How to Acquire A Profitable Business Instead Of Building It With Carl Allen

BWB Carl | Acquiring A Profitable Business

How to Acquire A Profitable Business Instead Of Building It With Carl Allen

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    Starting and acquiring a business is obviously not easy, which is why if you want to take the risk and pursue your dream then it is ideal that you learn from the best. Ninja Acquisitions Founder and CEO Carl Allen sheds some light on the benefits of acquiring a profitable business. Carl has developed a coaching program that teaches people how to buy business.

    In this episode, he shares his own business model and some strategies on how he runs the companies he has bought, including allowing the seller to run it and initially finding a number two who also has a mindset of being a business owner. He also highlights the importance of due diligence and discusses the triad that you need to tackle prior to closing a deal.

    Some Topics We Discussed Include:

    • Why it's so much easier to buy a small business versus a $1 billion business
    • How to find a buyer that cares about the employees and that's not going to trash the company
    • Carl’s business model and mindset of deal-making
    • Things to look for and things to steer clear of when buying a business
    • Strategies for outsourcing or hiring someone else to do due diligence and write up the legal contract for you
    • A great method for deal flow and deal origination, building relationships, and preempting what your deal team's going to look like
    • Why the best deals are not with brokers
    • Accounting and financial methods for valuing your business
    • Some of the best ways to find deals and get into the deal flow

    If you want to learn more about Carl Allen and his Business Buying Accelerator training that shows you the steps to buying your first business inside of 99 days… cash-free, just visit https://www.ninjaacquisitions.com/

    About the Guest: Carl Allen

    BWB Carl | Acquiring A Profitable Business

    Carl Allen is an entrepreneur, investor, and corporate dealmaker who has worked on transactions worth over $50 billion, which includes over 250 acquisitions and sales, together with more than 100 capital fund raising projects.

    In a 24-year career, Carl has analyzed thousands of businesses, big and small, in 17 different countries and across nearly every business sector, including technology, pharmaceuticals, transport and logistics, engineering, manufacturing, aerospace, consumer goods and services, business services, retail, professional services, finance, packaging, and corporate clothing.

    Carl has a solid reputation as an investor and corporate dealmaker, having worked for Bank of America, Hewlett-Packard, Forrester, and Gartner. He has advised some of the world’s largest corporations on investments, acquisitions, disposals, and restructuring, Carl has also assisted hundreds of business owners in raising both equity and debt finance.

    Carl walks the talk, having acquired and sold numerous businesses for himself. Carl is one of the world’s premier experts on buying and financing small business acquisitions and coaches more than 700 entrepreneurs all over the world to buy small businesses rather than starting new ones.

    How to Acquire A Profitable Business Instead Of Building It With Carl Allen

    After taking a short hiatus, I’m back with some of my most fun and favorite episodes for you. I've got a guy on the show named Carl Allen.

    Carl is somebody that I may have seen some ads or somebody talked about him. I paid close attention because he's talking about something that's near and dear to the things that I'm interested in and the things that I'm doing.

    That is acquiring businesses. I've started businesses, I've sold businesses, I've built them up from the ground floor and I've also tried to build them and flopped. One of the things I realized way back when was that startups are hard. As we all know, most businesses fail in the first year or two.

    Carl may know the stats, 90% fail within the first five years, 96% fail in the first ten years. We're all entrepreneurs listening to this show, but the point is building a business is really hard.

    Through some of the conversations I've had with past guests, from mentors of mine, from colleagues and other people, it dawned on me in a very big way that there's probably an easier way to do this. That easier way sounds complex, but it doesn't have to be.

    That is typically acquiring somebody else's business. That may sound like a big mountain to climb, because you're like, “I don't have millions of dollars to buy a business and I don't know all this stuff,” but the truth is you don't need that.

    If you've paid attention to late-night infomercials for the past many years, people talk about buying houses with no money down, with none of your money and real estate investing.

    There's not that big of a leap between real estate investing like this and buying a business. There are some differences, some are more complex than others, but it starts to make a whole lot of sense.

    Once you have this epiphany and your mindset switches, at least for me, it's hard to look at the world of business the same way. I'm always looking for who else has a business that I can acquire, improve or take on ownership of all or part.

    It's not always the easiest thing in the world to do because I don't know everything about this, but that is why I reach out to experts such as our guest, Carl Allen, and bring him on the show to shed some light.

    He's been doing this for many years, buying and selling businesses and helping other people do the exact same thing and you are going to meet him. Carl, welcome to the show.

    Thank you, Brad. It’s great to be here. Thanks for having me.

    It's awesome to have you here and I want to preface this by telling my audience that some of the stuff we're going to talk about may seem a little bit over their head and it doesn't have to be. I don't want to spend the entire time with you here talking about the most basic. Why should we do this?

    I want to get into some of the good stuff as if you and I are having a beer or a coffee somewhere and the folks on the other side are getting to eavesdrop.

    Instead of waiting to the end to let people know where they can follow this rabbit trail and learn more, you have a 90-minute training or something if people want a primer on this stuff. Where can they go to see that?

    I started doing this because I was getting inundated by people when I was in the media or some of my deals got announced.

    People would reach out with an email and say, “Hit me on Facebook. Can you teach me this stuff?” I said, “I put together a 90-minute training that's completely free for you to watch it.”

    That's at NinjaAcquisitions.com/Free. If you go to that link, put your name, your email, pick a time, it's an evergreen webinar and it's not live. You go through the 90-minute training and you'll get a lot of value from those 90 minutes.

    I give you my ten-step blueprint, which is the proprietary business-buying system that I've built over many years now. You get copies of the slides and the tools that I give you as part of it.

    You can go where you can implement that and you can buy a business in 100 days without you spending $1 of your own capital. I'll show you exactly how to do it.

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: Buying a business is all about seller psychology.

     

    I've been through the webinar. It is solid and it's one of those things that you're not going to see this stuff in a lot of places. It is mind-expanding on what's possible.

    If you're not on the precipice of thinking, “I want to go buy a business,” it's good to learn because it will expand your mind and your horizons. That being said, I want to dive into some of the questions that I've gotten for Carl and hopefully the audience can get some information.

    I have bought businesses. I bought one a couple of years ago. I bought one in 2017. I'm working on another one and this is very active. Carl, you've been doing this for many years.

    I started in 1992.

    What was the very first business that you purchased? What were you doing at the time? What was that impetus to go from whatever to buying a business?

    I started my deal-making career in 1992 so I left the university. I was in England at the time. I went to work for Bank of America. I worked on Wall Street and I was doing big deals. I was working for Boeing, IBM, GE, all these big businesses buying and selling subsidiary businesses.

    I got my chops in this world doing 100 hours a week, sleeping at my desk, doing all these deals. I left the Bank of America, I went to business school in Chicago, got my MBA, then I went into private equity.

    These are guys that invest large amounts of money in private companies and we'd invest in the business, which we ended up selling to HP, the software company.

    I ended up going there as part of the mergers and acquisitions team. I was buying businesses and selling businesses for them all over the world. This was 2008. I was in Moscow buying a business and my wife was 36 weeks pregnant at the time. I was cleared to go and do this deal.

    I'm in the meeting room negotiating the final terms of this deal. I got the call. It was my wife. She said, “I'm sorry to tell you this, but I'd gone into labor. You need to get back to England straight away.”

    Literally, I had my wallet, my cell phone, and my passport on me. I run out of the board room. I left all my luggage, my computer, all my work stuff. I ran out, I flagged down the nearest cab.

    I get to the airport, I jumped on the first plane and I got off the plane in England. There was a police escort to take me to the hotel. I ran into the delivery room in the hospital about five minutes before my son came out. I sat there like, “That was close.”

    My little guy, Josh, is in my arms. He's ten now. I thought to myself, “I need to find something else to do.” This corporate life, traveling all over the world doing deals, it sounds very glamorous. It is.

    It's a very well-paying job, but I thought I need to spend more time with my family. A couple of weeks of changing diapers and pushing my son around in his pram, I sat down with my wife and I said, “What am I going to do?”

    I left HP, took some money and I thought, “I only have one skill. I only know how to buy and sell businesses, but I've learned enough in several years.” When you're doing billion-dollar deals, which I've done, there's no real difference to that than doing a $2 million to $5 million deal.

    The mechanics are exactly the same. The transaction is the same. The work that you do is the same and it's so much easier to buy a small business because you're dealing a lot more with seller psychology.

