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Action Academy | Millionaire Mentorship For Your Life & Business
Every Question You’ve Wanted To Ask A Business Broker (w/ Ryan Condie - A Business Broker)
00:46:16
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- [00:00]
A
Man, this is going to be a super fun one. You and I were just talking off camera about kind of what we call level 100 strategies or what the super rich are doing and leveraging to buy businesses. And some strategies that you and I are both implementing ourselves. But for this episode we really want to hit on. You are listening to the show and you have decided that you want to buy a small business and maybe you've bought some real estate in the past, maybe you've got fifty thousand, a hundred thousand dollars in cash and and you're looking to really replace corporate with cash flow and buy that one really solid good business this year or in 2025 that will set you financially free so that you could be a business owner instead of an employee. And you are hearing about business brokers, you're hearing about all these guys, the people that hold the deals. And you realize that you need to either talk to the seller or you need to go through brokers. And you want to know how the heck do you do this the right way? What are some things that you can say and some ways to conduct business whereby a business broker will put you at the top of their list versus what are things that you can say and things that you can do that will get you removed from a broker's world completely? So first and foremost, Ryan, let's start with introducing yourself to the audience. Who are you? What do you do? Kind of walk us through the background for anybody that didn't listen to the previous episode.
- [01:14]
B
Yeah, awesome, Ryan. Well excited dive into all of this. I built lots of businesses, about eight businesses over a 10 year span. I've started a bunch of businesses, I've shut down businesses, I've sold my own business has done a little bit of everything. So a lot of successes, a lot of failures and you know, school of hard knocks. I've had 80 employees with a manufacturing factory where we had Andy made in house. You've been to thousands of stores across the US And I've had companies with no employees. I only bring that up because I know what it feels like to be in the deep dark valleys that you see of entrepreneurship. And then of course the peaks that you see when you exit or things are clicking, things are working with that in mind, I sold all my physical good businesses, all my e commerce businesses in 2019 and then early 2020 and I was looking, I had a little bit of a break and I hit it off with some other brokers at a firm called White Light. We do only Internet based businesses join them. So I'VE been brokering deals for about four years with a background and doing my own deals on all different sides of the table. So I used to make fun of brokers for most of my career and then eventually I joined them and now I'm on the other side. And look, brokers get a bad rap probably for a good reason, because it's similar to a real estate agent where, you know, 95% of them aren't that good, but then 5% who are good are worth their weight in gold. And they're absolutely amazing. So broken for a long time and setting the stage. And you're talking about brokers and how to react with them, we can dive into what is a business broker and why are they helpful? Because I think as your audience is looking at buying a business, there's a lot of content out there saying, use brokers, don't use brokers, it's conflicting. Or to go directly to a seller, don't go directly to a seller. There's a lot of conflicting advice and I don't think there's a right or wrong for anybody. But a few things brokers do well is they will save you a lot of time because generally speaking, I might talk to. I've looked at the amount of calls I've done over the last four years versus the businesses that I've actually taken to market. And it's about 7% of all my calls will eventually end up going to market. So 7%, which means I'm taking a hundred calls and only seven of them actually make it to your inbox and you know that they're for sale. And the reason that is is we're cleaning out the deals that aren't sellable, they're not honest, they're declining so much that there's no value. Or sellers have unrealistic expectations. They want, you know, some crazy multiple on their business. And business brokers can save you a lot of time. It also allows you to know that the seller is dialed in. They've had tax conversations with their cpa. They're really wanting to sell. Brokers are typically paid on a success fee, which means they are motivated to sell the business, which is helpful in a deal to have someone who can move things along that wants the business to get sold because a seller that hasn't gone through that process in the 11th hour. I've seen deals fall apart where they find out that they have to pay taxes. Well, yeah, you live in most countries, you'll have to pay taxes on a gain or a sale or something. To that extent. So that's really where business brokers can help save you a lot of time. And generally speaking, they're hopefully giving you a SIM or business summary and P&L's that have some data about the company versus working directly with a seller, they may not have any of that already dialed in. And so you're typically getting a nice package. You've got a seller who's motivated to sell. You know, I've also worked with a lot of people directly in buying their business, and a lot of times they don't have the tax conversations yet. They haven't, you know, dialed in their finances. They got to go fix their P and ls, they got to fix their balance sheets, and none of that stuff actually makes sense. And they're sort of winging it on a tax basis. And so I think there's a variety of things that business brokers can do. But as a buyer, if you can understand how does a broker help you save you time and bring you deals that are qualified, that's how you can have a working relationship and a winning relationship with a broker moving forward.
- [04:49]
A
I love everything that you said because I've done both. So we just bought one that was direct to seller, a hundred percent seller finance. And we've also done some that are brokers. Both of them are advantageous for different reasons. And it also depends completely on your level of skills, skill, and your level of expertise and acumen. Because just like you said, there's obviously a much more heightened risk when you're going direct to seller. It's the wild, wild west. Whatever you want to happen could kind of happen through terms, deals and negotiation. And you can seller finance. Seller finance is like you and the seller directly just coming up with back of the napkin, whatever math works out. But a lot of the times those deals will come and you'll see a lot of things pop up where you're like, okay, obviously your data room was not cleaned up. Completely incorrect. This wasn't packaged 100%. And that's just the heightened risk that you're going to have for maybe like more advantageous seller finance terms. But like, also for the broker perspective, I have found the sweet spot to be maybe not necessarily going directly and finding your business on bizbuysell.com and being like, oh, well, I'm just going to go message all these brokers off of biz by selling, but rather forming the relationship with the top brokers that are listing everything in a specific market and then being the pocket listing that gets sent to you, where they're like, you have a relationship built, and then the bro, you and the broker are having a conversation. They're like, hey, I've got something coming up. I think this is right up your alley. Before I list, can you talk about that kind of flow and about, like, how you guys, as the broker side view the list to biz, buy, sell, which the joke is that I want to address. That's where businesses go to die. That's where listings go to die. Can you. Can we address that? Can we address that?
