Live Q&A: Building Your Freedom Without Becoming the Bottleneck

Ladies and gentlemen, want to thank you for being with us this afternoon. We are with Scott Sylvan Bell, the renowned coach and M and A consultant. He has. I can't tell you how many M and A deals he's done, how many people he's coached, how many successful, how many success stories he has. Maybe he will share some of that with us today. We are for our live Q A so anybody that is with us live, please raise your hand and we will be glad to go out to you. The we have some questions that came up. This is the Q A session for our M A for Legacy Wealth. And the idea is that to get a little different perspective on how to invest for legacy for, for long term wealth for college, maybe saving for college retirement, whatever. There are numerous other ways besides real estate to invest for these things. And Scott has got some absolutely amazing ideas and some advice for all of us that would like to diversify our portfolios. So I'm going to turn this over to Scott, Scott Sylvan Bell and let him to go ahead and talk to us a little bit. Let me make, let me move this thing a little bit. Let me just move to the next slide here. Go ahead, Scott.

You know, here, here's the thing. When you look at your buy box, your acquisition criteria, so to speak, for a building, you're going to have the same thing for a business. And so you really want to be disciplined on your approach. When I coach people, they get shiny object syndrome and they, they, they want to buy anything and everything and that's dangerous. It doesn't help you to want to buy everything. It's like we're just going to focus on one thing. We're going to focus on one, two or three things that we can find right now that you have some background in. And so when it comes down to your conversations, it comes down to what you're looking for. Like what are some hobbies, some talents and some skills that you have.

Right.

I grew up in the trades. I grew up around construction, plumbing, roofing, heating and air. My dad was a general contractor. So it's really easy for me to segue and go, oh, you know, I could probably look at a heating and air company. Well, I was a corporate sales trainer for heating there for 10 years. I know that industry backwards and forwards. So I would put that on my list. I know plumbing, I would put that on my list. Now I'm going to give you something I'm not good at. I am not good at accounting. So I would not buy an accounting Firm, even though that there's a manager in place, or you buy a company to put a manager in place. I don't know enough about it on the first round to make that purchase. So on your first purchase of a company, your first acquisition of a company, you really want it to be in something that you know like and understand. Okay, nine out of ten deals don't close. So when somebody says, hey, I want to do some M and A, patience is the name of the game. You know, I can outweigh somebody. As a negotiation strategy, Jim, you may have done this on a property. You're going to buy a property and somebody is waiting till the last second to drag their feet. As a negotiation strategy, when you take a look at how that operates, I would much rather take the guy who's dragging his feet than the person who's saying, do it right now, do it right now, do it right now. So you do want to have some sort of like, okay, this is, this is what it's going to take. So if you're like, hey, Scott, I'm going to do my first deal, how long? It'll probably, it probably take you a couple months to source a deal that you really like, and then it's going to take about 60 to 90 days of due diligence. And so that patience is meant to protect you. That patience is meant to be guardrails for you to make a good decision. And if you're looking to acquire a company, last thing you want to do is run it into the ground. The last thing you want to do is, is not have it be profitable. When you take a look at the world of M and A, there's a lot of opportunities. So I'm going to give you words, I'm going to give you definitions. A roll up is when I go out and I buy a whole bunch of heating and air conditioning companies and then I sell them off as a package. A tuck in is I have a heating and air company and I look for another company that's tangential or next to the services that I provide. So I may only do heating and air. A tuck in, maybe to acquire a plumbing company. Tuck in may be to acquire a shipping company to move the equipment back and forth. So there's a lot of opportunity and a lot of ability to, to build legacy. But the key word here that you're going to use for all of this is patience. So, Jim, any questions about what the, the concepts are that we went over?

You know, I want to make a comment to you talking about Patience. You know, you and I are working on a project where we're trying to find a specific set of, or trying to find a company that meets a specific set of criteria in a certain industry. And you know, we've been working on that, on looking for that right company for nearly a year now. And you know, we just have found the right fit. So, you know, that's one of the things that I would, you know, let you invite you to comment on about jumping in, you know, about waiting for the right fit rather than making the fit fit the right. If you know what I mean.

