Jeremy Carter is a man on a mission. He’s spent the last 5 years operating a small business, now wants to purchase a “stable service business with positive cashflow and an outstanding reputation near Birmingham, AL”.
We talk about the “Buy then Build” mentality, some things he’s learned thus far in evaluating potential business purchases, the roadmap once he purchases a business and more.
0:00:00 Welcome and context
0:01:40 What is Jeremy’s background?
0:05:04 What inspired you to acquire an existing business over building something from scratch?
0:06:35 What are the key takeaways from those books?
0:08:25 How did you end up in this service business?
0:12:31 What is the ideal scenario with the past business owners?
0:13:04 What key levers are you looking to pull as soon as you acquire a new business?
0:16:03 What were the biggest surprises in acquiring an existing business?
0:18:33 What are the biggest risk in doing something like this?
0:20:31 What types of deals are you looking for and how you source those?
0:25:19 Where do you find the attorneys, lawyers, and brokers?
0:29:41 What was your due diligence process for the ones you’ve gone through?
0:33:56 What size of businesses are you most interested in acquiring?
0:36:05 Are you able to get loans for these businesses?
0:40:17 What you wish you knew then what you know now?
0:41:39 What books have most significantly impacted you?
0:43:51 Where can people find out more about you?
Ben: [00:00:00] Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor. Here’s your host Ben Lakoff. Hi everyone and welcome to the alt asset allocation podcast. Today’s interview is with Jeremy Carter. Jeremy Carter is a man on a mission. He spent the last five years operating a small business, and now he wants to purchase a stable service business with positive cash flows and an outstanding reputation near Birmingham, Alabama.
In this conversation, we talk about the buy and build mentality. Which is a great book, by the way, some things that he’s learned thus far in evaluating potential businesses for purchase his roadmap. Once he purchases this business and more, please enjoy this conversation with Jeremy Carter. Good morning, everyone.
I’m here with Jeremy Carter, Jeremy and I met on Twitter as you do most of these days. and your bio says you spent the last five years operating small business, and now you want a stable service business with positive cash flows and an outstanding reputation near Birmingham, Alabama. So I reached out to Jeremy saying, Hey, we got to talk about this. This is really interesting. Really excited to have you on today. Welcome Jeremy.
Jeremy: [00:01:20] Thanks so much for having me. I’m really glad to be here.
Ben: [00:01:22] Good. And you, you win the award for the best audio of a podcast guest yet. It sounds fantastic.
Jeremy: [00:01:29] That’s what I was hoping for.
Ben: [00:01:30] Oh, yeah, you just had to one up me with the audio gear. I wanted to start off and I’ll direct people to your website, simpleproventures.com, in the show notes, but what is your background? Who are you? Where are you from and why do you want to buy a, an SME. Dive right into it.
Jeremy: [00:01:48] Yeah. So I grew up in Birmingham, Alabama. I still live here. So I’ve been here for 37 years and all of my family is here, which is, maybe a little bit unusual, but over the last about five years ago, I started a business with some friends of mine called breakout. It’s an escape room business. So we essentially put people in a room for an hour and they solved the way out using clues puzzles codes since 2015.
Right. As these things are starting to really take off. And we just kind of like had an idea for it. My partners had seen it in other parts of the country. We thought what can work here? It went really well when we opened it. And then we started to add more locations and really great experience. It was kind of my first business that actually worked of some other businesses that I’d had that just either didn’t work or just kind of broke even, and were never really that exciting.
And so probably the biggest takeaway from that business was just learning how to put a team in place. Put managers in place so that I could then free up more of my time. And as I did that, I then had to question, what am I going to do with that time? Cause that was like the goal, but I didn’t really have an outcome.
So I started looking at what other businesses I could start. And the more I did that, the less I was interested in starting something and just the ground zero was like, ah, I really don’t want to go back to that. I don’t like, at least from the very beginning, like zero is just a hard number to work with.
And so then I got thrown on this idea of buying a business, existing cash flows. you mitigate your risk because there’s already a customer base in place. There should be a reputation or a brand name that goes along with that. And it’s. In no way do I think it will be easy, but certainly easier than starting from scratch.
And so that’s, I’ve really started the search kind of the end of last year, but more formally at the beginning, January of 2020, I launched a more formal search of trying to find a company to acquire and here in Birmingham, because that’s where I am and just. Planning on staying here.
Ben: [00:03:43] Gotcha. And are you still running breakout now, or that well right now is being recorded.
Jeremy: [00:03:50] Worry about it. Yeah, it’s a sort of, I mean, I, we have a manager that’s here and, and basically just our numbers are down for obvious reasons, so there’s a little bit less to be done in general. but for the most part, I, I had stepped away pretty significantly and try to play more of a, a support role.
Mostly because the manager was really capable of handling things and just kind of wanted to get out of her way and give her some room to grow there and focus more on just her as a leader. And, and, as opposed to trying to like manage the day-to-day here. So I still have some responsibility, but for the most part, it’s fairly minimal, which allows me to focus on trying to find something else.
