#216 How One Operator Is Making Big Waves in Business Acquisitions

Summary

Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Episode #216: How One Operator Is Making Big Waves in Business Acquisitions
Release Date: June 27, 2025
Hosts: John Wilson and Jack Carr

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Introduction

In Episode #216 of the Owned and Operated podcast, hosts John Wilson and Jack Carr delve into the dynamic world of business acquisitions within the home service industry. This episode features Chris Barr, a proactive operator who is making significant strides in acquiring businesses. The discussion centers around Chris's recent acquisition attempts, the strategies he employs, and the lessons learned from both successful and unsuccessful endeavors.

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Recap of Chris Barr’s Journey

[00:00 - 03:19]

Jack introduces Chris Barr, highlighting his ongoing quest to acquire businesses, specifically in the plumbing, electrical, and HVAC sectors. Chris shares his excitement about recent developments and the traction his efforts have gained. The hosts emphasize the importance of understanding the nuances of business acquisitions and the impact of personal relationships on deal-making.

Notable Quote:

• Chris Barr [00:30]: "Such a dynamic couple of weeks. But I mean all good things. Yeah, love to see the traction."

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Initial Acquisition Attempt: The Pool Company Deal

[04:58 - 15:31]

Chris recounts his first acquisition attempt with a pool company, codenamed "Scrooge McDuck" for NDA purposes. The discussion highlights the challenges of skipping the Letter of Intent (LOI) phase and moving directly to an Asset Purchase Agreement (APA). This approach, although bold, led to complications when another buyer seemingly outmaneuvered Chris, raising concerns about broker practices.

Notable Quotes:

• Chris Barr [05:41]: "We've gone through a transaction before and we know what that flow looks like."
• Jack Carr [14:09]: "Somebody else came and stole it out from under you in the interim."

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Lessons Learned from the Pool Company Deal

[15:31 - 19:49]

The hosts dissect the failed pool company deal, focusing on the decision to bypass the LOI phase. Jack emphasizes the traditional acquisition process, outlining steps from initial contact to due diligence and finally, the APA. The conversation reveals the risks associated with skipping critical phases, such as reduced leverage during negotiations and increased financial exposure.

Notable Quote:

• Jack Carr [07:35]: "After you finish that, you go into the APA, like, 'Hey, I'm ready to buy.'"

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Successful Acquisition: The Pressure Washing Business

[19:49 - 38:24]

Shifting gears, Chris shares his successful acquisition of a pressure washing business. He describes the meticulous sourcing process, including hiring freelance contractors to identify potential targets. The deal was expedited thanks to a strong relationship with the listing broker and the pre-assembled team that facilitated swift due diligence and legal processes.

Key Points:

• Sourcing the Deal: Chris leveraged Upwork to find suitable businesses, leading to a prompt discovery of a pressure washing company listed for sale.
• Due Diligence: Engaged a top-tier accounting firm to conduct a thorough quality of earnings (QOE) analysis, ensuring transparency and accuracy in financials.
• Financials and Purchase Price: The business, with a four-year average revenue of approximately $1.7 million, was listed at $1.5 million—a figure at the higher end of Chris's range. Creative structuring, including an earnout, was employed to mitigate risks.

Notable Quotes:

• Chris Barr [21:11]: "Their revenue over like a four-year average is like right around like 1.7 million."
• Jack Carr [22:43]: "You have somebody already to go to for some easy due diligence, you have somebody already to go to for some legal work."

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Creative Deal Structuring: Earnouts and Seller Financing

[38:24 - 45:25]

The conversation delves into the innovative deal structure Chris employed for the pressure washing business. Instead of a straightforward purchase, Chris introduced an earnout component and seller financing to balance risk and reward. This approach ensures that the seller remains invested in the business's success while providing Chris with financial protection.

Earnout Structure:

• Initial Payment: $900,000 at closing.
• Earnout: $300,000 over three years, contingent on the business meeting specific financial targets.
• Seller Financing Note: 25% of the purchase price is handled via a seller-financed note, providing the seller with ongoing income and incentivizing performance.

Notable Quotes:

• Chris Barr [26:22]: "We're doing 900k at close and the rest in an earnout."
• Jack Carr [27:03]: "An earnout structure is usually a private equity firm comes in, buys a company, wants to keep the owner on..."

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Risk Mitigation Strategies in Acquisitions

[23:43 - 33:36]

A significant portion of the discussion focuses on strategies to mitigate risks inherent in business acquisitions. Chris emphasizes the importance of thorough due diligence and creative financial structuring to protect against unforeseen challenges. Jack reinforces these points, advocating for structures that allow flexibility and safeguard the buyer's investment without stifling growth potential.

Key Strategies:

• Due Diligence: Comprehensive analysis of financials to uncover any "skeletons in the closet."
• Flexible Deal Terms: Incorporating clauses that allow adjustments based on performance and unforeseen expenses.
• Professional Support: Engaging top-tier CPAs and legal experts to navigate complex transactions.

Notable Quotes:

• Chris Barr [24:07]: "We've got a very, very thorough list and a very, very good accountant."
• Jack Carr [28:08]: "It's a gross margin game because realistically, expenses go up. You don't just eat expenses, you raise your price to match the rate of your expense increase."

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Discussion on Deal Structures: Earnout vs. Revenue Share

[33:08 - 45:25]

Jack and Chris engage in a deep dive comparing earnouts with revenue share agreements. They explore the advantages and disadvantages of each, particularly in the context of risk exposure and growth incentives. Chris opts for an earnout structure to cap his financial exposure while maintaining motivation to achieve performance targets.

Earnout vs. Revenue Share:

• Earnout: Provides a structured payment based on attaining specific financial milestones, offering a balance between immediate payment and future performance incentives.
• Revenue Share: Offers ongoing payments based on the company's revenue, aligning seller and buyer interests but potentially exposing the buyer to variable financial obligations.

