What to Consider When Buying a Company (Part 2)

Hey, this is Hector Santi Esteban and welcome to another episode of Business Lunch. Today is part two in a series of what to Consider When Buying a Business. And this is practically Roland's specialty. He's actually written a whole book on it. And if you haven't gotten that book, you can get it for free@your0downbook.com that's yourzerodownbook.com everything spelled out. And Roland actually goes through hundreds of strategies on how you can acquire businesses without putting any money down. And so if you haven't listened to part one in the series, go back and listen to that and next week we'll finish the series with part three. But hopefully these snackable episodes are giving you tactical strategies that you can go out and start implementing right away in your business. And if you've had success with these in your business, we'd love to know about it. Find us on Social at Roland Fraser or BusinessLunch podcast and let us know what you did so we can try and share it here on the show. As always, thanks so much for joining us at the table. We're going to get into today's episode with Roland right after this. How much more successful would you be if you had lunch with insanely successful entrepreneurs who shared their biggest secrets on how they think and achieve success? Well, now you can. Here successful entrepreneurs reveal their step by step strategies and other fascinating stories.

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The next thing that, that I probably like to think about when I'm thinking about acquiring a company is what are the questions that I'm going to ask the target company? So what am I going to ask the owner really as I'm starting this conversation about acquiring a company? And that's a really cool thing to think about because I, I feel like a lot of people go about this in a way that creates more friction than you need to at the beginning because at the beginning it's a blank slate. We have hopefully determined what are our acquisition criteria and we have hopefully determined a minimum EBITDA or SDE profitability level. And so we know that we're gonna be asking, we know we're gonna be asking questions about what is the sales level and what's the profitability level of the business. But many people start out with just saying, hey, would you like to sell your company? And one of the challenges that I have with that as an initial question is that it's a walls up question. So if somebody asks you that, one of the things especially if you're reaching out cold to companies that you'll get as a response is a very angry response, which I don't understand but angry response that said who told you our company was for sale? Well, nobody. I found you in the public records. I'm looking for a company in this area of the world, country, state, whatever that that is doing what your company does. And my, your company came up in my research.

Right.