Ben: [00:04:29] Nice. I was in Kotel over the winter and they actually had an underwater, escape room. Well, just, yeah, you do it with Scooba gear. I didn’t do it, but, assassinating, like all of my worst in one little experience.
Early this year, January where you started this idea of buying versus, building, A company.
What I see from your website, that you’re an avid reader like myself. I see a lot of similar titles and they’ve impacted the way that I think about things as well. But were there any books or what kind of kicked off this? I want to buy an existing cashflows producing business versus build from scratch.
Jeremy: [00:05:12] Yeah. The first one, a friend recommended the HBR guide to buying a small business. That’s probably the one that kind of opened my eyes to the idea that this is possible for me. Like I’ve heard of people buying businesses, but it was like big M and a deals where, you know, large company bought other large company or something like that.
And so this was the first time I’d realized, Oh, well, I could go, I could use some debt, could use some of my own money. I can find a small deal and then I can grow that. And I don’t know why it took someone else explaining it in that simple terms, but it was really like, Oh, the light went off. another great book is buy then build.
And it’s just basically both of those books to me, like. I’ve read a ton of acquisition books. Now I’ve probably seven or eight recommend going down this road because they break them down into such simple terms. at least for me, I need it in simple terms because I’ve never done a deal like this before.
so those two, I just, I highly recommend if you’re looking at buying a small business, there’s nothing better that I’ve found.
Ben: [00:06:14] Yeah. And oddly enough, I have both of those on my Kindle. I think late last year I went down this rabbit hole as well and ended up cause I liked the concepts. Right. These two books by then build HBR guide to buying a business.
What key takeaways do you take? I mean, you touched on it a little bit, leveraging your own assets loans. What key takeaways do you take from these books?
Jeremy: [00:06:36] I think they kind of what they did a good job was outlining the process from search process from when you begin and you just start looking really have to define what you’re looking for.
And that didn’t do a great job of that. At the beginning, it was just like, I want to buy a small business, which is like this huge category. And now I’m down to, like, I want to buy a very specific type of service business in a very small geographic area with very specific. Financial parameters. And so that helps me, it helps me disqualify deals, but also helps other people, brokers and anyone who I come across.
They don’t just send me anything. I mean, it’s still kind of do, but for the most part, it helps to be able to just tell them here’s what it is. Here’s what it isn’t. Put them in buckets. but they, those books are good for just outlining the process from beginning to end. Here’s what your due diligence is going to look like.
or here’s what, here’s, what the sourcing is going to look like. And then LOI, and then due diligence and then close. And then post-close just kind of flush it out as much as you could in a book, without it being a thousand pages long. So really good job with both of those.
Ben: [00:07:42] Right. Obviously you can’t go through all the nooks and crannies of buying an existing business.
That’s been going for a number of what to look out for what landmines exist. You could talk for days on that and still not cover everything. Going through this process a bit. you said you have a very specific business type in mind. I’m curious. How did you arrive at this? How did you come to this, this type of service business and what did the process to get there?
Kind of look like.
Jeremy: [00:08:09] Sure. Yeah. I think the process for me was trying to figure out what we could take from our existing business and. Basically translate that to something else. And the component I kept coming back to was just that service aspect, meaning, we don’t have a tangible product that we sell.
We have people who come in and. The product we give them is just an hour of fun. It’s an hour off of their phones hour with their friends and family completely disconnected. And that part has to be definitely, has to be good. There’s no question. We want that to be a great experience for them, but we found with all the peripherals I’ll be experienced the, interactions that they have with the game master to all those things that we kind of methodically thought out.
I realized. Nobody’s really doing that too much in a service business. Like the, the customer experience. Oftentimes it’s a very low bar and that’s not to say a hundred percent across the board, but typically in a lot of the things that I’ve looked at, it was just not on the forefront of the owner’s mind.
And I feel like that’s as something it’s not, it’s not building a moat around our business. It’s not like an insulate us, but I just feel like that’s. It’s a pretty easy thing to do all things considered as far as some of the other advantages, and building a team inside of those businesses also feel like I’ve done it here.
I can do it there. so some of those things were just like, it started to make sense. Like I just want, I love the service component. I don’t want to go open a restaurant. I don’t, but I do want to serve people in some capacity. And then also those service components often. Have a good bit of growth capability through either other acquisitions or just, you can continue to grow those.
Like they just haven’t been maximized. And that was something that was really important to me as well.
Ben: [00:09:51] Okay. And what’s the type of business you want to target here
Jeremy: [00:09:56] Yeah. So the way, the easiest way to think about it is companies that send guys out in trucks. And so that can be a variety of things. You see that in kind of your traditional trades from HPAC plumbing, electrical, which I’ve kind of dabbled in.
Some those get a little bit more technical, but certainly opportunities there, to like your, dumpster rental companies, I’ve looked at, overhead door repair companies. dry cleaning delivery. Like it’s just kind of anything that has a, a delivery component or some sort of service that you’re actually going to.
It could be the business. A lot of times there’s going to be an, a, B to C type companies, home service companies, blue collar type work. Most of the time,
Ben: [00:10:37] I actually had an another interview with a guy named Deven, who runs kingmakers and their whole investment thesis is in HVAC. Companies as well, they buy these small HVAC companies.
