How To Buy A Small Business (Step-By-Step) w/ Walker Deibel ( Author of "Buy Then Build" )

Right now is a confluence of three things occurring that are creating the single greatest opportunity of our entire lifetime. This will not repeat by the time we're all dead. Okay.

Welcome to the Action Academy podcast. Stand back while I celebrate freedom, the show where we help you achieve financial independence with the mindsets, methods and actionable steps from guests who've already earned their freedom. The flags of freedom fly. Choose to do what you want. What you want With who you want, with who you want, when you want, when you want, with another episode today. Now, here's your host, brian Lubin.

What's up? Welcome back to another episode of the Action Academy podcast, the show that helps you get rich, happy, successful and free with the capital F in your life and business. Yeah boy, as always, brian Luebben helping you on your journeys. So, as you guys have probably noticed by now, the show has taken a slight pivot in tweak and its identity to where our tagline is basically now that we help people achieve financial independence through real estate and business acquisition. So a lot of real estate friends feel stuff, a lot of real estate episodes on the show. But I also really am interested in buying businesses, starting businesses, selling businesses, building entrepreneurship. I am obsessed with it. And when it comes to cash flow, i will say this real estate is great for building equity, but there is not much that's going to beat the cash flow ability of purchasing a small business. Just like 2008 was the time to buy real estate, i believe right now in this five to 10 year window is the time to buy small businesses. We have what's called the silver tsunami coming, as all of the boomers are now entering retirement age. They're all leaving the workforce, they're all leaving their companies that they began and they want to transfer these over to somebody else. Most of their kids don't want to take them. So these businesses are getting shut down or they're getting sold for pennies on the dollar, and these are profitable, boring businesses. So what do we do today? I did what I always do in this podcast, baby I just go and email the foremost author on the subject, become best friends with them and produce a freaking awesome podcast episode for all of you guys for free. And this leads us to today's episode, with none other than the author of the bestselling book by then build how acquisition entrepreneurs, outsmart the startup game, walker deibel. In today's episode, we're covering all things business acquisition. How do you decide which business is best for you? How do you underwrite? How do you identify? How do you find the deals? How do you talk to the brokers, figure out which brokers are worth their salt, establish relationships with them? How do you underwrite these businesses? How do you submit an LOI and get under contract by these businesses? How do you finance them? A lot of questions, right? Well, thank God, we got 60 minutes of a freaking awesome podcast episode that answers every single one of them. Now free. Did I say free? Yes, this is technically a free show on paper, but not in its entirety. You have to remember to pay the fee. Please share this episode with one person, just one person that you think would get value from the Action Academy podcast in general or this episode. And if you're that new person that this episode got sent to, hit the subscribe button in the top right corner and I will love you forever and always. Guys, it's showtime. Walker Diable, let's go Buy some businesses. Boom, Walker Diable, how are you, my friend?

Brian, I'm so thrilled to be here. I can't wait to dive into it. I'm a big fan. Thanks for the invitation.

Dude. Likewise, man. This has been sensational. You just got to catch up a little bit off camera and now I'm excited to dive into it today with you. I was telling Walker, for everyone listening, that we began this podcast as more of a real estate specific show, because that's just who was in the network, that's what we were interested in, and real estate is such a great vehicle for wealth building and cash flow. But in the end of the day, for the person that is hell bent, get out of my way. I need to get out of my job within six to 12 months. This acquisition, when it comes to the cash flow game, it's a lot better, man, to be able to buy businesses. So first, before we get into every single part about the wacky world of business acquisition, who are you and what book have you authored that we're talking about today?

Yeah, So my name is Walker Diable. I am the Wall Street Journal bestselling author of Buy Then Build how acquisition entrepreneurs outsmart the startup game. Brian, I wrote this book. I got the idea for the book in about 2004. I published it in 2018. And I got the idea because, as I graduated with my MBA and my startup completely failed at that time, I decided that I was going to go out and buy an existing company. And after just coming out of this MBA program where it's all about business strategy, it's all these case studies, all this business analysis, how to manage all this stuff, to look at this opaque, fragmented marketplace, that where there was no good data, huge range and subjective valuations, And I couldn't get any information because everything was private. Right, It's a private market. It's a really thin and opaque market And I couldn't figure out how to navigate it. And when I would tell people that I was looking to buy a business, there was, oh, that must be awesome, being so rich. And I'm like no, I'm literally just going to go to the bank. And they're like what do you mean? And I'm like infrastructure revenue, earnings, like it's bankable, I don't have to run around and raise capital, I just buy it right And they're like yeah, good luck with that. So it took me a while And I thought about writing the book as a series of interviews of other people that had done it but ultimately I decided, no, i need to go out and do this, and so I bought a single company. It was doing eight million in revenue. It was the CEO of that business for seven years, sold it to an acquisition target, did another startup that completely failed again, where I learned once and for all that Starting a business from scratch is like punishment for not understanding statistics. And it took the money, the proceeds, from my first exit and went out and bought six more companies is what I did. And then, while I was in the process of operating, putting all that together, i wrote by them build it. It's been like four years writing it and it came out in 2018.

