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Action Academy | Millionaire Mentorship For Your Life & Business
From $0 to Your First Small Business Acquisition — The Ultimate Roadmap
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What's up guys? You don't need an mba, you don't need a rich uncle, you don't even need a business idea. What you do need is a roadmap. And today I'm handing you the playbook I wish I had when I was in that corporate job trying to figure out how to go from employee to entrepreneur. From working my ass off to buy my executives new Ferraris, to working my ass off to have my life, my vision, my family. Provided for today's episode is the step by step roadmap to go from being a six figure employee to a seven to eight figure business owner this year. And for context, for anybody that's brand new listening to Action Academy podcast for the first time perhaps today, I have helped hundreds of people leave corporate jobs using this exact path that I'm about to walk you through today. And also by the end of this month that I'm recording this, I will be the owner of five to six cash flowing small businesses that do between five to six million dollars a year top line. By the end of this year we will probably be doing a million dollars a month top line revenue from our acquisitions in our core businesses. Today's episode will be broken down into six sections in sequential order. Part 1 the acquisition mindset. Part 2 the acquisition criteria. Part 3 Acquisition funding. Part 4 Acquisition deal finding. Part 5 Acquisition diligence. Part 6, your first 90 days as a business owner post acquisition. Now guys, keep in mind this is going to be a 20 minute podcast episode. This is decades worth of private equity and acquisition knowledge in today's show and I'm going to give you enough to be dangerous and to go out today in the real world and apply this. So if you get value from this, it is your obligation, please and thank you to share this with three to five other people that are going through the same exact problems and they can listen to this episode and finally have a roadmap to follow. And then please of course like subscribe the show and give us a five star rating and review. Let's get to part one, the acquisition mindset. The first roadblock that you need to overcome in acquisition is who am I to be a business owner? Right? You're going to have this story in your head that prevents you from even attempting to seriously purchase a small business because you cannot fathom the idea of being a CEO yourself. And even worse, for those that do end up pursuing acquisition, what you will do is you will buy a tiny super shitty business that is way too small. That is a freaking job because you feel comfortable with it. Because you don't feel qualified enough to buy something in the multimillion dollar range. Now again, I want to remind everybody, for my new listeners, this is the worst thing that you could possibly do. Because buying a smaller business is not like buying a smaller deal size in real estate that you can fix and flip and make into this pretty packaged thing. You cannot do that in business. You are not God's gift to entrepreneurship. You need to overcome this thought in this belief. Today, it takes the same work, skillsets, time and attention to buy a $3 million business as it does to buy a 300,000 doll. So what we want to focus on is immediately getting into that seven figure mindset. If it's not in the one to $3 million range, we are not buying it, okay? Because it's just as much work and just as much effort to buy a good business and make it great as it is to buy a crappy business and make it good. Does that make sense? Because buying a business will yield you ten to a hundred times the cash flow of buying real estate. Which also means that there are ten times more ways that this could go wrong and there's more risk associated. So buying a bigger business and buying a better packaged business is actually going to be a less risky strategy for you to get started because you will mess up. The only guarantee that I will tell you in life is you will fail. So the goal is to have a business that's good enough that it can survive amidst your failures. And if you still are listening to this and you do not believe that you are capable of buying a small business, what I want you to do is take out a piece of paper or go on your phone, open the Notes app, and I want you to write down everything that you've accomplished in your corporate career up until this point. I want you to write down all your skill sets, all of your accolades, all of the major projects that you've accomplished, and I guarantee you that you'll look at that and say, huh, I'm pretty stinking good. Because if you're listening to this podcast, you're most likely like I was when I was in my six figure job, which was, I can do this better than the people that are managing me and writing my paycheck. If you sincerely do not think that, then you need to pause this episode today and then go work on your skill sets. But for most of you listening, you will write down this list and say, damn, I'm better than I thought I was. Let me give Myself some credit and freaking believe in me. Because if you're not going to believe in yourself, who is that guy that's golfing at your local country club? The super private and exclusive one that does $20 million a year from his tree trimming company or something? That. That guy's not smarter than you. He's just dumb enough to believe in himself. So adopt that mindset now. Part 2. Acquisition criteria. We break down our business buy boxes into two distinct sections, qualitative and quantitative. Qualitative means feelings based. Quantitative means numbers based. The two questions that I'm trying to answer from a qualitative buy box when I'm looking at a business to purchase is number one, will the purchase of this asset support the lifestyle that I desire? Question number two, is this acquisition aligned with my current skill sets where I could walk in day one and be able to add value before learning any new skills? Let me give you an example for each of these. For number one, I had a gentleman that I was speaking with in our action academy community and he said, I just quit my job. I'm ready to rock. I want to buy a business. And I said, okay, why? What's the end result? What do you want to do? He goes, okay, well me and my family want to travel a lot. I said, okay, wonderful. So the businesses that you're sending me right now require you to be in office, in person, on site, and you are the person in the deal today that is going to be that person. So therefore you cannot buy these businesses and or you cannot be the role that is required to be on site. Which means you need to either find different businesses or bring in a partner that's going to fulfill fill that role. You see what I'm saying? Because had he been successful with that acquisition, he would have been tied on site at that place, which means that he's traveling even less than when he was working a job with two weeks of pto. Does that make sense? So number one, does