- [06:38]
B
Yeah, you had a really good take there, Brian. When you think about going direct to a seller, a lot of times you're doing a very targeted outreach. So it's a business that makes sense for you. So the quality of business is really high. But you mentioned data room, and a lot of times there is no data room. You're creating that on the fly with the seller. Seller financing can be really amazing. You're working with them directly. You can typically get really good deals, but it's almost like this needle in a haystack where sometimes the giant carrot that you're looking for is so hard to do. But when you do a direct deal, they could be really amazing. So it's not that one is right or wrong. It's just that you can waste a lot of time. And generally speaking, if someone you're going direct to, they might have some crazy valuation that is tied to their retirement number versus what the true value is of their business. And so in order to bridge that gap, you got to have a seller financing conversation. And you have a conversation where everybody is giving and taking a little bit and trying to figure out how do we make this a win win for everybody. Now let's switch over to the pocket listing. Right? So you mentioned that with brokers and having that relationship with brokers, right? As we established that brokers are trying to save you time and bring listings to you. So as you can establish with the broker that you're a qualified buyer, you've got the right skill sets, and you're dialed in with what type of business you want to buy. I talk to buyers every single day, Brian, and my first question is, what do you want to buy? And most of the time they say, I just want to buy a business. I just want one that makes money. I'm like, well, great. Do you want this, like, hot dog shack over here on the corner, or do you want an online business? Do you want a SaaS business? Do you want a franchise, like, just because it makes money? Doesn't mean it's a good fit, right? So when you're coming to a broker and you're saying, I am looking for X, Y and Z, I needed to be in this industry and this size or in this geographical location, I need it to look like this. And then a broker's like, okay, they're serious, and they're dialed in. That's how you stand out. The next thing is you're coming to them and saying, here is my capital call letters or here's my SBA approval. That's what you're doing for a bank. Or here is my funding. I have, you know, $2 million sitting in my Schwab account, and this is what I can prove to you for my funding. So you've almost got a package about yourself. You talk about a business package. The buyer almost has a package about themselves, and they're handing it to the broker and saying, I am a good buyer. And because the whole point of a broker is a seller will give up a percentage of their sale to a broker to streamline the process, find buyers quickly, and save them from all the tire kickers that are out there. And let me give you an example. I'm working with someone right now, and we got 11 offers on their business. They took it to Biz by sell before, and they were under offer two different times. Tons of tire kickers. Both times, the offer that it was under with, the buyer just ghosted them in the 11th hour and never showed up to the author. Right? Just. Just crazy. And so they wasted a lot of time. But then also, the broker, they're coming into the table saying, how do I stop all the tire kickers? And you, as the buyer, need to show the broker that you're not a tire kicker and that you will get the deal done, that you're dialed in. This is what you're looking for. This is on your team. And then you take it to the next level after you've heard the business and you've got a growth plan and you're even sharing that with them. Everyone's like, I don't want to share my growth plan. That the seller might just turn around and keep the business and keep running. Well, you are never going to get that deal anyways. People who are taking their business to market, they're not interested in that easy growth plan because they would have already done it. They're motivated to sell, not necessarily keep going. So those are a few things when I think about, like, how do you stand out? You stand out by showing the Broker that you're not kicking tires, you're serious. This is your background, this is why it's applicable to this business, this is your funding. And then, of course, if there's a business you're really interested in. When I launch a business, Brian, I might have 50 emails of just the responses, let alone 200 plus people who signed an NDA to look at a business. And so I just think about it in my inbox that, you know, the squeaky wheel gets the grease. If you are excited about a business and you email the broker and you haven't heard from them and you know, by the end of the day, first thing the next morning, bump up that email, get to the top of the inbox, because you don't know how popular that listing is going to be. And you might even just lose out because there's so much action on it. You want to show the broker that you're interested in it.
- [10:40]
A
I want to hit a little bit more on what we can call a hit list of wonderful characteristics and qualities for a buyer that you can use this template. You can be this person so that whenever you're reaching out to any broker in any industry, across any market, you're like, I can do this, this, this, and this. And I know that I'm pretty much going to get a date here. So it's the same thing as like, hey, let's take a look in the mirror. Let's make sure that the hair is combed and that you don't see smell before you go on a date. Like, let's talk about that conversation. Because I feel like this is where 99 of people that say, I want to buy a small business mess up is probably at this crucial inflection point, which is the first time that you're reaching out to a broker and you're just like, same thing with real estate too, where you're just like, I just. I want to buy multifamily in Georgia. Same thing with a business. Oh, you know, I just want a business that cash flows me $10,000 a month so I can quit my job. You're like, okay, what does that look like? So let's go through. Because I've done. I've done a little bit of a study with this within our community. But I wanted to hear your perspective first. If you had a list of maybe five things that somebody can do prior to reaching out to their first broker to make sure that that reach out is actually memorable, what would you recommend those five things be?