Notable Quotes:

• Jack Carr [37:05]: "Everybody has different life goals... If your goal is to make $200,000 a year, run this business, then this is a great lifestyle business for you."
• Chris Barr [44:19]: "We're very risk-averse in that perspective."

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Lessons and Insights

Risk-Tolerant vs. Risk-Averse Approaches: Chris’s Marine Corps background instills a high level of discipline and risk aversion in his business dealings. This contrasts with more aggressive growth strategies, highlighting the diversity in acquisition strategies based on personal risk tolerance and business goals.

Team Preparedness: The necessity of having a reliable support team is underscored. Chris's success is attributed to his preparedness—having experts on board for due diligence and legal matters ensures swift and informed decision-making.

Importance of Relationships: Building strong relationships with brokers and sellers can expedite deal-making processes and open doors to exclusive opportunities. Chris’s rapport with the listing broker was pivotal in securing the pressure washing business.

Notable Quotes:

• Chris Barr [27:11]: "We are very granular on due diligence."
• Jack Carr [34:06]: "If you ever want to grow and there's reasons to grow... make sure if you decide you don't want to grow, that's okay. But just watch the debt burden on the business."

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Conclusion

Episode #216 of the Owned and Operated podcast offers a comprehensive look into the complexities of business acquisitions within the home service industry. Through Chris Barr’s experiences, listeners gain valuable insights into effective deal structuring, risk mitigation, and the importance of a prepared and supportive team. The discussion underscores that successful acquisitions are not merely about financial transactions but also about strategic planning, relationship building, and aligning deals with personal and business goals.

Final Notable Quote:

• Jack Carr [45:25]: "This is how ETA is because there's a thousand ways to skin this cat. And realistically, the creative portion is up to you and the seller."

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For more insights and actionable advice on growing your home service business, visit www.ownedandoperated.com.

Transcript

[Jack]

Welcome back to the Chris Barr saga. So far we've learned who Chris is, learned what kind of businesses he's looking to buy. We've learned some strategies and some ways to get him closer to that dream. And on this episode he gets some really exciting news and stick around to find out what that is. Welcome back to jackquisitions. Today we have Chris Barr back. What's going on, Chris? How you doing man?

[Chris Barr]

It has been a wild man. Such a dynamic couple of weeks. But I mean all good things. Yeah, love to see the traction. But how about you, man? How things been going?

[Jack]

We've just been busy. So busy. So if you're hearing this, we are about to launch the jackquisitions pod. So that's been busy. Owned and operated. We're still recording for that Quick Staffers is ramping up or placing some amazing talent and then it's starting to get in summer. So we've, we've sold more in like two days than we sell sold last year in like whole months. So really ramping which has been wild. Feels good, feels great, but it's a lot. So just busy.

[Chris Barr]

Heard. Heard that man.

[Wilson]

Just answer the phone is one of those phrases that's always easier said than done. I know it was hard for me in my business because the phone always rings while you're out in the field trying to get something done or it's 8pm and you're trying to get your kids to bed. Well, I have the solution for you. I'm extremely excited today to announce Quick staffers your go to solution for building a high performing cost effective customer service team. We are placing CSRs who have been pre trained on proven home service SOPs and scripts. The same ones that Wilson and I.

[Jack]

Use in our business.

[Wilson]

For a limited time we're offering $500 off your initial placement cost for the first 10 signups. See link in the description below or head over to quickstaffers.com for more information.

[Jack]

Sweet. So last we talked you were, I think you just ran or you were about to run a kind of a trial run walk through with the print shop business I believe.

[Chris Barr]

Yeah, it was an art framing business.

[Jack]

Okay.

[Chris Barr]

So yeah, did a walk through again. There was a lot of back and forth. The sellers, you know very particular about who they want to entertain. As buyer at first told us no we were able to get him back to the table and then when actually you know met with the owner and, and walked through the place and looks like a, a solid, well run business. Yeah, I'm sure it's a solid investment for someone out there. But just. And it's my Midwestern nature. We just. I don't have anything bad to say about anybody. It's not. It's not personal. It just. It just the synergy wasn't there, and the vibe just wasn't. Didn't feel like a fit. And it felt like, again, knowing that she was pretty specific of who she wanted as a buyer, I didn't want to go through the process, you know, feeling like I was twisting somebody's arm the whole time. It was just not the kind of, you know, working relationship that I wanted. So ended up actually walking away from that one. Did not even get. End up getting an LOI and just didn't feel like a fit. So it was weird to get that close on something that I liked, and I pushed so hard to get and then ended up turning the other direction. It was a bit weird, but felt like the right decision.

[Jack]

Yeah, no, that. That's. That is all. You know, I always say you don't have to like your seller, but not liking your seller definitely is a red flag, right, because it's not part of, you know, the process to like and be best friends with this person. But specifically on this deal, there was a tie in to, like, you had to work for them for a certain amount of months. So that would be absolutely miserable. But on top of that, if you don't like your seller, in my opinion, neither does other people as well as, like, the culture they built in their business has. Has to function around the seller or the owner of the business's life. Right. And who they are as a person. And so that reverberates through the company, any way you look at it. So if it wasn't a good fit between you two, it probably wasn't a fit for the business in the long term anyway.

[Chris Barr]

And I'm in no way disagreeing with you. I'm not here to offer opinions on the kind of relationships that they have with their clientele, with their employees. It could all be a very harmonious relationship and just not a fit for me. So I'm not necessarily putting it on them, but at the same time, I do not disagree with you at all. So, yeah, it just seemed like a good idea to go in a different direction. And it was also pretty outside of the sectors that I've been looking at up to this.

[Jack]

So, yeah, okay, so you killed that deal, which is all part of the process, right? You killed the deal. Then you have some big news. You went after that deal that Came off the market, now is back on the market. Talk about that in between.

