Latest / The SmallBizChat with Melinda Emerson / How to Purchase an Existing Business with Jack Wilson

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How to Purchase an Existing Business with Jack Wilson · The SmallBizChat with Melinda Emerson

• 0:02
  321.
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  Lift off.
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  Ending small business failure.
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  Welcome to the Small Biz Chat podcast with the number one small business expert, Melinda
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  Emerson.
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  Melinda's goal is to end small business failure, and she'll give you the information
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  you need to succeed and live the life you dream of.
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  Now here's your host, the smallbizchat lady herself, Melinda Emerson.
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  Herself, Melinda Emerson.
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  Have you subscribed to the Small Biz Chat podcast?
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  Well, it's time.
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  Every Wednesday, we offer listeners bite sized actionable tips to start and grow a successful
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  small business.
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  In just 20 minutes or so a week, you can get a ton of insight and resources to propel your
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  business forward.
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  Be sure to subscribe to the Small Biz Chat podcast today.
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  Hi, everybody.
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  I'm Melinda Emerson, the small biz lady.
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  I wanna welcome you to another episode of the Small Biz Chat podcast.
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  Our mission is to end small business failure, and this is a peer to peer mentoring show.
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  So here, you're gonna get advice that you otherwise would have to pay for.
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  So what we want you to do is do us a favor.
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  We want you to subscribe to this channel.
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  We want you to share this information.
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  We want small business owners to win.
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  I'm gonna be talking with my guest, Jack Wilson.
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  Hi, Jack.
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  How are you?
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  Hi, Melinda.
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  I'm great, and thank you so much for having me be a part of this.
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  Oh, gosh.
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  Well, let me properly introduce you, and then we're gonna dive in.
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  Jack Wilson is a franchise development consultant with HomeWell Care Services.
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  He's been involved in franchisee since 2012.
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  Jack Jack also owned Results Team, a franchise consulting firm affiliated with the Franchise
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  Brokers Association.
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  His expertise spans the areas of franchise, independent start ups, mergers, acquisitions,
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  business growth strategies, and business exit planning.
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  JACS formerly owned and operated the franchise Liquid Capital Greater Philadelphia, a
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  certified MBE company focused on accelerating cash flow for small and medium sized b two b
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  businesses.
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  For more information on his company, you can go to the results team dot com.
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  And that's results spelled with z o.
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  So it's rezultzteam dotcom.
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  Jack, welcome to the Small Business Chat podcast.
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  Thank you.
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  Alright.
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  So tell us about your background.
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  How did you get into this whole world of business?
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  I know you had a 20 year career in corporate and telecom, but tell us how you, like, you
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  know, kinda took that check and ran on into entrepreneurship.
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  How did you do
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  that?
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  Great.
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  Well, you know what?
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  I I fortunately had an opportunity to be in a leadership continuity program with that big
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  corporation.
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  So they had me in 17 different assignments in 20 22 years.
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  So I got a chance to go across the country.
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  And every time I would go across the country, I was typically the highest ranking executive
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  from our company there.
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  So, of course, all of the, chambers of commerce and economic councils would ask me to get
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  involved, which I did.
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  And what it exposed me to was small business ownership because I would constantly be in
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  front of small businesses trying to get business from bigger businesses, and that's
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  really what piqued my interest.
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  I've always loved small business.
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  I started my own business when I was 12 years old, but, ultimately, I left the corporate
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  world and said, I'm diving in.
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  This is exactly what I wanna do.
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  So I did a lot of nonprofit work for, organizations such as SCORE, and I started
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  helping small businesses with their primary issues, business planning, marketing, that
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  needs for marketing as well as access to capital.
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  Ultimately, I purchased a franchise.
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  Why?
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  To solve one of those problems, access to capital.
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  And I actually had that franchise for over 10 years, had a great exit strategy.
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  We'll touch on exit strategy later.
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  Hopefully, in our conversation, I'll try to bring that in.
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  And then became a speaker for, franchising with the International Franchise Association and a
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  number of cities across the country who invited me in as well as universities to speak on
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  entrepreneurship and franchising specifically.
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  Good stuff.
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  Good stuff.
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  Alright.
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  So let's dive into why I really invited you here, which is let's talk about how to buy an
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  existing business.
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  You know, so often, entrepreneurs come to me, and they got this idea.