We talked at length of why now, the average age of owners in these looking to pass it off, then heirs don’t want to purchase these. It’s kind of a perfect storm of these nice solid assets. People that have worked their entire life wanting to give up. Give it a new home. Right. And that’s, that’s very, very much the vibe I get from your website.
It’s, you’ve spent your blood, sweat and tears on all these years, building this business. Let me take it over and treat it like it’s my own. Right,
Jeremy: [00:11:19] right. Totally. That is exactly right. And most of the time with those it’s the owner, the most recent one I had is 72 stolen conversations with him. But he, he basically, it was like, There’s still a lot of opportunity here and he wasn’t painting it as a, like a, I just have no energy to do it.
I have no desire. I could give you 10 ideas. I just don’t wanna do any of them. And that’s a pretty common theme amongst them, as they realize, like there’s some untapped things I’ve taken it to this point. Oh, I’d love to see someone younger with some energy, take it to the next step, whatever that may be.
It’s just not going to be them not interested. They want to go fish or they want to go do whatever it is that they want to do.
Ben: [00:11:59] Yeah, that makes a lot of sense. When you’re talking to these guys, is the idea that you want to keep them on as an advisor, as a shareholder to tap into this 40 plus years of operating knowledge? You’re not having to reinvent the wheel every time, or what’s the ideal scenario with one of these purchases? What does it look like?
Jeremy: [00:12:20] I think the straight answer is that’s various situational. It depends on who that owner is. I mean, I think chemistry would certainly be a part of that, but my gut is get them out as soon as possible.
I just think that there’s so many challenges that come along with having them there based on some friends who’ve made acquisitions, which is nothing about them or their character. I think it’s just so hard for them to shake what they’ve always known and done. And so. It sounds like an asset to have them around, but I’ve mostly only heard of it as a kind of hindrance, like conversationally and just process wise.
And just let me get the basics that I need to run the business. And then let’s, let’s go our separate ways. I may call you with some questions kind of thing. That’s probably an ideal scenario. and it’s not because of, you know, don’t like them or don’t want them around it. I just think it’s probably my emo would be, I’ll get as much as I need.
And then, you know, we’re going to be done.
Ben: [00:13:16] Yeah, that that makes sense. I mean, it happens all the time. Right? You have a new perspective come in and, if you get very stuck in your ways, yeah, they clash.
Jeremy: [00:13:26] right.
Ben: [00:13:26] You talked a bit about the customer service aspect, but what key levers kind of in your quiver are you looking to pull, as soon as you get in add value and start, start improving the business.
Jeremy: [00:13:39] Yeah. So, and I think it’s actually, I’ve thought about this. A lot of, if I would do that, if I would do anything right away, because I think I’m really cautious of the team that’s in place, like whoever I I’m interacting with. So I think I laid it out in like 30, 60, 90 days. And the first 30 days is like, don’t do anything.
Don’t don’t don’t touch anything, but yeah, just start to observe. That’s probably easier said than done. I think I’ll have a tough time with that. But, the things that I think about are just, I think I would do a full audit of the process. Like what does it look like to come in day one? Or like from your first interaction as a customer to, some of these businesses have had the same customers for 20 years.
And so like, what does that look like for them now? Obviously they’re still here. They’re still giving us money, but is there anything that we could do to ramp up this? cause you see that a lot with some of these companies where let’s take HVAC. They bought a unit from us and we never serviced the unit.
Like we didn’t have an annual contract with them. There was no follow-up it was just like you do the one-time work, but. You leaving revenue on the table for something that has to be serviced. And so I think in a lot of these there’s, those, those kinds of opportunities is it’s yeah, it’s partly it’s sales.
What else can I sell them? But how can I serve them in a new capacity to re-engage them with a company? You know, we haven’t talked to them and who knows how long they’re still just doing business with us or, so it’s, I think it’s an audit and I think those are situational things that change by company to know what you would do, but I would really want to know what is it like.
From the time we win them to the time they are done with us or whatever the case may be.
Ben: [00:15:11] Gotcha. And you had mentioned that you’ve talked to some friends that have done some acquisitions, which is a really great thing to do, right? It was figure out what blunders did they make, what kind of landmines are hiding and how to avoid those.
What were the biggest surprises after talking to these guys? Like what do you need to watch out for? What did they miss? miss gage a little bit. What key key learnings have you found there?
Jeremy: [00:15:38] I think the one most recently was just how poor some of the financials can be for a company that is actually doing well.
It’s like. I had, I had an owner. They were, you know, it’s not a huge company. just under a million in revenue who, when I was talking to him about his expenses, like, well, I don’t really have them all, all completely buttoned up is like, but I’ve got this post-it note with all my expenses on this. I was like, All right.
And then, so then when I was talking to a friend of mine who just completed an acquisition, he was like, Oh yeah, someone that happened in the one I just bought, I was like, Oh, I had had it in the world that you get from. It. He’s like, well, we had to go through bank records, tax statements and all this stuff.
And so he’s like, but it was a great company. Don’t be. Deterred by the fact that, all that stuff, but it was just interesting that you can have a, what would be considered like a fairly legitimate business, certainly not large, or like fast growth and have no books or no, like records in place. which also lends to the level of the processes they have in place.