[Chris Barr]

Yeah. So we got wind of this pool. It was more of a route business than the former other pool business that was more soup to nuts, full service. This one was more just kind of, you know, route cleaning, but it was founded by this billionaire, so I've been codenaming it for NDA purposes, the Scrooge McDuck, you know, pool company. And we really didn't. And that was kind of. The thing is, I realized as we were getting. As we were skipping loi, which you and I went back and forth about, that I really didn't have a ton of info on this business. Not nearly as much as I'd like to go to loi, let alone their assistance to bypass loi, go right to apa.

[Jack]

Yeah. That being said, let's talk about that, though. Let's stop right there. So we had a. We had some pretty long and decent discussions about skipping LOI and going straight to apa.

[Chris Barr]

Yep.

[Jack]

Brokers, lawyers, I'm sure the industry is mostly fine with it, but. Yeah, I mean, tell me your. Your viewpoint on that, because I know you had some. A decent feeling in a certain direction.

[Chris Barr]

Yeah, you know, listen, I get it, you know, and I totally, totally understand the perspective of don't do it. It's. It's, you know, bad to go. And there's parts of me that, again, do not disagree with that. That being said, it's difficult because I know the real estate transaction perspective so well. And I mean, again, there's tons of nuances and differences here, but we've gone through a transaction before and we. Many times, and we know what that flow looks like. And the fact that we take. Do have an out, we have 30 days of due diligence to pull the plug. We're not the type to fall asleep at the wheel and not be tracking our dates for those types of things. And, you know, if you look at a lot of these, Lois, for business acquisitions, so much is contingent. I mean, everything is subject to change based on what you find in due diligence, that you're really submitting an LOI to kind of hash out these main deal points. And the narrative, even though we didn't have a ton of info behind this deal, the numbers were good enough and the narrative behind it made us confident enough. And it was listed for 500k, which was the bottom end of our price range. So we said we'll get in A offer 100k over asking price for 600. Since they had A buyer play got on them before could it get the escrow money. They wanted to go directly to apa. We talked about it. Understand the hesitation there. But we said we've already, I think we've now the, the purchase price. Now that's kind of the biggest thing for Lois. We've already submitted that.

[Jack]

So, yeah, you've already put yourself in a position where you, you are in the leg down, paying more than asking. So there really is no renegotiation there. But for our listeners, I want to. So what, what happened with Chris? Is he normally or traditionally in the field? Right. You, you do the, you get the cim, you, you fill out an NDA. You get the cim, you go through the cim, it has basic financials. You meet with the, the seller, you talk with the seller, you decide, hey, this is good business, bad business. You ask them questions, they come back with answers. You ask them more questions, they come back with answers. Then you have the general basic on financials. You maybe even get some of their tax returns like that. And then the next step is you go into loi. You go into loi. That's where you start breaking open their books. They give you access to their QuickBooks or to their, your accountant can go look into their books and do a quality of earnings and see, hey, is this business. Yeah. You made, say they made a half a million dollars this year, but was a half a million dollars from one job? Was that job really even a plumbing route job? So there's like a lot of quality of earnings. Really? Is just, is it quality revenue that's coming in versus hey, this guy's paying me under the table over here and this guy's doing this weird thing over there. So it can get, you know, especially, especially with the, with issues in like how, how you're evaluating the business. If you're evaluating it off of a multiple, like every dollar is worth 3 to $4, right. At a 3 or 4x. So it can be in the seller's best interest to kind of get a little weird with money. I'm not saying that they're bad people, just saying, hey, you know, they might have counted something or forgot about something else that maybe shouldn't have been in there. Yeah. Long story short, after you finish that, you go into the apa, like, hey, I'm ready to buy. You either retrade it after loi, you say, hey, I believe it's worth this. Here's what we're going to, you know, or, hey, we're not changing anything. Your Books are great, they're super clean. Here's the offer, which is the apa, which is, that stands for the Access Asset Purchase Agreement. Right. And so you go to a lawyer, you talk to a lawyer, the lawyer helps you build the APA cost of money and then you submit it and then boom, you're off to the races, they accept it and then you start with banks. So what this seller specifically wanted to do is they wanted to skip the whole LOI phase and go straight to apa, which in itself is not inherently bad. Right. They've already figured out price point. He hasn't looked at the books yet, but right. They're asking over asking price. So as long as the books come out somewhat clean in due diligence, like there's no retrade available. Where Chris and I had a long discussion over a course of a couple days was yes, there's nothing wrong with going straight to apa, especially in his specific situation. That being said, it's not something that I generally recommend and I don't generally recommend this from a 32,000 foot framework level because it puts you, the buyer, in a poorer seat to renegotiate. So, so you're spending money up front, you're putting down earnest money. So now you have money tied in, it's not locked up. Right. You could cancel out, you get it back, you put some really good clauses in there that says, hey, 30 days of due diligence to decide some. I've seen it where buyers have forgotten and gone over that 30 days and still don't want the deal and then have to back out and lose their money anyway. We're going to ignore that little fact there, but what I will say is it puts you in a position where you're spending money up front, front to work with a lawyer and to get the deal ironed out. But you haven't actually seen the financials in depth. And so it puts you in, in kind of a worse spot, non optimal spot for having these talks with the, the seller. And so that, that's my belief in the framework is you want to come into this, as Chris said, extremely loose on what you don't get me wrong, you want a solid loi, you want to have a solid idea of where the price is going to come in. You don't want to really retrade. I'm not saying that, but what I'm saying is you don't want to start off in a, in a bad position where this seller is at an advantage because you've had to Put all this upfront money and lock yourself into a deal that maybe you find some skeletons. So that's all my point is, is when you go straight to apa, you're in a disadvantage, in disadvantageous position from the gate versus when you go into an loi. It's very loose. And that's why his seller didn't like it because it's putting him in kind of a negative or in a. The seller wanted him to be in an APA so that it's. He. He viewed him as a real buyer.

[Chris Barr]

Yeah.

[Jack]

So it's this balancing act that you have to do. It's not my personal favorite way to start off a relationship with the seller. I would like it to be a 50. 50. Nobody's at a disadvantageous split. It's just, hey, we're going to go into this, figure this out. We're going to do the due diligence, we're going to understand your business more. And if it is weird, we are going to retrade. And I don't have any capital up front that I've locked in to this deal. Yeah. So.

