No Money, No Problem: Mastering the Art of Zero Cash Acquisitions

The law of price and terms says that if I'm going to give you your price, then you accept my terms, right? You can afford to pay pretty much anything for a business as long as the terms are right. So today I want to talk about something that I call zero out of pocket acquisitions. And this is something that is really important. The first thing that we're going to talk about is how to think like an EPIC investor. And EPIC is a contractual acronym that I came up with for how we do this. Because the really, the most important thing to me is if we break that down is the very first word is ethical, right? Ethical Profits in commerce and crisis. That's really what EPIC is about. So I think if you're going to go into business and you want to be able to sleep at night and you want to have a good reputation and you want to create good karma in general, then it's good to do good in the world. Google started out trying to do good. Their whole mission was do no evil. And I don't know, some people say they haven't really managed to live up to that, but that's another discussion. So from our standpoint, when we're thinking about how can you be an EPIC investor, one that is investing in crises and in commerce and doing it in an ethical way, I believe that it's very important to have a win win philosophy. And I get some pushback from people who say, yeah, but there's a book called Never Split the Difference by a friend of mine, Chris Voss. Fantastic book, which I highly recommend. And they say there is no win win. Someone is always going to lose in a negotiation. And I guess it depends on perspective because Chris doesn't advocate that we're going to win at the expense of somebody else feeling bad about themselves. He's just saying, I think that there's give and take and that you, you don't want to horse trade. You don't want to basically go in and start high, higher maybe even than you want, knowing that you're going to come down and just basically meet in the middle. And as he said, there's. There's no ability to choose like the gray shoes or the red shoes. You, you can't wear one of each. You'd look like a fool. Or if in his case, he's negotiating for hostages for the Federal Bureau of Investigation, and it's like, well, just kill half of them. I mean, that. That clearly he was in extreme circumstances. I do believe, however, that even in his situation where his goal was get hostages released, there was give and take, back and forth. And one of his strategies is to simply say, how can I do that when you can't? Like, how am I supposed to do that when you can't? Like, if the people in the building were saying, send a plane and a billion dollars, and he's like, how am I supposed to do that? Here's my thinking, is that when you're working in business, I have a philosophy of collaboration, and I have a philosophy of a thing I call the fairness zone. So when we're thinking about investing, I believe that it's possible for both parties to come away with a situation and a deal in hand that they are happy with. And they might not be, like, it might not be the deal they thought that it was going to be, but a deal that they're happy with. And so this is where it comes to the zone of fairness to me. In any situation, there's a range of what's fair. And wherever you are within that range, both parties are going to come away with what they want. In the case of an acquisition, it's fair. One party is going to come away owning a business, and the other party who's the seller is going to come away with some sort of assets in hand to replace the business that they didn't want to own anymore. And that's really what we're focused on, is being within that fairness zone. Now, you can negotiate all the way up to the edge where they're still going to be happy. But I would argue that there are. And I have found in my experience, they're people that, man, they. They'll. They'll do deals that they shouldn't do. Maybe it's because they're desperate. And so the ethical part of epic, when we're thinking about being an EPIC investor, is how can I help this person to accomplish their goals in a way that also accomplishes my goals? And even if I could get a better deal, I don't want to cross the line to where they're feeling bad about it. I want a deal that maybe it's hard for them to say, you know, gosh, I thought I could get more for this, but I want them to be happy about it. And I'll actually ask the question, are you happy with this? When we're done with the negotiation, before the closing, I'll literally say, hey, now, I want you to be happy about this deal. Are you happy about it? And if they say, well, I was hoping I could get more, but, yeah, this is going to get me what I'm going to need to do what I want to do. I'm okay with that. If on the other hand, they say, man, I just don't know. I don't know how I can do it. I just, I know I'm not really happy with it, then I won't do the deal. And I'll tell them that. And I mean, as basic a thing as buying a camera lens for my son for his camera. I remember a couple years ago, there was a person who had one for sale on ebay. And this is like, this is way, way simpler than buying a company, right? This person was selling a lens on ebay. And I made an offer and they accepted the offer. And then I said, are you happy with this? And they said, no, I really needed to get more for it. And I said, well, look, if you're not happy with it, I don't want to do the deal. I need you to be actually happy with it. And I understand, like, you know, the market is what the market is, but maybe you'll be able to find somebody else. And so why don't you go ahead and find. Leave the listing up, don't accept my offer. And then if you get what you