    When you're buying a $1 billion-business, you're dealing with a whole bunch of highly sophisticated issues. It's all about numbers. When you're buying a business doing a $2 million a year from a Baby Boomer that wants to retire, he's less interested in the money.

    He's more interested in you being a safe pair of hands that can honor his legacy, look after his employees and treat his customers the way that they used to be treated.

    If you sell that story to him or her, he's going to let you buy that business and he's going to let you use his own business assets and cashflows to do it. That's my model.

    The first time I did this, when I decided to go and do this, it’s not my first consulting assignment because I was doing some consulting at the time. There was a transport company that was doing about $7 million in revenues in US money.

    If you don't know how to buy a business, you just need to partner with somebody that does. Click To Tweet

    They called me and said, “Would you sell the company for us?” I went down. It was profitable, with good assets. I went out to the market and I figured, “Who would come at this the most? Which bigger transport company would cover this company’s fleet, its employees, its customer base?”

    I went out. I found three buyers, got them into a negotiation and ended up with a great offer. We go through the deal and it was the night before the closing, the night before the money was changing hands, the ownership of changing hands.

    The buyer comes into the business, I wasn't that. He sat down with the two brothers and he gave them a list of all the employees that he was going to let go the following day.

    He arranged for the sign people to come and change the name above the door and he was letting two-thirds of the employees go because he already had employees.

    He had this before closing on the purchase?

    Yes. The older brother was 59, 60 at the time. He’s a big 250-pound scary-looking guy. He calls me absolutely in floods of tears. He says, “Carl, we can't do this deal. We care about our employees. We care about our brand.”

    “I want to be driving around in my retirement. I want to see my trucks on the street doing what we do. You've got to go find me a buyer that's not going to trash the company, that's going to look after it, protect it, honor and respect what we've built.”

    This was a 35-year-old business. It came out of my head. I said, “Colin, I'll buy it, but you have to let me finance your assets to give you a down payment and then I want to pay you some money over time, but I'll promote your number two to be general manager.”

    “I'll give him 10% of the equity. If I sell the business within five years, I'll give you 2% of the sale proceeds.” He said, “Done. Get yourself down here. Let's do that deal.”

    We did that deal. That was my first deal. It gave me the idea that there's going to be hundreds and thousands of people out there like him that didn't want to sell to trade buyers. I did a survey back in 2012 where I interviewed about 2,000 people that recently sold the business.

    The results were staggering. 79% of the sellers did not consider money their primary motivation for selling. They were selling because they had enough. The business was in good shape, but they couldn't go in there anymore and keep running it.

    They wanted to leave, but they didn't want somebody that was going to rip it up, relocate it, fire all the employees. They wanted somebody who's going to look after it.

    That became my business model. I've been doing deals and I'm still doing deals. I'm buying three businesses and I'm selling one business as well. I'm not just coaching people on this stuff. I'm not just talking about this stuff. I'm doing this stuff every single day of my life because it's amazing.

    The opportunities out there are phenomenal, especially in the US. There are two massive things that are happening in the States, which completely put fuel into people buying businesses.

    The first thing is there are already more than two million businesses for sale in North America, but according to the Wall Street Journal, 10,000 Baby Boomers are retiring every single day in the United States.

    Forbes reported that 19% of them own small businesses. Go to BizBuySell.com who is the largest online business brokerage, about 200,000 businesses per year change hands.

    It's like one in ten to one in twelve businesses that try to sell actually do. What's also happened, which is amazing, is the SBA, the Small Business Administration.

    Your own federal government, they turned around and they said, “If you're an entrepreneur and you've got a reasonable credit, we'll lend you 90% of the purchase price of the business. We'll partner with a bank. We'll give you that money so you can buy the business.”

    The government is trying to solve the epidemic, which I see in the small business market in North America. Many people want to sell businesses, but there are not enough entrepreneurs that have either got the skillset or the capital to be able to make those deals happen.

    That was a massive driver for me creating my coaching program. That was a massive driver to teach entrepreneurs the whole mindset of deal-making. Why would you want to buy a business? What type of business should you buy?

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: Most of the time, sellers are happy to stay and run the business for you.

     

    Do you want to run the business yourself or do you want to buy a business as an investor and have a general manager run it for you? How can you scale the business? How can you optimize the business?

    When you're ready, it could be three months, ten years, how do you sell it? How did you take it and put it into the mindset of your ideal buyer that's going to take it forward? That's why I do what I do. That's my model.

    We were talking about some of the types of businesses that you have specialized in both with you and some of the clients and students that you work with. They tend to be more the brick and mortar offline-style businesses versus like an eCommerce style business.

    It's a little bit more of the established offline. Can you give me some examples of some of those? Maybe it's the types of businesses you're buying or some of the ones that you see are there?

    There are a million different business categories out there, so I'd love to enlighten myself and the audience with some examples.

    Me and my partners and all the people in my program as well, we'll do deals in any sector apart from the eCom. When I say eCom, I mean like an Amazon dropship business. It's one person with a website, all the inventories in an Amazon store.

    There are no assets and they've built it as a lifestyle business. There are people that do those deals, which is great, but that's not my mantra. I don't teach that because I've never done one of those deals.

    I'm buying engineering businesses, manufacturing businesses, technology businesses, hardware, software, software as a service businesses, IT services businesses, professional services businesses like PR, marketing, advertising, web design, SEO, Facebook ad agencies, all those types of deals.

    We don't tend to do much in the retail space. I don't do commercial real estate, although a lot of the deals that I do, they come with real estate. You're buying the business and you're buying where the business operates.

    Those are the types of deals that we're doing. The deal I'm about to close on, it's a radio business in LA. This is the first time I'll be venturing into the radio market. It's not a radio station. It's a content aggregation business.

    I know absolutely nothing whatsoever about that industry, but I’m partnering with somebody that knows that space and that's my model. People think to buy a business you need to be a Nobel Prize-winning expert. You don't.

    If you know how to buy a business, which I can teach people, if you don't know that sector, then you need to partner with somebody that does. They'll help me do the deal and will help you run the business as well.

    Let me go down that path because personally, in my business, I am not looking to buy at least now, one particular business and then be the CEO and run it. I'm not a good CEO. I'll be the first to say I'm a terrible CEO.

    I've done the deals where you buy a company and you bring partners in. I've done this where I brought them in afterward to help take over a lot of the heavy lifting in the management while I still remain a partner and focus on the much bigger pictures and potential deals out there.

    We may buy another company in that niche that we purchased something in, but that's another story. I'm interested in the acquiring piece of the business but staying off the org chart and staying away from having to run the thing.

    I want to dive a little closer into that and how you do this. I know that you've spoken about how sometimes you have people you've talked to buy businesses and students who do. They want to buy a business and run it and do all that.

    In those cases they make perfect partners because you help them close the deal and then you've got somebody trained to run it.

    I get that, but what are some of the other ways that you can go into some of these totally disparate businesses, engineering, techs, SaaS agencies where you don't have the perfect partner lined up ready to run it from day one, but you identified a good opportunity?

    You start to go down that path and starting to build though that hit team early on. Enlighten me more there on some of the strategies.

    There are four answers to that and I'll go through them. Typically a lot of the people are in my coaching program and I do this a lot as well in my own deals. Most people will find this strange, but what you'll find in some cases about a third of the time is you buy a business and the seller, the owner, they are happy to stay on and run that business for you.

    What's important, especially with doing small deals, is not necessarily the valuation but the structure of the deal. Click To Tweet

    They're in a position where they don't want to own the business. They don't want the accountability of owning the business. They don't want to have to deal with all the financing. They don't want to have to deal with the HR-type stuff, which you can outsource. They want to go in and they want to do what the business does.

    What's interesting is most businesses that I look at, the owner of the businesses are typically one and the same. They haven't separated themselves from the daily grind. It’s like severing an arm. They’re tied to the business. They don't want to own it, but they're happy to run it.

    Some of the deals I do and my coaching members do, they'll buy a business and they'll leave the seller in maybe for a couple of years to keep running it.

    What you'll also find is inside of that business, when the seller does want to go, let's say they want to retire or they're sick or they're completely burned out, they want to leave.

    What you'll then find is inside of that business, nine times out of ten, there's always a great number two. It can be the head of sales. It could be the head of manufacturing. It could be the financial controller.

