From $0 to Your First Small Business Acquisition — The Ultimate Roadmap

What's up guys, you don't need an MBA, you don't need a rich uncle, you don't even need a business idea. What you do need is a road map and today I'm hating you the playbook. I wish I had when I was in that corporate job trying to figure out how to go from employee to entrepreneur. From working my ass off to buy my executives new Ferraris to working my ass off to have my life, my vision, my family provided for. Today's episode is the step-by-step road map to go from being a six-figure employee to a seven to eight-figure business owner this year. And for context, for anybody that's brand new listening to Action Academy podcast for the first time perhaps today, I have helped hundreds of people leave corporate jobs using this exact path that I'm about to walk you through today. And also, by the end of this month that I'm recording this, I will be the owner of five to six cash flowing small businesses that do between five to six million dollars a year. Top line by the end of this year, we will probably be doing a million dollars a month, top line revenue from our acquisitions in our core businesses. Today's episode will be broken down into six sections, in sequential order, part one, the acquisition mindset, part two, the acquisition criteria, part three, acquisition funding, part four, acquisition deal finding, part five, acquisition diligence, part six, your first 90 days as a business owner post acquisition. Now guys, keep in mind, this is going to be a 20-minute podcast episode. This is decades worth of private equity and acquisition knowledge in today's show. And I'm going to give you enough to be dangerous and to go out today in the real world and apply this. So if you get value from this, it is your obligation, please, and thank you to share this with three to five other people that are going through the same exact problems. And they can listen to this episode and finally have a roadmap to follow and then please, of course, like subscribe the show and give us a five star rating and review. Let's get to part one, the acquisition mindset, the first roadblock that you need to overcome in acquisition is who am I to be a business owner, right? You're going to have this story in your head that prevents you from even attempting to seriously purchase a small business because you cannot fathom the idea of being a CEO yourself and even worse for those that do end up pursuing acquisition. What you will do is you will buy a tiny super shady business that is way too small, that is a freaking job because you feel comfortable with it because you don't feel qualified enough to buy something in the multi million dollar range. Now again, I want to remind everybody for my new listeners, this is the worst thing that you could possibly do because buying a smaller business is not like buying a smaller deal size in real estate that you can fix and flip and make into this pretty packaged thing. You cannot do that in business you are not God's gift entrepreneurship you need to overcome this thought in this belief today it takes the same work skill sets time and attention to buy a three million dollar business as it does to buy a three hundred thousand dollar business so what we want to focus on is immediately getting into that seven figure mindset if it's not in the one to three million dollar range we are not buying it okay. Because it's just as much work and just as much effort to buy a good business and make it great as it is to buy a crappy business and make it good does that make sense because buying a business will yield you 10 to a hundred times the cash flow of buying real estate which also means that there are ten times more ways that this could go wrong and there is more risk associated so buying a bigger business and buying a better packaged business is actually going to be a less risky strategy for you. To get started because you will mess up the only guarantee that I will tell you in life is you will fail so the goal is to have a business that's good enough that it can survive amidst your failures and if you still are listening to this and you do not believe that you are capable of buying a small business what I want you to do is take out a piece of paper or go on your phone open the notes app and I want you to write down everything that you've accomplished in your corporate career up into this point. I want you write down all your skill sets all of your accolades all the major projects that you've accomplished and I guarantee you that you'll look at that and say huh I'm pretty stinking good because if you're listening to this podcast you're most likely like I was when I was in my six figure job which was I can do this better than the people that are managing me and writing my paycheck. If you sincerely do not think that then you need to pause this episode today and then go work on your skill sets but for most of you listening you will write down this list and say damn better than I thought I was let me give myself some credit and freaking believe in me because if you're not going to believe in yourself who is that guy that's golfing at your local country club the super private and exclusive one that does 20 million dollars a year from his tree trimming company or something like that that guy's not smarter than you. He's just dumb enough to believe in himself so adopt that mindset now part two acquisition criteria we break down our business buy boxes into two distinct sections qualitative and quantitative qualitative means feeling space quantitative means numbers based. The two questions that I'm trying to answer from a qualitative buy box when I'm looking at a business to purchase is number one will the purchase of this asset support the lifestyle that I desire. Question number two is this acquisition aligned with my current skill sets where I could walk in day one and be able to add value before learning any new skills. Let me give you an example for each of these for number one I had a gentleman that I was speaking with in our action academy community and he said I just quit my job. I'm ready to rock I want to buy a business I said okay why what's the end result what do you want to do he goes okay well me and my family want to travel a lot. I said okay wonderful so the businesses that you're sending me right now require you to be in office in person on site and you are the person in the deal today that is going to be that person. So therefore you cannot buy these businesses and or you cannot be the role that is required to be on site which means you need to either find different businesses or bring it a partner that's going to fulfill that role. You see what I'm saying because had he been successful with that acquisition he would have been tied on site at that place which means that he's traveling even less than when he was working a job with two weeks a pto does that make sense. So number one does this business