want, great. And if you don't and I haven't found something and you decide, hey, this is what market actually is, then we can do the deal. But to me, creating resentment or bitterness in somebody or even having them walk away feeling unhappy about something, life is too short and life is too long. Life is too short to put up with situations where you're not going to be creating joy in the world. You. And life is too long to be creating situations that other people are finding unhappiness in. So I think that the mindset of an epic investor starts with, we're going to be within this fairness zone. So now, of course, the fairness zone is subjective, right? So one person's fairness zone might not be another's. And that's why you have to layer over yours whether they are coming out of the deal in with what they want or not. Not with everything they dreamed of, but with what they want. So one of the things that we like to do, then a second a corollary to that epic fairness zone is collaboration. So with collaboration versus negotiation, because negotiation, I do believe, implies that there is either horse trading and neither party is going to be completely happy, or one party wins and one party loses. That's not the case with collaboration. Collaboration is when we're both working together towards a common goal. In the case of an acquisition the common goal is that I want to acquire your business and you, as the seller, want to sell me your business. You have a price in mind that you would like to get for it. And so where I like to start is not with a lower price. I like to start with what is market value. So we're going to research that and figure out what is market value. There's lots of comparable sales of similar companies and published data on what the multiples of profit are for the sale of certain businesses. Because most businesses sell for a multiple of their profit. And when we're then talking with somebody about selling their business, the first thing is going to be, how much would you like for it? And then they're going to give us a price. When they give us a price, our first step shouldn't be to counter with, would you take less for it? Our first step should be, okay, that's great, let me see what market is. And then now you might already know, in which case you don't have to do a lot of research, but I suggest that you say, let me go and see what market is, and if I can get you that price within the bounds of what the market says this business is worth, then that's what we're going to do. That's, to me, is collaboration. We're not negotiating yet, right? So then we go and we check the market value and we say, okay, there's a range of market value for a business like this. If the seller is asking for a price that's within the market range value of this type of business, in this type of industry, then my suggestion is that you pay that price because we get to the next corollary, which is the law of price and terms. So as an EPIC investor, we are looking to acquire businesses with no money out of pocket, not no money down. Not the seller gets nothing for the business. No money out of pocket. This is a critical distinction. No money down means that there isn't going to be any cash or assets that the seller takes away from the closing. At the time the deal closes, the seller literally has nothing and they have given up the business and they've got the promise of receiving something in the future. The that's no money down. Those deals are out there, but they're very, very hard to find. And they are typically not the best businesses that are for sale, because the best businesses that are for sale, the seller's going to have other people that are interested in those businesses. So now we get to the law of price and terms. So if you think about the seller saying, well, I want this amount of money for the sale of the business. And you say, look, I'm going to try to get you that. You then go verify with third party data that this price is within the range of market value. Now you tell the seller, hey, listen, I'm not going to negotiate with you on this price. I want to collaborate with you to figure out how we can get that for you. One thing that's important for you to be aware of while we do this is the law of price and terms. The law of price and terms says that if I'm going to give you your price, then you accept my terms, right? You can afford to pay pretty much anything for a business as long as the terms are right. If it was a million dollars for a business that was worth $100,000, that's 10 times more that the seller's asking then the market value tells you that the business is worth. But if you could pay what, $1 a year for a million years, you'd probably do it. Obviously that's an extreme example. Probably not gonna ever get that deal, although it'd be nice. And if you do, I wanna hear about it. So then we get into this law of price and terms. And so you've told the seller, I'm gonna collaborate with you to do this. I want you, in order for me to be able to get you this price, we're gonna have to work together on terms that will make it acceptable to me so that I can make this a good deal for both of us. And it is possible for us to both have a good deal and, and for us to win. Well, now you're on the side, the same side of the table, you're working towards a common goal of how can we arrange everything in this transaction to be able to get a price that's acceptable to this seller. So that then becomes you and the seller working together to say, okay, you won a million dollars for this, let's figure out where we can go. And then having access to several of the different strategies for funding that are not out of pocket for you. It's not no money down. It's not, the seller's going to get nothing at closing