    There's always a great number two that wants to step up and be the general manager, but they don't want to own the business. They haven't got the mindset of being the business owner and doing the deal. They just want to keep the train running on the tracks.

    That's another great method. The third way is if the owners want to stay and there isn't a great number two to step up, then you could leverage your network to bring somebody in from the outside.

    You can use LinkedIn or some of the job boards. If you want to do that, you want to get that person in place quite early on.

    Once you've had the first conversation with the seller, you find the deal and you have that first conversation whether it's over the phone or you've done a face-to-face. One of the first questions you need to ask is, number one, “Why do you want to sell the business?”

    If they say to you, “I'm completely burnt out. I've been doing this for many years. I want to retire and spend time with my grandkids,” that’s great. You know that option one is off the table.

    Your second question is, “If I buy the business as an investor, is there anybody else in your business that can do the day-to-day?”

    They'll tell you and they love it when you say, “If I buy the business, I'm going to promote that person to be my manager. I may even give them a little bit of profit share or a little bit of equity for running the business for me.”

    They're going to love that. It's a great way of building rapport. It's a great way for you to convince them that you're that safe pair of hands that's going to take the business to the next level and they're going to cheer you from the sidelines.

    Why it's important to ask those questions early on is if there isn't a number two to step up or there isn't the possibility of the owner staying on and winning it for you, then you want to get that person early.

    You don't want to think of that person as just the person that you're going to parachute into running the business the day after you buy it. You want them part of the journey because they'll help you with some of the due diligence.

    They'll help you figure out where the business is in the market? What are the opportunities to scale it? What are the potential issues that might stop you buying the business? What are the potential issues that you know are going to get fixed pretty early on?

    Most of the businesses that I look at, the seller themselves think they're underperforming. They think they're in development. They've got this limiting belief, this bad quality mindset. I'm going there and I'm thinking, “That's a five-minute fix.”

    I was on a call with the owner of a technology company. He’s reasonably a few years younger than me, early 40s. I said to him, “Tell me about your marketing strategy. How do you win business?”

    He said, “We don't have to do marketing. It's all repeat customers. It's all word of mouth.” I love it when somebody says that because the minute I get in, I drop in some marketing fuel into that business.

    I could double, triple, quadruple that business in twelve to eighteen months. I love it when they say that. When they say, “We don't have to do any marketing,” they think it's an impressive thing.

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: Due diligence is a critical part in acquiring businesses.

     

    It's impressive to you. One of the things is how money is not always the big motivation for these people. A lot of times you're providing them liquidity.

    They want to be unshackled from the day-to-day responsibilities and obligations to make payroll, to do all this other stuff. We all get into business for one reason or another. Sometimes we're forced into being an entrepreneur or a freelancer or something like that.

    There's the stuff we like to do, providing our service or selling a product, but there are all the necessary evils that go into running a business, operations, HR, finance, and all this stuff.

    It bogs us down. There are a lot of people out there who are absolutely sick of that. They're not even looking for the big payday. They're looking for liquidity and they're looking for freedom. That leads to one of the next questions.

    I know that the answer is probably a combination of the two, but back to the real estate example. When you're buying a real estate investment, 99% of the real estate investors out there are not buying a house in the hopes that it's going to appreciate.

    They're going in and they're buying a house that is in disrepair. It's undervalued, but most important is they're not buying a house. They're buying a situation that the seller is in.

    They could care less about what the house looks like because they know if the situation is correct, they can get the price on the house that works for them.

    When you're looking at businesses to buy, if you look at the health of the business, there are three types. There's a business that is doing flatline and they've plateaued. There's a business that's got an increasing trend of things that are going pretty decent.

    There are companies that are a little bit hurting and there is a downward trend in revenue and there may be the necessity for a bit of a turnaround.

    The question is, and it may not be the clearest because it's a combination of things, but are you typically looking for a situation versus a type and the health of the business? The more motivated the seller is, the better, but are there any certain things you're looking closer at than others?

    On top of that, are there any things you're going to steer clear of such as downward revenue trends for the past year or two where it's not 100% clear where that's coming from? What are some of the criteria there?

    Typically, my bull’s eye deal is I want to find a distressed seller of a good business, not the other way around. There's no point buying a business that's massively distressed in my opinion.

    If it's 90 days from insolvency or it's in insolvency, there's no real point buying that. I looked at a business and it was offered to me for a dollar. No down payment, no seller financing payments.

    What was the general business like?

    It was a professional services business and it was 30 days from insolvency. There was a lot of debt in the business. The problem with that is it's quick and easy to do the deal, but you need to have skills in business turnaround.

    You've got to be able to go in there and be able to pick that business up and turn it around quickly. There are people out there are, that’s their skill set. If you're a business turnaround expert, you can pick up $1 deals all day long and you're not taking any risks.

    If you only turn around wanting three and sell for a profit, you're still making a decent return on your time, not on your capital, because you do not have to put capital into deals. I'm more of a situations guy.

    I'll give you an analogy. You could look at two identical businesses. Let's say you've got a business doing $2 million in revenue making $200,000 of free cashflow. You've got two completely identical businesses. They've got the same revenues, they make the same products or services or even in the same location.

    They’re not the same customers, two identical businesses. Business A is owned by a 30-year-old entrepreneur that's got a lot of energy, having a lot of fun, enjoying life and enjoying being in the business.

    Business B, which is identical, is owned by a 63-year-old retiring Baby Boomer that's got some illnesses, is spending far too much time in that business and wants to retire. Business A could be worth five times more than business B in the mind of the seller.

    You can’t attack the market with a general overarching business. You need to focus the market down a bit. Click To Tweet

    What's interesting is that when you're buying a small business, it's 90% psychology, 10% numbers. The business is worth what's going on in the mind of the seller. It's very different from real estate. I know real estate, you can get distressed deals, but real estate in a big way is underpinned by things like location.

    You could buy an apartment in Nob Hill in San Francisco and pay 100 times more for the same apartment in the middle of Idaho, with no disrespect to Idaho or somewhere like that. There's a massive focus on the location of it. In a small business, it's not about location, it's not about size.

    It's not about what's going on inside of there. It's all about what's going on in the mind of the seller. I'm looking for that highly motivated seller that's got a good business. It's got at least twelve months of life left in it and is underperforming. It doesn't do any marketing.

    Put some marketing into it, it's going to fly. There's a lot of costs built up in that business over the years. It's never been trimmed out. That's going to put money on the bottom line instantly. It's got great employees, a good number two that can step up and help you run that business.

    That will be the bull’s eye deal for me. Things that are distressed, it's not my bag because I'm not a turnaround guy. I know how to grow businesses and I know how to optimize them. I know how to sell them.

    You don't want to turn around something that's hurting because now you have to step in and sometimes do this debt negotiations and contract negotiations.

    It’s great if you're doing vendor and supplier relationship, like contract negotiations to save money but not if the whole business depends upon its survival to do that.

    What you tend to find with those deals is you have disenchanted employees, you have disenchanted customers, you have disenchanted partners and suppliers. You go in there and everyone's in a bad mood.

    Everybody hates this business. I'd rather go in and buy a business that's doing well. It's not the best business in the world, but it can be a, and it's got enough of life and juice in it to take it forward. That's my model.

    Due diligence is one of the most critical pieces of the puzzle. It's probably the part that requires the most skill because you have to know where to look. You have to know where the bodies could be buried. There are a million things that can go wrong if you do it incorrectly.

    I know that in your course you probably go through some of the things that you need to do to go through due diligence, but I don't care who you are, if you're starting from absolute scratch, that can be overwhelming.

    It's overwhelming for me when I've been doing it because I'm constantly worried, am I missing something? Do you have any strategies to help outsource or hire the due diligence done in a way that doesn't break the bank?

    If you're looking at enough deals, you could easily go broke paying attorneys or paying other experts to do due diligence for you on deals that aren't going to close.

    You’ve answered your own question, which is great. I've done 286 deals in seventeen countries over many years. I do not do my own due diligence. Why? I'm not an attorney. I'm not a CPA. I've read probably more than a million pages of legal contracts in my life.

    I got my CPA qualification way back when, but I want to be the dealmaker. What I always do and what I always recommend people to do is build your own little micro deal too.

    When you're doing due diligence, there are three parts to due diligence. You've got financial due diligence. That's making sure the numbers are what they say in the accounts. They've filed their taxes on time.

