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Business with Beers
1st Question I Ask to See if a Seller is Open to Creative Financing | 321
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Welcome back to the Business with Beers podcast, your daily source for strategies, tools and tips on how to build an eight figure business. I just returned from a week long in Orlando, Florida where my family went to celebrate the completion of my daughter's first year of homeschooling. We're also celebrating my wife who's done an amazing job putting this, this whole thing together. We've had a lot of fun doing it. I'm not going to talk about it today, it's a whole nother episode. But highly recommend you look into it as an entrepreneur, somebody who wants more time with their kids and you've got some flexibility in your schedule. And so we went to see the Kennedy Space center, which just like massive scale and scope. So much money, so many jobs created to explore space. I got a lot more curious after watching things there. And then we went over to Animal Kingdom where, you know, we go to Disney almost every year and you know, great, great weather, great day, hanging out with the family, seeing the animals, go on some of rides. And while I was away though, my team pitched two different sellers to acquire their business. I think this is one of the most awesome things that we've now created and which is going to allow our company to get bigger and bigger is that everything doesn't rely on one person, me, anymore to get these done. But we now have an entire team that has my playbooks that I've used to get it up to this point is now running without me. And so we've got, I don't know, probably four, maybe five different deals in the pipeline right now to acquire other existing automotive shops, both independents and franchises as we want to continue to grow. And I'm not the bottleneck for doing these deals anymore because we have an awesome team leading the pack. And so my team though, however, follows a very specific format for how to pitch these sellers on some creative financing. What is creative financing? Well, you could call it creative financing, owner financing, seller financing, carrying the note. It's all the same thing. It's basically being able to do a deal, buy the business, and then not have to deal with the bank. And instead the seller becomes the bank. We make monthly payments to the seller seller instead of anybody else. And so that's what I'm gonna talk about today, which is the first question in how we frame owner financing to potential sellers. But the first question is how do we even find these deals? Right? I'll tell you right now, none of the deals that we're looking at are on Biz Buy Sell. None of them are for sale, like with a broker. All of them were found on off market. We have a relationship with a number of buy side brokers. So these are young guys primarily who will cold call these potential sellers all day. Like they're working on our behalf to go and find people who want to sell. We give them target areas, we give them sometimes specific sites, other criteria. And they're banging out these calls all day to try to find sellers who are interested. They build a relationship, they get them in front of us. And all these businesses were well established, been in business for years, 20, 30, 40 years sometimes. And they're not distressed situations like the businesses are doing well, they're profitable. It's just the sellers are nearing retirement, they're in their, you know, past Social Security age and they're tired. They're tired of the grind. They've kind of made their money and the kids don't want the business. Like all of them have kids and none of them want the business because these are hard businesses to operate. And kids these days, I'm like, I say kids, I'm 38, but like I look like a kid. But the kids want to get into AI and they want to get into tech and they want to get into all these cool things. They don't really want to take over their dad's job running, you know, a single automotive repair shop. And so what happens is they want to sell it to a another person who's got to like, want to take over their job. Or they could sell it to somebody like me who's doing this roll up strategy where we are acquiring lots of individual smaller businesses and we roll them up under our larger umbrella. And this is how I've grown from two locations in 2016 to 36 that I own today is a bunch of these rollups. Now, these sites, these locations, once we can get in front of a seller, we, you know, it's this kind of like a courting process. We have to build a relationship. And so what we do is we walk through a series of questions and a series of kind of, kind of the conversation to warm people up. And so we get in front of them, we want to ask about their history. Tell us how long you've been here, right? When did you start the business? What did it look like? What do you love about it? Why not hold onto this thing for another five or 10 years? We intentionally want to ask negative frame questions that get them to kind of pull back to say, no, I want to sell now. Like I listen, I'm tired of It I don't want to sell in another five or 10 years. I might be dead in 10 years. Right. Like sometimes if you ask questions that push people away, it's like a pendulum and it pulls people back to you. We'll also ask them, well, why don't any of your kids want to buy this business? This sounds like a great business, it's profitable. You have a great reputation. You have a team that's been here for years. You say that you can go and you don't have to work a lot of hours here. Again, push away, they come back. We'll also go over their recent performance, their revenue, their gross margins, the number of cars, whatever is the metrics of the business. We also talked about the staffing and the tenure and the payroll and all these different things. So we want to get a really good scope of the things that are important to us. From there then we shift the conversation back to us and we're talking about our background. And the goal here is just to establish credibility. Where we're going to talk about how we're a family owned business. It's me and my brother, we have no outside investors, we have no other parties to answer to. It's just us. And a lot of times I'm going to be meeting them and they're going to get to know me and our team and start to feel comfortable with it. We talk about our company size, our revenue, how multiple employees have worked for our company or in the stores that we operate for 10, 20, 30 years. Like there is an employee that worked at one of our locations who's been at that same Midas shop since a month after I was born. And you know, multiple owners over some of these periods. But it still shows like the tenure and you know what, how we care about our team. And the key here is we want to position ourselves as like a highly successful safe bet. And this is to prime the pump for the next question. Now if you are just getting started or if this is your first deal, you're not going to have that track record to speak to. So focus on different things, right? You're going to focus on what you're going to do, right? That hey, our plan here is X, Y and Z. You're also going to personal guarantee the