Exiting the Slowlane by Buying a Business

[Bones81]

Little progress report for today. My tax accountant referred me to another accountant in her firm who works on M&A, so I reached out to him to get the ball rolling to see if he'd be a good fit for the size of deal I'm contemplating.

I'm also rereading some acquisition books and taking down notes to help define my target criteria. Presently on the Harvard Business Review Guide to Buying a Small Business.

I'd like to have a very specific description of what I'm looking for nailed down within a few weeks.

I also spoke with a mortgage broker today and started the process to get pre-approved for a house. When I went back to a slowlane job, it was with 2 goals in mind. One was to buy a house and the other to buy a business. Hopefully the house part will be done sometime this spring.

 

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[Bones81]

Some more progress today.

Setup an appointment with an accountant tomorrow to see if he would be a good fit to help on due diligence when it comes to that point.

I also scheduled an appointment with a photographer tomorrow to get updated headshots for my LinkedIn profile and information packet I'm planning to put together.

Lastly, signed up to get a mentor through SCORE. Thought it would be a good idea to get guidance from someone locally here in Salt Lake City and to also start networking with other local business owners / entrepreneurs.

 

[Bones81]

Spoke to the accountant Friday morning and I think he'll be a good fit. He has worked on dozens on small business acquisitions and was very friendly and accommodating.

Also reached out to a business buyer consultant to see if he can give me advice on businesses he thinks would be a good fit for me as well as to see if they can help with the search.

The search itself is the most laborious part and is a full time job itself. Given that some weeks I'm doing over 50 hours in the office with the slow lane job, I can see where the search could go on the back burner. One perk of the slow lane job is that I have income so that I can leverage someone else's time and experience while I'm stuck in the office.

 

[Bones81]

So the bank I work for cut about 8% of its staff globally. We lost 2 people on my team. All the more reason to own a business.

I spoke with a guy I met through SCORE, which is a business mentoring organization. He suggested a few types of businesses I should check out as well as various networking groups, so I'll definitely check those out.

 

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[Bones81]

Time for an update here. Wife and I have a house under contract that's closing at the end of the month, so I've been running around getting all those ducks in a row. It's within 30 minutes to a bunch of ski areas, so we're pretty excited about that. One major life goal out of the way as well as 1 of the 2 main reasons I went back to banking (get a mortgage to buy a house and have income while I search for a business to buy).

I put together a list of ~25 attorneys here in town and then filtered it down to exclude the top $ ones that work on the complex transactions. This has left me with about 10 and I'll start reaching out to them next week to see which ones would be a good fit. Also have a list of all the banks around downtown and will try to swing by a different one every day to talk to lenders and see if there are any I like.

I've drafted an email to send to business brokers once I have a lawyer lined up. Will detail specifics on what I'm looking for as well as my advisory team. This should get a response from them since it shows I'm a serious buyer and not some tire kicker just thinking about it.

I also spoke with a business broker that I was setup with through SCORE. Told her what I was looking for (a services business with stable and continuous profitability with revenues in the $1-$2mm dollar range and seller's discretionary earnings of $150-$200k) as well as what I'm not looking for (distressed companies, etc.). Call went well, so hopefully she'll start sending things my way soon.

Lastly, I'm finishing up reading The Accidental Entrepreneur which I posted about here: https://www.thefastlaneforum.com/community/threads/great-books-that-are-not-best-sellers-share-yours.104414/post-1042940 . It's a great read and very fastlane in the sense that it really shows the benefits of control and time.

 

[Bones81]

Starting to look at businesses on broker sites now. A few I'm getting more details on are a concrete sealing a restoration company, a company that is a distributor of drug testing kits, and an HVAC company.

Interested if anyone has any experience in concrete and HVAC.

 

[BizyDad]

I'm mainly commenting just to get alerts on what's going on around here.

What is happening here?

First of all, I can't believe I've missed this thread all this time. Is a perfect example of what I've been saying that these super interesting threads just get missed.

I have only skimmed it so far.

But do I read this right? Have you been waiting to buy a business for 3+ years? Have you not moved yet?

Sorry, I'll get caught up here later. I don't want to provide any further feedback if I'm jumping to the wrong conclusion.

 

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[Bones81]

I'm mainly commenting just to get alerts on what's going on around here.

What is happening here?

First of all, I can't believe I've missed this thread all this time. Is a perfect example of what I've been saying that these super interesting threads just get missed.

I have only skimmed it so far.

But do I read this right? Have you been waiting to buy a business for 3+ years? Have you not moved yet?