Beautiful man It's. There's a quote that I've that's been introduced to my life, that I've really loved recently, and that's the quote gradually comma. Then suddenly, yes, love it. We always hear about these overnight successes over and over again. We don't see the ten years of failure that created that unicorn You know that hundred million, that billion dollar company, and I've had some of those guys on the show. So let's talk to the person right now that's listening and they're maybe sitting in that corporate job. Yeah, they're a rock star, they're killing it and they are trapped by what we call the golden handcuffs And they can't figure out for the life of them how to get out. Maybe they have a couple rental properties and they're trying to figure out. I've got like three hundred thousand dollars of income that I need to replace. Right now. I'm bankable, i'm w2, i'm trying to figure out how to earn my freedom And then maybe they've had a couple of side hustles that a fizzled out on the side and now they've heard about this whole The world of all these baby boomers that are leaving the market, that are leaving businesses. Can you talk? you said that statistics are the ones that, by chair, we don't pay attention to them. Can you give some statistics about the marketplace and what zone of opportunity we have right now?

Yeah, there's right now Is a confluence of three things occurring that are creating the single greatest Opportunity of our entire lifetime. This will not repeat by the time we're all dead, okay, no, what's happening is baby boomers own more companies than any other generation in the history of mankind anywhere in any country. Okay, and It's. It's about 49% of the entire Small business economy in the United States is built with baby boomer on businesses. All of these baby boomers are going to retire before the end of the decade. Okay, and what's happening is, right now there's about 11,000 a day Retiring, right, and so it's like there's so many people and that what's happening is there's 10 Trillion dollars of business value that needs to change hands before the end of the decade. So that's one, right, you've got this like ten trillion dollars silver tsunami, okay, where you know half the economy needs to transfer. Number two is That basically the tech boom, right, so basically, when all of these businesses were first built and got product market fit And all the rest of it, the internet didn't exist, right, and so a lot of them have very Unsophisticated marketing campaigns, very unsophisticated Systems inside, certainly not doing any social media or anything like that, because these are largely owned by people, that they don't have any Debt anymore. They've already put their kids through school and they own a business and it's generating income for them And they're not really taking any risk, it's just operating. I want to say, like by itself, this is hard, right, sure, but there's big opportunity with being able to implement. A lot of the new technologies has come about since then and, moreover, if you want to go by the four-hour work week, you can. One of the businesses that I bought is an e-com company that I probably spend two hours a week on And it generates over three million in revenue every year. So it's dope. And the third one is that it seems every year, people say this, like every year for the last 20 years, people So this to me, but it's true today, just as it was last year, as it was the year before, which is, money has never been easier to get access to, to buy these assets. Okay, and it was really the changes in the SBA that Allowed people like us to go out and acquire businesses without a whole bunch of heavy collateral. Like, the first company I ever bought was a printing company and it was 50,000 square feet and that all this big iron in it and all the rest of it. You know, yeah, it was 8 million in revenue, but it was probably just as profitable as some of these $1.5 million Econ businesses I was looking at and it needed Millions more in revenue just to cover all the infrastructure because the net margin was so much lower than the even the digital products and all the overhead, like just everything, all the stuff you need, and it's one of these where you know The old economy. Businesses are awesome, but it used to be. Those were the only ones you could buy, because they would have the assets in it that made the bank happy, and, with the SBA in the party, all you need to do is be like here's a business, i'd like to buy it, and they're like okay, we sign this personal guarantee and now you're gonna have to say yes, so get over that.

Yeah, in the beginning at least, exactly. Yeah, very true. I want to get into kind of a systematic Overview, like a macro overview, about the entire process somebody let's listen into this holding their hand as they go through the business buying process How do I identify which business to do, how to underwrite these businesses, what separates a good business from a great business from a piece of shit, and how to finance how to go through? but the first thing that I Want to talk about, which it seems to be the sticking point that I've seen in my community and over again, is I Have this concept called passionate income. Where it's you get enough passive income to, where you earn the right to say, okay, cool, i could build a business now based off of what I'm passionate about, but yeah, that's an earned, that's an earned thing. So my flavor of the month was real estate. That got me out of my corporate job. So what's some advice that you can give to somebody that's looking to buy their first business? What factors should they be thinking about in their head, what questions that should they be asking to acquire their first business, which one would be correct for them, or what are some red flags to look out for when, thinking about which one to even offer on Sure?