    The money in the bank is true and accurate, and all the financial stuff that's going through their business is a true and proper record. Even if you were a CPA, you wouldn't want to do that. You would want a CPA to do that work for you. I'll tell you how you pay for that person.

    The second thing is the legal due diligence. This is probably the most important. An attorney will check things like if the seller's got the legal right to sell you the business. I went to meet a seller a few years ago, loved his business. He didn't own it. He was making it up, but somebody else owned it.

    Checking little things like that and checking things like pending litigation, material contracts, employee contracts, 1099s and all those things. You definitely want an attorney to do the legal side of the due diligence.

    They're the only one that you would dip into, especially if you don't know the market is the commercial due diligence. This is looking at the customer base, looking at the market opportunity, looking at the trends.

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: The valuation of any business comes down to its worth to somebody and what somebody is prepared to pay for it and sell it for.

     

    That's the part I like, the commercial. It's financial and legal. Even though with a finance degree, I don't want to look at that stuff. I'll go crazy.

    I am spending some time, doing a bit of research in the marketplace and understanding where the company sits, mystery shopping some of the competitors, talking to some of the customers. I always do commercial DD in my deals.

    I'll get the customer list, I'll call the top ten customers and I'll say, “Why do you buy from this business?” They'll tell you and then you can translate that into your core USPs of the business, what it stands for, and then that's your marketing message to the rest of the market.

    It's fun to do all that, but if that's even daunting, you can hire a consultant to do a little bit of that work for you. Here's the trick. I've talked about hiring a lawyer. I've talked about hiring a CPA, hiring a consultant to do commercial due diligence.

    You're probably thinking, “You have $5,000 to $10,000 a pop on a reasonable deal. That's a lot of money. If I don't have that money, how do I do it?”

    In the world of deal-making, the vast majority of professionals will work on a contingency fee basis, which means that either the business pays their fees, if and when you close the deal or it's all wrapped into the financing.

    Let's say you're buying a business and you need $500,000 of financing, which comes from the assets. You might raise $600,000 take $50,000 of it for yourself as like a deal fee for doing the deal for the time that you've spent.

    The other $50,000 will pay all the fees and there's a little bit left in the bank for you to spend on marketing or whatever. To get an advisor to do a contingent fee deal, you need to have two things. The first thing you need to do is you need to have a signed letter of intent.

    What the process is you'll find a deal, you go meet the seller, you'll talk about the business and then you do a very simple financial exercise.

    There's a model in the webinar that I share where you plug some numbers in from the accounts values and structures the deal in about two minutes, you make the offer, it gets accepted or you negotiate a little bit.

    What you do is once you've got the deal agreed, then you need to go and get your proof of financing. You'd go to the financier or the SBA, an investor or whoever you want to partner with on doing this deal.

    They'll have a brief look at the numbers and the deal and they'll give you something called an EOI, an Expression Of Interest.

    Once you've got a signed letter of intent to do the deal with say four weeks exclusivity and you've got the proof of funding, subject to the financer’s own process and due diligence. You give those two documents to a consultant, a CPA and an attorney.

    Two out of three will do the deal on a contingency fee basis because they know you found a business, you've agreed a price, you've agreed a deal structure, you've got the financing.

    It's all the case of doing a little bit of due diligence and writing up the legal contract. I would say 99 times out of 100 when you get to that place, you will close that deal.

    You might find things in due diligence where you might want to adjust things in a little bit of a way, but generally you know that's how the model works. You can get people to do those deals and advise you and help you and assist you on a contingency basis providing you follow those two steps.

    Sometimes if you've enlisted an attorney or a CPA or somebody to do some of that, you've probably paid a little bit of a retainer.

    You've got the EOI, you got the financing and they can tell you're serious and you're not like, “This is somebody who might want to sell their business and I might want to make an offer.” They're not going to do it there, but you've already moved forward.

    Once you've got a deal locked in and it's ready to close, it needs the transactional process and the paperwork executed, that's when you steam in. If you wake up one day and said, “I'd like to buy a small business.”

    I found a business. I've not met anybody. I've got no financing arranged. I don't know anything about anything. You call a CPA and say, “It's me. I'm going to get business at some point and once I've got it, I want you to do all the due diligence work for me on a contingency fee basis.”

    It’s always better to know the basics of how to make a deal just in case you come across an opportunity of a lifetime. Click To Tweet

    They're going to say no. If you go to them and say, “I found this business. I've met the seller. I've got a signed letter of intent. I've got a full due diligence plan and timetable maps out. Here are my attorney’s details as well. This is what we're doing.”

    “Here's all the financing that we need to make the closing payment and make sure there's enough working capital in the business. Will you do the deal on a contingency fee basis?”

    They might charge you 20%, 25% more, but they're looking at that thinking, “There's practically no risk in me doing that work.” You might have to pay $500 to $1,000.

    It’s not that big of a deal, especially if you've already got the LOI and everything else. I forget where I read about this. I don't know if you know Simon Black from Sovereign Man, but he had a great little report he released a while back called Network Infiltration or something like this.

    He said a great way that he either gets deals or introductions to some amazing opportunities. He travels a lot internationally and he said he'd go to a city and you can do this in your own home city.

    Go find some of the best business law firms, especially if that's what you're looking for, and set up interviews with them. He has a whole way he sets them up. He'll say that he's in town, he'll tell them to pick him up

    “Send a car for me. I'm at the Ritz Carlton or The Four Seasons,” or something and he goes, “First of all, if they won't send a car for me, I probably won't go.” He's posturing as though he is a big deal. He is a big deal, but he does this on purpose.

    He then goes and interviews with the big law firms and he's interviewing them and letting them know that he is doing a lot of business. He is going to need some representation. He's got multiple opportunities going on. He finds out what their basic retainer is.

    He goes, “You'd be amazed that you can hire some of that top law firms out there. I don't need anything right now, but here's $5,000, sometimes less of a retainer to put it down.” The big benefit is now you become a client of that law firm and they start to invite you to legal functions.

    They can introduce you to their clients. They keep you top of mind when you tell them what you're looking for. “I am looking for deals like this.”

    He said he'd gotten so many deals from literally retaining certain law firms or potentially even CPA firms even if he's not going to do any real business with them.

    He's buying his access to them. Attorneys and whatnot have some of the best potential opportunities out there because they're talking to people.

    It's a great method, not just for building that relationship and preempting what your deal team's going to look like, but also it's a great way for deal flow and deal origination. You can do it with attorneys. You can deal with CPAs, you can deal with finances.

    I called a financier about a deal that I'm doing, an engineering business and we were talking through what I was looking for. He said, “We finance a deal very similar to this. It would make a great bolt acquisition where you combine the two businesses together.”

    “The guy's had enough, I think he'd let you take it over. If you were to assume the liabilities on the balance sheet, you walk away and let you do that deal.”

    They always got their ears to the ground. Taking your attorney example, if you go sit down with an attorney and you're telling them, “What is your deal span? What type of deals are you looking to do?”

    They're either going to have clients already that they know are looking to sell and they would then advise the seller, not you, although proactively go out through their network and find them. We have an interesting statistic for you.

    Only about 20% of businesses that are for sale in North America are listed with brokers. It could be some garbage buy and sell or all the local brokers all over the place. 80% of them, they’re what we call off-market deals. They haven't got a big sign out there that says, “I’m for sale.”

    There's a reason for that because most sellers, particularly the older generation, the retiring Baby Boomer, they don't want to publicly state that they're selling their business because it makes our employees nervous.

    It makes the customers nervous and then they're frightened of a competitor coming in pretending to buy the business, getting access to all the information. Who are they employing? Who's the best salesperson? Who's the best customer, and then going out and damaging them in the market.

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: Once you've got a deal locked in and it's ready to close, it just needs the transactional process and the paperwork executed.

     

    Even though you signed something called a nondisclosure agreement to get access to all that stuff, it doesn't mean that much. You're not going to litigate if the competitors out there are killing your business in the market.

    If you're looking to sell your business, you tell four people. You tell your spouse, you tell your lawyer, your CPA and your banker.

    If you're networking with the latter three, you’re not going with your spouse. If you're talking to local banks, you're talking to all the local CPAs, you're talking to all the local attorneys, even financiers, investor clubs.

    You're talking to all those people, you're networking with them, you're going to get insane levels of high-quality deal flow. Those deals are amazing because there's nobody else looking at them per se.

    You're not dealing with business brokers who some of them are okay, but the majority of them are not that great. One of the biggest mistakes people make when they decide to want to go out and buy a business is they only look at broker deals because that’s the worst thing that you can do.