this business support my lifestyle goals? Number two, is this business complimentary to my current skill sets? What does this look like? For example? Paraemplo para misoientes. Yeah, I just dropped Spanish on yalls heads. What are you going to do about it? So I am really good at marketing and sales. I can do operations, I can do systems, I can do management. But it's not my strengths, it's not my strong suits. So for my buy box, I'm looking for a business that operationally is already freaking sound. They have great management, they have great systems. They have great procedures and their areas for improvement are going to be sales and marketing. Now, comma, this does not mean that they are failing in sales and marketing. It means that they are succeeding in spite of themselves. That means that, for example, I bought this service business in Kansas City and it does about a million dollars a top line through word of mout alone. No advertising, no sales team, no marketing, word of mouth. And so now my operator over there, that's an Action Academy member that will be on this podcast very soon is hiring a sales team. He's going to be full time going and helping with marketing. So like, that is something that is uniquely catered to our strengths. Does that make sense? It's how you do the value add. Because on the flip side, imagine this. You're really strong in operations, systems, processes, but you're like, dude, I do not want to talk to a single customer. I don't want to talk to anybody honestly. But your company that you're buying has a sales and marketing problem. You are now going to have to go out of your comfort zone doing two new things at the same time, which is new thing number one, buying the business. New thing number two, having to go against your nature and all of your skill sets that have been previously developed to now learn sales and marketing. Does that make sense? So if you're great today in sales and marketing, you want to buy a business that is already operationally very sound, that is struggling in sales and marketing. If you are very good with systems process management, what you want to do is buy a business that is already very strong in sales and marketing and lacking in backend systems and operations. And that concludes our qualitative buy box. Answer those two questions now to quantitative buy box. What we're looking for are service based, boring, cash flowing businesses that are not going to easily be replaced by AI. We want to look for ones that can be enhanced by AI but not replaced. For me personally, I like businesses that I can describe on the back of a napkin. It's a stupid, simple business model where anybody can come in and run this thing. I kind of try to steer clear of anything that requires a specialty license because if you are trying to go buy a plumbing company or an H Vac company and you don't have experience in that field, the guys and girls that work for you aren't going to respect you because they have 10 years more experience than you. So you need to either have somebody on your partnership team that is experienced in that or. Or you need to go buy a business that doesn't require the specialty trades license. That is just what I've seen to be true. I want the revenue mark between 1 to $3 million top line. I want the profit mark SDE seller discretionary earnings between 300 to $600,000 per year. That gives you enough margin to be able to go into this and have enough margin for you, a potential capital partner, a potential operating partner or new hires. So you can still be making six figures take home from this deal, but also have enough margin for error. Because I almost can guarantee you as a mathematical certainty that the seller is completely underselling the amount of time, energy and effort that they are putting into the business. For example, I do a lot of marketing for Action Academy on our P and L. It would technically show $0 in marketing spend, but you would say, oh, okay, cool, they did no marketing. It's completely organic. But you're not factoring my time. So if you're putting a full time salary on me or a comparable position in the marketplace, that may be $200,000 a year. So a lot of owners are not disclosing this. Another thing that we're looking for quantitatively is something that is located near you within preferably an hour to 90 minute drive. For your first business, especially, you either need to be on site or you need somebody on your team that is on site on this deal. Especially the first 90 days. Especially the first 90 days. But I would not buy a remote company as my first company, period. Like, you need to be in the trenches with your people, gaining their trust. Once you become an experienced operator, maybe you can go on site for 90 days and then leave. But for your first business, do not do this. Another thing I'm looking for is growing profit and revenue. Because if a business is not growing, it's dying. Even if it's stable, that's kind of a bad sign. If you find a business that is declining over the last couple of years and the owner, the seller, the broker says these words do not buy the business. Okay, pay attention to this part right here. If they say, oh yeah, the revenue's declining, the profit's declining because the owner's taking his foot off the gas and kind of, you know, packaging this thing up for sale. All right, at face value, you may say, oh yeah, that makes sense. But that means that you're buying a freaking job. The business is completely dependent on the work of the owner. That is like the biggest smoking gun red flag that you can avoid. The business should be operating if it is well packaged without the owner Participating at all. Another thing that I'm looking for in a business is going to be a good tenure for employees. You don't want a bunch of brand new employees. You want some decent tenure. You want a company that has been going for the last, you know, five to seven years, preferably three years of minimum. If a company can't provide you three years of financial statements, I'm not buying it. We also want to make sure of who is running the company. Is it an operations manager? Is it the owner themselves? Is it someone else on the team? Because that is critically important. You need to figure out the sole singular person that is running the freaking company. If it is, the owner may not be the best business to buy last. Couple of rules of thumb. I'm looking for something with decently high margin, you know, 20, 30% profit margins. You don't. I wouldn't go buy a manufacturing business with 10% margins if it's my first business, because that is such a small margin of error opportunity where you can lose a few key contracts and be completely under, which goes to the last part, which is customer concentration. You do not want to buy a company or a small business that is concentrated across a few big customers. That may seem easy and better to you at face value, but is absolutely terrible. And as soon as the new customers get wind that there's a change in ownership, they're going to renegotiate their contracts because they're in a position of