Buying Businesses: How Carl Allen Acquires Profitable Companies (With Other People's Money) #TheOnePercent

So it can come from debt based financing. So you offer up the business's assets or the cash flows to go and get a loan to be able to buy it. So you could go down the SBA route or you could go to any other traditional lender. Or if the business is in, if it's a brick and mortar business, then it's got assets like receivables and inventory and plant and equipment or real estate, then financiers will take those assets and, and they'll lend you a percentage of those asset values to allow you to make a closing payment on that deal. So that's essentially what we're doing. We're looking for assets, we're looking for cash flows. But in all LBOs, you're looking to put a percentage of that deal into the future.

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Ryan, I don't have a cool middle name today. Daniel Moran here. Hey, today. I've been looking forward to this podcast for a long time. This is Carl Allen. Carl Allen is a UK based business buyer and his entire business is buying businesses. And he has set up his life in business to put him in the position to have a deal flow so that he can buy more businesses. And you might be wondering, if somebody buys up a bunch of business, how do they even have time to do a fricking podcast interview on capitalism.com? well, we're going to talk about how he structures his deals so that he's not involved in the details of the business. Now, I am personally fascinated by this because this is where I want to go with my career. I have two ways that I really relate with this. One, I am kind of building along with my business partner Clement, the infrastructure to be able to create a structure for entrepreneurs, to be able to launch businesses within my sphere of influence, which is cool. And then at the same time, I have bought businesses, I have sold businesses, and I've seen that all of the money is made in the asset game, in the asset acquisition and the asset selling position. So if you can think about business like assets rather than cash flow, you'll make better decisions and you'll think a lot bigger. And that has been my transition since having my big exit back in 2016. 2017. Wow, okay. 2017, I think it was anyway.

When.

I got my biggest check. Now I have kind of seen how that world is played and so I've been really fascinated by this direction. Carl is somebody that I want to do more business with over the next coming couple years and I hope we get that opportunity. I know he's a fan of Austin, Texas, so we'll see how that plays out. But you are going to learn in this interview how he finds deals, what he looks for, how he structures them so that he is not, it's not dependent on him, how he doesn't use any of his own money to make the acquisition and how he sleeps at night with all of this overhead and all of these different businesses. It's very fascinating. I was hanging on every word. By the way. If you run a business and you've got a business that you know is not safe, sellable. I put on workshops from time to time at my home in Austin, Texas where I work with a small group of entrepreneurs to help them position their businesses so that they're more scalable and sellable. This is ideal for people who have followings or other businesses and they want to add on another income stream to make it sellable. People who have brands or businesses that, that aren't growing as fast as they want and so they need help tweaking some things around the edges in order to make it scalable and sellable. People looking to go to market to sell their business or people who have organizations that want to start other businesses. This is gonna help you position what you've got for sale, launch new businesses and be able to be in the position where you can have an exit in the next couple years. It's called eight figure exits. It's at my home. It's super small, super intimate. It's usually 6 to 12 people. And you can find out more@capitalismics.com 8 Until then, enjoy this chat about buying businesses using none of your own money with Carl Auer.

Hey, real quick. I'm doing a test in my business right now that I think you'll be interested in. We have a training called Million Dollar Brands and it helps business owners and entrepreneurs get clear on those first three to five products that they're going to build that will get to 25 sales a day at 25 to $30 and thus be a million dollar business. And we sell that for $297. And I recently had the idea of what if at the end of that training when somebody completed it and they filled out a form saying they know what their three products are going to be, they know how they're going to launch the products, let's refund them the Cost of the training. Let's incentivize the action of actually making some decisions in your business and getting clear on your business. And I did this because someone challenged me with the thought of what would I change in my business if I only cared about my customer's results and I didn't care about profitability. And I immediately said, let's incentivize action. And then I said, well, would I really spend however many thousands of dollars a month I spend on Facebook ads, or would I take some of that money and put it into a scholarship fund and then fund some of the cool ideas that came from my training? And it was like this whole world of creativity opened up for me. So this is a test right now that we're running. If you are starting a new business or you are still under that million dollar threshold or even that 25 sales a day threshold, then we have this training called Million dollar brands. That's $297 and it's refunded to you when you complete the training. And I figure if you walk out of that training, you're going to leave with such a clear business plan that you're going to want to work with us ongoing. So you can find this@capitalism.com brands and depending on when you sign up, we're also opening up strategic windows where you can qualify for a scholarship and have your business funded. So this is all an experiment. If I lose my rear end on it, we'll probably shut it down. But for now you can find it at capitalism.com brands.

Carl Allen, welcome to capitalism.com thanks for hanging out with me.

Thank you. It's great to be here. I'm so excited.