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  They wanna build from scratch, but that's the hard way to go into business.
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  Right?
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  So let's talk about how to buy an existing business.
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  Yeah.
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  What are the key factors that you need to be looking at when you are evaluating a potential
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  business for purchase?
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  Yeah.
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  So the first thing to think about is this is a different mindset.
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  So instead of a mindset of starting from scratch, there's a a phrase that you use called
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  the acquisition entrepreneur, and that's really what you're doing here.
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  Right?
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  And, basically, generically, it is just someone who builds their career, creates wealth by
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  buying and growing existing businesses rather than starting from scratch, like you're saying.
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  So why is that, and how do they do that?
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  Really, they focus on leveraging the stability in an existing business, the cash flow in an
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  existing business, the customer base and operational structure of an established
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  business, and that helps that acquisition entrepreneur focus on scaling it, optimizing
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  it, and transforming that business, which most of those small businesses that you can
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  purchase, actually are in line to do.
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  In fact, when you think about it, about only 4% of all the businesses, small businesses in the
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  United States do over $1,000,000 in revenue annual revenue.
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  So if you think about it, Melinda, many that are in that 500,000 and below, 500,000 to
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  a1000000 never hit that $1,000,000 mark.
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  But what's a way to do it?
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  Shift that mindset, look at how acquisition can help you grow, and by doing it that way, in a
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  very simple way, although there's a lot of pieces to it, you can get to break that
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  threshold, have something that is an asset that is sellable at the end, and really be able to 0
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  in on, not just creating the kind of lifestyle you want, but also have an asset that you can
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  sell at the end of the day.
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  So, Jack, tell me, what are the actual metrics that you need to be thinking about when you
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  look in a business?
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  I I, years ago, heard somebody say, when you buy the business, you are buying somebody
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  else's problem.
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  So tell me, what are the things that I should be looking at if I'm considering, purchasing a
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  business?
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  Well, you're exactly right, Belinda.
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  You have to be careful.
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  So to assess that growth potential, of a business, because that's what you're looking
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  for.
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  Right?
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  How is it gonna grow after this acquisition?
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  There are some real key metrics, some qualitative factors that you gotta consider.
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  There's a lot of them.
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  Things like revenue growth rate.
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  Right?
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  And you're really looking here for, like, organic growth, that kind of, growth rate.
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  That's gonna help you see you know what?
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  There's some sustainability here, for financial expansion here.
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  You're gonna look at gross and net margins.
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  Are they strong?
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  If so, what they're suggesting is efficient operations and profitability.
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  See, that can be reinvested into growth.
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  Then you're gonna look at some things like customer acquisition and retention rates.
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  A lot of times, people don't know to look at those, but you really wanna look at things like
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  customer acquisition cost and high customer life, lifetime value that you may hear the
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  acronym CLV.
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  Why are those things needed?
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  Because what that shows is a scalable customer base.
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  Many of these businesses have grown to a certain level and have plateaued.
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  So it's okay.
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  It's kinda like going in and buying a fixer upper.
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  It's good enough for the person who was in there, but when you come in, you're gonna make
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  some different changes there.
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  But you wanna see that it's got you know how you say in real estate, this house got good
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  bones.
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  We're gonna buy this, and then we're gonna build from that.
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  Some other things you're gonna look at is market share and total, addressable market.
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  Is there more to get, or is it saturated?
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  You really wanna analyze that because scalability, that's gonna be the key.
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  If it's not scalable, then maybe it is what it's it's gonna be.
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  You want it to have some scalability.
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  So what are you looking for now?
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  You're gonna be looking at things like operational, efficiencies.
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  You're gonna look for things like technology.
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  Many of these small businesses, they're they're backdated from a technological standpoint.
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  Some simple, investments in technology or just changes can really help, but things like that
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  really signal the business's capacity to grow without a whole lot of proportional cost.
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  Right?
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  You don't need a whole lot to put in to get that happening.
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  You also wanna look go ahead.
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  So so let me let me just because I've got a lot I wanna ask you.
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  What are some of the kinds of businesses that might be good to look at?
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  You know?
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  Mhmm.
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  Is it is it service based business?
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  Is it product based business?
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  Like, what, you know, what I mean, because service just sounds like staff, and I gotta
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  either find staff or keep staff or figure out if these staff is good.
