Growing Through Acquisition And Positioning To Sell Your Business with Terry Lammers

For business owners, marketing execs, and anyone trying to grow your business, pump your profits and make more while doing less. Welcome to Bacon Wrapped Business with Brad Costanzo. Sizzling hot business advice guaranteed to make you fat profits.

Now here's your host, Brad Costanzo.

Alright, welcome back to Bacon Wrapped Business. This is Brad and today I'm talking about, as some of you loyal subscribers know, one of my favorite topics and that is the area of mergers, acquisitions, deal making, exits. And I've covered this topic on a handful of episodes in the past, or as we call them here on Bacon Wrap business episizzles because they are just way hotter than an average podcast episode. And this is near and dear to my heart because I have been on both sides of transactions of both buying a business and selling a business. I've been on the smaller side for some of them. And then in some of the deals that I work on in some of the other companies, I've got a few bigger seven figure acquisitions. And I've always found this to be one of the most exciting parts of business, which is finding people who either have assets that I can acquire instead of building from scratch. Because we all know how hard a startup is. It's as exciting as it is, it's very risky and it's very difficult. And if you can utilize your business acumen and marketing strategies and you step into a business, you can oftentimes get a great head start. And whether that's buying a business that you just want to run or growing your business through acquisitions or buying them as just a financial investment. And then on the flip side, where most entrepreneurs I know have made significant wealth is on the exit and disposition of an asset that they've spent years of their life working and honing and getting really good. And we are in an unprecedented time with the baby boom generation who's starting to retire. And there's a lot of business owners there and they're starting to need people to buy their companies. So this is a tremendous opportunity for people on both sides because there's a lot of buyers out there, there's a lot of sellers. However, there is not necessarily as much training and education on how to do this correctly and not get burned. Because as sexy of a strategy as it is, it is also fraught with things that you don't know that you don't know. And most entrepreneurs and business owners, you know, they get into the business to operate their business and to provide a service or a product or a good for somebody and they didn't get into the business to position it for sales and they didn't get into it to know what to do look for when they're going to buy something. So the more education I think we can all receive, yours truly included on this, the better we are. And that's why I invited Terry Lammers onto the podcast today. So Terry has got a great story. He grew up watching his parents run their own company in the fuel and lubricants industry and he eventually became a full time employee in the early 90s only to take over as the president of the company. And in just 18 years his company, Tri County Petroleum had purchased and grown through acquisition 11 different companies. And they've grown his family business from $750,000 in annual sales to over 40 million when the company was sold in 2010. And today he's a co founder and managing member of Innovative Business Advisors where he taps into his financial expertise and his hands on business experience to advise and guide both prospective business owners who are interested in buying as well as current business owners who are looking to sell their enterprises. And Terry also has a great book out called you'd Don't Know what yout Don't Know. And it's all about an in depth examination of the process of buying, growing and eventually selling a business. So Terry, welcome to Bacon Wrapped Business. It's pleasure to have you.

That's very flattering. Who's that guy?

Who is that fella? I don't know, I just made him up. So what's your story?

So interestingly we found out offline we grew up, I don't know, half an hour hour from. You know each other myself from Edwardsville, Illinois. You're from Highland. So we've got little regional history there.

You're right. I'm a Bulldog and you're a Tiger or what are they?

Edwardsville Tigers.

Edwardsville Tigers, that's right, Absolutely.

So your story fascinates me and I know that we can talk about there's two real sides of this, like playing the piano, left hand and right hand. So there's the acronym and then there's the disposition. Well and in the middle there's obviously the operation. On this conversation, I don't want to talk as much about the operation of a business unless it really adheres to operating your business in a way that sets you up correctly for a sale. And really, you know, we talked about this offline. There is the things that people do from like operating the business for cash flow and to increase profit. But then there's another way to operate your business so that you're hitting all these key performance indicators that allow you to eventually sell your business and not get steamrolled over some stupid mistakes that you've made. But I want to kind of follow this linearly. I want to talk a little bit more about the story you hinted at before in the oil and gas company and how you grew through acquisitions. I mean, three quarters of a million dollars in revenue to 40 million in revenue is just an amazing jump. And I'd love to hear a little bit more of that story about you starting as a employee with your folks fuel and lubricants business and how you got to the point where deciding that, yeah, we're going to buy some of our competition or somebody else in order to grow. So take me back there.

It truly was a wild ride. So, I mean, I grew up in a company. I was driving a gas truck when I was 13 years old. I came back to the company in 1991 and I jokingly say it was me, my mom and dad, we had two trucks and it was a good day if they both started. My starting salary was zero. I left the banking position with a credit card finance. So I've always been a financial person, but I knew we had an opportunity to buy another company and I knew if we bought that company, we'd put my dad's business back into black.

Now, was this company a competitor or they did something?

Yeah, it was like a friendly competitor, you know, so it was obviously small company, but just like you said, you bought a company 100% owner finance. That's exactly what we did. I mean, my dad, heck, I was only 21 years old and my dad's company wasn't bankable because it was in rough shape. But I knew this would put us back into black. And it's exactly what we did. And that was in 1992. And then, you know, you start out, you're working in a company, you're the doer, you know. And then in 1995, we bought another company, and then 19, I think it was 96 or 7, we bought another company and it just started steamrolling. And in the year 2000, we bought three companies in one year. And then after that, we were just on a roll.

How challenging was the integration process after purchasing the company? I know I've purchased a couple businesses and I actually thought it was going to be a lot simpler than it was. And this was probably just, to me, not leveraging the right resources. But when you go buy another company, closing the deal is only the very beginning, right now, you have to actually make sure it's integrated well, managed well, and how did you handle that?

