Latest / Big Talk About Small Business / Ep. 94 - Skip the Startup, Buy a Business

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Ep. 94 - Skip the Startup, Buy a Business · Big Talk About Small Business

0:00
Speaker 1: What do you think is better a stock or an asset purchase?
0:02
Speaker 2: Well, if I'm a seller, I want it to be stock, because I want them to pick up all my liabilities, okay, Okay, that they get when they buy the corporation or the LLC as an entity.
0:12
Speaker 2: Yeah, if I'm a buyer, I only want asset purchase agreement.
0:17
Speaker 2: Yeah, I'm buying all their assets in known liability specified.
0:21
Speaker 2: But if there are other liabilities I'm not aware of, I don't pick those up.
0:27
Speaker 1: Okay, in the asset purchase agreement Correct.
0:37
Speaker 2: We are back again.
0:39
Speaker 2: Yes, we are immediately back.
0:42
Speaker 2: I know, gosh, we only had a brief break here.
0:45
Speaker 1: We can't act like all right, we'll be honest with the reviewers, right?
0:49
Speaker 1: We literally just cut an episode.
0:51
Speaker 1: Now we're back here.
0:52
Speaker 1: We took a quick bio break, yep.
0:54
Speaker 1: Came back Yep.
0:55
Speaker 1: Pv team's got us set up for episode two, yep.
0:59
Speaker 1: But you're going to see that we're wearing the same thing we were in the last week's episode.
1:02
Speaker 1: Yeah, I mean, we're not going to lie to you about that, no, but it's okay.
1:07
Speaker 1: Yeah.
1:08
Speaker 2: As far as you know, maybe I wear the same thing every day.
1:10
Speaker 2: That's true.
1:11
Speaker 2: I kind of narked us out, didn't I?
1:13
Speaker 2: Yeah, that's okay.
1:14
Speaker 2: So this isn't a.
1:16
Speaker 2: We're not doing a fashion show here.
1:18
Speaker 2: Okay, we are talking about business, small business and entrepreneurship.
1:24
Speaker 2: Yeah, hence our name.
1:26
Speaker 2: Yeah, big Talk About Small Business Dot com.
1:33
Speaker 2: Whoa.
1:38
Speaker 1: Hopefully that got your attention today.
1:40
Speaker 1: Hey, let's do something.
1:41
Speaker 1: Let's take something out of this white cap.
1:43
Speaker 1: Okay, let's do it.
1:44
Speaker 1: Yeah, let me grab it yeah please.
1:51
Speaker 2: We've got a lot of topics in there.
1:53
Speaker 1: There's a lot of topics, because we need to be reaching in there more often.
1:57
Speaker 1: I know it's true Entrepreneurship is about freedom and flexibility.
2:01
Speaker 1: What are your thoughts on that?
2:07
Speaker 1: Mark Zweig?
2:08
Speaker 1: Yeah, right.
2:09
Speaker 2: It's not, is it?
2:10
Speaker 2: No, freedom is a myth, Is it?
2:14
Speaker 2: Yeah, I mean, I guess we can make any choice we want to make, but if we want to stay in business, we're going to make different choices.
2:25
Speaker 2: That's a good point Than if we just want to be impulsive and do what we feel like at that moment.
2:31
Speaker 2: Right, right, right.
2:33
Speaker 1: Yeah, so you can't expect and I think this is also good for the existing entrepreneurs Because you hear these things like freedom and you know, and flexibility and entrepreneurship, and it seems it's that enticing candy that you're going towards.
2:49
Speaker 1: But if you follow that now you're in it You're like I don't feel like I have freedom or flexibility.
2:54
Speaker 1: What's wrong with me and my business?
2:57
Speaker 2: It was a lot easier before we had cell phones.
2:59
Speaker 2: Yeah, honestly, you could like check out for extended periods of time.
3:03
Speaker 2: Nobody could find you.
3:04
Speaker 2: They almost didn of time nobody could find you, and they almost didn't even blame you because you couldn't be found.
3:08
Speaker 2: Yeah, it's just like you know.
3:09
Speaker 2: Nobody could be, they couldn't be found either.
3:11
Speaker 2: Maybe I mean that's very true.
3:14
Speaker 2: Like you know he's tom, like I mean that, like you really buy a ticket to non-freedom and non and non-unflexibility it's funny, yeah, it's like I used to love it when, 10 years ago, 15 years ago, my realtor would say, well, this, you know, we'd be like trying to make a somebody made us an offer and we make a counter offer, or we're trying to buy something we made an offer.
3:35
Speaker 2: It's like, well, they're, um, they're out of town for the weekend or they're going on a trip.
3:39
Speaker 2: I'm like you and I both know they got their freaking email on their phone.
3:44
Speaker 2: Okay, yeah, right, so bullshit, I'm.
3:47
Speaker 2: I mean, I'm sorry I'm calling that.
3:49
Speaker 2: Yeah, that's no excuse whatsoever.
3:51
Speaker 2: All right, yeah, so yeah, you are going to be tethered, but I mean truthfully, I, you do have a certain amount of flexibility that you may not have in corporate america.
4:01
Speaker 2: Nobody's checking your accumulated vacation time, right, right, you don't have to ask anybody if you can take off and go to the dentist.
4:09
Speaker 1: Yeah, and you got to use that.
4:11
Speaker 1: That's actually there's.
4:12
Speaker 1: That that's a very isolated flexibility that I take full advantage of.
4:16
Speaker 1: Yeah, I can bounce out you know a couple of hours.
4:20
Speaker 1: Yeah, no one has really the ability to ask what I've been doing and where I've gone.
4:25
Speaker 1: Yeah, and that that does feel good, I would say, but it's, it's kind of my, it is reserved as my escape for when things become well.
4:34
Speaker 1: Then my fears have over, have overflown.
4:36
Speaker 2: Yeah, and you probably do it, so you can go spend time on another one of your businesses.
4:41
Speaker 1: No, that's mostly what I'm doing.
4:43
Speaker 2: That's the other thing, it's not just to get away, you know whatever.
4:46
Speaker 2: Yeah, that'd be wonderful, but it's not.
4:49
Speaker 2: It's like I got six different things I'm trying to do here simultaneously, yeah, so yeah, I mean, I do think you have more flexibility in some ways.
5:00
Speaker 1: And instantaneous decisions.
5:01
Speaker 1: Yeah, yeah, but I don't think, like you have, like, honestly, I have to go.
5:07
Speaker 1: I'm going to vacation next week, yeah, you know, with the family.
5:09
Speaker 2: I'm going for two weeks, coming up later in July too.
5:12
Speaker 1: Yeah, but I don't feel like I have the freedom to do that.
5:15
Speaker 1: Yeah, I know.
5:16
Speaker 2: I'm sitting there looking at it Sorry.
5:19
Speaker 2: I'm looking at a cash flow forecast that says I'm going to run out of money exactly when I go I'm like, oh crap, that is so awesome, that always happens.
5:32
Speaker 2: Four weeks from now, the cash flow projection goes in the toilet.
5:36
Speaker 2: Okay.
5:36
Speaker 1: Dude, you cannot, as an entrepreneur, disengage.
5:40
Speaker 1: You cannot do it.
