The Private Equity Playbook - Part 2

My name is Ryan Miller, and for the past 15 years of helped hundreds of people to raise millions of dollars for their funds and for their startups. If you're serious about raising money, launch in your business, or take in your life to the next level. This show will be the answers so that you too can enroll your pursuit of making billions. Let's get into it. With trillions of dollars of businesses that need to transfer hands, private equity as an industry is coming up from behind as the dark horse of high finance. Join me in this second installment of our private equity mini-series with my dear friend Adam Coffee, as we take you on the final stretch on closing deals, raising capital, and exiting for billions. All this and more coming right now. Here we go. Hey, welcome to another episode of Making Billions. I'm your host, Ryan Miller, and today we are covering the second installment of our two-part mini-series on private equity from the legendary Adam Coffee himself. As mentioned in the first episode, Adam is a three-time best-selling author of Empire Builders, the Exit Strategy Playbook, and the private equity playbook. He's a frequent contributor to Forbes and has sold over, get a load of this, $2.5 billion in private companies. He's recently updated and expanded his edition of the private equity playbook that further outlines the strategies that work in today's market. So what does this mean? Well, this means that Adam understands how to buy companies for no money and sell them for insane profit. So, Adam, welcome back to the show, brother. Ryan is good to see you. It feels like, I don't know, we haven't done this in a long, long time. Maybe a few days ago or however long ago it's been, it's like it's good to see you, brother. Yeah, it's always good to see you, man. Every time we talk, I feel like I get a little bit smarter every time. And me too. Not a day or two goes by, or people don't reach out. I saw you on Ryan's podcast. I'm like, you know what? It's like there's something magical about you, about making billions. I mean, I think that just that, that brings them in by the truckloads right there. Thank you for that. We've been fortunate to be in the top 2% and honestly, brother, I couldn't thank you enough for being part of that. Yeah. I think we aim to see you like on a TV version of this. I don't know. Producers have been reaching out to me. I'm like, I'm going to send them to you. I'm going to get this guy on a TV. All right, man. I smell something brewing together here. So that'll be fun. So for all of us who are just tuning in, I'd love to recap so far what we've covered. So in the first part, we covered how to begin and get your, your heading, get that locked in, how to know if you have a good idea or a good deal sitting on your desk, telling the story with numbers. You and I both understand that and many people listening to the show building a plan with no money and how to prepare for the hunt. So today, on the second part that we're going to do for you guys today is we're going to cover contacting your potential sellers without scaring them away. Yes. You could do it. There's an art to this. Tips on just fulfilling your due diligence and really making sure that you understand what you're doing. You're doing it with your eyes wide open. How to get all the funding you're going to need to buy these companies, right? You can have the best idea, but if you can't get the capital, we've got problems. So we're going to cover a lot of that, how to close and run those companies that you just bought and then finally, how to plan for the Almighty Exit. So I'm excited to jump into that. So when reaching out to your prospect, maybe you can help us understand when you're contacting your seller, where do you go from this point? So I think we ended the last episode by talking about you building our list, how are we going to prospect and we had some tools that we talked about that we could use and a lot of those tools just kind of dependent on price point. If we have money, we can accelerate the time. If we don't have money, then we have to invest the time. But when we find these people, I think my first advice right is just simply that, look, when we're buying a company, this is a person to person transaction. This is done at the human level. We might be looking at numbers and talking about multiples of this or multiples of that, but we're established in a connection with a person. This is their baby. This is something that they've spent a long time building and they're emotionally connected to that. And I say jokingly, it's like we don't walk up to our future spouse. And in the first 30 seconds, ask them to marry us. I mean, there's a courting process. There's a dating process. And when we're thinking about my company, I get my best deals. When I reach out to people that don't yet know they're a seller. When I first meet them. And so that means they have it mentally prepared to sell. They haven't hired a broker, they haven't decided to list it on LinkedIn or some place. And so it's like they're not focused in a seller's mindset. So I'm doing cold outreach and I find that I get my best deals. When I do that, certainly I will buy some from, you know, that are listed by brokers. But again, it's like one more hunting. We can't just rely on brokers. We can't just rely on listings on a website, you know, too much competition. Too many people focused on just price. I don't want to be the highest price better. I want to buy a great company built by a great entrepreneur and I want to take their market value. You know, and be very disciplined in the process. So when we think about starting this outreach, you know, if we're doing it ourselves that says that either we're just good as one of our skills and we enjoy doing it or don't have the money to hire a buyside advisor if someone else to do it for me, then, you know, a typical buyside advisor would tell me, hey, Adam, I have to do outreach six to eight times potentially to elicit some kind of a response. And buyside advisors are so good at this, they generally will get 80 to 90% response rate eventually. Even if it's just the entrepreneur saying, it could bargain me. You know, it's like, get away from me. I'm not interested in selling, but they're going to get some type of a response. And so when we're doing outreach, you know, I go back to thinking about my avatar, my buy box, who's that customer, how am I going to reach out to them? What are the, I'm going to make some kind of a brochure, you know, some kind of a little a little pitch deck, you know, older people, I might be doing snail meal, I can actually mailing it. I might have someone with a much better cursive writing than mine, you know, actually hand right out the envelopes because one entrepreneur, you know, or a person receives something, if it's got stickers on it or bar codes or reduced mail, it's like, for me, that thing never gets open. It's just ripped up, thrown out right away. But when it's hand written, it's got stamps on it. I'm like, look, I don't know what the heck this is curiosity killed the cap cat. I got to open it. And so we're doing outreach potentially via email, via snail mail. We may be calling people on the phone, you know, but what we're trying to do, and I don't know about you, but certainly in my world, I don't necessarily phone if a random number just pops up. I just let it go to voice mail. I only answer people that I know, you know, at too much, too many sales calls that are out there. So I might have to have a little script, you know, and, and, but what I've tried to do is follow some kind of a free program, you know, not necessarily script, but just goals and objectives. My goal number one, you know, if I can get somebody on a phone, I'm probably going to reiterate what I just sent them. Hey, listen, my name's Aaron Coffey. You don't know me, but, you know, I've been buying a selling company for decades and, you know, and I'm focused right now on this particular industry. And I've been looking at companies and I came across yours. And I'm so excited. I love what I see, you know, and I'm wondering, and I have a view ever thought about potentially doing something special in the industry. You know, that could be selling the business, growing it by another company's putting together with it. You know, I'm on the hot, I came across you. And I like what I see in all of trying to do my goal objective with my first conversation is kind of break the ice, you know, get to know them a little bit, let them see a little bit about who I am, you know, the background that I've got, you know, the, the dirt that I've chewed. But my only real goal, I'm seeking to set up a lunch. You know, I'm not asking them, you know, what's the price, you know, I'm paying five times this or that. It's like, Hey, I'm looking, you know, to buy companies in this industry, in this space, I came across yours and it looks fabulous. You know, and, you know, I was poking around on your website, you know, and really like what I see fits right with my goals objectives, wondering if you were ever, you know, curious about do of something special, you know, and, you know, and, and if this resonates, you know, with you, can I come down and see it? Can I buy you lunch? You know, can I, you know, depending on where they're at. And I use the strategy all the time. What's my goal? My first outreach. I want to continue the conversation, break the ice, but what I really want to do is get up to lunch. What do I do when I get up to lunch? My only goal in objective from that lunch, I might schedule 90 minutes to two hours in person. And, you know, frankly, my only goal is to just kind of lay out, you know, in a very brief little fashion, probably towards the end, we've probably been chit chat and, Hey, I found out in the first goal, you know, call that, you know, the guy plays pickleball. He said, he said, he said, he said, he's an aspiring pickleball, you know, grand champion in the making here. It's like, you know, it was tell me about it, turn him in, you know, Hey, you know, it's like I had that turn to make go, you know, whatever it's like, there's a lot of chit chat we're talking about. Stanley, we're talking about everything except selling the business somewhere as that conversation kind of is more fit around, you know, I'm going to throw out there. He listened, you know, thank you so much for, for meeting me. You know, want to hear your story, you know, want to hear how you got here, how you, you know, how this thing kind of unfolded and you can get them talking about the business. I'm learning things, you know, as they're, as they're talking, I could throw out some questions that can help steer the conversation a little bit. My only goal objective is to just kind of lay out, hey, listen, let me just explain how my process works. You know, happy to sign an NDA, you know, something, you know, and I'm just going to your agreement, protect your information, you know, happy to do that. If you don't have one, I'm