There's a lot in there, so help me make sure I answer all these, okay. So what I want to do is The thing that, in my experience, okay, and over a decade of doing this, the thing that most people get wrong is they over emphasize industry and size and They way under emphasize what it is that they're bringing to the table and looking at the opportunity. Okay, and so the thing is, at the end of the day, if you like, the beauty of business acquisition Like the magic is not in the de-risking right. The magic is in what you offer as the CEO of this company. Okay. So we like to look at these businesses and be like, oh, look at this, look at this. I don't know this thing over here, but the truth is, once I buy it, i'm in charge and I am the head of this beast. So that little thing that makes the big difference doesn't exist yet. And so when you even talk to brokers, their first questions are like okay, how much money do you have and what is what industries do you have experience in? Even they're wrong. That's not the right question, right, the question is what do you bring to the table? Where is your skill set and how are you gonna grow a business? Okay, that's what I want to know first thing. Okay. And if you're like I literally have no skills and can't really do anything and I don't want to work a lot, that's fine. Go buy a laundromat, okay, you're probably gonna be fine There's. If you had to pick something that, like, has limited upside and limited downside, i'm gonna go with laundromat. I don't know much. That's boxes that people come to you and put money in like. But most entrepreneurs want More upside right and they want to do something that is more fulfilling, that they can grow and lead. And When you are doing something that you're good at and you own the asset, then you know the upside potential Is what you're going to work for every day And that's when life gets fun and I think that I'm doing some real estate myself. I'm moving into that now and it's one of these things where, as I went through my path To try to figure this out, when I looked at real estate, what I saw was I really like the downside protection, okay, of real estate, but the upside potential Like most of the value you get is in the equity buildup, right, and the upside potential is like appreciation of the market. Now I know you live in Austin And you're like walk are we talking about? real estate just goes up 100 percent every year, but here in st Louis two, three percent over a long period of time, so the appreciation is actually pretty slow. When you look at businesses, if I were to translate cap rates, i might be buying a building. That's like a five or 10 cap rate maybe in that range The same numbers in business acquisition is anywhere from, say, 25 percent to 40 percent. You can't. Most people are trying to get 35 percent returns on their money when they're doing the acquisition. So the cap rate is Significantly like three times higher most of the time, and the upside is where fortunes are made right. So you get the equity buildup, you get these real estate economics at play, but you get to go to work and be active in your business, and that's what I really promote right, because I think that Once you have a business that is successful and you're the owner, you can't ever go back. You just it's like you're in the matrix now The red pill. You literally see everything And I think that, like so many people, if you know how hard it was, you wouldn't. There's a sort of this lie. I'm sorry in Rambley but let me say this There's this sort of lie out there going right now. Okay, like when I published, by then, build, no one was talking about business acquisition. Brian, nobody. I didn't. I sat on the finished manuscript for nine months before I published it, cause I was like worried that like it was all wrong, crazy. Cause I was like why is nobody talking about this? It's so weird And I'd spent all this time right In it. And now there's the opposite seems to be a problem. Yes, you too can run out and buy a business and you'll be good. Most people probably shouldn't And I want to be very clear about that Most people probably shouldn't. Sure, go buy appreciating assets that hopefully cash flow right. Yes, do that. Go hang out with Brian, learn all the tips, tricks and strategies to get that done Right. So you want to dive in and start. Imagine you're starting a business from scratch. You've got to have a really great idea out of me. All in right, this is full court press and you're going to do whatever it takes to succeed. When you buy a business, it's not any different. What happens is it's money ball for entrepreneurship. We get you on base first. We get the revenue, we get the product market fit, we get the infrastructure, we get the human capital and we get the profits. And then you get to build from there. So you don't have to worry as much about succeeding. You mostly have to worry about like all right, let's keep this on track and see if we can fulfill the potential of this business. Yeah, sorry to question that. You got to focus on you and what you bring to the table. Second, the opportunity. And by then, bill, i've got an AE matrix. It's four quadrants. It's eternally profitable, turnaround, high growth and platform. Now anyone in your audience that's in PE or familiar with PE is thinking platform means something In acquisition entrepreneurship I mean. It's in a totally different way. It's everything we just talked about. It's a platform for you and your skill set and what you can do with it. The best companies that anyone can buy is going to be a business that supports their skill set. So if I'm really good at direct sales and managing direct sales teams, i want to find a business with good operations and a great product and probably some people in place that are running the manufacturing. For example, if I'm really good at operational efficiency and just squeezing pennies out of dollars, i want to find something that's fat and lazy, with a couple of salespeople bringing that stuff in.

So I can get this right. Great sales and marketing.

