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Action Academy | Millionaire Mentorship For Your Life & Business
STEAL This Off-Market Deal Finding Strategy To 3X Your Small Businesses Deal Flow
01:09:56
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- [00:02]
A
What's up, everybody? I hope that you're enjoying the Action Academy podcast. And today we're going to be talking about a really cool topic that should 2 to 3x your deal flow in small business acquisition. Because there's off market and on market deal flow. Today we're talking about a strategy that one of our guys is using to find off market deals. This is a live call within our Action Academy community, of which we have 603 active members across 48 US states. We did 428 million of acquisition last year. So if you listen to today's episode, you'll be able to get a good example of the types of calls that we have, the types of people that are on the calls, and hopefully it will fit your vibes that you can stop listening to the podcast and actually hop into our community and do some stuff, Buy some businesses, create some cash flow. So you can check it out@actionacademy.com or as always, go in the show description to click the link, book a call or we are happy to speak with you and get you a business. Now let's get to the call. So today what we're going to be talking about is two really, really cool things. Number one, we can talk about scale, what happens with the transition, getting your documents together. Me and Cody have talked about this how many times now? 74.
- [01:16]
B
Few times.
- [01:17]
A
Couple times. So we can answer any questions you guys have on closing in transition or we can help you guys with deal sourcing. So for anybody that's in sba, I sent an email today. It was actually me, not a bot. Hold on a second, I'll post the link in the chat really quick. We sent a type form out and by we, I mean me. If y' all can answer these four questions, it helps. Y' all don't need to. Y' all don't need to answer like the fill in. You can if you want. But really what we're trying to figure out is like what's the primary constraint? Because we want to get you guys like submitting offers, get you guys through the process, get you guys to the closing table. And right now I feel theoretically like the bottleneck is deal flow. Is that correct or not correct? So I'm just going to call on a couple of you randomly. Gloria, what's your constraint?
- [02:14]
C
Yeah, deal flow, definitely just quality deal flow and feeling like the deal is good enough to move forward and, and creative kind of negotiating there around it, especially for me. Now the SBA change. So now I'm underwriting everything with five year terms and higher rates and it needs a lot more assets. Yeah. So commercial loan oriented. And then also that cuts down the deal flow even more because now I have to be even more critical when it comes to the underwriting.
- [02:40]
A
Got it. Okay. And then Jocelyn, same thing?
- [02:44]
C
Yeah, same thing. We're working on one right now that's moving towards loi, but other than that, there's nothing in the pipeline.
- [02:52]
A
Okay. So that was, that was my hypothesis was that everybody's kind of getting stuff to deal flow, where it's just like you kind of scroll biz by sell a couple of times a day and you're like, all right, let's see if anything's new. Let's see if anything's new. Okay, well let me expand my region. Let me go to DFW. Let me go 50 miles out. Is that kind of true? Is that what we're running into? Okay, so if y'. All.
- [03:15]
C
We're also finding a lot of owner operator businesses, so trying to get out of that piece has been tough.
- [03:24]
A
Yeah, yeah. It, I mean, it's difficult. It's for sure. Diamond in the rough. So, Cody, if it's cool with you, can we talk about your off market strategy?
- [03:35]
B
Yeah, and I was telling Brandon this earlier because he, he had messaged me, I can talk very high level in some of the softwares, but I told Brandon I'd love to, you know, come back. And then like, actually, like, here's the softwares and like here's messaging that we're doing because I'm not actually doing it myself, but I can talk about like, what are the things that we are doing? And I know high level because I just, my team's doing it, but I'm not like in the weeds of all of it myself. But I like, hey, here's pages that we're using and like, here's platforms that we're using for sure.
- [04:07]
A
Yeah. And then eventually like, well, me and Cody will have like a partnership or something for y' all whenever we figure out, like, whatever works best for everyone. Like, we'll have a partnership for you guys when it comes to like skills scaling and stuff. So we'll figure that out down the road. But for right now, it's like there's a couple of critical roadblocks when it comes to business buying. Like, it's just if you view it in stages, you can really like start to identify the constraints and the kinks in the machine. Same thing with everything in life. Spoiler alert. So Cody's a huge systems guy. And so am I now because I have to be. Because without systems and processes now, you do not have passivity. Running an eight figure company, I have learned that very, very painfully. So the constraints are this. It's like number one is the constraint is clarity, which I think most of you on this call are past that. And again, if you guys can answer the four multiple choice questions, I post the link in the chat, that'd be helpful. The next constraint is deal flow. So are you looking at enough deals? Do you have enough deals coming in predictably where you're like, okay, I, I've got brokers coming in, I'm talking to my brokers, I've got out outreach off market, for sale by owner ML. Well, biz by sells the MLS here. So you're reaching out on market, off market. And then it's underwriting is the next constraint where I feel like maybe we're over underwriting, ironically for the Lois and then LOI structure, then diligence and so forth and so on. And I feel like we're jammed at that kind of underwriting and deal sourcing strategy and like stage. So does that ring true? Is that correct or am I off? Okay, that seems. I see a lot of nods and I see a lot of thumbs up. Cool. So Cody, I guess let's start there. Let's specifically speak to that portion and then we can maybe people can leave this call with one or two more strategies and tools in their tool belt for them to be able to leave and say, okay, here's something that I didn't think of before. That is something I could put in my weekly KPIs.
- [05:56]
B
Yeah, absolutely. A hundred percent. So excited to be here guys, and you know, share some of the things that we're finding is working. We've been acquiring, you know, books of business in the cleaning space, you know, cleaning industry. So we've been doing that over the last, you know, year and a half and you know, in the accounting space as well, you know, bookkeeping, tax type companies. And so, you know, I'll share with you guys just what we're finding is working and you know, some of the things that are a challenge, you know, I, I joked in the chat box. But you know, a lot of times the businesses that are reasonable that come to like biz, buy, sell, you have like a hundred other fricking people that already submitted an loi. There's. And the challenge is there's mult. There's a few different types of buyers you're competing with on the deals that Land on Biz Buy Sell, which you could find deals there. Like the, the tax.
- [06:42]
A
We did two. We did two off of Biz Buy Sell.
- [06:44]
B
Yeah, so you can do. And the one I bought a tax firm in end of October that I found from Biz by Sell. So like there are deals there. It's just a lot of times you're competing more and you're giving, you know, more preferential terms to the seller and some of those. But the when, when we're looking at the different places that we can find deals, you know, it's like the, the deals Land on Biz by Sell after, you know, their pocket buyers don't actually, you know, move forward on the deal. So you guys already, I know, talk about in this group as far as like building relationships with brokers. So like, yes, you can keep doing that. What I'm going to talk about more so is like proprietary deal searching. And so you're either in one of two camps when it comes to the proprietary deal searching side is you maybe have some money to spend on it and then you could have, you know, not as much of your time taken up or you maybe have more time and not as much money to, you know, invest into this. So I'll give you guys kind of like two variations of like things that you could do based on both of those scenarios. And this is all under the assumption that everyone on here is clear on what their buy box is. So it's not like one day you're waking up and like looking at painting companies. And then the next day you wake up and you're like, I want to buy a medical practice. And then the next day it's something different, like getting clear on, you know, what is it that you're looking for? Because if you're not clear on that, nothing that I'm going to share with you now is going to be super helpful because you're going to have to get more clear on exactly what you want to find.
- [08:10]
A
And if you're brand, if you're brand new, we'll add an asterisk. If you're brand new to Action Academy, we're not yelling at you, but if you're past 30 days, we are.
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B
There you go.
- [08:20]
A
So we'll say that I see a couple new faces.