power now and they're going to make you scramble and freaking squeal. They're going to take you out to the woodshed. So you want to make sure that if you do have a bunch of big customers that the business is currently servicing, these are sharks and minnows. So sharks are the large customers. You want to make sure that there's an appropriate amount of minnows to offset the sharks. For example, if you have a customer that's doing $100,000 a year, you make sure that you have 10 minnows that are also doing $10,000 a year with you each. Does that make sense? So it's balanced out. It's a diversified customer base. Any business that is servicing only a few handful of customers is a giant smoking red flag. This knowledge alone should be enough to put you ahead of 90% of people that are organically looking for small businesses themselves without any knowledge, any expertise. Just the stuff that I talked about here in the last five minutes will remove probably 60 to 70% of your risk profile. Just this stuff for free, which leads us to section three, the acquisition funding game. I'm going to talk about four different ways that you can fund a small business and action steps that you guys can take today in your job to pull this off. The first way that we are buying small businesses is through what's called the SBA program. It is essentially a mortgage. Mortgage on the business. Think about Fannie, Freddie, FHA, you know, 5, 10, 20% down. You're buying a piece of real estate, paying it off over 30 years. Same thing with the business 10% down. The bank will finance 90% of it. We have done this for half the businesses and a lot of the businesses. This is just like the default path. I would plan for this. This process takes significantly longer than option two that we're going to talk about here, which is seller financing. But the pros are the bank is going to underwrite you and underwrite the business like freaking crazy. So if you have a business that's passing SBA underwriting in the SBA process, it's probably a pretty dang good packaged business because the SBA is going to rip it apart. Like we have had to do so many nook and cranny financial documents to satisfy SBA for two of the loans that we've done. For context, SBA can take 90 days or greater to pull this off. So now what's the SBA going to require? Your SBA lender is going to require tax documents, income statements, pay stubs, business financials, and a business plan for how you're going to improve the company. You can also get pre approved through the SBA before even looking for a business. Now I will create a resource where we can send you guys like kind of a mock email to send, but right now that's too much for the podcast TLDR Million Dollar Business expect to bring a hundred thousand dollars down. So if you're listening to this today and you have a hundred thousand dollars ready to throw down towards a business, like you could buy a business that is really decent today. You just need to learn how to do the things like talk to U.S. action Academy. This is what we do in our mastermind. But if you don't have a hundred thousand dollars, here goes option number two, which is seller financing. Now most business deals are going to have some aspect of seller financing attached to them. Or why is this either? Number one, it's something that's directly off market. You have a direct relationship and conversation with the seller. You guys want to quick close. You're going to do the acquisition on your price Your terms, your rate, all this stuff, and you don't want the banks involved. Option number two, you have someone that has a good business, you're going through the SBA process, but you need them to kind of let off the gas a little bit to have you qualify properly for the sba. So in real estate you would ask more so for concessions, and in business buying, you would ask for some seller carry some seller finance. It's always good to try to negotiate at least 10%, 15%, 20% seller finance even into an SBA deal. Because what the SBA banks and lenders are looking for is what's called a dscr, a debt service coverage ratio. This may be the single most important factor of your business acquisition, especially from the funding perspective. This is essentially saying how much is the debt payment that you are paying in context to the monthly profit coming in from the business. So, for example, what we're looking for here is at minimum about a 1.6 to 1.7 DSCR. And a really good deal, a really decent deal that you're looking at is going to be a 2.0 or greater DSCR, which means that the monthly profit coming in from the business is going to be double or better the debt service payment that you are paying to the bank or paying to the previous seller. And last note, on seller financing, you also want to have the owner having some skin in the game. So each owner is going to say, oh yeah, for sure. Brian for sure. Kevin for sure. Josh for sure. Ashley, I'll stay on and help you guys, you know, transition the business. Bull crap. Always think that they are full of it. They're lying, they're going to help you a little bit and then fall off the face of the earth. They're not going to answer emails, texts or phone calls, okay? So go ahead with assumption that they're going to ignore you. And if they don't, happy accident, right? So seller financing, even 10%, you are directly paying the owner, the seller, the payments. So it's in their best interest to have the business continuing to survive and thrive without them post acquisition, which makes them more likely to help you. The coolest thing about deal structuring, especially creative deal structuring, is aligning your interests with each other. Because if a seller has zero skin in the game now, they're going to disappear. Another big question that people ask in my DMs and in our community action academy all the time is why would a seller sell a profitable business, let alone seller finance a profitable business? Here's why. Eight to nine times out of 10, the seller is going to be in their 60s, going into their 70s. They just want to retire. They've been running this business for probably 5, 10, 15 years plus. And their kids want to do TikTok dances. Like they don't want to run the local tree trimming company, the service company, the freaking asphalt or concrete company. They just don't want to run the freaking thing. So they have no one in their family that's going to run it. So most of the time what they do is they just shut it down. That's why this is such a major economic opportunity. Because we have to remember we're trying to view these sellers like in the beginning of your business buying journey, you're viewing these sellers as some sophisticated white collar person that has this private equity background and they understand DSCR and debt and multiples and profit and all of this. They don't. If this is your first time buying a business, you have to remember this is their first time, most likely 99% of the time, selling a business. They've never done this before. And it's as scary a process for them as it is for you. So don't go into this with all this legal