Yeah, exactly, you're just looking for what's that recipe? and the thing is like we love to talk in generalizations, we love to talk about yes, let's go find tech-enabled service companies or whatever. And I rattle that off there because if you're ever talking to a search fund investor, that's what they're looking for. They have a very specific investment thesis that they look for. But the thing is, you and I might be looking at the same business and it's not going to work for me and it really works for you, and I don't know what that would be. Well, let's just say it's home healthcare business in Austin, texas, and so you're like, okay, i'm good at this skill set. Everyone who listens to my podcast is old and sick, and so they all need this service, so I'm just going to advertise Whatever it is. I don't know if it's an existing infrastructure or a skill set that can really make that thing hum, whereas for me, i might be looking at that and saying I'm really bad managing people And so buying a business that has 100 people providing service might be terrible for me, right, because I got to be able to lead and manage and do all this with these people. I'm making up the nuances here, but the point is, knowing what you're good at and what you bring to the table is the thing that will tell you if that business is good for you or not, because it's you matching with an opportunity 100% And I feel a lot of advice that we get in business school and kind of school in general and our traditional education, the formal education system up into this point, is focus on your weaknesses.

Let's focus on your weaknesses and build up your weaknesses. But I've found to be true in real estate, business acquisition and entrepreneurship in general, the people that have the most upsized returns are the ones that focus more on their strengths And, instead of building on their weaknesses, they hire their weaknesses or they partner with their weaknesses. So, for instance, to land a plan with what you're saying it'd be, i'm really good at sales and marketing. That's my strong suit, that's where I've been, That's what I enjoy. So for me, it would make much more sense to buy a business that's very operationally sound And they've got really good systems and really good management procedures and really good SOPs, but they are really lacking in social media and they're really lacking in top-line revenue generation. So that's where I could come in and really thrive. If somebody's got a sales and marketing team already humming, that I wouldn't be able to add as much value to that business, and the vice, and the opposite also applies, like the inverse also applies. So if you're very operationally minded, go for the one that's sales and marketing. They've got all the revenue in the world, but their conversion and their LTV is terrible. Right You got it Awesome.

The other thing I thread in there is where opportunities really exist. There's a lot of talk about oh, i'm going to buy a company on the cheap or I'm going to like people they want. People are trying to figure out how do I get something for nothing? Right, and that's become very popular in this space too. Right It's. Hey, i'm going to use non-personally guaranteed seller financing and I'm going to. I'm going to. I'm going to wait for the recession to come because I want to buy all these businesses on the cheap. I've been through a number of downturns and I'm going to just tell you two things happen in a recession. Number one anyone with a decent business is sure as hell not selling. I've seen it twice, okay. Number two the businesses that actually are excellent are on a downward trend and all the buyers are so scared you can't get the damn thing sold. I'm not kidding, this is what happens in reality. Okay, now, you gave this example of your great at marketing. So if you can find a business that can excel from what you bring, then you want to buy it. But and you said, i want existing systems and processes and all the rest of it. The other thing is if it if it can have those things, but it doesn't. So in other words, you can see that and say okay, i can hire someone who to come in and get it ISO certified or whatever level of. EOS whatever your thing is, and so a lot of times it might be like, okay, this has good bones, but it needs to use a real estate term, value add. It's going to be a value add acquisition And then I'm going to dump my marketing on top and we're going to set the world on fire. So if you can find something that's a little lazy And you can engineer all of those things in, then you're really going to be able to increase the private market value of that entity that you've acquired.

It's finding your superpower, because I interviewed Cameron Harreld, who wrote Vivid Vision and he's a buddy of mine now and he says do what you do best, delegate the rest. And I love that He's so delegate everything except for genius. And I'm like dude, yes, i'm like that's freaking awesome. So you just hit on something really quickly that I'd love to hit on two parts to this question. One part is let's hit slightly on how businesses are valued for somebody that is maybe familiar with buying real estate and they understand cap rates, understand how the purchase process of real estate works, and they don't understand multiples yet. So let's talk about how businesses are valued And then let's go over those financing products. So you mentioned seller financing going through a broker. Let's hit on how businesses are valued and then what different loan strategies that we can get to acquire them and utilize leverage the best way.