    That is dovetailing into the question, are the best deals not with brokers?

    The best deals are not with brokers. I won't even look at a broker deal until it's been on the market for several months.

    Because you want to know that it's not selling for one reason or another. Now, he is more desperate than he would be when he started.

    One of the common things in the industry is the same in the UK, Australia, and also in America. I split my time across those three places. The way most brokers work, and I'm not criticizing the broker model, is they'll charge a bigger front listing fee and then they'll get a percentage of the deal.

    If you're selling your business, they might want $25,000 upfront and they’ll take 5% to 8% of the selling price. What's interesting is brokers are notorious for inflating valuations and they're not corporate financers in most cases. They're not finance people. They're salespeople, they’re marketing people.

    I'll give you an example. I was speaking to somebody and it was a business that did websites. They've built websites, SEO, and this business was doing about $1 million in revenue making $100,000 in free cashflow.

    I'm on the phone with the seller and I said to him, “What are your price expectations?” He said, “The broker that signed me up has told me, because I'm in the technology sector, I can sell for 23 times multiple like Google. That's why I paid him the fee.”

    This was a business in Milwaukee. I said to him, “Did you know the average in 2017 of the 200,000 businesses that were sold in North America under $5 million, the average multiple of free cashflow was 1.9X? How on earth do you think you're going to get 23 times multiple?”

    He said, “You’re right, aren't you?” A small business will sell between one and four times cashflow depending on its sector, whether it's growing, the quality of what you're seeing.

    A multibillion-dollar company like Google will sell at 23 times because you've got a fast-growing liquid market of investors that are buying and selling their shares in real-time. All business is different.

    Another totally separate conversation about this is when you do start to understand the intricacies of valuation. Evaluation is not dependent solely upon the amount of revenue. A lot of people think, “It's 3X the EBITDA.” No, it totally depends on the industry. Do you have continuity?

    Do you have processes and systems and how strong are your people? There are a million ways to break down somebody's evaluation in negotiation and let them know that it's not worth what they think it is.

    At the same time, if you buy that and whether you're trying to sell your own business or you buy a business and you're trying to resell it.

    It’s one of the things that my partners and I are doing with one of the businesses we bought, is how we can add certain things to this so that the valuation will automatically be higher simply because we've got it?

    It could be a set of standard operating procedures that make it easy for the next guy to take it over. It could be adding continuity to the recurring revenue to it and all of these things can make a big difference.

    It takes the same amount of time and effort to buy a $1 million business as it does to buy a $10 million business. Click To Tweet

    One of the things I love is going in and finding a company who's doing a lot of things right but not even close to everything they could be doing, but they've got all the heavy lifting out of the way.

    They validated the business, they've got revenues, they've got customers, they've got momentum, they're making money.

    You come in with ten things that you want to do that can not only make more money but improve the valuation. You can take something in relatively short order and sell it for a lot more than you purchased it for.

    Valuations are a great discussion topic because I get asked a lot, “How do you value a business?” There are accounting and financial methods for valuing your business.

    You can value on a profit multiple, you can look at the value of the balance sheet and then adjust for goodwill. I was in Wall Street back in the day, discounted cashflow analysis and real auctions and all that stuff.

    There are a lot of public companies. That's a totally different story between public companies and small businesses.

    It is absolutely, but what's interesting is the valuation of any business comes down to what is it worth to somebody? What somebody's prepared to pay for it? What somebody's prepared to sell it for? Go back to my example of the two businesses that are identical. Every business is for sale.

    If you got $1 trillion right now, every business is for sale. Those two businesses before, the $2 million making $200,000 free cash, the 30-year-old entrepreneur, he might want fifteen times free cashflow to even consider selling his business.

    Whereas the 63-year-old retiring Baby Boomer that’s had enough, he might take 1.5X and let you pay him over five years. That's the difference. Valuation is one thing. What's more important, especially with doing small deals, it's not necessarily the valuation. It's the structure of the deal.

    Let's say you had a business that was worth $1 million and I said to you, “I'll give you $2 million but I want to pay you over twenty years. I'm only going to pay you per year if we hit above a certain level of profit.”

    You know you might think that's a great deal because you’re potentially going to make a lot more money. For me, that's the perfect deal because not only am I not putting any of my own money on that deal. I'm not going to raise any financing or do anything on that whatsoever.

    The first part of that example, you only pay me when?

    There are lots of different ways that you can structure the deal. Typically when you're buying a business, let's say you've got a down payment and you're getting the money from the assets and let's say there's a balance of payments that you're going to pay over a number of years. That's called seller financing.

    Sometimes what you can do is you can increase the deal by giving them something called an earn-out, which are bonus payments paid, quarterly or annually based on the company hitting a certain financial milestone.

    I don't know if you've ever looked at a deal that's been presented by a business broker, but it's your classic hockey stick forecasting. They try and base the valuation on this crazy hockey stick growth.

    You can placate some of that by saying, “I'm only going to buy the business off you for what it's worth looking back. If we hit those numbers going forward, we'll give you a little piece of that upside.”

    “If that growth is real and it's achievable, then we'll give you a little bit of that upside.” If they say, “No, absolutely not,” you know their forecasts are false than in most cases they are.

    I want to hit a couple of the questions that I definitely want to go into. This is probably one of them that most people are going to ask in the very beginning, but I'm waiting until the end.

    I know there's a lot of ways to find deals and get into the deal flow and starting to kiss a bunch of frogs and analyze a bunch of potential deals. Sometimes you want to get in the flow of looking at potential deals for sale.

    What are some of the best ways that you've found? I'm going to preface this with a very selfish scenario, which is mine. I don't have a dream business that I want to be in. That makes it harder to go look for them.

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: If you can buy several of those small businesses and roll them up into a group, they're going to become attractive to the next big players up in the food chain.

     

    If I wanted to own an engineering firm or if I wanted to own a manufacturing company, I can say, “Go find those.” I'm a dealmaker.

    For somebody who's looking for a variety of businesses to potentially buy and to start to look at this, what are some of the best ways you found to start to generate some of this deal flow and to uncover some of these opportunities?

    Before I give you the strategy to find deals, the first thing you do need to do is you need to focus a little bit. You can't attack the market with a general overarching arc by any business because there are 2.4 million businesses for sale in America. This is far too much.

    You want to focus in a little bit, whether it's services, tech, engineering, you need to focus the market down a little bit. What you also need to think about as well is you can buy a single business or you can do something like a roll-up.

    For example, you can go in with chiropractors. You could go in and buy a chiropractor and buy another one and another one. When you've got five or six, you can take out a lot of the costs and centralize them and get economies of scale and all that type of stuff.

    Once you get them to a certain size, then then you can sell them. What's interesting about the mergers and acquisitions market is it's like a food chain. You've got the million-dollar businesses, they're either going to be bought by individuals like us.

    Private equity is never going to come in and buy the small fish.

    Any business north of $10 million, they're not going to buy it because they'd rather buy a business the same size of them or a $5 million-business. It takes the same amount of time and effort to buy a $1 million-business as it does to buy a $10 million-business.

    There are only individuals like those buying those kinds of bottom-feeding businesses, which are great businesses. If you can buy several of those and you can roll them up into a group, then they're going to become attractive to the next big players up in the food chain.

    Those are some of the things you've got to think about. Where can I focus a little bit even if I just want to be general? Do I want to buy a standalone? Do I want to buy two roll-ups and those sorts of things? Once you figured that out, stay away from brokers as much as you can.

    Only look at deals that have historically been listed a while. For example, if you go to BizBuySell.com and it's $20 a month for the premium service, each of the listings, they'll tell you how much of the deal the sellers prepare to seller finance.

    They'll tell you how long the business has been listed for sale. What's interesting is you can do an analysis, you can pick 100 deals on BizBuySell and the longer it's been listed, the higher percentage of that seller financing. Once they go over a year listed, generally the seller financing is 70% to 90%.

    It’s for the guy who wants to a little bit down, but he's prepared to carry the rest over a number of years. Brokers be wary. It's about networking and networking with your human network, talking to all the intermediaries that we discussed before.

    Hosting a show and letting my audience know that I'm in the market to buy businesses.

    I am posting on LinkedIn, posting on Facebook. In my free webinar training, I have a little process that I teach. It takes about two minutes to implement. You can do it while on the webinar.