[Chris Barr]

And it's. It's. Beauty is in the eye of the beholder. And it's kind of one of these things where again, retrade probably was going to happen because we kind of already locked in our purchase price and really just exactly that. The numbers are what we think they are. We still have our outs. And the real key I found is loi, straight to apa. Regardless. We're. When you're going through that CIM process that you reviewed, you're working off such limited information. You really don't know much until you get a due diligence and get access to all their books, get access to all their financials and their numbers. So it was really just kind of all right, what's going to get us there and we got to spend a couple attorney dollars. Even if they go out the window, which. Which they did, you know, really wasn't the. Yeah. It wasn't the end of the world.

[Jack]

Um, so. But that's for you. Right. So like your, your situation is specific that to you in that you. That was a worth it as a risk for you to waste that. Yeah, I know for me personally, I wouldn't have done that. I would have said, hey, I'm not going to do it just because I don't, I don't want to pay. I mean, an APA can cost. A really good APA that you do correctly could cost, I know, 5,000 bucks more.

[Chris Barr]

This was, this was much skimpier than that. It was pretty bare bones, simple apa. So again, especially like, yeah, if you're.

[Jack]

Working with the SBA and stuff, they have a bunch of requirements that has to. I know you're not specifically, but, you know, if you're working with the sba, like, there's a lot of kind of terminology and paperwork that they need.

[Chris Barr]

Yeah.

[Jack]

And so, yeah, long story short, I mean, it didn't work out though. Somebody else came and stole it out from under you in the interim.

[Chris Barr]

That was, and that was the weird part. And I'm, I'm chalking it up. And I should even say I'm chalking it up. I'm pretty confident that it was fairly cheaty broker activities because what happened is got an LOI for 100k over. They said, let's go straight to ABA. We said, fine, I get the APA on Easter Sunday. We turn them comments around by like Tuesday at 9:00am so like, very reasonable.

[Jack]

Time for 48 hours. Yeah, yeah.

[Chris Barr]

And so then I'm pressing my broker, like, what's the word on this thing? He finally gets in touch with the broker, I think Thursday. And it's like, oh, sorry, another buyer came along and they ended up taking that offer. And so see, I'm like, well, we came in 100k over. Got you comments turned around like that. That doesn't add up. And what we're assuming is that the buy, the broker found his own buyer and so he was going to get.

[Jack]

Dealt to allegedly, allegedly acquisitions. And myself do not believe any of this at any point.

[Chris Barr]

Allegedly. My assumption based on what I'm hearing is that the broker on a buyer and bailed on his fiduciary duty to his client and, you know, wants to double dip on commission. So that's kind of what I'm assuming from the facts. I know. Allegedly. You know, but so, you know, this one obviously was in our hands. Out of our hands. Back in our hands. Out of our hands. I'm fine with it being to the winds and we ended up finding, you know, a great replacement in the pipeline.

[Jack]

That I'm very, very excited about. So, so let's, let's talk about that one from the beginning because I have some huge comments on this. But where did you get this last deal? What is it? And I'm calling it the Last Deal. But like, where, where, where did this come from?

[Chris Barr]

And be careful. I don't want to fall in love too fast, but I'm also kind of unit that way. Even though I Shouldn't, but it, the sourcing story was really fun. So I took the advice from this podcast. I went and hired some, you know, freelance contractor on upwork and I said, you know, here are my parameters. Go find me every painting and pressure washing business in this geographic area. I gave them some other criteria to head to make sure I wasn't, you know, swinging at either the top, top end or the bottom of the barrel their work was. But it was good enough to really kind of get me off and running with some cold calls I think. Three days in I called up this pressure washing business and he kind of like sussed me on at first. He's like, are you a broker? Like what's your deal once we establish some report? He said he's like well we're actually listed for sale. Which is why I was asking. No way. He's like, well we were just tied up for like five, six months of due dilig. Buyer just bailed and retrace a way from Sunday. So you know, we're about to list it back on the market but not for another week or so. So I'm like perfect, I get first crack at this thing. And actually it's funny, the listing broker was one of the first brokers I reached out to in my search process. Fellow marine vet. I have a good relationship with the listing broker as well. Really just by chance. Although now I'm thinking about it, I don't know why he didn't hit me up.

[Jack]

See that's what I said though like from the beginning is the brokers have so many people in their queue. If you don't stand out like a, you know, like a red big sore thumb, they're, they're not going to remember.

[Chris Barr]

You, which is weird.

[Jack]

They might or but like it's just, it's a lot right?

[Chris Barr]

They have a lot of people up my own skirt here. But like I thought that he would remember me because we had such like a nice warm relationship. I would check in with him like you know, at least every other week. So I, I thought I was a standout but apparently not. But what Regardless, you know, we got in front of the deal early which was great. Couldn't have had a more warm and enjoyable intro and start a relationship with these sellers. They're like tatted New Jersey guys. Just kind of like my sort of folk are really, really down to earth fun to speak with. Family oriented business as well. So sat down, spoke with them and they were even gracious enough to keep it off the market until we were able to get a chance to sit down and meet. Which again, yeah, just felt like the, the rapport established there was fantastic. So just got their LOI in today at noon. So it's been, we've been running a comb through, you know, the one. The four years of, you know, cash flow statements that we have.

[Jack]

But so what's the timeline that took you like what was the process? Did you, you, you reached out to them, got a hold of them, did in person, did you do a second in person or just a single in person?

[Chris Barr]

Single in person. I reached out to him probably on a, I think like a Tuesday ish. Or a Wednesday. Sat down with them that Friday knowing that the, the listing was gonna go back on the market sometime late the following week. So I know I, I knew I had like one week to, to analyze things and there, it's, it's attractive. There's a lot of things I really do like about it, but there's a lot, not a lot. There's some volatility in the SD and then some of the add backs and some of the, some of the way that they're categorizing, you know, cogs, expenses and all that, it was a little bit whack. So you know, it definitely took a lot more diligence in weeding through and getting confident about what exactly I'm looking about here.