happy to offer one. And really what I'm looking for is just some basic information about your business, you know, and I'll kind of lay out a free work. Hey, look, you know, I'm looking for two to three years worth of financial statements, challenge sheets, you know, if the business is doing a cruel accounting, then it's like statements that cash flow, you know, with different basic financial information, I've got some basic questions just about your customer base, who you serve, you know, and, you know, it's some basic basic, you know, questions that I might add, depending on the industry, you know, and I'm going to, I'm going to, you know, give this to you. And, you know, if, if you're comfortable and you share that information back with me, you know, if I've got your questions, I'll, you know, we'll, we'll set up a call, talk about it. Other than that, you know, my goal and objective is to take a look at the numbers and combats you and give you a number and let you know what I'm thinking in terms of evaluation. And, and if you like that number, hey, we keep talking and, and if you don't, that's, that's okay. You know, let's, let's say you touch my number might change, your number might change. But, you know, this is, this is kind of all works. So, gold first call, get to a meeting in person. Why do I want to be in person? This is a personal sale. This is a connection. I need to build a relationship with this person. We can't just rely on zoom. I'm happy to have a phone call. I'm happy to do zoom up front, but somewhere we got to get front of them. So, first call, I just want to get in front, you know, look at that. When I'm in front of them, all I'm looking to do is just get an NDA in place, get an information flow, you know, starting to happen. If I have clearifying questions, I'll ask them, you know, once I get some data, I take everything they give me at face value and assume it's accurate at this stage. You know, it's so, I'll take based on their numbers, based on what they share, out of a few questions answered, no, a little bit more about is this the kind of company I'm interested in. I remember we had that five box, you know, we described the time that perfect acquisition we're looking for. It's this fit. You know, if it does, I'm liking what I've seen, you know, it meets my basic rules. You know, I, I'll bring them a number. And I don't bring it a lot, I just bring, bring it up, you know, and I don't need to do that meeting in person, phone, zoom, first meeting in person, second, want to set up a meeting, want to get an NDA. I've got the information because we've been in front of each other now. We've got a report that's been built up, and I don't just go right to business as we talk, we talk small talk, you know, something about your family, tell me about what's, you know, what's going on in your world, stuff like that, you know, and so now I'm bringing your number. And I talked to them loosely about structure. Again, I have to remember, in my case, in my situation today, I'm passive. I'm not looking to step into the business, people listening out there, they may be looking to step into the business, you know, as the CEO, you know, they're going to be the, the person doing the value of my case. I'm passive. I'm going to provide governance. I'm going to be looking to build an empire. I'm looking to go buy other companies in the industry. Right now, what I'm looking for is, I'm looking for my classwork. I'm looking for an entrepreneur that I can back, somebody that I can work with, partner you know, you'll share in the growth, you'll share in the financial upside that we create together. You know, so I'm bringing them that, no, that number's exciting to them. You know, my next step then is going to be I'm going to bring out, you know, a letter of intent. When I say bring them up, at this point, I'm still sending it. One in person, you know, I'm going to send them now, call it the letter of intent. I'm not going to download a form off the internet, you know, and say, I file this on Google, here's my letter of intent. No, I'm going to engage my counsel right now at this stage. Letters of intent are not binding, but I want to be able to lay up kind of some of the salient deal points that I'm looking for. If I think of these controversial, I might put it until you have to the contracts and state, stay silent on, you know, on a specific permission. But I want to kind of flush out, here's the value, the values kind of based on a certain set of numbers that were given to me, you know, here's the earnings, you know, that I'm seeing, you know, et cetera, you know, and so like my number, letter of intent comes next, lawyer engaged, you know, my first legal cab leader just ran for a little while. Not too bad. And so I get that in front. If we get it signed, you know, then we're, you know, we're offering it to diligence, but just to stay on this topic for a little bit, you know, yeah, I'm kind of doing this on the fly, which is, which is, you know, it's like, this needs to be a natural conversation between two human beings. We don't write down and read a script. When we are reading, how we write English, I'm an author, I can talk about this stuff. How we write is different than how we speak. And so the voice, when we write bullets and say, if we try to write a script, it comes off sounding fake and foreign and we don't want to, we don't want to be scripted like that, you know, I have a goal and objective, I'm breaking the ice, you know, I'm getting to know this person. I'm going to be learning without asking too many questions that feel intrusive or direct. And so everything that I'm sponge, you know, I'm having a conversation, I'm learning about things, we're building that relationship, you know, and let me just say, I'm numbers. I'm a discipline buyer, you know, and so if, if I'm expecting to pay five times because that's what my research says, a company, this size is worth and, you know, they're looking for eight times, what's too far apart, this probably isn't going to work. You know, and so, you know, I want to kind of part ways, you know, because again, I made of identified a thousand companies that are loaded up in my funnel at the top and I'd do it outreach to 100, 150 that I think are kind of priority one targets and I mean, you have multiple conversations with people and it's a numbers game, you know, and not everyone's going to be yes and not everyone should be yes and we need to be really disciplined. I'd rather not buy a company I should have rather than buy one. I should not have something to keep in mind and so, you know, it's a numbers game. You would be surprised by how many people that on that initial offer, we try to part ways, how many actually come back, you know, and they might have a brochure that I did from the cold outreach, they have my number in their mind, they're sitting in their inbox, they're 65 years old and you know what, they just, they had a bad day, customer, pissed them off and given them a mouthful, maybe they didn't feel good. There was a health scare, something happens and they just like, you know, I'm getting tired, maybe I had a call out, you know, maybe that numbers, maybe that number's right, you know, and so maybe they've got two or three other calls, maybe other people give them a number. You know, and the numbers not much different than mine and so they're, you know, they're like, they're motivated now, starting to think about selling a little bit more actively. I'm the ace in the hole, and six months after I parted away, somebody calls me out of the blue, I got a deal going, I just like that right now, someone we met with six months ago, and the numbers originally did work, but you stayed in touch, you know, reached out once in a while, I said hello, and now, you know, deal aside, L.O.I. side where it diligence, I expect to get this thing to the closing table soon, and, you know, this is the first thing that started with cold outreach, and they weren't a seller, we built a relationship over time, we did these basic steps, you know, and, you know, had the call, I invited him to lunch because they're local here, and so I brought him to my home court, you know, living in a nice country club, and so brought them here, built that relationship, you know, and now the numbers work, and we're dealing the deals, so if we have to be patient, we have to always be kind, we have to always be genuine, it be does, because as I said, when the numbers are far apart, you know, eventually these deals can come back, and our number might change. If I find the perfect platform, you know, maybe I'm later stages, I'm smelling a 15 multiple on my exit, and so maybe, you know, when I was buying a five, I'll stretch for seven for this, y'all guys, I really like them like this company, and it's going to help me pull up right before I'm going to mark. So I'll be a few extra turns, because I know I'm going to sell for 15, you know, and I got plenty of that five, and so what the heck, I'll do one at seven. So here we are, we're in the moment of deal verbal, right? We're just saying how this is going to work, we're here in this dance in the beginning, I've done it, you've definitely done it as well. This is a very crucial time. So first of all, for those of you who are listening, and you've followed it so far, congratulations. Wow, you're actually talked to an entrepreneur or an owner about selling to you. This is huge. You've made it this far, but we are not done. This is the part where people can freak out. Either they're freaking out because they have some idea that came out of left field, they just have deal anxiety, and they're starting to see that this is actually happening, or it's something that maybe you said, like, hey, I'm going to buy your company, and I know your name's on the building, but I'm going to change the brand and do all these other things. And you start even though you want to come in and you show, hey, I got a plan. I'm going to do this. And you might freak them out. And so I'm just curious from your perspective, this is the point of, we'll say one of those points of peak anxiety. Talk about some of the things that you definitely don't do. Maybe one or two things that you definitely don't do at this point. Yeah. Well, you just touched on, I think, one of the biggest ones, let's talk about bringing for a minute. Now, I'm a guy who's built three large companies and I rebranded all three branding is, is I think probably the most sensitive issue for a sound. And it's one that we need to tread lightly on because you will kill a deal and blow up a relationship that you've been building. If you come out of the geeks with, well, your name sucks and I'm going to change it. You know, and of course, you would never say that fashion, but even if I said it, and the most pleasant tone in the best of ways, that is a potential deal killer. You know, it's like, hey, that's my dad's name, you know, that's on that building. And that has to wait last year. And it means something to me. It means something to