5:44
Speaker 2: Because it's impossible.
5:45
Speaker 2: I'm just trying to push out a week every week.
5:47
Speaker 2: That's right.
5:48
Speaker 2: Push the crisis out one more week.
5:52
Speaker 1: And it all, and because we're having a vacation set for the last six months.
5:56
Speaker 1: Yes, doesn't mean that week's going to be any different.
5:58
Speaker 1: No, because I'm going on vacation.
6:00
Speaker 1: Yeah, it's so true, and I feel guilty for going on vacation.
6:02
Speaker 1: Where are you going?
6:03
Speaker 2: We're going to, uh, destin, oh, destin, yeah, yeah, so in the hot sun, yeah, week one of my daughters is going with um, her boyfriend's parents people, and they'll be there somewhere.
6:15
Speaker 2: And then my other daughter is going with her friend and her friend's grandmother.
6:21
Speaker 2: Oh, nice, all that beach yeah, they're all going to be down there somewhere.
6:24
Speaker 2: What is that 30 a?
6:24
Speaker 2: Or beach yeah, they're all gonna be down there somewhere.
6:25
Speaker 2: What is that?
6:25
Speaker 2: 30a?
6:26
Speaker 2: Or whatever?
6:27
Speaker 2: Yeah, they're all somewhere down there.
6:29
Speaker 2: Dustin, sandustin, seaside, I don't remember rosemary beach, it's all those places.
6:36
Speaker 2: Yeah, it's all the all that.
6:37
Speaker 2: So you're, how long are you going for?
6:38
Speaker 2: Just for a week, did you rent a?
6:39
Speaker 1: house or hotel, a little condo complex in a little okay good, yeah, it's nice, we just go back to the same place of talent.
6:47
Speaker 1: I love it.
6:48
Speaker 1: That's what I do because there's some familiarity to it.
6:50
Speaker 1: Yes, we always go to fort lauderdale same thing, yeah, same place when I've been able to uh request of my wife to keep it as simple and convenient as possible.
7:02
Speaker 1: Like the price tag on it isn't as much of a concern as the fact that I can get there in a direct flight.
7:09
Speaker 2: Oh, the flights are cheap though, yeah.
7:10
Speaker 2: Well, yeah, they are.
7:11
Speaker 1: I mean Allegiant, or whatever that is, or Breeze, I can't remember which one, but they're both called the other two of those, yeah, yeah, but I can get there in an hour and a half, yeah, you know.
7:27
Speaker 1: Yeah, you know, land drive to the condo, be there in 15, 20 minutes, yep, and then Tara's got it worked out where everything's like delivered by Walmart, love it.
7:30
Speaker 1: Yeah, I mean, it's fantastic.
7:31
Speaker 1: She discovered that.
7:31
Speaker 1: I mean, what a convenience, right where she.
7:33
Speaker 1: She's actually already made the order last night, yeah, and so she's gonna be at the condo.
7:38
Speaker 1: You're set for the week.
7:39
Speaker 1: There it is.
7:40
Speaker 1: And then she just laced up awesome, yeah, and it's just this routine thing.
7:43
Speaker 1: But I mean, I've been able, and I and I've made some requirements like I need it to be like direct flight.
7:48
Speaker 1: Yeah, I don't want me jump around airports for no, I get it.
7:52
Speaker 1: Have time for that.
7:52
Speaker 1: Crap stresses me out.
7:53
Speaker 1: Yeah, you know.
7:54
Speaker 1: And then I have to have good wi-fi, yeah, you know, wherever we're at.
7:57
Speaker 1: Yeah, non-negotiable, right, otherwise I'm in, yeah, and then I get down there and I and I stay in trouble, like literally, my pattern is this we get down there, I work for the first couple of days really hard, you know, because the girls are sleeping here, or I'll go do it at a coffee house, but by tuesday, you know, if we're down there on saturday by tuesday morning I started getting in trouble.
8:20
Speaker 2: It's like you're going with us today, buddy, you're going to the aquarium.
8:22
Speaker 2: You're going to us.
8:23
Speaker 2: Today, buddy, you're going to the aquarium.
8:24
Speaker 2: You're going to the beach.
8:25
Speaker 1: Yeah, I started getting in trouble.
8:27
Speaker 1: By Thursday I'm full cooperation.
8:30
Speaker 1: I've realized that I'm on vacation, but by that time there's only two more days left.
8:35
Speaker 1: But I appreciate my spouse.
8:39
Speaker 1: That's what's great about a supporting spouse.
8:42
Speaker 1: It's a good partnership.
8:43
Speaker 1: It is because they recognize that you can't really disengage and so they find ways to support that and then we can all have a good family vacation.
8:52
Speaker 2: Yeah, I'm so thankful that my wife is the same way.
8:55
Speaker 2: She's fantastic.
8:57
Speaker 2: She knows when I'm going through something.
9:00
Speaker 2: To let me deal with it and not make me feel bad about it.
9:04
Speaker 1: To let me deal with it and not make me feel bad about it.
9:05
Speaker 1: Like, even whenever things are going really well, as an entrepreneur, there's not a freedom to me of not doing something Because there's too many things to fix, Exactly, and so you'll never arrive at this freedom place.
9:22
Speaker 1: I don't think as an entrepreneur if you're really an entrepreneur because you're doing something to fix things.
9:29
Speaker 2: Yeah, and no question about it.
9:31
Speaker 2: And the other thing is you've got all the other ties, like your bank loans that may be secured personally, in fact, they probably are.
9:40
Speaker 2: So if that goes bad, then you've got to cough up the money.
9:43
Speaker 2: I mean, so of course, you're going to be worried about stuff all the time.
9:48
Speaker 2: Yeah, I mean, it's just.
9:49
Speaker 2: If you're not, you're crazy.
9:51
Speaker 2: Yeah, honestly, yeah.
9:52
Speaker 2: So, yeah, you're not free.
9:55
Speaker 2: It's not like I can just go take.
9:58
Speaker 2: I mean, could you go borrow money and go buy a freaking boat or it's million dollar boat or something?
10:05
Speaker 2: Yeah, you could.
10:06
Speaker 2: Or yeah, whatever, or use your cash that you had to do that, but it wouldn't be smart.
10:12
Speaker 2: You know that.
10:12
Speaker 2: Yeah, you're going to want to take that money and deploy it in these other businesses.
10:17
Speaker 2: That's right.
10:17
Speaker 2: So it continues to multiply and create opportunities potentially, and they don't all work out.
10:23
Speaker 2: You know that.
10:23
Speaker 2: So, yeah, yeah, free.
10:26
Speaker 2: You're not free out the door.
10:28
Speaker 2: Freedom is a is is a joke.
10:30
Speaker 2: Um, well, let's talk today about, um, I think, a really good topic.
10:34
Speaker 2: Um, you don't have to start a business from scratch, because, yeah, that's always been one of my things in entrepreneurship and small business.
10:43
Speaker 2: In at the higher ed level, they constantly push startup, startup, startup.
10:48
Speaker 2: I mean, if you look at how many classes we have in new venture development, how many sections, yeah, how many people teach it at the walton college, it blow your mind.
10:57
Speaker 2: We probably got like eight teachers of that class and most of them are doing multiple sections, but there's no class on how to buy a business.