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  Like, you know, tell me about, you know, what you need to be thinking about in terms of the
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  kinds of businesses to go after.
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  Yeah.
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  So, you mentioned a couple of them that are really good types of businesses.
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  But, hey, I'm a franchise guy, so you know what I'm gonna say?
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  Look at franchise businesses.
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  Why do you look at franchise businesses?
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  Because they really you can get there faster.
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  If you get the right franchise that fits you, that fits your investment level, that fits your
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  timeline, that's in a good vertical.
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  So think verticals.
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  You always wanna think verticals.
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  Think, whether it's franchise or not.
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  The biggest industries right now, things like pet care, things like child care and
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  educational services, things like home services, senior care, and then personal care
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  and wellness.
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  Those are the top ones, and then you could move into things like e line, online ecommerce type
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  stuff, and things like that, subscriptions, based businesses, digital content businesses.
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  Those are all big ones as well.
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  But, yeah, there's there's a lot out there that you could look at, but you wanna stay in areas
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  that are not just hot areas, but things that are good now and have growth.
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  The senior care, I'll give you an example right now.
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  11,000 people a day are turning 65.
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  By 2050, there'll be over 19,000,000 people in this country, 85 years old.
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  That's the kind of business.
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  I don't mean just senior care, but it gives you the metrics you're looking for to say, you know
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  what?
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  This is gonna be in it for the long run.
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  I can be in this, start a family legacy, have an option for my child, or have a great exit
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  strategy.
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  Those are the types of businesses you wanna 0 in on.
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  Alright.
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  So now I figured out this business I wanna buy.
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  I wanna buy this personal care home.
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  How do I finance that?
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  I mean, am I writing a personal check for 1.2 million?
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  I mean, like, how tell me, what are some of the ways that I can build, you know, a a war chest
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  if you obviously, I have to have some money, but how much money do I really have, and where
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  can I go and get some resources to buy an existing business?
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  Well, there's lots of strategies.
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  You're right.
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  In most cases, you gotta have some money.
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  Right?
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  But when you're, buying or acquiring a small business, seller financing is a big one.
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  What does that look like?
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  Well, that's where the seller agrees to kinda finance a portion of that sale, and they allow
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  you to pay them back over time usually in that 3 to 7 year range.
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  Usually has some interest.
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  But what that does is reduce your immediate cash requirement and allows you to spread out
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  that cost.
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  And, obviously, you can see what some of those benefits are.
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  If that seller wants to sell, you want to buy.
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  Right?
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  You have a vested vested interest just like they have a vested interest.
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  So, usually, you could make that kinda deal quicker, and it's usually more flexible than a
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  bank loan.
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  But speaking of bank loans, you wanna really consider the SBA, the Small Business
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  Administration.
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  They don't do the lending, but they back the banks that lend them.
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  So, an SBA the SBA 7 a loan, it really is great for business acquisitions.
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  They have favorable terms, low down payment requirements.
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  Typically, they're obviously gonna be lower than a traditional type loan, longer repayment
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  periods, usually up to about 10 years, and competitive interest rates.
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  And, really, I push people in the direction to at least listen to what an, SBA loan can be, so
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  that they see if it fits them.
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  But here's another one, that I wanna make sure I mention because there's a lot of them.
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  So many, we can't even talk about all of them.
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  But one of them has an acronym called ROBS, r o b s.
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  It's a personal savings and retirement account.
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  That's what you use, your personal say.
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  A lot of people say, oh, I'm not touching my retirement.
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  Well, guess what you've done?
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  You're allowing someone else to say, I'm gonna invest his money here or her money there.
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  But this ROBS program, rollover for business startups, is an IRS approved program, right,
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  where you can use your retirement funds in a 401 k or an IRA.
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  Roll those over into a business acquisition without incurring any early withdrawal
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  penalties or taxes.
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  So it allows you to use your your retirement funds there to finance that acquisition without
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  taking on debt, and it's really useful for buyers who really are having a struggle with
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  other type of financing operations or options.
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  Alright.
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  Well, here's the last question I'm gonna ask you before we go to break.
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  What are some of the red flags to look out for when you're looking at a business that you
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  potentially wanna buy?
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  Yeah.
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  And there's there's, again, so many of those.
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  You can just have a total piece on just the red flags.