our customers. And our customers value that name. Well, you know, I might think differently that, you know, what, you know, my experience has been names aren't what drive, you know, the business of electric Coca-Cola, you know, and we want to talk about major branding and a consumer driven market. But, you know, B2B service company, they don't care what value your name is. They really go. But the owner does. And so we don't want to raise that as a ball of contention. So what I have found over the years that works wonders is I talk about my brand street. If it's brought up, I don't ever bring it up. But if they bring up branding, it talks to me about branding. How would branding work? You know, then I launch right into it, you know, and why I have found that diffuses this, this potential, you know, bomb that could blow up, you know, an early conversation that could lead to a deal. You know, I lay on the look, you know, I'm using what's called as an endorser brand strategy. The company that you've built, the company that your dad built, the granddad built, you know, whoever it is, you know, mom built, you know, whatever the story is, it's like, you have brand equity, you know, and over the years, you have a customer base that's loyal, that knows you by that name. The golden rule of mergers and acquisitions is don't do any hard, you know, I'm paying, you know, a fair market value for this beautiful business that you built. The last thing I want to do is destroy, you know, that brand equity that you built up. So I use what's known as an endorser brand strategy. So I just created, you know, I'll give you an example. I just created a company, you know, and in my brand of the parent is called cool sits. This is my whole HVAC company, my refrigeration service company. And so your Sam's refrigeration service company and the way it works is that name stays out of the truck. It's Sam's refrigeration and HVAC service, a cool sits company. So we call braven with the parent brand. That's the endorser brand strategy. Your name stays on the truck. Your name continues to be marketed. We simply add the name cool sits underneath this unifies all of the companies that were buying over time, you know, and in my last run, I bought 23 companies and put up the other. And so this is the strategy we adopted, all 23 names of the companies that we bought continue to exist. And we co-branded them a cool sits company. That's called the endorser brand strategy. I have yet to find any entrepreneur that when I explain this strategy, your name stays. My endorser brand goes underneath. I found no objectives whatsoever. Everybody's very comfortable with that. Now I told you, I already told you, I rebranded all three companies, you know, that I built and run. What I like to do is I don't want to make this a bond of convention early because it can't kill the deal. So what I do is, you know, I in my head, I've got 10 years, you know, to kind of flip the brands at some point. The idea is all of these endorsed brands eventually flip. They become a part of your history section on your website where you pay homage to dad and grandma and the dog or whoever, you know, the name of the company came from and you tell their story. But I let them lead that charge. So, you know, recently, you know, in that last buy bill that I did, we had bought a bunch of companies in a region. And there was brand confusion down the marketplace because there's all these different names and they're all owned by us. And stuff, it's like trucks are going by like, oh, you know, the supply houses are getting confused because we're all part of this bigger company. And the entrepreneurs eventually come to me and say, hey, Adam, let's, let's flip. Let's let's just be known as cool says this or cool says that, you know, like like commercial or, you know, commercial industrial or energy, you know, services or whatever. It's like, you know, and it's like, they take care of it for me. What was a very contentious potential conversation early, a few years down the road becomes something that they support, you know, illogically. So I let the brain part move at its own pace because I truly have found that that is one area where, you know, they are, they're attached to their name, whether they should be or not. They're relevant. They are. And so we need to be very careful shredding around that. Other than that, you know, there's, there's, there's not a lot that I have found in decades of doing this that is just so sensitive. There are a couple things that will pop up later in diligence. One of them is stock versus asset sale. That'll usually rear its head. And then somewhere later on down the road comes the second second guessing. Should I should I, you know, I'm, as you said, I'm actually doing this. You know, I've done years building a company. I'm getting ready to sell it. It's like, should I do this? I start getting sellers remorse. I get cold feet. You know, and so there are some other places where I see some objections, but generally at the L.O.I. stage, you know, there may be some kind of conversation around, you know, role over investing and why would an entrepreneur want to continue to have financial stake in the game. Part of this is driven by, by a strategy. So, so let me just put on the table throughout diligence throughout the process of buying and getting to know these people. What I'm doing is I'm assessing risk. What is my risk? I'm paying a multiple of earnings to buy a company. What is the risk that that revenue could disappear if the founder disappears? If I have bulletproof contracts, long term can't be canceled. Don't have to worry about it. Okay, entrepreneur can sail off into the sunset. I could potentially not make them a role over investor. I could potentially just have them on a consulting agreement for a year and then let them blog out. You know, help people with some transition stuff and then you can be on your way. But if I assess that there's a risk, you know, a risk of losing their revenue, a risk of losing, you know, the multiple of what I'm buying, you know, then I need to somehow put some handcuffs on that entrepreneur to help them align with me to make sure that we're both motivated to want to integrate, you know, and and keep that risk out of the absolute minimum. Generally, I do that through role over investing. So one of my empires, I built, I bought 34 companies. Only one entrepreneur stayed out of 34. The rest of them just got a consulting agreement for a year and they were gone. I kept one because it was a strategic pivot. It started a new division and I needed someone to run that division and that's why I bought his company was to give me that expertise and they became the president of that division. The rest of them sailed away because there was no risk to me losing the revenue that I was buying. At my last company, tremendous amount of risk. Although I had service contracts with the client base, industrial service contracts generally have a 30-day cancellation provision either party. So that's a ton of risk. I can't afford to lose everything I'm buying it, you know, because I'm still going to have to pay for it, you know, even if the customers walk away. But if I could literally lose the revenue, lose the entire revenue stream in 30 days, that entrepreneur is not getting my money without me somehow getting them as a partial alter of that risk with me. I could do that with an earn out, you know, take a portion of the purchase and stay based on retention. You earn additional consideration a little bit later on. I could do that with contract language. Different ways to do it. I like to do it with rollover. I need you to stay. You can, you know, if you're 70 and you want to dial out, if we've got a number two, you know, I'll usually talk to the others and I'll say, you got to at least give me a one year notice before you leave so that together we can mitigate the risk. We can make sure that we've got either your number two run in the show or I've got, you know, someone from the rest of the empire who's moved in and is ready to take over, you know, the show work with me on that transition. If you are ready to go, you know, it's time to retire. Happy to let you do that. You know, but I'm still going to need the academic interest in rollover. So sometimes I have to talk through those kind of objections. Well, you know, I want all my money at close, you know, well, there's risk here, you know, and so because there's risk, you know, let me talk to you about rollover investing, second bites of the apple, you know, and let me get you excited about the prospects of getting multiple paydays. Let's better decide what your company was. Simply get twice. My personal record, five paydays and 13 years, same company, you know, let me talk to you about that. Let me show you how that works. And so I can overcome that objection. It's not as, as much of an objection as the brain, you know, the brand and potential name changes. So so there's there are things that could pop up, you know, throughout, but, but pre LOI, usually for me, it's primarily brand is the time bomb, you know, that could blow up in my face. And then the rest of it is just noise with the little conversation I can walk through, you know, need you to need you to stay, want you to stay, need you to be a rollover investor. But it's not else where I do we're going to talk about a little bit later is when we're figure out how to pay for this business. Rainbow over and how I structure the LOI, I may be thinking in advance about how I'm going to pay for this deal. And if I'm paying a multiple that requires, you know, I'm listening, I have to pay seven times for a company, but I can only lever three or four times. I've got a gap, either need to write an equity check to fill that gap or I have to get creative by let's do some seller financing, let's do some seller over, let me bridge that gap so that I can get down to the leverage for the amount of loan capacity that I'll have to buy that company based on the cash flow that's in it that I need to use to service, you know, that purchase. I should be thinking about the financing, you know, before the LOI sizing up, how's this deal going to work? What's the price going to be? What are the things I'm going to need in the LOI in order to make sure I get it financed, you know, as I get into the diligence and get on the backside. So all of this is interrelated, we talked about models and building models, you know, in the first episode, this is where I already done my homework, I know what these companies are selling for, and I've already tried to figure out how I'm going to pay for it. And so that method needs to be somewhat reflected into the LOI. If I'm going to ask the seller to take a note, you know, and/or provide some some level financing, if I'm going to need them to roll over and go for a second bite of the apple, I need to know all that up front. So as I'm breaking the ice and building the relationship, I can talk about some of these issues and weave them into our conversation. Yeah, that's