11:07
Speaker 1: See that's a shame?
11:07
Speaker 1: Well, because the reality is, if you buy a business, you're buying existing revenue and customer base versus starting one trying to get new customer acquisition so much less risky.
11:20
Speaker 1: So let's talk about that, Go ahead.
11:23
Speaker 2: I'm just going to say that I do actually cover that in my small enterprise management class, but I'm the only one that teaches that, so I'm just it just kind of gives you a sense of the ratio.
11:34
Speaker 1: Yeah, like the okay, like the as a, as an entrepreneur, like getting new customers is like the hardest and scariest thing so that you can do, and it's like everything's dependent upon that working well, which comes down to the word marketing yes, it does which everybody discredits and shoves under the rug.
11:56
Speaker 2: Yeah, and some businesses need a lot of marketing before the business starts 100% In order to be able to come out of the gate and have a viable business.
12:04
Speaker 2: I see this all the time, though, with things like some kind of a marketplace where you got to get buyers and sellers together.
12:10
Speaker 2: You know whatever it is and they don't do the pre-marketing.
12:15
Speaker 2: Yeah.
12:15
Speaker 2: So when you turn the switch on, there's buyers and sellers both there people who want and people who provide.
12:21
Speaker 2: Yep, and it's dead in the water.
12:24
Speaker 2: You don't go there and they see that it's not worth being here.
12:27
Speaker 1: It's so funny when you talk about that ratio of what's being taught, because having a customer base that is a paid customer base, and if you bought a business that's been in business for five years 20, even better, the longer the better You're absolutely right.
12:43
Speaker 1: That has built this customer base.
12:44
Speaker 1: And you have somebody that's just wanting to get out and transition to retire or death in the some sort of circumstance.
12:51
Speaker 1: They just don't want to do the business anymore.
12:53
Speaker 1: Like there's probably not a a higher percentage of success than to buy something so true that dude it's.
13:02
Speaker 2: So.
13:02
Speaker 2: I mean, I got a friend that does this.
13:04
Speaker 2: Yeah, he looks for baby boomer owned businesses that have been around a million years.
13:10
Speaker 2: Okay, because they got all these customers.
13:13
Speaker 2: Yeah, they got employees, they got suppliers, they got systems, they got a location or locations.
13:20
Speaker 2: They have no transition plan whatsoever.
13:23
Speaker 2: Yep, okay, and he swoops on in.
13:26
Speaker 2: It's great every time and it's usually a win.
13:29
Speaker 2: Went all the way around, he every one of these businesses.
13:32
Speaker 2: He immediately grows them and by doing several things, like putting processes in that they don't have and doing marketing, yeah, yeah, none of them, they're not doing any marketing.
13:43
Speaker 1: Well, because they they become dependent upon that flow and then they're like, at some point, some along the way they go.
13:49
Speaker 1: Well, we don't have to do any more marketing to grow the business.
13:52
Speaker 1: I don't really want to grow the business because the more I grow it, the more problems I have.
13:56
Speaker 1: I'm making a good living right now.
13:58
Speaker 1: Yes, yeah, and that's what I a.
14:07
Speaker 1: Uh man, I've really I should get more into that.
14:08
Speaker 2: Honestly, you want to go buy some businesses?
14:09
Speaker 2: I'm always into it, I mean, and.
14:10
Speaker 2: And then the thing is the guy um, he, the businesses he buys, though, are related to each other.
14:17
Speaker 2: Yeah, some way tangentially, so you can share customers.
14:20
Speaker 2: That's right between them, even if, or you can share talent yeah, customers, or talent, that's great, it's like it or you can share talent, yeah, customers are talent, that's great, it's like.
14:26
Speaker 2: It's just such a great strategy.
14:28
Speaker 2: And look, guys, it actually works.
14:31
Speaker 2: He's buying one right now, okay, for a couple million plus.
14:35
Speaker 2: It's an old company.
14:37
Speaker 2: It's been around, let's say, 50 years.
14:39
Speaker 2: It's great, all right, and it's got real estate.
14:44
Speaker 2: It makes the owner of the, the company I don't remember what the numbers are exactly, but a really good living right now.
14:54
Speaker 2: This business, okay, one owner.
14:55
Speaker 2: He's getting the business for free just for buying the real estate.
14:59
Speaker 2: Yeah, because it has that value to it.
15:02
Speaker 2: Yeah, the guy doesn't even want to deal with the business itself.
15:05
Speaker 2: He's just going to be like okay, we can keep doing it if you want.
15:08
Speaker 2: Okay, it's like is that not brilliant?
15:11
Speaker 2: It's great.
15:11
Speaker 2: So the real estate is so easy to finance yeah, yeah, it's real estate.
15:15
Speaker 2: It's got a secured asset, yeah, okay.
15:19
Speaker 2: And then he gets this business and then he's just going to go in there and do the same thing he always does Study it, maybe change out a few people, put his processes in play, start marketing yeah, boom, this grows, it's.
15:34
Speaker 2: You're so right about that.
15:35
Speaker 2: It's just so much I never told.
15:38
Speaker 2: I mean, I always said when you buy a business, you get the customers or clients.
15:42
Speaker 2: That's great, but I never thought about it quite exactly how you post it.
15:46
Speaker 2: It's so hard to build your customer base, okay, from scratch.
15:53
Speaker 2: It is so hard, it's like an expensive.
15:56
Speaker 2: Everybody says to me.
15:58
Speaker 2: Earlier this week I had a discussion with one of my former students.
16:01
Speaker 2: He's like I'm trying to figure out.
16:03
Speaker 2: I want to start a business, okay, I'm on the side from what he's doing.
16:07
Speaker 2: He goes, I can put 150,000 into it.
16:10
Speaker 2: What do you think I had to do?
16:11
Speaker 2: He's doing, he goes, I can put 150 000 into it.
16:14
Speaker 2: What do you think I had to do?
16:15
Speaker 2: So I said, well, what are you thinking about right now?
16:17
Speaker 2: Well, his first thought was packaged um, uh, energy, uh, drink or protein drink, okay, and I'm like dude, do you know how hard it is to gain distribution with a drink?
16:27
Speaker 2: If you've got a one drink product company, yeah, who is gonna buy that?
16:32
Speaker 2: Right?
16:32
Speaker 2: Nobody, right?
16:34
Speaker 2: No, you.
16:35
Speaker 2: You won't get any traction, you won't get any distribution.
16:37
Speaker 2: Yep, super hard to do, very hard, okay.
16:42
Speaker 2: Or people come up I got a new product, I'm going to put it on my website and I'm going to sell that product.
16:48
Speaker 2: Driving so hard, driving people to your website is so freaking hard.
16:53
Speaker 2: It is.
16:54
Speaker 2: But if I can go buy a business that's already got hundreds or thousands of customers, yeah that have used it.
17:02
Speaker 1: If you have a business that's got like 10 000 people in your email database, yes, I mean man, that's just like that's ismine, because it takes years to get to that in a lot of circumstances.
17:15
Speaker 1: You know, I mean I think that I would love to see if you could do a study, have your students do a study about the true value of an existing customer base versus trying to build that same customer base.
17:28
Speaker 1: Like, really, what did it take?