- [12:02]
B
So five things. Let's Dive into that. And so first off, how do you stand up dialing in what you're looking for, presenting that in a three bullet points, three, three sentences, very dialed in on size, industry location, and then having the backup of why you're interested in that. It's. I've done this type of building before. My previous company, I did, you know, we started a million and then we took it to 10 million. And this is my role within that. And part of this isn't for the broker, part of it's for you as a buyer and saying, what do I truly, what am I truly good at? And what kind of problems do I want to be solving for the next five, 10, 15 years? And so that piece is critical. Funding is very critical because if you are self funded and you have all the capital yourself, or if you have investors, or if you're using an SBA loan, whatever that is, the broker and the seller, they want to know where the money is coming from. Because I don't know why, but in this industry of M and A, there are so many people who talk a big game and talk like they're going to get a deal done, but they never get a deal done. They have no money, they have no way of raising money, but they. It's like an endorphin high of like talking about big deals. And I don't know why. Maybe it's this case in every industry, but so many people are dialed in of I can do a big deal, but I've never done a big deal before. I'm a deal maker. And you're probably not going to get done your first time. Right.
- [13:17]
A
Can you give some examples from your end about how you, how you can sniff that out?
- [13:22]
B
Absolutely. So from a broker perspective, I've had lots of conversations. I'll give you two examples once. So specifically two months ago, this guy came to me and says, I've been looking for a business to buy for five years. I've put offers on five businesses. I've been under loi. So letter of intent, which means the offer was accepted, but all five times they've fallen apart. And I'm like, okay, at some point, like you're the only X factor. Like, not all five businesses could absolutely suck, right? Or there are reasons why deals fall apart and the financials are presented where presented were misrepresented or something. But all of a sudden, you know, if you've been engaged five times to five different women, you're the X factor. Right? And none of those have worked out like it's you. Okay, now let me fast forward a different buyer. This buyer has been looking for a business since 2018, six years. And he is, he's always interested. I, I've got 50 emails from him on every listing. He's sort of interested in this one and sort of interested in that one. And every time I talk to him, he's like, I'm looking at this business, but I'm also looking at this business over here. I'm sort of waiting to have to hear from them. And it's like, that is like the example I was giving you, Brian, of like, this guy is talking big and he's never going to get a deal done. And that's okay. He probably should just stop looking for a business to buy and go build one or just go down a better career path or something like that. And that's a classic example. I call them eternal searchers, where they're just internally searching for a business, but they're really never going to pull the trigger. And I think there's a dopamine hit of. You see this a lot with like playing business or like listening to business podcasts and consuming the content. You sort of get a high even though you didn't really do anything. It's the same thing in the deal world is like you get a high by looking at a business that's for sale. You get a high by coming up with a business plan and the growth plan and how are you going to triple revenue and, you know, 10x the profits over the next few years and you're just going to crush it. You get a high from that, but you actually didn't get do anything. And so those are two examples that have happened. One was 10 days ago and one was about six, seven, eight weeks ago. And so those are some of the reasons why, you see, and it's these eternal searchers and they're just not going to get a deal done. So if you're looking at, if you're, if you're downloading a sim from everyone that comes out, then it's like, well, that plumbing company is very different than the franchisee, very different than the, you know, e commerce business that you're looking at. So you need to be more dialed in. And that's how you're going to get the compounding effects of being in the industry long enough. And I'll give you an example. So I've just been in the industry for a very long time. I've been in Main street businesses. I've done a lot of Internet businesses. I broker Internet based businesses only, but I've been in the industry long enough that I just get introductions to people who are like, hey, this guy is selling. Do you want to buy his business? Right? And that just happened recently and ultimately it wasn't the right fit for me. But I haven't been searching for a business to buy for a few years now. But because I was in the industry for so long, you just have these compounding effects. And so whatever the industry that you want to be in, the longer you're in it, the more compounding effects because every industry you can think of is way smaller when you get into the nuts and bolts of it. Just like podcasting, right? Like, it gets really small really fast. You know, if you want a bunch of Sonic franchises or something, it gets really small when you start interacting with the Sonic owners a thousand percent.
- [16:39]
A
And it's even with this podcast too, as an example. It's like we started off as financial freedom, then we went to real estate, then we went to commercial real estate and doing bigger deals, and now we're okay, well, we're going to help you replace corporate with cash flow by doing 10 to $20,000 a month through buying small businesses and big old commercial real estate deals. So, like, this is like the 10th iteration of the podcast and how niche it is to where I want it to be so niche that somebody looks at it and they're like 90% of people immediately say, no, that's not for me. Good. So I love these conversations because I'm on the flip side. So it's like, if you ever see anybody from Action Academy, I want you to be like, oh yeah, those people are tr. Like, these guys are actually going to do stuff because it's funny, a story that we had. And I don't want to crap on the guy, you know, because we, we say. I say this lovingly because I already said it to him as well. Guy comes out of this too. Yeah, guy comes out. Kai comes out the gate in our community and he's like, I'm gonna buy a business, brother. And I'm like, yeah, you are. Let's go. And it's been four months and five months and six months, and we're like, yeah, let's go. This guy's always posting about all the deals he's looking at and all the deals he's underwriting. And at six months we have this trigger in Action Academy where it's like we do this crazy thing which is called checking in on the customers crazy. Nobody thinks about this type of stuff. But we do. And so we have this trigger, we have this internal alert that sounds when we're like, hey, so and so is six months deep. But we haven't seen him under contract. Let's go reach out to him and see what part of the funnel there's a leak in. And so we go to this guy and we'll say, hey, man, let's walk through your funnel. How many deals have you gotten? He's like, oh, 107. How many deals have you underwritten? 67. And we're like, awesome. How many offers did you submit? Goes, oh, none. And we're like, red flag.