It’s almost as if. It they’ve succeeded despite themselves or despite their lack of things in place. And you’re either really deterred by that and you run from it. You’re like, okay, that just means tons of opportunity because once those flow better than the money flows easier, once I have the P and L is all lined up and I know exactly what’s going on, it provides more opportunity to see work and all that stuff.
So anyway, it definitely has been revealing to me that now not every company is like that, but there are good companies that just don’t have it together. Yeah,
Ben: [00:17:09] I can imagine. I mean, these guys it’s like cash businesses. They know how much is coming in their bank account and they have some expenses here and there.
There’s definitely some risks, some expenses that need to be on there that are. But, I would imagine with something like that, I mean the opaqueness alone you should be able to in theory, get a good deal because you’ve spent the time to actually figure out what kind of, numbers they really have.
Jeremy: [00:17:37] Totally. Yeah.
Ben: [00:17:38] What, other is speaking a little bit more about the risks? I mean, obviously there’s an gigantic list of risks with everything we do, but. With this one. I mean, you touched on it briefly is like key customer risk, things like this, you know, I’m missing things in the due diligence process.
What are the biggest risks with doing something like this and how do you think through mitigating them?
Jeremy: [00:18:03] Yeah, there’s two that have come to mind. Most recently. One was just that key employee risk. I think that. There’s horror stories of someone buys a business and 50% of the workforce gets scared and there’s leaves.
You don’t have contracts with them. They can do whatever they want. Especially a lot of the things I’m looking at they’re hourly employees. And so there’s no, commitment, I guess, on their part. So that is certainly a risk, I think, with. I like to think I can mitigate that through just conversations with them and hopefully being able to bridge that gap and, you know, explain to them I’m not planning on making immediate changes and, and kind of getting, giving them a story to buy into.
we’ll see if that’s actually true or not. But then I think similar to that, it’s just looking at businesses like, which I guess go back to HVAC for a second. That requires certain technical skills that I don’t have. So a, I don’t even understand what the employees are doing if they’re out in the field.
And so when I looked at one, a decent size business, right inside my wheelhouse, it was a big concern of it’s harder. There’s more challenges. but I think a lot of the things I’m looking at, I don’t. I’m not going to be an expert day one when I walk in, I’m going to have to learn this. And so it’ll be a lot of humility with staff to say, you’re the expert here.
I’m just here to support you. But those are definitely risks that I’m thinking about is just the people part of it.
Ben: [00:19:25] Definitely. These are the risks with everything. And I think the biggest one with those is, you know, you don’t understand it. So if they say it’s going to take me 10 hours to do this thing and you’re like, no, okay.
Yeah, that sounds good.
Keep asking for more and more, right?
Jeremy: [00:19:40] Yeah. No doubt.
Ben: [00:19:42] Yeah. it sounds like you’ve been investigating a few deals. You started this search full time in January. you still haven’t purchased one yet. How many deals have you looked at?
What were some of the reasons why you passed on some of these?
Walk me through the process thus far.
Jeremy: [00:20:02] Yeah, I think I’ve looked at five and there’s one. That’s still on the table and. probably, I don’t know, maybe I’ve generically looked at a hundred, just like in passing where I didn’t really even get to the more information phase, but I. Spent 30 minutes, like looking up their website, looking at the reviews and kind of like, eh, let’s not even really, I mean, so there’s kind of two different ways.
There’s the high level. And then there’s like the really ones where the deeper ones, where I sat down with the owner, I sat down with the broker and we had a conversation. So I guess since then, it’s probably been about five. I kind of dabbled for a year before that. So this is a lot of, this was just like, Oh, I think I want to buy a business, which was able to analyze deals in that time, just going online and filling out paperwork and they’ll send you P and L’s and you just kind of look over them, but they weren’t really serious contenders.
so I forgot to follow up the second part of that question, but, since January. You said I haven’t pulled the trigger and there’s also actually there’s about two months since January, where it was really unknown, what is happening in the world. So we take March and April, even part of may, and maybe you can call it three months and I didn’t stop, but I kind of was like, it doesn’t make sense to buy something right.
This second, because we don’t know what’s happening. We still kind of don’t. But, Much more, much more engaged with the process now that we kind of have a better feel for where we’re headed. I think COVID wise, although we’re not a hundred percent sure.
Ben: [00:21:27] No, nobody knows. We’re recording this mid August and it’s a while I’m out in California, which is just crazy. You can get a ticket for not wearing a mask in public sort of stuff. certainly still not back to normal that’s for sure.
Jeremy: [00:21:43] No, not at all.
Ben: [00:21:45] you’ve been looking for these things for a number of months, kind of casually over the past year. What is the source? Talk to me more about the sourcing of these investible deals.
You’re looking at like bizbuysell.Com or bizbuysell.com and online brokers, other brokers referrals. Can you just walk me through those?
