Carl Allen — How To Buy Businesses With Other People's Money

Boom, boom, boom, boom, boom, boom.

What's up, everybody? You're listening to the Hustle and Flowchart podcast with your boys, Matt Wolf and Joe Fear.

Hey. Hey, girlfriend.

Welcome back.

How you doing?

I'm doing good.

Cool. Me too. It was an early morning for us today.

Today.

Well, yes, for this episode we're about to record.

We did record this episode early in our morning.

You're looking at me like what it was.

No, but our listeners don't know when these are recorded.

This is a behind the scenes look right now. All right.

This was recorded probably two weeks ago.

That's very true. Yes. Today, who do we have on the show?

So today we've got Carl Allen on the show. And this was a really fun one because it was. It's sort of a throwback to when we were talking to Brad Costanzo about buying and selling businesses.

A lot of what Brad learned about buying and selling businesses was. Came from a discussion he had with Carl Allen. And so Brad connects us with Carl Allen and. And we kind of went back and forth with Carl for months and months getting. Trying to get this podcast scheduled. And we're so happy we finally were able to because it was fricking amazing.

Now, Carl is a brilliant businessman. He's a. He's buying and selling businesses using very interesting structures that he lines out on this podcast. And what's really cool is don't check out because I'm saying buying and sell business because literally anybody can do this, right? His big thing is no money down high leverage, get getting creative, but not anything over your head. That's what's really cool. It's very simple, simple tactics, but you just have to understand them.

We really hammered on that fact too. We really kind of dug deep on what if somebody's still working in a day job and they have very minimal money to go and buy a business? How do we get into that? And we kind of drilled in on questions like that to figure out how. Like the lowest barrier of entry. So anybody can go anywhere and buy businesses and get involved in entrepreneurship through leverage, buyouts, or basically buying without using your own money. And he gave some really, really, really great tips and tools and advice to go get involved in buying businesses. And anybody can do this. So again, like Joe said, do not check out because we're talking about buying and selling businesses. Cause we're literally talking to you. Yes, you, Mike. I'm talking to you, Mike.

Yeah, you're pointing. You're pointing at the corner. Where's Mike? I don't know.

I'm assuming there's somebody listening right now named Mike going, holy shit, Am.

He knows I'm listening.

Yeah. So it's amazing. I really wish this was kind of how we started our business venture, but we can't go on time, back in time. But this is a great way to get your feet wet on something in a very creative way and pretty much start business now. And got to give a shout out to our peeps at G and M. I mean, our very smart apprentice peeps over there. Uh, you might have heard the. The podcast we did recently with mo Abbas of GenM. He's amazing. He's the founder of GenM and he broke down why it's so great. But essentially, it's a massive marketplace. It's really a training center, I would call it, where it's like, really, you have the opportunity to bring on some very skilled marketing apprentices for your business. Any role you can really think of with marketing, they can cover it. You can go check it out on the website. We'll give you a URL in a sec. But basically, you're essentially a mentor to these folks. But in exchange, you're getting a very, very, very, very, very cheap apprentice that you are assisting while they're, let's say, inexpensive. Inexpensive. What did I say? Cheap.

I don't like the word cheap.

I don't like cheap. Sorry about that. Not cheap, but it's essentially an amazing, amazing opportunity for every business owner. Again, even if you're starting out from scratch, GNM is amazing. And we have a killer deal for. For you. It's already cheap enough. It's 50 bucks a month, but we're giving you 10 bucks off if you go to evergreenprofits.com ginm G E N M G E N M. Yes.

All right.

Go there and now. Now let's go talk about how we can buy and sell businesses using other people's money with Carl Allen.

Hey, Carl, how you doing?

Hey. I'm good, thank you.

Awesome, man. Well, thanks for hopping on the show. I know we tried a few times here, and thanks for having me. For sure. This is going to be a fun one. You're a buddy of Brackostanzo. Business partner, friend of ours. And yeah, he said so many good things about you, but just nice. I mean, maybe he did. I don't know. Just saying that. No, no. But just the way that you think about business and the creative kind of lateral thinking is what intrigues us the most, Matt and I, and I think that's what maybe hooked Brad too, with just how you think about business, buying and selling.

Yeah, yeah. I think the last couple times we had Brad on the show, we talked with him specifically about buying and selling businesses, and he probably passed off all of your ideas as his own.

We'll get them straight from your mouth this time.

Yeah, absolutely.

I'm just kidding, Brad. I know you're probably listening.

Oh, he's definitely listening. So give us a little background, a little landscape. What have you done in the past? I know you've done a bunch of deals, you've been in the game for quite a bit of years now. Kind of catch us up here.

Yeah, so I'm kind of in my. Kind of in my third career, I would say. All within the kind of art and science of dealmaking. So my first career, which is from 1992 to 2008, I was a corporate mergers and acquisitions professional. So I started off on Wall Street. I worked for bank of America, did lots of M and A in the industrial and the technology space. And then I left that. I went to business school in Chicago, bit of private equity work, but then I ended up at Hewlett Packard. So I was one of HP's M&A guys flying all over the world doing deals. And that career ended abruptly on the 1st of February 2008 because I was in Moscow with the HP senior guys. We were closing a deal. I was in a boardroom in the middle of Moscow and my wife calls me, who's 36 weeks pregnant, to say, hey, I'm in an ambulance going to the ER to have our son. You need to get your butt back to the uk. I was living in Manchester, England at the time, close to where I live now. So I ran out of the boardroom. Luckily I had my phone, my wallet and my passport on me and I flagged down a cab in the middle of Moscow, which is not the easiest thing to do, let me tell you. I managed to get back. I got into the hospital about five minutes before my son Josh popped out. And I'm sat there cradling him in my arms and I thought, you know what? I'm done, I'm going to retire. I was 37 at the time. I'd been very successful doing M and A, so I retired and I lasted about three weeks. I just packaged. Whilst it was great to spend some time with my new baby son and do all that stuff.