- [18:29]
B
Okay, what's going on? Something's missing.
- [18:31]
A
Correct. And then so we're like, dog. And that's why. That's why we do this. That's why you have these alerts. And we're like, okay, so the offer is what gets you the deal. So why aren't you submitting offers? And then we figured out it was a whole, like, mindset thing where I was like, okay, well, now let's pump the brakes completely. Come all the way back to the root cause, which is we need to get a buyer profile for you established. So the advice that we give, and I'd like for you to add to this or rip this apart or add anything that you think I'm missing here. But the advice that we give is, first, let's take a step back, let's slow down, let's look in the mirror. A lot of what Walker that you work with says says, like, let's really get an idea of our strengths, our weaknesses, and let's go ahead and figure out who we're partnering with prior to reaching out to buy these businesses. Start with the partner first because you need to know if you're what we call a top line CEO or a bottom line CEO. Top line CEO is you're great in sales and marketing. Your bottom line CEO is your greatest systems and ops. So we want to do an inverse of whatever business. We want to partner with the inverse on whatever business. So if you're great at sales and marketing, you want to buy a business that's already operationally sound, because that's not something that's going to be up your wheelhouse to do or you need a partner on it. So I said, you need to slow down. You need to figure out what your strengths are. Let's work on your buyer profile. Let's get you a partner today. And now also before you do another business that you're looking at, I need you to submit 10 offers and like, tell me what your buy box is. And you're submitting 10 offers this month that you are actually going to close on. And so I'm curious if there's anything else that you would add to that because I think that the, the pre work allows everything else in the post to move so much more smoothly.
- [20:15]
B
I think you nailed it. Right? I don't think I would add too much to it to go a little deeper into that. And it's almost like, it's almost like fitness. If your goal is to run a marathon, you don't just go to the gym and start lifting weights like crazy and doing bicep curls. Right? Like, you have to have a plan that matches where you want to go and what your end goal is if you don't start with that in mind. Well, yeah, you're going to go back and look at every business that's out there on biz by sell. You're going to scroll it like Instagram and it's going to be this little short dopamine hit. But you're never going to find anything that's truly the right fit for you and your goals because is it like the wizard of Oz, when they asked Dorothy like, hey, which road do you want to go on? They ask, where do you want to go? And she goes, it doesn't matter. And he goes, it doesn't matter if you go right or left, then, you know, but that's the whole point. You have to be dialed in on where you want to end up or else it doesn't matter which business you take because you're still not going to get there. So I think you nailed it.
- [21:03]
A
And my personal favorite that we've been working on a lot, so we actually try to shut down businesses before they even get to you guys. One that we've worked. This is a lot of seller finance, once again, is people that are getting technical trades businesses and they have no technical or tradability and like H vac plumbing, something along those lines that require licensing. And they're like, yeah, I've got this under contract. And we're like, oh, okay. So how are you like, what are you going to do about it? Oh, I've got this guy that's been working three years in the company and he's going to, he's going to help me run it. I'm like, okay, well is he in on equity? Is like, what's going on here? What do you know about this? And so we're like, hey, let's start first. For people listening, if you're thinking, hey, I want to buy a plumbing company and you know nothing about plumbing, before you email Ryan or before you email a business broker, what you first do is you find the person that has 10 years of plumbing experience that's freaking fed up, and you're like, hey, let's go ahead and talk partnership conversation first before we even start this business hunt. Then when you email Ryan and you email the brokers, you can say, here's our combined buyer profile. Look at all this experience we have combined. And then it's a whole separate conversation as opposed to just like, what the hell are you doing, dude?
- [22:18]
B
How did that guy take your feedback? Is he like, oh, he dials in now?
- [22:22]
A
Yeah, he pays for it. He took it like, that's what you pay for.
- [22:27]
B
Typically. Typically, feedback that you pay for hits harder.
- [22:32]
A
You pay to pay attention. And so, dude, it's a classic example of just don't. You don't know what you don't know. And I tell everybody, vision without action is a daydream, but action without vision is a nightmare. So he was doing the action without vision part where he was blindly doing the stuff, but he was unclear about what the driving actions were. I want to hit on the most important question really quickly, Ryan, from our community, and this is very applicable for them. Their question is, okay, Ryan, you say you want experience like brokers want experience. Brokers want capital. Brokers want, like this rock star buyer. So easy for Brian to say or Ryan to say that they're buying a business. They can show something. What about me, who I've been like an accountant for the last seven years, and maybe I have a hundred thousand in cash and some capital partners, but this is my first time buying a business. How can I approach Ryan and come off as credible when I haven't actually bought a business yet?