17:30
Speaker 1: Because it's not just marketing, it's just not call to actions, it's not take, because it's not just marketing, it's just not call to actions, it's not sales, it's not just the people that you got, yeah.
17:37
Speaker 1: And then yeah, because once you get them in and they stay in like now you're talking about churn and and how much turn did you?
17:45
Speaker 1: That's a big factor, it's huge.
17:46
Speaker 1: And then, like you've got a performance customer service.
17:49
Speaker 1: It's everything about the business is locked up into that customer base.
17:53
Speaker 2: Or I love businesses where it's really hard for them to disconnect from yeah, those are my favorite ones Like they're so dependent they can't like turn this thing off or they're dead.
18:02
Speaker 2: Okay, pretty much.
18:03
Speaker 2: I mean it's like accounting software, whatever.
18:06
Speaker 2: They don't want to bother with convert.
18:07
Speaker 2: Yes, it's not perfect, perfect.
18:09
Speaker 2: But you know what?
18:10
Speaker 2: I'm not going to unhook, for that's right, it's the, the pain of transition.
18:14
Speaker 1: Yeah, it's just not worth it.
18:15
Speaker 1: No, it's not worth it, yeah yep, so not worth it.
18:19
Speaker 2: It really is interesting.
18:20
Speaker 2: Um and and this is so true, so yeah, I think um getting getting the customer base is super critical and then what about this?
18:30
Speaker 1: this is something I'd love to hear you talk about.
18:31
Speaker 1: On the financing yeah, like it's easier to get financing for a business that's been in existence, oh gosh, yeah, yeah I mean it's it, of course it is because it's a proven thing.
18:43
Speaker 2: Yeah, you can borrow money on the cash flow.
18:45
Speaker 2: Um, you can get, you know it's got assets.
18:48
Speaker 2: You can use accounts, receivable equipment, whatever.
18:53
Speaker 2: So, yeah, and the equipment may be depreciated too, so it's cheaper.
18:58
Speaker 2: Then you can go buy all that new.
19:01
Speaker 2: Put that together.
19:02
Speaker 2: I mean there's just a million reasons.
19:04
Speaker 2: It is easier to finance and if I can get the seller to finance part of it, that's always where I go.
19:12
Speaker 1: Oh yeah, for sure.
19:12
Speaker 1: And so to the point if you're listening to this and say we had a listener that's thinking about starting their own business, yeah.
19:20
Speaker 1: I mean the reality is, if you don't have any money yourself or access to other capital which is not necessarily the best thing I mean you've got angel investors right family and friends or something like that that aren't looking for irrs.
19:33
Speaker 1: You know investor returns and all kinds of craziness.
19:36
Speaker 1: You know they're patient, very patient.
19:39
Speaker 1: I mean, just believe in you, not that they all are, I'm just saying the ones yeah.
19:44
Speaker 1: Yeah, they just want to help you, right, yeah, right, they want to see you it's not a rational, financially driven decision and I think that that's dangerous, like that's even more dangerous, right, even if you do get that very, um, non-strength, benevolent yes, benevolent capital, yeah, angel capital yeah, yeah, like that's, that's going to put a lot of pressure on you right out of the gate at least it should but, but, being able to like a good decision, if you're that person, that's like man, I'm really itching to be my own boss, like we talked about last episode, or have freedom, or have flexibility, like we're talking about going and buying a business based on their current financials and getting an easier loan against that business without having to come up with the capital yourself like you could.
20:30
Speaker 1: You know, that's just like such a no brainer.
20:33
Speaker 2: Every time I ever got involved in buying a business or most every time or advising people, we always try to get the seller to finance and understood all of it If possible.
20:44
Speaker 2: That's your goal.
20:45
Speaker 2: I love it because I always ask my students because we do talk a lot about this in my small enterprise class and I have them write a paper on it and if they tell me that the first place they're going to do is say have their own cash or they're going to their family or whatever, I take it off points, I'm like how many times have I told you people, you always, I don't care if I got 100% of the cash sitting there, I want the seller to finance it to me.
21:12
Speaker 2: Why?
21:13
Speaker 2: Two big reasons, okay, one is I've got a way to claw back at them if anything was misrepresented, because they haven't been paid all the money.
21:24
Speaker 1: You have a continued due diligence process.
21:27
Speaker 2: Yes, that's exactly right.
21:29
Speaker 2: I've got a way to get back, okay.
21:33
Speaker 2: Secondly, they want to see me succeed the seller of that business.
21:40
Speaker 2: Yeah, okay, so they're going to help us?
21:43
Speaker 2: Yeah, okay, yeah, because they don't get paid.
21:47
Speaker 1: Unless you do well, Exactly so.
21:50
Speaker 1: Can you talk a little bit about the mechanics of that?
21:53
Speaker 1: What does that look like?
21:54
Speaker 1: So I found a business.
21:56
Speaker 1: Say I found a plumbing company.
21:57
Speaker 1: It's a two-person business.
21:59
Speaker 1: The owner's ready to get out.
22:00
Speaker 1: I want to buy a business.
22:02
Speaker 1: How do I approach that seller?
22:04
Speaker 2: Well, I mean two-person is pretty small, but let's just say 10, just for the sake of it.
22:09
Speaker 2: Sure, how do I approach the seller?
22:11
Speaker 2: I call them up and say look, I have no idea whether you'd consider it or not, but I would be interested in talking with you about I don't know what your plans are.
22:23
Speaker 2: I would be interested in talking with you about potentially selling me this business.
22:26
Speaker 2: Yeah, and see what they say.
22:28
Speaker 2: Then shut up Okay, and see what they say.
22:32
Speaker 2: Then shut up Okay, and see what they say.
22:33
Speaker 2: And if it, if it's a yeah, I'm open to that idea.
22:35
Speaker 2: Well then, let's get together and let's have a little talk about it.
22:38
Speaker 2: Okay, and if you got any numbers you'd be willing to share with me, that'd be great.
22:44
Speaker 2: If you want me to sign some sort of an NDA, sure, I'll be glad to do that.
22:48
Speaker 2: So you know, I can't just lab your numbers all over the place or recruit your people.
22:53
Speaker 2: Yeah, right, I'm perfectly willing to do that.
22:59
Speaker 1: But let's talk about it.
22:59
Speaker 1: And so when you meet with them, then at some point you bring up hey, would you consider owner financing this?
23:06
Speaker 1: Yeah, so financing this.
23:09
Speaker 2: I mean, I might, I might talk about that or I might save that for when I actually send them an LOI letter of intent or MOU memorandum of understanding about a basic offer structure, got it.
23:22
Speaker 2: I'm not necessarily going to ask them if they're going to finance it initially.
23:27
Speaker 2: I, if I did, I would probably pose it as now.
23:29
Speaker 2: I assume that you're going to be willing to finance, um, this deal, yeah, harder all of it, because there's not a lot of buyers out here right clamoring to buy this business, right, yeah, yeah that just they're not.
23:43
Speaker 1: Nobody's going to come in here and just give you a bunch of cash and let you go out the door so literally like on the l, like you might have had multiple conversations reviewing financials, all this discussion, and then you say, hey, I'm going to send a letter of intent over to you in the next couple of days and when you send that, that LOI in there will talk specifically.