So really, I think the key to that is, you know, so you're going back before email and all this other stuff, but we would send out a letter in the company that we acquired in their letterhead, in their envelope with a letter from them saying, hey, I chose to sell my business to this person because it's a fair deal for me and I'm retiring and I want you to give them a shot. And then we would have a letter behind that saying, you know, hey, we want to help you, blah, blah, blah. But, you know, the old 80, 20 rule where 80% of your business comes from 20% of your customers. You know, the key was confidentiality. And if we could get the deal done before anybody knew about it, and we could go around with that owner and hit those top 20 customers. 20% customers. We was very successful in converting and keeping about 95% of those customers because it was a deal where there's no contracts or anything in place. They get. They're free to go buy their fuel from somebody else that they want.

Did you absorb, like, it was one name or did you operate them independently? Was that another independently just owned company? You owned them, but they operated out of the same brand, or did you loop them in. Into your.

In our situation, we did. Every deal I've done was an asset purchase and looped them under our name. Okay. But the other key to it, I think, is, you know, there's. I mean, so we bought 11 different companies, but there's a lot of situations where you buy a company and you see issues going on. It's like, oh, my God, we got to change that. But don't do it right away. Give it a little bit of time. Let the customers get used to you. And a lot of times, you know, for us, it was about earning their trust. So, you know, we're in fuel and lubricants. So you got hoses, nozzles, filters, and maybe it was giving them a filter, putting a new hose on their tank or something to just show some good faith towards them. And that worked. You know, you just gotta be patient. Don't go in Blazing Saddles and, you know, trying to change everything right out of the gate because you're gonna offend them because they don't know what they don't know, and, you know, just gotta be a little bit slow.

Yeah. So on the. On all those deals, you said you always did asset purchases and did Were all the acquisitions, were those eventually then enveloped by the parent brand?

Yes.

Okay. And then were you typically buying. And this is, I mean I got a lot of ignorance of the fuel and lubricant market, as I'm sure most people do. But were you buying a lot of physical assets or were you buying like in essence customer lists and processes and things like that? Like, because there's a, you know, people think about the assets of a business and assets of a business are everything from your URL to your customer list to processes to IP, et cetera, et cetera.

It's almost 50, 50. There was situations where we strictly was buying a customer list. I mean it was literally 80% goodwill. The largest acquisition I had. So I would explain my company was we as a fuel business that sold lubricants. Lubricants business was growing and I needed new facilities. I was out, I was busting at the seams. So I bought a lubricants company that sold fuel and the facilities that he had for lubricants would probably, if I had to build it, it would probably cost about what I paid for the customer for the company. So I got the customers with it, you know, or there's other companies that I bought that put us a physical office or a bulk plant, which is a petroleum storage facility in a geographical area that we're not in. So that was a great way to expand that way also. And I don't know if you've ever seen a bulk plant before, but they're not glamorous assets and you know, and, but they're valuable if you're the one that's using them so you can buy them at, you know, we was buying them at a very much of a discount and getting the cash flow with the customers with them.

So right now where you end up having to take over the management of it or did you retain any of the existing managerial, whether it's the owner or the number two or three people, in order to kind of help continuity of it?

Absolutely. So I mean that was key because customers love the drivers and you know, when I sold the company, I had three former owners working for me yet.

Nice.

Yeah. I never bought a company that we let an employee go. I was very fortunate from that standpoint that especially office staff and stuff like that. We was.

Especially if you can buy it and keep the existing management on board for a while. I don't know if there was like maybe some of them have earn outs and whatnot.

I have and I've done, I've Bought businesses. Gosh, any way you can slice it. I mean, from 100% owner financing to 100% bank financing to a mixture of the both. I bought two companies that were distressed, and we paid them a percentage of the gross profit from what we got to keep the customers that transferred over. My fastest company ever bought was in three days. Found out about it on Wednesday and closed on Friday. I called them, found out about it, called them, and I said, hey, what's going on here? I heard some rumors and, like, closing the doors on Friday. I'm like, what are you doing with your customers? He said, telling them to go someplace else. I was like, hold the phone. I'll be right there.

I gave them 25% of the gross profit for one year for the customers that we kept. So I put that company in my computer system like a salesperson and printed them off a monthly report and wrote them a check, and it was a super fair deal. It was great for me.

They were just going to close.

Yeah, they're just going to close.

The profits for one year is like, that's just free money that they never would have gotten.

I did that in 2000, in the year 2000, and I still had, I bet, 95% of those customers in 2010 when I sold. That's beautiful. And it was all commercial accounts. So, I mean, if you're a business owner out there and you're wanting to grow your company, you have to consider acquisitions. It's a great way to grow your company.

Well, you know, and that's one of the other things, too, is that I kind of touched on this. You definitely drove the point home, is that you don't always have to. I mean, you buy assets. You don't have to buy an entire company. You don't have to buy even all of somebody's assets. You can sometimes buy a portion of their assets, especially. It all depends upon the situation that somebody's in if they're going out of business. Now you've got, like a yard sale. You can kind of pick and choose if you want, depending on the situation. But, yeah, buying somebody's distribution channels, maybe buying somebody's product or IP or just their customer list, et cetera, is huge. And you touched on this. One of my favorite topics. I could talk about creative deals all day. Like, that was a very creative deal. I love that. Were there any other kind of creative deals or creative structures that you did that kind of stand out as, like, man, that was a fun one to talk about.

I got one that was kind of Funny. Vandalia, Illinois. So you know where that's at. You remember that from your Edwardsville days?

I sure do.