- [08:22]
B
Yeah, it could be exciting. You know, you see that you get some shiny deals, you know, syndrome, you know, when, when you're doing that. And so I'm going to share, I'll put in the chat a couple sources that we're using. So I'll Share. This is what we're actually doing right now. And what's getting good conversations and what is getting NDA signed and Lois sent. This is what we're actually doing. So what we're doing right now is we're utilizing a platform called Apollo. So I'll put that. And again, I'm going to give you guys the spend more money options and you know, a little bit less of your time and then I'm going to give you the, you know, roll up your sleeves and have to do more on your own. So I have no affiliation with Apollo, but we use Apollo to get data for the types of businesses that we're looking for and then to enrich the data and actually get, you know, the information to be able to email out to these people. Another platform that will use as far as like, if we're not getting maybe like phone numbers is called Spokeo. So from like a technology standpoint, these are a couple platforms that we're using
- [09:29]
A
and so skip tracing for real estate.
- [09:31]
B
Yes, exactly, exactly. So. And that, you know, your data is not always great. Sometimes it's, it's, it's like, it's literally skip tracing for real estate. You think you're calling the homeowner and you're calling the person that lived there five years ago. So like, there is some of that, it's, there's some digging you have to do on this stuff, guys. But basically, so what we're doing with accounting firms specifically is we're utilizing Apollo to, and you know, between Apollo, between Spokeo, I have someone on our team that's consolidating the data. So I'm looking for accounting firms in the state of Arizona. So we are segmenting our list for firms that are in Arizona, you know, so names that are like bookkeeping, accounting, you know, those types of, you know, variations in the name of those companies. And so we're getting the data from there. Then what we're doing is taking that, you know, with, again, a person on my team is then like cleaning it up and like making sure we get phone numbers, making sure we're like taking out, you know, it's like the office manager's phone number from these lists and you know, cleaning up, cleaning up the data from what these platforms don't perfectly do. And once we clean up that data, what we're doing is we actually have a sub account and go high level as like our minimum, like our testing platform that we've been using the last couple of months. And we have basically dummy emails set up where it's not like Cody at scale with pros is sending these emails. These are, we're setting up dummy emails because. And I'm sorry if I go into the weeds. So just like yell at me if I'm going too much into the weeds. But I'm just trying to give some context here for you guys. Yeah, for anyone new, this is off market. This is like you're trying to go talk to Bob that owns the company, not the broker that Bob's gonna maybe list the company with for sale. So we go, you know, we set up dummy emails. We have a sub account of GoHighLevel. We take the data, we're putting it into the sub account. And I have a guy on my team that once it goes into that platform, we're basically setting up personalized email templates that we're sending out to these business owners. Literally the first email, it's like very personable. Like the email's like Cody something, you know, at Gmail. So it's just, again, it's a. These are dummy emails that are being set up. And so that email's in there. It's going out. The first email that goes out to a picture of me and my wife and we're like, you know, just very personable. We grew up in, you know, Mesa, Arizona. You know, this is, we're starting a family and we're trying to buy more. You know, we're trying to buy an accounting firm. So I'm not trying to be like, all right, I'm trying to buy a hundred of these things. Like I'm trying to make it very personable to try to relate with, you know, versus because this is your competition. Just so everyone knows on these like these, these off market deals, the people that are reaching out, if they are, are these private equity, like super stuffy firms. Hello, Mr. Da Da Da. I would like.
- [12:26]
A
Interested in exiting. Yeah, yeah.
- [12:28]
B
Would you like to exit your company? And I would like to inquire at, you know, Red Fox Capital, you know, management, you know, Greyhawk, you know, all these like crazy names that just make it seem super non personal. So we're taking the personal approach, outreach of like, hey, I'm a normal human. Just like you and me and my family, we want to buy, we want to buy this, you know, we're looking at buying this business. And so, so we're taking this personal approach and we're dripping out these emails. Again, I might go too much into the weeds, but essentially we're sending out a few emails over a Couple week period of time. We're following up those emails with the phone numbers that we got from Spokeo and we have just a text sequence, you know, saying very simple things. It's not you know, crazy rocket science like hi John, you know, I sent you an email about your firm, you know, firm name, whatever, you know, and so it's like a very, just trying to solicit, we're trying to just get a response back from these people. And so basically Those emails, those SMS's are dripping every day to the list and I have the person on my team that is basically, that's basically just taking the data and making sure we were adding more. So like there's only so many accounting firms for example in Arizona where I'm trying to buy. So I've opened up my reach to the southwest region. So any of like the southwest region states, we've started pulling data in those and we're just kind of like funneling it through the system and with these emails and with these SMSes. And so what happens if they respond, Cody? Well, basically what's happening is as those people are responding, the guy on my team is monitoring those on a daily basis. And so as people respond he tries to get on the phone with them and do a, just an initial pre qualification call. Hey, I work with Cody and you know, because they're like, oh yeah, I am maybe interested but I want to hear more about you guys. Hey, I work with Cody, you know, just wanted to, you know, connect with you and kind of just hear a little bit more about, you know, what you'd be hoping to accomplish if you're selling the business. You know, he's looking within the next few months, you know, if that timeline kind of works. Like I'm really just trying to have him vet the, the conversation before I get on with them. So like real life example, last week, last Tuesday there was a guy, I'm not going to say his name because you know, if anyone's looking for accounting firms, I'm not trying to put that out there but we, we had a guy last Tuesday that you know, my, my guy and my team had talked to, he owned an accounting firm doing a million and a half a year in revenue and he'd been in business for 24 years. He's looking to retire at the end of next year and so he wants to sell and transition over about a year, year and a half period. So my guy on my team talks to him and he basically is just like, you know, what's your timeline? What Are you hoping to accomplish? You know, what's, you know, just kind of vetting out the. The person. Like, tell me about your company. Oh, do you have. Do you just do tax work? Do you do bookkeeping services? So just. This is where the niche stuff is helpful, guys. On, like, knowing a little bit about the business you're trying to buy is if you're trying to reach out to, you know, a painting company, you should know. You should want to, you know, ask questions around, do some industry research. Yes, it is an example of this
- [15:43]
A
to like, to put another tangible example, if you're looking for a Laundromat, it's like, okay, cool. Are they top loaders or front loaders? Like, what's. What's the equipment? It's a Dexter. Is it Speed Queen? You know, like, is it coin? Is it. Is it auto charge? Like, just knowing something like, just doing, like, 20 minutes of prep will really, really help.