[Jack]

Yeah.

[Chris Barr]

And then engaged my account, engaged evaluations expert in his office. So had some boots on the ground and was very in touch with the seller. I was like, listen, I do not want to get beat to the punch on another deal, but they were very, very open and honest saying hey listen, it just went back on the market a couple days ago. No one's sniffing around yet. You've got a few days. We will absolutely keep in contact with you should we get another offer so you have a chance to counter. So again, the relationship established went a long, long ways.

[Jack]

That's huge. And then what, what also that I hear is huge is you have a team already pre prepared behind you. Right? Like that's huge in itself that.

[Chris Barr]

You.

[Jack]

Know, you had somebody to go to for some easy due diligence, you have somebody already to go to for some legal work. And so I think that's an important thing that, that we kind of gloss over is this has been a really fast process for you, but you've also built a team in the background that has been able to really support, you know, you going, getting that week long period and figuring it out and going to there because hey, we, I know this valuation expert boom done. Like now we have evaluation. I know where I can offer in at. So that, that's huge as well. So I think a big shout out to you to actually like being somebody who is ready to go and who has everybody in place to actually be real. And I think that's something that you know goes a long way. And so let's, let's talk some light numbers because I know like you probably don't want to talk to you know exacts. Yeah, but you said there's some, some wonkiness in there. Can you go ballpark on. So it's pressure washing and painting. What's the side?

[Chris Barr]

Just.

[Jack]

Just pressure washing.

[Chris Barr]

Yep.

[Jack]

Oh my goodness. And what's the gross and the purchase price?

[Chris Barr]

Yeah. So purchase price they're asking like 1.5 ish, which is right at the top of my. And but I, since like episode one I mentioned power washing. I've always, I felt really confident.

[Jack]

That's what I'm pumped about man.

[Chris Barr]

Yeah. Especially down here in South Florida. I mean you can do it year round. There's really no lull periods and I got some notes from someone in your network about pressure washing and I understood a lot of the, the grievances, you know and the, the hang ups surrounding that, that sector. But there's going to be hang ups in any sector and it's kind of how you, how you manage it. And my whole thing was I wanted something that was commercial business to business oriented and they specialize in commercial and governmental properties as well as multifamily. They are doing some rolling or action. I got to hold myself on that one. But they're bottom line is they work with people and they recommend not seeking out residential and they won't necessarily avoid it and they won't say no to it. But the fact that that's not their focus was a huge, huge plus for me. So it checked a lot of boxes to make it worth taking that even though it's on the higher end of my, of my.

[Jack]

I, I just love that it came in the like I remember day one conversation one it was like I asked you what is your dream business? You said pressure washing B2B and like we're sitting here with a pressure washing B2B company that seems to be a good fit. So they came in at 1.5. What, what was their top line revenue and then what did you end up offering them? I don't want to talk about get two in the weeds in that. Yeah.

[Chris Barr]

But like so their revenue over like a four year average is like right around like 1.7 million. So.

[Jack]

Which is amazing for a pressure washing company. That's, that's very good.

[Chris Barr]

They're, they're doing some serious numbers and gross margins are like very, very steady. Eddie. No more than like a 5% swing in either direction, kind of right where they should be. SD was a little up and down again due to some very bizarre expenses that are very, very controllable. Like there was nothing like, yeah, it's all kind of. We've stuck a bunch of red flags like, all right, this needs to get hashed out and due diligence, like, what the heck's going on here? But it all seems things that are very, very controllable, like nothing that's gonna not, it's not material cost or thing that's gonna run away from me.

[Jack]

So with that being said, right, the way that you mitigate risk in these acquisition deals is there's two ways to, to mitigate risk. Due diligence and price.

[Chris Barr]

Yep.

[Jack]

So what are you doing? Like that's the framework, right? Because if on the extremes, right, this, if somebody, if they sold this to you for $1 as an asset sale, right, the price is so low that the risk doesn't matter. It doesn't matter that they've been, you know, their books are not like ugly. It doesn't matter that the owner is an asshole. Like it doesn't matter if they sell it for you to cheap enough. Well, I'm taking a swing here.

[Chris Barr]

This is, this is, this is a big book for me. Yeah, yeah.

[Jack]

But on the other end, right, due diligence of like actually going through their books really in depth and paying for good QOV and making sure that they're being honest. So how are you looking at this as you start moving into. Hopefully they sign the loi, but like what's the purchase price? And that's why I'm bringing up, you know, this whole thing where. How are you viewing that? Are you getting creative?

[Chris Barr]

Yeah, I, absolutely. We've gotten very creative. I'm excited to tell you a bit more about that. And one quick note on due diligence intelligence since we can simply breeze by it. Yeah, we've got a very, very thorough list and a very, very good accountant. And we're basically telling him this is not quite forensic accounting, but about as close as you can get to that as we possibly can. So again, we've got.

[Jack]

Is he experienced with qoe though?

[Chris Barr]

Yes, he is and he's with a. It's. I can. That's not bound by any. It's Kemper CPA. They're a top 100 accounting firm in the nation. Like yeah, they've. They've got enough resources there where I feel very, very confident in them kind of handling the due diligence process. So we, and that's just something we are very anal about in general. So yeah, all numbers will be gone through with A in contracts, et cetera, et cetera. So we're very, we're very granular on dd. So again to risk mitigation that's we're all pretty in alignment there as far as purchase price goes. Yeah. You know I and their multiple was right around like just shy of a three. And it from my research a pressure watching biz trades around like 1.5 to 3x. They've got a lot going for it. So I can't ever reasonably say it's below a 2. But due to some of these accounting practices that we saw, I don't know if it's really on the high end of the spectrum either. So we came down to where gonna try to end up at a target purchase price of 1.2. And then I am doing, you know I, I'm hoping there's post production where I can go and take out some of these numbers if I'm getting myself in trouble. But we're offering. Can I say how much we're offering at close?