24:02
Speaker 1: My offer is this upon your acceptance of seller financing this deal, this is my offer for you.
24:09
Speaker 1: If you'll seller finance, then my offer stays true.
24:11
Speaker 1: Yeah, there's going to be a lot of details on that.
24:11
Speaker 1: Sure, my, this is my offer for you.
24:12
Speaker 1: If you'll sell our finance, then my offer stays true.
24:13
Speaker 2: Yeah, there's, there's going to be a lot of details on that.
24:16
Speaker 2: I mean, I don't necessarily have to have a lot of meetings.
24:19
Speaker 2: Um, my approach is, yeah, I want to see financials.
24:23
Speaker 2: Okay, but I'm going to take a shot across the bow real early because I want to find out if they're realistic.
24:30
Speaker 2: Okay, I don't want to waste my time with anybody.
24:33
Speaker 2: Yeah, okay.
24:34
Speaker 2: So a typical LOI, let's say, or MOU, to buy a business or to do an asset purchase agreement.
24:42
Speaker 2: It's going to spell out like right away this will be considered.
24:47
Speaker 2: The form of this transaction is going to be a stock acquisition, um, or a stock sale, or an asset.
24:53
Speaker 2: You know asset purchase and you know we'd, we'd have that um, will we?
24:59
Speaker 2: We will pay you book value for your business.
25:03
Speaker 2: Okay, we're not specifying a number at the time of closing, and and we'd like for you to finance that for 24 months based on eight quarterly payments, okay, okay.
25:19
Speaker 2: So you're going to spell out stuff like that.
25:21
Speaker 2: We will have a note in there.
25:23
Speaker 2: Okay, for a certain amount of money?
25:26
Speaker 2: All right, we're going to pay that over three years in monthly installments at 9% interest.
25:32
Speaker 2: We'll give you an employment agreement for one to three years, depending on your interests Okay, and plans that will have an expectation of reduced work time commitment for you, but you're not saying what the salary is.
25:52
Speaker 1: You're not right Exactly.
25:55
Speaker 2: I'm not, if I can avoid it.
25:56
Speaker 2: I mean I could do that.
25:58
Speaker 2: Yeah, I could say we'll pay you book value at time of close.
26:02
Speaker 2: Okay, Right now it's 400,000.
26:04
Speaker 2: Yeah, we'll give you a note for another 300,000 paid over 30.
26:08
Speaker 2: I mean we could say that, okay, that okay.
26:11
Speaker 2: Um, you know, it's all based on these current numbers.
26:15
Speaker 2: What did?
26:16
Speaker 1: you mean a certain day.
26:17
Speaker 1: We'll pay you 400 000, but give you a note at 300 000.
26:20
Speaker 2: The 400 000 is for the book value of the business.
26:23
Speaker 2: Okay, so it's the value of the business, the book value, assets minus liabilities.
26:27
Speaker 2: The 300 000 basically represents goodwill.
26:30
Speaker 2: That coupled with the employment agreement.
26:33
Speaker 2: Okay, so so.
26:36
Speaker 1: So you would add all that up for the total price paid for the business gosh, you sell the, the book value at 400 grand plus the 300 000 of the note, right?
26:46
Speaker 1: So what does that go to?
26:47
Speaker 1: I mean, is that seven?
26:48
Speaker 1: What does it go to?
26:49
Speaker 1: What do you?
26:50
Speaker 1: Well, I mean, like, where's the that go to?
26:51
Speaker 1: I mean, is that seven?
26:52
Speaker 1: What does it go to?
26:52
Speaker 1: What do you?
26:53
Speaker 1: Well, I mean like, where's the?
26:53
Speaker 1: Like, what are you buying for the note?
26:54
Speaker 1: Like, what's the note buying it's?
26:56
Speaker 2: buying the, the future cash flow of the business.
26:59
Speaker 2: Got it okay, okay, yeah, that's the goodwill all right got you.
27:02
Speaker 2: It's not all secured by hard asset.
27:04
Speaker 2: None of us would ever sell our business for book value, right assets minus liabilities.
27:09
Speaker 2: Hell, no, right, not Right, not even close.
27:11
Speaker 2: It's worth far more than that.
27:15
Speaker 2: As you know, you sold your software company.
27:18
Speaker 2: That wasn't based on book value, it was based on the future potential earnings Got you Okay, so that's the two instruments there.
27:26
Speaker 2: The value of the business itself In the employment agreement.
27:30
Speaker 2: Don't dismiss that.
27:31
Speaker 2: The reason employment agreement is part of it is we may or may not have them do anything to get paid, that we may just want them to be available.
27:41
Speaker 3: Yeah.
27:41
Speaker 2: Or we may want them to work full time for a year and 50% the next, whatever.
27:45
Speaker 2: Yeah, all right, so that's part of the premium.
27:49
Speaker 2: And the reason why is we can write that off as an expense of the business, right?
27:54
Speaker 2: Okay, so it's part of the consideration, but normally these payments we make to the seller would not be tax deductible for us as the buyer, right?
28:06
Speaker 2: So you understand that.
28:07
Speaker 2: So the more of it I can shove toward the employment agreement Again, consult your legal and tax advisors on this yes, but the more of the purchase price I can shove over to an employment agreement or consulting agreement.
28:22
Speaker 1: From the seller's perspective, it doesn't matter how it comes, necessarily does it.
28:26
Speaker 2: It may or may not.
28:27
Speaker 2: It all depends on what they've got and what their accountants are doing.
28:30
Speaker 1: Well, I guess if they're getting paid a salary or something, then it's obviously got a tax bracket.
28:35
Speaker 2: Right, it's a tax issue.
28:36
Speaker 2: It's not a capital gains, cap gains or it's ordinary income.
28:41
Speaker 2: But yeah, sometimes it's to their advantage to stretch it out.
28:44
Speaker 2: Yeah, okay, it doesn't kick them into the higher bracket, true, yeah, true.
28:54
Speaker 1: So anyway, bracket, true, yeah, true, so anyway.
28:55
Speaker 1: Yeah, I mean.
28:55
Speaker 1: So why would a seller be motivated to do the order, the seller financing, like what's the value for their side, versus saying, man, hell, no, you know.
28:59
Speaker 1: I mean like I guess that if I was, if I was a seller of the company, I'd be like I want all my cash now, like I don't want you to spread it out over town yeah, but you might not because a there could be tax advantages to spreading it out, right, okay, right, maybe you're going to get interest on that, okay, yeah, uh, you can't get that money out of the company right now.
29:20
Speaker 2: right, that could be really critical cash for you to get sure, um, which is going to allow you to, like, pay off your house or whatever.
29:28
Speaker 2: Yeah, yeah, okay, in the next two years and be done with that.
29:32
Speaker 2: Um and um, uh, you don't have any other options.
29:38
Speaker 2: I was like you're sick, you got.
29:41
Speaker 2: You got cancer, you got it.
29:43
Speaker 2: You're going through a divorce.
29:44
Speaker 2: I mean it you're tired.
29:47
Speaker 1: You don't have people knocking on your door every day.
29:49
Speaker 1: Yeah, tired.
29:49
Speaker 1: You don't have people knocking on your door every day wanting to buy your business.