My brain wanted the kind of intensity of doing deals. And I kind of had two criteria at the time. One was I really was a one trick pony My skill set, which is a very weird skill set, was the ability to buy and sell companies. But secondly, I didn't want to work for anybody anymore. I wanted to be my own. I wanted to be an entrepreneur. So I decided to buy and sell businesses on my own. And so I started doing that in 2008, some really good deals. And then so that was kind of career too. And I still do that today. I'm buying. I probably buy a business about every three months. I've got 17 different businesses that I own all or part of in the us, Australia, Europe, and kind of career. Three started about two and a half years ago because people were just, I was inundated by people saying, you know, hey, you've got the skill set. We want to know how you do what you do, how do you buy a business, a good business, without spending your own money, investing your own money and then how do you grow it and how do you sell it and make a big return? So I decided it was kind of quite foolish at the time, but it's worked out. I decided to build an online coaching academy and there's about 1500 people in it now all over the world that I'm coaching and mentoring to basically leverage my proprietary system. So I have a 10 step system of how to find and buy a business using other people's money to acquire it, and then how to grow it and how to sell it when you're ready. So that brings us kind of up to the present day. I'm off on my semiannual tour where I go around, I look at all my businesses and I spend time with my partners and some of the other investors that I work with. And that starts in 36 hours.

4Am on Thursday and I'm flying out to San Francisco.

Man. Happy we caught you in time.

Absolutely.

That's actually pretty cool that you go around and do a tour. Is that an annual thing you said?

I typically do it twice a year. Um, I do an annual jaunt around North America. So on this trip I'm going to San Francisco, Louisiana, San Diego, New Jersey, West Palm Beach, Orlando and Baltimore. And then my other trip is I have some stuff going on down under, so in Singapore and also in Australia.

Very cool. Now you mentioned you had. So that tour, that's you going around to all the various businesses you own or is that like a teaching tour?

No, it's not a teaching tour. I don't teach this stuff live. I just don't have the time. It's all in my virtual online academy. So I did the blood, sweat and tears of building that system and people can go in and do the training and the work inside of that. So this is me going and seeing my businesses.

What's unique about me is I'm what we call an owner investor. So I'm not an owner manager. I don't buy a business and then go in and run it day to day. Even the NINJA Coaching Academy, I have a CEO that runs that business for me on a daily basis. So I work more on my businesses, not in my businesses. So I typically spend a full day in each business once a year just to look at strategy and to look at planning and key initiatives. And then I just have a simplified kind of weekly check in from about 30 minutes just to make sure that the business is on track.

Oh, I love it. Yeah, we're going to have to definitely dive into some of your systems around that because you're kind of where we want to be. I think Joe and I, we want to get to a point where our podcast is the only thing that we kind of have to do consistently and everything else is kind of running itself. So I'm looking forward to diving down that. But before we do, I'm curious. You mentioned you have 17 businesses.

Do you.

Are they all in a, like a specific style of business or are they very diverse? What kind of businesses are they?

Yeah, so I'm fairly sector agnostic, although I typically, I don't do things in construction, I don't do things that are real estate backed and I don't do things in kind of it, which is a shame because I love it. And that's where I was brought up as a corporate M and a guy. The problem with an IT deal is to do so the deals I do. The Wall street term is called a leveraged buyout and I did loads and loads of those back in the day. So a leveraged buyout is basically you're buying a business using other people's money and to do that, the business needs to have assets and IT needs to have cash flows, one or the other, or ideally both. The problem with technology businesses is there's no assets. Most of them are cloud based businesses. Now the software as a service. So, you know, people pay monthly with credit cards and all that different stuff. So those deals are very hard to do through an lbo.

Most of my deals are either in professional services, you know, engineering, manufacturing or heavy industry. But what's more important to me is not the sector, but the owner that I'm buying the business off. So that's the key filter for me. And what I normally do is I'm looking to buy a good business from a seller that is distressed. So not the other way around. A lot of deals that you look at the good sellers of distressed businesses, you don't want to buy those businesses because you're just inheriting headaches. I want to buy a good business that can function without the owner being there and it's got cash flows and it's growing. But the seller for some reason is highly motivated to exit. Primarily, it's retirement, especially in America. There's over 2 million businesses for sale today, just in the USA alone. And what's driving that is according to the Wall street journal, there are 10,000 baby boomers retiring every single day and 19% of them own a small business. So there's an epidemic in America that you've got all these boomers that want to retire from their businesses. Their sons and daughters don't want to take them over anymore because they want to go to college and be consultants and lawyers and bankers and doctors and so on. So they don't have an exit strategy and they don't want to sell to a competitor. So there's only three ways you can sell a business. You can sell it to another business, you can sell it to a private equity firm, or you can sell it to an individual like me through a leverage buyout. Most sellers don't want to go down the private equity route because they're tied up in legal knots that they don't want to have. And as well, most small business owners, they don't want to sell to a competitor because that competitor is likely going to either a rip that business up once they've bought it and asset strip it, or they can damage the business in the market pre closing. And I've seen that done so many times. So a big part of our USP is we're buying businesses from distressed owners, not distressed businesses, distressed owners. And they're more concerned about the continuation of their legacy. So their brand, the culture in the business, safeguarding their employees, safeguarding their customers and their partners, they're more interested in that than just selling out to the highest bidder. About 79% of them actually are in that bracket, the 21% that just want to sell for the money. We filter those guys out pretty quickly. So that's really where my focus is. It's finding those guys. And a big part of my proprietary system is doing the deal origination to find those opportunities, build the relationships and the rapport with those people and then structuring no cash down deals that are still a win win for both sides.

Wow, that's pretty dang amazing. There's a lot to unpack there.

So I'm curious, so with such a high supply of businesses out there that are sort of available with distressed owners, how do you sift through them? How do you sort and filter and pick a handful of businesses to pursue?