Dude, I've been looking forward to chat with you for several weeks now. I know we've only interacted a couple of times, but your overall kind of philosophy and approach is really interesting to me. So I'll get into that into a second. But I think it would be curious for most people to hear how you describe, I guess, what you do and your approach to business.

Sure. So I'm what they call on Wall Street a leveraged buyout guy. So I perfected over 26 years a methodology for buying a business without investing any personal money. And I now also coach and mentor entrepreneurs to kind of follow my proprietary system and do their own deals. And it's a big alternative to starting up a business, which I know has got some benef. But for me it's all about it's quicker, easier and far less risky to buy an existing Business that someone's built and doesn't want anymore, rather than kind of reinventing the wheel and starting from scratch.

Yeah, it makes total sense to me. I used to have a similar approach specifically with websites, because I've always been an Internet entrepreneur where I could start my own website from scratch or I could spend, you know, $10,000, which in college was a ton of, ton of money to me. But I would buy a website with traffic and sales and sometime and email list and all that good stuff because there was already momentum and it was proven in the marketplace. But just so people have context, we're not talking about $10,000 deals with you. What type of deal size are we usually looking at in your case?

So the real sweet spot that we've perfected is businesses with revenues in kind of the 1 to $5 million range. And below a million dollars, what you tend to find, not necessarily online, but more so in kind. Brick and mortar businesses sub a million dollars, then really the owner and the business are one and the same. So the business is not very sellable because if the current owner's not in there, it doesn't tend to work above 5 million. You've got a lot more competition from trade buyers, competitors, and also some of the smaller private equity firms. So 1 to 5 million is really the uncontested sweet spot where we're doing deals.

And is there a specific sector or industry that you're going in, looking for or are they all over the board?

It's all over the board. And there's kind of two reasons for that. From my own personal perspective, I'm sector agnostic because I've done hundreds of deals. I can do deals in pretty much any space. When I'm coaching and mentoring somebody for the first time, my primary advice for them is to buy businesses in a sector that they know and they understand. So if you've worked for a lot engineering company, go and buy a small engineering company. If you've worked for a large IT company, go and buy a small IT company. Don't go and buy a bar or a hotel or a gas station. Stay in your lane because it's easier then to build rapport with a seller. Build rapport with financiers who are going to lend the business the money to enable you to buy it. And then once you're the owner of that business, if you know the space, you can add value to it and you're undoubtedly going to have a network that you can plug into that business to make it grow, improve its value, which Means you'll make more money when you sell. In terms of the kind of sector question, there are particular sectors that are very good to do LBOs. So it's really hard to do LBOs in like property related deals like buying hotels or things like that in anything that's it related or manufacturing or engineering or professional services. Those are all really great sectors. But what we're looking at more is the owner of the business rather than the sector specific. We're looking for a particular type of owner that's psychologically highly motivated to want to come out of that business. So we're not targeting 25 year old entrepreneurs that have built an Amazon FBA business and are looking to cash out for maximum value and move on. We're looking for kind of maybe the older entrepreneur or the older baby boomer that's built a business, they've built a legacy, they've got great customers and employees and they want somebody to take it on that's kind of going to be a safe pair of hands are going to look after it. So we're playing a lot on the kind of psychology and the mindset of the seller. Because what I found, Ryan, in small deals, it's 90% of the deal. When you're doing billion dollar deals, which is what I used to do back in my corporate world, is Those deals are 90% numbers and only 10% psychology. So psychology is really the key to understanding what the seller motivations are and how you can create a deal structure that's going to tick all of their boxes.

So what I'm hearing you say is that when you're approaching a buyout, one of the leverage points that you bring in is you take the time to get an understanding for what the seller really wants. And you're creating a deal that is not as heady, not as numbers driven as some people would think. And instead you're creating an environment where the seller gets what they want so that you can have more of a custom deal where everyone is happy. Is that what you're saying?

Absolutely. And I'll give you an example. If you're buying like if you went to buy a chiropractor or a veterinary practice or a dental practice or something in that kind of health and wellbeing space, nine times out of 10, the owner of that business cares more about keeping their name above the door than they do about the physical cash that they're going to receive out of the deal. And it sounds crazy. It sounds crazy and it's really interesting. A big proportion of the market. When they come to sell, they just value other things versus money. Sometimes they'll want some money, but you can pay them that money over time using the business's profits, which is essentially the concept of an lbo. But they want somebody that's going to take the business to the next level. It's like selling their children in a way. They want somebody that's going to safeguard their loyal employees, you know, keep treating their customers in the right way and really preserve the legacy that they've built over time.