support my lifestyle goals number two is this business complimentary to my current skill sets what does this look like for example bar de amplo bar de miso yentes a spinal plant this. Yeah I just dropped Spanish on y'all's heads what are you going to do about it. So I am really good at marketing and sales I can do operations I can do systems I can do management but it's not my strengths it's not my strong suits. So for my buy box I'm looking for a business that operationally is already freaking sound they have great management they have great system they have great procedures and their areas for improvement are going to be sales and marketing now comma this does not mean that they are failing in sales and marketing it means that they are succeeding in spite of themselves that means that for example I bought this service business in Kansas City and it does about a million dollars a top line through word of mouth alone no advertising no sales team no marketing. Word of mouth. And so now my operator over there that's actually a Academy member that will be on this podcast very soon it's hiring a sales team he's going to be full time going in helping with marketing so like that is something that is uniquely cater to our strengths does that make sense it's how you do the value add because on the flip side imagine this you're really strong in operations systems processes but you're like dude I do not want to talk to a single customer I don't want to talk to anybody honestly but your company that you're buying has a sales and marketing problem you are now going to have to go out of your comfort zone doing two new things at the same time which is new thing number one buying the business new thing number two having to go against your nature and all of your skill sets that have been previously developed to now learn sales and marketing does that make sense. So if you're great today in sales and marketing you want to buy a business that is already operationally very sound that is struggling in sales and marketing if you are very good with systems process management what you want to do is buy a business that is already very strong in sales and marketing and lacking in back in systems and operations. And that concludes our qualitative buy box answer those two questions now to quantitative buy box what we're looking for are service based boring cash flowing businesses that are not going to easily be replaced by AI we want to look for ones that can be enhanced by AI but not replaced. For me personally I like businesses that I can describe on the back of a napkin it's a stupid simple business model or anybody can come in and run this thing I kind of try to steer clear of anything that requires specialty license because if you are trying to go by a plumbing company or an HVAC company and you don't have experience in that field the guys and girls that work for you aren't going to respect you because they have 10 years more experience than you. So you need to either have somebody on your partnership team that is experienced in that or you need to go buy a business that doesn't require the specialty trades license that is just what I've seen to be true. I want the revenue mark between one to $3 million top line I want the profit mark S.D.E. seller discretionary earnings between 300 to $600,000 per year that gives you enough margin to be able to go into this and have enough margin for you. A potential capital partner, a potential operating partner or new hires so you can still be making six figures take home from this deal but also have enough margin for error because I almost can guarantee you as a mathematical certainty that the seller is completely underselling the amount of time energy and effort that they are putting into the business. For example, I do a lot of marketing for action academy on our PNL it would technically show zero dollars in marketing spend but you say oh okay cool they do no marketing it's completely organic but you're not factoring my time. So if you're putting a full time salary on me or a comparable position in the marketplace that may be $200,000 a year so a lot of owners are not disclosing this. Another thing that we're looking for quantitatively is something that is located near you within preferably an hour to 90 minute drive for your first business especially you either need to be on site or you need somebody on your team that is on site on this deal. Especially the first 90 days especially the first 90 days but I would not buy a remote company as my first company period like you need to be in the trenches with your people gaining their trust once you become an experienced operator maybe you can go on site for 90 days and then leave but for your first business do not do this. Another thing I'm looking for is growing profit and revenue because if a business is not growing it's dying even if it's stable that's kind of a bad sign if you find a business that is declining over the last couple of years in the owner the seller the broker says these words do not buy the business pay attention to this part right here. They say oh yeah the revenues declining the profits declining because the owners taking his foot off the gas and kind of you know packaging this thing up for sale. At face value you may say oh yeah that makes sense but that means that you're buying a freaking job the businesses completely dependent on the work of the owner that is like the biggest smoking gun red flag that you can avoid the business should be operating if it is well packaged without the owner participating at all. Another thing that I'm looking for in a business is going to be a good tenure for employees you don't want a bunch of brand new employees you want some decent tenure you want a company that has been going for the last you know five to seven years preferably three years of minimum if a company can't provide you three years of financial statements I'm not buying it. We also want to make sure of who is running the company is it an operations manager is it the owner themselves is it someone else on the team because that is critically important you need to figure out the soul singular person that is running the freaking company if it is the owner may not be the best business to buy. Last couple of rules of thumb I'm looking for something with decently high margin you know twenty thirty percent profit margins you don't I wouldn't go by a manufacturing business with ten percent margins if it's my first business because that is such a small margin of error opportunity what you can lose a few key contracts and be completely under which goes to the last part which is customer concentration you do not want to buy a company or a small business that is concentrated across a few big customers. That may seem easy and better to you at face value but is absolutely terrible and as soon as the new customers get wind that there's a change in ownership they're going to renegotiate their contracts because