mumbo jumbo and all these fancy schmancy terms. Like the point of seller financing is to just meet them eye to eye as a freaking business owner. And you're saying, hey dude, or hey, ma', am, you've been doing this and you want the thing to continue going. You want your customer serve, and most importantly, you want your employees taken care of. And it's just really looking them in the eye and giving them a handshake that you are going to make sure that their legacy, that their company, that their baby survives and that their employees are taken care of and provided for. And from a money perspective, if they go through the sba, the bank is going to pay them in one lump sum. So if you're buying the business for a million dollars, the bank is going to wire them $1 million at close, all right? And this will represent probably a 37% tax on them at minimum, 25 to 30%. And you need to talk to the seller about this and be like, hey, like you're going to lose. This million dollars is going to go down to fricking 700,000 real freaking quick. Or what you can do is sell or finance it through me and I can pay you monthly payments completely passively. So that's why off market business is so cool. It's higher risk because the SBA is not involved and you don't have that extra layer and set of underwriting. But if you want to take the risk and you can talk directly to the seller, you can say, hey Jim, you want to retire down to the Florida Keys with your wife? You're making freaking $20,000 a month of profit from this business. Like, let me figure out a way that I can just pay you that $20,000 a month. You don't got to do jack crap at the business. I'm going to freaking run it, I'm going to grow it. And you can participate and experience a little bit of that upside, you know, if you're helping me, but this will help you pull off your lifestyle goals. That is why the most important thing in a seller conversation is figuring out why they are selling the business and what is next. Because you want to again, align interests. You want to align interests. The last thing I'll say about seller financing is it's your price my terms, or it's my price, your terms. So the three levers that you can pull in seller finance negotiation to creative financing is going to be the price of the business that you're buying it at the duration that the payment's going to be and how it's set up, and lastly the interest rate on the payments. So if they're hell bent on a 15 year note with a certain interest rate, then you can say, okay, I can get you that at this price and you lower the price. Or, or if they're hell bent on a price, you give them that price or higher, but you give them the creative terms. You control the terms, don't ever let them have all three. All right, so that's almost everything you need to know about seller financing. But yes, you can buy a business $0 down, 0% down through seller financing. Last thing on that is if a business is listed for sale on a brokerage site like Biz by Sell or it's listed by business broker, do not lead this with hey, can they do seller finance? Because the broker's gonna immediately say, oh, this is someone that's brand new, we're not gonna do this. Seller finance is normally something that we're gonna negotiate in diligence. If it's something that's listed by a broker formally, if it's off market, you can come into it with some seller finance conversations. Boom. Seller finance concluded. Sorry guys, I'm just making this the step by step thing for all of you guys. So it's gonna be longer than the next thing you can do is investor partnerships. This is how most businesses are most likely bought. I would not buy a business myself. I love investors, I love partnerships. It just makes it more fun because if you're doing it by yourself, there's risk. But if you're doing it with partners, then at least it's a shared risk, which mitigates the downside a little bit. So partnerships are you bring the deal, they bring the cash, or you bring an operational skill set and they bring a complimentary skill set. So let's start with the latter first. My name's Brian. I'm great at sales and marketing. I'm a people person. I'm going to be customer facing. I am not going to partner with somebody else that is like me, that's also super talkative, outgoing, extroverted, people person, sales and marketing. I'm going to partner with people that love spreadsheets, that love systems, that love the backend. That's called a complimentary partnership. If two of you guys are doing the same thing, one of you is not needed, guaranteed. So always partner with your opposite. Most of our action academy partnerships are like this where we have two people that link up and they say, hey, you know, I really want to do this, here's my buy box. And somebody's going to agree in the operating agreement to be the person that is going to be like the day to day boots on the ground. And the other person is going to be remote helping in some sort of way. Which leads us to the capital partnerships. I'm a capital partner on a lot of deals. Here's a very simple and structured way to do a capital partnership for buying a small business. Now it's not the only way, it's just the way that I preferably do. You can do debt, which is a promissory note where you're going to essentially do like real estate, you're going to pay them a preferred return which is going to be like 10, 12% over a period of years. Or you can do equity, which is they are an equity owner in the business. I do a combination of both. If I'm buying a business as a capital partner, that means I'm probably coming in, I'm funding the 10% SBA down payment, which means that the other person doesn't have to technically put any money in the game, they don't have to put any skin in the game. And I am probably in exchange for that 10% down of that business taking 15% equity, 15% profit share. Is this the only way to do this? No. But here's why I do this. There's this thing called risk adjusted return. Rar. And businesses, no matter how well packaged, are significantly more risky than real estate investment. So if I'm going to invest in like a storage facility or something for five years and I'm going to get a preferred return of like 8 to 10%, and I'm going to get like a 1.6 to 2x equity multiplier over five years, that is a safer investment, a less sexy investment than buying a business. But I need to be compensated for my risk in the business. So I want there to be some arbitrage there in some buffer, some safety zone to where I can make sure that I'm getting a decent enough return for the risk that I'm putting up of potentially losing my capital, right? So that is one way that I structure a deal. And it can just be an easy rule of thumb for you to say, okay, cool, I have 20 or 30 thousand dollars in my bank account. I'm going to invest a portion of that into my education to learn how to do this thing and to build these networks of capital partners. And I'm going to save the rest as an emergency fund, right? Then you're going to go get a capital partner like me to come in and put like the hundred thousand dollars down, the $200,000 down to buy the business. You can just easily, as a rule of thumb, baseline rule of thumb, say I'm going to give them, you know, 12 to 15% equity and profit share of the deal. I'm going to maintain 85 to 87, 8% of the deal. And I get it, no money down. That is how capital partnerships work. More common than even this, I would say. People are probably throwing in a little bit of skin in the game for each person. So we have a lot of deals too where you'll have folks with maybe like 70, $80,000 and they'll go 50, 50. So you have two people in the group that are saying, okay, cool, we want to do this. A hundred thousand dollar down payment, I'm throwing in 50k, you're throwing in 50k, let's do this freaking thing. That's also common. What's really important here is what's called the operating agreement. The operating agreement is the most important document you have in your life. The operating agreement is not an agreement of, here's what happens when everything is going right and all the money we're going to make together. The operating agreement is you guys getting on the phone with a lawyer that you Guys hire and you are going through almost like a prenup, like you are going through a crappy conversation together and saying all the different ways that this could go wrong. What happens if Susie decides to screw me and she just stops working, disappears and she moves to frickin Bahamas? It doesn't answer my call. She's a 50% equity partner in my business. How do I buy her out? At what price, at what terms do I get this business back? You know what, what penalty is there for Susie screwing off into the Bahamas? Like this is something that's so important. If you guys have a disagreement, who takes precedent in the decision making, in the ownership control? If you guys are getting sued, how does that look like? If you guys are doing a new acquisition or making business changes, who makes the decisions? The operating agreement is all of this. Now you don't need to know this from scratch, but this is why mentors and like masterminds, like this is why it's important is this stuff and having a good lawyer, which you can also get through recommendations, through your network. This is why I kind of laugh when everyone's like, ha ha ha, I want to buy a business on my own. I'm like, my brother is sister in Christ. Are you kidding me? You're doing this on your own with no network, no nothing. Got it? So this is part three, Funding. You don't need your own money. You need the knowledge and courage to structure the freaking deal correctly. This is the meat and potatoes. Right here is funding. Now we're getting into part four, the acquisition, deal finding Flywheel, AKA Brian. Where the hell do I find these deals? Now again, sequential order. What did we just cover? We just covered, number one, the mindset shift to buy a bigger business. Right? Part two, the criteria of what does a bigger business actually mean? Part number three, how do you fund these businesses? Because when you have all of that information aligned and you have all that information clear, you have your buy box clear, you have your funding clear, you have your game plans clear, you have your buyer profile and your buy box clear, the deal finding process will be significantly smoother, significantly easier. It takes effort up front. Up front, guys, you have to slow down before you speed up. Because if you are looking for years and you're just analyzing hundreds and thousands of businesses, but you don't know what you're looking for, there's no way that you're going to get it. Same thing with dating. Like if you don't know who you're looking for, you can go on a thousand first dates and it's pointless for deal finding. We are going to do four different paths again. Number one is going to be the easiest which is bizbysell. Com that is B I Z B U Y S E L l dot com Think of this like Zillow for businesses. Just like there are real estate deals to be found on Zillow, there are also business deals to be found on Biz by Sell. We have had dozens of people successfully close on businesses from Biz by Sell. You just got to sift through a lot of businesses to find the gems. This is probably the easiest and best path for you to just get used to looking at businesses, looking at how they're packaged, looking at how they're financ are set up, and having preliminary conversations with brokers. Good rule of thumb when you're getting started, analyze a deal a day. A deal a day. Now I will say this. It may be better for you to go into chat GPT literally and say hey, I'm looking for a business from all the criteria that I just listed in this podcast episode. Or you can just take all the information from this podcast episode, downloading as download it as a transcript uploaded to ChatGPT and say help me practice underwriting businesses and speaking to brokers through the information from this podcast episode and it will help you. It will act like a broker and be going back and forth with you so you can get really dialed in your conversations. Because what you don't want to do is go on Biz by Sell and burn all of your best brokers that are in your market through sending crappy emails and being a very unsophisticated buyer or at least appearing to be an unsophisticated buyer. So good rule of thumb is when you're reaching out to brokers to request information just to get practice A. What you're doing is chatgpt. B if you are actually reaching out to actual brokers, do it outside of your market in a completely different market that wouldn't burn your local market. Which leads us to of course path number two, which is local brokers. You are going to have in your market probably two to five brokers that are like the top guys and girls. You want to be their best friend. There are full episodes I've done for an hour with business brokers that I'll link in the show notes for this episode that you can go listen to where it's me literally having a conversation with a broker about how to do it, how not to do it and he tells you Step by step. Here's how you approach me. For me to actually respond to you and send you deals. Because a lot of the best businesses are sent to you from brokers as what's called pocket listings. Pocket listing is going to be a broker that has a deal that comes across their desk. They underwrite it, they look at it, they package it, and before they list it on Biz, Buy, Sell and all the main websites, they're going to send it to their list of qualified and sophisticated buyers that they think can take it before they list it. This is like the holy grail. This is the sweet spot right here. So you want to find your local brokers, you want to be super specific in your outreach with them, and you want to follow up like crazy. Every single week. You're texting them, you're calling them, you're emailing them, and you're letting them know that you're serious. Because there's so many people that are freaking tire kickers. And you have to prove that you are not a tire kicker. So a way to do this is to go to your broker and say, I want to buy this type of business in this range by this time period, put a