About 40 miles down the interstate from Edwardsville, we bought Bowen Oil Company in Vandalia. And his competitor was right down the street. And it was a deal where they was friendly competitors. So I bought Bowen Oil Company and then Pioneer Oil Company down the street. Ron, oh my gosh, his name's escaping me, but Ron came up to me and he said, well, if you bought him, you're buying me too. And his facilities suck and mine are much better. So we'll work this out. We'll just combine the two companies. And those two guys were still working for me whenever I sold the company. But the way we did it, because I bought them like three months apart. So we worked out of Bone Oil Company's facilities for a while. I bought Ron's customers basically. But then about six months later I bought his real estate and we structured a deal with Pioneer Oil Company that my payments would be such until I paid off the Bowen acquisition. And then I would increase my payments to him to get him taken care of. And it was part bank financed. And so it was really kind of complicated. Simple but complicated. But the other thing that made it complicated in my situation is the working capital requirements to run an oil company are crazy because you have to pay for the fuel in 10 days. So that's your accounts payable days and your accounts receivable days run around say 27. So you get 17 days of funding there. So you know, if your sales are. So at the end of when I sold the company, you know, my sales were over $250,000 a day. So take that time. 17, that's a lot of money, you know, versus if your sales are $100,000 a day, you're doubling the thing. So that's something that I didn't know back then, which is really the basis of the book. You don't know what you don't know.

You don't know what you don't know. Right.

And it was just a struggle with banks and you know, even though your profitability is growing and everything else, I mean, we was sucking working capital like crazy. And until it got bigger, that was an issue. It was hard. I could paint you many a picture of a company that goes broke not because they're not profitable, but because they flat ran out of cash.

Yeah, that's one of the biggest business. I mean, one of the biggest issues in a lot of businesses that is often unreported, you don't hear about that when people are talking about and business interviews and articles and stuff like that. But I've got a lot of friends who just in the physical product e commerce business where they become a victim of their own success because you know, if you do 100 units or a thousand units this month and then you're growing to 2,000 units next month, I mean, you have to finance the inventory and there's that entire cash flow crunch that can just eat you alive if you don't know how to take care of that. I personally, and that is not my specialty in knowing how to solve those problems easily, I don't think there is an easy solution to that. Otherwise nobody would have the.

It's one of the things when I do public speaking that I talk extensively on. It's funny, I'm still friends with my banker from back then. And as the company was growing, and I mean some years we was growing 100% and he kept telling me, terry, you got to slow down. Terry, you got to slow down. And you know, at that age you're like, I don't know the meaning of the word, you know, full speed ahead and then the price of fuel is going up. And I mean, this is true. And he'll tell you because he remembers the exact number. On one day I was $750,000 overdrawn in my checkbook.

Oh, damn.

And they covered me. And he got a call from the CEO of the bank, which was in a different state, going, do you know this Terry Lammers guy?

He better be here.

Better than, well, yeah, those are stressful situations.

In most cases, in order to kind of COVID those cash flow crunches, was the right banking relationships really the most critical thing or did you go out and raise external funds or external.

So it was two things really. So one, the right banking relationship is absolutely critical. You know, I'd have been dead in the water if you wouldn't have stood behind me. But then what was the key to solving the problem? And it's another, you don't know. What you don't know is I always had a line of credit, but it was a specific amount. So say your line of credit is $500,000, but you're growing the company. So what solved the problem is when it put me on a borrowing based certificate. So a borrowing based certificate doesn't really give you a top line of what you can borrow, but it's basically you get your line of credit is based off of 50% of your inventory and say 75 or 80% of your accounts receivable. So now, especially in my case, the accounts receivable is really ramping up. At the end of the month, you fill out this borrowing based certificate that does say, you know, my inventory is $100,000 so I can have 50,000 borrowed against it. My accounts receivable is $100,000, so I can have 80,000 borrowed against that. So if my line isn't over 130,000, it's all good. So that's what solved my problem. But I never heard of a borrowing based certificate until they finally brought it up to me. And then you're like, want to thump them on the head? And it's like, why don't we do this three years ago? You know, I've been stressing about this the whole time and it is really crazy. And I think that's why it's important for growing businesses to have advisors. Because again, I don't want to, especially.

In this area, because this is not like when you go to start a business, I mean, you're thinking of product and market fit and pricing and operations and employees, and you're just trying to make sure that you can make enough money to keep the bills afloat. And it's, you know, it's really hard to know everything.

Right.

There's so many things you really do not know, and that's those things can, you know, bite you in the ass if you're not careful.

Absolutely. So I always called myself a big little company when we sold it, you know, but at $250,000 a day in sales, if my accounts receivable days went up by 2, so I'm not collecting my money as fast. And my accounts payable days went down by two, so I'm paying my bills faster. 250 times four is $1 million. That's a million dollars in cash. That poof is gone out of the company. And it has absolutely nothing to do with the profitability of the company. But if you can't fund that, you're sol.

Yeah, that's absolutely true. So grew the business grew through acquisitions. Question on that. Sourcing your competitors and now this. We can talk about this from just your experience in the, in that business, but we can. I mean, I know you've got a lot of experience past that. And this is one of the things that even selfishly I've got a business that we're going to be trying to acquire some of our competitors and roll up, et cetera. But when it comes to sourcing your competitors, sourcing Your acquisition targets in order to grow through. I would think that this can be pretty tricky because if you just approach somebody who's a competitor, and first of all, you got to get them open to talking to you and open to talking to you about potentially selling their business. And then, like, if you approached me and we're even slightly competitive, and you're like, yeah, now I want to buy your business, let's say we come up with a preliminary number that might make sense. I still think, well, how do I know you're not coming in here to just learn everything you can about my business and take off, right. And steal some of my trade secrets? So I could see it being a sensitive thing in order to grow through acquisitions. What insights do you have on that? Like, how did you. I mean, finding those. If they're competitors, that's not hard. You know who they are. But approaching them and getting them into those conversations, to where they felt open to having the conversations with you.