Yeah, yeah, okay. So there are three words EBITDA, adjusted EBITDA and SDE. They're all completely different things, but the world loves to just replace them as if they're all exactly the same. They're not. What we're going to focus on right now is SDE. Okay, because we do have limited time. I could talk for an hour about valuation, no problem. Seller's discretionary earnings. So this is going to be the anchor of any transaction, definitely under, say, 10 million, and it's predominantly the unit of measure in anything under 25 million. Once you get north of 25 million, it's adjusted EBITDA, it's adjusted EBITDA, and then for publicly traded companies, it's EBITDA, and so at. Seller's discretionary earnings is basically so you take the net income on the income statement, so the bottom line on the income statement, that's what you get taxed on every single year. Okay, then we're going to start just by adding back any interest. Depreciation and amortization Okay, we can go into why, but the argument is that that's the EBITDA number, right, which sort of gets you to management decisions. Okay, so buying infrastructure and using leverage to do it. and then here's the expensive such on the P and L, and of course, depreciation and amortization are non-cash expenses, so it's not actual cash coming out. Right? Sure, you take that number, that's your EBITDA, but then you're going to add over and above that any sort of addbacks. Okay, and addbacks really fall in a few categories. The first is any one-time expenses. Okay, so that's an example, but we'll all understand if there was, like, some legal issue and all of a sudden, the owner spent $250,000 in July of 2022 to fight it And let's just say they won and it's a good story and everything settled And now we're all comfortable with it. Obviously, that's not an expense that's going to continue. It was a one-time event and that could be for infrastructure, it could be on any number of things. Number two is discretionary spending. So that's going to be like I took my family to Hawaii for my board of directors meeting, but really it was a family vacation and I just ran the whole thing on, or I put my new Tesla, i ran it through my business or whatever. I joined the entrepreneurs organization, right, i joined the Action Academy, and now I don't know what you charged for that. You should charge $100,000 a month, but I think it's less than that. So any of my groups that I'm a member of, all that just gets added back because it's discretionary, and then I'm sorry there's something else I'm forgetting at the moment, but it's basically that It's that pre-tax. If the business is a black box and the owner of that box has a certain amount of cash coming out for discretionary spending, that's what we're trying to figure out is what is the cash flow coming off the asset seller's discretionary earnings From there? if we were in business school we would be running a DCF model to come up with the net present value. But all complex mathematics we all have shortcuts, and shortcuts is basically how many years worth of that SDE am I willing to pay for this business? And it's usually somewhere between 2.5 times. So two and a half times that, up to, let's just say, five times Okay, so anywhere from two hours. Yeah, outside of the tech world. Yeah Yeah, if I'm talking with a potential seller, a SaaS business is actually the only business I won't try to value in an hour. That actually takes some pretty deep analysis. I'm being very general, right.

Most service businesses right Between two to five.

Yes, Yes, that's right. And then usually you would add any inventory on top of that right And other working capital like AR minus AP plus inventory on top.

Cool. So when we're going and we're looking up these businesses to buy, we see maybe this HVAC company listed at a 3x multiple of revenue. We see this laundromat listed at a 2x. We see this company down the street listed at a 5x. What are some of the main levers that determine what multiple a company can list for?

Okay, first and foremost is popularity of the business. Okay, and I really mean that. In other words, just for fun, i looked at buying someone in my network a laundromat this weekend, i swear, but I requested information on four of them and all of the information came back and it was like these valuations are obscene. I've been doing this a long time and laundromats were not priced like this, right, and so right now there's just a surge in popularity because people see them, i guess, as like low workload, steady cash flow, and so that's really in style right now. Right, when I wrote by then build, it was all about sexy tech startups. That's what everyone was paying attention to, right. So maybe I need to go write another book about doing a sexy tech startup right now because everyone's paying attention to laundromats, but anyways. So popularity of the thing, right. So if I'm going to, if I like, right now I probably am not going to buy anything in the pet space because after COVID, everyone out and bought a pet and it just fueled these really expensive valuations on anything pet related. So popularity. But then you start to get into fundamentals after that. Right, and that's going to be like growth and earnings of the business, transferability of the business, meaning, is there a whole bunch of specialized knowledge in the owner's head and they're walking out the door Like do I need to be? do I need to have a master's degree in solar engineering to run this company? that kind of stuff, just transferability documentation. So it's amazing how many small business owners, like, don't actually have good financial statements and then they just file a lot Yeah, it's a lot, but they've got good documentation and they've got SOPs around everything and all the rest of it And you've got a lot that a buyer can dig into and that does increase the valuation because there's more certainty there. And then the other thing is growth opportunities, right. So if I own a subway A subway I'm making this up, i have no idea Let's just say, a subway sandwich shop can make a million dollars a year. Okay, the odds that it's gonna sell 1.1 or 0.9 million next year are really good, okay, but that sandwich shop is not gonna sell 2 million and then 3 million and then four. I need to buy more sandwich shops to do that, don't you see? So if I'm just buying one sandwich shop, the growth opportunity of that one sandwich shop as a unit is like zero, right? And so that's an example of something that might have a lot of downside protection, but there's very limited upside to it, whereas in that same vein, as buyers like we, as entrepreneurs, you can tell when all the meat has been eaten off the bone, 100%. Yeah, sellers think that I'm gonna max this thing out and then I'm gonna sell it to somebody for maximum value, and it's no. You just extracted all the value You need to sell it while it's going up. If you're trying to sell for the highest price, and so if you can say, if you're looking at a business and you're like there is absolutely no reason why this is not gonna continue to grow 30 or 40% every year I literally can't think of a reason then you better understand that everyone's thinking the same thing.

Yeah, exactly. So let's dive into the different loan products and stuff.

So you said that.

So we got. Obviously we have business brokers. We can start on that side. But from my limited understanding of buying businesses, normally when it hits a broker's desk you're eating the scraps off of the bone at that point. So isn't that where deals go to die, unless the broker brings it to you directly before they list on, like business buy, sell and the publicly listed ones.