and walk away empty handed. It's going to be instead that there are several assets and resources that exist out there and several strategies of working with the seller that will allow the seller to get money at the closing, but not for it to come from your pocket and not from, for you to have to use your personal assets or credit or Personal guarantees to make it happen. That's what it means to be an epic investor. You are creating creative solutions to finance the ability for sellers to sell their businesses at fair prices on an ethical deal that will get them what they want on terms that work for you. That's what that means. Okay, so the next thing that a lot of people ask me is how can you find deals and how can you get people coming to you to create your own deal flow? So let's talk about creating deal flow. Well, the easiest thing to do is to think about what is your existing network, who do you have already, who can help you find deals? And one of my favorite stories is from a friend of mine named Adam. And Adam was interested in acquiring businesses, and his son was out playing a game at a board game store. So a game store that. That sells board games, but also had kind of a game night to attract business. And his son, who was nine years old, was playing Dungeons and Dragons or something like that at. At this game store. And the one of the employees came up and said, hey, listen, I'm really sorry. I just wanted to let you know we're not going to continue to be able to do this and we're going to be closing the store down within the next month or two. So the child was very, very disappointed. And he went back to his dad and he told him, he said, you know, dad, there's, you know, store's not going to be around anymore. It's my favorite store. I love going and hanging out with my friends every week and playing these games. Is there anything that you can do about it? And Adam said, well, let me talk to him. So basically the store is going out of business. Yeah, okay, great, let me talk to him. And so he went down and. And Adam talked to the employee and the employee said, well, maybe we can acquire this business together. Because Adam said, one of the things that I do is I acquire businesses. I do no money out of pocket deals. And if the thing is just going to shut down Anyway, as about 600,000 businesses per year do, by the way, just close the doors in the United States alone for lots and lots of reasons. This one was basically the person who owned the business was not making enough money from the business. They were making money in the business, but not making enough money in the business to pay the bills and make the same amount of money that they could make working at a different job. At a job, basically. And so there was some tension between this owner and his spouse because the spouse was carrying the load. And Saying, hey, you're not pulling your weight here. And it's great that you have this hobby of board games, but this board game store just isn't doing it and we need to make more money to hit our family goals. And so he was receiving pressure from her to move to arbitrage out of this lower paying situation that he had himself into owning this game store into a job that would pay more money and that, that happens a lot. And because entrepreneurship is hard and sometimes you can make more money in the short run than you can owning a business because it takes time to build it up. So you have now one of the ingredients that's really important in an epic investment deal and in deal flow is that you get motivated sellers, that you're identifying those. So Adam talked with the employee and they took a run at acquiring the business. And ultimately the owner said, no, I can't do a deal like that. It doesn't, it doesn't make sense for me. This is a no money out of pocket deal, right? So very often you will find when you are approaching with an offer, a seller of a business that they will say no initially and then that's your opportunity to be cool. At that point you say, listen, I totally understand. This is how I do these deals. I totally think it can work for you. And here's how I lay it out for you. And let's do this. If you go, go ahead and see if you can find someone who will give you what you want on the terms that you want. And if you do, then definitely do that deal. But if you don't, I'd like to be able to just kind of check in from time to time and see how things are going. Is that okay? And the guy's like, yeah, sure, okay, but I'm going to sell it. Well, it turns out that he wasn't able to sell it. The employee ended up going that person's own way. And Adam continued to talk to, to the owner. And after a short period of time, more pressure from the spouse, more pressure from the hassles of running a business, that seller said, hey, I am interested in that deal. And so Adam was able to do that deal. And because Adam is a smart business person, he was able then to go in and not only acquire all of the inventory and the space and everything else without any liability for himself personally and without any cash out of his pocket. And, but he was able to get the seller what the seller wanted, which was out of the business and getting something for it. So the seller was able Then to go on and take that job. Seller's happy in the seller's marriage now, seller's making enough money to support the family. And on top of that there's some money coming in from having made the business sale. Adam then took some steps to rearrange the way the business works and now it's making him between 10 and $15,000 a month of extra money, of profit that he would not have otherwise gotten. And it didn't require any investment of capital other than his knowledge and skill and expertise. So this is a great example to