God, that is an excellent question. And smiling. I don't know if on the podcast they'll be able to see that, because I'm like, ah, I want to tell you, good. I called it planting the seed. So a couple different ways. One, if you're interested in acquiring other companies, put it out there. Tell your insurance agent. So in our situation, there was only a couple of insurance agencies that insured fuel companies. So by telling them, hey, I'm interested in growing by acquisition, a couple of my leads came from them saying, hey, you know, Sylvester Petroleum is interested in selling. But then I would also go around to my competitors, and if I wanted to buy them and just go in and introduce myself. I think business owners fall into the trap of, that's my competitor, he's my enemy. I'm not talking to him. And, hey, guess what? They're people, too. They're getting older. Just introduce yourself. So I called it planting a seed. I wouldn't go there and say, I want to buy your company. I just go there and introduce myself and say, you know, hey, I'm Terry. I'm withre County. Looks like you got a great business. If there's ever a chance for us to work together or you need something, give me a call. And that's your first touch. Now they know you. So then maybe next year you come and say, hey, just stop by Brad to say hi again. How you doing? And the next thing you know, it might lead to a cup of coffee. And the next conversation might be getting a phone call from them and saying, hey, let's Sit down and talk. I was kind of known in the area that we was buying up companies. And it's kind of funny. I had it when I sold at a company on the line that I was going to buy but ended up selling my company. But when I approached that guy just to stop in and again, plant the seed, I knew him from another acquisition. He goes, don't joke with me. I know you want to buy me out, so let's talk. But there is. There's just multiple ways. You know the company I told you about that we bought in three days, we found out from one of their customers. It's really just keeping your ears open. I'm working with a company right now in Washington State, and, you know, we're sending some letters to the. Just a nice letter that says, hey, it's from my company, Innovative, and it says, I have a company that's interested in acquiring companies like yours through acquisition. If you're interested, please give us a call. But again, it's planting that seed. I mean, you're a business owner. You've thought about selling companies. I think we all have as business owners. So maybe you get the letter and you don't think of it, but it's one of those things that kind of gets shoved in the drawer, and one day when they're upset or frustrated, they pull it out and they make a phone call.

Absolutely. So since you got out of this, of the oil business, the oil and lubricants business, I assume you're out. You said you sold everything, right? You sold it to really big company, like a $6 billion company. And what was the first thing you did after that? I don't mean like just the fun stuff. I mean, did you go out and like, buy another company in another market? Did you. Is this when you started consulting and advising or what was the.

You know, it's kind of funny. So owning a fuel company when fuel is $4 a gallon, like it was back in 2010, ain't fun. So after I sold it is like, I'm done. You know, I had to work for the company that bought me for six months. After that, I was done, hung around the house for three months, and my wife was like, you're going to get a job. So Regions Bank, a bank, asked me to come be a loan officer. And I was always kind of a finance guy, so that was kind of cool. They gave me a good salary and fair benefits, and I did that for three and a half years. In that timeframe, I kind of got my entrepreneurial Spirit back. And that's when we started Innovative and I got my CVA designation to value businesses. And that's how my situation, when I was frustrated with it, I had somebody value the business and they came up with a number and it's like, well, if you can sell it for that, let's do this. So that's basically I'm doing kind of how the path that I went down.

Let me back up a minute because this question just came up in my head. So when you sold your business, what was the structure of that? Obviously you're selling it to a big, sophisticated $6 billion business. I'm not asking you to. You don't have to reveal the dollar figures or numbers, anything super sensitive. But I'm just kind of curious on was that typically like an all cash deal? Was it cash plus maybe like public stock? Was it like, are you able to divulge any of that?

Yeah, absolutely. It was pretty much an all cash deal. They did hold back a significant almost seven figure number for one year or if I was done in six months just to keep my attention. There was no ties to it, but it keeps your attention, you know, just to help you transition the business over. But that I think, you know, it's just crazy. So I had bought 11 different companies. So I would say I'm a sophisticated buyer. I knew and my thought process all along was to build the thing up and sell it. So I had my ducks in order. I mean, I reviewed financial statements. All of my rolling equipment was all in line. We had signed lease equipment, signed lease agreements on all the stuff we had out in the field. We had our ducks in a row. So from the day we signed the letter of intent, we, we closed in six weeks. That's phenomenal. But basically Growmark was a cash buyer, so we didn't have to go down the whole, you know, they got to get their loan approved and all this and that. So it go very fast. They have their own acquisition department, so they have their own attorneys. I had my attorney who I really like and was very good so we could move quickly.

And it was a pretty clean transaction then.

Absolutely. So there was a confidentiality breach because I ended up, I told you offline. I sold it to nine different companies. Girlmark bought my lubricants division and then eight, they're cooperative and eight of their FS member companies bought my fuel side. And one of the brilliant managers sent an email to all their employees that they was buying us before the purchase agreement was even signed. So that got to be A little bit of an issue. Thank God it moved quickly, otherwise that would have been an issue. But yeah, I mean, kudos to them. They was really good people to deal with, and it helped me that had been through several acquisitions on the other side of the fence. So you learn how to kind of make those business judgment decisions. And I would tell your listeners, if you got somebody, you know, somebody's listening, they want to sell their business, don't let your attorney take over the deal. You've got to make business decisions during the thing. They're there to help you and protect you, but don't let them start and make decisions. You got to do things that make sense.

Who are some of the advisors you recommend having on your side when you kind of like your advisory team, both on the acquisition and the disposition side. So if I'm going out there trying to buy a business right now, whether it's growth through acquisition or just I want to buy a business to be in that business, can you list out kind of like, I mean, obviously yourself, this is one of the things you guys do at Innovative Business Advisors is you handle a lot of this. Maybe you can kind of COVID the, like the areas you handle and then the other players on the team that somebody should have, like whether it's an attorney, the right CPA and anybody else.