29:51
Speaker 2: Yeah, and it's hard, like if you want they do they all want to give you the same kind of deal I'm going to give you.
29:55
Speaker 2: Yeah, that's right, right, so you got to think about who's most likely to make this successful going forward well, and a lot of people got to understand too.
30:02
Speaker 1: If I was, if I had a business like that and I want and I want to sell it, I'm in a position that I'm eager to sell this business for whatever reason.
30:10
Speaker 1: That's not an easy, quick process by any means.
30:14
Speaker 1: I mean, like, how are you going to sell it?
30:16
Speaker 1: It's like how do you sell a car, how do you sell a boat?
30:19
Speaker 1: Like I mean, there's a lot of work in selling a business because there's so much detail in it.
30:23
Speaker 2: It's more complicated than buying a house.
30:25
Speaker 2: It does.
30:25
Speaker 2: It takes time.
30:26
Speaker 2: It takes a lot of time to develop.
30:38
Speaker 1: And lot of time to develop and you got to market that.
30:39
Speaker 1: You got to pay the fee to the business broker or the private or the um, you know, the investment banker that's representing you, yeah, so it's a big deal to have somebody come and offer you to buy the business even at seller financing.
30:44
Speaker 2: Yeah, it is.
30:44
Speaker 2: Yeah, and I mean, especially if you have faith that they're going to be able to operate it.
30:49
Speaker 2: Yeah, you know, like I I talked, maybe you can keep the real estate and you and that's an asset for you.
30:55
Speaker 2: Like I, I had lunch yesterday with a friend of mine and we were talking about another one of our friends who's a.
31:00
Speaker 2: Who's a uh it's as a certain medical uh uh practice okay, and his it's very profitable.
31:10
Speaker 2: You know they do certain things procedures there, surgery related, yeah, and so he sold his business five years.
31:19
Speaker 2: You know, seller financed and got to keep the building.
31:22
Speaker 2: He's going to have ongoing income from the building.
31:25
Speaker 2: So he basically leased back out to the buyer.
31:27
Speaker 2: Yeah, exactly, and you know it's a great deal for him.
31:31
Speaker 2: He's going to be making more money and he doesn't have to be there for entirety, wants to do other stuff with his time.
31:37
Speaker 2: Yeah, that works out well and and so, as long as the they have faith at the buyer, yeah, has the capability to continue the operation.
31:48
Speaker 2: I mean, so that is a factor.
31:50
Speaker 2: But if I came to you to buy your plumbing company and I'd already had a very successful plumbing company, or I'd bought three other plumbing companies, you'd feel a lot better about me than if I never had a plumbing company or I never knew anything about plumbing at all, because basically the seller turns into the financier in this whole transaction, right, and they need to have faith that you're going to actually pay what you said Exactly.
32:15
Speaker 1: You're not going to come in destroy the business six months later, default on your payments, right, and then you got a big pile of shit in your hands that actually is lost value, yeah, and so that's kind of a risk on that side, right, yeah.
32:29
Speaker 2: Absolutely.
32:30
Speaker 2: I mean that happened to us with the private equity firm we sold to.
32:35
Speaker 2: We still had a going interest, we still had an ownership interest in the in the company that was created, with our company being merged with two smaller companies and they blew it.
32:47
Speaker 2: They didn't have experience in our industry truthfully successful experience.
32:54
Speaker 2: Now, the way we looked at it in that case was we'd already gotten enough cash that we figured if it did blow up we weren't going to feel bad, right, um, we felt like we got out of it what we deserved.
33:06
Speaker 1: So could a seller get kind of screwed on this whole deal?
33:08
Speaker 1: Yeah, A seller could get screwed.
33:11
Speaker 2: So what does that, what does that look like?
33:12
Speaker 2: They, the, the buyer, um, doesn't run the business successfully and can't make the payments, and usually the security is the business itself.
33:22
Speaker 2: And so then that, or unless you get a personal guarantee.
33:25
Speaker 1: You might have a personal guarantee, but then they may not have any assets right, but then as a seller, you have to go sue them and you have to go through the legal process.
33:32
Speaker 2: Yep, yep, yep, so it can backfire on you and you can't end up with.
33:37
Speaker 2: It takes a lot of faith in the buyer.
33:40
Speaker 2: Yeah, they've got to be solid people that have a good track record.
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34:02
Speaker 1: Okay, so you submitted the LOI.
34:05
Speaker 1: The seller agrees to your LOI.
34:07
Speaker 1: Yeah, Now what happens?
34:08
Speaker 2: Now we go into due diligence.
34:09
Speaker 2: We've typically got, you know, let's say, 90 days to work out the details on either a stock purchase agreement or an asset purchase agreement.
34:19
Speaker 1: What do you think is better a stock or an asset purchase?
34:21
Speaker 2: Well, if I'm a seller, I want it to be stock, because I want them to pick up all my liabilities, okay, Okay, that they get when they buy the corporation or the llc as an entity.
34:31
Speaker 2: Yeah, if I'm a buyer, I only want asset purchase agreement.
34:36
Speaker 2: Yeah, it's no different.
34:37
Speaker 2: I'm not.
34:38
Speaker 2: I'm buying all their assets in known liability specified.
34:42
Speaker 2: But if there are other liabilities I'm not aware of, I don't pick those up.
34:48
Speaker 2: Okay, in the asset purchase correct.
34:51
Speaker 2: So as a buyer, I would always rather do an asset purchase agreement.
34:56
Speaker 2: I don't get the sexual harassment case I was unaware of, or the hundred thousand dollar credit card bill that somebody racked up that's not been disclosed in the name of the company.
35:09
Speaker 1: This stuff happens.
35:10
Speaker 1: Yeah, all the time.
35:12
Speaker 1: Yeah, it does.
35:12
Speaker 1: So there's a lot of trust from the buyer in.
35:15
Speaker 1: With this I mean you, basically to put it make it simple it's a point of negotiation.
35:19
Speaker 1: Yeah, yeah, make it simple.
35:20
Speaker 1: It's like any other transaction to where you're buying a house is a good example.
35:25
Speaker 1: Yeah, to where you're buying a house is a good example.
35:29
Speaker 1: Yeah, like, you don't like what you see and you like it.
35:31
Speaker 1: But once you buy that damn thing, you start figuring out oh wait a minute, this, like in our case, this one room is really hot all the time.
35:35
Speaker 1: Yeah, you know, I mean, it's like why it's not insulated correctly.
35:38
Speaker 1: Yeah, that wasn't disclosed.
35:40
Speaker 1: Yeah, exactly, nobody knew.
35:42
Speaker 1: But it's my damn house, it's my problem.
35:43
Speaker 1: Yeah, yeah, right, but exactly so that in an asset purchase situation, that would actually fall back on that seller.
35:53
Speaker 2: Not necessarily.
35:54
Speaker 2: No, the asset purchase?
35:55
Speaker 2: It wouldn't necessarily.
35:57
Speaker 2: The main reason is not to pick up liabilities that we don't know about.
36:01
Speaker 2: Yeah, okay, yeah.
36:03
Speaker 2: So because I'm spelling out everything I'm buying and every obligation I'm taking on.
36:08
Speaker 1: These are all the assets I'm buying.