    I give you a little post you can put on your LinkedIn profile and it literally takes you fifteen seconds to type it in, personalize it to yourself, send it out. If you do that, you'll have deal flow within 24 hours.

    When I started in this business many years ago, we didn't have any of this stuff. Now, social media and the internet is phenomenal. You can go to those blog sites and forums for sectors per se or for doing deals.

    You can go in there and you can say, “I'm Carl. I want to buy an engineering business in Dallas. Do you have any tips or advice?” I don't need tips and advice because I've been doing it my entire working life, but that's not the point.

    The point is 50% of the messages will be people that are trying to give you advice, the other 50% is, “I own an engineering business in Dallas,” or, “My buddy that I played golf with, he's looking to exit some point in the next few months. Do you want me to make an intro?”

    Making those connections is great. What I also teach as well is what I call the direct approach. There's nothing to stop you go into a library, getting access to Hoovers or one of those online databases.

    Emotional fitness is necessary when buying a buying a business. Click To Tweet

    They'll give you a 48-hour trial these days for free. You go in there and you say, “I want to buy this type of business within this number of miles of where I live, between $1 million and $5 million in revenues.”

    You click the button, it prints you off the list. You can find out who owns the business, how old they are, key financials. You then write to them, you send them a letter, not an email. It’s very private and confidential. You try and tailor the letter a little bit to the business.

    Look at the businesses website. What do they do that's unique? Find the seller on LinkedIn, try and find some links where you can have a conversation, build rapport and you put that into the letter and you send it out.

    If you send twenty of those out, five or six of them are going to call you and they're going to want to have a conversation. There are all these different things. You can go to events.

    Let's say you're working in sales and you're a frustrated salesman, you're pounding the streets, working for somebody else. You miss your family, you want to buy your own business and you'll go into an event or trade event.

    If you call the exhibitor, they'll give you the attendee list and you can look down on the list and you think, “I like these four or five.” There are all these business owners that are going to be there, the small businesses. Do a little bit of research before you go.

    Put a couple of bullets on the back of some cards. You go into that meeting and you find that person, you can start to have a conversation with them immediately.

    Build rapport, talk about, “I know your business. You do this. I've been researching you. I'm looking to buy a business and I thought your business might be a good fit. Are you up for having a conversation about it?” I've done some incredible deals using that strategy.

    What has been one of your favorite deals? We've all got favorites, we've all got ones that made us giddy. Whether you made the most money at it or not, but it was one of those that the way it worked out, it was so cool and advantageous. Do you have any of those favorite stories?

    I got loads and loads of them. One of them, I'll tell you. This came from a LinkedIn post. I was doing engineering deals at the time. There was a small precision engineering business, which was in the UK about 50, 60 miles from where I live when I'm in the UK.

    I sent the post outs like, “I'm looking to buy an engineering business,” and the script for that is in the webinar. I got fifteen to twenty responses and it's not necessarily for people in my network. They share it and they know people. I got this email from this guy the following day.

    I sent it out about 9:00 PM, I open my emails at 7:00 AM. I got this email from this guy called Jeff and he's like, “Carl, I got your message. I'd be very interested in talking to you. Unfortunately, my wife was diagnosed with a very aggressive form of cancer.”

    “I need to leave my business as soon as possible. I'd like you to have it. Can you call me?” I called the guy and he said, “I don't want any money for the business. Can you just take it off my hands?” There are some liabilities on the balance sheet.

    He said, “The business is worth about £1 million. There's about £500,000 worth of debt in the business. It nets with £500,000. If you can do the deal now, if you come down and buy this business, you can have it.”

    I went down, we did the deal, and I met the team. We go through the numbers and I did the deal. It was a great business. It did component parts for a high-end automotive. It was making little components for Porsche and Audi and Volkswagen and all those guys. We got into the business.

    There was a good number that didn't want to own the business but was happy to do the day-to-day for me. I took that business on and then I kept in touch with Jeff for about three or four months and then by four months later his wife died suddenly. She didn't make it. He took care of his daughters and he got everything.

    He called me up and he said, “I'm out of my wits.” His daughters are grown-up. He said, “Can I come back and work for you in the business?” I said, “I'll tell you what I'll do. You come back. I'll give you 50% of the equity and let's run it together.”

    We run that business for a few years and then we sold it for about £2 million. We both got about £1 million out of it. It was amazing. I'd say that's my favorite deal. It's not my largest deal. It's certainly the quickest deal I did.

    On average, it takes about 90 days to do a deal. If you're starting without having done this before, my record is 27 hours start to finish. The great story on that was the guy came back into the business and I gave him half the business back and we grew that together. That's certainly my favorite deal.

    When you're taking over a company, how many businesses you said you currently have ownership in?

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: The success of a business model is not about the process, it's about mindset.

     

    It’s seventeen.

    Are you managing this simply by high-level KPIs? Are you looking at this daily, weekly, monthly? Do you have one person who works for you who is monitoring that on an ongoing basis? Because I can see that you could start to get time-consuming to keep an eye on everything that you own.

    I'm very fortunate that I have a great team. I have a CFO, I have great people that can monitor all that stuff. What I’ll always do is every ten to fourteen days I'll have an hour on the phone with each of my GMs or my operating partners.

    About a third of my businesses, I own 100%. Lately, I'd rather do deals with partners to get this leverage. I'm doing deals with people that they can either be the general manager or all that. They can be the overseeing partner that's making sure that the business is on track.

    What I always do when I buy a business is I will spend a few days in the business getting under the hood and agreeing a strategic plan to take the business forward. We always have board meetings even if they're on Skype or on Zoom once a month. What was the plan? What did we do?

    Why did we miss it? If we blew it out of the water, can we leverage that? What's the plan for next month or any major things that we need to address? There are ways to systematize it. As an individual, you could easily have five businesses and have a weekly call without being overwhelmed.

    We've been painting a pretty cool, fun picture of this and that gets easy to do, but I always like to ask people, especially about a business model that I'm not 100% certain of. What's the hardest part?

    What's the stuff that if you had to sit somebody down and explain and prepare them, “This is the part that's going to be the hardest. This is what's going to suck the most.”

    Before you get to that, because I know you understand where I'm going, the whole expert industry of, “I'll teach you to how to do what I do,” has got one fatal flaw. There's not enough of the real damaging admission

    If it was super easy unicorns and fairy dust, everybody would do it. We all get into something, we start going full steam ahead, then we hit a brick wall and go, “This sucks. I didn't expect this.” What is the hardest, worst, suckiest part of this entire business model?

    It’s a mindset. It's not about the process, it's about mindset. Unfortunately, a lot of people in the world, you know they have limiting beliefs. They'll say, “I don't believe you can buy a business without spending your own money.” You told me you'd done it yourself, so you know you can do it.

    A lot of people think, “I can't buy a business and not run it.” That's my limiting belief. It's all about mindset. It's all about emotion. There's a saying, “Where focus goes, energy flows” It's all about having that mindset.

    I spent a lot of time with people in my coaching program, getting them into that peak performance mindset because it was Tony Robbins that said, “Whether you believe or you don't believe that you can do something, you're going to be right.”

    If you start this process and you think, “I don't believe that I can do this,” then you're probably going to fail. If you attack this process with a daily focus on, “I'm going to do this. I'm going to break this process down. I’ll break the whole process down into ten stages and each stage has ten mini-stages.”

    There are 100 things you need to do step-by-step. It's like flying. Remember the Apollo missions when they flew to the moon? They got 100 things they had to do before they’re out of the Earth's orbit. It's exactly the same.

    Like anything in life, if you can break a process down into steps and you can go through that process and you can model it step-by-step, stick to the rules. Do everything that you need to do in order, you can achieve anything. It’s like baking a cake. I can’t bake. I don't have to want to learn how to bake a cake.

    If I wanted to learn how to bake a cake, I would model somebody that's done it. I'd find out what their process is? What are its ingredients? What's the timing? What's the sequence? I model that process step-by-step and I would get the same result as that person.

    It's the mindset. I can resonate with that because having gone through this a few times, the part that always gets me is that moment because I have not done this a lot. I've done it, but not a lot.

    It's getting to that point where this deal is starting to happen and sitting there thinking, “What am I missing? Am I missing something?” It's that I don't know what I don't know moment of, “Am I about to make a big screw up because I haven't asked the right question or I'm making false assumptions?”