Now you mentioned LBO leverage buyout and that paying the previous owner out of profits is a big part of that strategy. You mentioned at the top of the call that you buy these businesses without using your own money. So could you walk us through what some of the structures might look like when you're acquiring something?

Yeah. So a classic structure that works in virtually all deals is let's say you find a business that's doing a million dollars in revenues and it's making a couple of hundred thousand dollars a year in free cash flow. And the industry average across the take the United States, for example. Last year the average business was sold at that level for just under a three times multiple. So let's say you're paying $500,000 in cash to buy a 1 million revenue business. Now that 500,000, let's then say you agree you're going to pay $200,000 at closing and then you're going to pay $300,000 over three years. So $100,000 a year. So that bit's taken care of because you're just using the company's cash flows before you grow it or you optimize it or whatever you want to do. So the $200,000 that you're generating for the closing payment, that comes from two different places. So it can come from debt based financing. So you offer up the business's assets or the cash flows to go and get a loan to be able to buy it. So you could go down the route or you could go to any other traditional lender. Or if the business is in, if it's a brick and mortar business, then it's got assets like receivables and inventory and plant and equipment or real estate. Then financiers will take those assets and they'll lend you a percentage of those asset values to allow you to make a closing payment on that deal. So that's essentially what we're doing. We're looking for assets, we're looking for cash flows. But in all LBOs you're looking to put a percentage of that deal into the future. Now, one of the things you have in the United States, which is really kind of the rocket fuel, is you've got something called the SBA 7, a loan program. So what the SBA have done, because there's over 2 million businesses for sale today in the United states, and about 1 in 12 of them are going to sell within the next 12 months. The SBA, to enable baby boomers to retire, generally will lend up to to 90% of the purchase price of a business, providing the other 10% is split between you, the buyer, and the seller, who will carry a little bit of the deal as a note into the future. So in those types of deals, you'll need to go and raise the 5% equity, but you can partner with an investor or friends and family or other people that can give you that money as a deposit. It doesn't necessarily have to come from you as the buyer.

Got it. Okay. So I've got to ask Carl, if you're using leverage to acquire these businesses, do you ever have asset purchases that keep you up at night?

Sometimes. But a lot of that comes down to, obviously, as you get skilled over time doing this. I've done over 300 deals now in my 26 years. You know, I'm an old guy compared to yourself. I'm.

But generally a lot of it comes down to your kind of vetting of the businesses and then something called due diligence, which is just making sure that what you're buying is doing what it says on the tin. But what you find in a lot of these cases, there's two major things that I always look for. So I'm looking for ways to very quickly add value to a business. So the two things you'll find in most of the businesses that I buy are, number one, they do little to no marketing. So those businesses are relying on recurring revenues, repeat customers, and word of mouth referrals. They're not leveraging Internet marketing or Facebook ads or any sort of outbound campaigns to generate new leads and new customers into their business. So I'm always looking for deals that have got that big missing piece so I can plug my infrastructure in on day one and really start to ramp up the revenues. The second thing that I always find as well is, especially with all the businesses that have been around at least 10 years, is they're really bloated in terms of their overheads and their infrastructure. And you can come in very, very quickly and take 10, 15% of the overheads out very, very painlessly and then you're generating additional cash flow from day one. So those are the sorts of things that I'm always looking for. A big part of my model as well, Ryan, is it's all about the numbers game. Doing an LBO is a bit like working in sales. If you're a sales guy for a business, it's very rare that you go and find one potential prospect customer and you can close that customer into your business very, very quickly. You're generally looking at 5 to 10 or even 20 prospects. To get one customer doing deals is very similar. You want to look at a lot of deals and make sure that the deals are the right deals for you. They're going to serve you in some way. They've got the right seller kind of mindset, the seller psychology. And then they've also got a financial profile that's going to support an LBO type deal structure. So you might need to look at 10 or 20 deals before you find that perfect business that's going to do all the things that you want it to do.

Yeah, that makes sense. The times that I have gotten into trouble were when I got excited by numbers or I got excited to buy something and then I tried to make the deal fit that rather than being in shopping mode versus buying mode. And my guess is, and you can correct me if I'm wrong, but most people who get into this game or that start working with you are making the same mistake. They get trigger happy rather than shopping.

Yep. And the term I use, Ryan, is deal heat. They get deal heat, they find a business, they absolutely fall in love with it and they've got no leverage. And what I mean by that is a bunch of other deals in their funnel that they can play off against each other. The best way to do this is go and look at 20 deals, pick the four or five you like the best, and then you play them off against each other. If one deal gets a little bit stretched, you can always fall back on the others. The problem is if you've only got one deal and you've fallen in love with it.

It'S like wanting to take only one girl to the prom. You know, five girls you really like. If you talk to all of them, one of them is going to go with you. It's the same kind of methodology, really. You've got to play the numbers game. It's really important.