So I think I'm a bit contrarian on this point. I believe that business brokers are the absolute best place to find deals. Yeah, and I think that this has been my thought the whole time, and even when I was like in 2010, i was having meetings with people and they're like I've been trying to find a business for 18 months and I can't like how do I do this? And I'm like start going to brokers and swear to God every person I said that to bought a company in six months. And it's everyone's trying to not work with the brokers. But the truth is that, like, when you own a business, the odds that the business is the most valuable thing that you own is like 100%, like it's your most valuable asset period. And the truth is that, like I remember, like even just sitting in my printing company, like in 2008, right, i would just get letters in the mail every week and like phone calls And it was like hey, like I want to buy your business. I'm like I'm not selling my business, just I'm going to work. But the thing is I'm not going to pick up the phone and be like oh sweet, let's go Like I'm not and not talk to anybody. At least I'm going to talk to a CPA or somebody and say, like how do I get a value for my company And how do I take it to market And how do I extract the value out of this thing properly? Every single time I've sold a company I've used a business broker. Okay, and I've got. Can I say this I have a couple of deals right now. I need a hesitate, so I don't know what I'm about to say, but basically I'm using brokers. I use brokers all the time. They can properly value the thing. They bring multiple buyers in. Okay, and here's the big thing, ready, here's the big thing, get ready, ready, i'll dump sitting down. They actually can I cuss on your podcast, dude, let it rip. They actually get the fucking deal closed. I can't tell you how many hours of my life I have been in proprietary deals just trying to get the damn thing closed. And all I need is, like a broker, i just need someone coordinating the damn thing because I can't go back to the table or the seller can't come back to the table because we're like negotiating, right, there needs to be somebody there to get it closed. And not only that, but most people are first time sellers and first time buyers, right, and I've done now, i've honestly done a couple hundred transactions. So, like I know things now, like I can see things pretty early, but even just during that first like 25 or 30 transactions, every single one was so completely different. Like I was like wow, this is interesting, right, and so if it's your first time and there's no one coordinating this thing, that now, look, here's the other thing I'm gonna say to them. Most brokers are absolutely terrible.

That was my gonna be my next followup point. It's not all brokers are created equal, just like all realtors. It's the very. Pareto principle. That was gonna be my next followup question is how do you identify a rockstar broker and how, as the buyer, and especially as a first time buyer, are we able to approach these brokers, the ones that are worth their salt? So, one, how do we identify them? And two, how do we build these relationships with them so that we're the ones getting the first deal flow?

Yeah, okay, copies, i think that the business brokerage industry is completely unregulated. Any single person in our country can hang a shingle and say I decided today I'm a business broker And as long as they don't actually work with stock transactions by the way again, i have 200 transactions I would say I've done maybe three stock deals, like it's very rare in the sub $25 million space. So these are all assets. You started an entity and you're buying the assets of the other entity. That's what's going on. You're not buying the stock of the company And so, as long as they're not buying stock of the company, it's a completely unregulated industry Like. The SEC is not involved, binra is not involved, it's just whatever. You don't even need a real estate license in most states, and other states are like they should have. We should require them to do something, and so they require them to take a real estate. They get a real estate license And that's the requirement, which has nothing to do, of course, with selling a business.

Fun. Now this is how How do we find a rock star?

Yeah, look, i would love to tell you that there's a hack, okay, but the truth is it just takes time, like you have to What the hell Walker. Yeah, you've got to. Obviously, you joined my group. You joined your group. I'm sure there's like referrals and all the rest and we can help you will find good brokers. But the thing is, if you're in Austin Texas and you're dead set on finding a business in Austin Texas okay, there's probably three brokerages in Austin Texas that have more deal flow than the rest of them Okay, and what you need to do is, honestly, just start on Biz by Cell. Look at where deals are coming in. The odds that you're gonna actually find a deal on Biz by Cell is very low, okay, but you're gonna start to see, okay, who are the names and who are the players, right, and then you can start to go to their websites and my recommendation is you wanna get on the email list of the individual broker's websites, because whenever they have a brand new listing, they turn around and send it to. So in this example, i was a business owner, right, i'm ready to sell the most valuable asset I have. I talked to my CPA who introduces me to a business broker there in Austin. I maybe talked to a few of them, and the one that is discerning will not take on junk. Most people take on as much volume as they can. Most brokers take on as much volume as they can, knowing that some percentage is gonna close. Okay. The great brokers are discerning about what they take on and they'll slowly start to get a reputation for having good assets, okay. So whenever you see a business that is mildly interesting in this example in Austin, texas, from one of these three identifiable brokerage firms every single time you see something that's mildly interesting, request information on it, get in the practice of signing the NDA, and a lot of great buyers, in my opinion, will give very short and very brief feedback, because what you wanna do is be able to make a very fast decision, okay. And if you can convince brokers in particular that they can be confident in you that you're gonna close on a deal and speed, okay. Brokers are looking for confidence and speed to closing And if you can radiate that out of you, then that's what's gonna get you that deal more than anything.