brilliant. And, you know, when I was a young man, I was fortunate enough to hang out with Warren Buffett. He taught a lot of things, but one of the things he says, if it doesn't make sense, it doesn't make sense. And so if it doesn't make sense intuitively, it's not going to make money. And a lot of that really comes down to doing your due diligence, making sure that you research the deal, unpack this deal, really take a peek under the hood. And I know that's a big part of closing these deals. So we're at the point, you've built the relationship, you've built, we'll save status or some mutual respect between each other. You're navigating a little bit of the cold feet at this point. But now it's time to say, okay, I've talked to you. You have a business. We agree that you're going to sell. We got to meet a few things. I need to take a peek under the hood and do my due diligence on you. You request a lot of information. Talk about the due diligence phase that comes up now that you're speaking. They're sending you all kinds of data. What do you look for? How do you do due diligence on these deals? Take us from there. Yeah. So I'll say anyone who sold a business before to private equity would say that private equity does way too much diligence. I'll spend four to six months doing diligence. They'll ask you the same question of thousand different ways to Sunday. That's like, and eventually you just get one out. Are you closing or not? Let's get to a closet table because I'm dumb. It's like, I'm tired. I give up. White flags are going up. But I'll tell you, most entrepreneurs, if my companies don't do enough diligence, so I got the extreme of PE and the reason they're doing it is to do serious possibility to their investors and they want to make sure that they've uncovered every possible avenue of risk that could potentially exist and that they've accounted for that in the model and the purchase price in the contract, etc. But entrepreneurs get just too lackadaisical about this. So the way that I breathe diligence down, I'm going to start by just saying, you know, what, numbers, if the deal's got to fall apart, once I've got a letter of intent in place, remember, pre-LOI, I took everything in face value, wherever you told me, wherever you gave me, I take it as being real. As soon as that LOI is signed, now I've got some period of exclusivity, generally 60 days, you know, could be 90 days, where it's a non-binding letter of intent, but you agree that to market this to somebody else, I'm going to start spending money to verify everything and put the financing together, whoever I need to do. And so the seller is agreeing to give me exclusivity. I start with quality earnings. Quality earnings is a process of looking at those financial statements and now starting to tick and tie everything together. You know, I want to check, you know, bank deposits against transactions, it's like it's a county thing. And so I need to verify that everything they told me pre-close is actually real. And it's not that they lie, but sometimes we buy small companies for people who just don't have a sophisticated level of accounting, they're operators, they're plumbers, they're electricians, or whatever, you know, construction guys, you know, or pest control guys, or even bookkeeping your county firms, you know, whatever that they may be, sometimes they don't keep their books in order and they don't know what they don't know. I mean, a few years ago during COVID, it would be common to see, you know, like PPP loans declared as revenue, or, you know, ERC tax credits, you know, as revenue. Well, it's not. It's a one-time handout, you know, from the government, that's not revenue, you know, and tax credits aren't earnings because they're not repeatable. And so common mistakes, books just aren't mess. And so they don't know what they don't know, you know, and, and, but we want to do a quality of financial earnings first. Why do we go there first? Because in my experience, 90, 90 plus percent of all deals that die post L.O.I die because the numbers weren't accurate. I'm paying you five times. You told me you have a million dollars in earnings. I'm looking under the hood now, and I see that a million dollars in earnings is really 350,000, you know, and that's $650,000 Delta. That's a material change because instead of paying five times, now you're asking me to pay 12 times to get back to the same purchase price. And so I have a framework that I use, you know, first of all, you know, if we don't know anything about quality earnings, we could hire somebody that does. And if I go to an accounting firm, I'm looking for accounting for big enough other website to have transaction services as one of their services under these transaction services. I'm going to find, you know, advisory services that deal with, you know, buying companies, selling companies. And I'll usually see it just listed right there, quality of earnings. Now, when I call an accounting firm, tell them I need a quality of earnings done on an acquisition, you know, accounting firms apply different levels of standard. And so public company quality of earnings would tick and tie literally every single bank transaction and, and entry on a bank statement to every transaction. And he's like, you can get really, really detailed. It could cost a future. If I'm a small entrepreneur, buying a small business, relatively small enterprise value purchase price, I'm like, okay, I don't need the public company's group. I need to get cost of $100,000 to look at a million dollars in earnings. I'm looking for the $10,000, you know, quality of earnings to look at a million dollars of earnings. I want you to sample. I want you to use a reasonable level. But I'm not asking you to formulate an opinion or write me a letter, you know, or apply some care to public company standards. So I have some firms that I work with. One of them is called Barnes and Beddig. And on small transactions, I get them to do two of you for very reasonable price. And I send my clients to these guys all the time. And I can get it done relatively inexpensively. If I do have some sophistication, you know, in my old business, I might actually be able to have ICFO or, you know, or my deal person who is a CPA who came from a transaction, you know, services team might be able to do some of that QV work, you know, themselves. But I need to verify the earnings. That's number one, because landing percent of deals fall apart right there. So here's my free work. If the earnings as reported are within 10% of what they call me, I just move forward with the deal. I don't repress. And it's fine. It's close enough. You know, it's going to be around a year, down the road when I put 10 of these together, 15 and salad it. And, and, you know, I've got so much multiple arbitrage that little variations aren't going to matter. But if it's between 10 and 30%, I'm going to repress. So if you told me you had a million, and I find 925, and I close enough, I'm going to add to my price. If you tell me you got a million, and I find that it's really 800, well, that 200,000 times the five multiples of million dollars of purchase price. And that's starting to get material. And so I will, I will go back to them, and I will have a reprice discussion. And I'll, I'll generally, it's like, hey, I want to tell you what we found, you know, and I'll point out where the error was between what they thought they had and what we actually find that they have. Because again, this is a kind of a sort of friendly thing. You know, and it's two people doing business together. We've got a relationship now. And in my case, I'm passive. I'm going to want this person to step, you know, and I don't want to start my partnership with them by having bad conversations and hard negotiations. It's like, I want to see this as fairly as possible. Hey, listen, here's what we found, you know, based on this, still of the company, still very interested in buying it. But I have to make a price adjustment because the earnings are actually a little bit different than what you showed me. So within 10%, move forward. 10 to 30% I reprice. If it's 30%, you know, I, I, I, they told me they had an ability and I'm finding 600,000 library pricing would be so different than the original headline letter of intent price that I don't want, you know, I, I don't want to get into the argument. I just go to them. I said, here's what I found. Here's the problem. Here's why you thought what was a million is actually 600,000. You can't count that, you know, whatever it was that you were doing. And so when I tell them, because here's what happens, once they lay a number down on a letter of intent in their mind, that person is already paid taxes or not paid taxes. They've bought a lake house. They've got a boat, you know, they're, they're, they're going fishing. You know, it's like they got the RV in their head, you know, what they're airplane, you know, whatever the key is, it's like they're already allocating that purchase price to stop. And when I come back and then tell them, hey, the purchase price is actually going to be 40% lower. They start losing stuff. Okay. Airplane's gone. No more boat. RV's gone. This isn't fun anymore. Adam. Now you're fishing me off. You know, it's like this is this you're, you just game me. You're just doing this. This is correct. So within 10% move forward 10 to 30 must reprise below 30%. Yeah. I'm just going to, I'm going to pause the deal myself. Show them what's wrong. Tell them it's still still a lot of them. They have still interesting buying it. But my guess is you're going to want to give back to work and try to, you know, try to fix whatever was wrong. Get the earnings up a little bit more. And then respect out to me. Well, we'll have that conversation. I have had people come back and accept, you know, Adam, please, you know, I get it. You know, it's my bad. I made it the state. Tell me what that business is worth. I still want to do the deal. You know, so I've had it go that way. But I've also had to go the other way where people like, okay, thank you. You know, I get it. And then go back to work. And then they reach out six months, year later, he said, Adam, got my earnings back up. Now we're supposed to be, you know, let's, let's, let's, let's talk again. Okay. Great. Let's do it. You know, so if the deal is going to die, it's going to deal quality very almost anything else. I can contract around, you know, and, and so, but a couple things. I always, you know, if I, if I look at diligence and all my list of 200 things I'm going to look at, you know, finance comes first, verify the numbers. If I get past that, I have a really, really, really high probability I'm going to a closing table. Now it's okay to start the cab readers running out legal, but legal is where I'm going to get multiple cab readers running. And that's where a lot of my expenses going to come in. And so I don't want to start that expense going until I know the numbers are accurate. So I start with QIV. Once I verify the