Yeah. You know what, here's the thing. You're not buying a car. You're not making a quick purchase. This is one of the things where you want to make sure you get the right company. I have, I have friends that have purchased the wrong company and I'm going to keep a couple of them like blindsided what they are. But it was a service business and the, the guy who bought didn't do enough due diligence and find out that this company had been sold four or five times and the owner had played games. And, and so there is, there is time and patience. And when you start getting like antsy in the pansy, as they say, that's when you start making bad decisions. That's when you start accepting things that are outside of your acquisition criteria. That's when you accept scope of work or when you take a look at some sort of negotiation that you sign an agreement that really should never be signed or you make a deal for a company that's overvalued or under certain underability to grow it.

Perfect. Perfect. Well, let's move over to the questions. We got several questions here, and one of them was M and A really passive. So, Scott, that's a kind of a loaded question because when you buy a business, can you really be a passive owner in that business?

You can under a couple of circumstances. One, it would need to be professionally managed by somebody who is capable of running a business and you would want to find a really good operator. Now, here's the thing. A lot of times people don't want to pay for that. If you have the right operator, you don't have to worry about the headaches in the middle of the night. That's their job. So from the standpoint of bringing in somebody to run that company and do the growth. And that's growth minded? Absolutely, it can be. But this is where patience comes in. If you find a mom and pop shop that doesn't have the capability doesn't have the standard operating procedures, the org chart or any of those items in place. You're buying a job and if you're, if you're wanting to be passive, that's totally against the, the rule, so to speak.

Cool. How do you avoid overpaying for a company? You talked a lot about this on our webinar, but why don't you just hit the high points and revisit that? Because evidently somebody else was wondering about that.

That's actually a really common and it's a fantastic question. So when we, we take a look at the value of a company, there's three ways to value it. There's, there's ebitda, there's sde, and then there's multiple times revenue. So SDE is seller's discretionary earnings. So think about it. I have a plumbing company and I'm a sole proprietor, but I have my car payment, my insurances, and I run some of my personal expenses through the business. So value of that company would be my income plus some of those intangibles. So let's say I'm getting paid 100 grand a year. There's 30,000 in intangibles. 130 would be the multiple now on SDE, seller's discretionary earnings, that pays out somewhere between 1 and 3 most of the time. So if I made $130,000 a year on the high end, you would probably pay $390,000 to that company. On the low end, it could be anything below that. Then we get into EBITDA. If the company has less than 5 millions in EBITDA profit, so to speak, they're probably going to be depending upon the industry, the service, somewhere between a five and a seven or ten times multiple. Now it's very industry specific, so I'll give you a couple of examples. Fintech Financial Technologies can pay somewhere between 20, 27 and 30 times. Multiple services of software or SAS can pay 20. So there's charts out there that'll tell you, hey, here's what's going, what I'm looking for. You can literally go to a search engine, pick your favorite chat, GPT, Perplexity, Google, Bing, whatever it is, and say, hey, what are the standard multiples Right now there's universities that publish this data. There's people who keep track of this every quarter. And so the data is out there. And to not overpay is to have the conversation, hey Jim, you know when people take a look at a value of a company, they tend to think it's going to be revenue times the multiple and not profit. So I really want to be clear with you about how this operates. One of the ways that you don't overpay is by having the tough conversations and sharing the concepts and the ideas and doing a little bit of teaching.

Right.

If you're going to be patient and you're going to wait for the right deal, it means that you're going to have to wait for the right conversations, too. Cool. Cool.

And so what are some of the red flags that you see that have to be. Have to be observed or have to be watched out for that can kill a deal?