- [16:03]
B
Yes, absolutely. So Brian hit it nail on the head there. So this is that initial conversation. My guy on my team talks to him, vets him out, makes sure it's not going to be a waste of my time to actually, you know, have a. Have a meeting with them. I'm okay meeting these people in person or on Zoom because, you know, they're local. As far as a lot of the firms that I'm, you know, we're doing outreach to, this one was in person. So he set me up to go meet the guy, you know, at a little, I don't know, this little, like, sandwich shop next to his office in Phoenix. And so on Tuesday, he sets up that appointment for Thursday morning. I go meet this guy at this, you know, little sandwich shop, sit down with them. And essentially what I'm trying to do in that first conversation is that, you know, disqualify him or disqualify myself from being the buyer. Like, that's my entire intent. I don't want to waste my time in, like, four different meetings. So I'm trying to just, you know, ask. I'm trying to build rapport and build a relationship, and I'm trying to ask pointed questions like, hey, if. If we were able to come together on. On terms, you know, what timeline are you looking to, you know, actually move forward and make a deal happen by. And, like, I'm trying to know, because if he's like, you know, I'm really like, I know I told your guy this, but I think I'm going to be a few years out, or, you know, I just want to gauge, like, timeline Seriousness. And I want to ask him questions around, what are you going to do, you know, after this transition happens? Have you thought about what type of deal structure? Like, these are some questions I've asked him in that. That wasn't what I started with, though. I got to know him. I didn't just go like straight for the jugular. As soon as we sat down at the sandwich shop, I was, tell me about yourself, tell me about your, you know, your past. How did you get into this business? And I asked him questions that I knew from his website. So I gathered information of I already knew. Hey, when you went to this college, you know, did you always want to get into this line of work after you graduated? So like I, I and, and it wasn't like I, I really researched this. Like, I got there, I pulled up his website while I was sitting in the car. When I got to the sandwich shop, I looked at the notes on, I looked at stuff on the site and then I looked at the notes in the CRM that my guy in my team set. And I use that as like how I enter, you know, started the conversation. So it. He felt like I actually knew some stuff about him, even though I didn't do that much research. But it helped the conversation start flowing. And so building rapport is kind of the start. And then I just looking for indicators of is there a deal to be had here? What type of deal structure are you looking for? Here's who I am, here's what I'm trying to accomplish. This is the type of deal structure. Let me. I educated him on the process of how this would go. Hey, you know, at the end of today, this is how I started the conversation. At the end of today or at the end of our meeting, you know, my goal is that, you know, we have one of two things happen. One is maybe at the end of this, you're like, you know, Cody, kick rocks. And, you know, I don't want to talk to you about this deal anymore, and that's okay. Or the other outcome could be at the end of this conversation, you know, we would move forward to kind of next steps of seriousness would be, you know, I'll get an NDA signed for both of us. I'm going to request these financials from you so we can start looking at the financials of the business. From there, myself and my CFO will likely have questions about the financials. We'll go back and forth a little bit with the goal of getting to an loi. Once we get to an loi, we're going to move down this path of going into diligence and you know, this is what that process looks like all the way to, you know, closing and you know, so I'm educating him on the process, letting them know like I'm a serious buyer, I know what this process looks like. And for those of you that have never bought a business, it doesn't take very much to make yourself look like a serious buyer. It's just knowing the steps of the process, like that's really it steps, yeah, there's not a lot of steps. So taking the 20 minutes like Brian said, to have industry knowledge of like literally just do some research, do a little bit of research before you meet the person so you have some context into them, their life and like their business. So you're not like, oh, tell me about your business. It's like what, you didn't even look at my website or anything. You don't know anything about my business. Like you should know some stuff about the business. And so that is, you know, essentially what that conversation looked like. But it all started with we scraped this data, you know, we got the data on Apollo, we enriched the data through there. We use Spokeo to get, you know, owner's information. From there we start sending out emails, we start, you know, doing SMS campaigns out to this and this is thousands of people that we've done that. We're doing this over weeks and you know, re going back through these campaigns and re hitting these people. So it's not just like oh we reached out one time and dang it, they didn't, they weren't interested. It's like, it's repetition guys. It's just you gotta, you know, continuously outreach and so that, and now with that particular deal, just in that example, you know, he set the appointment for me on Tuesday for Thursday. NDA was signed over the weekend. I, you know, got the financial request list to him yesterday. He sent me the financials last night in a Google Drive folder and, and this week we're going to start reviewing the financials and you know, seeing what it looks like. But we're still keeping our deal sourcing going because it could be a dog with fleas, like the financials could be dog crap. And it's like, well it's not even going to be a deal anyways and you know, we just, we're going to move on and just keep working the next deal. But that goes to an important point of having other irons in the fire allows you to not get like oneitis Syndrome of like, oh, here's this deal. I need to like figure out how to make this deal work when you really just need to, to go look at another. Another deal.
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A
Yeah, the person that, that wants and needs the deal the least is going to be the one that wins.
- [21:47]
B
Yes, 100%. And so that is what we are doing. And so it's like, Cody, that's great. Like, I, I don't have a team to like do the thing and like all the, all this. Right. So let's talk about the economy, way of doing outreach and you know, not having to spend as much money, but you're going to have to spend probably some more of your time. You can maybe get a VA to help you with some of this, but some really, you know, affordable tools. If you're like looking at Apollo and pricing and the price per credit to get phone number, email stuff is out of your budget. I totally understand. So I'll give you guys a recommendation, which again, it's not as, you know, it's more work. But I'll put this in the chat as well. And so this really works if the businesses that you're looking for have, you know, a Google profile. So what I just put in the chat is a Google Maps scraper tool. And so you can just plug, you know, have a va, do this, or for anyone that knows how to do it with AI, bless your heart, you can do that, build some scraping tool or use some cloud bot or something that can actually operate this and go scrape the data, put it in a spreadsheet. If you know how to do that, you know, bless your heart, go ahead and do that. You know, but for the people that don't know how to do that and you want to do it caveman style, you can use a tool like this. It's a lot more affordable to get the businesses. It'll basically scrape the businesses in the different cities that you're looking for. So if you're looking for automotive shops, like you can search automotive shops and anyone that has a Google business listing is going to come up and you could build your own custom list and put it in a Google sheet. So again, manual steps, but you're going to take it from there. You use a platform like Spokeo, you give it to a VA and you can have them, you know, actually go in and do all of the really tedious stuff of getting the actual owner's information from, you know, pulling the business info. So again, more manual process. But that is a way that you can get the data and that you can do these out outreaches. Yeah, there we go. Gloria. Seamless AI. Does scraping for free contacts cost money? So there's a lot of different tools that you guys can do this on. The biggest thing is not to overthink like what's the perfect tool or perfect way? All you need is this. You need a way to get the information we've given. Some ways we have, I've shared a more expensive way, I've shared a more affordable, cost efficient way. And once you have the data then you need to have a way to actually get their phone numbers or emails. So it's like great. You could use something like Spokeo to do that. Apollo, more expensive. Then put it into a database. You can use whatever CRM that your guys heart desires. My one comment on that would be do not put the data in with like whatever your normal company CRM is. You want to use a dummy domain. So like we always. Why do we do that if we're sending out emails every single day? So we send out about 150 emails a day, one every, I think it's like one every four or five minutes that goes out throughout the day. We want, we want Gmail to recognize that, we want these email providers to recognize that as a normal human. So like if you were sending out like 500 emails every 10 minutes from your thing one, you're going to burn your domain and you're going to get put into the spam box for everyone's email that you're sending to. So you have to throttle it and have like a, you know, a lower amount of emails going. But in the event that you know, your domain gets, you know, flagged or banned or like a bunch of people report you as spam, you could just open up another one, create another domain and another and so you could start doing it again and not have that, you know, create issues for yourself from like the domain standpoint. I've been talking a lot and I know this is in the week.
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A
I'll give you a pause, man.
- [25:37]
B
Yeah, cool.