Can you talk a little bit about how you're finding most of these deals? I know everybody has kind of a different Strategy. Some people are hunting, some people are just using. With brokers. What's Carl's strategy?

Yeah, so I use a mix of different strategies. The first place everybody tends to go when they're starting out is they go to the business broker network. So they go to Biz by sell, they go to Transworld or they tap up local brokers all over the place and the evidence is for sale. The problem with brokers is that a lot of times they will overvalue the business to generate some significant upfront fees. And what you tend to find with brokers is they'll sell on average 1 in 20 businesses. So a lot of those deals, they're just never going to sell them. They don't do any work to prepare them for sale. I was on the phone the other day on Friday actually with a small business in the US that was a Facebook ad agency. And businesses of that ilk tend to go for about three times free cash flow. I called the company up and said, hey, where have you got this crazy valuation? You're valuing yourselves at 21 times free cash flow. And he said, oh, well. The broker told me, because I run Facebook ads, that I could use the same PE ratio as Facebook. That's just completely not true. Facebook trades at 21 times earnings because it's freaking huge. And it's got process and a management team and those shares are highly liquid. You can buy the shares today and sell them tomorrow. With a very small private business, you can't do that. So brokers, unfortunately, some of them are very good, but a lot of them, they're not really adding a lot of great value to their clients. So we will look at broker deals, but only where they've been listed for about a year, because at that stage the owner realizes no one's going to come and buy it and you can sweep in and do a really creative deal. But what we tend to focus on now is a lot of other methods. So we leverage a lot of social media marketing, so we even run Facebook ads to get deal flow. We bridge a lot of LinkedIn groups and a lot of typical social media type activity. When I started this career back in the early 90s when I worked for a US investment bank, you didn't have any of this stuff. It was all kind of who you knew and markets and various things. So we still do a lot of that. We place a big emphasis on building personal networks. And it's interesting because only about 20% of people that ever sell their business advertise to a business broker. The other 80%, they don't want to pay the upfront fee or they're afraid of their business being listed for sale and competitors coming in and damaging the business. So what you tend to find is if you're a small business owner and you're thinking about selling, you tell people in your closest network, you'll tell your wealth management advisor, you'll tell your cpa, you'll tell your attorney and you'll tell your banker, your financier. So as deal makers, we're networking with a lot of those small, what we call deal intermediaries. And then in a lot of cases you can get some very, very strong deal flow. That is what we call off market. So it's not being listed for sale and it's a sponsored introduction from somebody that they know and they trust. And I've done some phenomenal deals that way. So we also go to events, we do a lot of networking. So it's really networking social media. But in some cases there is a place for business brokers in this market, but not that often.

So just like a real estate investor might use a realtor to find deals, their best deals are usually coming from them, letting everyone know that they buy houses from people in stress financial situations and there's 20 inquiries for everyone that they buy. In the same way, you're putting yourself out there, even running ads to business owners looking for the business that meets your criteria. Is that a fair summary?

That's a great analogy. Yeah. And it's really interesting that the real estate investment market and the business buying market, they're very, very similar. The legal transaction and the process is almost identical. There's only two big differences between real estate deals and business deals. The first one is valuation. The valuation of real estate generally comes down to the location of the house or the property and what rental income could it yield if it's being acquired as a buy to let. When you're valuing a small business, it all really comes down to what's going on inside of the mind of the business owner. You can take two identical businesses, they do the same thing, they're in the same building, they got the same income statement, the same balance sheet. If one's owned by a 30 year old entrepreneur who's having a lot of fun, the other one's owned by a distressed 45 year old that's really burnt out, could be sick, maybe even dying in some cases, they're going to sell that business for a massively discounted price and allow you to pay for virtually all of it over time, but it's the exact same business. So going back to the kind of seller psychology point, it really is one of the most important facets of doing a successful lbo.

Once you acquire a business, and I know it's going to depend on the sector or the background of the business, but once you take it over, I know you're looking to bring in some Internet marketing and some social media. What are the first levers that you're looking to pull in order to increase those cash flows so that it's an even better buy and you can pay the previous owner? What eyes are you bringing into that acquisition?