numbers, I kind of reaffirm the deal, you know, the deal price and all the mechanics. Now I'll engage all the rest of that, that, that expense. But I'm going to look at every department in the company. You could literally just start by just listing list every department and stuff. You know, I got finance. I've got HR. I've got operations. And, and insurances and blah, blah, blah. And literally, you know, I have a little template that I start with. It's over 200 line items. And what I'm doing during diligence is I'm looking for risk. I'm also looking at and identifying differences in the way the company I'm acquiring operates to how my company operates. If I already have a company, you know, if I have a company, I'm buying another company. Because during diligence, I'm also mapping out integration. And I'm identifying all of the different things that are different about the companies. And I'm trying to identify, you know, the priority with which I'm going to need to address them. You know, something's going to have to be done at close. If I'm doing an asset, deal on day one, I don't have any employees because I can't buy employees. I wouldn't have to have offer letters for every employee in that company because they're not going to become employees of my new old company where I'm putting all yes this into. And so I'm going to have to rehire all of the employees. And that has to happen on day one. If payday is on Friday and I'm closing on Monday, I better have bank accounts in place in my new company. I got to get them hired. You know, and so we'll also have a thing called the transition services agreement in addition to a purchase agreement, where I'm going to, I'm going to solicit the help of the current owner. You and I are going to agree that some stuff is going to fall through the cracks and we're not going to let we're going to make sure the employee experience going from you to me as seamless as is possible. We'll work together. If there's any cost involved, it'll get reimbursed, you know, depending on who's making the expense and who owns the expense and we'll work together to make sure that happens. I'm flashing all of this out very diligently. If you don't mind, I want to talk about a couple of the common problems that we need to look at. Sure. Okay. Yeah, let's hear it. Okay. HR, this happened to be last week. A dental service organization that I'm working with is buying another dental service organization. That dental service organization has all of their dentists as 1099 employees, some contractors clearly don't meet the IRS cast. And what it does mean, too, is if I'm buying them, I'm not going to continue that bad habit. Those dentists are going to come out of my payroll as W2 employees. You know, I can't keep that that charade going because it's not right. It's not legal. And there's penalties associated if I get caught. So their bad habit dies when they sell me the company. I'm going to make them W2 employees. But because of that, I am now going to pay 15% on that payroll as my self-employment, call it the employer's tax for having employees. I have to contribute. I have to do the Medicare, Medicaid, all of the taxes that go with having employees. And so I now need to go back and adjust down the earnings that they reported to me that I'm paying a multiple of. And maybe like you have, he didn't catch this. Maybe they did. Make sure that we're getting so few of you may have passed. But I'm finding bad habits that I can't continue. And there was a cost impact to that bad habit. And you know what, geez, I know because I work around DSOs all the time that dentists who are working for other dentists like to have it be $10.99. So they can run a bunch of lifestyle expenses through and try to minimize their tax. And so someone says, hey, Adam, if you make them W2 employees, you're going to lose 50% of the dentists within the first year, great. Well, I'm going to have recruiting costs then associated with hiring these replacement dentists. Now, I'm not going to reduce their earnings, but I might reduce my enterprise value, which is earnings times multiple equals headlight price. And I might say, well, I got a hedge because I may have, you know, at 50,000 per dentist times five dentists, I mean, I feel like $50,000 expense in the first year, you know, recruiting new dentists. And so as a hedge, you know, I can contract around this. I can create a bucket of indemnification in the contract where if that happens and five dentists lead, I'm going to take 250,000 from a whole back, which is a part of the purchase price, which is held in escrow for a period of time post-close in case I have any expenses that we've identified in the contract. And I might need to recover some of the money, some of the purchase price. You know, so there's a lot, there's a lot going on here. I might look and say, geez, you know, they have a hundred employees in the field. This is a landscape maintenance copy and they have no eye dives. They don't know if these employees of theirs are US citizens and legal to work. And so I can't repeat that. I'm going to have to, you know, so I'm identified. I'm looking at the employee experience. What's their benefits look like? What do my benefits look like if I own a company? And, you know, I don't want the first experience with me to be negative. What if their benefits are better than mine? And why are you going to keep their better benefits and give all my current employees the better benefits? And why are you going to make the people with better benefits go to my lesser benefits? You know, it pissed them off. It's like, oh, I'm going to find all this stuff, figure it out. You know, I've got things then like, you know, I've got to look yet, hey, look today, I got to investigate if it's a service business, all the contracts that you have with customers. Are they assignable? If I do an asset sale, you know, are they not assignable? And I need to do a stock sale, you know, and so there's a lot going on in diligence. And, you know, in this short time frame, we can't cover all those nuances. What, what I want to tell you really is for the people out there, if you've never bought a company before and you've never done diligence, you need to work with somebody who this is second nature. They've been, you know, down this road before, you know, I bought 58 companies, you know, and I've sold the companies I built multiple times. It's like, we need an expert at the table with us to help educate us, guide us so that we don't make mistakes because making mistakes and diligence could cost you millions down the road in trailing liabilities or things that you best. And so most PE firms do extensive diligence, you know, almost I'd say too much. Most founders or entrepreneurs buying out a company, still do anywhere near enough diligence. And we need that, we need to make sure we're checking the boxes that we're making sure that we're making a safe purchase because if we don't, we may have stretched to buy the company and there's not enough early enough cash flow to cover the debt in the notes. And now we finally know that after the fact there wasn't sufficient working capital in the business. And now I got to come out and pocket with a couple hundred thousand dollars more. And then the first 30 days, just a fund, I'm going, you know, continuing operations and I didn't see that because I didn't do diligence, I didn't negotiate it for it. The seller took all the money out of the business. And now I got to come out of pocket and I don't have it. Now, you know, do I go bankrupt? You know, it's like, and so there's, there's a lot to do in diligence. You know, my checklist literally is 200 plus items. It covers every department in a company. And I use it both for diligence and to inform my thinking that about integration. It has gain charts tied into it. So as I find stuff, I can plan for does it need to be done in the first 30 days, the first 60 90 days can it be done six months down the road so much to do and diligence. We would need 10 episodes to cover just diligence. So short, short answer, read about diligence, get some coaching consultants around the table that know what they're doing. If you've never done it before. That's right. And, you know, also legal advice, get good lawyers, good accountants. Like you said, the ones that do the quality of earnings report, that's fantastic. But we're not done there. And so once you start getting the professionals involved and you bring in the armies on both sides and we're ready to do a deal and we sign and we like what we see. Now the next phase is we got to get money. So sometimes when we're looking for deals, we got to pay for these things. And so debt, equity, we need to find investors sometimes. If you don't have your own capital, you got to go out and find it, whether it's credit and we want to do a lever buyout or whatever it might be, but somebody's got to transact. Somebody has to invest. And so talk about some of the intricacies that are involved in private equity when it comes time to start getting the money to close the deal. Yeah. So if I've done my whole work, if I've bought the right kind of companies and the right kind of industries with the right kind of recurrent revenue, you know, so on and so forth. And we talked about an episode one that an highly fragmented industry that keeps the purchase prices low, you know, too many companies in the industry, not enough buyers. If I don't all of my work right, then it should be relatively easy to get the financing put in place. And so I've got different components. So let me just throw something out on the table. Let's talk about debt service coverage ratio. So I'm buying a business that's got a million dollars a free cast. Look, if I buy in a great business in one of my great industries and it trades at low multiples, like maybe it trades it four times, you know, and it's got a million dollars in earnings. And because it's low capital expenditure, it has high free cash flow conversion. And so maybe out of that million dollars in EBITDA, 1950 is actually free cash flow. So I'll just say it's a million, million, 50 out of a million, just around numbers. So I pay it four times. So I need four million to buy this company. How am I going to get that? Well, first thing I'm going to do is I'm going to look at what's the free cash flow. And I'm going to take 50% of the free cash flow and say, this is the amount of cash flow that I can use to service below. I try to build everything around a two to one debt coverage ratio. Why? Well, first of all, if I go to the SBA, you know, I could get it down as low as one point two to one, which means I have a dollar 20 in cash flow to service a dollar debt. But for me, that's too tight. Academy cycle. South, you know, I don't, you know, I lose a little bit of business and all the sudden, I'm coming out of pocket and I don't want to come out of pocket. I don't want you to come out of pocket. So I go with a two to one neck coverage ratio. So I got a million dollars of free cash flow. I want to use no more