they're in a position of power now and they're going to make you scramble and freaking squeal they're going to take you out to the wood wood shed. So you want to make sure that if you do have a bunch of big customers that the business is currently servicing these are sharks and minos so sharks are the large customers you want to make sure that there's an appropriate amount of minos to offset the sharks for example if you have a customer that's doing a hundred thousand dollars a year with you make sure that you have ten minos that are also doing ten thousand dollars a year with you each so that makes sense so it's balanced out it's a diversified customer base. Any business that is servicing only a few handful of customers is a giant smoking red flag this knowledge alone should be enough to put you ahead of 90% of people that are organically looking for small businesses themselves without any knowledge any expertise just the stuff that I talked about here in the last five minutes will remove probably 60 to 70% of your risk profile just this stuff for free. Which leads us to section three the acquisition funding game. I'm going to talk about four different ways that you can fund a small business in action steps that you guys can take today in your job to pull us off the first way that we are buying small businesses is through what's called the SBA program it is essentially a mortgage on the business think about Fanny Freddy FHA you know five 10 20% down you're buying a piece of real estate paying it off over 30 years same thing with the business 10% down the bank will finance 90% of it. We have done this for half the businesses and a lot of the businesses this is just like the default path I'll plan for this. This process takes significantly longer than option two that we're going to talk about here which is seller financing but the pros are the bank is going to underwrite you and underwrite the business like freaking crazy so if you have a business that's passing SBA underwriting in the SBA process it's probably a pretty dang good package business because the SBA is going to rip it apart like we have had to do so many nook and cranny financial documents to satisfy SBA for two of the loans that we've done. For context SBA can take 90 days or greater to pull this off. So now what's the SBA going to require your SBA lender is going to require tax documents income statements paystubs business financials and a business plan for how you're going to improve the company. You can also get pre approved through the SBA before even looking for a business now I will create a resource where we can send you guys like kind of a mock email to send. But right now that's too much for the podcast. TODR million dollar business expect to bring $100,000 down so if you're listening to this today and you have $100,000 ready to throw down towards a business like you could buy a business that is really decent today you just need to learn how to do the things like talk to us action academy this is what we do in our mastermind. But if you don't have $100,000 here goes option number two which is seller financing now most business deals are going to have some aspect of seller financing attached to them why is this either number one is something that's directly off market. You have a direct relationship conversation with the seller you guys want to quit close you're going to do the acquisition on your price your terms your rate all this stuff and you don't want the banks involved. Option number two you have someone that has a good business you're going through the SBA process but you need them to kind of let off the gas a little bit to have you qualify properly for the SBA. So in real estate you would ask more so for concessions and in business buying you would ask for some seller carry some seller finance it's always good to try to negotiate at least 10% 15% 20% seller finance even into an SBA deal. Because what the SBA banks and lenders are looking for is what's called a dscr a debt service coverage ratio this may be the single most important factor of your business acquisition especially from the funding perspective this is essentially saying how much is the debt payment that you are paying in context to the monthly profit coming in from the business. So for example what we're looking for here is at minimum about a 1.6 to 1.7 dscr in a really good deal a really decent deal that you're looking at is going to be a 2.0 or greater dscr which means that the monthly profit coming in from the business is going to be double or better the debt service payment that you are paying to the bank or paying to the previous seller. And last note on seller financing you also want to have the owner having some skin in the game so each owner is going to say oh yeah for sure Brian for sure Kevin for sure jobs for sure Ashley I'll stay on and help you guys you know transition the business bull crap. Always think that they are full of it they're lying they're going to help you a little bit and then fall off the face of the earth they're not going to answer emails text or phone calls okay so go ahead with the assumption that they're going to ignore you and if they don't. Happy accident right so seller financing even 10% you are directly paying the owner the seller the payments so it's in their best interest to have the business continuing to survive and thrive without them post acquisition which makes them more likely to help you. The coolest thing about deal structuring especially creative deal structuring is aligning your interest with each other because of a seller has zero skin in the game now they're going to disappear. Another big question that people ask in my DMs and in our community action academy all the time is why would a seller sell a profitable business let alone seller finance a profitable business here's why 8 to 9 times out of 10 the seller is going to be in their 60s going into their 70s they just want to retire they've been running this business for probably 5 10 15 years plus and their kids want to do tick talk dances like they don't want to run the local tree trimming company the service company the freaking asphalt or concrete company they just don't want to run the freaking thing. So they have no one in their family that's going to run it so most of the time what they do is they just shut it down that's why this is such a major economic opportunity because we have to remember we're trying to. View these sellers like in the beginning of your business buying journey you're viewing these sellers as some sophisticated white collar person that has this private equity background and they understand DSCR and debt and multiples and profit all of this they don't. If this is your first time buying a business you have to remember this is their first time most likely 99% of the time selling a business they've never done this before it is ask area process for them as it is for you. So don't go into this with all these