- [23:27]
B
Yeah, and I don't think you have to have bought a business before, but I think there should be stories in your. In your background. There should be things that you've done in your career that are the breadcrumbs of success. Right. So if you're an accountant, you'd be like, well, yeah, I successfully grow year over year during tax season, working 80 hours a week. One, it shows that you can grow the business. Two, it shows that you can handle stress. That would be an example for an accountant. So the accountant may not have bought a business before, but there are things they've done in their day jobs that they can point to and say, this is this is where I owned a P and L profit and loss statement, or this is where I help grow the business, or this is where I help operationally make it streamlined. And those stories and those experiences will transfer into other businesses that you look at. So it's not about like you can be a first time buyer, but you could still be a great buyer. It's not about, oh, I bought 20 businesses. It's more about the background that I have. It looks like this. And when you outline that background, that's why I'm interested in this business. And you can directly correlate of why this is an interesting business. I'll give you another example. Recently just sold a business that was 100% E commerce, no Amazon FBA, but they sold bags online. The buyer came to the table who one had a design background. So when they needed to design new products, design bags or something like that, that was important. They actually had a background. So they were creative. But in their current role as a vp, they could understand a P and L. She had to own the P and L within her division. What that means is she had to be in charge of all the expenses, all the revenue. And at the end of the day, she had to prove to the CEO of the board why her division was profitable, not profitable, and make all the strategic decisions behind that. She basically was running a mini business within her day to day job. So when she shifted over to buying a business, it was a very natural fit. Even though she was quote unquote, a vp, not an owner, she had already owned that business operationally. So all those things directly correlated into running that business. And I think she had a better background than even the founder and the seller because, you know, typically entrepreneurs are really good at creating the product in the creativity side. And then you get into the numbers and they just like fall off a cliff in terms of experience and they don't want anything to do with it. She had all these intangibles and she had to own everything. And now she's actually betting on herself to be able to go out and do that. And so that's like a perfect example. She had all the intangibles in her day job and she'd been doing it for years. So when it transitioned over to her owning that business fully outright, there was a lot of opportunities for growth and she was so dialed in on it.
- [25:50]
A
Cal Newport calls this career capital. And I think that it's something that's really important for people to focus on because we did this thing on our last Tulum event called Tuition 22nd Power Pitches. And in your power pitch, it's your opportunity to get up. And you only have 20 seconds because we have like over a hundred people at these events now for Action Academy. And so now we're like, hey, like, do not be the person that gets up. Like, we will shut you down if you start rambling. And so everybody came into it, like really prepped and polished. And that was really cool. Yeah, seriously. And so we have a timer that we put up on the big screen and we say, 20 seconds go. And I said, none of you come and say, oh, oh, I'm working a job. I'm looking to buy my first piece of real estate. I'm looking to buy my first business. I say, no, you say, what the hell you've done. Take some time and attention and package it to where other people in the room say, after this 20 seconds, I want to speak with you. And it's the same process for them reaching out to you guys. I'll give a perfect example of this. We had two Action Academy members that bought two businesses actually together at the same day. Ironically, two separate brokers closed on the same day. I don't know how that happened.
- [26:52]
B
Wow.
- [26:53]
A
But, yeah, but right. And so they both replaced six figure jobs, they both replaced six figure salaries and bought like over a million dollars of businesses within six months. And so one of the partners had a background in staffing, the other one of the partners had a background in medical sales. So their buyer profile combined was, hey, this is why we're taking over this inspection company, because we can hire inspectors because of his background and his job. And, and I can sell to the cows, come home because of my background and my job. And so the broker was like, oh yeah, you guys are a home run. Like, I'm putting you directly with the seller. Like, let's, let's do this. And you're actually going to close. And they closed and it was a very smooth process. So just to cement what you were saying there, can we walk through now? So somebody makes it through, they get through you guys and you're like, oh, I like you. Like, I want to work with you. Let's get this business done. They submit an loi, they LOI gets accepted. What happens next?