than $500,000 to service debt. So let's think of a look at this. I need four million. Well, if I chance, I, I used 100% leverage. Forget that on payment for a second. Let's just say, I, you know, sellers leave it. I'm stepping in. I'm going to be the CEO, wherever their seller discretionary earnings was going to become my seller's discretionary earnings deals like I'm okay. Myself, the salary was already burdened in the numbers. I got a million dollars of free cash flow. I pay four million for the business buyers exiting stage left. Well, to service four million in debt, I probably go need about 700,000 and I'm just going off the top of my head, 10% interest, four million dollars. That's 400,000 a year. Probably going to need about another 300. So for, for principle, over a 10-year fully advertised SBA. Well, and so I need 700. I've got a million of free cash flow. Well, guess what? That's not a two-to-one debt coverage ratio. That's too high. So I'm not like in my deal yet. So maybe I'm going to borrow three million. And it's three million. I'm going to need less than $500,000 to service at three million. And I've got a million dollars of free cash flow with which to do it. That's my two-to-one debt coverage ratio. I can borrow three million on this deal. So I still need a million. Where am I going to get that million? Well, if I do an SBA and SBA will do loads up to 5.5 million. So this would fit right in the wheelhouse of SBA. You know, maybe I look at that and I say, Mr. Mrs. Celler, you know, how about you roll over 15% of the sale price into equity and you'll still own a piece of the company? You may be retired, but I'm going to let you get a second payment when I exit your business five, six years down the road after I bought some more. Yeah, come along for the ride. Because it's under 19%. The SBA isn't going to make him sign a loan guarantee. At 15%. They could just ride my co-tails. I have to give the SBA a personal guarantee, you know, with the lender. And so they do 15%. So on that four million, I now have 600,000 in seller finding it's like, you know, call it free seller financing. Their equity just became my equity. You know, they're now a minority shareholder in the business. They used to be a majority shareholder. So I got three million. I can service with my own cash. I now have 600,000, you know, of equity coming from the seller, which they'll get a second payment down the road. They'll get some of my earnings, you know, call it down the road because I didn't have the capital to put into the deal. This is how I had to do it. And so now I still got a gap. I got 3.6 million. I need 4 million. So I got 400,000 dollar gap. The bank may say, well, out of I'd like to see you do 10% that will pay me at a 15% down payment, 20% down payment. And I'm thinking to myself, I don't have that. So first, I'll tell you, not all SBA lenders have to say requirements. They operate under the same government program. But somebody walk into Wells Fargo and they're going to say, I don't care how much you got roll over. I'll let 25% down period and store it. I may go to another letter. A lot of letters says, you got 50% from them. You give me 5% cash. And I'll let you go. Or just give me a check. Yeah, a lot of care. Just give me something. You need 50, great. I got to see you bleed a little, you know, as I did here to you know, I'll finance that deal. So although they're they're lending under the same program, there are literally thousands of lenders who participate in the SBA program. I think I'll go to a list of off of the SBA website, you know, once I go on their register. And so I got to call her out because they're all created equals. But you know, I could also do something else, which which one of my clients does all the time. And that is, yeah, hey, a seller, you're going to loan me that $400,000 on a side note, you know, so it's going to be seller finance it. And I'm going to put it on full standby for two years, which means I don't have to make any payments. And then it's going to accrue interest in somewhere down the road. I'm going to start servicing it. I got to pay it off within a certain time window. So you're going to get money up for a nice child, you know, and then a few years down the road, you start getting interest payments from me, you know, and eventually, when I sell the business, I'll pay off the note and I'll use the earliest to pay off the note. SBA looks at that two, two years of standby and says, this is good as equity. And so I now have filled my gap. I got $100,000 seller financing. I got $600,000 seller rule over. I borrowed $3 million from the bank, and I haven't put a dime in. And I do see deals that are no equity happen. Some of my clients do these deals. You know, I've got other clients, you know, who rent a small check, you know, or they go get friends and family money. If you're working with someone, it's your first deal. They're saying, you know, dude, I need to see 10% now. Gaps. This is $4 million. You need $400 grand. Well, now I'm out of the friends and family plan. You know, I'm looking for friends. I'm looking for relatives, mom and dad, somebody. It's like, who wants to throw in with me in this adventure? And, you know, I'm going to Ryan and I'm like, Ryan, I need to raise capital. Yeah. And maybe I go to a family office and the family office, you know, I go to a mezzanine lender. Somebody charges high interest rate because they're willing to subordinate to the banks. Banks will have first tier. You know, they'll come in a second. Banks charge in 10%. These guys charge 14%. It's expensive money. You know, but they're not secured. You know, but you know, the banks are secured in front of them. You know, so there's so many different ways. I think for most entrepreneurs, they think money is their problem. But what it is is they they haven't done this before. And so it's an unknown area. And so for them, it seems to be the big mystery. Every guy who does this all the time, there's plenty of money out there in the world. We just have to know where it is. And we know how I have to know how to treat it. You want to treat money well. If we don't have money, we pay, you know, if someone wants 10% and it's a private lender, it's a person, you know, it's someone who's making a speculative loan to me. You know, hey, maybe I give them a couple points extra. Maybe I give them some equity on top of that. You know, if it's a mezzanine lender, they wonder they want some warrants or they want some some almost works like an option. They want some piece of the upside that you're going to create using their money. And so I just go to them. I give them more than the answer. And I make it sweet so that it's easy for them to tell me yes and tell someone else though, because when we're both, if we've got two parties who are paying the same class, well, then the lender's focused on who's the better risk. And if I've never done this before, I need to change the dynamic. And so maybe I tell that private lender, I'll pay you more. And I'll give you some equity. And I'm sweetening the deal. Why are you doing that? Because you're helping me achieve my goals and objectives. And I know that you could lend that money to multiple parties. And I want you to take that risk with me. And so I'm going to do my best to take care of you. I'll never forget what I was in the army. And I bought my first new car. And I remember the lender because I couldn't get bank financing. So I'm like a kind of one of these low houses, you know. And I remember this lady and she's like, don't make me come looking for you, coffee. You better make that payment. And it's like, no, where money is, no matter how to treat it, treat it well. And you'll get yes. I'm on the board of a company right now, right? And we're a couple guys who were not senior partners in the world of finance. They were more junior guys, you know, Alice, you know, PE, that's the banking. They got some background. They got some, you know, education. But I watched them walk into a family office and walk out with a hundred million in financing, you know, to do roll ups. And you know, they threw me on the board of it, you know, to help them, it helped them get a gig risk. You know, some money has been there, done it a number of times. You know, makes money feel comfortable that there's an old guy around who's the veteran of doing this. You know, it's so there's so many different ways to get the money. But I try to, I try to buy the right company. And you know what, I'm just going to flat out tell you, if you're buying a software company that trades at 10 times and has no real cash earnings, I'm sorry, but you're going to need equity. I can't. I don't have a fix for, for the math does it work. That's why I'm focused on certain industries that have low capital expenditure, high free cash lowkey version and treat for low multiples. Because these unsexy businesses that trade at low multiples, that's where I can make a killer. And that's where I can use the money in the business to pay for the loans to buy the business. And that's where I am a higher probability of getting money down type deals done. And so, you know, I know you're, you're an expert at this, you know, but for a new guy is starting out or new lady who's buying their first company and they're going to, they're going to step into it. I know this is a real scary area and a lot of people freak out over personal guarantees. Well, if you don't got any money, you know, and you don't have, if you're a big hat, no cattle, then risk and reward going hand at hand. It's like, if you're not willing to take the risk that you're going to lose what you don't have to get somebody else's money, I can't help that mentality. You know, you need to be willing to assume some level of risk when you're buying a business and you're asking somebody else to fund it for you. And so with the risk goes to reward. Brilliant. Yeah. And, you know, you brought up a good point. So I run fundraisecapital.co and in there, fundraisecapital.co. Actually, a guy just joined, he raised four and a half million bucks, first raise, four and a half million bucks and 45 days. The guy's a man, you know, that's obviously a shameless plug. But however you do it, it's really important in raising capital, understanding who to talk to because Adam, I believe, you know, I've coached over 2000 people to launch their own funds and many of them are private equity. But the one thing, no matter what your asset class is, the one thing that would make all deals fall apart was this phase that we're talking about. They could not raise capital beyond friends and family. So what Adam's talking about is this debt financing where you can get, you know, have them roll over 15 or so percent of their company. Do that. Take a course, pitch family office, get partners. There's many ways to do it, but you got to do it. And so understanding how to raise capital, I think is one of the most important things because you could know everything about private equity. But if you can't get the money, all of