legal mumbo jumbo and all these fancy fancy terms like the point of seller financing is to just meet them eye to eyes a freaking business owner and you're saying hey dude. Or hey ma'am you've been doing this and you want the thing to continue going you want your customer serve and most importantly you want your employees taking care of and it's just really looking them in the eye and giving them a handshake that you are going to make sure that their legacy that their company that their baby survives and that their employees are taking care of and provided for from a money perspective if they go through the SBA the bank is going to pay them in one lump sum. So if you're buying the business for a million dollars the bank is going to wire them one million dollars at close. And this will represent probably a 37% tax on them at minimum 25 to 30% and you need to talk to the seller about this and be like hey like you're going to lose this million dollars is going to go down to freaking 700,000 real freaking quick. Or what you can do is sell our finance it through me and I can pay you monthly payments completely passively. So that's why off market business is so cool it's higher risk because the SBA is not involved and you don't have that extra layer and set of underwriting. But if you want to take the risk and you can talk directly to the seller you can say hey Jim you want to retire down to the Florida keys with your wife. You're making freaking $20,000 a month a profit from this business like let me figure out a way that I can just pay you that $20,000 a month you don't got to do jack crap at the business. I'm going to freaking run it. I'm going to grow it and you can participate in experience a little bit of that upside you know if you're helping me. But this will help you pull off your lifestyle goals. That is why the most important thing in a seller conversation is figuring out why they are selling the business and what is next. Because you want to again align interests you want to align interests the last thing I'll say about seller financing is it's your price my terms or it's my price your terms. So the three levers that you can pull in seller finance negotiation creative financing is going to be the price of the business that you're buying it at the duration that the payments going to be and how it's set up. And lastly the interest rate on the payments so if they're hell bent on a 15 year note with a certain interest rate then you can say okay I can get you that at this price and you lower the price or if they're hell bent on a price you give them that price or higher but you give them the creative terms you control the terms don't ever let them have all three. All right so that's almost everything you need to know about seller financing but yes you can buy a business zero dollars down 0% down through seller financing last thing on that is if a business is listed for sale on a brokerage site like this by sell or it's just by business broker. Do not lead this with hey can they do seller finance because the broker is going to immediately say oh this is someone that's brand new we're not going to do this. So finance is normally something that we're going to negotiate indiligence if it's something that's listed by a broker formally if it's off market you can come into it with some seller finance conversations. Boom so finance concluded sorry guys I'm just making this the step by step thing for all of you guys what's going to be longer. The next thing you can do is investor partnerships this is how most businesses are most likely but I would not buy business myself I love investors I love partnerships it just makes it more fun because if you're doing it by yourself there's risk but if you're doing it with partners then at least it's a shared risk which mitigates the downside a little bit. So partnerships are you bring the deal they bring the cash or you bring an operational skill set and they bring a complimentary skill set. So let's start with the latter first my name is Brian I'm great at sales and marketing I'm a people person I'm going to be customer facing I am not going to partner with somebody else that is like me that's also super talkative outgoing extroverted people person sells a marketing. Uh-uh I'm going to partner with people that love spreadsheets that love systems that love the backend that's called complimentary partnership if two of you guys are doing the same thing one of you is not needed guaranteed. So always partner with your opposite most of our action academy partnerships are like this where we have two people that link up and they say hey you know I really want to do this here's my buy box and somebody's going to agree in the operating agreement to be the person that is going to be like the day to day boots on the ground and the other person is going to be remote helping in some sort of way which leads us to the capital partnerships I'm a capital partner on a lot of deals. Here's a very simple and structured way to do a capital partnership for buying a small business now it's not the only way it's just the way that I preferably do you can do debt which is a promise or a note where you're going to essentially do like real estate you're going to pay them a preferred return which is going to be like 10 12% over a period of years or you can do equity which is they are an equity owner in the business. I do a combination of both if I'm buying a business as a capital partner that means I'm probably coming in I'm funding the 10% SBA down payment which means that the other person doesn't have to technically put any money in the game they don't have to put any skin in the game and I am probably in exchange for that 10% down of that business taking 15% equity 15% profit share. Is this the only way to do this no but here's why I do this there's this thing called risk adjusted return or are in businesses no matter how well package are significantly more risky than real estate investment so if I'm going to invest in like a storage facility or something for five years and I'm going to get a preferred return of like 8 to 10% and I'm going to get like a 1.6 to 2x equity multiplier over five years that is a safer investment a less sexy investment than buying a business but I need to be compensated for my. Risk in the business so I want there to be some arbitrage there and some buffers and safety zone to where I can make sure that I'm getting a decent enough return for the risk that I'm putting up of potentially losing my capital right so that is one way the I structure deal and it can just be an easy rule of thumb for you to say okay cool I have 20 to 30 thousand dollars in my bank account. I'm going to invest portion of that into my education to learn how to do this thing and to build these networks of capital partners and I'm going to save the rest as an emergency fund right then you're going to get a capital partner like me to come in and put like the $100,000 down the $200,000 down to buy the business you can just easily as a rule of thumb baseline rule of thumb say I'm going to give them you know 12 to 15% equity and profit share of the deal I'm going to maintain 85 to 88% of the deal and I get it no money down. That is how capital partnerships work more common than even this I would say people are probably throwing in a little bit of skin in the game for each person so we have a lot of deals to where you'll have folks maybe like 70 80 thousand dollars and they'll go 50 50 so you have two people in the group that are saying okay cool want to do this $100,000 down payment I'm throwing in 50 K you're throwing in 50 K let's do this freaking thing that's also common. What's really important here is what's called the operating agreement the operating agreement is the most important document you have in your life. The operating agreement is not an agreement of here's what happens when everything is going right and all the money we're going to make together the operating agreement is you guys getting on the phone with a lawyer that you guys hire and you are going through almost like a prenup like you are going through a crappy conversation together and saying all the different ways that this could go wrong. What happens if Susie decides to screw me and she just stops working disappears and moves to frickin Bahamas and doesn't answer my call she's a 50% equity partner in my business. How do I buy her out at what price at what terms do I get this business back you know what what penalty is there for Susie screwing off into the Bahamas like this is something that's so important if you guys have a disagreement who takes precedent in the decision making in the ownership control. If you guys are getting sued how does that look like if you guys are doing a new acquisition or making business changes who makes the decisions the operating agreement is all of this now you don't need to know this from scratch but this is my mentors and like masterminds like this is why it's important is this stuff and having a good lawyer which you can also get the recommendations through your network. This is why I kind of laugh when everyone's like haha owner by a business on my own I'm like my brother is sister in Christ are you kidding me you're doing this on your own with no network no nothing got it. So this is part three funding you don't need your own money you need the knowledge encouraged to structure the frickin deal correctly this is the meat and potatoes right here is funding. Now we're getting into part four the acquisition deal finding flywheel aka Brian where the hell do I find these deals. Now again sequential order what did we just cover we just covered number one the mindset shift to buy a bigger business right part to the criteria of what does a bigger business actually mean part number three. How do you fund these businesses because when you have all of that information aligned and you have all the information clear you have your buy box clear you have your funding clear you have your game plans clear you have your buyer profile on your buy box clear. The deal finding process will be significantly smoother significantly easier it takes effort up front up front guys you have to slow down before you speed up because if you are looking for years. And you're just analyzing hundreds and thousands of businesses but you don't know what you're looking for there's no way that you're going to get it. Same thing with dating like if you don't know who you're looking for you go on a thousand first dates and it's pointless for deal finding we are going to do four different paths again number one is going to be the easiest which is biz by sell dot com that is B.I.Z B.U.Y S.E.L.L dot com think of this like Zillow for businesses just like there are real estate deals to be found on Zillow there are also business deals to be found on biz by sell we have had. Dozens of people successfully close on businesses from biz by sell. You just got to sift through a lot of businesses to find the gems this is probably the easiest and best path for you to just get used to looking at businesses looking at how their package looking at how their financials are set up and having preliminary conversations brokers good rule of thumb when you're getting started analyze a deal a day. Now I will say this it may be better for you to go into chat GPT literally and say hey I'm looking for a business from all the criteria that I just listed in this podcast episode or you can just take all the information from this podcast episode downloading as download it as a transcript uploaded to chat GPT and say help me practice underwriting businesses and speaking to brokers through the information from this podcast episode and it will help you it will act like a broker and be going back and forth with you so you can. So you can get really dialed in your conversations because what you don't want to do is go and biz by sell and burn all of your best brokers that are in your market. Through sending crappy emails and being a very unsophisticated buyer or at least appearing to be an unsophisticated buyer so good rule of thumb is when you're reaching out to brokers to request information just to get practice. A what you're doing is chat GPT be if you are actually reaching out to actual brokers do it outside of your market in a completely different market that wouldn't burn your local market which leads us to of course path number two which is local brokers. You are going to have in your market probably two to five brokers that are like the top guys and girls you want to be their best friend. There are full episodes of done for an hour with business brokers that I'll link in the show notes for this episode that you can go listen to where it's me literally having a conversation with a broker about how to do it how not to do it. And he tells you step by step here is how you approach me for me to actually respond to you and send you deals because a lot of the best businesses are sent to you from brokers is what's called pocket listings. Pocket listing is going to be a broker that has a deal that comes across their desk they underwrite it they look at it they package it before they listed on biz by cell and all the main websites. They're going to send it to their list of qualified and sophisticated buyers that they think can take it before they list it. This is like the holy grail this is the sweet spot right here. So you want to find your local brokers you want to be super specific in your outreach with them and you want to follow up like crazy every single week you're texting them you're calling them you're emailing them and you're letting them know that you're serious because there's so many people that are freaking tire kickers and you have to prove that you are not a tire kicker. So a way to do this is to go to your broker and say I want to buy this type of business in this range by this time period put a time