- [27:50]
B
That's a great question. Because what happens is you have this giant funnel and you look at a lot of businesses and then you query on a lot of businesses and sign those NDAs. It's like any sales funnel, you start going down yourself as a buyer, but you have less reps each stage. So it's not, you know, you might look at a hundred businesses but only sign the NDA on 50 of those, but then only engage the broker on 10 of those and then only submit one LOI. All of a sudden you've done this a hundred times up here and only one time down here. So I love that question. So let LOI stands for letter of intent. That's essentially saying, brian, I want to buy your business. I'm going to pay a million dollars for it. Here is my offer, here are my terms and we go back and forth a little bit about it and then you accept it. It's great. It's like, so what that does is takes us over to due diligence. That due diligence can be anywhere from 30 days to 90 days. Depends on the financing and how complicated the business is. So now that we've got that established, basically we go from you and I were dating to now we're engaged. Okay, so you're going to take the business off the market, not entertain new offers. Because in my own right I may get view only access to everything. So I'm going to see your, your back end sales channels, I'm going to see your marketing channels. Maybe you've got meta account. I'm going to see your ads in there, all those pieces. I'm going to be able to view only everything and make sure everything you've told me about the business so far is accurate. I'm going to reconstruct your P and L. I'm going to look into the growth opportunities. I might talk to an employer, to you at a certain place in time, but everything you've told me is going to be verified. That's the due diligence process. Now the complexity of the business can drag that out a lot further. Say you have 20 trucks and you're a large H vac company. It's much more complicated than if you're like, I'm doing 2 million a year in revenue, but it's all through Shopify and I have 20% margins and I have a few contractors that I work with. It's a very different business that you would need to do due diligence on. And the reason you're taking it off the market is because I'm going to generate a ton of costs by going into your business and verifying everything you've told me. I might hire an outside quality of earnings firm or an accountant or bookkeeper to do tax assessments or to reconstruct the books for me. I might hire A marketer to come in and say, hey, tell me about the PPC accounts, tell me about the meta accounts. Is this all accurate? I've got to go through your cogs, which would be your cost of goods sold or your inventory. Because if you told me you're buying this bag for $10 and then selling it for $100 over here, make sure you really are buying this bag for $10. Okay, so now that process, that's where the data room comes in. We talked about that earlier. But that data room is all the data in the business. And all the things I'm going to verify from your business are in that. And yeah, that process can take anywhere from 30 to 90 days. And generally once you want, you want to tear down this approach of what's most important and then work your way down because some people will immediately go under LOI and hire an attorney. We don't want to hire attorney. And that's expensive. You want to go and start verifying the things you can verify. Or really the most important thing is going to be financial due diligence. Brian, if you told me you did 100 grand in revenue last month, I want to make sure you did 100 grand in revenue. Because if the first thing I see is you only did 50 grand in revenue last month, I'm going to say, hey, where's the difference? And if there's a big difference, it's like, hey, maybe this deal isn't going to work out. I'm not out that much time and I'm not out that much money. So you go from financial due diligence and then you work your way down. I mean typically it's any lawsuits, legal due diligence, and then you start getting into the stuff that's more of like fact checking on a, on a basic level versus like those first few, if those check out, you're good to go, right? It's typically less deals fall apart. It's more things aren't lined up on the financials or something and then it falls apart. Now let's say you've checked all those lists off and you're a little bit through. Then you start working on the asset through purchase agreement. We might hear the apa. That's the, we're going to take the, the bullet points from the LOI and plug it into a contract or an agreement, the apa. And that's the, the more complicated version. And that can be anywhere from 80 to 100 pages long depending upon the complexity of the business or depending upon how expensive your Attorneys are right. And how much they want to charge you. Okay. So that is worked on during the due diligence process. And that's of course, the ending contract, the ending agreement, like the binding agreement, so to speak. Right. Sometimes there's escrow involved or if there's a lot of trust, sometimes you skip escrow. I usually recommend doing escrow unless you're like, you know, working with like your best friend or family member. And then assets are transferred over, introductions are made to suppliers or employees or all those other pieces, and then escrow is released and you're off and you own the business. But that loi portion kicks off the entire due diligence phase. And so I get hit up a lot. Brian said, hey, if you have questions, I should ask from a due diligence perspective. And there's set questions, but then there's not said questions of just being in the industry and knowing what questions to ask or not ask and which ones are applicable. Obviously the big ones are, does anybody in your family work for the business? Do you? Any of your suppliers, family, you have any customer concentration or supplier concentration within the business? Those types of things obviously are going to be across all businesses.
- [32:32]
A
Yeah, it's hard to, it's hard to sell that benefit. Right. Because people don't know what they don't know, especially if they haven't made it that far in the acquisition process. But like, that's really where your network comes into play because you just don't know what you don't know. And that's in real estate and in business. And diligence is when you need that mentor that's like in the corner with you, that's been buying businesses for 10 years and they're like, Hey, I bought six of these. Like this right here, this is going to jack you up. Customer concentration is off. Like, you missed this. This is something to be concerned about. You need to check on this. I don't like how this is worded. This is going to get you. And that's where that really comes in. So that's why it's still crazy to me that people try to do this alone. I'm like, okay, you can, but it's a nightmare.
- [33:22]
B
It's a nightmare because you don't know what you don't know. Right. And so I am not an expert in everything. Right. But I know enough about Google Analytics to be dangerous or sound really smart to my mom. Right. I know that's important. That's important enough to be dangerous, not to be dangerous. But I wouldn't trust myself in getting into a meta ads account and being like, oh wow, they're doing a really good job here. Here. I'm going to bring in an expert for that. Like a quick example is last week a close friend of mine, a good trail running friend of mine, he sends me a note and says yo dude, I love this business. Can you take a quick look at it? Right? So I'm like, yeah, sure, whatever. So I jump in and I turn on loop. I just want to record my screen when I do this and I'm real fresh. I'm not looking at anything. I've never seen this business before. And I'm getting the sim and I'm like the sim is just the entire business summary. I'm getting the PNLs and I'm getting a couple of questions about the business. First thing I do is I just start recording my screen and talking out loud what I'm looking through, right? It becomes very apparent quickly that 50% of this guy's revenue is one client.
- [34:24]
A
Yep, there it is.
- [34:25]
B
Next, next thing, the next client down 20% of his revenue is client number two. So let's start doing the math. 70% of this guy, this business's income is two businesses. So what happens if those two businesses go? He had 20 businesses, but two of them accounted for 70%. Really, this is almost not a sellable business there. There's so much risk. If that one person leaves, there's no business left. Right. Because fiscal fixed costs are too high to account for that. And you don't know if that one person is a sister in law, a brother in law, brother, a friend, his best friend. You just don't know they're going to go somewhere else. So that was one red flag. The next thing is I'm looking at the margin, Brian and I'm like dude, this is crazy. How are his margins so good? Well, it turns out it didn't take very long but he had a hundred thousand dollar grant from the state he was in. Right. And a grant is not a repeatable form of business. A grant is a one time thing that you can get from the state.