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A
I'll let you, I'll let you drink some water. So how was that guys? Sick. Yeah. All right, cool. Yeah, we love that. Couple, couple of ways. Couple things that I pulled out of that to. Cause that was a lot, right? So a couple things that I pulled out of that when you're reaching out to brokers, like again like a lot of the stuff that Pearson talks about and that I talk about with you guys is like still having like just some, I don't know, a better way to Say it. Chillness. Talking with the brokers. Like, don't be so stuffy, so formal. You don't need to like prove yourself. I would say be a slightly more professional with the brokers because the broker is dealing with 200 people that just emailed them that look, talk, act just like you and you've got to convince them why you're the actual mfer that's going to actually get the deal done. So you have to kind of talk the talk and have a little bit of talk track in there. So professional with brokers, personal with direct is probably the best way to condense his entire section of that speech, which is when you're reaching direct. Same thing with real estate. It's like he's sending pictures of him, his wife. If you have a dog, throw your dogs in there, say, hey, like this is why we're doing this. You know, my mother was an accountant. You can, whatever, man. My cousin, my cousin, I love my cousin. He was a bookkeeper and like, and you know, and he was fired and I want to give him a job. And you know, I'm just so passionate about bookkeeping. Like I love numbers, man. I can count to 10. And so you have to have a story when you're reaching out to the person. Now I want to add like a couple of like caveats like so to zoom out a little bit, like what are the pros and cons of on market versus off market? Because I think that's something worth talking about because there's, there's different, there's different devils with different levels. There's always issues associated. So when you have something on market, a lot of people shit and poo poo on on market deals. However, they are not perfect. There is no such thing as a perfect business. But they are what's called packaged for sale. So a broker is looked it over. A broker will get hundreds of different deals that they're trying to take to market. And if it's a good broker, they want to stake their reputation on the deal being a decent deal. So they're going to be analyzing the financials, they're going to be analyzing the, the business in the, in the seller. And they're going to, before they take it to market, they're going to put some checks and balances in place to make sure it's worth listing. They don't want to have a reputation built to where they're listing dog crap. So they also, for a lot of the ones that you guys see is going to be like SBA financing Available, Right? So it'll say that. So it's something that the SBA will look at and they'll say, okay, cool, I like this. The financials are clean. Everything comes down to how clean or dirty the financials are. So when somebody's packaging their business for sale, that means that they are actively trying to remove themselves from the business a little bit their butt. They're crossing the T's, they're dotting the eyes, they're getting all their financials together. When you're getting something off market, do not expect that. So if you try to go to them and, and do the opposite of what Cody just said, which is you try to have them steer the process. You have to remember, off market, they've never sold a business before. For the most part, they don't know what you're talking about. And so what you need to do is just like real estate, if you're explaining like a sub 2, if you're explaining a wholesale, if you're explaining, you know, anything. Like all you're doing is you're going, and you're just saying, hey, this is what happens. This is what I'm going to ask of you. This is the process. Here's how long this should take. I'm going to do this. You're going to, I'm going to send you an NDA. What's an NDA? It's just so I'm not going to go blab about your financials on the Internet. You're not going to blab about the financials? We're good, right? Then I'm going to look at the numbers. Then we're going to send you an offer. What's an offer? Okay, I'm going to structure it three different ways. You're going to have three different offers. You're going to have a cash and maybe, maybe that's something to talk about. Cody, you want to talk about that? About having like a three tiered offer?
- [29:25]
B
Yeah, 100%. And then I'll just be beneficial for
- [29:28]
A
you guys is like how to structure the offers. Okay, so that's a, that's a resounding yes.
- [29:34]
B
So yeah, yeah, I'll give, I'll give. Like kind of our thought process around it. And then I dropped in the chat too. Like, you guys can check this out. Like, and I want to also, like, I don't want anyone to look at like all the things I talked about. And then like inside they're like melting because they're like, this is so much work. Like, this is like after Time spent building these things, like minimum viable done. So it's like just, just always go back to that first off. But I did want to just drop in the chat. I. This is one of our landing pages that we use for like when we're. Because with our cleaning company we're trying to buy books of business. We're also open to partnering and buying a majority stake in other cleaning companies and taking over basically like the back office and then they keep running and then we're also open to buying them outright. So more so sharing that is like inspo of anything if it's helpful for you guys. Like I create these landing pages so then people can be sent to them and like get educated on us, learn about our process, how we do things. So that's also their for review. But going back to the offers, typically, you know, we'll do three, you know, three different offers on any deal. We never make one offer. Usually I'll have one offer that. I mean, it depends on the type of business too. So like there's always a caveat of like depends on the type of business as well. But usually within the three different offers, one of them will be a. I mean I never do a hundred percent cash up front on any deal. So like just that. But that's just me. Don't have to do that. Sometimes if you're competing on a deal, you won't be able to get away with that. But the most I typically would do is like 90%, you know, upfront, which could be cash and SBA. It's still 90% cash in their pocket. Doesn't mean it's cash all coming out of your pocket. What, what is that 10% there? Usually that 10% there is a kicker for like making sure that the seller does the things that I need them to do after close. So I'll kick out like 12 months of, you know, maybe it's retention of relationships. Hey, seller, you have all these relationships in your head. I need you to transfer those to me over the next year. And part of this retention of this 10% that'll go to you is once all of those have been transferred and all of the stuff you promised to do before you got the big bag of money, you actually do after, you know, to get the rest of your money.
- [31:50]
A
So, you know, private equity causes bites of the apple. So you have different bites of the apple. So when, whenever private equity saying, oh, you got first bite of the apple, second bite of the apple, it's saying like, normally private equity will keep the stock. Somebody on that they bought the company. Then all of a sudden you're working a little bit at the private equity company, hitting some KPIs for them, and then you get the second bite of the apple, which is your continued payout. Exactly what Cody's talking about. Yep.
- [32:15]
B
And so those could be structured in a lot of different ways. But simplistic explanation. One, offer usually the lowest one in the way that I usually structure them, that's majority of the cash up front with just a very small amount that's going to be, you know, maybe paid out at a later date. Second is usually a mix of cash, sba, some seller finance, so like a variation of that. And then a third is cash, seller carry with no, you know, bank debt. And it's like usually a higher purchase price as long as debt service coverage ratio is still healthy. For me, you know, we can look at giving them a higher price if they give us like, you know, more preferred terms on a seller carry note, for example. So those are usually the three ways that we'll look at it. Obviously, guys, everything is a deal by deal basis. And like, you know, what's the competition on the deal? How healthy is the business? You know, there's a lot of considerations to have in there, but, you know, those are kind of the broad strokes of, you know, majority of cash up front, lower overall price of some mix of, you know, cash majority, cash, SBA with a very minimal seller carry. Then one that like cash and all seller carry or seller rollover, invest in investment too, if they're maybe interested. And you know, like I, the deal that I bought in October, the guy that was selling was in his early 40s. He didn't want to stop working. He just didn't want to be the business owner on his own anymore. He wanted someone else to, like, that actually knows how to run a business, help run the business side of the business. While he just could be an accountant still, which is what he likes to do. So there's again, a lot of ways to structure these, but those are the three broad strokes.
- [33:59]
A
And whenever you're thinking about the offers, like, I know that that can sound a little bit overwhelming, but I mean, basically it's like bank debt or seller financing. Like when you're thinking about it. And the cool thing about offers is whatever offer that you want somebody take. And it's the same as when you run a business. Right? So an example right now is we have, like, there's some people that are new and there are some people that are old here. So for Anybody that's like old and you got like an insane deal in Action Academy, like just be, be cool with it. But there's like we run an offer that's like 15k2 year, 9801 year. It's very obvious that you should do the 15k2 year, right? Like it's a deal, it makes more sense. So it's like the point of offers is like whenever you're submitting an offer, whatever offer you want them to take, you just make it like the no brainer offer in your offer stack, if that makes sense. So if you want them to be more like leaning towards the seller finance in the seller carry one, then you make the other ones like so crazy that it makes like that one looks stupid simple. You're like, oh, obviously I'll do that. So like when you're thinking about submitting your offers, it's just like, find the one that you're like, this is the one that I want them to take. And then everything else is a smoke screen around it so that you could be able to negotiate that and be like, yeah, like this is a great deal in comparison to that. So Hormozi would call it like the, the medium strategy. Like you got small, medium large fry and whatever. Do they want to sell more large fries, more medium fries and that they just adjust the prices on the other sides of the anchor. Did that make sense? Okay, cool. Also, I want to talk about something you mentioned, Cody as well. And then I want to actually tag Pearson in because Pearson, we, we did some on market and then we just bought the second one. Mid America off market. Correct.