[Jack]

Yes. There's. There's nothing, there's nothing that should be in an NDA that that would say.

[Chris Barr]

Yeah, what you're offering. You know I have confidentiality close in them. So yeah, I'm not violating.

[Jack]

I think we're good on that one. But yeah, like what. How did, how does that 1.2 coming out at. Because right. The creativity aspects is what I always love.

[Chris Barr]

That's the fun part. So we're doing 900k at close and I know that you had. Then we're doing the rest of it in an earn out. And I know that we had a talk about earnouts and I gave you my idea for an earn out. You said yeah, good effing luck, dude. And so say yes. Hey, that's what we submitted. Yeah. And so but the thing is it's not necessarily just about because what Jack and I were to the audience.

[Jack]

Yeah, I mean well, we were.

[Chris Barr]

So yeah. We get into the structure of that. We're asking that.

[Jack]

Let's just start with what you offered first.

[Chris Barr]

Yeah.

[Jack]

So you left 25% as a seller finance note of some sort and you're structuring it as an earn out.

[Chris Barr]

Yeah.

[Jack]

Which for everyone listening who doesn't know that means that certain goals need to be met to get the last evaluation. What I told Chris is always, always, always recommend a seller note because on the first side of it, right, if you need the seller to do something, it incentivizes them. So in this case an earn out. A traditional earn out. We'll talk about your special earn out here is usually a private equity firm comes in, buys a company wants to keep the owner on, says hey owner, if you hit, if you grow the company 20% in the next three years, we'll give you, you know, the last bit of this purchase price, we'll give you the last 300,000. So that's the earn out structure. In super simple terms, it's great. Once again, it's incentivizing the owner to stay on and to continue working hard. And that's generally the structure of an earn out. But you also should do seller financing because for indemnity and other kind of legal reasons, it's the first place you pull from if the seller doesn't do what he says he's supposed to do. Right. So if you have in the clause that all vehicles will be working day one and then you get there and three of the vehicles are down, you can't really, it's very difficult to go to a seller and say hey, three of these vehicles are down. It's going to cost me 20, 20000 to get back up. I need to check for 20 000. So it's going to go kick rocks, see me in court. You're closed. But what is much easier to do is say, hey, we are going to deduct 20,000 from the seller note. So now you don't owe me 300, you, I owe you 2, 280 in that example. So that it's a great tool and it's also like a protection mechanism to make sure that the seller is going to do what they say they're going to do. Probably one of the most important decisions you can make in your ETA journey is which SBA lender You are going to pick a lender who will be in your corner to get you closed on the deal as well as set you up for future expansion. That is why we partnered with Alan Peterson from First Internet Bank. He and his team take a how can we approach as well as I personally know they specialize in home service acquisitions. Mention the show or my handsome bald head and receive a reduced good faith deposit as well. As a detailed deal review and maybe even a buy side pre qualification, no strings attached. Head on over to Alan fib.com that's a l a n f I b dot com or click the link below to get connected. But you came to me with this wacky idea. I love it.

[Chris Barr]

This is how wacky it is because again, we're totally new to this deal structure but. And once you explain why it's wacky, I agree with you.

[Jack]

I love it.

[Chris Barr]

What we're doing essentially reflects a seller now. But the thing you also get with the seller note is they're going to have their own interest rate attached to it. So, you know, I didn't, I didn't like the. I'm already paying interest to the bank for this thing. I don't want to pay more interest. So I, you know, my whole thing was. We talked about this a little bit last time. Simple man, simple needs. You know, my income needs are not. I can, I'm a cockroach. I'm used to living in bushes and shit. Like I can live on very, very little. So I said, listen, I'll cap my income off this and there is a healthy margin on top of it. But I said I'll cap my income at a few hundred K. And so.

[Jack]

For everyone listening, a few hundred K generally isn't cockroach level living. But I'm going to, I'm just going to let that pass by for me.

[Chris Barr]

I went into this process expecting, I was like, if I can just make. Because I was in sales where there was the classic low base and they said commissions but deals wouldn't come. And so I'm like used to living on like less than 100. So I'm like, if I can just get to 2, I feel like I'm, I got more money than Davy Crockett. So this thing absolutely had buffer for a few hundred grand and then some on top. So I said, listen, I'll cap my income at a very, very safe level. And which again, way more than I feel like I could ever spend in a year. But I'll have my income here. Any overages. And according to the numbers I'm seeing, there should be plenty of overages. Any overages go to you, the seller, until we hit this eventual 1.2 purchase price and to kind of sweep because you point out you're like, yeah, as what?

[Jack]

As like a percentage of revenue or as just overages? Like anything comes off my income is.

[Chris Barr]

Capped at, you know, at a few hundred K. Any overages in discretionary earnings Go right to you as the seller for a span of three years until you hit your eventual purchase price capped at 1.2. And you pointed out they're not going to like that because any overages, a. You could shuffle them around in a lot of different ways to hide that. Or not even being shady about it, you could just reinvest into equipment, into advertising, and all these things for growth. And so to mitigate that, I said, hey, listen, we'll do quarterly reviews of our books. Again, we use a top 10 CPA from all the cutting for. To avoid taxes that you guys have done. Our accountant won't do that. Like, we, we just don't do things that way. So you'll get, you know, quarterly reviews of the books and we'll put a 10 variance cap on expenses. Basically, we just want to run it the way that you guys have.

[Jack]

Okay, so you're going to run it exactly the way that they're going to run it.

[Chris Barr]

Yep.

[Jack]

10% cap cap on your salary. And then what you're saying is that anything from a net cash flow earning at the end of the year in the bank, you're just going to redirect that to their account until they reach that last 300,000, it sounds like. Yep.

[Chris Barr]

Yep.

[Jack]

Sweet. Yeah.