- [35:22]
A
And it counted it in his somewhere. It counted in his gross income.
- [35:26]
B
He counted it as income. Well, that's pure profit. It's basically I'm going to give you 100 grand to start the business, Brian. But that doesn't mean you could count that 100 grand as like pure profit. Right, The COVID loan. So yeah, that's exactly right. People were counting Covid loans as revenue and you're like, no, this is not revenue. And so very quickly we identified two things that I sent over to my friend in a five minute loan. And he instantly moved on from the business because the business was worthless. You know, and you think about a maybe a 3x or a 4x multiple on 100 grand, he wanted $400,000 more just because he received some money from the government that was not repeatable revenue. So those two things, that's from a professional standpoint. I've looked at hundreds and hundreds of businesses and you have two, Brian. And so it only took you two minutes to figure out, hey, customer concentration. And two, all of his profit. Well, half of it. He was doing $200,000 a year in profit. But I could not figure out how his margins were so good until I just found the one line item. And I'm like, oh, it's because a hundred of the $200,000 is free money, dude.
- [36:28]
A
We had another one that was exactly like that. So we had somebody that came in and they were under contract on this business and we were looking at this business and they were pitching it because we, we do like live capital pitches too, to where, like, you're practicing what your pit. You do like, what you're practicing what your pitch is going to be, right? So you're like. Because people don't understand how to like position and package what they're trying to do. And so we changed the numbers and stuff. So people were, by doing this practice run with us and there was like 10 of us on the call and they're like, we're like, okay, practice it. Like, go like, act like we are your capital people. And they're like, this is the business that we're buying. And I'm looking at it and immediately stop. I'm like, hold on, hold on, hold on. It's like, why is revenue declining over the last three years? Like, why is gross revenue declining? And they say the magic words that, like, immediately you're like, this isn't a business, this is the job. Like, oh, the owner is taking his foot off the gas. All right.
- [37:20]
B
Yeah.
- [37:20]
A
Oh, owner's taking his foot off. He doesn't want to work as much. Of course he doesn't. He wants to sell the business. So. So revenue's obviously going down because the owner. But that means the owner is directly responsible for the revenue. That's not a business, dog. You're buying a job. And they're like, oh, got it. So, dude, it's just like nuance. Like, I could look at that in Five minutes and be like, cancel this. This is like, this is crap. Don't do this. Here's something that I see all the time now. I want to put a preface here. How I buy businesses and maybe how you buy businesses, Ryan, is not how most people buy businesses because I buy them as passive partners a lot of the time now. So I will be the capital in the deal. I'll normally fund the 10% of the SBA and I'm a passive partner in the deal so I can keep my main thing. My main thing. But what I see is I see a lot of people that are trying to buy their first business and, and they're already talking about how can I establish my Holdco because I want to buy five businesses. I'm like, brother, just buy one really good business and you're going to love life. Can you give some perspective on this? Because you've ran a lot of different businesses.
- [38:27]
B
Yeah, it's. Running multiple businesses at once, unless your name is Elon Musk, is a sure way to not be very good at any of your businesses, in my opinion. I think cold codes are really popular on Twitter online. I think it's incredibly difficult to do and I think you need to have a track record of massive success. Even think you're in the 1% who can pull that off. So I do not recommend people focusing on a Holdco because most people are not going to pull it off. Just get one really good business and go all in on it. Obviously, you know, you get one really good business and you grow it and then you do what everybody says and you just hire a manager and then they run the business for you. Right. I don't think anybody can achieve that in less than five years. Right. So if you're five years in, your business is cranking and it doesn't need you, okay, then you can start talking about a hold go. But I just don't. It's a, it's a buzzword that people love and I, I see it incredibly difficult to do and almost nobody ever pulls it off. And if you're not giving. Businesses are the worst form of passive income you can do. Right. If you're buying a hundred percent of a business, you are it right now what you said is you're taking a small investor role or passive role within it. That's very different. If I'm looking for an annuity or something passive, I'm going to go buy some treasury bills and I'm going to sit on. Right. This is the exact opposite. And so I would Expect every buyer, if they're going to go in and operate that business, it's going to be a lot of work and a lot of elbow grease and you're going to put in more hours than the current sellers putting in now because you don't know anything about that business. So that's the way I would approach it. And if it was as easy as, well, why don't you just hire a CEO and run it? Well, they would have already done it. Hiring a CEO that you trust and you're putting your baby in their hands is very hard to do. And it's very easy to talk about it than if someone actually has done that thousand percent.