Yeah. So in the book that's kind of the middle of my book, I have a chapter on bankers, attorneys, CPAs, financial advisors. You know, on the buying side, one of the ways when I value a company I'm really big on, is it a bankable deal? So, you know, if I value your company at $5 million, can you put a. Make a reasonable down payment, go to a bank and have a good enough debt service coverage ratio? So basically, is there enough cash flow to pay for that business? I sadly have seen several instances where somebody bought the business for way too much money and they just struggled because they paid too much money for it and there's no cash flow there. So getting a correct valuation on the business is very important. Having the correct attorney is very important. But that's building your team. And, you know, maybe it involves a broker. I say as a broker or playing intermediary. Being an intermediary is if somebody wants to sell you. If somebody wants to buy but they don't know how to get the deal done. And so we're the in between. We do that for a much cheaper fee than just outright selling the company, where we have to go find the buyer, but anywhere from there. I play quarterback And I make sure you have the right financial advisor. I make sure you get the right cpa, make sure you get the right attorney. A classic error that I see is people go to their estate planning attorney, estate planning attorney to do an M and A transaction.

It's bad going to a podiatrist to do your surgery. Yeah.

So it is important to build your team, you know, And I'll be the first one to put my hand up. I didn't do it right a hundred percent. When I sold my company, I didn't tell my CPA because he was also a very large farmer and a customer. So I didn't want him to know. And, you know, at the time when I sold the company, I bet I didn't have $80,000 in investable assets. And the financial advisor you need with $80,000 in investable assets and over seven figures in investable assets is different. And I didn't understand the difference.

So you say when you went to sell your company, you didn't have the 80,000 in assets personally?

No, not assets, just investable income. So, you know.

Oh, yeah, yeah.

Invested in the market.

Gotcha.

I invested. Everything was tied up in my company.

Sure.

That's very typical of about 80% of the business owners they need. So this is a great point. If you're listening to this show and you're a business owner and you are planning on the sale of your company to fund your retirement, get your business valued. Because it just pains me when people come to me and they think their company is worth, say, 10 million, and then I tell them it's worth 5 million and it just blows up their retirement plan, you know, and that's 5 million before taxes. Because Uncle Bob told him this or that, you know, so it's just critically important to know the true value of your company.

Absolutely.

And how that fits in with your retirement plans.

Yeah. It is one of those big things that you don't want to be surprised by. So, like, get in there early, figure it out. Even if you're 10 years away or something like that, you know, figure it out. So, you know, not to be completely surprised. I've got a close friend of mine that I advise on some growth stuff, and he's thinking about selling his business. And it's almost the exact same thing. Like, he's got this concept that he thinks he could probably get 10 to 15 million for it. And realistically, he might be able to get six. That's a huge difference. Because he doesn't understand the way that valuations Work and the way exits work and how what you have. Everybody thinks their kids the prettiest. Right.

Well and you and I talked a little bit offline. You've interviewed John Warrilo before with the Value Builder system. Go to our website and you can take a Value builder question error. But the big thing about the Value Builder system, what I like is they talk about some non financial things that really not only can hurt the value of business but can outright make it unsellable. So it's sad. I mean I had a trucking logistics company that was cash flowing over half a million dollars a year. But the owner did absolutely everything. He dispatched all the trucks. Every customer called him, every employee went to him and you know you're going to attract a lot of buyers with that. But the bottom line was if you take him out of the business, there is no business. It proved to be an unsellable company.

Yeah, that reminds me of one of the recent episodes I just did was a guy named David Osborne. And for anybody in my listening to this, you can find that on the podcast. And David is in the real estate business, but he's the largest owner of Keller Williams franchises. He owns like 15 of those, et cetera. And his entire mission has always been how do I make myself the most insignificant person at my business through hiring, partnering, etc. With the right people. And that's really, I think any entrepreneur, business owner who's got an exit in mind, you have to find a way how do I make myself insignificant to the operations of this business? And you make the business infinitely more successful.

And that's a journey because I mean, believe me, when I first came back, like I told you, we had two trucks, it was a good day. They both started. I was every day I was the doer man, I was doing it. As it grew the company and got to the end, I had a management team in place. I had three operations managers and an office manager and they preferred it if I wasn't around. Just let them do it. So. But no, they did a fantastic job, but it takes time. It's about having enough cash flow that you can hire the right people. But eventually that was the ultimate thing. I focused on buying other companies and had the people in place to run mine.

Now, have you considered anytime recently besides just the advisory, are you acquiring anything right now at all or you know.

That'S kind of a hidden agenda behind Innovative is.

Yes, it should be. By the way, I advise you or I will buy you.

I am that hourglass that is always spinning on your computer screen. Right. I'm looking. So, yes, I am very interested in investing in other companies. And really, you know, my thought process is I wouldn't mind being a minority investor, but I have ways that. That would have to be set up. But, you know, so again, if you're a listener and you're thinking about buying a company is an excellent way to grow by acquisition. And there's a lot of the companies that I bought, you know, so when I bought them, I could add products immediately to the customers that they were serving. And it's important to understand the difference between a financial acquisition and a strategic acquisition. Or more importantly, a financial valuation and a strategic valuation. I talk about it in the book. It's one of the first chapters. Me and my accountant used to always butt heads because he would say, terry, you only pay for a company for the cash flow that it's generating. But I knew if I bought that company, I could eliminate, gosh, 40% of their operating expenses and improve their cost of goods sold because I have better buying power. So maybe from a financial valuation, I.

Don'T understand the strategic side of it as much.

Yeah, yeah. I mean, it's huge. And that's, that's where I think some business owners have a false realization. You hear of these huge multiples. Well, yeah, that happens because there was a very strategic operation. But, you know, if I'm an individual buying your company and I don't already have a company, that's going to be more of a financial acquisition and you're not going to get that huge multiple.

That's why the last business that I bought, that I was telling you about offline, it was a financial decision I wasn't even actually looking for. It stumbled across, it fell in my lap, and I had no strategic reason to buy this. It did not plug and play into any of my current ventures. But I got it for a reasonable price. And I was like, okay, this is something I think I could improve. But, yeah, I didn't give. I gave a much lower valuation on it because I didn't think I'd be able to just pull the trigger and double the revenues.