Can I give you a theory and you tell me if it's correct or not? Yes, okay, perfect. So yeah, since you're. This is why I love doing the podcast, by the way, because I get to just stress test all my theories, so yeah, so, first off, to clarify my previous statement when I said about the brokers, like where deals go to die, i'm more so met when it's listed A buyer broker is when the deal goes to die. That's what I've heard. Where you go on Biz Buy Sell, it's like you're picking the meat off the bones.

So Biz Buy Sell is. I think I've said that exact word. I think Biz Buy Sell is where all businesses go to die, and what I mean by that is that every business, like every business that won't ever sell, is on Biz Buy Sell and it will be there for a long time And, as a result, a large volume of these deals are old, not gonna sell deals But in 17 years. Yes, i have bought a deal off of Biz Buy Sell, but I didn't find it there originally. I found out later it was listed there and I was like, oh okay. Yeah, it didn't happen because people weren't gonna be able to. No one was gonna be able to look at the listing and understand what it not like I could. I was in the building looking at it and I was like, oh okay, once I understand it.

Yeah, sure. So my theory would be the same as when you're approaching like a commercial real estate broker or someone in the real estate world, where advice that I would give would be when you're reaching out to that broker for the first time. So you're looking through Biz Buy Sell, you're looking and seeing who's got all the volume, because you'll have 20% of the brokers will have 80% of the volume, yeah, and you're looking at who's got this. So when you do your first contact, your first introduction, your first touch point, i would recommend having a very clear buy box, knowing exactly what you want, knowing exactly where your capital is, knowing exactly how the process works, and saying, hey, this is what I'm looking for in this price range, this industry, this is what I'm bringing to the table, i'm capitalized, i've got this, i'm looking to close on the next 30 days And then that broker will be your best friend and you'll be on their email list. Is that correct Or is there anything you would add or adjust to that?

No, that's spot on. And by then build I walk you through how to build a target statement And if you can send that target statement to brokers, and if you're comfortable, okay, and this is what I did I always attached my personal financial statement Because it's like here That's what they need to know, That's what they need to know. And then today, with SBA, there are certain lenders that will actually pre-qualify you without a business And you can actually substitute your PFS with a SBA pre-qualified letter.

So what if someone's listening to this right now and they've got great income but they're PFSO for people listening? that's personal financial statement. What if they don't have the balance sheet to take down a big business? They've got cash flow, maybe they have some cash saved up, but they're just like, okay, how do I take something down? Because we mentioned seller financing before but you hear left and right people take it down, 10% down down payments, sba loans or seller finance with the business owner themselves. So what amounts are we looking for technically, like traditionally, to put down for a business, and what does your balance sheet need to look like? Isn't it like the amount of sale or what does that look like?

Excellent. So, like all things, every lender is different. Okay, however, here's the thing that really changed how I think about this and was actually the little piece of information that sparked me to write the book ultimately. Hot damn, i was in the entrepreneurs organization and I got exposed to burn harnish, okay, and what I realized? so to be an EO, you have to have a business that's generating a million dollars in revenue. Okay, and I was doing a business doing eight million in revenue and I joined EO. Okay, and I realized pretty quickly like there were bigger fish than me in here. But if we're just looking at revenue, most of the people in the group were not at eight. It was like one, two, three, four, like just slowing down right And through burn harnish's work, especially scale up he talks about look, only 4% of businesses in the United States ever exceeded a million dollars in revenue, and I was like really Right. So I was like wait a minute, what? So? we all know that if you start a business, the odds that you're going to succeed are like 10%. And if you talk to real entrepreneurs, they'll tell you it's not even that high. Okay, go talk to entrepreneurs. You're like you think it's 10% succeed. And they're like no, it's not. But what's right behind the curtain is that out of all the ones that do succeed, out of all of those businesses, 96% of them never exceed a million dollars in revenue. A million dollars in revenue was so laughably small When I was getting my MBA. We would have completely ignored businesses of that size.

And then you start to This is top line revenue or net Top line revenue. Dude, we're going to be over a million top line this year.

Holy crap.

Nice job, you're it, dude. Yeah, that's freaking awesome.

So here's the thing. Here's the thing is that. So that's when I realized wait a minute. The market fit is unarguably in place after you hit a million dollars and after you exceed a million dollars. That's the sort of theory that comes out of Burns brain And, being in the space, i began to just agree with that. You can choose to agree with that statement or not, but the point is that if you buy a company that's 1.01 million in revenue, you are operating one of the largest 4% of companies in the world. Wow, and so you can buy one of the largest 4% of companies in the world for 10% cash infusion and 90% SBA loan. No kidding 100% down. What does your?

balance sheet need to look like to qualify for that loan.