    I don't know what I don't know. I know that's one of the reasons that people who are thinking about doing this should get a mentor and should enlist somebody.

    The way that I get around that personally is I remind myself that I don't have to know everything as long as I have connections to people who do.

    If I can get access to them, whether it's for free or for paying them, then I can usually mitigate that. That’s how I've gotten over those little mindset humps. You're 100% right. It is a mindset.

    The whole buying of business, the whole deal-making space, it's a triad. For me, it's 70% mindset, 10% strategy and 20% execution. The strategy is you’re in someone's program. You follow someone's blueprint, that's the process. That's 10% of it for me.

    The 20%, the execution, you're only going to get if you've got the right mindset. That's the key. What's important when you're buying a business is you've got to have what I call emotional fitness. You've got to have some measure of psychological strength because it's not a get rich quick scheme.

    It's not like you've got a 150% probability of it working where you wake up one day, you push three buttons and you bought a business. It takes effort and it takes work and dedication. It’s like all things in life. There are no get rich quick schemes in this world. You see a lot of it all over the internet.

    That makes me think of something and it's a contrary thought that I loved. There's a book I read years ago, I don't know if you've read it, it's an amazing book called The Millionaire Fastlane by MJ DeMarco.

    I recommend it for a couple of reasons and I recommend it to everybody. He does talk about the real way if you want to get rich. You need an exit event.

    If you've got one little product you're selling, that's great, you're making a little more money. The people who've made super money in this world are the people who've created a business.

    It's a sellable asset because you have this exit event where somebody is giving you three, five times revenue. A lot of it is designed around building an asset that is sellable so that you can have that exit event.

    However, in the beginning he starts off saying this, and I loved this. He goes, “Everybody says get rich quick doesn't exist. The problem is it does exist. They're confusing it with its evil cousin get rich easy, which does not exist.”

    “Let me explain what get rich quick means. If you were to start a business and over the next five years, for instance, you work on this thing and you've got this thing rocking and rolling. After five years, you'll sell this business for $5 million, which is rich by anybody's standards.”

    “It's taken you five years to do that. Compare that to any other business or career. Did you get rich quick?”

    He goes, “First of all, redefine what you think quick means.” There's a lot of work that goes into that, but truthfully, if you go out tomorrow and you buy a business whether it's with none of your own money or some of your own money and you pay $1 million for that.

    Maybe it's owner-financed and you come in there and you make a handful of changes to the revenue. You improve that, you improve the valuation and then you go search for a strategic buyer that will pay you an even higher valuation for your business because they want it.

    That business you put nothing into, you sell it for $2 million or even you sell it for $1 million. It doesn't matter. Now you have it in your pocket. That's get rich quick now.

    It isn’t easy, but it's quick. I loved that little counterargument to get rich quick doesn't exist. I was like, “That's a good point. You've got to redefine quick.”

    That’s a great point. To recap on that, for me, the vast majority of success in this market is all about your mindset. It's all about the state if you can crack that. I spent a lot of time focusing people in on that, and the rest of it is pretty straightforward.

    The worst part about this whole thing is once you start to go down this rabbit hole as I've done is it does shift your thinking. It's hard to go back to thinking about building a business from scratch.

    You're right because a big part of it as well is for anyone that wants to buy a business, the first question I ask them is, “What's your why?”

    Start With Why by Simon Sinek is all about your internal why, that emotional driving force that controls your decisions, your actions, and what you do. What's interesting is most of the people I work with, they want to buy a business because they're trapped in the corporate world.

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: Buy a business that someone else has built for you and innovate from within.

     

    They're working for someone else, 9 to 5, dollars per hour. You sat in a cubicle all day, change the computer, traveling all over the country selling stuff. They want a better work-life balance. They want more control over their life. They want more control over their future wealth creation.

    They want that pride and dare I say ego being able to go to the country club or the local golf course and say, “I'm a business owner. I've gone from employee to employer.” Notice the people that get into that space. There were six million Americans in 2017 that got into that space. What do they do?

    They go and start a brand new business. It's like talking about before, if you want a house, do you go and buy one that's someone else's built and financed it? Do you go and build your own? Do you buy the concrete, the bricks and the wood and you build it?

    If you want an iPhone, do you go to the Apple Store and buy one that they built for you and they'll even let you finance it? Do you go buy the silicone, the rubber, the plastic? Do you get the soldering iron and you build it yourself? You’re going to buy one that someone else's built.

    That's my whole mantra in life it's easier, quicker and far less risky to go and buy an established business than start one on your own. Someone else's built it for you and wanted it more for a whole variety of reasons.

    Even if you wanted to do something unique and there isn't a business out there like that, there'll be a business out there a bit like that. Go buy that business that's a bit like that and innovate from within. You've got customers, you've got suppliers, you've got employees that will help you.

    The customers will probably buy what you build in the future anyway. You've got cashflow from the existing operations. Six million Americans started a brand new business in 2017 and 50% of them will fail this year. 96% of them will fail within ten years.

    Those are Michael Gerber's numbers, the author of The E Myth. It fascinates me when there are 2.44 million businesses for sale and only one in twelve will sell.

    There are a big paradigm shift and matchmaking opportunity putting entrepreneurs that want to start a business into deals no one else is going to buy.

    This last point goes on to something that I tell a lot of people when I meet them at marketing conferences and my friends. I've got a lot of friends who are consultants and run marketing agencies.

    Sometimes they do Facebook agencies, sometimes they do website design, but they're serving the business community. This is some of the lowest-hanging fruit, which is when you're making a discovery with a client.

    Let's say you're managing their Facebook ads, ask them one question that has nothing to do with your Facebook ads, which is, “What are your overall goals with this business? Do you want to run it forever?”

    “Are you open to selling? Have you thought about selling it?” Start planning those questions because people don't get that question very often.

    Find out if the owner of the business is hiring you to help them grow their business because they're out of options or whatever. Find out if they'd even be open to that conversation. You don't have to buy their business, but if you know people who do it could be lucrative for you.

    You've already got the ears of that business owner. Ask that question, “Have you ever thought about selling your business?” Because you're making discovery as a business consultant in one way or another anyway.

    I know when I've talked to people individually about that, they said, “Yeah, I would love to. I have no idea how to go about selling it.” They plod on and stay in their little business and think they have to die with that business or let it fold.

    We're in an interesting time because many years ago, most small business owners would hand the business down to a son or daughter that will take it on, and then it would be a bolt-on the generational family business.

    If you look at the college intake stats, they've gone through the roof. Kids want to go to college, they want to be lawyers and doctors and bankers and consultants and all that stuff. They don't want to take over dad's engineering business in Punxsutawney, Pennsylvania.

    They want to go and work on Wall Street and do all that stuff. A lot of these business owners that are approaching retirement age, they don't have an exit strategy, they don't know how to do it.

    That's one of the major reasons why I built my coaching program because I feel for people that want to sell the business and they can't. I feel for employees that are stuck in a corporate job and want to own their own thing.

    What's also interesting is if you can't sell your business, if your only exit strategy is to turn off the lights and close the door and shut it down. In both cases, as the owner, that is going to cost you money. You've got sales to satisfy, you'll have supplies you've got to pay.

    You can put the business through an insolvency process and walk away from all that, but most people don't want to do that. A lot of their customers, a lot of their suppliers, other employees, their family, their friends, they don't want to take liberties with those types of people.

    If that seller's saved money up for the retirement and they can't sell their business, they have to use some of that saved up money to get out of the business. In some cases ,it's far cheaper for them to give you that business for a dollar and walk away. It’s fascinating. It's all about psychology.

    It's one of the reasons I like it the most. Carl, what is a nut you're trying to crack in your business right now? By that, it can be anything.

    It can be somebody you're trying to meet, a skill you're trying to develop, a partner you're trying to find, the traffic you're trying to find, the money you're trying to raise, absolutely anything.

    This is where myself and my audience get to think about our resources, our Rolodex, and our skillsets and think, “I might be able to help this guy crack a nut in his business or his life.” Is there anything that comes to mind?

    I would say my biggest goal, the thing that excites me the most is we have over 1,000 people inside of our coaching program. I launched it over a couple of years ago. That's great numbers. As I said, six million to seven million Americans every year are trying to start a brand new business and failing.

    I want to serve those people. I want to help those people scoop up and buy all the millions of unsolved businesses in the US. My goal is to spread my reach, get my content, get my skills and get my coaching into as many hands as possible.