Jeremy: [00:22:06] Yeah, I think what’s worked best for me was to start with a shotgun approach because you kind of have a couple of different buckets, I guess you’ve got the broker route, you’ve got the direct sourcing, which is just go straight to the owner.
you’ve got some kind of like tertiary services. You’re the attorneys and accountants that deal with the owner. So they’re kind of like a second level removed, but they hear about deals. and then for me, I also just threw in there, my warm contacts, like whether like. It doesn’t matter if you’re in business or not.
Like, I’ll just let my aunt know that I’m like, here’s my website. If you happen to hear somebody randomly mentioned these terms, then call me that kind of stuff. and that actually of just like sending tons of texts and emails to my warm contacts, led to a couple of deals that I got to look at, which I didn’t expect.
I don’t really care where it comes from. So I’m gonna reach out to everyone that I can think of. So I did go talk to a lot of brokers. I still stay in touch with them. I still put out stuff on social media, talking about it. and now I’ve started, I’ve got an intern who’s beginning this week, helping me more with the direct sourcing of all right.
We’ve got, let’s just use 15 of these kind of verticals and then let’s choose the top 20 companies inside those verticals. W under some specific parameters and then go find the contact information. So I can just reach out to them. I’ll just introduce myself cold email, and let’s just see if that goes anywhere.
so it’s not, I would say it’s a process, but it’s not a real clean process and it’s still one that I’m figuring out and learning and wouldn’t say I’m even good at, it’s just do a bunch of stuff and see kinda what happens. and that has produced so many conversations that I think. I will look back and be like, Oh, why didn’t you just do it this way?
But that’s what I’m doing now. It’s it’s working sort of, so.
Ben: [00:23:50] Well, and you never know, right? You have this warm conversation that leads to this attorney that leads to this lawyer that leads to a broker. And it’s like, well, broker worked, but kind of
Jeremy: [00:24:02] through this murky, that’s a good point. Yeah. It’s, it’s very circuitous.
Ben: [00:24:08] Yeah. And people always underestimate the power of their, their warm contacts in their social circle. Right. People. Humans are willing to try to help other humans. And if I know you then yeah, I’m kind of willing to try to help a little bit in any way I can. Right.
Jeremy: [00:24:26] So that’s totally the case.
Ben: [00:24:29] What does, what does the process look like with these, brokers, attorneys, lawyers?
How are you finding them? What kind of lawyers are you reaching out to? What does this look like?
Jeremy: [00:24:40] Yeah. Basically just lawyers that I knew. I mean, being from the, from Birmingham and having lived here, they’re just low hanging fruit kind of stuff. So my personal accountant. And then does he know anyone that I should talk?
There’s a couple different places. I’ve found some kind of like secondary. People it’s, I’m drawing a blank right now, but the process was just like, again was just kind of like whoever I can talk to. And so it’s been all over the place and really those conversations have also come indirectly. Like you said, like one person led to another person who connected me through a friend.
So those have been kind of all over the place as well.
Ben: [00:25:14] Nice. And then the direct sourcing. So you touched on it a little bit, you’re just looking, starting at Yelp for local businesses or how to walk me through that.
Jeremy: [00:25:28] Yeah, pretty much. I mean, anywhere there’s an index online listing those services and kind of get an idea pretty quickly.
I mean, honestly, some of those you just kind of look at who has the most reviews. I was like, let’s start there. There’s a, here’s a good company. They’ve got a good reputation. We don’t know the revenue yet, but that doesn’t really matter. It doesn’t cost me anything to send an email to that owner. and just see if they’re interested in selling.
And there is, I think I will refine that and figure out a better way, but in kind of learning the process, it’s just like, I’d rather just, again, start doing those things, like just make a list, email those people, see if they even react, like maybe the email is terribly written or I don’t know. I got to find out and see, if, if there’s any legs to this approach, because I’ve had some friends who have done it really successfully just direct, just emailing someone and then others, like that’s a complete waste of time.
So we’ll see.
Ben: [00:26:21] And most of the friends that you’ve talked to, obviously it sounds like it’s a mix of everything. Otherwise you wouldn’t, he would just choose that route, but it’s, it’s a mixed bag on, on how they source their deals.
Jeremy: [00:26:33] Yeah. It’s been, it’s mixed. And I, when I say friends, it’s a mixture of people that I know personally, locally, and people on Twitter and people on search funder, who I may have never searched funder.com.
It’s a. Search site, but, I get kind of these progress updates of where they are and what they found. And so dr. Guy yesterday at a Denver who had gone the broker route exclusively, he didn’t talk to didn’t didn’t direct source, anything, just talk to brokers and he had a great deal. Come up. A friend of mine, he just kind of stumbled across an opportunity and wasn’t looking to buy it.
But a friend of his recommended that he meet the owner of this company. They ended up buying. I mean, it’s just like complete mixed bag. I have not seen a single path. Like there’s, you know, if you choose a career, you want to be a doctor, you kind of do this, this, this, and this buying a business seems to be like, yeah, just whatever you want it to look like.
And, and also good luck.
Ben: [00:27:28] Yeah. And I would imagine your process might be a little bit different from others. Considering you’ve niched down. This is the exact business. These are the characteristics I want versus somebody else. That’s just operating from a spreadsheet. Like I don’t care. I want EBITDA of a million bucks and I want to pay one or one to three multiple.