Sorry, I'll get caught up here later. I don't want to provide any further feedback if I'm jumping to the wrong conclusion.

Yeah, quit job in Houston in early 2020, was a ski bum and trader for 2 years, got a new job at the end of last year, closed on a house 2 weeks ago, and now looking to make my slowlane exit. Have a lawyer, accountant, and lender lined up, now reaching out to all the local brokers in my area and seeing what would make sense for me.

 

[Walter Hay]

Once you got expenses in order and assuming you could grow at 5%-10% a year, it would be generating EBITDA well over $500k per year. From there, you could look to acquire/open additional locations or maybe even look to franchise it to others.

I notice that in several posts you have expressed the thought of franchising a business, and many of the businesses you have listed would be well suited to that approach. The biggest benefit is that you don't have to employ people, so you can build a large scale business without any of the costs of setting up a branch. If you do proceed to buy a suitable business, franchising it could be a good way to "Buy Then Build."

Admittedly I am biased as a result of my experience in setting up from scratch a franchise business that after a short period operated successfully in 4 countries. I sold it for a large sum, and as was the case in selling my Industrial Chemical business I didn't use the services of a broker.

Walter

 

[AppMan]

Starting to look at businesses on broker sites now. A few I'm getting more details on are a concrete sealing a restoration company, a company that is a distributor of drug testing kits, and an HVAC company.

Interested if anyone has any experience in concrete and HVAC.

I know commercial HVAC is all based on relationships and connections to get a stream of customers, also you need licensed people to work on the project. if you havent worked on HVAC projects before it is better to stay away from this business.

 

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[Vas87]

Have you seen material by Dan Pena or Bruce Whipple about biz acquisition? (No idea if they are legit or not but they keep coming up in my social media).

 

[confuser]

I'm 38, single, and have no dependents and have worked in credit risk in various banks since I graduated college. I've got to the point where I'm completely burned out with the job and am tired of being another small cog in the big corporate wheel. After reading TML twice and Unscripted , the most appealing fastlane to me presently would be to buy a business. This is appealing to me because (a) it would be an established business with a long history of proven profitability (i.e. not a start-up) and (b) I have the money to skip ahead and buy something that's already established and works versus having to build it step-by-step over a longer period of time (thus getting to the fastlane faster).

I'm just about done reading the HBR Guide to Buying a Small Business and have found it to be pretty useful to this point. I have come up with a preliminary set of requirements for a business by combining the CENTS requirements as well as some guidelines from the HBR book. Moving forward, here are the decisions I need to make:

1. Where do I want to live? - I currently live in Houston. I don't mind it but all the things I really like doing (e.g. skiing, hiking, being in the mountains) I can't do here. I think I would be happier living in a place like Denver, Colorado Springs or Salt Lake City where all these things would be in my backyard. Denver is presently the most appealing but I need to spend more time researching other cities as well. Initially, my search for businesses will include Houston in addition to cities near the mountains. If I move, I plan to live very cheaply while searching for an acquisition and running it the first year or so.

2. How much am I willing to spend on a business? My net worth is currently ~$1mm consisting of $20k in cash, $790k in stocks ($550k in retirement accounts / $240k in after-tax brokerage accounts) and ~$190k in home equity. I don't think I want to put all my eggs in the acquisition basket, perhaps just the $240k in the brokerage accounts and the $190k in home equity should I decide to sell my house. That would give me ~$430k of equity I could put down; assuming equity is 35% of the acquisition funding (the rest would be bank debt and seller financing), this would allow me to purchase a business with a total sale price of ~$1.22mm. I could purchase a larger business should I decide to raise additional equity outside of my own, but I don't know if I want to deal with partners / investors. I guess if the right opportunity presented itself, I would consider it.

3. What type of business? I'm generally agnostic to this as long as it fulfills the CENTS requirements and other criteria I've come up with. Ideally it is one where the present owner is looking to retire and is willing to stick around for a few months after so that I could learn the business. Would also like one that has good management already in place, both to satisfy the time commandment and to have people on board that know the business and would ensure a smooth transition. I realize I may have to spend more for a business with management in place versus one where the owner is the primary manager.

4. What do I do with my house? - Presently have ~$190k of equity in a house worth ~$400k. I could sell and use the cash from it as equity in the business acquisition. Alternatively, if I decide not to risk so much of my own equity in the acquisition, I could refi from my 15 year mortgage into a 30 and rent out the house. If I did this, I think it would generate ~$1k a month. My neighborhood is undergoing to redevelopment, so there is decent potential that the house can appreciate nicely over the next few years. I'm leaning towards selling the house; it's the higher risk move but the business will generate a higher ROI than the house.