Yeah, so there's kind of three things that we do instantly. So the first most important thing that we do is we, because we're not operators of these businesses, think of us like micro private equity investors. So the first thing that we want to do is get a real management team in there or a general manager that's going to run that business day to day, working with us on the kind of strategic side. So that's the first thing that we do, is put the right management in place and get proper reporting and KPI dashboards and everything all set up, then the second thing that we're going to do is we're going to look at the overhead base. So we're going to make sure that the business is running as lean and as mean as it possibly can. Because as I alluded to before, a lot of businesses, especially the older businesses, they tend to get bloated in terms of their overheads. So we take a lot of that stuff out and then we're really driving the marketing. So it's putting lots of new marketing activities into that business, typically bringing on board some direct salespeople because the owner's primarily being the only salesperson in the business and has just been relying on those referrals and those word of mouth and those kind of repeat customers coming in. So those three things, that's all we typically do in the first kind of six to nine months to really get the business up and running. And then, and in some cases we might look at go and do bolt on acquisitions or we might look at some strategic joint ventures. It's a quote that one of my big personal mentors, Tony Robbins, says business is a spiritual game. The only thing you need to do is just go and fall in love with your ideal customer and find out exactly what they need in their business, then go give it to them. If you're providing service A, and they also want services B And C, then if you can't do those services yourself, you can go and acquire a business that does them and then bolt them into what you've already got. Or if you don't want to do that, just go and find a partner and joint venture with them and then you can potentially cross sell your service A into their customer base as well. So it's all about being creative and, and being efficient and just leveraging what the business does really well.

That makes a ton of sense to me. I find it really interesting that the first thing you're doing is going and putting management in place and that's, that can be a full time job all by itself. You acquire a business. Now let's go find a manager who is well versed to basically run this. And I'm curious how you go about finding someone who can take the reins of a business. Are you promoting from within? Are you doing a CEO search? That to me is a really delicate transition point in a business. So how do you handle that?

Absolutely. So the key to that is we don't do that when we bought the business. We're doing it as part of. So part of our due diligence is we're checking that number one. So the best place to find a GM is to promote somebody from within. Most of my most successful LBOs have been where there's been a very solid number two that's been able to step up and take that position. The other method is if that doesn't work then.

I never go through recruitment, consultancies or anything like that. I'll just leverage my own LinkedIn network. And in a lot of cases I won't buy a business unless I've already identified. I don't even make an offer until I know I've got somebody that can come in successfully GM that business for me. But then there's a third option and this is really going to surprise you. In a lot of cases the owner may stay on and GM that business.

For you have my attention, Carl.

In a lot of cases, that owner.

And it's really interesting if you look at any business, in my opinion, there are three types of personalities that live within a business. You've got the entrepreneur, so you've got the risk taking strategic visionary, Then you've got the managers that are parceling that vision up into work streams and then passing that out into the workforce. Then you've got the technicians or the artists that are actually doing the work. And a lot of the nine times out of ten when I talk to a business Owner or I meet them and I'm looking at buying their business. They're not entrepreneurs. They're artists or they're managers. They don't want that responsibility and that pressure of being the owner of the business. They're happy to turn it over to somebody else and then stay in and do the technical work that they love. Bearing in mind, most people that start businesses today.

They do them because they're just very, very good at what the technical work is of the business. They haven't built or mastered those entrepreneurial skills to be able to take the business to the next level. People like Mark Zuckerberg, Steve Jobs, they were.

They were different. But most people that start businesses, they're not skilled in the entrepreneurial game. So the guy that goes and starts a restaurant is just a great chef. And sadly, the restaurant fails because he doesn't know how to do payroll and taxes and marketing and operations and all that type of stuff. So I do see a lot of that. I never personally do that. You know, I always look for a solid number two or somebody in my network that can come in. But a lot of the people that I've coached and mentored in my program, they've gone and bought a business. There's a guy called Daras Miller who lives up in Virginia. He bought a business in South Carolina, I think it was, and the owner stayed, and he's running that business for him every day. And he's loving life, you know, earning a salary, having a lot of fun, and it was the perfect deal for both parties. So that's definitely something that occurs, but it's not, you know, it's not the way I would do.

So in some ways, in that scenario, you're basically setting the founder free to do what they want to do in the first place, and they're bogged down by doing a whole lot of business jiu jitsu that they don't want to do. And in comes Carl and his team does. And so in that way, you're getting the assets, they're getting the money that allows them to do the thing that they would do if they got $100 million and would retire off into the sunset, they would paint all day. You say, great, I will manage the business side of it by acquiring this business. That's how I'm hearing it.

100%. You nailed it.

Cool. I went through an acquisition myself, or my business was purchased by someone like yourself who did a leverage buyout. A few. It was just over two years ago now, and so I played with that Idea. A lot of, you know, what would I do if I had all the money in the world? And so it makes sense to me now that you would go up to an entrepreneur or someone who is entrepreneurial and say, great, I can make that a reality. Give me the assets of the business and you get a check or you get enough money to set you free for the rest of your life. That makes sense to me now. And it's not always about the money. It's often about the life situation that is preventing them from being in their sphere. It takes a lot of emotional intelligence to understand that about people. So I'm guessing that there was. You went through something yourself or you either had a buyout or you discovered this about other people. So where did the light bulb come on for you?