Yeah, so that's a great question. And that's the number one question. It's actually the first step that I take all of my entrepreneurs through in my online academy. So the perfect LBO is a triad. It's a triad of three different criteria. So the first one is you need to pick a business in a sector that resonates with you. It's got some strategic fit. So if you're an entrepreneur, you've either worked in that sector, you know that sector really well, you can have a deeper, meaningful conversation about it. You can build rapport with a business owner, you can build rapport with a financier, and you've got a network that you can leverage into the deal and into the business once you've bought it. So that's the first filter. The second filter then is all about the distressed seller mindset. And the perfect analogy for that is you can have two businesses that are identical. They do the same thing, they've got the same revenues, the same cash flows, the same balance sheet. One's owned by a 30 year old entrepreneur that's having a lot of fun. The other one's owned by a 62 year old retiree. The valuations of those businesses will be drastically different. So we're obviously finding the latter. So that's the second filter. We want a business owner that is highly motivated to exit. They either want to retire, they could be sick, they could be dying in some cases. Got a great case study that I can share with you later about one of my first deals that I bought off a guy that, who he wasn't dying but his wife was, she had terminal cancer and he literally, he gave me 75% of his business for a dollar. I just took it on, grew it and then sold it. It was a great deal. And also, you know, a lot of older business owners, they've kind of run out of ideas. They built their businesses in the 70s and 80s and they're not leveraging a lot of new social media and marketing tools and strategies. So we're really looking for businesses that we can affect, that we can grow, we can make a difference. So that's kind of point two of the triad. The third point of the triad for the perfect LBO deal is as I alluded to at the start of the call, you know, we want to see a business that's got assets and cash flows. We use the assets to generate a closing payment to take the seller out of the business. And then we're really using the cash flows to service the borrowing on that deal.

And you come in with the higher value, the connections, the, the spunk, you know, all the new operator. And that is the, that's the value you're bringing to that company. It sounds like, yeah, absolutely.

And a lot of these businesses that you see, there's two common traits. The first one is when you start talking to them.

The very first question you ask a business owner is, why do you want to sell? And then once they've answered that, the second question that I always ask is, so how do you win new business? What's your marketing strategy? And nine times out of 10, they'll come back and they'll say, well, this is what's great about my business call. We don't do any marketing. It's all word of mouth referrals and repeat customers. So I know when I get in there and I put my marketing team in and my marketing tools to take that business up a level, then the business is only going to grow.

So that's one of the key things that I typically look at. Where's the upside? Because to do an lbo, you're buying it effectively for zero of your own capital, you're borrowing money, and then really you've got to grow the business and grow the valuation to be able to profit from that. So that's one of the key things that we definitely look at.

Got it. Yeah. I mean, it's similar to the deal that Matt and I did with Brad Costanzo in the beer space is here's an asset that had a lot of potential. It just needed some marketing power. It needed some brains like ours to essentially boost it up. And that's, that's kind of the, the mindset we had going into it. We're like, well, marketing is not going to hurt. This thing can only go up. It's got a lot of stuff going good so far. It just, you know, there's stuff lacking. So that's where we kind of stepped in. I think we used a similar model to the no Money Down. You might have taught that to Brad. And we actually, yeah, we ended up actually using it. I wouldn't say against Brad but in that scenario, you know, to get into.

That business, Brad basically taught us how to buy businesses no money down. And then we essentially turned around and bought into a business that he bought for no money down.

Right.

So I'm curious, what are some of the various. I don't want to get ahead of us with the, you know, the 10 steps and things like that, but I'm curious, what are some of the various ways to do leverage buyouts? What are some of the ways you can get into businesses with no money down? Because I know there's. There's multiple. It's not just a single strategy.

Yeah. So. So there's typically three ways. So the first way is just your straight standard lbo. So you're buying a business and you're splitting the deal up into effectively two components. So component number one is if the seller requires it, you're giving them a down payment, and you're generally making that investment through either leveraging the business's balance sheet. So you're looking for assets like receivables, inventory, real estate, or fixed plant and equipment. And then what you're doing is. What you can also do with the down payment is if it's got no assets, you can always partner with an investor. So you can partner with an angel investor, or you can do crowdfunding to get some capital to be able to make a closing payment. But then the bulk of the payments are really coming down to the term is seller financing. And there's also something called an earn out, which is a future payment for the business based on performance. But generally, what you're doing is you're looking at the business's annual cash flow, and you're allocating a percentage of that to the seller to pay them for the business over time. And a lot of people, when they hear that, they think, well.

Why would a seller do that? And what's really interesting is most of the sellers that I speak to.

And I asked them at the start of the call, and it's a tactical question, I say to them, what's nirvana for you? What would you. What would make your life whole? And they say, I'd love to be able to not have to get up in the morning to go to work in my business, but still get the cash flow. And that's a perfect lbo because you can buy the business with zero down, let alone no money down from you, no money down from anybody. And you just pay the seller over time using the cash flow from his business. He wants the income, but doesn't want the responsibility of having to go in there every day. In fact, my last deal worked just like that. I bought a media agency in Burbank in California, near Los Angeles. I'm going there, I'll be there on Monday next week. Doing my annual strategic review was my first one, actually, because I only bought the business in July and it's got a great management team running that business for me. The owner that wanted to retire, who was in her late 60s, she'd founded the business in the 1980s. I asked her that question, I said, you know, what do you want? She said, I'd love to be able to get income from the business over the next three years without having to go in and run it. So that's exactly the deal that we did.

Wow. Love it. So you're not actually. So in a lot of scenarios, you don't actually have to go and get financing. You don't have to go to a bank or go to.

You don't have to go and raise capital? Basically, No.

I would say out of all the deals that I've done and all of the deals that I'm seeing that are being done through my academy, I'd say about two thirds of the deals there's some financing component for a closing payment, albeit sometimes quite small. But then the rest of the deals I've done, I've done them on 100% seller financing.

Makes sense.

Yeah.

I didn't know all the terminology, but I actually sold a business back in 2015 and that was exactly what we did. The person who bought me out on the business basically just paid me monthly payments for a year until I was cashed out.

It seems like a common thing.