36:10
Speaker 1: Here's all the known liabilities that I've agreed that I will assume from you, correct, in order to close this deal.
36:17
Speaker 1: But it's really I'm buying these assets.
36:19
Speaker 1: That's why I'm going to give you this money, whereas the stock is.
36:23
Speaker 2: Hey, I'm just going to buy your interest, I'm buying the company quote, unquote yeah, okay, and that means I inherit all the liabilities, everything that's involved in that.
36:32
Speaker 2: Yeah, like they did a job five years ago, now they're getting sued.
36:35
Speaker 2: Okay, that's my lawsuit.
36:37
Speaker 1: Now, now I'm hitting it.
36:38
Speaker 1: Swing the other way.
36:39
Speaker 1: From an asset standpoint.
36:40
Speaker 1: Let's say that you bought from me an asset purchase, right, right, and you listed out the assets.
36:45
Speaker 1: Okay, eric's got, you know, 15 cameras and 15 microphones, blah, blah, blah.
36:51
Speaker 1: But what I also have that I didn't talk to you about and you weren't aware about is I have a trademark on a product that I've released in the market, right, but you don't have that listed out.
37:02
Speaker 1: That could be.
37:03
Speaker 1: You're missing that then.
37:04
Speaker 1: Exactly, so it works on the other side too, like there might be unknown assets that my company owns, but you could spell out I'm buying all assets of the corporation, all right, okay.
37:17
Speaker 2: And then I'm specifying these specific liabilities.
37:20
Speaker 2: You see the difference in that?
37:21
Speaker 2: Oh, yeah, for sure.
37:22
Speaker 2: All assets of the corporation, yeah, okay.
37:27
Speaker 1: Is there a tax implication on either or both?
37:29
Speaker 1: Oh yeah, I can't.
37:31
Speaker 2: I'm not good.
37:31
Speaker 2: Are you not a tax accountant?
37:33
Speaker 2: I'm not a tax accountant, but there could be.
37:35
Speaker 2: Yeah, in some cases it may impact whether it's treated as capital gains or ordinary income.
37:40
Speaker 2: Yeah, I can't tell you and I don't know what the basis.
37:44
Speaker 2: If there's going to be a difference in the basis, Anybody that's interested in doing this.
37:48
Speaker 1: They definitely need to get a finding a really good business attorney.
37:52
Speaker 1: Thank you, deal attorney, deal attorney.
37:55
Speaker 1: Even yes, yes, granular yes.
37:58
Speaker 1: And uh, shout out to adam flock with rmp law firm.
38:01
Speaker 1: I mean, I just wanted to say that we don't really do that very often, yeah, but he was, he's a fantastic deal.
38:07
Speaker 2: Great, I've passed it along.
38:08
Speaker 2: I mean I, I, I could say in the ae industry george cristodula was the guy that it's just he's the best dude.
38:15
Speaker 1: It's like like on that, like it is such a big deal to find a really good attorney that knows how to do the deal.
38:26
Speaker 2: It's money well spent, so well spent, and my experience is that the really good ones they actually don't cost you more money because, A they're such good negotiators, Right, and B if they've done a lot of it, they're not learning at your expense and just charging hours and hours and hours against it Do not get your brother-in-law, who is an attorney, a divorce attorney or a p.
38:51
Speaker 1: I mean nothing against those folks, but I just it's disastrous.
38:54
Speaker 1: It is because these things that you spell out in this contract are massive right and there is a specialty to knowing what to ask and how to classify things.
39:04
Speaker 2: Yep and just knowing the process and knowing what to look out for.
39:07
Speaker 1: Dude, and not to mention.
39:09
Speaker 1: The worst thing that could happen is that maybe you say they know all the paperwork but this attorney starts getting in negotiations and they piss everyone off because they're asses right and they're just they think that's their job.
39:23
Speaker 1: That's bad.
39:24
Speaker 2: Some of them.
39:25
Speaker 2: That's not what you want.
39:26
Speaker 2: You want the one that thinks my job is to get this done.
39:30
Speaker 1: Get this deal done, so people get paid Right and that's how I get paid Exactly.
39:35
Speaker 1: I'm not the litigation.
39:36
Speaker 1: You know.
39:38
Speaker 1: To that point there's a different type of attorney for litigation.
39:41
Speaker 2: Exactly.
39:42
Speaker 2: There's a different specialized attorney for everything.
39:45
Speaker 2: Attorneys don't generalists are not what you want, guys.
39:50
Speaker 1: Not in business, man that is.
39:51
Speaker 1: I had to learn that the hard way, yep, kind of time and time over a few times, sure, because I wanted to believe it was really not that complicated, it really should not be this expensive.
40:03
Speaker 1: I'm getting ripped off by somebody that says, oh, I can do, I charge 500 an hour.
40:08
Speaker 1: I'm like my god, there's no way, you know.
40:11
Speaker 1: But the reality is man like and you need to ask your friends, you need or not, your, your peers in business, trusted mentors and advisors, to find these people.
40:21
Speaker 1: Yeah, because it's.
40:23
Speaker 1: It's not like going to a bank, you know like it's not a little bit of difference, it is a mastering.
40:28
Speaker 1: So you know it's so, just struck, potentially destructive.
40:32
Speaker 1: Yeah, piece of difference it really.
40:34
Speaker 2: I mean some.
40:35
Speaker 2: I mean good attorneys too.
40:36
Speaker 2: They can provide a lot of tax advice.
40:38
Speaker 2: Oh, it's, I mean it's a huge deal.
40:41
Speaker 1: yeah, that's the thing with like, with adam, like he's a tax attorney too right, he knows like.
40:45
Speaker 1: And so how you set up the entity, how you come to the table and how you buy that company, or even how you sell that company, big implications, big implications.
40:56
Speaker 2: Yeah, so, yeah, all that is so true.
40:58
Speaker 2: I mean it's just we could talk till we're blue in the face and there's still going to be listeners out there who get their brother-in-law or the guy who handled their traffic ticket because they really liked him, or the person who did their wills, trusts and estates, or whatever, and they and they and their uh and their attorney wants to get in this, and so they're going to use them as a guinea pig and learning example, like you said.
41:20
Speaker 2: Yeah it's it.
41:21
Speaker 2: They people just won't listen to us on that all the time and so to to close this conversation.
41:28
Speaker 1: I mean I know we hit one point, but I think that's really important, like in the discussion of buying a business versus starting one.
41:33
Speaker 1: You know that whole deal-making process and like do you have to be an expert in deals to go buy somebody's business?
41:42
Speaker 2: No, I don't think you have to.
41:43
Speaker 2: You just need some good advice From I mean.
41:47
Speaker 2: There's a lot of resources you can read up on it.
41:50
Speaker 2: There's a lot of information out there if you want to capture it.
41:54
Speaker 1: Yeah, the first thing that I would honestly do is go find that attorney.
41:58
Speaker 1: Yeah, that attorney is going to be critical.
42:00
Speaker 1: You can ask your network and you can research a lot.
42:03
Speaker 1: You can do a lot of things finding a good deal attorney and just can research a lot you can do a lot of things finding a good deal attorney and just go start with that conversation.
42:13
Speaker 2: But I have interest in this business over here.
42:14
Speaker 2: What, yeah, how should I approach this?