5. When do I leave my job? - Job pays $15k / month plus I get a bonus of ~$50k (~$35k after-tax) at the end of January. Ideally, I would leave when I get the bonus in January. This would give me a few months to find a business and move along in the acquisition process while still cashing a good paycheck. However, leaving sooner allows me to dedicate myself full time to an acquisition and gets me to the fastlane quicker. If work stays relatively quiet, I can work on the acquisition at my job, however, with people quitting and the bank restructuring my group, I have the feeling I may hit my FTE before now and January.

For now I'm continuing to read on the process and things to look for / avoid while reaching out to various business brokers to get on their email lists to get prospects. I've also started working on a spreadsheet with both qualitative and quantitative metrics so I can start filtering businesses as I find them.

Would love to get any advice on where to live, types of businesses to consider, and from people who have been down this path before.

pardon me if i am dumb lol but which book is TML?

 

[BizyDad]

pardon me if i am dumb lol but which book is TML?

Welcome to the Fast Lane forum. Can I ask how you heard about this place?

The abbreviation is probably a typo, I think he's referring to The Millionaire Fastlane ...

 

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[Private Witt]

pardon me if i am dumb lol but which book is TML?

This is actually a great way to get User Power by getting laughs. Welcome Ghost, you got a business story to tell or just a scout.

 

[confuser]

Welcome to the Fast Lane forum. Can I ask how you heard about this place?

The abbreviation is probably a typo, I think he's referring to The Millionaire Fastlane ...

I was reffered to here by a friend on discord, we recently started chatting about money stuff, they saved me a bunch of time sifting through resources by mentioning a lot of the stuff they have learned which was super nice of them.

 

[confuser]

This is actually a great way to get User Power by getting laughs. Welcome Ghost, you got a business story to tell or just a scout.

Lol i was being totally serious when i said that glad it was funny though, i have no idea what user power is. I dont have any money plans yet but i want to learn more. No idea where to start beyond a few books i keep hearing about.

 

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[Bones81]

After a lot of searching, I have a letter of intent in place for a landscaping and snow removal business here in the Salt Lake City area. Now moving forward with the due diligence and SBA loan application process. If all goes to plan, the acquisition should close by mid-November.

 

[DawnW]

After a lot of searching, I have a letter of intent in place for a landscaping and snow removal business here in the Salt Lake City area. Now moving forward with the due diligence and SBA loan application process. If all goes to plan, the acquisition should close by mid-November.

Congratulations! Will you have a full-time operations manager so your time is limited in running that business?

 

[Bones81]

So an update on my acquisition. After months of waiting to receive the company's year-to-date financials, I finally received them and they weren't good. Revenues dropped by about 30% and EBITDA by 40% (on an annualized basis). The owner stated this was due to people spending less money on landscaping projects due to economic conditions and the fact that he hasn't been able to put as much time into the business as he previously did due to other business interests and travel.

I basically have 2 choices now. The first is to revise my offer down considerably to a price that makes sense. The big decline in revenue and EBITDA may make a bank weary about lending, so I may leave my down payment the same but ask him to seller finance the rest so I don't have to get a bank loan. I'm in a good position to ask for these terms as I'm fully prepared to walk away at this point.

The second option is to just walk away and look for a better opportunity. Based on 2022 results, the EBITDA was sufficient enough that it made sense to leave my job. Based on annualized YTD 2023 results, I'd be working considerably more hours for less money than I make in my slowlane job, so there is an opportunity cost. Even if I hired a manager to run the business, after paying that person and servicing the debt, there would barely be anything left for me, even after knocking the acquisition price down by 40%. I'm also concerned that most of the revenue is from large landscaping projects which are much more discretionary in nature than just mowing lawns. If the owner is already seeing these projects start to dry up and we haven't even gone into a recession yet, then revenues could fall even further if things get worse. Lastly, if the bottom line suffers when the owner isn't working in the business full-time, it means I'm buying myself a job rather than a business (the commandment of time).

There is of course value to be had here for someone who knows how to turn things around and put the people and policies in place so this runs more like a business which will ultimately require less time commitment from the owner, but for my first acquisition, I'd rather find something that is running better right out of the gate versus tackling a turn around.

 

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[DawnW]

So an update on my acquisition. After months of waiting to receive the company's year-to-date financials, I finally received them and they weren't good. Revenues dropped by about 30% and EBITDA by 40% (on an annualized basis). The owner stated this was due to people spending less money on landscaping projects due to economic conditions and the fact that he hasn't been able to put as much time into the business as he previously did due to other business interests and travel.