    That's going to happen through partners. It's scaling through new like-minded partners that have got networks of people that they can feel that pain. They're looking for that value, they're looking to learn that skill and learn that process.

    My biggest goal is to take that forward. It's interesting because I don't have an affiliate marketing or a partner marketing strategy, but it's interesting that people, some famous as well, are seeing my stuff.

    They’re reaching out and saying, “Carl, this would be a great fit for our audience. Would you come and do a 90-minute live training for these people and share with them your expertise and your process so they can go away and they can do this stuff? They can model it and do it for themselves.”

    The stuff I've seen, and I've seen some of your Facebook ads, have there been any other things that you've done? I've seen the Facebook ads, over time, so I imagine they're working to a degree.

    Is there anything that you're trying to get working that hasn't or that you haven't tried that you want to push forward besides doing more JV and affiliate deals?

    I'm not the guy that blogs all the time, so I always believe that if you want to create traffic, you have to pay for it. I love buying traffic. I guess one of my concerns in terms of my traffic is I have 100% paid Facebook ads.

    A lot of the controllers, you have a Facebook, it concerns me a little bit. I'd love to develop alternative paid traffic strategies, things I don't know. I need to partner with people or hire people to do that. Whether that's solo ads or YouTube ads, I'm fascinated by LinkedIn.

    I would think that personally, that would be the best place for you.

    I totally agree. My audience, it's amazing that they're all on Facebook, but LinkedIn's where they live. I know you can do paid advertising on Facebook. I've never done it. Josh Turner who runs LinkedSelling, he and I talked about that a little bit as something to potentially do.

    Maybe LinkedIn advertising and JV affiliate deals, that's where I want to scale this, get my message out to the millions of people out there. Get my content into the hands of as many people that can get the value from it. That's my business and my spiritual goal for the next few years.

    Off the top of my head, one of the strategies that I think would probably serve you well in at least in the content stuff, when you think about the mindset of the people out there, it probably falls into one of two primary categories.

    One of them being people who already thought about buying a business and that you come across at the right time. You're like, “This is exactly what I've been looking for.”

    BWB Carl | Acquiring A Profitable Business

    Acquiring A Profitable Business: If you want great traffic, you have to pay for it.

     

    There are the majority of people who are either entrepreneurs or want to be and they come across you like, “This is interesting.” The negative side or the downside of what you're teaching is it almost sounds in the beginning to somebody who's coming across it like, “That sounds so big and complex.”

    It's simplifying it to let people believe. They can get that belief that this is possible. I'm trying to think about what might be an easy win.

    I know Frank Kern has called this results in advance or getting somebody that early momentum such as early parts of your course may talk about, I haven't been through it yet, how to start to maybe even stoke the fire and start to get into conversations about this stuff.

    I would imagine if you were to set the tone early on and say, “A lot of you might not believe that this is possible, that there are not as many deals out there.

    I want you to go maybe even create a challenge for folks such as a 30-day challenge to go talk to people. Ask them if they'd be willing to sell their business with absolutely no expectation that you're going to buy it.

    Try to get into the conversation with people. This was working well, especially with cold traffic, is issuing these challenges because everybody likes a challenge.

    I have a ten-day challenge in my funnel. It’s ten emails, ten days, 30 minutes a day. There's a fifteen to a twenty-minute video of implementation. The video one, I talk them through creating a deal specification.

    What types of businesses should or shouldn't you buy based on your background, your skills, your location, and whether you want to run a business or be an investor? Day two, some quick topics on deal origination. I start with LinkedIn.

    I say, “Take this post, model it for yourself, get it out there, you'll have deal flow tomorrow,” and they have deal flow. Day three is how to talk to a seller.

    Get on the phone, 30 minutes, go through this process, ask these questions, and answer these questions that he's going to ask you because I've done tens of thousands of them. At the end of the call, ask for the financials under NDA.

    Day four, you've got the numbers. Pick these seven numbers out of the accounts and plug them into the simple model that I've built for you. That spits out a deal structure and an offer. Take those numbers. Day five, put them into the latter, send it out.

    Day six to day eight is negotiating and looking at the financial options. I take them through that in a short burst, 30 minutes a day. It’s dumbing it down, but it's giving them that confidence. It's giving them that mindset. They go through those ten days.

    They go, “Look at my journey in ten days. I figured out my why, what type of business I want to buy. I found some deals. I've had some calls. I've got some numbers. I've structured some deals. I've made some offers. I started looking at financing. I've done that in ten days.”

    “Think about if I do it properly and rigorously over 90 days, I'm going to 10X my success.” That's why I did that. I remember one moment. We're at day eight. I'm seeing at least 50 offers being accepted after eight days.

    It's insane. I have never seen these kinds of results before. This is the third time I've done it. I've sharpened it up. I've made it a lot more dynamic over the year that I'd been doing it. It's phenomenal.

    Carl, this has been one of my favorite episodes. I enjoyed getting inside your brain and hearing about some of the strategies that you use and the way you think about this. I can tell there's a lot of people out there who talk a big game but can't.

    I used to live in Texas. We called that big hat, no cattle. I can definitely tell that you're not one of those people. You walk the talk. That's fantastic. For my audience, this is a path I'm going down personally. Like Carl and his students, I am actively looking to acquire businesses.

    I have created some criteria which would be beneficial to me. If you send me an email to AskBrad@BaconWrappedBusiness.com, I'm happy to let you know what some of those criteria is. In the meantime, I encourage you to go to the 90-minute training that Carl has.

    I believe it's NinjaAcquisitions.com/Free. Check it out and go a little bit further down this rabbit hole and find if this is something that resonates with you.

    My biggest suggestion is it's better to know the basics of how to do a deal like this just in case you come across an opportunity of a lifetime and you're not going, “I have no idea what to do.”

    If you even have the most basic knowledge of this and the right opportunity presents itself. The right conversation happens maybe over coffee or dinner or something.

    You hear somebody might be willing to sell their company instead of letting that go over your shoulders and go, “I can't help him with that.”

    If you even have this 90-minute training and you're like, “I not only know how to have a conversation about this at least, and worst case, I know a couple of people I can call. I can call Carl, I can call Brad. I can figure this out.”

    I've done many cool deals and opportunities simply because I took the time to pay attention to what's out there so that I can have the conversation when the conversation arises. That's been one of the secrets to my success is to know enough to keep the conversation going.

    You can do that at NinjaAcquisitions.com/Free. Send me an email to AskBrad@BaconWrappedBusiness.com if you have a business that you would be either open to selling or exploring your options or somebody who would.

    If you even want a personal introduction to Carl, I'm happy to do that. I don't know, Carl, if you want to give out any contact information, if people have something hot and they want to contact you right away.

    It's Carl@NinjaAcquisitions.com. That will go directly to my inbox, my phone, my iPad and my watch.

    To everybody else, if you do enjoy these conversations about thinking about the bigger picture, about deal flow and structure and whether it's consulting for equity, I've done a lot of these episodes. One was with Roland Frasier. I love Roland.

    I'm going to be putting together a deal maker series of some of the best deal-making episodes that I've done in the past where we've talked about whether it's acquisitions, consulting for equity licensing, putting together creative deals.

    Send me an email if you want access to that too because I'm thinking about putting together something cool. Until next time, thank you very much. Thanks for subscribing. Share this on social media. Let me know what you think. See you next time.

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    About the Guest: Carl Allen

    BWB Carl | Acquiring A Profitable Business

    Carl Allen is an entrepreneur, investor, and corporate dealmaker who has worked on transactions worth over $50 billion, which includes over 250 acquisitions and sales, together with more than 100 capital fund raising projects.

    In a 24-year career, Carl has analyzed thousands of businesses, big and small, in 17 different countries and across nearly every business sector, including technology, pharmaceuticals, transport and logistics, engineering, manufacturing, aerospace, consumer goods and services, business services, retail, professional services, finance, packaging, and corporate clothing.

    Carl has a solid reputation as an investor and corporate dealmaker, having worked for Bank of America, Hewlett-Packard, Forrester, and Gartner. He has advised some of the world’s largest corporations on investments, acquisitions, disposals, and restructuring, Carl has also assisted hundreds of business owners in raising both equity and debt finance.

    Carl walks the talk, having acquired and sold numerous businesses for himself. Carl is one of the world’s premier experts on buying and financing small business acquisitions and coaches more than 700 entrepreneurs all over the world to buy small businesses rather than starting new ones.

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