- [35:44]
B
Sorry, sorry.
- [35:45]
D
Those were, they were both on market. The first one didn't have a broker. The second one had a broker.
- [35:50]
A
Okay. The second one was listed.
- [35:52]
D
The two we're looking at right now are both off market.
- [35:55]
A
Okay, cool. So I do want to say something. So there's two different strategies when you're thinking about acquisition. So what Cody's talking about is like very industry specific, niche specific. So you're like, I am buying bookkeeping accounting. I am buying plumbing companies. In Pearson's example, me and Pearson aren't buying plumbing companies. Me and Pearson aren't buying roofing companies. We're buying kitchen hood cleaning companies. That is what we want to buy. That is what we want to roll on to what we already are doing so that we can increase the profit. And we could talk about that a little bit about the difference between enterprise value and cash flow. The point being is that there's two ways to look at acquisition is you can niche down and be like, this is only the thing that I'm looking at industry. Or you can maintain, this is the buy box that I'm looking for with my financials. But I'm industry agnostic. So it's going to be a little bit more difficult to what Cody's talking about with the strategy of off market because a little bit harder when it's like revenue specific. But I also want to say, like, don't listen to what Cody just said and think immediately, like you have to go and be like, I'm buying a plumbing company. I'm only looking at plumbing companies. Like, that's a tool in your tool belt. But also it's like, we didn't think we were buying in an Alaska Northern Lights company. Like, Cody didn't think he was buying a plant installation company. And I don't think Pearson thought he was buying a kitchen hood cleaning company. So Cody, I'm curious to hear your perspective on that because you've done both ways. Yeah, yeah, I'm kind of curious too.
- [37:27]
B
I've refined my thesis now so like when we're starting, we all like learn things, right? Like, I'm included in this. Like, I'm, I'm not. You know, I've learned some things to like, know enough about enough. But I don't know everything. Absolutely not. And I will never claim that, but I've learned through the types of deals that I've been involved in what I like more and what I like less of. And so that's what's helped me like refine my thesis for what I want to buy. You know where some people have heard me talk about a company called the Plant Guy that, you know, is a company that I've owned now for almost three years. And you probably wouldn't do that deal again? Absolutely not. 0, negative 10 chance, negative, negative chance that I would ever do that deal again. Okay, why? And I'll tell you guys, and I don't, you know, I made a, I made a comment on, on a post in the group where someone was like wanting to buy a business and they were not from there, but it was like in California. And like I made some comments on it. And then like people give heat because they're like, well, people make a bunch of money in California. So here is my thesis. And then it's like, do with it what you will. I believe if we're going to buy a business, we should try to stack the odds, stack the deck in our favor. Why make life Harder than it needs to be. So that, that is, if that is my belief, then that is what I've crafted. Now my thesis to be around from being involved in deals that were not this. And it is buying a business that is a need in the world. Like it is a need. Roofing is a need. Hood vent cleaning is a need. You know, accounting is a need. It's a business that is needed by the marketplace regardless of economy. So that's, that's one of my pillars. Again, doesn't need to be yours. I like my life to be easier than harder because all money spends the same, whether it came from a really hard business or a really easy business to operate. So that is my belief. Second part is I like businesses that can get recurring or contracted revenue. Do I have to start over every month and go get all of my customers at the beginning of that month and go find all new customers that month? I don't want to do that again. Can you be successful doing that? Absolutely. There's tons of companies that are. But I don't want my life to be harder. I'd prefer my life to be easier. The other.
- [39:46]
A
It's also choosing the problem that you're best suited to solve.
- [39:50]
B
Yeah.
- [39:51]
A
If y' all remember, we talked about top line and bottom line CEO for me, I'm like, I want recurring revenue. But if you gave me the problem of like, hey, we need to go get customers, I'm like, okay, cool, we'll build a salesforce. Like, we'll build a marketing machine. Like, we'll just go out there and do it. Cody would rather die than do that. He doesn't want to fucking do that. He wants to do the ops. Like so know, know what game you're trying to play. Because I'm not going to try to operationalize something and he's not going to try to build a sales machine. So know what game you're playing?
- [40:19]
B
Yeah, a hundred percent. It's great context. That's why it's like, take some of the things that I say, throw out what you don't like and take what you do. Like that's, that's the real thing here. So, you know, for me it's needs based, recurring revenue, low capital expenditures. Again, going back to that plant guy. Example. Guys, that business is a cash eating machine. We make more money. What do we do? We go buy freaking shipping containers from china of a bunch more, you know, tree crap and flowers and stuff that come to our warehouse that also cost money to store that stuff in. And so it's like it's very capital intensive all the time. And so that is where again, you know, preference, lower capital expenditures. I also am, you know, growing and expanding a residential cleaning company. We have cars, you know, so there is, there's some expenses behind, you know, having to get another car when we're expanding. But it's not super expensive like the, you know, when I think high capital expenditures, I think, okay, I, you know, to expand my dump truck business, I need to go buy $150,000 truck or a quarter million dollar truck. And it's like, that's going to eat up a ton of the free cash flow. So, you know, and then the other part, you know, to the comments on, you know, geography is I prefer to do business in states that make business easier to do. Why do I want to go somewhere that has horrendous HR laws? Why do I want to go somewhere that has tons of red tape and bureaucracy around, you know, the business that I'm going to be involved in to make my life more insufferable than it needs to be. So again, everything that I talk about is just make your life, you know, to make your life the easiest possible in buying a business. That is already a hard thing to do, but definitely can and will be done if you take the right actions to do it. So I just, I just look at it through the frame of like, why not make it easier for. For myself is kind of my. My thesis now because again, I've been involved and I still am involved in businesses that are not my preferred to be in. So that's, you know, hopefully that helps. And I can. I saw your question, Clark. I guess. Any other comments on that you wanted to mention, Brian or anything else before I go to maybe Clark's question?
- [42:24]
A
One second. What's Clark's question?
- [42:26]
B
He's asking about like, earnouts.
- [42:28]
A
Well, we could talk. We could talk earnouts. Anything that's listed. I mean, they're going to kind of be like, all right, dude. I mean, I don't know what you're seeing, but everything that we see listed, they're like, all right, we're not doing that.
- [42:41]
B
Oh, like the earnouts?
- [42:42]
A
Yeah, yeah. I mean, I think at least from the broker perspective.
- [42:46]
B
Yeah.
- [42:47]
A
Because like, I've talked to probably like 30, 40 people and it's like when you're trying to negotiate that, they're just like, dude, I've got like 40 other offers.
- [42:56]
B
Yeah. And that's again, it's like competing. You just like, you're not gonna get your ideal terms in those.
- [43:03]
A
But earnouts, you. You'd want to do earnouts as much as you could. Yeah, it's a defense mechanism.