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  But one of the things you always wanna find out right up front is you want to find out, you
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  know, see the the financial statements and really look for things that are missing, things
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  that are incomplete, unaudited financial records, discrepancies in the financial
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  statements they might have, a a reliance, a whole lot of reliance on cash only
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  transactions, or if they say, my taxes, I don't have the taxes to show you.
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  Those are big red flag things.
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  Another one that's common as well is high customer concentration.
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  So they have a, you know, a a $3,000,000 business, but 2,500,000 of it is with Comcast
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  or somebody like that.
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  Right?
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  Well, that one deal goes and you don't have that business anymore.
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  A lot of owner dependents.
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  So if you if you can determine that this business truly is, reliant on that owner and
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  maybe a replacement might be detrimental, that's a red flag as well as declining revenue
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  or profit trends going in the negative area, and definitely you always wanna look at the
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  legal issues.
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  Right?
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  Are there any unresolved legal issues or compliance issues that they've just kind of
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  been kicking the can down the road?
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  You don't wanna get caught with that can.
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  And always, an easy one, is high employee turnover.
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  All of those things are definite red flags, and there's a zillion more, Melinda.
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  I'm sure.
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  I know there is.
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  And when we come right back on the Small Biz Chef podcast, we're gonna talk more with Jack
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  Wilson about the do's and don'ts of buying an existing business.
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  You're watching the Small Biz Chef podcast, and we'll be right back.
• 16:29
  Alright, Jack.
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  We're coming back in, and I'm gonna ask you 2 more questions.
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  I wanna ask you about, how to retain employees in a business that you're acquiring.
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  I'm gonna ask you what is the best business advice you've ever received.
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  Okay?
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  I'm gonna Okay.
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  I'm gonna come back in in 3, 2, 1.
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  Welcome back to the Small Business Chef podcast.
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  I'm Melinda Emerson, your host, and I'm here with Jack Wilson.
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  Jack, talk to me about, I'm buying this business, but I'm buying the employees too.
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  Right?
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  How do you assess whether or not you want to keep all of the employees that you are
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  inheriting, and how can you smoothly bring in some new blood without disenchanting everyone
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  that's there?
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  That's a great question.
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  It is something that's absolutely vital, and it starts with the basics.
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  Clear communication and transparency.
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  You know?
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  And what's the objective there?
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  That's pretty easy.
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  You need to build trust.
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  And if you come in building trust with clear communications, communications that's
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  consistent, transparent, all of that really, really helps you.
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  So that's where I would probably start.
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  And then you wanna after looking at what the business already has in, in existence, perhaps
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  it's time to start talking about retention bonuses, incentives to keep them there,
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  especially the ones that you deem are the type you want.
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  And what are you gonna use as retention tools besides that?
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  Career development opportunities.
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  Many of these small businesses don't have a career path that they've laid out for
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  employees, so the attrition rate is normally a little higher in that sense.
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  But when you can show career development opportunities and show how the the training
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  will happen and, things like that, it really helps people.
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  Another strong one is when you align compensation and benefits with industry
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  standards.
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  They know their friends who work in the same industry.
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  You know, are they way getting way more in either of those areas?
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  Well, you wanna be able to do that.
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  That's really helpful.
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  And then you wanna set the tone as the CEO of the business for the company culture.
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  It's gotta be a positive one.
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  It's got to be one that shows that you respect their existing culture that was there.
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  You start blending that culture that you're bringing in, and then you start building team
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  morale.
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  And then involve the employees in that integration process.
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  Again, many more things that could be done, but that's a few of them.
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  I like that.
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  I like all of that stuff.
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  It's positive.
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  It's not negative, so I appreciate it.
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  And last question for you, Jack.
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  What is the best business advice you've ever gotten?
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  It was pretty simple.
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  Buy 1, grow 1, and do both of those things with your exit strategy in mind.
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  I love it.
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  I love it.
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  Alright.
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  Thank you so much, Jack Wilson.
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  He is a franchise development consultant and my good friend.
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  Thank you so much for being
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  here.
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  Thanks for listening to the Small Biz Chat podcast with Melinda Emerson.
• 19:44
  Subscribe to this podcast wherever you listen to podcasts, and join us next Wednesday for
• 19:50
  more fantastic information and interviews.
• 19:53
  You can find more sources and small business success strategies by visiting Melinda's
• 19:57
  website, succeed as your own boss.com.
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  Thanks again for listening, and we'll see you next week.