Jeremy: [00:27:53] Yeah, I totally agree. Yeah, there are those guys out there and I think that’s a really great approach for some people. I, it doesn’t really work well for me. And I think I’ve also seen a guy who was, he was looking for, I think it was some sort of software engineering, but he was an engineer and he had like this perfectly matriculated, like process of how he went about it and like, For me, I’m just kind of a relational person.
And so I’ve just kind of waited. That’s where I’ve put most of my weight is in just relying on relationships to source those kinds of deals. but that’s probably not great for other people too, you know, mine’s much more, we’ll just see what happens, put a lot of things out there in the world and then see what comes back.
Ben: [00:28:34] Once you start getting this, deal flow. What are your first, like, walk me through high level due diligence process. What is the first cut? How do they hit the filter then? What is the next step look like? Just the, the whole due diligence for like this five deals that you’ve gone through.
Jeremy: [00:28:51] Yeah. So the they’ve all looked pretty different because of the variety of financials that I’ve gotten.
So one of the owners, his wife was a CPA and so it was beautiful with how they’ve laid everything out in generally what those numbers are just starting with gross margin. And just kind of the general profitability of the company, does it just generally fit the revenue number to me because if it doesn’t, you know, if, if their numbers are way off, I probably don’t even want to dive into it too much.
because I just don’t wanna waste their time or waste mine. Right? Like, so if it fits the revenue, if it fits the general margin numbers that we’re looking for, we kind of look at multiples of cashflow. That seems to be. So far, there’s all kinds of different opinions on valuation, but if that multiple is way off on their asking price, typically pass on that.
And the stuff that I see is kind of recommended anywhere from two to four times, the cashflow of these particular businesses. The higher growth, the higher multiple. And there’s a couple other factors depending on which industry you’re in. but that’s the first impression I want to have is just like, are we, are we reasonably priced to X high, which was puts them, you know, like, Multiple million dollars off where the asking price should be, and I’m going to come in with a devastating offer and don’t want to really be, I don’t want that to be my first interaction with them.
So I try to just make sure generally, like, is there a chance we could get the deal done at this price? And so for those that I have been able to have moved forward with really just asking a ton of questions and kind of telling the owner. I just want to, I’m not going to ask you every single question now, but I’ve got a lot of questions that I’d just love to understand the business and kind of get a general feel for how they run it.
And then the next step, which I haven’t gotten to yet is just an LOI. And that would be where I would go into, you know, getting, getting full documentation from an attorney to draft a legitimate document. Here’s my intentions. Here’s what, we’re what we’re doing, timeframes and those kinds of things. And then after that, it’s just a checklist that I have of.
Every single thing that we’re going to need to know, and then moving forward with even more formalized documentation for the purchase and stop just short of that. because I found something that was like, well, we’re, we’re, we’re too far off here.
Ben: [00:31:03] That makes sense. I worked in finance for a number of years and.
Just the thought of looking at somebody’s P and L balance sheet. do you have a CPA that you work with that you basically do a full audit? So making sure there’s no disasters hanging on the balance sheet that will, that will seriously impair the business going forward. What does that look like?
Jeremy: [00:31:24] I will. I have, I don’t do it in the initial phase because there’s enough that I can do generally to just get an idea for in the ballpark to get an idea of like, is there anything I need to ask them right away, some major expense or some cash issue that’s like really obvious. I think, just qualifying those earnings would be a huge part of the due diligence process where I would get someone else’s eyes besides mine to look over that and really do a deep dive on that.
Cause that’s certainly, I know a little, it just don’t. I don’t, I certainly have any qualifications to do that analysis and like, say that it’s approved. So I would get a lot of help in that regard.
Ben: [00:32:00] Yeah. I mean, working as a controller, there’s a number of levers. You can pull on the balance sheet just to make the P and L do whatever you want.
And knowing that people are just going off of EBITDA multiple it’s like, yeah, I’m looking to sell, like, pull that lever and show it. Right.
Jeremy: [00:32:17] Let’s make it look like whatever. Yeah, no, I would be. Fooled easily. So I would have to have, like, that’s an area where, you know, I haven’t had to have that yet, but it’s like, if I didn’t, it would be foolish not to, not to include someone on my team in that regard in some sort of capacity.
Ben: [00:32:34] Yeah. Yeah, absolutely. And then talk to me. the target, you’re looking for like a million EBITDA, two to three, two to four multiple or whatever. So you’re looking to spend $4 million. Is that. Ballpark
Jeremy: [00:32:48] roughly around that, but it could be as low as maybe 250,000 and Eva Dom and it’s I would say two 50 to a million is kind of the top end.
Ben: [00:32:57] and then what kind of a margin? So EBITDA like 250 or EBITDA of a million bucks. So does that mean $4 million in revenue? Like how big is this?
Jeremy: [00:33:07] Yeah, I think that’s probably it you’re looking at a four is probably on the high end of that. I’m trying to think of even seen anything. That large. I mean, these are mostly pretty small companies, all things considered.