note, the debt. But it's going to require a lot more trust, right, because you're not going to have as much of the credibility that I do. But listen, I got my first deal and I didn't have a lot of credibility either. So a lot of it is just building those relationships. Okay, so the first question, then we ask to see if they're motivated, is this. A lot of sellers that we work with are. I'm going to try again. Oh, I messed that up. A lot of the sellers that we work with hate the idea of getting whacked with a huge tax bill when they sell and opt for a creative structure that provides monthly recurring payments plus a much higher price. Are you totally against discussing this structure? So a lot of sellers we work with, so we like social proof, right? A lot of sellers we work with hate the idea of getting whacked with a huge tax bill. So we make the government the enemy here of a huge tax bill. And instead, here's the solution, which is a creative structure that provides monthly recurring payments. Right? Monthly recurring payments. Which. Who doesn't love that? Plus a higher total price. Who doesn't love that? More money, consistently less taxes. Handle the bases. And then we do this Chris Voss thing, which is you ask a negative frame question. So are you totally against exploring a structure like this? Right. It makes people feel like they're more in control. If you ask like, is this reasonable? Right. People are be like, yeah, it's like reasonable. So, like, are you saying, are you totally against kind of goes in that. That structure. So most of the time they'll say, no, I'm not totally against. Like, I'm open to hearing about it. So from there we go over the basics. So for example, let's say a, we're looking at a deal that is a million dollars of purchase price for the the sake of simplicity here, and assume that the seller has no basis, which is like their cost basis, they can deduct because they've owned it for so long, which means if we buy their business for $1 million, that entire $1 million is going to be a capital gains and they're going to owe 25% on that or $250,000 of taxes. So they sell the business for a million bucks. They, they're going to have $250,000 in taxes on day one. They're net left with 750 that they have to then go and invest and save and do whatever. So instead what I say is, here's the offer. We can offer you $50,000 down today, plus we're going to make a $10,000 monthly payment for the next 10 years. In total, we're going to get $1.25 million in payments. So 1.25. We're going to cover that $250,000 tax bill for you. Like we're going to cover that in interest. Plus that $250,000 of capital gains tax payment now gets spread out over 10 years at roughly $25,000 per year that they're going to have to owe. So they get paid in installments. They get to also have to cover that tax bill in installments. So it just like pays for itself. So as the seller, what they get is more total money. So $1.25 million because we're going to pay them interest instead of the bank. They get to spread out that big tax bill over a period of time. It's also a much quicker and easier transaction to not deal with the SBA or any sort of banks. Like, we don't need to go through all these tax returns and financials and answer all these questions, which can be a very long and drawn out painful experience. Because the seller financing these creative deals, I mean, my attorneys can get a deal done in like 30 to 45 days. Like it's super quick. And they also get monthly payments. And the monthly payments is like a pretty big deal because a lot of business owners are used to monthly cash flow and the idea of selling and then having zero income. Even if they get some big nut of like 750 grand post tax, that in some ways is scarier to them than getting $10,000 a month from me. Ach, on the first of every month. Now, of course they trust me that like, I'm good for the 10k because if they didn't, they, you know, they wouldn't want that. But I have a track record that speaks for it yourself. And the more deals you do, the easier this just becomes. But listen, everyone starts somewhere. And so if you're getting started, you're just gonna have to work a little bit harder to build the trust. If you're a franchisee, this is so, so much easier because as franchisees there's like a brotherhood, like relationship where you have this established stuff. You both have signed, you know, a 10 year, 20 year agreement in blood. And franchisees just like, like the idea of selling to each other, it's easier, it's quicker. Like the franchisor, like you're already approved. You don't have to explain how the business works. You don't have to go through training. Again, like, there's so many factors that make franchisees want to sell to other franchisees. This is how I've been able to roll up 36 of them in the last 10 years, is running this play. And so of the two deals that my CEO pitched last week, say, hey, are you open to seller financing? One of them said, no Thanks, I want 100% cash at close. We tried a bunch of different angles but you know, he wasn't having it. The other was 100% interested in making a seller finance deal. He already understood and knew the tax implications. He must have like done some research prior to this because he like, he was, he was adamant that that's how he wanted to do the deal. So I mean one out of two is 50%. It's a pretty good, it's a pretty good close rate. Now we got to start getting on the numbers, we got to start negotiating all this thing. Like the deal is far from from being done. But I would say like 50% of the people that we pitch are interested in it. So this isn't some like shot in the dark that you have like an extremely low chance. Like you have pretty good odds if you're talking to the right person at the right time. You clearly lay out the strategy here. You, you can make it happen. And so our goal in all these though is to create a win, win, win, win. That's four wins situation. The seller wins because they are going to get a monthly payment and a deal that they're happy with. The buyer, which is me, is going to win because we are going to buy a cash flow positive business that has great upside to make a lot more money. The current employees are going to win because now they're going to have a company that is investing into their future and growing and generally paying a lot more money and having better benefits. And, and the customers are going to win because they're going to have an elevated experience with more convenience, cutting in technology, payment plans, all these things so that we can say yes to more and more businesses and continue to help the community. So seller financing, amazing way to get these deals done, but you got to know how to get the, how to structure them, how to negotiate it and all that. And if you want my help in any of the things that I just talked about, then there's a link below. It says, send me a text, shoot me a text, I can get you some more information. I have a few spots open every single month for my coaching program called Eight Figure Franchisees. And inside we are literally working with every single owner who's ready to expand on how to structure all these deals. And so I'm going to keep providing updates as we go along and I'll see you tomorrow. Cheers.