me because we're talking about finding deals, not how to do them. But I think that story is really helpful because it's illustrative of the fact that your nine year old child can find businesses for you as long as he or she knows that you are interested in doing that. So what, what I think it teaches us the takeaway is that deals can come from anywhere. And the more people that you make aware of your interest in doing deals, of the fact that you actually are interested in acquiring businesses, in buying businesses, then the more people will start coming to you with opportunities for you to buy businesses. It might not be your 9 year old child, it might be your spouse, your, it might be your friends, it might be your family, it might be the people that are in your iPhone contact list, the last hundred people that called you, it could be the people in your Facebook messenger or WhatsApp. It could be people who you have on an email list, people that are working with you as co workers in a job that you're working. It could be people that work for you as employees. We've had several deals referred to us by our employees, including a couple of really good SaaS, deals, software as a service and where we were using someone else as a third party service and our employee was interacting with the people in that company and ultimately found out that the company was interested in selling, connected us to the owner of the company and we were able to acquire it. Right. And that's happened a few times. Contractors that are working for you, that might be consultants, corporations, great source of deals, people who are the suppliers for businesses, who have lots of businesses that they sell to in the industry that you're interested in can be also really good sources of deals. Networking groups I think are pretty obvious if you are involved in YPO, which is the young president's organization, about 30,000 members worldwide or EO, the entrepreneurs organization, about 15,000, I believe members worldwide. These are networking groups and there's a whole bunch of Others, there's bni and you can just Google networking groups and wherever you're located, and you'll find that there are a virtually unlimited number of those getting involved in those networking groups. You are opening yourself to higher deal flow because you're putting yourself out there as somebody who's an investor. So that's why I think it's really important as one of the first steps of finding deals and becoming an epic investor, that you declare to the world, I am an investor. That you change your social media profiles to say that you're an investor, that you change your email signature, that you change your bio, that you change your port, your profiles on your website, or any place that has information about you to let the world know that that's what you do. And then people that you meet, one of the very first things that they say, other than, hey, how are you? Or my name is. Is. So what do you do? If your answer is, I buy and sell companies, you've infinite. You just instantly became so much more interesting to the person that you're talking to, and you're not pushing on them, hey, I'm an accountant and I sell accounting services. And so here's I'd like to talk to you about my accounting services. You're like, oh, I buy and sell businesses. I'm always looking for deals. If you know of anybody that's got a company for sale or a business that you think is good, or somebody that's kind of tired of doing what they do or having challenges with money or partners or health or anything like that, let me know, because it might be something that I'd want to buy. Well, I can't tell you, like, how many people that I say that to then say, that sounds absolutely interesting. So tell me more about that. And they're fascinated about it, right? So it's because it's out of the ordinary and I'm not selling anything. So the walls are completely down. So those are some really good ways to go about finding deals, Right? To find deal flows. And as you put that out there, as you change your mindset to present yourself to the world as an investor, then the world will start to see you as an investor. And that means that the world will want to start sending deals your way. So you start by asking. You can post on all of your social media, hey, I'm looking for. And then if it's a specific business looking for a cybersecurity business in Cleveland, Ohio, then that's going to be something that is out there and you'd be surprised at how well your network will feed you when you make a specific ask like that. We've bought several assets and several companies simply by posting in different corporate threads what we're looking for. So all of those resources, if we're thinking about that, there's about 27 of them, 29. 29 of them I can think of off the top of my head. But networking groups, eo which is Entrepreneurs organization, ypo, Young Presidents Organization, Friends, family, relatives, co workers, employees, contractors, consultants, accountants, attorneys, investment bankers, due diligence firms, firms that do due diligence, meetup groups, mastermind groups, where we were at 16. Now on this quick count also other groups that are special interest groups, centers of influence that are providing information, trade associations, events. That's 20 and, and just thinking about all of these different types of referral sources, putting yourself out there, angel investor groups would be another. If there are associations, that's another great one. There are family offices, that's another place to look. You can also talk to private equity firms, you can talk to accounting firms, you can talk to any kind of practice or business consultant that's practical practicing in a particular area, any author, any