Ben: [00:33:20] Gotcha. so say you’re looking at a million dollar revenue, 250 K EBITDA, HVAC business. What does this look like to somebody like me when I’m walking down the street? And I see like a little HVAC company, is this a 20 person workforce? Do they have an office. Are they operating out of a home? Like what?
Jeremy: [00:33:40] yes. To all of those. it has been across the board. There’s nothing, that’s like the same across the board. I guess I’ve seen, I mean, the stuff that I’m looking at is not one man in his truck. Like he has 18, so you’re looking at at least probably three technicians and then I’ve seen up to, I think the largest one I looked at was 10 technicians.
If I remember correctly, but yeah, I mean, it’s, they’ve got an office, they have a home base. They’ve got, you know, when you have a fleet, you’ve got fleet maintenance is typically involves. There’s a little shop. they’ve got parts that they typically have in there. And so you’re looking at the small, basically like office warehouse kind of set up with a couple bays and a few trucks that they’re running and you know, the more business they do, the more trucks they have, the more technicians they have.
Ben: [00:34:25] Gotcha. included in this purchase price, you’re getting some assets, you’re getting some inventory, things like that. That makes sense. And, in terms of financing, I mean, obviously you can do an all cash offer, but assuming that this would be something that you would be looking to get financing from.
Jeremy: [00:34:43] Yeah.
Ben: [00:34:44] Rates at historic lows. But, what kind of small business loan are you getting? Are banks willing to loan on these sorts of businesses?
Jeremy: [00:34:53] Yeah, I mean, so far everything I’ve looked at has been positive from that standpoint. the SBA route seems like it’s still.
Available, although, it’s a little unknown at times, exactly what’s going on with the SBA and can they handle more, they doing loans or that kind of thing. So, that’s kind of the traditional route that a lot of searchers that I see take is just the SBA backed loan. and it’s got a lot of advantages.
It’s got a lot of disadvantages, but then also I’ve talked to some other bankers who said, if the deal was the right size, they would be willing to talk to me about it. So. A couple of different paths that I’ve looked at going down, but until I had something more solid to take them, it’s really more just relationships.
It’s kind of like, I’m letting you know that I’m going to be doing this kind of getting to know them more than it is. Like what exact terms can I get from you now while I’ve got a generally pick their brain on what to be looking at? I guess.
Ben: [00:35:45] Going forward. I mean, you’ve talked about purchasing this, having the 30, 60, 90 plan, then you’re operating this, you know, after two, three, four years, you’ve basically paid it off, paid off that multiple and it’s kicking off cash.
What’s next. do you want to buy a number of these and then consolidate them and build Birmingham, biggest like HVAC company? What’s kind of the big plan there.
Jeremy: [00:36:11] Yeah. I mean, I think just a portfolio, I don’t know exactly if that what that will look like in the summit will be opportunity driven as a see now and doing the first one is so challenging that the idea of doing a second is like not a great day-to-day manager.
And so. Once I get that in place. Once that the operations kind of, let’s say we tweak them. It’s been enough time. The staff is comfortable. They haven’t freaked out. We’ve put in the right people. We’ve upgraded, probably some software. Most of the time we’ve upgraded the facilities. Most of the time the vans needed to be upgraded.
These kind of like standard things. I’m seeing. No, there’s a period of time that that needs to have some real energy behind it. And some things need to change. And there comes a point where it’s more day-to-day management it’s we don’t need to upset the app every day, like we did early on. And that happens, same thing in a startup, you know, in the startup everything’s changing every single day.
And then you kind of have to be operationally. You need to have smooth, operations and cash flows that you can allocate that appropriately. And that’s where I just get really bored and really not good at doing that. And so my plan would just be to have managers or CEOs or whatever title they need to have in place.
and then find other acquisitions either in the same vertical or if it’s something. I don’t know, it’d be totally different. Probably some ancillary service or some sort of expansion in that regard, because that, to me seems like a good path that I could find myself on them. I’m good for a year or two.
And then I think I, I, I’m not great after that. So it’s a good timeframe. It’s like it gives me something to push towards. Is we really gotta be stable, really got to have good operations. And when you do an acquisition, since you’re not starting from scratch, you’ve got a little more runway there already, which helps.
This is a thesis. This is something I’m guessing I can do. I believe I can do, but that’s, that’s the path that I’m headed on.
Ben: [00:38:03] That makes a lot of sense. I mean, in the, in the beginning, you’re going to be in the trenches right. Every day, for years before you kind of stabilize this thing, even though it already has forward momentum, lots of catch-ups.
So I can definitely see the next step being something very similar and close. So you can leverage all of that hard work. Still definitely will be hard. Right. But not as hard as starting from scratch like this. Yeah.
Jeremy: [00:38:29] I have heard people who have acquired that. The second one is not easy but easier. And when you can show an owner, Hey, we’ve done this before.
That’s a track record that having not done it before.
Ben: [00:38:40] Oh yeah. Oh yeah. looking back on this whole experience, obviously it’s been challenging. You’ve been learning a lot. What do you wish you knew then? What, you know?
Jeremy: [00:38:53] Oh, there’s so many things. I think, I didn’t realize how difficult sourcing would be finding these deals is, is far more challenging.