So rather. But that puts you on the defensive, them with walls up, on the offensive, maybe even a little angry and then you're kind of digging yourself out of a hole from the very beginning. So the, the question that I like to ask is more investment oriented, more hey, I, I'm actually, I'm an investor. I'm looking for a company that's located in the Pacific Northwest area, region specific, that manufactures candles, industry specific to the, to the person I'm talking to. And that is doing between 1 million and 5 million in sales annually. And your company came up in my research. So I just wanted to reach out and see if you might be interested in having a conversation to see if there's a fit for an investment or some opportunity to work together. That's it. Now what's nice about that is that it's very generic, right? It's not threatening, it's not scary, it's not I want to buy your business. It's Just investment and coming as an investor is very non threatening because almost all businesses are open to the possibility of investment because pretty much all businesses need capital, right? So now also I want you to feel that you're coming from a place of authenticity when you're talking to somebody about this. So what I like to do is I like to be clear on what is an investment. So in your head before you talk to the seller. So an investment is typically a provision of capital and capital is not necessarily cash. Capital is resources and assets that can help a business. So when we're thinking about having a conversation and saying I'm an investor, even if you don't have a big pool of cash that you're sitting on, you do have capital because you have resources, skill and knowledge that can be valuable to the company that you're talking to. So when we're talking about that I'm an investor looking to make an investment in a company like yours, located in an area like yours, doing between this level and that level of sales or profitability. That is a very sincere thing to do, to say, because that's what you are, you are a person who's going to bring resources to the table. So that is kind of an initial conversation that you're going to have to start the deeper conversation. Now when they say okay, I'm interested in talking about that, the next mistake that many investors make is they say, or many acquirers would be, acquirers make is they say, okay, I need to have your financial statements. Unless you're an accountant or a very sophisticated buyer who knows how to read and what the importance is of all of the lines of a financial statement, you don't need a financial statement to have an initial determination of whether this company might be of interest to you as an acquisition candidate. So instead of saying that, because if you say I need to see your financial statements and tax returns for the last three years, they're going to go to either their accountant or attorney, best case, and they're going to say, hey, I'm thinking about selling a company and I need to get this information. And, and those people are going to say wait, wait, wait, wait, wait, wait, let us talk to them, let us get in the way, let us help you, let us protect you. And by the way, you need a non disclosure agreement and you need this and you need that. And now you've got other people in the mix before you even know if this is a company you might be interested in, I think. And their walls are up again. So I think a better Easier, simpler, less threatening, less complicated, and certainly stick with the owner seller as opposed to bringing in all these professionals. Way to go about this. Instead, just say, hey, listen, that's fantastic. I've got a few questions that I need to ask to see how we might best work together. I'm going to ask for a little bit of basic information like sales and profits and things like that, as well as some other stuff. Is this the best time to do that or should we schedule a time in the future when you can gather that information together? Now, I don't send them a list of stuff to get me. I want this to be as much just conversational as possible. Very often they'll say, I pretty much know my numbers, happy to talk with you now. Or they'll say, oh, let me get some of that together. And then we can get, we can hop on a call or a zoom or meet in a couple of days. Either way, what you're after here is just the very, very basic information. But before you even get there, before, before you even get there, I want you to start building rapport with these people. So the question next to ask after you have determined, after you've gotten this connection, which usually that first question about, I'm looking for a company, I'm an investor looking for a company that's in this particular area that does this particular thing with, between these numbers and those numbers. That's usually the outreach, the initial outreach that you're going to make when you have that first conversation, I go first and just say, hey, that's really great. Thank you for responding. I'm excited to chat with you about it. Can you tell me the story of the company? What's, what's the history of the company and the story of it? Now, this is going to do a couple of things. One is it's going to give you a long form, narrative essay kind of response orally from your seller owner about their business, how they got into it, how it got started, what's going on, what it does now, how it's evolved very often how it's grown sometimes what are the problems with it? And you're going to be taking notes here because they are giving you just priceless information. And it's so much better and so much less threatening to them to do it that way than to send them a form or send them an NDA saying, I need your financials and tax returns for three years. And so you'll get a lot more information. That's soft information in addition to the really important hard Things like numbers that will give you context and help you build rapport with the seller owner and also think about how a deal might be structured. So while they are telling you this history story of the company, I want you to be finding places where you can build rapport with them because you have common interests and commonalities. So if they say, well, I graduated from Tuscaloosa University in 1994 and moved from there to here because I'd always was interested in the organic food movement that was going on on in Oregon. If you can find any common points there that are specific, that's the best. Like I too went to Tuscaloosa University or once removed. My uncle went to Tuscaloosa University or even three times removed. I knew somebody that was in Tuscaloosa. What an interesting blah, blah, blah, right? If you can't do that in a specific way, then do it in a more generic way. Oh, that's really cool. I was always interested in organic foods when I was in university as well. Whatever it is that is legitimate, honest and true, don't lie, don't make things up that you can find a common touch point that is going to be a know like trust builder. You're going to have a situation as you find and point out those points of commonality between your life and your experience and their life and their experience and their business and you that is going to make them know you better. Like you better trust you more, much more likely to get a deal. So that's the first thing. Don't care how long it lasts, but it can typically last anywhere from 3 minutes to 20 minutes. After you have that first information, then say, that's great. I really appreciate you sharing that with me. It's really super interesting. I love learning about the company. Tell me more about you. What is your entrepreneurial journey? Is this the first business that you were in? And then find out and let them talk about themselves more people love to talk about themselves and you as a good listener and interesting human are interested in what they have to say. Again, find common touch points. You're building rapport here. And also they're going to tell you things that are going to be more interesting to you to take notes about that will help you as you craft an offer to think about buying their business. So that's really the first two lists of questions that you're going to ask as you encounter a seller.

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Hey business lunch listeners. We're going to get right back to the show, but Roland wanted me to invite you to a brand new training that he's doing on acquiring businesses with no money out of pocket. It's something that he's talked quite a bit about on the show, but he's doing a free training where he's going to walk through the entire process. So if you want to get access to that, go to businesslunchpodcast.com epic that's businesslunchpodcast.com epic and you can get signed up.

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