speaker, any expert who's speaking or putting out content about any of this blogs. Now we're at 30, right? So there's a lot of these things that you can look at resource wise. That's how you're going to go about creating deal flow initially is just put yourself out there and putting yourself out there in terms of content about what might be helpful to the kinds of businesses that you want to acquire is a great way to create a pull as opposed to a push kind of deal flow scenario. So that I find to be very, very, very helpful. And that's really how you go about creating deal flow. Okay, so now one of the things that people ask a whole lot about, and it's probably the sexiest part of acquiring businesses with no money out of pocket is how do you find funding for these deals? How do you find funding for a deal where you're kind of creating money out of nowhere? Is that possible? You know that's like a stories of spinning straw into gold. Well, the way that you do it is you think a little bit creatively and you think about what does the seller really want? This is a critical question that very few people ask in deals. So how much funding we need is a direct function and the shape that the funding will take is a direct function of what does the seller need the money for? What will he or she do with the money that they get and what is their reason for selling. If you know what their reason for selling is now you know how motivated they are. There's only really about 10 reasons that people are highly motivated. It's money related, whether it's the business is losing money all the way to, it's not making enough money or they just need to get some money from the sale of the business to do some other thing that they want. Another is divorce, another is death, another is health, another is relocation. They're moving from one place to another. Maybe they're having challenges with their partner, maybe they're just burnout. Maybe it's shiny object syndrome that they're looking for something new to do. Right? There's all of these different reasons that maybe they just want to cash out. Right? It's just maybe they see something coming down the pike that, that they're concerned about or they've been through like the pandemic is a great example. They've just been through so much so far that they're not looking down the road and thinking they want to continue to do that. Maybe it's just they don't want the hassles of the business and it's easier to take off the yoke of being the entrepreneur and go and work for somebody else where they don't have all those problems and they just get to do what they love or what they're interested in. So there's all of these reasons that people might want to sell. Well, when you know that they're fitting one of those categories that I just mentioned, you know that they are a motivated seller. So the next question you want to ask them is so and so. That answer was to the first question you want to ask, which is why are you selling? The second question that you want to ask is so when you sell, what are you going to do with the money? The reason that we want to ask this is twofold. One is psychological. It's called future pacing. So what we want to do is start them thinking about what life looks like post sale. Once they've sold this business, what does life look like? Oh my gosh, I'm going to be problem free. I'm going to get money. I want to sail around the world, I want to go move near my children. I want to just retire and play golf. I want to travel, I want to hang out with my spouse. We are going to take classes at community colleges and just be renaissance people. Right, Whatever that is. When you have the information about what those people want to do. With the money, then you know how much money you need to get them at the closing to help them do the thing that most motivates them. So if they said, I want to take a trip around the world, then I'd say, oh, that's awesome. What are you going to do? What are you going to see? And then I'm going to get to. How much is that going to cost? Well, it's going to cost $200,000. Great. And they want, let's say, a million dollars for the business. Well, if they don't have anything else that's immediately pressing and they just need the 200k to be able to do the business. I've lowered the amount of cash I need at closing to satisfy their desire, their biggest stated desire. I've lowered it by 80% because I only need 200,000. I don't need the other 800,000 of the million to. Because that's for stuff that they haven't decided what's going to be. I mean, obviously they have an idea. We'll all invest it, right? Well, what if it's invested in something that has a guaranteed rate of return of 10%? Because I'm willing to give them a note for five years, or let's say four years, because it divides easy. I'm willing to give them $200,000 up front and a note for four years saying, I'll pay you $200,000 a year for four years. And the business is making 500,000 a year. Well, if that's the case, then all I have to do is come up with that first 200,000, and then the rest is covered by seller financing, which is the primary, easiest, most common cashless way to get into a business. But it's not enough. So what we're going to start doing is thinking in terms of a deal stack. So a deal stack is where we say, okay, we've got a gap between what the seller needs as a purchase price and what the seller needs immediately today. And the number zero, which is how much I want to come out of pocket to do this deal. So I'm looking at this as like a stack. And I say, okay, the first thing that I want to know is how much cash am I going to have to get to the seller when we close this deal so the seller can do whatever she or he wants. So at that point, I've created the gap