I basically have 2 choices now. The first is to revise my offer down considerably to a price that makes sense. The big decline in revenue and EBITDA may make a bank weary about lending, so I may leave my down payment the same but ask him to seller finance the rest so I don't have to get a bank loan. I'm in a good position to ask for these terms as I'm fully prepared to walk away at this point.

The second option is to just walk away and look for a better opportunity. Based on 2022 results, the EBITDA was sufficient enough that it made sense to leave my job. Based on annualized YTD 2023 results, I'd be working considerably more hours for less money than I make in my slowlane job, so there is an opportunity cost. Even if I hired a manager to run the business, after paying that person and servicing the debt, there would barely be anything left for me, even after knocking the acquisition price down by 40%. I'm also concerned that most of the revenue is from large landscaping projects which are much more discretionary in nature than just mowing lawns. If the owner is already seeing these projects start to dry up and we haven't even gone into a recession yet, then revenues could fall even further if things get worse. Lastly, if the bottom line suffers when the owner isn't working in the business full-time, it means I'm buying myself a job rather than a business (the commandment of time).

There is of course value to be had here for someone who knows how to turn things around and put the people and policies in place so this runs more like a business which will ultimately require less time commitment from the owner, but for my first acquisition, I'd rather find something that is running better right out of the gate versus tackling a turn around.

Thanks for sharing. Do you get the feeling that the owner was trying to mislead you and stalling in giving up the financials? Have you considered any ways you would have changed your process to save time? Again thanks for sharing your experience with us.

 

[Bones81]

Thanks for sharing. Do you get the feeling that the owner was trying to mislead you and stalling in giving up the financials? Have you considered any ways you would have changed your process to save time? Again thanks for sharing your experience with us.

No, just think he has one foot out the door commuting to see his girlfriend and managing his rental properties and the business suffered accordingly.

 

[Panos Daras]

Title:

Exiting The Slowlane By Buying A Business​

No business is bought.

 

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[samuraijack]

So an update on my acquisition. After months of waiting to receive the company's year-to-date financials, I finally received them and they weren't good. Revenues dropped by about 30% and EBITDA by 40% (on an annualized basis). The owner stated this was due to people spending less money on landscaping projects due to economic conditions and the fact that he hasn't been able to put as much time into the business as he previously did due to other business interests and travel.

I basically have 2 choices now. The first is to revise my offer down considerably to a price that makes sense. The big decline in revenue and EBITDA may make a bank weary about lending, so I may leave my down payment the same but ask him to seller finance the rest so I don't have to get a bank loan. I'm in a good position to ask for these terms as I'm fully prepared to walk away at this point.

The second option is to just walk away and look for a better opportunity. Based on 2022 results, the EBITDA was sufficient enough that it made sense to leave my job. Based on annualized YTD 2023 results, I'd be working considerably more hours for less money than I make in my slowlane job, so there is an opportunity cost. Even if I hired a manager to run the business, after paying that person and servicing the debt, there would barely be anything left for me, even after knocking the acquisition price down by 40%. I'm also concerned that most of the revenue is from large landscaping projects which are much more discretionary in nature than just mowing lawns. If the owner is already seeing these projects start to dry up and we haven't even gone into a recession yet, then revenues could fall even further if things get worse. Lastly, if the bottom line suffers when the owner isn't working in the business full-time, it means I'm buying myself a job rather than a business (the commandment of time).

There is of course value to be had here for someone who knows how to turn things around and put the people and policies in place so this runs more like a business which will ultimately require less time commitment from the owner, but for my first acquisition, I'd rather find something that is running better right out of the gate versus tackling a turn around.

updates?

 

[smackenzie]

Hey @Bones81, I hope all is well. I would love an update on how it worked out, I'm on the edge of my seat!

Right now this is a perfect example of the hook and hold marketing loophole from @Evelio:

MARKETING - The Hook and Hold Marketing Loophole - The Psychology Trick That Keeps Prospects CRAVING More...

The Hook and Hold Marketing Loophole - The Psychology Trick That Keeps Prospects CRAVING More... In 1927, a psychiatrist named Bluma Zeiganik discovered something about the human mind that has created literal billionaires. I call it the Hook-and-Hold Marketing Loophole (or Zeigarnik...

www.thefastlaneforum.com

 

[Bones81]

Been busy on several fronts related to this lately.