Gosh, it's a mix of lots of different experiences. I never really kind of got the sense when I was doing the really large deals when I worked for HP and I was buying big software companies, it's all a case of financial engineering. But when I kind of retired from corporate life.

To tell you a story how all this kind of crystallized. So when I left the corporate world in 2008, it was just after the birth of my son. I nearly missed his birth because I was in a board meeting trying to close a deal and I just got to the hospital in time, so I quit. And my first thing I was going to do, I was going to be a business broker. So I called my network and I got this deal and it was a couple of guys, they owned a big $5 million transport business and they said, go find us a buyer, pay us top. Who's going to pay us top dollar for this business. So I went out, did a kind of auction, got them a really great deal and this deal went through. And then day before closing, it was like, I remember it was pouring down with rain and I'm sat in my study at home and the phone rings and it's Colin, one of the brothers of this business. And he's in floods of tears and this is like a really big gruff guy. He said, I hate to tell you this, we're going to pull the deal. And I had a quarter of a million dollar broker fee writing this deal. So I drove down to the business to see him and basically they pulled the deal because the new buyer had come in the day before with a list of all the names of the people they were going to fire in the morning when the deal was done. These guys didn't want to retire on a beach and have all of their employees in harm's way not being able to make their loan payments. Because these guys were just looking to drive cost, value and synergies in this deal. So they were looking at me and saying, look, you've got to go and finance another buyer. We don't care about the money. We want a little bit of money. But go and find us a friendly buyer that's going to respect this business, keep the name, look after the employees, treat our customers the way we've always treated them, and take this business to the next level. And I don't know what came over me, Ryan. I just looked them in the eye and said, I'll buy this business. And they said, you're crazy. You know nothing about this space. You're a tech guy. I said, well, I've been working on this deal for three months. I know a lot about this business now and a lot about this sector.

And I reckon I can get you about 40% of the original value. I can finance the trucks, I can finance the receivables. That's enough to give you a decent closing payment and then I'll pay you the rest over time. And then I look around the room and I pointed at their operations manager, I pointed at their financial controller, and I pointed at their sales guy and I said, I'm going to give each of them 10% of the business. I'll take the 70 and we'll run it together as a team. And they looked at me and everyone started cheering and they looked at me, said, well, if you can come up with that money in 30 days, we'll do the deal. So that was my first ever personal deal, that.

I was never going to do this. And then after I'd done that deal, we built that business and then I sold it to the three other managers. In the end, two years later, they bought me out. So I made a low seven figure profit on that deal and that was my first lbo. And then I realized there must be lots and lots of people that have got that same psychology. So I built my entire process and system around that.

That is beautiful. Carl, tell me how you financed the first deal, because I don't think you had access to SBA for that one. So where did you go and get the money?

Yeah, so that business had primarily two very, very strong asset classes. So it had a lot of receivables. So when a company issues an invoice to a customer on 60 or 90 day terms.

In any instance, there's a whole bunch of Unpaid invoices sat on the balance sheet of the business. And financiers like Bibi, for example, in the US or Shawbrook in the UK or even a bank, they will lend you generally up to 80% of the values of those invoices. So that gives you a good chunk of cash that you can use. And then this business had a lot of trucks, so a lot of vehicles that it was using. It was a transport company. So I managed to get some financing secured against those trucks as well. And that was enough money to keep the two brothers happy, Colin and Alan, for their closing payment. And then because the business was so profitable, I knew even without growing the business, I would have enough cash flow at the end of each month to make them a small payment. So for them, the beauty for them, there were two big benefits to them for the deal. Well, three, actually. Number one is they were able to retire, which is what they wanted. Number two, they knew their business was in safe hands because not only was I going to be leading it in the right way, their three top lieutenants in that business were part of the ownership team. And then the third thing, this is what really swung it, is they were able to retire and still get the same monthly cash flows they were getting as owners without having to get up and go to work. And that's the beauty of an lbo.

That is really cool, Carl. Okay, so let me ask you this. It's one thing to buy buy a business. It's another to run an entire business that buys businesses. Yeah. So you have made this very interesting pivot from being a business buyer to the controller of an empire, which means that you've probably got infrastructure that exists to oversee infrastructure. I just confused myself. So could you tell me a little bit about how you manage multiple deals and what your deal acquiring business looks like?

Sure. So what I have is. So what's really interesting is.