between what the seller says they want for the sale of the business and what the seller actually needs at closing. And that gap I'm Going to try to fill first with seller financing. And I'm going to argue pretty strongly for the seller that, look, you only need $200,000 for this trip that you want to take. You say you want a million dollars for the business, I want to get you a million for the business. I want to collaborate with you to get you the money that you want to sell this business and to do this, the, the 200k that you need, I want you to show me that you, you believe in the business's future success and my ability to be with the business and make it successful in the future enough to let me give you the return on investment that you want. Where are you going to put that 800,000? I'll probably put it in a mutual fund. Okay. Or probably put it in a certificate of deposit. Great. Those are typically returning about 8% where certificates of deposit are typically returning about 1% or less than that. So let me give you more than that. I'll give you. And there's no guarantee in those, by the way. I'll give you 10% return on that money on that 800,000. So that's $80,000 a year, and I'll pay that to you over time. So you'll have that coming to you and you don't need it right now, but it'll be secured and you'll be all safe and ready to go. So it's kind of hard for them at that point to say, well, no, I really want it now. Because I'm going to say, well, look, I'm trying to get you the price you want. I haven't negotiated with you at all on the price. And the truth is, if you come back and ask me what's a cash price, it's way, way lower because I have greater risk. And so what I'm trying to do here is use the law of price and terms, your price, my terms, to get you exactly what you want without negotiating, without haggling with you on that price. I want to say I don't want to, I don't want to argue about that at all. I just want you to help me get you what you want. Really, really good strategy. So that's the first thing that we use as one of our no money out of pocket strategies. And the second is earn out. So earn out happens when you can't agree on the price because the seller wants more than you're willing to or able to give at the closing. So the earn out says, hey, look, you want a million dollars for this business, you're willing to finance 80% of it. The remaining 20% you need to do some work with. But you're not really comfortable giving me that full 800,000 in financing. So what you want to give me instead. Excuse me, What I'll give you instead is how about if you do half of that 800 as seller financing and you do the other half as an earn out. That way if the business continues to perform at the level that you say it is and hits the projections that you said it will, then I'll owe you the extra 400,000 in one year, two years, three years, four years, one to four years is pretty common. And as long as that's somewhere between 10 and 40% of the purchase price, that's a very common amount for an earn out. So you can stack or combine this seller financing plus the earn out as a way to not have to come out of pocket up front. Okay, so that's pretty cool. What are some other things that we could do? Well, then we start to look at the business itself and say, well, are there any assets that exist in the business that I might be able to use to finance my purchase of it? Some of those would include accounts receivable. So anytime that the business is owed money from anybody, any one of its clients that it has extended short term credit to, like think about a digital marketing agency where you go and you say, I need these services and they say, fine, we'll render them for you and then send you a bill. The period of time between when they send you the bill and when you pay it, which is typically 30 days plus, then that is considered an accounts receivable. And there are companies out there called factors that will acquire those accounts receivable and pay you money for them today, typically somewhere between 50 and 85%. If it's a good high quality credit risk, they'll probably give you 85%. If it's a poor risk, maybe they'll give you 50%, maybe less. But very common. You're looking in the 80% plus range. So if a business had 100,000 or 200,000 of accounts receivable, then you could basically go once you are the owner and say, okay, I'm going to get the seller money by selling those accounts receivable to a factor. And so now that 100,000 becomes 80 or the 200,000 becomes 160 that you can pay towards the down payment. So let's say there was 200,000 in accounts receivable, I go factor that and I need 200,000 to give my seller because they want to take that trip, I go factor that at 80%. Now I've got 160,000 of that 200. So my gap between how much I have to get the seller at closing and zero has decreased from 200,000 to 40,000. Because I got 200,000 accounts receivable that I factor. I get 80% for that. 80% of 200,000 is 160,000. 