that bright intelligence and spirit and passion, you're going to find yourself in a little bit of trouble and you're just going to be this perpetual big hat, no cattle guy. Would you agree? I do. And again, you know, it's scary if you've never done it, but there's so many people out there who have done it that you can get again, coaching, guidance, mentorship, and you can find ways to get this done. You know, when it's 15, 20 years ago, I remember I helped my brother buy, we bought an insurance agency that we paid four million for. And we literally got the seller to do a million dollar note, 10% interest. And we went to a family office, brought in a family office, got two million dollars, worth of financing from them at 10% back in the day. And the cash flow within the business service, that's three million in debt at 10% no problems. We had about 1.7 million in free cash flow. You know, we had three million dollars in debt. And then we made a million equity. And so a million was equity because we could afford the million. If we couldn't have afforded a million, we could have made equity $10. And we could have borrowed more money. And in the family office, we also gave ownership too. So they not only got the interest and got their money back that they loaned us, but then when we sold the business, you know, 15 years later, after we had been distributing, you know, a million, two million a year, for like 15 years, we then sold it for 12 million, you know, and they got another chunk of money based on that. And so they got they clipped the coupon on the 10% that every time we did a distribution, they took money off the table. And then at the end, they got another bite. When you add up all the pennies over a 15, you know, 15-year period, that family office was thrilled with the returns that they saw on this little insurance agency, my brother, I bought for $4 million. You know, it's for my brother. It was his way of earning a living for, you know, the majority of, you know, the later years of his career for 15 years. He's still there running it today. He sold it to acresher, big insurance, you know, corporation buys it under, you know, agencies a year. And he got to roll over second bite of the apple. They go public next year. He gets another bite. I was passive. So they didn't let me roll over. I had to walk out the door with my party gifts, but you know, but to accomplish everything that we wanted to accomplish. And we didn't actually use a bank loan for any of it. And we were debt-free within about four years. We had paid off the debt. And then it was just distribute money like an ATM machine for the next 10, 11 years after that until we sold it. So, you know, as you said, people can come to you. They can take your course in order to raise money is a is a great example. But this is something we need to do and think about before we ever even start looking, you know, this is a part of the program. Where will the capital code from? Based on my research and thesis on the industry, before I ever started it, you know, back way back when first episode in the beginning, when I was laying all this out, I should have been able to build a model and say, here's what I should have to pay according to my research. These are what this company sells. These company's sell for. And this is kind of how I'm thinking about putting my capital structure together. So, I'm doing one right now in bookkeeping and accounting. And I'm going to use about 1.5 million of capital, which for me is a various all amount of capital. But my returns, you know, to build a business in like a three year period by four or five and put them together and just kind of move it out of the room. You know, I'm looking at like 27 million in return on a 1.2 million dollar equity investment. You know, the rest of it is part of money. It's roll over capital. It's seller-finding. It's like, I service all of that, put this together, walk out. It's like use 1.2 million, walk out with 21. You know, it's kind of, that's good math. You know, if I didn't have the 1.2, well, I wouldn't walk out with 21. Maybe I'd walk out with 15 because I'm going to have to give, you know, some of that returns, you get the rest of the capital that I need. I think I could bring on a partner. If so many ways to engineer this and pull this off, that money should not be the reason you fail to pursue, you know, this kind of an entrepreneurial dream. You'll never become wealthy as a W2 employee working for somebody else. Right now, as baby boomers are retiring, we've got the greatest wealth transfer in human history. And it's your time to get out there and do this. Based on everything, we've been talking about across these two episodes, we kind of laid out the framework on how to do this. You know, obviously, we can't cover everything in detail in a couple hours, you know, in two podcasts, but there's books out there. You've got a course on raising capital. I've got books like Empire Builder to teach people how to do this, you know, this process. And you can do this. That's the point. Yeah, people doing it every day. Why not you? You know, it's kind of get off your dove, get out there and live the dream rather than just thinking about it for the next 20 years. Yeah, you're spot on, man. And that's the mission of the show. Like I said, two-fold mission, which is to redefine the value of the human spirit. And the second one is to activate the rise of the rest, meaning there are a lot of people with just a little nudge from Adam and I. And you're going to be well on your way. Now, you mentioned before when you did that insurance deal that your brother was active and you were passive. So that implies there's a phase that after you get the money, you close the deal, everything signed. Now, you got to run this company and run it to Prophet Town all the way to the finish line, talk about a little bit about being active and being passive. Now that you're at this phase of running the company, well, whether I'm acting in it or passive and providing governance and guidance to it, once I'm in it, and I own it, you know, I'm responsible for it. I'm, I'm seeking you have to generate alpha. I'm looking for my return. And so, you know, I have a playbook, you know, that I actually lay out in the private weekly book. You know, it's like, I want to accelerate the growth of earnings. You know, I want to get this company growing. It's one thing to buy a bunch of companies and put them together and you do get multiple expansion and bigger companies sell for higher multiples than smaller companies. I can collect a bunch of companies, pay small multiples and by putting them together, create something bigger that will trade for higher multiple, but a PE buyer, you know, or any buyer doesn't want to see a collection of companies. They want to see an integrated empire and they also want to see consistent growth organically. Improvement in margins, as we're getting bigger, we should be getting more efficient. So our profit margins should be accelerating. You know, our margins at the growth profit level should be, should be increasing. It's like, you know, more claim on the wheel we've got more to work with. You know, if I was buying a test control companies and I had, you know, five trucks on the road and I bought one new truck, I don't get the same price as if I have 500 trucks on the road and I got to buy 50 this year. You know, I'm going to get better pricing. So my pricing, you know, my ability to hit my suppliers for more effective pricing, my ability to be more efficient as I'm getting bigger, I've got to be able to demonstrate that. So I always tell people, I'm doing a mini roll up and I buy in essentially four million EBITDAQ because that's my exit point. I also want to get to five, six million. I want to do that organically. And so, you know, we have to be really focused on growth. What is our growth story? We have to have a good story to tell so that when a buyer walks into buyers from us, it's like they know where this business is headed. There's a trajectory that we established. Yes, we bought multiple copies, put them together. But now look at our organic growth rates, look at how asked we're growing organically, look at our margin improvement, you know, that we're getting and we're seeking, you know, and with your capital, in the next things, I can really accelerate my growth plans. You know, I'm good strapping, I'm doing the best I can, I'm doing everything, you know, in my old little wheelhouse, but with your capital and, you know, your assistance coupled with the leadership team in this business, we can really rocket ship to a different different place. So we have to be cognizant of the story. You know, often times when I walk into a business, you know, I immediately start attacking. I am a standard-playbook price, volume pivot, you know, and tiering products and services is so price. I've never found a company yet that has price optimized. Matter of fact, most companies tend to look at what's my cost of my product or service and what's the margin I want to make and I add that on top and that's how I price. And that does not take into account what a consumer is willing to pay. So I have to find additional price, you know, in the last three to half years, you know, that that we've been living through this inflationary period, you know, for our trying to be, cumulative price increases have totaled around 30%. Everything we do today is 30% more than it was three to half years ago. I bet you there's not many companies out there that have raised their prices 30% plus percent, you know, as so right now we have this great period of air cover where everything we buy is more expensive and we should have an ability to pass these costs to customers, you know, and consumers, you know, I get emails every day, hey, Netflix, we're raising our price on January 1st. It's like, you know, and hey, Apple's raising the price of this and Adobe's raising the price of that and QuickBooks is going to jack up, I read, you know, January 1st, like everything's getting more expensive. Great time for you to also be raising prices. I do a lot of work around optimizing price and, you know, every penny I can get in price immediately falls to profit. So price is important, volume. Can I, you know, what is the strategy for sales and marketing in this company? A lot of small companies really don't have a good cohesive strategy. And so I've always focused on, you know, how do I sell more stuff? How do I sell more stuff at a higher price? You know, and then, you know, so price, volume, pivot. Part of the thing for us to do is get a customer. Once I get that customer, what are the strategic pivots I can make to now sell that same customer additional products and services? I've got to landscape maintenance company, I cite a contract with you, it's recurrent, you know, and it's to blow and go. It's to mow, blow, go. You know, I'm cutting your grass, you know, every week, you know, and, and then I'm blowing off the sidewalks, right? Well, now I come back to you and say, hey, you know what? I also do bed mulching. You know, can I remulture beds? And hey, while I'm here, you know, I can also play flowers twice a year to help your, your look beautiful. Hey, by the way, I also can do pest control on your lawn to keep your, and I can do fertilizer on your lawn. And hey, I do exterior landscape lighting. And hey, it's holiday season. You want legs on your house. You know, boy, I can, I can look you up with lights on the house. I've got all these different products and services that I'm going back to my core customer base, constantly hitting them with new things that I can do for that. Maybe a different person in a different truck. These are the strategic pets, you know, and then I, I, I tier my products and services. Good, better, best. Never give one float to a customer when I can give three. Why give three? I don't know because marketing research says, three is your right number. 