time period to it, and then you list all of the resources that you have that will actually allow you to close the deal. You say, I have SBA preapproval. I have these capital partners. Me and my partners are doing X, Y and Z. I want to close by October on a business between 1 to 3 million dollars. That is a good place to start. Another path you can do is direct to sellers. So this is going to be Facebook, ironically, is massive. I would hire Vas or I would just go myself and spend an hour a day just coming at these for sale by owner Facebook pages. Like, there are so many owners that go on Facebook because they just don't know any better. And they're posting their own deals and they're saying, hey, I've got this deal. This I want to retire. Like, who wants it? And there's thousands of these and so many of these groups. I would go and look at that. We've done businesses from Facebook pages, literally. And you can also do this locally. You can go just door knock and cold call and send mailers to direct business owners. Like, I would probably just try to show up, literally and just talk to them. When I was trying to buy laundromats, I would show up to all the local laundromats in my Atlanta zip codes and I would just pop in and see who the owner was or talk to the attendant and say, hey, I'm looking at buying one of these. Like, like can we talk about it? And then just ask them questions and figure out what are they trying to do, how long do they own the business, are they trying to retire? And you just got to prove yourself as someone that's credible and that knows their stuff, which is why this is part four in the process, not part one. And lastly, what you want to do is you want to post that you were looking for a business because you have friends, you have family, you have people in your immediate network. I promise you that are the last people that you think that are either own a business that are wanting to sell it or they know somebody that owns a business that is wanting to sell it. So post about what you're doing or at minimum Facebook message and text your network to let them know what you're doing privately in closing for the deal. Finding acquisition process Most good deals never make it online. They're passed around behind closed doors. The goal is to get behind those closed doors in the beginning. Good rule of thumb I would say to get started is look at five businesses a day. Like go actually look and try to underwrite at least one to five businesses a day. Reach out to a handful of brokers per week and once you analyze and underwrite about a hundred businesses, you're going to be pretty dangerous. You're going to know what you're talking about. Now let's go to number five, the diligence checklist. Again, this is a full other hour long plus podcast episode that we've done multiple times and I'll link that in the show description as well. But AKA what do you need to look for before you buy? We have about a five part framework that we can easily say that you can go through and we can go from there. Thanks for bearing with me here guys. We're going into 40 minutes here, but this is really good stuff. This is me literally just giving you everything that we have for free. The five parts that we're looking for in diligence are number one financials, two operations, three customer base, four competitive moat and five risks. That is the diligence checklist. Number one financials. We are looking for three years of trailing financials. This is going to look like three years of balance sheet statements, three years of profit and loss statements, three years of tax returns. Number two operations. Who does what? What are the daily responsibilities? What does the org chart look like? Who is the manager of who? How long have they been there? Who Owns what you need a the chest to poke and the throat to choke for each function. You want to really read between the lines here because the seller is going to tell you something and the broker's going to tell you something. And you need to strategically ask questions to figure out where the smoking gun is, AKA where are the bodies buried? Because I guarantee you there are bodies that are buried. So instead of going into a business thinking that it's God's gift to small business acquisition and you're just you found the best perfect business. No, it just means that you didn't do a good enough job uncovering what the problems and what the issues and what the constraints are. They exist. Every single business has them. Your job is to solve them and to make sure that they are solvable. Number three, customer base, is it recurring? Is it diversified? Again, what was that that we talked about earlier? Customer concentration. Risk. We want to make sure that the customer base is diversified. Also, a recurring customer is more valuable than a static one off customer that is increasing what's called the ltv, the lifetime value of the customer. A dollar of recurring revenue is worth three times on a valuation report as a dollar. That is one time revenue for our customer base. And number three, we are looking through a customer journey. How does this business get customers in the door? How do they convert them and how do they retain them, period? Like we want to follow the entire customer lifecycle through the business. Part number four of diligence, the moat. What makes this business defendable? How do they position themselves to the existing current competition that is already in the marketplace and how do they protect themselves from future new competition? An example of this with a bad moat would be a car wash. Car washes are popping up left and right and there's not that massive of a competitive moat to prevent new car washes from popping up. So that is something that kind of steer clear of right now is car washes. For that reason, number five in diligence checklist is risk. So risk can be multiple different things. The first risk that I look for is key man risk, which means how dependent is the business on the owner? Number one thing, most of these businesses are going to have a little bit more key man risk than they're acting. So can the business operate without the owner? Number two is key employee risk. So this is, do you have family members of the owner that are running the company? No way in God's green earth is the owner of the company going to sell the company and their employees that are their family members, their sons Their daughters, their cousin, their wife. They are not going to continue to work for you. Don't do it. Don't do it. They are going to leave, they are going to quit, they are going to dip. Don't do it. That is key employee risk to where if one employee or a handful of employees leave, the business is toast. Now the risk is industry risk. If you are buying a magazine that is not online and only in paper or a newspaper business, that is not a great industry that is appreciating. It is a declining industry. I would not go into that. I would also not go into maybe like a copywriting company because you have AI coming up and you're like, oof. I think AI is going to be OI here, which is