- [43:10]
B
Yeah, 100%. I mean, I just, I like we're looking at a commercial cleaning company to buy, to add on, to, like to start a commercial division of our cleaning company, the Perfect Clean. And I walked away from the deal because she's like, you know, this broker, you know, broker deal. But I'm still working those deals too. It's like I'm still looking at, you know, those as they come up. But, you know, as we're going back and forth in conversation, you know, she sees us as a very viable buyer, but her seller only cares about getting the most amount of money possible in his pocket at closing. And like, I'm not gonna just give him a bag of cash for his commercial cleaning business that he doesn't have a, you know, a good CRM. His clients are all in a Google sheet. He needs to make sure all these accounts transfer. It's like, come on. Like, that's just a risky buy at that point. So it's like I have to pass on that. And it's just like I'm passing on deals every single week. I'm hoping to, you know, get a deal, you know, every. As, as, as much as I possibly can, but we have to pass on them frequently. And like Gloria, to your point, it is competitive. And so it's, you know, sometimes you have to, if you really just want to do the deal, do it at terms that you're not as excited about. But like, at the end of the
- [44:21]
A
day, it's like a fair price for a good business.
- [44:23]
B
Yeah, that.
- [44:24]
A
I mean, it's Warren Buffett. Pay a fair price for a good business rather than trying to negotiate one that's decent. Like just, I mean, for, I mean, for the first hoods company, we paid like a four. Like it was like a four or five. It was a 5x multiple, wasn't it? I mean, but we just, we paid the multiple. You know, it was fair price. You want to hit on that a little bit, Pearson?
- [44:45]
D
Yeah, we, we paid, I think it,
- [44:48]
A
it was, we overpaid a little bit, I think.
- [44:50]
D
Yeah, it was actually just over four. But the reason we were able to swing it is because we got a 15 year note. Note at 10% interest, full seller financing. There's no way we. Then the reason we landed on service because the purchase price was way too high. So it's your, your price. My terms are, you know, the opposite.
- [45:10]
A
Yeah, thousand percent. Really? Quickly, we've got time check, 10 minutes. I think that it'd be perhaps a good conversation again to kind of go back to what we were talking about previously, which is the two primary constraints. I believe in Action Academy, which for anybody that's new in the call, I posted a link in the chat and I sent an email to all everybody that's buying businesses in Action Academy, just like fill out the four things and we can see what your constraints are. And then that's where we'll deploy resources to fix and solve those constraints. Because we can't solve every constraint at the same time from a capital and time allocation perspective. But the two that I believe is deal flow and the number two is under underwriting underwriting process. So I feel like if you can maybe hit a little bit on how you're able to do a back of the napkin underwrite versus a forensic underwrite, I think that'd be super helpful. Because what we're also seeing is today in the market, especially on market, very competitive. So if you're taking a week or two weeks and what a lot of people are doing is taking a full week or a week and a half to underwrite the deal to see what offer do I want to submit. And it's done like it's gone because somebody else already submitted offers. And so can you talk a little bit about your process of doing a offer underwrite versus a forensic underwrite?
- [46:26]
B
Yeah, 100%. So again, depends on the situation with the deal. If it's competitive, I'm going to give that route and if it's not as competitive, I'll give that one as well. When it's not as competitive, I try to build a little bit more rapport with the seller if at all possible. If the broker is not a freaking, you know, ding dong and like actually allows for that to occur, you know, actually happen. That's my preferred. So I can like face to face, whether via zoom or in person talk with the seller, understand what their goals are, what their objectives are, what are their plans once they sell, I'm understanding that. So then when I can try to create an offer that is going to help them accomplish what they want, but also accomplish what I'm trying to do with this deal. So like that's my preferred. When I don't get my preferred and it's like, okay, I have a limited time, I don't have all of this time with the seller, you know, I'm going to do this back of napkin math. And typically the way that I look at that is I'm going to, you know, look at the financials, but I'm going to napkin math and assume everything they are saying is a hundred percent true and craft my offer around that when I give them, you know, my LOI. Because what they're telling me is I'm assuming is 100% true. And once I get into diligence is when I'm going to go deeper into that and I'm probably going to adjust the terms. Like, that's in a competitive, like, all right, we got 10 other Lois. Like, I just need to come in with something strong and assume everything that they're telling me is true at face value. And then once I get into diligence is where I'm really going to beat that up. And you know, likely going to adjust terms. And that goes also to Clarks on like, how do you do the earn out? It's like once we get into the deal, like, you don't always have all the information to even put the earn out together either. Like, that's the problem is like you get into the deal, you're doing a quality of earnings. You're, you find out there's, you know, four of the customers that are, you know, being served by this company represent 50% of the revenue. That is risky business. And we need to figure out how do we protect if those four customers decide to leave the business. Like, we need to have some retention clauses and via earn out or seller note, like, however we can structure it to protect against that. Like, one of the examples that I can give you guys is we found out in diligence it was not part of the original deal, but the accounting firm that I closed on in October, we found out in diligence one of the clients represented 14% of the revenue of the company. And I was like, yeah, like, I ain't buying this without making sure I have a clause in place to protect me if that one client that represents 14% of this entire revenue, you know, walks out the back door, which, you know, that client did. We're four months in that client left and he was 14 of the company's revenue. And so, you know, I have a clause that I'm going to be clawing back, you know, money that we had. And you know, we did it in a seller Note@month12 Based on whatever revenue is lost from that client will be, you know, based on the value that I paid, we'll reduce the amount for the, for that seller note. So, you know, that's an example. Again, I didn't put that in there in my initial loi because I'm fine. You find these things out once you're in diligence. Like, you don't always have the time, especially when it's competitive.
- [49:48]
A
Yeah, you don't know what type of crazy they are until you have a drink at the bar. You gotta figure out what type of crazy you're dealing with, because sometimes it's your type of crazy and sometimes it's not. Cool. We got a couple minutes. Anybody have any burning questions? Any questions? Right. You can just raise your hands or post in the chat. I'll open it up. All right. Tony, what's up?
- [50:13]
E
Cody, thank you for your time. Hear from you again, man. So we are on, like, our fifth round of Lois, and we're trying to understand. Well, with one specific company, we're trying to understand how to best, like, actually underwrite the. The creative financing. So, like, you know, we're looking at earnout opportunities. We've done, like, seller financing up to wazoo, balloon payments, etc. But, like, how can we get that to reflect the change in dscr? Because I understand conceptually, like, it makes it better for us. Yeah.
- [50:48]
B
So, I mean, I guess, what. What's the. What's the problem that you're having in trying to get the DSCR to work in the structure that you're trying to do?
- [50:59]
E
So we have essentially, like a 13 million asking price, and it would. That asking price, that offer would only work if we do like, a 6 million solid finance, but he's willing to only do 2 million solid finance plus 10% rollover equity. So now I'm thinking about other creative ways, like, you know, deferred payments, balloon, et cetera. Specifically, if we talk about deferred payments, I understand how in the beginning that helps me have more cash to put into the business, pay investors, et cetera, to then scale for, like, the first year. But how does that really change the dscr? Like, I guess, how does. How do I make the spreadsheet reflect that?
- [51:39]
B
Yeah, I mean, at some point, you're, like, kicking the can if it's not the right structure. But, like, if you can, you know, if it's a. The challenge is, like, you have to make it work at some point. Like, the DSCR has to be healthy at some point.
- [51:54]
A
Like, what.
- [51:55]
B
What's the. What's the multiple you're paying on that? Probably five, six, or seven.
- [51:59]
A
Five.