Yeah.

The other ways of doing these deals.

Is.

A bit like a major venture that I'm working on with Brad is something called a roll up. So what you do with a roll up is you assemble a SWAT team of highly experienced professionals, both from the industry and also people with deal making chops. And then what you do is you go out and you sell shares or you sell equity in that roll up as a swap for buying a business. So what you can do is you set up an LLC and then you would go out and you could do it, say in the coffee shop industry, you create a coffee shop holding company, it's got nothing in it. And then you can go out and you can buy 10 coffee shops, Bolt them into your group, and then what happens is through a roll up you get lots of economies of scale and you get lots of leverage and there's Lots of common expenses that can be taken out of the combined group. So that's another way of doing it that's more for kind of advanced listeners, I would say. And then a lot of people do LBOs.

As bolt on acquisitions. So they'll acquire one business and then they'll use that business to go and acquire other smaller businesses and then just organically and then just grow the business in that way.

That makes sense because, yeah, they might acquire a specialty or a different arm within the same kind of, I guess, ecosystem that they've built for that existing business. They can go out and kind of acquire something rather than build it, it sounds like.

Yeah, and that's a great analogy. A lot of people that I to, you know, they're entrepreneurs and they, they want to create a startup. You know, there's a big, you know, there's a big movement and there has been for a number of years of people quitting corporate America and wanting to start a new business. And the statistics are insane. There's over seven in 2017, according to Forbes and the S and the Small Business administration, more than 7 million Americans started a new business. And there's a very famous guy that you might have heard of called Michael Gerber, who wrote a book called the E Myth and his statistics, having worked with, I think 250,000 startups over 40 years, that 96% of new businesses will fail inside of 10 years and 50% of them will fail inside of the first year alone. So my message to entrepreneurs is don't go and reinvent the wheel. Don't go and start a new business. Just go and buy a business in your sector that somebody has built that's a good business, but doesn't want it anymore. Because all of the things, all of the reasons why startups fail. You've got no employees, no cash flow, no credit, no reputation, no premises, no customers, no products and services. If you go buy an existing business, it's got all of that stuff. And if you want to innovate and do something a bit different, you can do it with inside of that business and still enjoy the cash flow of your existing operation while you do that. And guess what? You'll have employees that can help you do what you want to do and then you'll have customers that you can sell it to.

My other analogy is, so I've just ordered in the last few months, a Tesla car. Tesla has now come to the uk. It's a bit late, but Tesla's come to the UK and there's a long Waiting list like six months. So I ordered my Tesla. And so because I wanted a Tesla, I could have done two things. I could have gone out and bought the battery, the wheels, the steering wheel, the big display in the middle, the seats. And I could have bought all those components, assembled it on my driveway and built the thing. Or did I just go to the dealership, order one that they've already built and finance it? That's exactly what I did. And it's the same analogy in going into business. Don't start a new company and most likely fail. Go and buy a business that someone's built, doesn't want anymore and use the business's own resources to finance the purchase.

I think it's brilliant. And listeners listening to us right now, I think this is a perfect opportunity to reframe this because a lot of folks are starting something from scratch right now or they're maybe transitioning from one business to another. What would that process look like? Is this the ten step kind of system that you lay out is, you know, kind of getting into this game of actually starting the business?

Yeah. So the steps are fairly simplistic. The first step in any acquisition trail is what I call the dream deal specification. So it's figuring out in your mind what your dream business looks like and then what does it not look like? Because bearing in mind, I think the last time we modeled it, there was 2.44 million businesses for sale in the United States. So if you've got all these businesses for sale, you know, it's a buyer's market and we can be choosy. So figure out, you know, what does your ideal business look like, you know, what sector is it in, what location is it in.

You know, what's the profile of the business look like. So that's the first thing that you do. And then the second step is once you know, once you've got a spec is then you start doing deal origination. So you go to brokers, you leverage your own personal network, you go to events, you can do direct approaches, you can look at little carve outs from larger corporates who don't want those businesses anymore. And then what you do, it's a numbers game. You build a deal origination funnel. And it's a bit like working in sales. You know, it's very rare for you to pick one business and that business to work through an LBO structure. The odds of that ticking. All three points of that triad that I talked about before in the right space for you, motivated seller and a financial profile. That would be fit an LBO. You might need to look at 10 or 20 deals to be able to do one that ticks all of those boxes. And then once you've found that business, it's all about creating an offer, doing a little bit of financial analysis, which people think, crikey, you need to have worked on Wall street or have an MBA or, you know, have an accounting degree, which I've got all of those things. But I got to tell you, modeling up an LBO deal structure, it's as simple as high school math. If you can multiply by three and add, you can do these deals. People think it's the hardest part of the process. It's actually the easiest part of the process. The hardest part is figuring out what type of business you want to buy and then going and meeting sellers and building the rapport and the relationship that's going to strengthen these types of deals.

That makes sense. What's the timeline on buying a business typically? Is there an average?

Yeah. If the deal needs some financing, then you're typically looking at 90 to 100 days because financiers will want to do due diligence, they'll want to get involved in the legal process and all those different things. If you're not raising any finance and you're buying it purely on a seller finance note or an earn out, then you can typically do those deals a lot faster in under 30 days.

That makes sense.

Quickest deal I've ever done. The quickest. My fastest deal was about four hours.

Wow.

Motivated selling.

That was a special case that the seller's wife had terminal cancer.

I approached him about the business and he said, look, if you want to buy, you need to come down today and we need to do the deal. So I went down and four hours later we closed. I typed up a very simple one page document on the seller's laptop that basically said, I'm transferring the ownership, 75% of the ownership of my business. To me said person. And that was it. Deal was done.

Wow.

It doesn't always happen that quick. Right.

So how do you go about the valuation? I know you said the numbers is actually kind of one of the easier parts. How do you go about coming to valuations when you're looking at these companies?