200,000 the seller needs minus that 160,000 means there's 40,000 left that I have to find. That is very, very, very doable. Right. Another place that I could go now is I could go and talk to the suppliers of the business and say, hey, you've been supp this business for years and years and years, and I would love to continue to have you be a supplier. I'm in the process of acquiring the business, and I'm looking for capital to do that. If you would give me $40,000 to continue to guarantee that you'll be my supplier, you have to give me still what we call favored nations pricing, the best pricing you give to anybody else, then I'll continue to be your customer. And before you say that's crazy, nobody would ever do that. Nobody would ever agree to that. Why would a supplier do that? That doesn't make any sense at all. Know that in one of the businesses that one of my business partners was involved in, we were looking at starting a business to provide rehab materials to people who were fixing and flipping houses. And Home Depot was this. His family company was spending about $60 million a year with Home Depot rehabbing houses. They were buying inventory, lumber and stuff like that to redo houses. They do a whole lot of that, obviously. And lo and behold, Home Depot came and said, hey, listen, how about if we just give you $2 million today to continue to doing what you're doing and buy from Home Depot for all of the stuff that you're doing. And if you do that for two years, then we'll give you another $2 million at the end of that two years. So $4 million cash, no loan, no obligation, to pay it back. Home Depot, pretty smart business decision by them. I don't know that they knew that we were in the process of starting our own business to sell to our. All of the people that we teach how to do rehabbing and things like that. But it was a really smart decision. And so one of the places that you can go is to your supplier, because your supplier is going to be making profit off of you and as long as they're making enough profit to make it worth their while, it's very possible they might give you that. Now if they won't give it to you, they're like, I couldn't possibly give it to you that we don't make enough money as it is. You know, we only make 20,000 a year off this account. Then you can say, well then how about this? How about you loan it to me for a year or two years or three years, right? How about if you give me an interest free loan or how about if you give me an interest loan, you're at least at that point getting a loan in the company that you are acquiring, your business that you want to acquire with, to bridge that $40,000 gap. Now, before you say, but you said I could do this with no personal credit and that's going to be a loan to me. No, if you do this correctly, you will use an spv, which is a special purpose vehicle that's a corporation or a limited liability company or a similar type entity where the shareholders don't have liability for the debt of the entity. You use that entity to receive any credit, to issue any loans that you're going to receive to help you do this deal. So in our accounts receivable financing and factoring option, that's going to be a debt of the company, not a debt of you personally. In the supplier loan, it would be also to the company or to your company that's buying the company, your spv, not you personally that's doing that. So that's another way that you can do this. And there's several. So just to get your creative juices flowing, that's a lot of different strategies. And the most common combination would be seller financing plus earnout plus accounts receivable factoring. But as you use your brain to think about other things like me, you'll come up with literally hundreds of ways to do this. We're at 219 different ways right now. Okay, now we've got our deal done and we have an agreement in place. How do you go through, like what's the process of actually buying a no money out of pocket deal? And it really depends on how large the deal is and whether you're buying something like a simple asset, like simply a Facebook group or a podcast, or if you're buying a whole company and it's a big deal. It also depends on whether you're taking money from investors or you are able to fund the deal without having to use any actual third party Investors that are putting money in. So in the simplest deals, you're going to go straight to an APA and SPA or an epa. And those are types of agreements. So what happens is like process wise, the you do your outreach or a seller comes and says, I've got a company for sale. You've identified the company. The next step is that you have a conversation with them and you gather some information to figure out how can I fund this with no money out of pocket. And so we gather not financial statements, not tax returns, because those are very threatening things to ask for. They're walls up. I'm going to talk to my advisors. I need an NDA non disclosure agreement and all kinds of other stuff. Instead I just have a few questions I ask like, okay, how much cash is on hand roughly? Do you have any accounts receivable? Cause I might use accounts receivable for factoring. Do you have any notes receivable? Is this a business that has inventory? What are your raw materials that you have right now? What's your raw materials? Inventory. How much work is in process that's started to make the thing that you sell, but it's not quite finished yet. And how much inventory, finished goods ready to sell on the floor do you have? How many customers do you have? Are there any machines or equipment to do this? Roughly, what would you say you've got in office equipment and FF&E furniture, fixtures and equipment? Are there any automobiles in the business and is there any real estate that's owned? I'm going to ask those questions about assets. Then I'm going to say about how much is the total sales of the company and what's the profit of the company. I'm going to ask the owner if the owner is operating the business, if the owner is actually a critical component to working in the business or if it's professionally managed. I'm going to ask them about their management team and what they're going to do. So who's handling finances and are they going to stay? Are they going to go? Who's handling marketing? Are they going to stay or go? Who's handling sales? Are they going to stay or go? Who's handling operations? Are they going to stay or go? And once I have all of that information, then I have an idea of the shape that the deal will take. So once you