42:15
Speaker 2: Yeah, exactly, I mean, I helped one of my students this last year go through this really, and you know he drafted a preliminary loi.
42:21
Speaker 2: I added some things to it.
42:22
Speaker 2: Then I sent him to the attorney to look at it.
42:25
Speaker 2: Okay, the attorney made some changes on it this isn't a legal zoom, huh loi don't get it.
42:32
Speaker 2: No, no, thank I.
42:34
Speaker 2: I'm glad you said that, okay, and then, and then you go with the loi at that point, okay.
42:42
Speaker 1: So yeah, I mean, there's resources out there for sure so after the loi, you go through your due diligence, maybe 90 days, and that's a very important time period as well, right, extremely important.
42:53
Speaker 1: And I've been a hasty person on that side, yep, on the buying side, yep, and I was dreaded up, yeah, and there's always something or some things, well, that you don't really catch in due diligence.
43:08
Speaker 2: The problem I think with a lot of buyers is that they get so psychologically invested in the idea we're buying this company over there, we're growing, we're buying this emotional attachment yeah, yeah.
43:21
Speaker 2: And then there's red flags come up.
43:23
Speaker 2: It's like we're we're buying this company.
43:25
Speaker 2: I don't want to bail out of it.
43:27
Speaker 2: I mean I had this one student of mine.
43:29
Speaker 2: She bought a 3pl really smart girl, yeah, okay.
43:32
Speaker 2: Uh, I mean I can't say I ever as a speaker.
43:35
Speaker 2: 3pl, third-party logistics company right, okay, you know she'd worked as a cfo in a steel company that sold steel.
43:42
Speaker 2: She worked for fedex, okay, so she had a lot of experience in that field.
43:46
Speaker 2: She buys this business, okay.
43:48
Speaker 2: Now it did turn out to be misrepresented and she clawed back.
43:54
Speaker 2: But that's not easy At the buyer, okay, and she had a very rough couple years out there.
44:03
Speaker 1: People don't Big warning thing on the whole.
44:06
Speaker 1: This is why an attorney is is so so damn important in these things, because, yes, you can claw back if you have the language in there to begin with in the contract, right, yeah, and there's laws and you know regulation.
44:18
Speaker 2: but the pain, right she just refused to pay the guy.
44:22
Speaker 2: Yeah, okay, yeah and so, but yeah, I mean back on the due diligence topic.
44:29
Speaker 2: The reason why is that the biggest client of this business pulled their business and the seller knew that, which she could prove, because when she bought the business she got got all the email.
44:45
Speaker 2: So going back in the email prior to the purchase being closed was the evidence that this guy knew he was losing this big client.
44:54
Speaker 2: You see what I mean.
44:56
Speaker 2: But that due diligence could have a better due diligence process would have uncovered that.
45:01
Speaker 2: Let's just say yeah, and that's why it's so critical, as you said.
45:06
Speaker 1: Yeah, say yeah, and that's why it's so critical.
45:11
Speaker 1: As you said, yeah and and and again, I don't do not minimize the pain of going through some lawsuit trying to get this stuff done, because it will be very costly and it's risky.
45:16
Speaker 1: It's like a whole another level of risk on itself, like if you're, if you have a, even if you have evidence and you're trying to sue for that, yeah, it doesn't mean you're good oh no, it doesn't.
45:26
Speaker 2: They may not have anything.
45:27
Speaker 2: Oh, back on this deal I was telling you about, though.
45:30
Speaker 2: They spent like $2,500 on something I don't remember what it was during this due diligence phase, whether it was appraisal of the business or legal work or whatever and her husband's like we've already invested $2,500 in this.
45:45
Speaker 2: We're going to go through with this deal.
45:46
Speaker 2: She laughed.
45:48
Speaker 2: You know, $2,500 compared to the six-figure losses that we had annually.
45:54
Speaker 2: Okay, so true, man, after that it's like $2,500?
45:59
Speaker 2: That's gone.
45:59
Speaker 2: Okay, that's nothing.
46:03
Speaker 1: It's kind of like deciding not to get a home inspection before you buy a house because it costs $600.
46:09
Speaker 2: Yeah, exactly You're going to spend a million dollars, but I don't want to spend $600.
46:13
Speaker 1: That's right.
46:13
Speaker 1: And then you find out the air condition goes to the capoots after you buy it.
46:16
Speaker 1: Yeah, it's obvious.
46:19
Speaker 2: Would have been obvious it's the same kind of thing.
46:23
Speaker 1: It is man that's a good discussion, man we're out of thing.
46:25
Speaker 1: It is man that's a good discussion, man we're out of time.
46:27
Speaker 2: But we need to come back to this because I think a lot of people don't understand this process.
46:33
Speaker 2: They think it's impossible to do.
46:34
Speaker 2: They say I don't have the money so I can't buy a business Right.
46:39
Speaker 2: They don't think about buying a business Right as an option.
46:44
Speaker 2: It just doesn't even come up.
46:45
Speaker 2: But it is such a great option.
46:47
Speaker 1: It really is.
46:48
Speaker 1: I'm getting really intrigued by it.
46:50
Speaker 1: Yeah, you know.
46:52
Speaker 2: So Cool.
46:53
Speaker 2: Well, it's been a great discussion.
46:57
Speaker 2: Once again, we appreciate our listeners.
46:58
Speaker 2: Yeah, we're growing Correct, we're growing.
47:01
Speaker 2: We're on Instagram now too.
47:04
Speaker 2: Okay, it's huge.
47:06
Speaker 2: Yeah, youtube, facebook, yeah, linkedin.
47:11
Speaker 3: Come on.
47:12
Speaker 2: We're everywhere.
47:13
Speaker 2: Yeah, that's right.
47:15
Speaker 2: We're on Apple, yeah, we're on Amazon.
47:19
Speaker 2: We're on Spotify, we're on iHeartMedia dude.
47:23
Speaker 1: Yes, we're freaking everywhere on the internets.
47:27
Speaker 2: We are ubiquitous.
47:28
Speaker 2: One might say yeah, so no, but seriously, tune in, share our podcast, write in with your comments.
47:37
Speaker 2: We'd love to hear from you.
47:39
Speaker 2: Yep, get on wwwbigtalkaboutsmallbusinesscom and see all our past podcasts.
47:44
Speaker 2: Yeah, man, and learn and learn and then ask questions.
47:45
Speaker 2: Yeah, smallbusinesscom, and see all our past podcasts, and and learn and learn and then ask questions.
47:50
Speaker 2: Yeah.
47:51
Speaker 1: We won't want to be here for you.
47:52
Speaker 2: We're here, we're doing this for you guys, that's right.
47:54
Speaker 2: We're not trying to sell you anything.
47:56
Speaker 2: No, okay, no.
47:58
Speaker 2: So all right, eric.
48:00
Speaker 2: Well, until next week.
48:01
Speaker 2: This has been another episode of that big talk about small business.
48:15
Speaker 3: Thanks for tuning into this episode of big talk about small business.
48:18
Speaker 3: If you have any questions or ideas for upcoming shows, be sure to head over to our website, wwwbigtalkaboutsmallbusinesscom and click on the ask the host button for the chance to have your questions answered on the show.
48:32
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