So, honestly, if you have, okay, let's do some reverse math. So, if you have, i want people to. I really want people to have $200,000 or $300,000 like liquid assets. If you have that, you're not going to have any problems Because you're not going to have any problems getting the financing in order to close on the business, because what the bank really wants to see is yes, we'll give it to you at 10% down. They want runway, they want runway. They need to see that you got gas in the tank back here. Now, to use your example, if I have a weak balance sheet and I'm making a ton of money from my crack cocaine deal, sorry, let me explain.

If you are, it's his chiropractic shop.

If you are listening to this podcast, if you're listening to Brian's podcast, you're listening to it because a lot of your profile is like how do I get out of my being an employee and into ownership, how do I own assets that appreciate in cash flow? And the trick is that when you're a W-2 employee, especially the older you get and the bigger that check gets from your employer, from the company that you don't own, that you're spending your life building the value of Like that check that comes in every week or every two weeks or every month or whatever is crack cocaine and you need to get off the junk. You got to get off that. That's the whole thing. And it gets so hard The older you get in, the Have you heard that quote?

Have you heard the quote on it? I think it's? Nassim Taleb said the three most dangerous, nixxious life for a heroin, carbohydrates and a monthly salary. I love that.

I love that. I've never heard that. I love it. It's great. Yeah, very, very, that's great.

So you recommend people go the 10% down SBA route. What happens when the SBA process is insanely bogged down? Because I know, especially coming out of COVID, we were looking at six months, eight months, nine months to close. Is that still the case It?

wasn't that long. Look, COVID was obviously an outlier.

Yeah, an outlier.

So look, the SBA is slow. The SBA is literally like going. It's a government program, so it's like going to the post office to get a loan, like people. They're literally like come on, can you like get? I'm sorry I'm not writing on the post office, but I think we've all had the experience right Which is just We can write on them. It's okay, it's the same space.

It's great, it's great, it's great, it's great.

It's great, and so it's a very similar process, right? And they've got a bunch of boxes they're trying to check. They can get it done in eight to 10 weeks, sometimes 12. That's, eight to 12 weeks is pretty normal, right? I think that, as you get a business under offer, okay. If you're getting an SBA loan, if I'm brokering a deal, okay. Like I own companies, i teach people how to buy businesses and I help sellers sell okay. And when I help sellers sell, whenever we get a deal under contract, i will tell the buyer I know you want to dive into all the information and figure out how the sausage is made. I get it. I know I've been there. Here's the deal. I'm going to tell you the reason until you get all of your SBA paperwork done, okay. And the reason is because the SBA is going to be the bottleneck of the whole process And I've seen this so many times that I already know how it ends. And it ends with all of us. It ends with the buyer comfortable, all of the documents completed, and we're all sitting around waiting, usually for weeks, for the SBA to finalize, okay. And if you're a buyer and you're like, hold on, i don't know that. I want to get that going because I'm not 100% confident I'm going to close. Yet We're on day one. I'm going to say I understand, because you need time to sit in that business kind of spiritually and work it out and absorb it in your body before you're going to be willing to close And you're going to need data to try to understand how it all works. And so that's going to come in the time. But if you don't get that SBA along going, you're not going to be able to close anytime soon, and time kills all deals. So you've got to get that going And you can always back out. All you have to do pro tip, all you have to do is whisper to the bank I don't want to close on this deal and you're fine. So, speaking of time, we use that to waste everyone's time.

Yeah, it is what I'm saying We'll keep that in the back pocket. Speaking of time, we're at our time right now, walker. Dude, i appreciate all of that man. This has been awesome, and I want to do a part two with you to where we can go into the diligence process, the nuts and bolts of what happens after we get that LOI signed for the business and we're under contract and then trying to figure out what looks good, what doesn't. So we'll definitely have a part two in the future, but in the meantime, my brother, where can people find you? Where can they get the book? and what's coming next?

Yeah, you can go to. bythenbillcom has plenty of free resources for all this kind of stuff. We run the premier accelerator called acquisition lab. At acquisitionlabcom I've got a YouTube channel with tons of free information, and I'm not huge on social, but I am on LinkedIn. You can catch me over there. So that's pretty much. And then we've got a newsletter that we send out every week. So if you go to bythenbillcom and basically sign up for anything, it'll give you the opportunity to receive that.

You got it. You heard it here first. Guys, bythenbillcom, go get the book, go sign up for the newsletter, go give him a connection request on LinkedIn. Walker, thank you for part one, man, this has been awesome. Thanks so much. See you soon. All right With that. This has been Brian Walker with the Action Academy podcast. Ladies and gentlemen signing off Hey, real quick. If you're still listening into today's episode, I'm assuming you got value from it. I need your help. Specifically, my two year vision with this show is to help over one million people do what they want, when they want, with who they want, and I can only do that with your help. There are two main ways that a podcast grows. One is through ratings and reviews, and the other is word of mouth. If you could, please leave me a five star rating and a review on Apple podcasts and Spotify, as well as send this to one or two friends that you think would get value from it, we can reach the people that we're looking to reach. Make it an advance to talk tomorrow.