have that, you're ready to sit down and say, okay, how much do you want for this? And then you're going to have the collaboration process to begin where you say, okay, the next step is when they've said how much they want for it, you're going to check the industry comps comparable sales to see if what they're asking is reasonable. Then you're going to go back and say what you were asking. You're asking like six times what the industry is. These deals just don't sell for that. So I don't know how I'm supposed to be able to be able to give you that for it because the market just says no. A good seller at that point is going to say I had no idea. Because most of them don't have any idea what fair market value of the business is. They only have an idea of what they want. But that's generally different from what they're going to actually get. And if you don't believe that, then just watch Shark Tank or Dragon's Den or any of those shows where you see the smart investors are always asking the entrepreneur who wants $5 million for their company, how did you come up with that? Okay, because usually it's, well, I just thought that that's what I should get. No, they're actually comparables that we can go out and look to see if what they're asking is reasonable. We now know if it's reasonable. We go back to them, we have that conversation and then we say, I want to get you what you want. Now we're in the zone of what market value is, so let's collaborate. So the collaboration is where you're starting to talk about the law of price and terms and saying, okay, I can get you what you're asking as long as you're willing to let me have my terms. Here's how I think we could do this. If you're willing to finance 80% of the deal and then we can do an earn out for 20% of the deal. That's generally my first offer. It's a really good, strong, no money out of pocket first offer, 100% of what they're asking for. They're getting a note for 80% and they're getting an earn out for 20. They're not getting any money at closing. So it's not often a deal that people take, but it is my first offer most of the time. Okay, Because I'm going to start with the thing that I would most like to have and see if that works for them. Now if they say I'll do it, but I'm totally unhappy about it, then I'm not going to say yes. That's not within the zone of fairness. It's not going to give them happiness. So I'm not going to do that deal. I'm going to try to find something. Okay, what do you need? I got to have this much cash. Okay, let's get you that. Now. Let's talk about how we can get that. Now I'm going to look at all of the different ways that I can come up with cash at closing. As I mentioned, there's a couple hundred of them now, and we've talked about a few of them in a different video and different episode. So that's my next step. Now, when we get the shape of that deal, we kind of have the terms. Okay, so we're going to. You're going to get this much at closing, and you're going to get a seller note for this. And the price is going to be this. Those are terms which we just write down on sheet 1, 2, 3, 4, 5. And that's called a term sheet. It's not a formal or enforceable agreement. It's just a list of the deal points for the deal. I'll then go straight to an attorney and say, okay, this is the term of the acquisition of this company. Can you write that up in a document? I actually have done this enough that I've got templates for it. So I'll put it in a template and just say, here, I've put this deal together. Here's the apa, the Asset Purchase Agreement, or the epa, the Entity Purchase Agreement, if it's not a corporation, or the spa, the Stock Purchase Agreement, if it is. I've put together the document. We just take a look at it and see if I missed anything. And if there's any laws that have changed and then I'll only have to pay for a few hours of the attorney's time as opposed to if I was going to say, create me an agreement from scratch. And then they interview me. And I mean, it could cost tens of thousands of dollars, right? As opposed to a few thousand. So now I have my agreement for a small deal and then I go and I give that to the seller and I walk through it with them. I don't just say, okay, I sent you that agreement, sign it, or send it off to your attorneys. I want to explain it to them first. And I am happy if their attorney is on the, you know, on the call or at the meeting or if I just explain it to them, then they send it to their attorney, then they come back with comments and we work out any disagreement or any places where we're apart and Then we go to closing. And closing can be done through an escrow company or typically an attorney. And the attorney then receives whatever things the seller is going to get at closing. I've taken the steps to arrange the financing for however I've decided to do the deal using my no money out of pocket. Like whatever things I had to do, talk to an accounts receivable factor, or work out a deal with a supplier, or talk to one of the employees at the company that's willing to invest. All of those are things that I'm going to have put in place before I get to the escrow. The escrow then is going to say, okay, all of these things have happened or are happening, all the documents that are necessary are signed. Then we're going to close the deal. And at the end of that I'm going to own the company and the seller is going to have all of the assets that were available at closing and then either the promissory note or earn out agreement or whatever things that we agreed were going to take place after the closing. At that point then I take over the company and my deal is done. So that's really the buying process of doing one of these deals.

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