Yeah. So basically most businesses are valued at a multiple of free cash flow, or we use a term called ebitda, which is a Wall street term. But essentially what, what does the business generate on an annual basis in terms of free cash flow? And then you're applying a Multiple to that. And the average, we're typically buying at between two and three times. According to bizbuysell.com, wHO, the largest online business broker in the U.S. they have about 150,000 businesses for sale. The average last year in the United States was, I think, 1.94 times.

And what's also very interesting is a lot of those deals, they even advertise what percentage of that deal you can buy through seller financing. So I implore you to do it. Just go to bizbysell.com, you can search by sector, and you can search by location. And you look at all the listings, It'll say, hey, 50% seller financing, 80% seller financing, 90% seller financing. So it's a great way of filtering out some of these deals and creating a hit list with deals that have got a high probability of closing.

Got it. So when they say, like, 80% seller financing, they're basically saying the valuation that we come to, you're going to put 20% down, but then the rest will be financed.

Yeah. So let's say you find a business that's doing.

$350,000 in free cash flow. So let's say it's doing 2 million in revenue, and it's doing 350 in free cash flow. So about 15% or so of margin. And you look at that listing and it says, hey.

I want a million dollars for my business, which is just under a 3x multiple, but I'll take 8% of that deal in seller financing. So that means that $800,000, that deal, you can pay using the company's future cash flows. So if it's doing 350 year in free cash flow, let's say you're happy to give away 200 of that per year. Then you know that you can finance the note for four years at $200,000 a year. And then the $200,000 that you need to make as a deposit, you're then looking for assets in the business you can offer up to a financier to be able to make that down payment. And you're looking for receivables, which is the unpaid invoice book. You're looking for inventory, you're looking for real estate, you're looking for plants and equipment, all those types of things.

That makes a lot of sense. That's how you get the zero down right there. So how do you boost the valuation if you're looking to sell a company? That's something that we're curious about, because a Lot of people hear these big multiples and things like Silicon Valley and these big app startups. Then you said the average is about what, 2x or so. How would someone actually raise that up?

Yeah. Bearing in mind that businesses are valued typically on a multiple of cash flow, what you need to do to create value is simply just boost the cash flow. And by boosting the cash flow, you're really looking for to do two things together. One is to grow the top line. Obviously, the more revenue you generate, the more gross margin you generate, that's going to drop down to the bottom line. And then what you'll always find with businesses, particularly with retirees, they are loaded with excessive costs. So there's a lot of cost you can take out of these businesses. So not only do you grow the top line through marketing, but you can rationalize the cost base and increase the margin as well. And the higher the profit as well, the higher the multiple. So we're typically buyers between two and three times and sellers between four and six times. Because what we also then do is once we're ready to sell the business, we'll position it into the market. So we'll look at the trade buyer market and we'll look at who are our larger competitors that really cover what we do. And then we'll go and we'll pick a fight with them in the marketplace. You know, we'll get into their deals. You know, we'll have them trip over us in the market and these larger companies, rather than go toe to toe with us in kind of guerrilla warfare, they'll just buy us out. And that's what we do.

I like that.

All right, so.

When you go in and you acquire a business and the deal is done, the ink is dry, what does that first 100 days look like? I know this is one of the topics that you like to talk about is what happens in that first 100 days of buying the business to make sure things are going to run smoothly.

Go for it. Sure. So some of what I'm going to share with you now, I actually do as part of due diligence. So the first thing I always do is I need what I call a jockey. I need a GM in that business that's going to run it, you know, day to day. So within the first seven days.

I'm implementing my business management system and I'm basically combining three separate schools of thought. So I've got my own proprietary system for growing and managing and optimizing my businesses. So there's three things. The first one is I'm leveraging a lot of the E Myth tools. So I've been through the E Myth coaching program. The E Myth's got some great tools about systematizing and optimizing a business. I also use.

A tool, I use the Can I the C A N I Continuous and never ending improvement methodology, which is part of the Tony Robbins business Mastery program. So I've done that in the past and there's some great tools that I use in that as well. But the whole core of my business management system is.

It'S talked about a lot in the book Traction. So there's a couple of guys that created the suite of Traction books. There's a book called Get a Grip, Rocket Fuel and Traction, which is the how to do manual. And they have a proprietary system called the eos, the entrepreneurial operating system, which basically tracks your business around six key elements. You've got people, vision, data, process.

That, the traction and organization of the business, and then a weekly methodical meeting called a level 10 meeting that identifies issues within the business and solves them in real time. So I adopt all that stuff within the first 90 days of owning a business. And a lot of it as well comes down to just the marketing and just reinvigorating the business. And once you put all these systems in place.

There'S so much new life and energy that's breathed into the business. A lot of the people that work in that business, they've been crying out for years for this type of momentum and focus. But then what you always find in business is a lot of, you know, some of the employees that work there, you know, they don't want to work for a living. You know, they've been in the business a while, they're ticking over. It's just a job. They're getting paid at the end of every month. And when a new owner comes in, somebody like me with loads of energy and focus and ideas, and we're pushing forward and we're really going to shoot for the moon. Some of these people just say, you know what? I don't want to stay. The owner's left. I'm going to go and get another boring job somewhere. That means I don't have to work hard for my money. And that's great because typically those people, you don't need to replace them. So then that's additional cost savings and additional cash flow that's going to flow through that business and then instantly your business is more profitable.

That makes sense. I'm curious about how you find your GMs or your COOs of all these business.

Yeah. So three ways. So the first way is, you know, the bonus for me is to buy a business that already has a very, very strong number two. So my LA media business, which is called Radio Express by the way, that has a great general manager that runs that business for me every day. And she was already in there and she's been there since it was founded in 1985. If there's nobody in the business that can take it on as my day to day manager, then I'm either going to do two things. First of all, I will find somebody through my LinkedIn network that I can put in and they'll even help me with the deal in terms of due diligence and just positioning. And then what I will also do as well is I'll partner with those people. So I'll say to those individuals, look, come and do this deal with me. Me and my team will transact the deal. You can work as part of that team, but then once we've done it, I'll give you a chunk of the equity. So in some of my deals I give away up to 40% of the equity, which you might think is very, very generous. But I'm not paying anything personally to buy that business. I, I'm not, I have no intention of going in and running that business day to day. My GM is in there driving performance and implementing the strategic plan. Why wouldn't I give them a healthy chunk of the equity? They're my partner. I'm reliant on them to make this business successful.