[Chris Barr]

So, yeah, because my. Yeah, because my whole thing is like, man, I don't. I'm not trying to burn you. I just don't want to get my buns whacked if I pay close to a mil up front at close for this thing and all of a sudden it's not earning. Like, I like I'm trying to avoid that. And I want to get you to your. But honestly. And they can make the what's, what's.

[Jack]

Did you put a time frame on that as well?

[Chris Barr]

Yeah, I said three years. If they want to push it back, make it five. I'm honestly fine with that. Or if they want to up the purchase price, I'm fine with the total purchase price. I'm fine with that too. Because if I can cover my nut and make a few hundred grand, which is again, more than I ever expected to make, you know, and then they just kind of take the overages to make them happy. And if that makes both of us happy and makes me feel safe and gets them to their purchase price, makes sense to me, you know, so anyways.

[Jack]

That'S what we're not my favorite structure. And I'm going to tell you why it's okay. I mean, it is. It works for you. Like you said at the end of the day. And. And I will reiterate this a thousand times. It's. Everybody has different life goals. And so you're building and buying. You're buying and building a business, or you're growing your business based on your life goals. And there's definitely ways that you can optimize for other things. But to say that you're wrong in a. The way you're doing it is never what I will do.

[Chris Barr]

You can.

[Jack]

No, it's not. Because, like, if that's. If your goal, Seriously, if your goal is, hey, I want to make $200,000 a year, run this business, start putting away, you know, equity, paying off the equity of this business through my debt service. And that's all I want for five years. Like, I don't want to grow this thing. I don't want to do anything else. I just want that. Then. Then this is a great lifestyle business for you. What I will say is, if you ever want to grow and there's reasons to grow, right? There's reasons to grow outside of, like, hey, I just want to make money. The reasons to grow are a. Yeah, you do just want to make money. The other reason to grow, which is the one that I'm actually worried about for you personally, is because it happened to me. Right. This is my story, and that's why I'm sharing is you can grow out of the debt burden, right? So when I started and we were 700,000, like, the debt burden of making $10,000 a month was like, oh, my God, how. How the heck do we hit 10,000 then as we, you know, crest 5 million. I don't think about it, like, it's not something that I ever think about because the debt, like, it's something that we have to pay every month. Yeah. But that 10,000 is such a smaller portion of our total revenue or total expenses that it's not even a big deal anymore. So that's the only part I worry about this for. For people listening and want to copy is like, make sure if you decide you don't want to grow, that's okay. But just watch the debt burden on the business, because that is not something you'll be able to grow out of. And so what I said to Chris in the beginning, so that's the only part that worries me. But otherwise I'm like, this deal is crazy if it goes through. Because what I was telling him was, I said, there's no risk mitigation for the seller. Right? You could dump originally, it didn't have all these Caveats on it of the 10% on where I got those ideas. Expenses. Yeah, and cap on your salary. Because he originally came to me and said hey Jack, I just want to do it. Shovel everything off the top that we don't spend to them. And I said that's great. But if you try to grow the business, you could take that 400,000 and you could dump it back into growth. You could dump it into marketing, you could dump it into new vehicles, you could dump it into wherever you want and the seller would just get zero every year. Zero. Zero, zero. You could raise your salary, you could raise it up to you know, 400,000 if that's the number. And you could scrape off that 400,000 so that you're paying them zero. So they either have to really trust you as a person to not do that or you have to put caveats in like you did a 10% variance. It sounds like it's a fair amount. It, it actually does still give you some room for growth too. It's like, hey, we, we can bump marketing 10%. If you're already spending, you know, the max on marketing, like that'll give you plenty of room to, to build and grow. But I mean it does still hurt things like, it hurts things like vehicle purchases and, and really adding new headcount.

[Chris Barr]

And it's also without with get prior approval. You know, if we need to go to them and say hey listen, like we're gonna, you know, we're gonna spend more than 10 of a variance on some new equipment. You know, I, again, I'm not going on like a handshake deal here but we can build in some contingencies to, to account for things like that. And back to the whole point about growth, again I'm not saying I'm anti growth and again, I gotta be careful about certain aspects of the deal. They're very growth oriented that I, I don't want to, you know, make a boo boo and expose but you know, let's, let's talk about growth for a second because again, I'm not anti growth. And what's our timeline? You know, we're coming out of the gate on three years and as I said, would I be fine with more than that? Sure. But if we're looking at that earnout structure taking place over a three year cap and honestly as someone who's new to owning their own business in the first three years, you know, and again, not that I'm anti growth, but my focus is not on that out of the gate. My focus is on establishing myself as an operator, understanding the business, really, really getting my arms around it. And then at the end of those three years, yeah, then I am, I feel like I'm comfortable, I'm in the saddle. And then I can really, really prioritize growth.

[Jack]

So, yeah, it's definitely not a lifetime. Three years isn't terrible. But in like you are talking to someone who has owned a business for three years and grew it from, you.

[Chris Barr]

Know, it can be done 500x in the flesh, man.

[Jack]

Like, so you've done it 0 employees to now like 24 employees. So like, that's my point is I think you will wrap your fingers around this business, you know, a lot faster than you think you will. Six months rolls around, a year rolls around, you'd be like, okay, I kind of get this. Yeah, and you hire a good manager, like, okay, he gets this and I get this. Now we're putting some fire behind it.

[Chris Barr]

And if I got to spend 24 months kind of sitting there, you know, at the gate, kind of itching to go, you know, like season, just kind of pulling away. If I got to, if I got to do that for two years in exchange for giving myself some serious risk mitigation, done deal, you know, that, that to me is very, very worth it because I'm getting a much, much more tolerable purchase price that I can finance through the bank. I am on the hook for less. I, you know, again, they still get to their purchase price. It's just with bottom line earnings that's just kind of surplus. And I'm able to lock it in at a price at closing that's much, much more palatable to me. So if that's my trade off, then I'm again, I come talk to me in three years, I could be singing a very different tune. But as of right now, it seems like a very worthwhile trade off. So that's kind of what our logic was that got us there. So.