60% of consumers will buy whatever the middle product is. I don't need the best. I don't need the worst. So whenever your one product was, put it in the middle. Now, find extra things that you can add to it because some subs out of your customer base is willing to spend more. They're willing to buy the best. You know, and then I could also create a de-featured product, which will let more customers say yes to my proposals that I put out the door that I otherwise wouldn't grab. It's so by my raising price, by increasing volume sales marketing, by creating strategic events, by offering good, better, best-type packaging of services or multiple services, you know, with features. You know, what I'm doing is I'm learning how to accelerate the growth of this business that I just bought. And then I get the cost sign. My levers for cost, you know, margin improvement, high value work, low value work. Every person, I don't care if you're a general planner or president, everybody does some things that add value. It's some things that need to get done, but they don't add value. If I'm a technician and I've got a skill to fix, I don't know, your TV in your house, high value work is me being in your house fixing your TV. Low value work is driving. It's filling out paperwork. It's ordering parts. And so when I think about online employees, and I think about high value work, low value work, I look at the low value stuff. And I say, can I eliminate it? Can I outsource it? You know, or can I find an investment in technology that will automate it or make it more efficient? And so I'm constantly attacking, optimizing my service, delivery, product service, whatever kind of company it is. And so I'm also focused on margin. Because when my goal is to grow earnings, which is what I'm selling a multiple of, all of these levers come into play. I've got price, volume pivot that pushes up the top line. And then I've got margin improvement to lower my cost. And everything is now additive to my earnings. So we need a growth story. We need to focus on running a better business on if we're buying multiple companies on integrating those companies to maximize the potential. Now I got to memorialize that with a story with a multi year plan. You know, and at some point down the road, three years, five years, whatever that time period is, I'm ready to take it out to market. I'm ready to sell it. I'm ready to reap the rewards of what we've been talking about for the last two episodes. Brilliant. So now once once you sell it and you're ready to, like you said, take it to market. And once you're ready to do all of those things, now it's time to scale up. You mentioned earlier in this conversation. It helps you to bulk up. And so you're adding these portfolio companies or port codes as we like to call them as well as planning for your exit. So especially if you have investors, there is that hard expectation. Usually that you're going to create an exit or sometimes we use a fancy word called liquidity event. So we'll have a liquidity event and sound smart and make our mother proud and use big words. But either way, we got to create that liquidity event and investors like it and it puts a little bit of cash in your jeans. So now here we are. We're building our portfolio. Talk about what is that? Now we're at the rinse and repeats phase. Talk about what is required to build your port code and then plan for your exit. Yep. So let's just talk about I start with the end in mind. So I'm a pilot. I don't take off the list. I know where I'm going and I deconstruct the tricks. So when I'm building, if I'm buying a small company, I've got two logical exit points that I can hit in a relatively short period of time or efficient period of time. You know, I can get to about four millions of seven million to be picked out. That's kind of my first window where real legit PE firms that have funds with limited partners and real investors and capability, I can find some really good firms in that size range. And so if I get four to seven million in the kinds of companies we're talking about, I might have been buying them at four or five times and I'm going to sell them at eight times. So I buy four million. I grew organically. I get to five, five and a half, six, you know, and sell it for eight times. I got $48 million if I bought four million of it at five times. It cost me 20. I'm selling it for 48. Yeah, there's a $28 million delta in there and that's going to be. It's going to all my investors. You know, everybody that was around the table, the former owners of the companies I bought, they rolled over, you know, and so I can go there. I can go push a little bit farther. Maybe I buy the first company. It's got two and a half, three million at least. You know, and then I'm bolting out smaller companies. I talk that I'm going for, I'll call it 10, you know, as the start of the next window where I get really good buyers, you know, and, you know, and so 10 is about 17, you know, different class of buyers, you know, now that company that was selling for eight times down in the lower four to seven range, now maybe it's solid for 12 times times 10 equals 120 million dollar potential exit. And literally, if I bought all 10 million of EBITDA, you know, just for illustrative purposes, and I paid five times for each, that's 50 million, but I just sold it for 120. You know, it's all I made 70 million profits for me and my, my, my owners, you know, I'm going to have to buy more companies to get up to that size. It's going to take a little bit longer, but the returns are bigger. So I'm designing to build from scratch. It either four to seven million of EBITDA, we're kind of 10 to 17 million of EBITDA from there. Next real great exit point kind of gets way up in the stratosphere. You're talking about 40 million in EBITDA. And so I don't plan for that one. I'm going to have a partner, you know, because I never want to see an entrepreneur have more than a hundred million of equity in their company that they have in tap and cashed out and gotten some asset diversification. But I think you can get singles all day long, you know, and do these mini roll ups where you're going, I'm going to buy four million and then organically, I'm going to get it to five six. And that's it. And it's going to take me probably three years, four years tops to do that. And I'm going to take these singles. Maybe I do multiple of these simultaneously, multiple industries. I'm a whole services guy. I focus on a couple different verticals when I get these things going. I'm the passive guy. I've got someone running my business. They're going to share in the wealth creation of that with me. You know, I'm arranged in the capital, doing the hunting, doing the outreach. I'm focused on the finding and acquiring. They're focused on running the business that we're a team. And I could do a few of these and get these things going. And I'm working with a family office now. We are going to check the business. We're going to get four of these going because they want to create about a hundred billion dollars of profit in a relatively short period of time rather than just build one. We're going to build three and get our going three or four and then take them as far as they want to go. Maybe we do a couple of them in four or five million. Then we do one up to 10. It's like, multiple exits planned for. And the family office is seeking to do this and get three or four companies going at a time. When they start exiting, it's bull, bull, bull, bull, multiple liquidity events that are going on. And now they're kind of stocking up the family office treasure chest with the goal was, want to make a hundred million in five years. Great. This is how I would arrange to do that. Perfect. So as we wrap things up, any closing remarks or anything else you'd like our fans around the world to know? So I would just tell you that you and I are kind of, I don't know, season disciples of the game. And we've spent a couple hours now talking about how to do this stuff. Obviously, we can't fill in all the blanks. There's a lot of learning that has to be had from there. So take this as a primer or something to stimulate your creativity, your thinking, and you're listening to us. That means you're interested in doing this. Let's plan to get you off of the sidelines and actually get into the game and start doing this. And so we can read books. We can listen to podcasts like this. We can get coaching or mentoring. We can take courses like yours on how to raise capital, can read books like mine. It's like, let's start building this ecosystem and let's focus on getting you into this year. And instead of being a dreamer, let's make you a doer. As we head into close out this year and head into 2025, let's get you in the game and make you a person that's doing not dreaming. I love that. So just to round everything out and just to summarize everything we talked about, get your heading. Make sure you know where you're going before you even begin. Tell your story with numbers. Build your plan to buy a company with little to no money down. Build that hit list of companies and make sure you understand who it is you're talking to. And heck, even do that with investors. Then contact those sellers. Build the relationships and above all, don't do anything to freak them out. Get the money so you can do this and there's many ways to do it. Either you know people or you need to learn like a place like I teach at fundraisecaple.co or read Adam's books. And finally, plan your exit as a function of EBITDA. You do these things and you too will be well in your way in your pursuit of making billions. Wow, what a show. I hope you enjoyed this episode as much as I did. Now if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, watch me head over to YouTube and see extra takes while you get to know our guests even better. And make sure to come back for our next episode where we dive even deeper into the people, the process and the perspectives of both investors and famers. Until then my friends, stay hungry, focus on your goals and keep grinding toward your dream of making billions.