Got it. Okay. So what I want to do is, I'm curious if somebody listening to this podcast, they're sort of new into this world. They want to, they want to be an entrepreneur. Maybe they're still working in a day job, they have limited funds, but they want to be an entrepreneur and they want to acquire a business to do it instead of building from scratch. What's, what's sort of the basics? What steps would you walk them through? What advice would you give somebody that's just brand new limited funds to, to get going, but is ready to move forward and put in the hard work to, to make something happen?

Yeah. So I'll give you the kind of summary of that, but I actually have a 90 minute masterclass training on how to do exactly what I do. That's@ninjaacities.com free. But essentially three things. The first thing is getting into the right mindset and getting into the daily practice of taking action. Whether it's calling sellers, speaking to brokers, getting deal flow. This, at the end of the day, is a numbers game. It works just like sales. So the people that have come into my online academy and are absolutely crushing it are people from sales backgrounds because they're used to playing the numbers game. You know, they're used to building sales funnels to get people to buy products and services. Building a deal origination funnel, where a deal drops out of the bottom of that is very, very similar. So it's getting into that mindset, and it's just all about, you know, taking that action. And for a lot of people, it's defining their why. You know, you look at people in W2s in corporate America, they're working nine to fives or, you know, chained to their desk in a cubicle, they're traveling all over the country. You know, they're missing their family, they don't have a great work life balance. A lot of it comes down to summoning that up into the real desire to go off and do deals. And what's great about doing an LBO is you don't have to quit your source of income initially to do that. You know, the advice I give to all the entrepreneurs in my academy is, you know, don't give up your day job. You know, go and buy a business. And once that business is replacing your, you know, your monthly cash, you know, your monthly cash flow, then you can leave that, go and work on your business, and potentially go and do other deals.

I think it's so much smarter to take that approach than just try to figure it all out with no income coming in, which a lot of people do. But buybizsell.com, like you said, I feel like you probably learn so much just by browsing that website, going through the different sectors, maybe some filters. We have some friends that have sold businesses on there and people who have acquired businesses on there for maybe as low as $100,000 in some cases. But obviously you could do a leveraged deal, like you're saying there.

There's definitely businesses on there that are less expensive than that as well.

Yeah. So it's really cool that the bar is really not that high. And then if they go into ninjaacquisitions.com free, you could probably learn a whole. I know you will learn a lot more in that strategy. And you said mindset's a big part of it. So what are some key things that people need to have going into this mindset wise or psychology wise?

Yeah, so it's a number of things, the most important thing is the ability to take daily action and just to keep moving forward.

Sometimes deals don't work and sometimes deals get hard. But you've got to keep going, you've got to move forward. It's like anything in life. You know, there are no shortcuts. You know, people often talk about get rich quick schemes. This is a get rich slow scheme. You've got to implement, you've got to follow the rules, you've got to take the action. And it's like playing golf. I use that analogy because I'm a terrible, terrible golfer. I'm great playing golf on the Xbox with my. But I'm terrible when you put me on a golf course. But what I find with golf is.

I'll get into periods in the year where, you know, I really want to improve. So, you know, I hire a coach and I have lessons every week, and then I hit the driving range every day and I'm practicing my putting and my chipping and all those different things. And it's all about practice and it's all about that mindset of taking that daily action. And I actually believe that is the same with anything in life. You know, if you're 50 pounds overweight and you want to slim down, you've got to go into the daily practice of eating healthily and working out and doing all those things. So it's exactly the same in deal making, in buying businesses. You know, there's a consistent set of things that you need to do on a daily basis. And if you do it, it underpins your success. And I think that's the same in anything in life.

It almost. It seems like there's quite a bit of parallels to what you do and to what you hear a lot of real estate people doing. You, you know, real estate people will go around and they'll buy up different properties and sort of hot areas, they'll hire a property manager, and then they'll get the cash flow off those properties. That's not like a get rich quick thing. But they're generating consistent cash flow that ideally is profitable, you know, greater than the expenses they have on the property. It seems like you kind of have a very similar approach with businesses. You're finding different businesses, you're installing sort of operations managers instead of property managers, and then you just, you add new, smaller streams of cash flow and you just kind of stack them and stack them. Is that kind of the correct look at your business?

It is. There are a lot of parallels between real estate deals and business deals. The most common similarity is that the legal transaction is virtually identical.

You're buying assets at the end of the day, albeit in a business. Those assets sit within a corporation, whether it's an LLC or an S Corp or whatever it is. The two main differences though between real estate deals and business deals. One is valuation. So with real estate, the valuation is primarily driven by location or rental income if it's a buy to let or a buy to rent type deal. So for example, a house in Nob Hill in San Francisco is going to be worth 100 times more than the same house in the middle of Idaho.

No disrespect to the residents of Idaho that are listening, but it's true. It's the whole supply and demand economics of the real estate world. With a business, with a small business, the valuation is really based on what's going on inside of the mindset of the seller. The analogy I shared before. Two businesses, same products and service, same revenue, same cash flow, same balance sheet. One's owned by a 30 year old entrepreneur, there's owned by a 62 year old baby boomer. The valuations of those two businesses will be vastly different, albeit they're exactly the same business. So that's a big thing that we play on when we're doing business deals. And then the second.

Major difference is the structure of the deal. So when you're buying a business, in a lot of cases you can buy it 100% seller financed. You can't buy. I'm not a real estate expert, so I'm not speaking from an area of authority. I'm a business buying guy. But with a real estate deal, I don't think you can buy a piece of real estate and buy it 100% over time. I think you've got to pay the majority of that money at closing, which obviously with a business deal you don't have to do. I do own real estate, but not really from a professional investment perspective. It's just somewhere to invest my capital.