Yeah. So, I mean, two real quick examples. I mean, one, when growmark bought me, I was their largest competitor in Southern Illinois, hands down. I was a major thorn in their side. So it was good for me to go away. So that made me a prime strategic acquisition. And I had a lubricants packaging facility and they had just bought a lubricants blending facility and they wanted to get into Bulk oil business in southern Illinois. And by buying me, they not only have the facility, they get a half a million gallons in sales. I talk about in the book another deal. So the Highland exit and the Vandalia exit is 30 miles apart. In between is Greenville, Illinois. Very high area of customer concentration for me. There was a guy in Greenville that I bought that was just a small competitor, but he had a bulk plant, bulk storage facility, and he wanted about, I don't know, let's just say $100,000 more than what the company was really worth. But did I pay him that? You dang right I did, because I tore down the bulk plant. If he would have sold it to a competitor now, they could have had a facility right in the middle of an area that I was. Had a really high customer concentration. But if I bought him, even though if I, you know, from a financial valuation perspective, I was paying too much for him, but he was a single operator. I was going to be eliminating, gosh, 90% of his operating expenses. So it was still a good acquisition. And it was good to eliminate not, you know, he was a small competitor in my area, but eliminate the possibility of a larger competitor coming in and taking over his facility right now.

And that's the right type of thinking. That's that strategic thinking and thinking from a 360 degree, not just like one. Does it make financial sense off the most obvious path or not? I mean, that's why deal makers and people who acquire and dispose businesses, etc. This is one of the things I think is so sexy as a, you know, in business is just because there's a lot of different approaches you can utilize to find leverage.

Yeah. So another piece of advice I'd give your listeners is again, if you're getting into the acquisition mode at the beginning, it's very frustrating with banks because when you're acquiring a company, they don't want to look at that company's cash flow as far as paying off the loan. They want to look at your business's existing cash flow. So that was a little bit of an obstacle when we grew to the size where, say I'm buying a company for half a million dollars, where the cash flow from my existing business could make that loan payment without any income from the company that you was buying. As crazy as that sounds, that's when it really took off. And I mean, that's where we could start doing an acquisition almost every year. Yep. So to repeat that, when the cash flow of your company can pay for the loan payments of the company that you're acquiring without any income from that company, that's when you're really going to be in the driver's seat. But then the other side of that, too, is have conversations with your banker. It's important that your banker knows what you're gonna do. Just like anybody, you don't like surprises. So I'd sit down with my bank. Towards the end, I use two of them and tell them exactly what my intentions were. What, you know, I plan on buying this truck. I'm planning on trying to buy this company. And that way they could help you. They're anticipating what's coming and can really, if they got a red flag, throw it up before you get in the middle of a negotiation that you can't do right now.

You brought us something that I knew this, but it was in the back of my mind, and it was a great reminder, which is that. And this is not for a strategic acquisition, like, let's just say you want to just go buy a business. You want to be in that business. I want to buy a manufacturing business or whatever it is, and I plan on getting a bank loan. Yeah, you can't really rely on saying, oh, well, look how much money this business that I'm going to buy makes. Obviously, that's how I'm going to pay for the business. The banks don't really like that. So if you're giving advice to somebody who is more of a, I just want to get into that business and acquire that, and they're thinking about going the traditional bank route, et cetera. Are there any ways around that if they're not coming out with fat cash to take care of their loan payments, et cetera, and they're hoping that that business does. Is there any other way around that that they should be starting to consider to help make it go smoother?

Yeah. I mean, all situations are different. So it's not a deal killer.

I would have a lot of creative ways to do it.

Yeah. I mean, I would have bankers cringing. If you right now if I said that, you know, you have to have your own cash flow before you can buy another company. But what's the longevity of that company? What's the consistency of that cash flow? Do you know the business? What's your experience if you're going into this line? But more importantly, and I talk about it in the book, about your bankability. All loans boil down to two things. What's my collateral and what's my cash flow? And do those meet. So if you ain't gonna Pay me back. What can I take to cover my butt from the banker's perspective? And it was really as painful as to work at a bank for three and a half years. Because, man, in business, you should learn to say no to certain types of customers. Well, banks are really good at it. But it's interesting, it was very interesting to learn how they think of things on the other side of the fence. And they're gonna look at, do you have contracts with your. And they're gonna look at a lot of things that you should look at before buying. You know, do you have contracts with your customers? You know, what's the income trend of that company over the last five years? What's the future of it look like? What's the management of it look like? And then, you know, the level of scrutiny is obviously going to go up with a dollar amount absolutely pushing gears.

Just out of personal curiosity of your personal preferences. If you were just going to go, if you weren't doing all the advising and you were just going to go get into a business right now and look to acquire it, et cetera. Are there any industries, verticals, types of criteria you would personally look at if you were going to buy it? And not just buy it for a super minority, just kind of advise or whatever, but if you're going to go buy it. So for instance, would it be like maybe another industrial based company? Would it be.

I love your questions. I'm going to answer in two words. Recurring revenue.

Yes, sir.

Does the company have recurring revenue? You know, I laugh because it started innovative and then for the most part we're a brokerage company. That's a terrible idea. Once you sell the company. Now I got to go find another one to sell. So if you think about my fuel business, and we serviced a number of industries, trucking, farming, manufacturing, but let's just use farmers, for example. Every year farmers are going to farm. That's recurring revenue. Every year your municipalities are going to run fire trucks and ambulances and police cars. That's recurring revenue. You know, insurance companies sell for a higher multiple because that's recurring revenue. CPA firms, you got to do your taxes. That's recurring revenue. I like to use an H Vac company as an example. If you're an H Vac company that strictly does new construction, you're not going to fetch a higher value. As an H Vac company that does mostly repair work and you have service agreements with your clients, going subscription repair.

Pay X amount a month and call me when you want. Yeah. And then do you also look for. I mean, this is a loaded question because I know the answer is yes, which is a business that maybe doesn't have recurring revenue, but they could with a few tweaks, because that's a tremendous value add. It's like, oh, wow, I'm going to come.