organic intelligence people. Another one is data room risk. Do they have clean and audited financials? If you're doing seller finance, this is the con. They most likely won't. It's going to be back of the napkin bullshit that you have to decipher and comb through. Another risk is economic risk. So again, this kind of coincides with industry risk. For example, right now, in today's economy, I would not buy a company that is dependent on multifamily development. Like, if it's a company that does roofs for apartment complexes, I'm probably not touching that industry in that market today just because I don't love where the market is trending in the multifamily sector. And so I wouldn't touch adjacent to it, if that makes sense. So again, diligence is something that I could talk to you guys on a podcast about for hours and hours and hours. This is going to be the meatiest part, the messy middle of their business acquisition process. The LOI is just talking to a pretty girl at the bar and getting her a drink and she says, yeah, you can sit down and talk to me. Diligence is where you're actually going on dates and you're trying to figure out, should we marry? Like, should we have children together? This is super important. And this is the spot where mentors and like, people, like real life people come into play. I don't buy businesses without taking them to my business partners and taking them to my mentors and saying, hey, can you get eyes on this and tell me where I'm messing up here? Like, I use a combination of chat, GPT, of AI with like, very, very specific and detailed prompts that are helping me, like strawman and steelman. The argument for buying the business, which is like straw man, is telling you the reasons why you should buy the business. And Steel man is telling you the reasons why you shouldn't buy the business. I may have those confused, but you get the picture. My people are the ones that help me really see through things that I have been missing. And that's why mentorship is extremely important. Again here, both your operating partners and your mentors are key. So now let's walk through a closing timeline right now before we get into your first 90 days as a business owner. And we will tighten up this podcast episode. Like I'm almost going to do damn near an hour long solo show. This is insane. The timeline for this, realistically, I'll give it for an Action Academy member. Like, for people that are in our community, in our mastermind, this is the process. It takes you a full 90 days to even learn what the hell you're talking about. 90 days, three months of a lot of handholding, a lot of education. It's a lot. That's why I think it's laughable when people try to do this by themselves. It is a lot. And so after 90 days, you know enough to kind of be dangerous. And then it takes a full probably another 90 days to get your acquisition machine and your KPIs and your goals up and running. Like, you've got relationships with brokers established, you're consistently underwriting, you're consistently looking at deals, you're consistently sending offers. You have your pipeline established and your CRM established. Then within six to nine months, we want you to start getting under contract on things. So your Lois are beginning to get accepted, and you're going through the diligence process on average maybe two to three times before you actually get a deal across the finish line. All right? And each time you go through diligence, you learn something new. You learn to look for something new that you didn't think of before. That's happened to me like a dozen times already where I'm like, huh, didn't think to ask that. Cool. Now I know. And again, you can expect diligence to take 90 days, a solid 90 days from an LOI. Being accepted to close is pretty standard. Sometimes longer, rarely shorter, but if you do seller finance, it could be a little bit shorter. So right now it's April as I'm recording this. So say that you're listening to this 43 minutes deep, and you're like, by God, I'm gonna buy a business this year in 2025. And I hear Brian talking about Action Academy and I want in. If you joined today, like what would the process look like if you joined in April? And just do the math for whenever I repost this episode later. But it's April right now. If you join in April, then by July, you would know enough to really start going. By October, you would most likely be under contract on something. And then, God willing, a December close, but most likely January or February of next year. We also have people that have done this for 18 months. Took them 18 months and they went through this and they just would get under contract, go through a big hairy business, fall through, fall through again. And then finally it took them long enough to just like, really get good at it. And they bought one business and they finally got it and they finally quit their job and it's a good freaking business that's millions of dollars, hundreds and hundreds of thousands of dollars of profit and they can finally do it. So even in context, like people that are taking 18 months to do this, like, that's still a year and a half away from you completely replacing a 200 to $400,000 a year job. So let's close this out. Say that you go through that process and in nine months, 10 months, you buy your first small business. Congratulations. That is amazing. Again, it can be six months. We've had it done before. We have podcast episodes on that, too. But now, congratulations, you're a business owner. Here's some wonderful rules of thumb that will help you on your 90 day transition from taking ownership of the business to stabilizing the business and beginning to make changes. Rule number one, shut the hell up. Shut up. Don't do anything. Don't change anything. Don't be God's gift to entrepreneurship. You are going to only ask questions kind of for 90 days because you just don't know what you don't know. Even if you are super smart, you're coming into this business with employees. And the best way to build rapport and trust is to ask them a lot of questions. And they are going to feel seen, they're going to feel heard, and they are going to tell you the good, the bad, the ugly. This is where you figure out where the bodies are buried. All right? So for 90 days, do not change a thing. Do not touch a thing. You are in the business. You're rolling up your sleeves. You're getting in the trenches with your employees. You're helping them service customers. Like, you're riding with them, you're talking to them, you're breaking bread with them. You are building employee trust. Okay? And the biggest threat that the employees are Feeling right now is do I have a job? And that may not be true after 90 days, but for the first 90 days, your job is to establish trust with them and to make sure that they know that they are safe and secure with you. Because if they do not feel safe and secure with you, they will quit and you will be working a job again that you do not want. So for 90 days you're going and you're establishing with each employee that you can. Because if you're buying a business between 