period to it and then you list all the resources that you have that will actually allow you to close the deal you say I have SBA pre approval. I have these capital partners me and my partners are doing X Y and Z I want to close by October on a business between one to three million dollars that is a good place to start. Another path you can do is direct to sellers so this is going to be Facebook ironically is massive I would hire VA's or I would just go myself and spend an hour a day just coming at these four sale by owner. Facebook pages like there are so many owners that go on Facebook because they just don't know any better and they're posting their own deals and they're saying hey I've got this deal. This I want to retire like who wants it and there's thousands of these and so many of these groups I would go and look at that we've done businesses from Facebook pages literally and you can also do this locally you can go just door knock and call call and send mailers to direct business owners like I would probably just try to show up. Literally and just talk to them when I was trying to buy laundromats I would show up to all the local laundromats in my Atlanta zip codes and I would just pop in and see who the owner was or talk to the attendants say I am looking to buying one of these like can we talk about it and then just. Ask them questions and figure out what are they trying to do what how long did they own the business are they trying to retire and you just got to prove yourself as someone that's credible and that knows their stuff which is why this is part four in the process not part one. And lastly what you want to do is you want to post that you were looking for a business because you have friends you have family you have people in your immediate network I promise you. That are the last people that you think that are either own a business that are wanting to sell it or they know somebody that owns a business that is wanting to sell it so post about what you're doing or at minimum Facebook message and text your network to let them know what you're doing privately. In closing for the deal finding acquisition process most good deals never make it online passed around behind closed doors the goal is to get behind those closed doors in the beginning good rule of thumb I would say to get started is look at five businesses a day. Like go actually look and try to underwrite at least one to five businesses a day reach out to a handful of brokers per week. And once you analyze and underwrite about a hundred businesses you're going to be pretty dangerous you're going to know what you're talking about. Now let's go to number five the diligence checklist again this is a full other hour long plus podcast episode that we've done multiple times and I'll link that in the show description as well. But aka what do you need to look for before you buy we have about a five part framework that we can easily say that you can go through and we can go from there. Thanks for bearing with me here guys we're going into 40 minutes here but this is really good stuff this is me literally just giving you everything that we have for free. The five parts that we're looking for in diligence are number one financials two operations three customer base for competitive mode and five risks that is the diligence checklist. Number one financials we are looking for three years of trailing financials this is going to look like three years of balance sheet statements three years of profit and loss statements. Three years of tax returns number two operations who does what what are the daily responsibilities what is the org chart look like who's the manager of who how long have they been there. Who owns what you need a chest to poke in the throat to choke for each function. You want to really read between the lines here because the seller is going to tell you something and the broker is going to tell you something and you need to strategically ask questions to figure out where the smoking gun is aka. Where are the bodies buried because I guarantee you there are bodies that are buried so instead of going into a business thinking that it's God's gift to small business acquisition and you're just you found the best perfect business. No, it just means that you didn't do a good enough job uncovering what the problems and what the issues and what the constraints are they exist every single business has them your job is to solve them to make sure that they are solvable. Number three customer base is it recurring is a diversified again what was that that we talked about earlier customer concentration risk. We want to make sure that the customer base is diversified also a recurring customer is more valuable than a static one off customer that is increasing what's called the LTV the lifetime value of the customer. A dollar of recurring revenue is worth three times on evaluation report as a dollar that is one time revenue for our customer base and number three we are looking through a customer journey. How does this business get customers in the door how do they convert them and how do they retain them period like we want to follow the entire customer life cycle through the business. Part number four of diligence the mode what makes this business defendable how do they position themselves to the existing current competition that is already in the marketplace and how do they protect themselves from future new competition in example of this with a bad mode would be a car wash. Car wash is a popping up left and right and there's not that massive of a competitive moat to prevent new car washes from poppin up so that is something that kind of steer clear of right now is car washes for that reason. Number five in diligence checklist is risk so risk can be multiple different things the first risk that I look for is key man risk which means how dependent is the business on the owner. Number one thing most of these businesses are going to have a little bit more key man risk than they're acting so can the business operate without the owner number two is key employee risk so this is do you have family members of the owner that are running the company. No way God's green earth is the owner of the company going to sell the company in their employees that are their family members their sons their daughters their cousin their wife they are not going to continue to work for you. Don't do it don't do it they are going to leave they're going to quit they are going to dip don't do it that is key employee risk to where if one employee or a handful of employees leave the businesses toast. Now the risk is industry risk if you are buying a magazine that is not online and only a paper or a newspaper business that is not a great industry that is appreciating it is a declining industry I would not go into that. I would also not go into maybe like a copywriting company because you have AI coming up and you're like oof I think AI is going to be oh I hear