Makes sense.

So where are you headed in the future? What does the next five, ten years look like for.

For you?

Is it more of the same or you.

I have an add on question to that that's in the same vein. I wanted to also ask, do you see changes in the current economy, baby boomers and economy in certain industries that you've got your eye on? So kind of two different ways to ask the same question, I guess.

Yeah. So I'll answer the second one first. What's interesting is a lot of you read about this A lot. And when you talk to people in the industry, people get really hung up about economic trends.

Oh, whether you love or you hate President Trump, it doesn't matter. But Trump's in power and this is what's happening. Or Democrats are going to come back in and this is what's going to happen. And in the uk, we've got this crazy thing going on called Brexit. And business owners are concerned that their businesses will die if Brexit happens or doesn't happen. I don't subscribe to any of that. For me, all businesses can be made to be resistant to any of these geopolitical things. I know when we had the GFC back in 2008, a lot of businesses took over and got really burned. But not one of my businesses suffered under the gfc, not any of my businesses at all. So it's, you know, all businesses, if you run them properly, you've got strategic growth, they're optimized, they're systematized, they've got great marketing. They can weather, you know, any major thing that's going to come down. So I don't subscribe to big trends affecting all businesses generally. In terms of where I want to go over the next five to 10 years, I'm still obviously building my portfolio. What really drives me these days is changing the lives of the people that come into my academy. So that's something that we're scaling.

Consistently. There's new people coming into that on a regular basis. I'm partnering with some of those people on deals. And what we're probably going to do going forward is we're going to go into bigger deals. So typically we're doing deals in the one to $5 million revenue space. When you go about $5 million, there is a bit more competition to buy them. And for those deals, the larger deals, you typically need to have some equity. So what I'm doing, I'm actually in discussions at the moment with a bunch of other investors, and we're actually creating a private equity fund to do these types of deals. So all the people that come into my program that need a little chunk of equity to get the deal over the line on a larger deal, we're going to be able to invest in those deals as their partners.

That's really cool.

I love that idea.

Yeah. That brings the power to your whole community there. And I love that you said you're basically rising, everybody with you, everyone who's learning your strategies.

And obviously, we don't have time to go through lots and lots of case studies. But what's blown me away about what I do is some of the transformation stories that have happened with people in the program. There's people that come into the program that are quite wealthy and just love the idea of buying a business without investing any of their own money. And they'll get 5% through the process, and they'll just say, yeah, you know what? This takes some work, and this is going to take some time, and I don't really want to do that yet. I've got people in my program that are really kind of down on their luck. One of my favorite success stories, there's a guy called Jeffrey Allen Roberts, who's based in South Carolina. He was working in a kitchen in a school on minimum wage, and was absolutely, really desperate to do something measurable in his life. And he came into the program and he was so determined and he was so hungry for success and just so resilient. He just did not stop. He would not give up. And he closed a really cool deal. He bought a medical records business, no money down deal, and just wouldn't give up. He was not going to fail. It just wasn't an option for him. And.

There'S 50 to 100 other stories I could tell of people that just wanted to set a new standard in their life and wanted to do something different. And it really speaks to the power of the human spirit that people who've had bad luck or not in a great place, you know, they can get their hands on a system like this, follow the rules and just put the work in and do the things that they need to do and just get the results. And I think about that in anything in life, if you want to lose weight, you got to eat healthily and go to the gym. You know, if you want to learn a new skill, you know, you've got to put the time and effort into practice daily and take daily action.

And not just in my program, but anything in life. If your why is strong enough and you've got the commitment, the dedication to keep learning, I think you can achieve anything.

Now, is there any place that people could go and find more of those case studies? Do you publish any of them anywhere?

Yeah. So on my Masterclass training on ninja acquisitions.com free, I case study several deals in that training because obviously I talk about my deals, but a lot of people say, well, of course you can do deals. You know, you've been doing it for 26 years. You're a Wall street investment banker, and you've got an MBA from The University of Chicago Graduate School of Business. If you can't do deals, nobody can. But I talk a lot about the deals in the program that other people have done and how those deals worked out. What were some of the challenges they overcome and what bits, you know, did they do really, really well. So they're all, they're all located on that training.

Yeah, no, I'm looking forward to going through that training myself. I know. For, you know, speaking on behalf of me and Joe, our biggest issue when it comes to acquisitions is getting the right people in place to run the acquisitions. We've, we've acquired what, three or four businesses over the last probably 10 years.

Right.

And our biggest issue has always been once we acquire them, getting people installed to run them so that Joe and I don't end up in the day to day. Because that's what always ends up happening with us is that we acquire these people, businesses, we go into them, we try to get things dialed in, and then the next thing we know, we're just, we just added more to our plates. We're just working in more businesses now. So I'm really looking forward to going through your stuff.

So you guys, do you guys like reading?

Yep.

Right. So there's a book I employ you guys to both read. You'll be able to read it in a day. It's, it's the best business book I have ever read. It's called Get a Grip. And it's the guys that invented the traction system, the entrepreneurial operating system, and the Get a Grip why it's such a good book is it's a story, It's a fable. It's a story about a IT company, an IT services company that implemented this entrepreneurial operating system. And it's a fascinating, fascinating book. Every business that I buy.

One of the first things I do is I send them all a copy of this book and I have them read it within a week. So that when I go in and I implement this stuff, they know exactly how it's going to work. If you read that book and you implement what's inside of it, you will not have to spend much time in any of your businesses.

I guarantee that's a big enough endorsement that we'll probably order it today. So probably okay, we'll order it today.

Right after this call.

That's actually a new one. You know, we asked, we asked people at the end of every episode if they have any book recommendations. And I don't think we had anybody bring that one up yet.

I don't Remember that name?

I love that. We got.