Well, yeah. So that is the beauty of acquisitions. If you just brought the acquisition, the acquirer to another level. If you can.

What I do here, bacon rap business.

If you can see things that the other person doesn't see, man, you can get some tremendous value.

Yep. Now that's awesome. Now, what does it look like to work with innovative business advisors? So obviously, I mean, tell me a little bit more about your company and the services you provide. You've been great on telling us about just general knowledge, but I mean, you got into this business for a couple reasons. One is to help other entrepreneurs, business owners and people navigate this world, whether it's acquiring. Right. You help people acquire and grow through acquisition or to exit. And obviously, if there's anything that's amazing and in your wheelhouse, you have the experience and knowledge to acquire it for them with them, et cetera. Which is a great thing to have, by the way. Like, if I had an advisor who's helping me on this stuff, but if he didn't have the confidence or wherewithal to actually buy my business or something like that himself, I might be like, I want somebody who actually could, because you never know. But what's it look like to work with you? Like, can we get acquisition and exit side?

We can certainly help people acquire businesses and typically we do that on a monthly retainer. What I would tell you is it is really the ideal person for us to work on the acquisition side. You know, they come to me and I want to buy other companies is let's just use our H Vac company again. I want to buy an hvac, another H Vac company, so I know who to go look for. The ones that are time killers for us is somebody that comes to me from a corporate job and says, I want to buy a business. Yeah.

Most of our clients are on the sell side. It's nice when you get a client that has a Runway in front of them so they're not looking to sell in the next six months. I'm working with a company right now. They came to me and the owner got sick and they're like, if we don't sell it in three months, we're closing it down. Yeah, that really limits your options in a perfect situation. I Would say it starts with evaluation. You know, we value the company. Who's your financial representative? If you don't have one, I'll introduce you. And what's your number? You know, what do you need to retire out of this business and meet your financial goals? So if we value the company and it's at a number that meets that goal, then you go down the brokerage side. If we value the company, it doesn't meet your goal. Then let's take you down the coaching side and let's build this thing up. I got a coaching client that I'm working with right now that they isn't going to make their retirement goal. It's like, man, you're 50 and you ain't going to be there by 60 the way you're going. So we help them. They would just as of last Friday, they opened up another shop. You know, so that's a perfect idea. But obviously you do get. People come to you and say, I would like to sell sooner than later. And we help them, you know, we do the marketing, we put it together, we play quarterback. We make sure that they got the right attorney, that their CPA is on board, that they got a financial advisor to help with structuring the deal. So here's some my two mantras with your company. It's not about sales and net income. It's about gross profit and cash flow. And when you go to sell your company, it's not what you sell your company for, it's what you keep net of taxes. Those are two hugely different things. So I just get so frustrated when somebody comes in is like, my sales are up a half million dollars this year. Well, who cares? Did you make any more money?

Were your expenses up half a million in one?

Exactly. So then, same way with selling your company. I mean, I could paint you dozens of scenarios where there may be a half million dollars difference in purchase price. You know, what are you getting? Net of taxes. And it's the first. I don't know. I used a book coach to write my book, and they call it the first first page. The first, first page of my book is me buying a company that the two CPAs were at odds because it was all over the allocation of the assets. You know, so you establish a purchase price and then you have to allocate that to the assets that you're buying. And whether it's goodwill or towards equipment can have huge tax implications. You know, it was gonna cost my seller over a hundred grand the way I had to have it. But that's the way I had to have it, you know, but that can cause a lot of heartburn. Those are big deals. So helping them sell the business, we got intimate knowledge and bankers, attorneys, financial advisors. We help you not to beat a dead horse, but you know, you don't know what you don't know. Right. So if you haven't been through it, trust me, I'll guide you through it. And all those awkward questions that come up, like he wants to see a customer list now he wants to know if there's customer concentration. So this is what we'll show him. I had a phone call this morning. We gosh, it's a company for close to $8 million. We're going through due diligence and I was just. There's some things I wrote on the due diligence list that you don't need to know that right now. Not until we're closer, not until we know the financing place, you know, maybe not until the purchase agreement signs and we're 30 days. It's all those funny questions.

Yep, those are important. Those questions are what really make or break a deal. And the entrepreneur, the business owner shouldn't feel bad about not knowing the answers because they've done well from putting the pieces in place to actually build their actual business. And now when it's time to either dispose or buy one, it's kind of time to defer to experts.

This meeting this morning, I mean due diligence questions are critically important to buying a company. I knew what to ask when I was buying other oil companies. I post the oil company, I bought a property management company. They didn't know what questions to ask. And we got burnt on a lot of things. You know, the computers were shot, the employees were trained on this computer software, the phone system was shot. They didn't know the right questions to ask. You know another, we talked about non financial things that can affect the value of the company. This conversation this morning for selling this company, there's trucking involved and there was some huge dot red flags that got thrown up just for way we initially answered due diligence questions. Thankfully it all worked out because this is a larger company for us to sell. But you know, had they not been compliant on these dot issues, it could have completely killed the deal.

Yep. The devil's in the details, isn't it?

Absolutely.

So speaking of questions, what is in your business right now? Obviously there's a lot of things that you're trying to do. Obviously you'd love to get more clients and things like that. That's the obvious stuff. Are there any particular nuts you're trying to crack in terms of, let's say it's an initiative you're trying to pursue, a problem you're trying to solve, a person you're trying to meet, a skill you're trying to learn. Anything of that nature that allows me or my audience to open our mind and be able to give back to you and help you out. Like it could be really anything.