My training and coaching business, if you will. So my NINJA acquisitions business, the only reason I created that business was to generate deal flow because I knew that for every 10 entrepreneurs that would come in that I would coach a mentor to do deals, one or two of them would find a deal that they thought was a little bit outside of their comfort zone for their first deal. And they come to me and they want to partner. So that's how I originally kind of set this up. And I've done some really, really good deals that way. And my model these days is I'm looking to do deals with partners. So I'm looking to do deals with people that know those industries and know those people and can be my kind of point person on the ground to be able to do those deals with. So take my. So what's a deal that I've done recently? So I bought a company called Radio Express, which is a. It's a radio marketing business in Burbank, California. So not that big a business, couple million dollars in revenues, but really nice business. Was founded in 1985.

By a husband and wife. The husband sadly passed away a few years ago. The business was as big as about 5 million. The previous owner, she not kind of given up on it, but it had suffered a little bit in terms of growth. So we bought that business through an lbo and I partnered with somebody that owned an identical business to that in the UK and put him in as the CEO and I gave him almost 50% of the equity, come in and do that deal. And then Now I spend 30 minutes a month working on that business. The rest of the stuff's all handled by him.

I get a weekly cash flow forecast, I get a weekly sales forecast. That's it. And once a month we'll have a short board meeting. And those are the types of deals that I'm looking to do because obviously I've got fingers in lots and lots of pies. But the people that come into one of my programs and they're learning to do this for the first time, then really it's all about doing a deal that's really kind of close to home and is in a place and in a sector that you know and you love and you can understand and you've got a little bit of bandwidth to be able to really go in and add some value to that business. And then over time, you know, you can scale that up. You know, if you want to do multiple deals. A lot of the people that I work with and that I coach, they're happy just to do the one deal. A lot of people, believe it or not, will buy a business, and they want to go and they want to run it every day. Just want to be the passive owner that's just living off the cash flow. They actually want to go in, roll their sleeves up, and do the work. And I totally admire them for that.

That's not my model, but for a lot of people, that is the way that they want to do.

Sounds very similar to my overall model, but I'm on the. The starting side, where I have a thousand ideas and I have the infrastructure for entrepreneurs to be able to build businesses, and they can often make more Money working with me inside the capitalism initiative to raise them up and have them run a business. So it sounds very similar. So what? But what I'm hearing you describe is that your business, your real infrastructure is on the deal, acquisition and due diligence side. And then you are bringing in the CEO. And that CEO might be one of your students, it might be the previous founder, it might be the number two in that business. But you're looking for the person to run the empire within Carl's empire. And that's how you're able to, that's how you're able to do a podcast interview on capitalism.com today. Fair summary?

Absolutely. Absolutely. 100% got it.

So it's funny. My next question for you, Carl, was why would you bother teaching this stuff? Because it sounds like you're busy doing deals, but it makes sense now that that's just another arm of your business which then supports the overall goal, which is to buy up cash flowing businesses that are exciting to you. So let me ask you this instead today. What does your criteria look like when you're buying a business that is different than when you say started buying businesses? What have you changed in your thesis over the last decade or however long you've been buying businesses?

Yeah, so the number one thing that I'm looking at is it's really, I call it the deal making triad. So when I look at any business, it's got to tick three big boxes. So the first one is I'm looking to do deals that you know, are going to serve me in some way. So I either like the sector or I'm passionate enough about the sector to want to get into it. Or if I'm looking to buy a business that is going to be a bolt on to another business that I already have, then I want to make sure that strategically it's going to be a good fit. There's lots of cross selling opportunities. I think the cultural fit is going to be good between the two businesses and you know, the two sets of individuals, infrastructures and systems are all going to play nicely together. So that's the first thing that I always do. Then the second thing is I'm really kind of drilling into that seller psychology. I don't want to go and pay six times cash flows for a business because a young hungry entrepreneur has built it up and now wants to cash out. I want that kind of frustrated, bored, burnt out baby boomer or burnt out entrepreneur that just wants to take some time out and go and do something else. And then the third Thing is, I'm really kind of honed in on. I can look at a balance sheet and an income statement and I can tell you in 10 seconds whether this deal is going to work for an lbo. Obviously, that takes practice because I've looked at thousands of these. This is what I teach my people in my program, is how to quickly and efficiently understand these businesses so that you can build a huge pipeline of them and then pick and choose the sort of deals that you want to do. And then I'm really looking for that kind of number two that GM that I can bring in from my network or I can find within the business or I can convince the owner to stay on. And then it's how ready is the business for growth when I plug in all of my marketing strategies to really get that business flying.

Yeah, sorry, I'm curious now. Now I want to ask you the opposite of the question then. What is a deal breaker or what type of businesses stand out as absolute must avoid?