The first is an issue related to SBA loans (which I will need to buy a significantly sized business). If the loan is over $500k (which most certainly will be in my case), the SBA requires the loan to be collateralized. The first assets they look for to secure the loan are those of the business. However, in a lot of cases, the business itself doesn’t have enough assets to fully secure the loan (think service businesses that can be relatively asset lite or those that don’t own real estate). When the business doesn’t have enough collateral to secure the loan, they look to place liens on any personal real estate you own to fully secure the loan. If you don’t have any real estate to pledge, then they’re fine with the loan not being fully secured provided they are comfortable enough with the deal.

The issue this is causing for me is that my wife and I jointly own our home. When we purchased the house, she rolled the proceeds from the sale of another property and paid all cash for her portion of the house while I took out a mortgage for my half. So while there is quite a bit of equity in the house, it’s almost all hers and understandably, she doesn’t want her equity at risk over my business deal (which she won’t have any ownership or be involved in). This created a lot of stress for us as we searched for a solution to protect her equity in the house while I could still do a deal.

After speaking with a local estate attorney, we’re going to place the house into a trust. That way, legally, the house is owned by the trust and I personally don’t own any real estate. There are also some added protections the trust provides from creditors (I’ll also have to personally guarantee the SBA loan, so the bank could get a judgement against me to go after assets I have if I default under the loan).

The estate attorney is presently working on the docs and the trust should be ready to go sometime in February.

In the meantime, I’ve ramped up my search for businesses. I’ve reached out to every broker I can find in the area telling them I’m looking for an HVAC or plumbing business priced in the $1 - $3 million range within 20 miles of where I live.

I’ve also pulled a list from a database of all HVAC and plumbing companies in my area (there are about 370) and spent some time filtering and researching the companies on that list to narrow down which ones I’d like to target.

Having done that, this week I’ve started a letter campaign reaching out to these companies, letting the owners know a little bit about me and that I’m interested in investing in or acquiring a business such as theirs. I’m sending out about 5 letters per day and plan to keep that up until I’ve sent a letter to every prospect I’ve identified.

 

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[The Sandman]

Been busy on several fronts related to this lately.

The first is an issue related to SBA loans (which I will need to buy a significantly sized business). If the loan is over $500k (which most certainly will be in my case), the SBA requires the loan to be collateralized. The first assets they look for to secure the loan are those of the business. However, in a lot of cases, the business itself doesn’t have enough assets to fully secure the loan (think service businesses that can be relatively asset lite or those that don’t own real estate). When the business doesn’t have enough collateral to secure the loan, they look to place liens on any personal real estate you own to fully secure the loan. If you don’t have any real estate to pledge, then they’re fine with the loan not being fully secured provided they are comfortable enough with the deal.

The issue this is causing for me is that my wife and I jointly own our home. When we purchased the house, she rolled the proceeds from the sale of another property and paid all cash for her portion of the house while I took out a mortgage for my half. So while there is quite a bit of equity in the house, it’s almost all hers and understandably, she doesn’t want her equity at risk over my business deal (which she won’t have any ownership or be involved in). This created a lot of stress for us as we searched for a solution to protect her equity in the house while I could still do a deal.

After speaking with a local estate attorney, we’re going to place the house into a trust. That way, legally, the house is owned by the trust and I personally don’t own any real estate. There are also some added protections the trust provides from creditors (I’ll also have to personally guarantee the SBA loan, so the bank could get a judgement against me to go after assets I have if I default under the loan).

The estate attorney is presently working on the docs and the trust should be ready to go sometime in February.

In the meantime, I’ve ramped up my search for businesses. I’ve reached out to every broker I can find in the area telling them I’m looking for an HVAC or plumbing business priced in the $1 - $3 million range within 20 miles of where I live.

I’ve also pulled a list from a database of all HVAC and plumbing companies in my area (there are about 370) and spent some time filtering and researching the companies on that list to narrow down which ones I’d like to target.

Having done that, this week I’ve started a letter campaign reaching out to these companies, letting the owners know a little bit about me and that I’m interested in investing in or acquiring a business such as theirs. I’m sending out about 5 letters per day and plan to keep that up until I’ve sent a letter to every prospect I’ve identified.

I see how a trust will protect the house if you go bankrupt but if you don't have the collateral you simply won't qualify for the loan.

 

[Bones81]

I see how a trust will protect the house if you go bankrupt but if you don't have the collateral you simply won't qualify for the loan.

The SBA doesn't require the loan be fully secured. They will put a lien on personal property if you have it, but if you don't then the bank can still do the loan if they business is strong enough.

In other news, I've mailed out 23 letters so far with another 6 going out tomorrow. Haven't had any direct responses yet but have seen where people have been looking me up on LinkedIn.