So what's interesting, and actually you are asking some great questions. So I told you brokerage, non recurring revenue. So there's a lot of people out there that would pay, let's just say $500 a month to learn about finances, but they can't afford $2,500 a month. So I'm interested in knowing from your listeners or from you, the thought process is to create kind of like little mastermind groups and charge a fee around $500 a month. And then we would meet monthly. And then what I'm gonna provide you is the knowledge of knowing how to run your business from a financial perspective and teach you 10 or so key performance indicators, financial ratios, call them what you want, which will be a dashboard that if you know those, and I can teach you 10 things, you're gonna have a pretty good pulse of how your company is running. And we'll teach you what your bankability is, you know, what your debt service coverage ratio is, what's your accounts receivable days, payable days, inventory days. You know, how does that relate to your cash flow margin versus your gross profit margin? And those are all just crucially important things to know versus just being a checkbook manager. So for me, selfishly, I guess that helps me create recurring revenue in the business. And I guarantee you it'd be worth the money. But it would have to be a confidential, intimate group, say just five people, and work with them on a monthly basis to really help them build their financial statements in a readable manner to help them manage their business.

Yeah, no, I know there is. That's definitely a hot topic. I've got a friend and former guest on the show who's done some live events on this. I don't know if he's added a virtual thing, but it's called like Know youw Numbers. And it was like a one or two day workshop. I think it was a one day workshop. It wasn't like necessarily ongoing and it didn't necessarily focus on a result such as selling your business or getting it with certain KPIs. But I know that it was a well attended, heavily interested event because especially as you start to get successful and you know, sales are getting taken care of everything else but you look and you see that everything is just a mess and you don't really know what. Yeah, I mean, you're focused on the wrong KPIs. And I think that.

In order to do that there's going to be kind of two types of people. The ones who know they need that help and they're like, yeah, I just need to figure this stuff out because I know I'm woefully ignorant of it and I know I need to know it. And then there's the other people who don't necessarily.

They don't realize they've got that issue yet, but they should and I think kind of appealing to their like, listen, when you're ready to kind of step into the real business owner role and not just the business operator.

And not the chocolate manager.

Yeah, exactly.

The one client I had, you know, he was like dang banker. He don't know what he's talking about. You know, I talked to that guy, blah, you know, and it's like, no, dude, you're unbankable. And this is why. And you know, and we got him fixed, you know, we straightened it out. The other thing I would tell you that would be interesting is I do definitely want to get into this public speaking realm a little bit more. That was kind of another point of publishing the book. So if you have a group of people, I do a couple different talks. One on valuation, what's it worth? But then I think another one that's really cool is we look at it from a strategic valuation. So what does it look like strategically to buy this company? And then I run through some scenarios of talking about non financial things. Say you're approaching buying three different companies and this company runs itself, they all got the same cash flow, but. But this company runs this way, this company runs this way and this company runs this way. So think about that from a non financial perspective of which company would you buy? And then kind of the reverse psychology of it is if you're a business owner and you're gonna eventually sell your business, are you running it in a way that will make it sellable?

Right.

So that's great.

Yeah. I mean this topic I think would be tremendous on the public speaking circuit. And I got a handful of resources I'm happy to point you to. From some things that have worked both for me, for some of my clients and even business partners. We can Kind of talk about that and yeah, the whole kind of mastermind and financial model, I think that'd be the way I would do that personally. I would go to your existing database and contacts of people there and either offer to host a one to three hour zoom webinar where you're kind of going over it, or just do kind of an in person meetup where you're really just kind of going over those 10 metrics and whatnot, make that offer. Because you never know, I mean, you might get more than five. You could definitely get 50 people interested in that. And I think that it is so critically important, people need to do it. And I don't think that's offered really enough. You don't just stumble across that offer out there for people very often.

One of my clients, she tells me every month, she's like, Terry, I looked for years for somebody to help me run my business. They have a diesel repair shop and they're very good at running their shop but nobody's ever taught them how to run their business, you know, so I don't know. It's cool stuff. People hate finance, but you know, there's a way to get through it that can be fun and it ain't rocket science, you know, I'm not teaching now. Take a gallbladder out. We're just putting some simple checks and measures in place to make, to keep you bankable and understand, you know, what the cash flow of your company is doing and ways to think about it.

Yeah, I love it. So if folks want to find out more about you, get a hold of you, get your book, what are some links that we can add to the show notes and that they can rush off of and say, alright, I got to learn more about what Olteri has to say.

Yeah. So our website is www.innovativebaboyapple.com. you can find me on LinkedIn. If you go to the media tab on our website, you'll see a lot of business articles and other podcasts and video of me speaking. So there's quite a bit of information there. I would encourage any business owner to, there's a tab there to take the Value builder questionnaire. That's a great thing to do, doesn't cost you anything and be happy to reach out to you and talk with you. I've got a good presence on LinkedIn so you can find me there. I'm not a Twitter guy, but I know I'm out there because I got a social media person that puts stuff out there. So you know, my phone Number I'm not afraid to give it out is 618-530-8922. Happy to talk to anybody.

Fantastic. Well, Terry, I really appreciate you coming on the show today. It has been a lot of fun for me personally. I assume it's been fun for everybody still listening, but honestly, I don't care because I had so much fun that even if they weren't listening, I would have enjoyed having this conversation with you, especially a much Midwestern boy like yourself.

I can't believe you told me he was from Eversville. I was like, holy cow. It's crazy.

What year did you graduate high school?

87.

All right, I'm 92, so I was just right behind you, but man, not too far. I know. Well, thanks again for being a guest on Bacon Wrap Business, and I look forward to staying in touch with you, Terry. And who knows? Maybe we'll do business someday together.

Yeah, let's do it again.

Okay, this episode is almost done, but our time together doesn't have to end. At least not yet. Subscribe to the show so you don't miss the next episode and head on over to baconrapbusiness.com where you can find more bonus material. And you can leave me a voice message with your question. If it's good, I'll read it on the air. And if you have a business problem you'd like my brain on, send me an email to ask bradacon wrapped business dot com. Tell me more and I might be able to give you a second opinion on what's keeping you stuck. See you on the next episode.