- [40:16]
A
And I think it's really funny because now business does have, like, there's different levels of business and you can get to the point where you are, like, more passive because passivity is a spectrum. So, like, an example of that is we are now in the stage of Action Academy where year one, I was completely in the business and I was doing. I think that's probably when you and I first recorded was maybe about a year ago. And I believe that I was just like, I was doing sales, I was doing marketing, I was doing fulfillment. I was building the ship. And now that we're at a few million, you know, now we have a core team of six. We have an extended team of 12 now it's like, sales is off my plate, marketing's off my plate, Fulfillment's off my plate. And now it's like I'm able to be the more strategic role in the business to where I can actually go disappear for 30 days. And I think that's a cool test. Like Ryan Dice, who I was talking to you about before, he was like, go disappear for two weeks or 30 days and see what breaks in your business. And that's your constraint that you should focus on. So passivity is on the other side of profits, processes, and people. So that's what we're working on right now is the process side. It's been. Been quite difficult for us. Any advice on the process side? Because you ran ADP for your candy factory.
- [41:26]
B
Yeah. And it was awful, man.
- [41:27]
A
Never recognized the worst.
- [41:29]
B
No, I just. It wasn't a good. It wasn't a good fit for me. Right. I think part of it is trying to understand where your lifestyle aligns with what types of business models you are. Brian, the best business model out there is whichever one you're not doing, because the grass is on the other side. So the. I think people will see you and Be like, well, Brian could just take off for a month. They didn't see, see the 80 hour work weeks and the stress that you have at the beginning to get to that process. And you can't hire your first employee until you're absolutely swamped and about to drown. And then you hire that first one and then you have to even more work to bring them up to speed. So I think sometimes people see where you're at now, but not where you were five years ago, and they think they can just jump, skip and hop there. Right? And it doesn't work like that.
- [42:11]
A
So hire the operator. Just hire the operator?
- [42:15]
B
Yeah, just hire an operator like dad. Have I ever done that before? I can always tell when someone hasn't because that's the first thing they say. Because I'm like, yeah, you've never done it before. That's actually hard to do. And if you've got a business that's really successful, you're not going to want to just hand that over to any one person, right? And then you have to make sure the incentives are aligned and timing's got to line up. There's a lot of moving pieces to that. Obviously people can do it and you can do it and we've done it. But it's not something like you, you almost get it wrong more often than you get it right. So the fact that you're getting it wrong a couple times before you found the right person, that might take six months, two years of just that back and forth until you find that right person. So yeah, and dude, at the end of the day, Brian, you're gonna be like, oh, you could run 80 employees and have 80 people on your team. I, I've seen businesses that make 250 grand a month with two part time employees. And I'm like, oh, that's the business I like. Because you might think, well, like in, in the historical sense, how many people you managed or how big your top line revenue were, like the most important categories.
- [43:17]
A
Vanity metric.
- [43:18]
B
There's been a shift where, what does your lifestyle look like? Do you have full control over your Tuesday morning? That you could just go trail running or mountain bike or be like, yeah, dude, let's just go to brunch for two hours. Like that is I think the new shift of wealth that we're starting to see. And that is not something that can be comprehended from the previous generation. Just like the next generation will look at us and be like, well, my metrics for success are different than yours and that's okay. As Long as you're establishing that.
- [43:45]
A
Yeah. And I mean, that's what I aspire for. Right. And it's like, really important to keep your main thing. Your main thing. And so, like, all the partnerships that I do, I think that we selfishly have the best business model in. In the history of the freaking known universe. But that's my ego speaking. But I mean, I think community is wonderful. And you guys, like, Walker's got one too, where it's just like, dude, you have such a pool of talent and such a pool of operators that for me, what I do is I just wait for the cream to rise to the top and then they go full cycle and they're like, hey, I'm buying this business whether you're in this or not. This is why I'm going to operate. And I'm like, okay, cool. Now I get to come be a growth partner to that. And so it's a fun ride. But, man, in closing, where can people find out more about you and give a little quick pitch about what type of businesses you specialize in and the online niche and maybe why somebody should pay attention to online as opposed to brick and mortar?
- [44:38]
B
Yes. So you find me@letsbuybusiness.com and podcast let's Buy Business YouTube channel, too. Let's Buy Business or whitelike.com as a brokerage or ryanconnie.com any of those. I mainly work with online businesses now because I realized I liked where I lived and I didn't want to move to anywhere. I don't live right next to the mountains in Salt Lake City and it's like, yeah, it's world class skiing trails all right here with 20 minutes of an airport. And that's why I shifted to online businesses years ago. I have experience with brick and mortar type businesses too, or I call them your Main street businesses. I don't think there's a right path. It just is understanding which path you want to go down and then making sure you're taking the steps backwards into that. And so there are some great, wonderful brick and mortar Main street businesses, but if that's the path you want to go down, make sure you go down that path. But yeah, right now I mainly work with Internet businesses in terms of brokering, but I have consulted on dozens and dozens of deals on Main street, to online, to SaaS, to everything in between. So it's fun. I could talk about it all day long. I'll talk to your. I know.
- [45:38]
A
Yeah, dude. Yeah, me and you need to hang out, like, because whenever we do this. I'm like, dude, me and you can make a podcast for like four and a half hours. And guys, go check out his podcast as well. I was a guest on his. And you've. This is your second time on this one, so, man, freaking appreciate it. This was absolutely perfect for everybody. That's brand new. Guys, if you enjoyed this, give us a five star rating on our view. Check out Ryan. All of his information is going to be in the show description. And shoot him an email, shoot him a message, but only if you're serious. Only if you're serious. Otherwise I'll come in, I'll hit you with the freaking wet salami. So don't do that. Hey, guys, this has been Brian Orion with the Action Academy podcast. Signing off.