[Jack]

So here's my other question, which is what I've already, I've already said to you is why not revenue share agreement? So hear me out. I mean, if they, if they say no to this, you know, you can always go back to the table and redraw, but why not revenue share agreements? So I just did the math. On 1.7 million, if you were to do a 5% rev share agreement, right, which it seems like you have available, that is $85,000 a year for five years would be 4.25. So they have an upside. I actually wouldn't give them that much upset. I would do four years or something. So. And then, so they have some upside, you have some protection. You could actually honestly pay that off in less than four years. Right. If you, if you grow the business. But it at least gives you the, it takes away any kind of handcuffs that you have on you. Right. I just don't like handcuffs in the sense that, you know, I've said this before. I believe that people get into ETA for two reasons. One is they don't like being told what to do. And two, they're born into it. Their parents did it, their uncles did it. And so I, I don't like being told what to do. So like handcuffs would drive me nuts. I'd be like, I can't do that because I have a cap. So. But like a rev share, like if you win, they win. And so it's also a line's incentive. So they want to help you grow. Right. Because if you win, then they win. They get a revenue share, they get to their goal quicker.

[Chris Barr]

Yeah.

[Jack]

So always, always an option. And that, you know, 85 a year, the SD could easily eat that. You're going to probably shuffle that off anyway.

[Chris Barr]

Yeah.

[Jack]

And if you get like a massive down year where like you just get absolutely stomped on, you know, that drops like the burden for you is less just because your revenue is less.

[Chris Barr]

Yeah. And my kind of thinking there was, I just felt a little bit more exposed having to come off the top line rather than the bottom line because you know, for example, I'm creating a bit of a ridiculous scenario here, but chemical cost for pressure cleaning, whatever, whatever tariffs. Let's say that everything takes a massive, massive expense. Expense hike. Okay, well my revenue might have shot.

[Jack]

Up or something like that. Good thing I'm telling you right now. Well that's, that's because that, that's where I think that you're, you're misviewing. This is, it's not an expense item. So rev share doesn't, you shouldn't be looking at the, the expense section to look at rev share agreements. You look at the gross section.

[Chris Barr]

Yeah, I'm aware. I think, yeah.

[Jack]

Like gross margin is where you look to make sure health of the business. Yeah.

[Chris Barr]

I might be miscommunicating. And so when it comes off of the top line. When it comes off my revenue. Yeah, that's great. You know, but now I am beheld into paying them a number off of my revenue off of my top line when I have no idea what's going to happen with expenses. That's out of my control moving forward. For example, if I owe them a portion of my top line, if it performed at X according to the agreement and now I owe them a portion of my top line, well, is in chemical cost due to tariffs, labor costs, whatever. Took a massive, massive hike on my expense end and now I'm having trouble covering my expense end because I had to give away part of my top line to them via this agreement. And that felt left me feeling exposed. Sorry, I have cleaners now coming in. Really frustrating. Sorry about that. But yeah, so that was why rev share kind of turned me off a little bit was because it left me.

[Jack]

It felt yes, there, there's potential for bigger downside but there's also like that's all mitigatable. Right, So I, I see what you're saying. Yeah. That being said, I mean it's your choice, right? Handcuffs versus for, for less downside risk for three years versus hey, I have as much growth potential as I want, but I have zero handcuffs because at the end of the day, right, it's a, it's a gross margin game because realistically, right, expenses go up. You don't just eat expenses, you raise your price to match the rate of your expense increase. Just like we see technically, right, if it's chemical, it would be a cogs, just like labor, your labor goes up. Cogs.

[Chris Barr]

Yeah.

[Jack]

And so to keep that gross margin the same, you would raise your prices to mitigate for the increase in cogs. And that, that would make it so that it actually doesn't matter because even if, even if price goes up or if, if cost of goods goes up, price should go up. The only downside is like if your team is not great at selling at the new price, then you have potential.

[Chris Barr]

For less revenue now, now I'm fundamentally changing aspects of the business which have been success successful for a long time. So I think that I love how you kind of broke it down to bare bones of like, all right, you can either have handcuffs and protect yourself against more downside or you can incur a bit of mitigatable downside for unlimited growth potential. I'm like, I'll take option one all day twice on Sunday. Well, I mean, you know, and that's, and that's just the way we operate. Again, we are, you know, I said I, you know, again, Marine Corps, boxing, jiu jitsu, surfing. I got a lot of risk tolerance of my physical body, but my deal making risk tolerance is very, very low. Like I, we are, we are very risk averse in that perspective. So if that comes along, some handcuffs, I, again, if it's a time window of three years and the handcuffs to me feel tolerable and negligible, fine with it. You know, I would much rather do that and feel some protection against the downside, you know, than have a sexy growth opportunity. So that's just me.

[Jack]

Well, clip that because we will come back to this whole conversation later, I'm sure.

[Chris Barr]

Yes.

[Jack]

I love it. No, this is, it's, it's. You know, the, the coolest part about ETA is that there's a thousand ways to skin this cat. And realistically, the creative portion is up to you and the seller. You can come up with any kind of weird and wacky things you want and the seller can say yes or no and they can kick you out of the office or they can say yes. And so I don't think this is wacky anymore as it was when we were just like, hey, zero. Like, no. Like, they have to just trust me. I'm like, they're not going to just trust you, buddy. But that being said, I think that you've generated it into something that's manageable. So I'm excited to see. And so we'll hear from you on next week's podcast about which way this went. And I'm sure there's probably going to be one or two iterations of notes and then we'll get to final details, which would be cool.

[Chris Barr]

Yep.

[Jack]

Sweet. Well, thank you all for listening. If you like what you heard, leave us a five star review so that my mom feels that I'm doing something fun and cool with my life and to give Chris confidence to make some awesome deals and go ahead and share, like, whatever. Come visit us at owned and operated.com for some more information. Appreciate it, everyone.