And I am continually refining that process. So that is because at the beginning it wasn’t a process. It was just, like I said, doing a bunch of stuff, reaching out to a bunch of people. So I think, I mean, I’m only a few months in, so it’s not like it’s been, you know, I’ve been doing this wrong for a long time, but I think just continually honing in on, I got really specific on it, but now who am I looking for?
And what does that look like to get to them? What kind of things does an owner want to hear? How do I market myself? I mean, you’re really, it’s, it’s a sales proposition. I’m selling them on. Some of them have never thought about this. And they’re just now thinking about it, some of them and thinking about it for years, but why am I qualified to come in and take this thing over and do what I’m going to do with it next?
I mean, what, what is it about me that’s that is important or that is, valuable enough for them. So I don’t know if that’s necessarily different, but there’s something I would’ve told myself. It’s just like, you really, you need to, you need to source deals very strategically, and then you’ve got to really be clear on exactly why you’re a good fit for them.
Ben: [00:40:03] I see that you’re an avid reader. we read a lot of the same books. what books have most significantly impacted your approach to this, this whole buying a business, your mindset, how you’re interacting with these, company owners, all of that?
Jeremy: [00:40:19] Yeah. I think in an odd way, it’s, it’s totally unrelated, but thinking fast and slow.
As helped me to think more statistically about these things like the opportunities and what percentage chance that certain things will happen along the way that is so outside of my it’s like a. It’s not a, it’s a, it’s not a complicated book to read. It’s huge. And like it’s, it’s dense, but the core principle of thinking the way he’s talking about it has helped me a lot.
It has nothing to do with business acquisitions, but it’s like, okay, well, if I have a 20% chance of closing this, why would I spend the next however many hours when there’s a higher probability over here? It just kind of like being able to break those things down. Has been extremely valuable and really shaped my thinking.
I sort of my mindset. I mean, it’s definitely changed the way I think, but I read that last year and I’ve been putting it off for years and years and always wanted to, and finally tackled it. And it just has been super helpful for me
Ben: [00:41:24] That also has been on my list for years and everyone recommends it and I am sure I have it on my Kindle or audible because in my mind I get the key concepts.
Right. It’s like, you don’t want this quick thinking you need, I’ll revisit that one. Cause I think we’re good.
Jeremy: [00:41:39] It’s so big. That’s why I didn’t start it. I was like, I don’t want to start something. I hate picking up books that I don’t finish or at least, you know, disqualify if I don’t like it.
But, it is extremely valuable and there’s a lot of things in it that he uses as examples that the concept doesn’t explain. But when you see it exemplifies like, Oh yeah, I get that.
Ben: [00:41:58] Yeah. And those are the things you remember, and then you can remember the concept even better. Right. So it’s unfortunately necessary to read that gigantic book.
Jeremy: [00:42:07] Yeah. it is. I, I think so. I mean, I will, I will read it again at some point and I don’t reread books, so,
Ben: [00:42:14] Well Jeremy, really appreciate you coming on. This was a really interesting conversation. I’m interested to see how simple pro ventures goes and you with this acquisition.
What else do you want to leave my listeners with? Where else can they find out more information or if they have a deal and they want to kick it your way? what do you want to leave them with?
Jeremy: [00:42:33] Yeah. I mean, the place that I’ve been connecting with people most lately is Twitter. I think that’s how we got connected. it’s just at Jair underscore car, Jeremy Carter.
But I, I tell people about Twitter all the time now, and I think they don’t, they just like, Oh yeah, I’ve heard of Twitter, but it is an unbelievable tool where I just see people talking about these deals all day. And so whether it’s alternative assets, Or whatever it is. I mean, if you want to only know about cryptocurrency, there are experts on there talking about it all day long.
And so you can connect with me on there, but also just for listeners, like to me, it’s unbelievable resources find like people that you want to hear from talking about just that thing, which I think is incredible. So
Ben: [00:43:13] it’s a super power and Twitter is one of those things that I didn’t use for the longest time.
It was like, it’s this other social media, like I have enough social media is right. And I think it’s a,
Jeremy: [00:43:23] yeah.
Ben: [00:43:24] I mean novel and a bunch of these bigger name, guys, talk about a Twitter, just being the most amazing place ever, because you can interact with these super famous well-known thinkers within your niche.
And, you know, you DM them and like start a conversation, right. this is how I found you and I, I’m not even sure. How right. I mentioned was in some rabbit hole about buying businesses on Twitter for some reason and came across. Yeah. So
Jeremy: [00:43:53] it’s really, it’s nuts. I mean, I tell people all the time about it, but yeah, I’ll DM people love conversations about things that I would have never thought would happen.
So it’s amazing. and I’m a big fan of it now I just have only recently, probably in the last six months started using it.
Ben: [00:44:08] Same, same, well, I’ll link your Twitter as well as your website. In the show notes, but, thank you really appreciate you coming on.
Jeremy: [00:44:16] Yeah. Thanks so much for having me. It’s been great.
I really appreciate it.
Ben: [00:44:18] There you have it. Thank you for listening. really appreciate your support. Show notes, transcript links, and more can be found on our website at altassetallocation.com.
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