which is organic intelligence people. Now the one is data room risk do they have clean it and audited financials if you're doing seller finance this is the con they most likely won't it's going to be back in the napkin bullshit that you have to decipher and comb through. Another risk is economic risk so again this kind of coincides with industry risk for example right now in today's economy I would not buy a company that is dependent on multi-family development like events a company that does roofs for apartment complexes. I'm probably not touching that industry in that market today just because I don't love where the market is trending in the multi-family sector and so I wouldn't touch adjacent to it if that makes sense. So again diligence is something that I could talk to you guys on a podcast about for hours and hours and hours this is going to be the medias part the messy middle of their business acquisition process. The L.O.I. is just talking to a pretty girl at the bar and getting her a drink and she says yeah you can sit down and talk to me diligence is where you're actually going on dates and trying to figure out should we marry like should we have children together this is super important. And this is the spot where mentors in like people like real life people coming to play I don't buy businesses without taking them to my business partners and taking them to my mentors and say hey can you get eyes on this and tell me where I'm messing up here. Like I use a combination of chat GPT of AI with like very very specific and detailed prompts that are helping me like straw man and steel man the argument for buying the business which is like straw man is telling you the reasons why you should buy the business and still man is telling you the reasons why you shouldn't buy the business I may have those confused but you get the picture my people are the ones that help me really see through things that I have been missing and that's why mentorship is extremely important again here. Both your operating partners and your mentors are key. So now let's walk through a closing timeline right now before we get into your first 90 days as a business owner and we will tighten up this podcast update like I'm almost going to do damn near an hour long solo show this is insane. The timeline for this realistically I'll give it for an action academy member like for people that are in our community in our mastermind this is the process it takes you a full 90 days to even learn what the hell you're talking about. 90 days three months of a lot of hand holding a lot of education it's a lot that's why I think it's laughable when people try to do this by themselves it is a lot. And so after 90 days you know enough to kind of be dangerous and then it takes a full probably another 90 days to get your acquisition machine and your KP eyes and your goals up and running like you've got relationships for brokers established your consistently underwriting your consistently looking to deals your consistently sending offers you have your pipeline established in your CRM established. Then within six to nine months we want you to start getting under contract on things so you're otherwise are beginning to get accepted and you're going through the diligence process on average maybe two to three times before you actually get a deal across the finish line. And each time you go through diligence you learn something new you learn to look for something new that you didn't think of before that's happened to me like a dozen times already where I'm like huh didn't think to ask that cool now I know. And again you can expect diligence to take 90 days a solid 90 days from an L.O.I.B. and accepted to close is pretty standard sometimes longer rarely shorter but if you do sell your finance it could be a little bit shorter. So right now it's April as I'm recording this so say that you're listening to this 43 minutes deep and you're like by God I'm going to buy a business this year in 2025 and I hear Brian talking about actually Academy and I want in. If you joined today like what would the process look like if you joined in April and just do the math for whenever I repost this episode later but it's April right now if you joined in April then by July you would know enough to really start going by October you would most likely be under contract on something. And then God willing a December close but most likely January or February of next year we also have people that have done this for 18 months took him 18 months and they went through this and they just would get. Under contract go through a big hairy business fall through fall through again and then finally it took them long enough to just like really get good at it and they bought one business and they finally got it and they finally quit their job. And it's a good freaking business that's millions of dollars hundreds and hundreds of thousands of dollars a profit and they can finally do it so even in context like people that are taking 18 months to do this like that's still a year and a half away from you completely replacing 200 to $400,000 a year job. So let's close this out say that you go through that process and in nine months ten months you buy your first small business congratulations that is amazing again it can be six months we've had it done before we have podcast episodes on that too but now congratulations you're a business owner here's some wonderful rules of thumb that will help you on your 90 day transition from taking ownership of the business to stabilizing the business and beginning to make changes rule number one shut the hell up. Shut up don't do anything don't change anything don't be God's gift of entrepreneurship you are going to only ask questions kind of for 90 days because you just don't know what you don't know even if you are super smart you're coming into this business with employees in the best way to build rapport and trust is to ask them a lot of questions and they are going to feel seen they're going to feel heard and they are going to tell you the good the bad the ugly this is where you figure out where the bodies are buried. So for 90 days do not change the thing do not touch a thing you are in the business you're rolling up your sleeves you're getting the trenches with your employees you're helping them service customers like you're riding with them you're talking to them you're breaking bread with them you are building employee trust okay and the biggest threat that the employees are feeling right now is do I have a job and that may not be true after 90 days but for the first 90 days your job is to establish trust with them and to make sure that they know that they are safe and secure with you. Because if they do not feel safe and secure with you they will quit and you will be working a job again that you do not want. So for 90 days you're going and you're establishing with each employee that you can because if you're buying a business