I'm going to give you, like, about five to seven of them. Okay. So one of them is management churn. Like, why. Why can't you keep a manager? Why. Why does the manager keep leaving? It's. It could be. It could be a sign that the. The owner is very difficult to deal with. Now, I believe in green flag, yellow flag, red flag. When I look at a deal, I'm like, okay, is that a green flag, a yellow flag, or a red flag? That could be a yellow flag. It might be an opportunity to grow and say and grow that business. Another one is shaky books or not a strong foundation. You go in, you're like, what's up with your accounting here? Oh, well, you know, we kind of do it occasionally. It's going to be tough to value. And here's the thing. I have somebody who just went through this for a service company. They paid for their own due diligence. They paid something like $7,500 to have an accounting firm go through the books. And the accounting firm said, there's no way you want any part of this business. So part of this is, listen to the people around you. Have a good board of advisors, have people around you who could say, hey, listen, are you asking these questions? In my own personal life, I don't do a deal without input. I don't do a deal without running it past a couple of people and say, hey, beat this deal up. Tell me what's wrong. Part of it could be owner. You meet the owner and you're like, this dude or this chick seems really shady. And so I live this rule. Trust your gut. There's a really famous negotiation author and coach, his name was Jim Camp. And Jim Camp loved to talk about how the Japanese would negotiate from the hara or from the gut. And I will share with you that when you take a look and you listen to your intuition, and if it's screaming at you don't do this deal, then walk away. There's for every one of us doing deals, there's 10,000 on the marketplace. You just have to do the outreach and have the conversations. And then last of all is games being played. So you're in negotiations. There is some back and forth. But there's a point too where you just got to say, this isn't worth my time, effort and energy. I'll go find another deal. So I think that was a six, I just gave you six ways.

That's, that's fine. Appreciate that. And I think one of the questions that we got, and this is of particular interest to a lot of our audience, is how does M and A or how does buying a business compare to real estate? And what are the, what are the differences in the benefits of each?

So there's a lot of similarities. Like the best deals that you're going to find are going to be off market. So that's going to be cold call and outreach. That's a similarity.

Right.

You can call, you can call expired listings for brokers just like you can call aired listings for real estate agents. The difference is you're going to have fluctuations in profit that come from a business. If you can make that company more profitable, you're going to reap the rewards. But if you have a bunch of doors and you're increasing rent by one or 200 bucks a month, that's pretty fixed. There's a, there's a fixed amount of revenue that you can expect. If you can grow a business and get a couple of roll ups, the sky's the limit. Got a phone call yesterday from a guy who wants to roll up a bunch of heating and air companies in Northern California. And he told me what his goals are. They're totally doable. It's just the amount of work and effort that you're willing to put in to get there.

So talk a little bit about appreciation in real estate versus appreciation in business. You touched on that with the by, by mentioning the fact that you can increase business but go a little bit more deeper into that.

Yeah, let's say that Jim, you've got a company that in service companies are really easy to explain. So I'm going to stick with a service company example. I buy Jim's company. Jim ran a good solid company, but what he didn't put in place was monthly reoccurring revenue. So if I can put in a stream of income to come off the monthly reoccurring revenue, that's a way for me to increase my income. So when you take a look at how many doors you have or how many properties you have, you start looking at like what are the things that I could charge for, what are the things that I can increase my rent? Right. What are the things that I can do to appreciate the value over time? I can do this inside of a business faster if I have the right people in place. Jim doesn't have add on sales, meaning the company doesn't go back and try to resell the client with another good or another product or another service. Jim doesn't have strategic partnerships with similar companies that do business before, during, after. And instead of him where he says let's do a list swap, Jim doesn't have a follow up process for the sales. So all those, those little tiny things start adding up to being multiples of revenue. And so yeah you, you can appreciate the value of the, the building, the home, the apartment complex over time with some of the upgrades and some of the way that the market moves. And if the mark moves, you're in the perfect direction and the stars align, you're going to hit a jackpot. It may be faster in a business because you can add to it quicker.