So it's really kind of applying those three principles again. So one business that I typically will not do as an LBO is a business to consumer play. So a B2C typically doesn't have a lot of assets. I don't tend to do a lot of the Amazon type deals because Amazon controls the customer, not you. You get two bad reviews, somebody from China buys your product, drops it on purpose, gives you a bad review, the business is dead. I'm looking to do deals where you're completely in control of the customer experience and you're not relying on an Amazon or a big third party to kind of. So what I'm also looking for is I'm looking for businesses that have got a good track record, so they've got good standing in the market, they've got some great customers, lots of raving fans and lots of loyal fans because I can use those as testimonials or as leverage to bring other people into the business. And then my primary kind of big no no is. And I can tell inside of 30 seconds of speaking to a seller, the first question I ask every single time automatically is, why? Why do you want to sell the business? And I'm looking for that seller psychology. I'm looking to take the psychological pulls. And if they tell me that, hey, I built this business, it's three years old, I just want to cash out the max amount of money, go off and do something else. I don't really care about the business or the employees or the legacy or anything like that. You know, that's going to be a very, very short conversation. I'm going to move on. I'm looking for that frustrated entrepreneur or that older seller that wants that they still care about their business and they want a safe, trusty pair of hands that's going to come in and is going to really kind of nurture it and cherish it. So that's a big kind of no, no for me. If somebody only values money in that deal.

I'll move on to the next deal. Again, it's all about playing the numbers game. Yep.

Totally understand. All right. I gotta ask you this before we depart for the day, Carl. I have a guiding light, or I am. I want to buy a major league baseball team, specifically the Cleveland Indians. So I make decisions based on does this get me closer to becoming the person who can buy the Cleveland Indians or not? Once you have bought however many businesses you've bought and helped however many entrepreneurs you've helped, what is your guiding light principle that keeps you wanting to grow the empire that you're building?

Gosh. So there's three reasons. The first one is this might sound very egotistical, but I think in the 1 to 5 million deal range, I think I'm the best in the world at doing it. And I've seen a lot of people teach it bandily and I wanted to change that and give them my formula and my system so they could use it. The second reason is about three years ago, I discovered a great guy called Tony Robbins and I went to a lot of his events and it really changed the way I feel about myself and the legacy that I'm trying to build. And I shifted very quickly inside of that, that journey from being a very, very kind of selfish, money orientated individual. You know, I was brought up on Wall Street. That's sadly just the way I was conditioned to being a guy that, you know, really wanted to kind of give something back and build my own legacy. And what's really, you know, I can't even count that number of businesses, let alone, you know, do anywhere near that number of deals. You know, I'll buy three to four businesses a year probably.

So there's so much opportunity out there for people. Sadly, most entrepreneurs just don't know how to do this. So my big thing that I'm giving back to the world is really teaching people expertly how to free themselves from a W2 that they hate or a working situation that they hate and put them into business ownership without having to go through, you know, the pain and struggle sometimes of starting a business from scratch. So that, that's what's kind of really motivating me. You know, I could give up all this stuff, you know, tomorrow and have enough money to live five lifetimes. But, you know, I could see myself doing this way into my 60s and 70s.

So that brings up one more question then. If you've got, if you're set and you're doing this for fun but you still use other people's money to fund your next acquisitions, where does Carl invest or put the money that he makes from business?

So I, gosh, I buy lots of different things. I buy quite a bit of real estate. I'm really into art. I buy a lot of precious metals, a lot of fine wines.

I put some shares in a very, very small sports team. Obviously it's not the Cleveland Indians or anything like that, but I give a lot of money. You know, I donate to 16 different charities.

You know, there's a lot of stuff that I do.

Carl, this was absolutely fascinating. I'm hanging on every word. You can't see me because we're not doing video. But I've got that like enamored, I'm on a date. Look where my, my chin is in, my is, is held by my fist and I'm just looking at my computer adoringly. So where I know you have a Facebook group and I don't, I know you put out some content here and there, but where would people find more of the Carl Allen sweet sauce?

Yeah. So what I've done, actually, because I know you're going to ask this, I've put together for your tribe and for your tribe only, I've put together a 90 minute.

Masterclass training where I will show your tribe my proprietary 10 step system so they can watch that training, download the tools that I give them and they can go off and start doing their own deals. And that's@ninjaacquisitions.com.

Capital.

Perfect. Well, my friend, I know we haven't hung out much but I have enjoyed every minute of our interactions and I'm really, really enthused to bring my people to your world because this is the world I live in and, and it's a world I want to dive more into and I think it's a world that is sadly overlooked in our world because people complicate it too much. So thanks for distilling it for us. Appreciate all you for entrepreneurs, Carl.

My pleasure, Ryan. And thank you so much for having me on your show. I really appreciate it.

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