil out, you know, perfect, but, you know, you got to do what works for you. And this has worked for me pretty well. And, you know, I don't have a hold co set up, but this is, you know, it's a. That's way. That's kind of the direction that it's going.

[Will Smith]

But all this. To this, you feel like you're paying tuition. Is that to say that you're not, you're not psyched about the 4,951 split?

[Mike Heath]

Oh, I am. I mean, it's, it's great. You know, at the end of the day, with the, the money that this company's making, I'll be, you know, between the three companies, I'll be pushing close to a million dollars a year once these are all paid off. But, you know, so it is, it is great having minority ownership just as a little uneasy at times because, you know, if the majority owner wasn't happy with the way that I was performing, I could be fired. We could sell the business. I don't have any. I don't have any say so. And what, what goes on, obviously, you know, they want to keep me around because I'm running the companies. I got the respect of the employees, but, you know, I'm dispensable at the end of the day. So majority ownership and whatever is coming down the line is. Is the direction that I. I want to go.

[Will Smith]

Yeah, yeah, makes sense. MIKE if people want to reach out with any questions, how can they do that?

[Mike Heath]

WINKTON so I'm more than happy to talk to anybody. Like I said, I've been talking to some of the WASHU students. I've had a handful of people reach out just to, you know, hear what I've been through. I think the advice that I can give to anybody that is going to reach out is, you know, you got to do it. At some point. You can overanalyze something to death and never do the deal. Sometimes you just. If it. If it looks like it makes sense, just pull the trigger and do it. And, you know, it's never going to be perfect. I mean, like I said with the pool companies, there are an endless amount of things that we missed in the due diligence, but we've been able to work it out and get through the problems. So, you know, sometimes you just got to. You just got to do it.

[Will Smith]

Great note to end on, Mike. Keith, thanks for your time today.

[Mike Heath]

I appreciate it. Thank you. Sa.