Let me add a little bit of context to that, Scott. For example, maybe I'm an apartment complex owner and I can charge for covered parking or the, or I could add a, a playground and family area and increase the rent to, to because people have access to more amenities. And in the, in the business context, one of the, one of the one that comes to my mind the most of course is software. Used to be, you would go down and buy a Microsoft Office product. You'd pay 120 bucks and that would be, then they'd come back and, and you, they would upgrade it like once or twice and then you'd have to go buy a new one. Nowadays if you want to buy, if you want Microsoft office, you pay 35 bucks a month, every month, forever. And it's automatically upgraded. The, it's called basically a subscription model. You can do the same thing in heating and air condition by having a, you know, a quarterly pay, paying a, a monthly fee for the, from, from, for my company to come by every quarter and check your system out, make sure it's working properly, make sure that it's up to snuff that you know when the seasons change. The, your heater will be ready to come on and work properly when it, when winter comes. And the same for air conditioning. So those are recurring revenue model type things. Anything else you Want to add to that, Scott?

Yeah. You know, here's the thing where you get to be creative, right? You, you can take the best of what happens from M and A or from a service business and see if there's a way as a side note to incorporate that into one of your properties.

Cool. Cool. Yeah, I didn't mean to interrupt you. Go ahead.

That's okay. Anything that you can do on a business on a subscription, private equity and private investors love because it's made money at the 1st, 5th or the 20th of every month. And the more people that you can have on automatic billing, the better off that it is, the less that you have accounts receivable. What makes a company super attractive is a high rate of monthly reoccurring revenue, a high rate of automatic bills and rebills, and a low amount of accounts receivable. Cool. Cool.

So what are the next steps to M and A success we're going to have. We, we will have recurring webinars on this. So if you registered for this, you'll automatically be on the list for the next web webinar. If you're really interested this reach out to Scott or myself. My, my email is jamesblakemore.com Scott, what is your email address?

I'm going to give you my direct line to the office if that's okay.

Sure, go ahead.

It's 808-364-9906. It's my direct line to my office. I check my phone every four hours. I work on a schedule of blocking time off so I don't answer my phone all day every day. So if you text that number, if you call that number, leave a message. I'll get back to you. It's 808-364-9906 and again, reach out to.

Us and we'll send you our investor checklist on how to, how to perform due diligence and, and make, and keep from making the mistakes that other people have made. Richard Keller. I like Richard's words. Working with this team completely transformed my approach to wealth building. In 18 months we've acquired two businesses that now generate 580k in annual passive income with less stress than my mental than his rental properties. And of course I've been put, put in there. I want to make sure one of the caveat is, you know what Richard's done is he's got automatic pilot businesses. These are businesses that are professionally managed. He, he paid a little bit more for a professionally managed business, but he doesn't have to take the worry Scott, like to add anything else.

You brought up a really good point. And I know I mentioned this couple of minutes ago. Let's say that you want to acquire a company and that like, hey, I'm super stoked. I want to do this. The key to making this work is talent. And the better the talent that you can bre. Bring in and that you can afford, the higher the probability that you're going to be more successful. Where I see people lose is they do this, they go, hey, Jim, I found this company and I needed an operator and I found the cheapest operator that I could find. Now you spent all that time, energy and effort to find the cheapest operator. I would completely flip it on its head and say, I want to find the most productive operator. And then I'm going to bonus them out on growth. I'm going to, I'm going to, I'm going to grease their greed gland. I'm going to say, hey, listen, if these metrics are hit, I'm willing to give you a small amount of equity in this company vested over time. So I find the right operator. I'm going to tell them, hey, listen, I'll give you one equity point on this deal. So one, one full share of equity. Excuse me, One full share of equity for every year that you hang on up to five. So you hang on for a year, you're going to get a 1-1% of the company. You hang on for five years, you get 5% of the company. There's a lot of different ways to structure, but think in terms of if I'm going to acquire a company, I'm going also going to acquire talent.

Perfect. Perfect. Ladies and gentlemen, thank you for your time this afternoon. Look forward to hearing from you again. My name is James Blakemore. My, my email is jamesblakemore.com. we've been with Scott Silvan Bell, noted M and a strategist and consultant. We would love to help you buy your next business. I hope everybody has a wonderful day. Take care and look forward to hearing from you. Bye bye for now.