1 to $3 million, it's probably 7 to 10 employees max kind of for this. But you're looking at the employees and you're saying, hey, you know, what are your goals? What are your dreams? What do you want to accomplish? The previous owner probably didn't ask them these questions and you're saying, what's working really well today? What are areas for opportunity? Like what are our areas for improvement? And the cus and the employees will feel so heard that they're going to feel that they have weigh in and buy in for the first time in their probably employment and it's going to be really cool. That's how you get your employees on board. Next thing you want to do is you want to get in front of every single one of your largest customers, like the shark customers. You want to go talk to them and say, hey, like face to face, you know, hi, I'm Brian. You know, I'm going to be taking this over, you know, wanting to see any ways that we can improve the service, improve the relationship for you. Happy to, happy to talk. I'm here, you know, with you and I'm going to make sure that your service better than ever before. Then you're going to build roadmaps, systems and processes for each key function of this business and important what it is today. So everything that you saw in diligence, you're going to have like 80% of the information that you need to know what actually is going on. And this will be the remaining 20% that's the most important. So the owner will tell you the path that they think is how you get a customer. But now you really see it when you roll up their sleeves and get into the systems, how they actually get, retain and upsell a customer. So now you're going to build customer roadmap sales and marketing journeys and sales and marketing sops. We use this website called Miro M I R O for this where we're building out visual SOPs step by step and you could see the customer journey Then we're building out fulfillment processes again, visually, step by step. And we're just documenting how things run today. By the end of this 90 days, you should have the employees know I can trust you. And you should know the business like the freaking back of your hand. You know every nook and cranny, you know every strength, you know every weakness, you know every area of opportunity. It's called a SWOT analysis. S W O T Strengths, weaknesses, opportunities and threats. And now you really have that org chart dialed in. You know who does what, who reports to who, and you have a chest to poke and a throat to choke for each one. We implement a system called eos. Right now, we are just gathering the information for Eos. We're not implementing it in the business. Then after 90 days, what we're doing is now we are having enough information to make any employment changes that we need to make. So this will include hiring, firing, changing the org chart, changing positions, elevating people that have potential. This is where you begin to make changes. So that's going to be with your org chart first. And then we're going to automate, delegate and replace ourselves from OPS asap. The last thing that you want to do is get back into the weeds of your business. We had two Action Academy members that just bought a business. And I was doing a walk and talk with one of them in Austin, Texas, and he was like, yeah, you know, our sales Guy was making $120,000 a year for kind of doing nothing. So we just took it over ourselves. Now we're selling them and we're closing them like crazy. And now we just saved 120k. I'm like, dude, you're working a job again. Like, look at that. Zoom out. You are working a sales job again. And you guys would default to that because that's what's comfortable for you, that's what's familiar. Do not do this. Be a business owner. Build a system. Hire somebody new. Restructure the comp plan. Next, we want to set up dashboards. KPI's scorecards and reports have a public scorecard where each employee has metrics. They are responsible for three metrics max per employee and you have them compensated based off of these metrics. And these metrics should drive revenue, retain revenue or upsell revenue or service, slash delivery to the customer. An example of this is my friend Logan Rankin and his property management business. He has three metrics that he tracks for his handymen that go out to do maintenance requests. One of them is, are they Showing up within like two hours. Like it's speed. Speed to lead is the most important thing for them. Another one is how many reviews that they are receiving. I think he has a metric where if they receive like 80% or higher, like five star reviews, they get a performance bonus. So you can tie whatever behavior that you guys want to money, financial compensation. That's what we do at Action Academy. We have a position for acquisitions director where he gets a higher compensation and bonuses based off of the performance of the members. If the members are hitting their acquisition goals, he gets bonused on that. So it's all about performance incentives even on operational roles that are not sales. And last but not least, sorry to backtrack a little bit here, but we're 50 minutes deep and I'm kind of out of sequential order. But you want to make sure that your owner transitions you to the team. And we call it a tot, a transition of trust. The owner is really, really heavily involved with you in person, transitioning you and introducing you to the team. Each team member super important in person. Also your biggest customers. The owner needs to introduce you to the biggest customers in person, period, a hundred percent. Like, do not skip this. This is the most important thing. This is. If you botch this, it will go so south. And that, ladies and gentlemen, is enough for you to go from six figure employee to seven figure entrepreneur. I just gave you what Most people charge $10,000 for across 50 minutes. Like this isn't even a webinar. This is for legit, something that you can send to anybody for free that will give them enough information to be dangerous to go out buy a small business for again, free. Now if you guys want to have your handheld through all of this, this is what we freaking do at Action Academy. Like we are really, really good and we have hundreds and hundreds and hundreds of people going through this process. I have a million dollars of payroll that I paid to the best and brightest coach, asset class experts that are walking you through this. We also have your operating partners in the group that you can partner up with to buy these businesses. We have your capital partners in the group that will help you fund these businesses. And we got mentors and asset class leaders that will walk you through diligence to make sure that you're not structuring these deals to where you're going to get freaking screwed. All right, so if you're still listening to this, this is probably a very, very, very good investment for you. Check us out. Action Academy. Go in the show description. Go in the notes, you can find a link to. Book a call with us for 20 minutes. We'll talk to you about your goals and see if it's a fit. Thank you.