- [52:00]
B
Yeah. It's hard to make unless you're bringing on deals that you're paying five times multiple or more on it's hard to make the DSCR work in general unless you're bringing typically at least 25 to 30% equity into the deal. You could run the math on your spreadsheet and you're going to find if the. If you're able to bring more cash equity into the deal, you can start figuring out a way to make the DSCR be healthier. But in general, when you're paying a five times multiple just in general and having very minimal equity going down, like the amount of debt service on that deal is like eating up majority of the deal. And it's just hard to make the numbers work when you're paying that five times. Hence to the example that Pearson gave of they paid five times for that company, but they extended the note over 15 years. So it made the monthly specifically. Yes. So it's like the only way is like extending the note over a longer period of time to get a lower monthly payment. And you could only do that for so long. And you know, like for a deal like that where it's like the guy, you know, he wants to get his 5,6 million bucks, but it's like, you know, the other way, but is also risky is you put it on a longer time horizon like you know how Pearson did in that deal, and you have it balloon maybe within three to four years. I say three to four because you could only actually refi that thing with bank debt after two, you know, actual years of financials before you're going to be able to start a refi. So that's why I say three years at minimum. So like three to four years and then you can try to do that. But again, then you put yourself in a risk of I. We don't know what the debt market's going to be in three years. We don't know what that's going to be in four years. You know, we don't. And it's like, how did the business perform over that time? I kind of look at every deal that I'm buying and I just kind of underwrite for like, I assume the business will go down 15 to 20% in the first year that I buy it. I assume that everything's going to be worse because, like, I've just been through enough that like when it doesn't happen, I'm like, oh, yay, that was nice. You know, versus when it.
- [54:10]
D
Real quick, on that note, Tony, I know it's a little different for you because this is going to be like a lifetime old business probably. But for everybody else who's thinking about exiting. The higher the purchase price on the front end, the less you're going to have in net profit when you actually go to exit if you haven't paid that down too. So that's something to consider is even though you're getting good terms and your cash flow and your DSCR still safe, if you are planning to exit, it's still money out of your pocket in the long run when you go to sell.
- [54:42]
A
Well said, Clark.
- [54:48]
B
Oh, you're muted, Clark.
- [54:50]
A
Great question, Clark.
- [54:51]
F
Oh, yeah, yeah. So yeah. What'd you think? Great question, Cody. I love what you're saying because, you know, I despise on market stuff and I know I need to get that out of my head and at least spend a little more time on biz by sell. But you know, coming from real estate where we're used to off market, it just makes more sense on that. I'm interested on your process that you laid out to be able to go with Apollo and go through that whole procedure. Have you looked at all like. I'm just curious as to. Are you looking at like trying to integrate like Claude code or whatever to like get AI agents to do all that scraping and cleaning for you? Is that something that you're looking at? And then are you familiar with get cohesive, which does everything that you kind of said all in one that where you don't have to build the team for it?
- [55:36]
B
I haven't looked at building, you know, the, the bots out, but.
- [55:39]
F
Right.
- [55:40]
B
I know that it's. It 100% can be done. It's just not something that, you know, we're currently doing right now. And I'm not familiar with. You said what? Get cohesive?
- [55:49]
F
Yeah, I've been using it for like five or six months and, and it's really, really cool where I just tell them my parameters and say, hey, you know, go reach out to plumbing companies that have at least X amount of revenue. It's not super specific, but then it just creates everything and it does all of it and then just drops it into like an inbox that you can go into so you don't have to have quite as many pieces involved.
- [56:12]
B
Super interesting. I'll have to check that out. Thanks for the share. But yeah, no, I wasn't familiar with
- [56:16]
F
it because I know that like a lot of people listening on this call and just like me where it's like, all right, well you have to have someone to scrape it and then MBA to do this and then, you know, it's a lot of steps Right. And for you, with your systems background, it probably is very, very, you know, easy to you. For a guy like me, that's like nails on a chalkboard. So it's like, is there some way that can just be done all at once and I'll pay a little bit more for it, knowing that I won't have the brain damage of trying to. To, like, organize all that well.
- [56:43]
A
That's why. That's why you put the expensive option first. It's. It's. It's hustle of the money. But also, you refuse to do systems, dude. Like you, you haven't felt enough pain yet.
- [56:55]
B
I've.
- [56:55]
A
I've felt. I've. I'm reformed, dude. Like, I've felt enough.
- [56:59]
F
You're recovering a recovering.
- [57:01]
A
I' covering action taker, dude. Like, give me a. Yeah, give me a process now. That's why I even thought for a second of renaming the name from Action Academy for the podcast, because I'm like, actually, once you get to a certain point, you taking a bunch of action in the business is actually counterproductive. Like, I'm actually supposed to work less in the company on the critical few instead of this screaming many. But yeah, no, that's. That's sick. Is that somebody po Posted it?
- [57:26]
F
Yeah, it's. It's.
- [57:27]
A
It's. Get it.
- [57:28]
F
It's called get cohesive AI and it's actually is a guy. His name is Kevin. And I'm more than happy to make it introduced to whoever wants it. But they. He created this for private equity to go buy plumbing companies. And then through that, it was like, I went to him and I was like, hey, well, I just want to reach out to, like, GCs and property managers. So, like, do you need a plumber?
- [57:50]
D
Right?
- [57:50]
F
So just B2B type stuff.
- [57:52]
A
But then.
- [57:52]
F
And then as I started to get into sba, I was like, well, I need to just re. Divert some of those emails to say, do you want to sell your plumbing company? Do you want to sell your H vac, whatever? And I do nothing. And I get a text and it just drops into like, their specific inbox. And they do all the same stuff. They warm up the emails. It's like all these emails that are like leaky plumbers-services.com, you know, so that if it gets spammed, it doesn't matter. So it kind of described everything you said, but all in, like, one box.
- [58:19]
A
Yeah. Cody kick rocks, dude. This sounds way better, dude.
- [58:25]
B
Our team's using. I. I sent. I sent a message to the guy my team like, what are we.
- [58:30]
A
What are.
- [58:30]
B
What are all the things we're using? And I'm like, there's just a lot. Yeah, it's all. All.
- [58:36]
A
It's like Mastermind. It's like you should take a bunch of people together and have them share ideas. Like, they should come up with a name for it.
- [58:43]
B
Mastermind.
- [58:44]
A
Cool, man. And Cody, if you have to. If you have to drop right now, that's cool too.
- [58:47]
B
Oh, good.
- [58:48]
A
But, yeah, final, final point. Covered a bunch. A bunch of good ground here tonight. We covered off market deal sourcing, offer submission. Like, how to structure your offers a little bit about how to structure debt and how to negotiate. Deb, one last thing. Are y'. All. Are y' all savvy on the differences between buying businesses for cash flow versus enterprise value? Does that make sense to y'? All? Because I've talked to a couple of y', all, and it's like, I understand what you're trying to do, but there's also, like, a different level to the game. And I thought that I haven't been enough on a lot of these calls recently, and I'm gonna be on way more. But just like, to give you guys an example of, like, how this works, like, that's what me and Pearson are doing right now, and the enterprise value strategy. And that's what I'm doing with Action Academy too. Like in the macro. Macro probably is like, how do you get an enterprise value that's like, so bananas? It's just like, whoa, this will change my fricking life. And so there's two different ways to think about business buying. So number one is for cash flow. So Cody listed an example where he said, there's a company that's 24 years old, I believe you said, doing $1.1 million, a lot of you guys would be like, oh, my God, that's like my perfect company. I hear that. I'm like, wow, what a shitty company. You're 24 years deep, and you're only doing a million point. One point, $1 million. That's because it's a cash flow business. And so level one of the game is. And when I got into this, I'm like, okay, cool, let's buy businesses for cash flow. Which means you're chilling on the Beach. You've got 100,200, $300,000 coming in. You don't touch it. You're like, all right, I'm just gonna let this thing go. And that's cool. You can do that. But the next level of the Game is how do you do what Cody's doing right now, which is he wants to buy a bunch of accounting firms and bookkeeping firms so that he could package all the profit together and then he can have them all together through acquisition instead of organic growth. And then he can go position it to strategic or private equity. Those are the two different buyers that you're gonna have. You're gonna have a strategic buyer who's a larger competitor in your space. It's going to buy you out, or private equity and you get these crazy multiples. So an example is, I mean like I'll use Action Academy. So like Action Academy, if I wanted to do, I'm doing it through organic, but if I wanted to do it through acquisition, there's also in the background like a couple of things that I'm looking at that I don't talk about yet. But if you do a million dollars in profit, like maybe you'll do like a 5x6x multiple. But if you do $5 million in profit, you're looking at like an 8 or a 9x multiple. So the more profit, like 5 million in profit's like the magic number where you can really get crazy, crazy, crazy valuations. And all of a sudden it's $40 million that you're looking at as a check. And so what, that's what me and Pearson, I think we've got our profit up to what, like over a million. Getting it up to 2 million through acquisition because he realized, oh, going door to door in the market, it's going to be a lot more difficult for us to grow our profit to that level. But that's the game. So it's like up to $500,000 of profit. Like that's where you guys are kind of playing. Once you get up to a million, that's a new level. And then you're kind of in the EBITDA game. And then once you're getting up from like 1 to 5 million, like $5 million in profit is where private equity, like that's where they play. And then that's where you have like life changing exits. So I'm not looking to sell Action Academy, but I'm like, okay, this is the game that you can play where you can have crazy values and then you could take lines of credit and everything and private banking. And it's really cool. You want to hit on that a little bit in closing, Cody.