between one to three million dollars is probably seven to ten employees max kind of for this. But you're looking at the employees and you're saying a you know what are your goals what are your dreams what do you want to accomplish. The previous owner probably didn't ask me these questions they're saying what's working really well today what are areas for opportunity like what are areas for improvement. And the cost and the employees will feel so heard that they're going to feel that they have a way in and buy in for the first time in their probably employment. And it's going to be really cool that's how you get your employees on board. Next thing you want to do is you want to get in front of every single one of your largest customers like the shark customers you want to go talk to them and say hey like face to face you know hi I'm Brian you know I'm going to be taking this over you want to see anyways that we can improve the service improve the relationship for you happy to happy to talk I'm here you know with you and I'm going to make sure that your service better than ever before. Then you're going to build road maps systems and processes for each key function of this business and important what it is today. So everything that you saw in diligence you're going to have like 80% of the information that you need to know what actually is going on and this will be the remaining 20% that's the most important. So the owner will tell you the path that they think is how you get a customer but now you really see it when you roll up their sleeves and get into the systems how they actually get retain an upsell a customer. So now you're going to build a customer road map sales and marketing journeys and sales and marketing S.O.P.s we use this website called mirror M.I.R.O. for this we're building out visual S.O.P.s step by step and you can see the customer journey. Then we're building out fulfillment processes again visually step by step and we're just documenting how things run today by the end of this 90 days you should have the employees no like and trust you. And you should know the business like the freaking back of your hand you know every nook and cranny you know every strength you know every weakness you know every area of opportunity is called a SW analysis S.W.O.T. Strengths weaknesses opportunities and threats and now you really have that org chart dialed in you know who does what who reports to who and you have a chest to poke and the throat to choke for each one. We implement a system called EOS right now we are just gathering the information for EOS we're not implementing yet in the business. Then after 90 days what we're doing is now we are having enough information to make any employment changes that we need to make so this will include hiring firing changing the org chart changing positions elevating people to have potential. This is where you begin to make changes so that's going to be with your org chart first and then we're going to automate delegate and replace ourselves from ops ASAP. The last thing that you want to do is get back into the weeds of your business we had two action Academy members that just bought a business and I was doing a walk and talk with one of them in Austin, Texas and he was like yeah you know our sales guy was making $120,000 a year for kind of doing nothing so we just took it over ourselves now we're selling them and we're closing them like crazy and now we just saved 120k I'm like dude you're working a job again. Like look at that zoom out you are working a sales job again and you guys would default to that because that's what's comfortable for you that's what's familiar do not do this be a business owner build a system hire somebody new restructure the comp plan. Next we want to set up dashboards KPIs scorecards and reports have a public scorecard where each employee has metrics they are responsible for three metrics max per employee and you have them compensated based off of these metrics. And these metrics should drive revenue retain revenue or upsell revenue or service slash delivery to the customer in example of this is my friend Logan ranking and his property management business has three metrics that he tracks for his handyman that go out to do maintenance requests. One of them is are they showing up within like two hours like it's speed speed to lead is the most important thing for them. Another one is how many reviews that they are receiving I think he has a metric where if they receive like 80% or higher like five star reviews they get a performance bonus. So you can tie whatever behavior that you guys want to money financial compensation that's what we do an action academy we have a position for acquisitions director where he gets a higher compensation and bonuses based off of the performance of the members if the members are hitting their acquisition goals he gets bonus on that. So it's all about performance incentives even operational roles that are not sales. And last but not least sorry to backtrack a little bit here but we're 50 minutes deep and I'm kind of out of sequential order but you want to make sure that your owner transitions you to the team. And we call it a T O T a transition of trust that owner is really really heavily involved with you in person transitioning you and introducing you to the team each team member super important in person also your biggest customers. The owner needs to introduce you to the biggest customers in person period 100% like that do not skip this this is the most important thing this is if you bought this it will go so south. And that lays the gentleman is enough for you to go from six figure employee to seven figure entrepreneur I just gave you what most people charge $10,000 for across 50 minutes like this isn't even a webinar this is for legit something that you can send to anybody for free that will give him enough information to be dangerous to go out by a small business for again free now. If you guys want to have your handheld through all of this this is what we freaking do it action Academy like we are really really good and we have hundreds and hundreds of people go through this process I have a million dollars a payroll to I pay to the best and brightest coaches mentors asset class experts that are walking you through this we also have your operating partners in the group that you can partner up with to buy these businesses we have your capital partners in the group that will help you fund these businesses. And we got mentors in asset class leaders that will walk you through diligence to make sure that you're not structuring these deals where you're going to get freaking screwed alright so if you're still listening to this this is probably a very very very good investment for you check us out action Academy dot com go in the show description go in the notes you can find a link to book a call with us for 20 minutes we'll talk to you about your goals and see if it's a fit thank you.