Yeah. So there's three books. You've got a book called To Get a Grip to Story. The authors are Wickman and Patton. And then the kind of corresponding book is called Traction. So that's like the how to implementation manual. So that's a little bit dry and a little bit turgid because that's what you go through when you actually do it. But to give you the kind of story of how it works in a very easy to read way. Read the book, Get a Grip. And then there's another one called Rocket Fuel.

Which kind of builds on that. And a lot of it just comes down to how you compartmentalize the business. And the basic theory of it is every business needs to have a visionary.

And it needs to have an integrator. So they use the word integrator for the COO or the operations director, the person that's keeping the train on the track and then reporting into that integrator. COO is the kind of head of your three pillars. And in all businesses in the world, they only really have three pillars. You have a sales and marketing pillar, you have an operations pillar, and you have a financial and admin pillar. And it's structuring your businesses around those pillars and having accountability and goals. And they use the term rocks, which are what are the key milestones that you and the business want to implement within a 90 day period. It basically breaks the year up into 90 days. So a lot of parallels like the 90 day year and a lot of those kind of books that have come out in the past few years. But Get a Grip, that's my favorite book of all time.

Yeah, you just answered one of our final questions there, which you probably knew was coming, but that's great. Both Matt and I actually have already read Rocket Fuel, but we didn't realize we kind of flipped it. We approached it from the bottom. So Get a Grip will be Get a Grip.

And Traction has been mentioned a few times on the episode, but it's one that neither of us have actually picked up and read yet.

Get a Grip first.

So, yeah, we'll be ordering that today. So your website, ninjaacquisitions.com and also ninjaacquisitions.com free is where people can go and get your free 90 minute training. Is there anywhere else or anything else you'd like to ask the audience before we wrap it up?

No.

I think we're good. Just one other little book recommendation I'd love people to read. Anybody that is.

Either skeptical or excited about buying a business who had leveraged buyout structure. There's a really, really good book. It's a very famous book called Barbarians at the Gate. And that book is the story of. It's not the largest leverage buyout in history. It was at the time. So back in 1987.

There was a deal on Wall street where a group of investors acquired RJR Nabisco, and at the time, it was one of the top 20 largest companies in America. And that was a $25 billion leverage buyout. And the people that bought it did that deal without spending any of their own money. So if people say, hey, you can't buy a business without spending your own money. Read that book. You can do it on a $25 billion deal. You can do it on a $5 million revenue business. Trust me, I'm doing it every single day. It's the same process. There's no difference.

You have to pick that one. What is the largest acquisition in history? Do you know?

There's, I think, the AOL Time Warner merger.

Compaq, hp.

Yeah, it all depends, because a lot of these deals are just mergers. So some of the largest deals in history, you've just got the larger company buying the smaller company and just giving them some of their stock, their publicly traded stock.

But in terms of an lbo, I think Dell. I think Dell's the largest LBO to date. So Michael Dell, who founded Dell, took it public on the nasdaq. He then bought it back off the stock market using private equity money, took his equity from about 13% to about 75%. And when he puts it back on the stock market in a couple of years time, he'll probably create $100 billion worth of value, become the world's richest man by doing an lbo. So, yeah, that's an interesting story as well.

I don't clue about that one.

Yeah, I mean, we're hearing about Bezos in the news all the time, is switching back and forth as the richest.

Man on Earth, but just you wait. Bezos.

Mike's coming from.

Elon Musk keeps threatening to.

Take Tesla private through a leverage buyout because he complains that Wall street analysts don't give him enough credit for what he's trying to do with the business.

Not to mention he can go and smoke weed on a podcast, and his valuation will drop by like, a billion dollars overnight.

Yeah, I know. But no, it's interesting. LBO is as old as the hills. Even way back when the UK was involved with the East India Trading company and buying businesses over in Asia. They were doing LBO type deals. So it's not a new phenomenon. It's been going on forever. I suppose what's different is how we're doing LBOs with smaller businesses. Normally an LBO would be a Wall street deal for a multi billion dollar company, but not anymore.

It doesn't have to be.

As you said, you've done it yourself.

As a bioanat.

Carl, this has been amazing. It's fascinating and it's definitely opened up a new channel in our brain that start thinking differently. So I appreciate you.

Absolutely. I've loved being on the show. Guys. Please keep in touch. Next time I come to San Diego, I'll look you guys up, we can talk some more. But you know, I love talking about this stuff. This has been my life for 26 years now. So I love, you know, sharing my expertise and my case studies and, you know, just giving back.

Yeah, I'm looking forward to it. Maybe a time me, you and Brad could all grab lunch or something, so.

Absolutely.

Ninja acquisitions.com free. Just want to make sure I throw that out there one last time. Go there. We'll make sure it's in the show notes for everybody. All the books that we just got done talking about will all be in the show notes as well. And yeah, thanks again. Just such an awesome topic. I'm sure we could probably go a whole nother hour, but want to be respectful of your time. I know you're in the UK and it's probably starting to get into nighttime over there.

Oh, yeah, it's. Yeah, it's ten past six, ten in the evening, but I got a few more hours of stuff to catch up on, so that's been great.

Well, thank you, man. We'll talk soon.

Thanks, guys.

All right, thank you. And I hope you just enjoyed this episode you just listened to. Now, right now, before we sign off, I have a few things I would love for you to do. So the very first thing is to go find our guest on Facebook and tell them that you loved their episode with us. That's going to help them just feel good about themselves, but also it's going to spread the word a little bit more for us. Go find them on Facebook. Everybody's on Facebook. And go say that you love their episode and maybe one cool thing that you learned there. The second thing is to go to itunes and subscribe to our podcast. Just look up Hustle and Flowchart and hit the subscribe button. And the very last thing, the third thing is to leave us a review on itunes or wherever you're listening to this podcast and help us spread the word more. That's how more people are going to get this awesome knowledge, this, this cool podcast training and a whole bunch of other cool free training that we give out@evergreenprofits.com so that's about it. Go find them on Facebook, go subscribe on itunes, and leave us a review. You would be amazing if you did that, but you're always amazing. So thanks for listening and we'll catch you in the next episode.

You're awesome.