- [62:28]
B
Yeah, a hundred percent. I, you know, it's kind of what I was sharing. It's like my, my focus is Buying these accounting firms for three to four times multiple of EBITDA. And once we get to 4 million EBITDA then it's to, you know, sell for an eight times multiple to, you know, I have some family offices that have connected with that are doing roll ups that are in bigger roll ups to you know, be a, you know, a meal for them. But you know, that's, that's essentially what we're looking for. And you know, to my last comment I made there of I think, you know, one of the best business sizes to buy. You know, again, just unpopular opinion, a lot of people don't agree, but I think kind of 400 to 800k EBITDA is one of the best sizes to buy because you're not going to having to pay five, six times for those. You can still get these sellers to do three to four times. And it makes the debt service coverage a lot easier. And it's still a good size. You know, you buy one of those and then you could buy, you know, another one that's, you know, similar or a little bit smaller and get yourself over a million in EBITDA just with a couple, a couple of these deals. And so, you know, that's, that's kind of a lot of the stuff unless I find, you know, off market. A lot of the on market stuff has been really hard to make. The numbers, you know, like the one I closed on in October, I paid 3.6 times EBITDA. So that's kind of right in the, you know, the, the deal size that I want to be at for, for those that I'm buying. But you know, you can put a few of these things together. It all sounds easier, right? You know, when we're just saying, yeah, just throw a few of them together. Like there's a lot of work and you know, to make it happen. But it's, it's a very, very significant payoff, you know, at the end of it.
- [64:03]
A
So at the end of the day it's just like you gotta know what game you're playing. And so it's like whenever you're buying any of these companies, you have to buy with the end in mind. I think Pearson brought up a really excellent point that we kind of like just glossed over, which is, hey, if you want to sell this in the future, you know, this may impact your ability to do so. And so this is where I would compare this to real estate. When you're buying a piece of real estate, you want to buy that piece of real estate with like what are you going to do with the real estate? What are your exit strategies? So an example is if you're buying a short term rental, is it able, can you move it to midterm? If zoning changes, if policy changes, can you change it to long term rental? If policy changes, you know, like, how would you get rid of it? Like same thing with a lot of these different places, like mixed use. Especially right now it's like, what's your exit strategy? Same thing with business. It's like a lot of the, a lot of us are right now we're like, oh, I want to get out of corporate, I want to buy this company. But now you've got a plumbing company and like unless you shut it down, like you've got a plumbing company and so you gotta figure out like if you did want to exit, what would you do? Now the good news is because you guys have bought it, like there is a documented enterprise value to it versus something like Action Academy, which I've built is significantly more difficult to put an EV to it. Unless like I removed myself for a year and did a bunch of like blocking and tackling. So. And then what did Cody say in the, in the chat for first acquisition?
- [65:26]
B
I was just giving my, my opinion, which is worth as much as, you know, whatever you guys would, you know, value that as?
- [65:34]
A
Yeah, correct. I mean that's like smack in the sweet spot. So 400 to 800k is like 1.2 million. So 1 to 3 million dollars. And Sean Blanding sent me an email where he said, how do I compete with private equity if I'm going up against private equity? You're not going to win.
- [65:51]
B
No, you're not going to win. I guess all comments on that last is like where people are like, oh well, other people are paying more. Strategic buyers can pay five, six, seven times because they're just going to roll it into their existing infrastructure so they don't need, they're not requiring the debt service that you require because it's your first acquisition. PE, family, office, a lot of them, they're bringing 25 to 50% equity to the deal. So they only have, they only have debt service on 50% so they could again pay more than you. So it's like you are the one that has the least flexibility unless you bring a lot of equity to the deal as far as getting the debt service to, to go. So it's like when you're competing against them, it's just like you're not going to win unless you get a seller that Just doesn't want to sell the B, then they'd rather sell to a normal person, you know, and that's not
- [66:38]
A
like out of possibility. That is possible. But yeah, like the reason that we're buying these companies to what Cody's talking about is number one is like the market rates. So it's just like the multiple of profit that we're buying at. And then number two is so that we're not competing with PE because PE really likes to play around 5 million in profit. Like the reason being that the larger business that you buy, it's not necessarily true that it's a better business, but it's a better packaged business. They've got more like layers of management. They've got, they've got better profit, they've got better revenue, they've got more systems and processes in place. And so I'm learning that a lot right now as we package this thing as an eight figure company. It's crazy. It's a lot of work. Anyways, we'll let you guys go with that. Thank you so much for showing up. Thank you for playing full out and being super, super engaged. Cody. Thank you. Shout out. You want to post like where people can follow you, learn more, do anything partnership wise with you?
- [67:35]
B
Sure. I mean I, I haven't been super active on social media but you know, if you want to connect on Instagram, I'll. I' of, you know, is it okay if I have a shameless plug for something I'm looking for right now? Brian?
- [67:47]
A
No. Yeah, of course. Okay.
- [67:49]
B
It's a. I'm not trying to sell anyone anything.
- [67:52]
A
But what are you looking for?
- [67:53]
B
If, if anyone knows someone that has business development. I'm looking to hire a business development director that is specifically helped companies in the sub 10 million a year revenue build an outbound sales team and you know, from cold email to outbound and you know, rent can run the whole play. I want to hire that person, plug them in to, you know, our bookkeeping company to go get us bookkeeping, you know, clients and grow that book of business. And I'm gonna pay him a bunch of money to do it. So just putting that out there in the ether is I'm just telling everyone that I come into contact with.
- [68:28]
A
So if anybody wants Cody to hop on the phone with you, perhaps it would be a really good way to lead. He's saying, hey, I found this person. You should hop on the phone with them. He'll be like, oh my God, I love you. Like you should come hang out with me. In Scottsdale, and then everyone's happy. So, guys, thank you so much for showing up. It's been awesome. And, yeah, we'll keep trucking. And then, yeah, go check the email if you haven't fill out the four questions. We're revamping the entire SBA program for you guys so that we can do a bunch of acquisition. We want half a billion in acquisition this year, so let's make some money. See you. Bye.