Episode 44: Build Wealth Through Acquisitions (With JC Maldonado)

Episode 44 May 16, 2022 00:51:17
Episode 44: Build Wealth Through Acquisitions (With JC Maldonado)
The Quit Getting Screwed Podcast
Episode 44: Build Wealth Through Acquisitions (With JC Maldonado)
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Show Notes

It's time for a new podcast episode, and this week's episode is over the ever-engaging topic of Business Acquisition. In the construction industry, buying and selling businesses are incredibly common. However, no one teaches you how to go about it or where to begin when looking to sell your company or buy another one. Fortunately, J.C. Maldonado is an expert on the matter, and this week he is joining Karalynn to tackle this hot topic.
 
If this episode teaches you anything, consider showing your support by liking it, leaving us a review, and sharing the episode with your peers! Thanks for tuning in!

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Find JC's Services Here: https://bizgropartners.com/

Connect with JC:https://www.linkedin.com/in/jcmaldonado3


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Episode Transcript

Speaker 1 00:00:11 This is Carolyn pro. Welcome to the quick getting screwed podcast, where we talk about everything related to contractors, the construction and information to help you run better businesses. Hello, and welcome back to the quick getting screwed podcast, where we talk about all the ways not to get screwed in the construction industry and other helpful information. And today we're gonna talk all about buying and selling businesses with the expert, uh, JC Maldonado of BISG grow partners. Hey, JC, how are you today? Speaker 2 00:00:42 How are you doing Carolyn? Speaker 1 00:00:43 Oh, I'm doing good. So tell us a little bit about yourself, how long you've been in the business. What got you in the business of selling and buying businesses? Speaker 2 00:00:52 Well, originally, um, I went to college, studied psychology. Then I went to law school actually, and graduated there, um, kind of in between those, um, those two, uh, journeys, so to speak. I got the urge against my own business. My family, family roots are from Brooklyn, New York, uh, sta then Staten island. And, but no one in my family had a business background, perhaps my roots, you know, influenced me to, to go into business. So while I was in college, I kind of always had an interest in business. Always had an interest in free enterprise. I went into, uh, went to law school, kind of put the notion of understanding business contracts, law. I kind of liked that side of the street. Uh, I was kind of, uh, I, I was on track to maybe get involved in, in the corporate lawsuit, but right before, while I was in law school, as I was getting into law school, um, I kind of read a pamphlet, um, from a, a company called international wealth success. Speaker 2 00:01:45 And this was like a, I think they're even still around, they print out information on how to buy real, save with no money down and how to become wealthy and business ideas, how to get involved in the import export business. So they had some pretty interesting publications back then. <laugh> and it wasn't, it was just like pre-internet, um, I mean the internet was around, but it, you didn't see people peddling information products online. So, um, so actually you'll order these pamphlets and, uh, there was one, uh, particular publication that's said that you can make money by helping people raise capital or arrange loans. Commercial. Speaker 1 00:02:34 This is welcome to the quit getting screwed podcast, where we talk about everything related to contractors, construction and information to help you run better businesses. Hello, and welcome back to the quickening screwed podcast, where we talk about all the ways not to get screwed in the construction industry and other helpful information. And today we're gonna talk all about buying and selling businesses with the expert, uh, JC Malto of BISG grow partners. Hey, JC, how are you today? Speaker 2 00:03:05 How are you doing Carolyn? Speaker 1 00:03:06 Oh, I'm doing good. So tell us a little bit about yourself, how long you've been in the business. What got you in the business of selling and buying businesses? Speaker 2 00:03:15 Well, originally, um, I went to college, studied psychology. Then I went to law school actually, and graduated there, um, kind of in between those, um, those two, uh, journeys, so to speak. I got the urge against my own business. My family, family roots are from Brooklyn, New York, uh, sta then Staten island, but no one in my family had a business background, perhaps my roots, you know, influenced me to, to go into business. So while I was in college, I kind of always had an interest in business. Always had an interest in free enterprise. I went into, uh, went to law school, kind of put the notion of understanding business contracts, law. I kind of like that side of the street. Uh, I was kind of, uh, I was on track to maybe get involved in, in the corporate lawsuit, but right before, while I was in law school, as I was getting into law school, um, I kind of read a pamphlet, um, from a company called international wealth success. Speaker 2 00:04:08 And this was like a, I think they're even still around, they print out information on how to buy real estate with no money down and how to become wealthy and business ideas, how to get involved in the import export business. So they had some pretty interesting publications back then. <laugh> and it wasn't, it was just like pre-internet, um, I mean the internet was around, but it, you didn't see people pedaling information products online. So, um, so actually you'll order these pamphlets and, uh, there was one particular publication that's said that you can make money by helping people raise capital or arrange loans, commercial loans for commercial projects and charge a commission for it. And you could even help business owners sell their business and deceive a commission in representing them. And I remember the pamphlet saying, uh, uh, rub elbows with some of the most successful, interesting people in your community, uh, become, you know, well received and, and, uh, and develop a network and you can make money in this way. Speaker 2 00:05:09 So that interested me. So I said, well, you know, although I was interested in law, <laugh>, it seemed like a, a business that would, you know, require to interact with people. So, so what I did is I got business cards, started a company and I became, uh, a street main street business broker representing all types of businesses, uh, ranging from mom and pop businesses to, uh, you know, uh, and then later on, as my career progressed, I, you know, we started to represent, uh, middle market companies, lower middle market and middle market companies for sale. But it started with my first deal was, uh, sale of a gas station and car wash and convenience store and sold the business at the closing. I got paid a commission and it was, uh, an epiphany in, in my early twenties. So from there about a year later, my brother got involved in, in the business. Speaker 2 00:05:58 So, um, we became partners and we started to develop the business. We got to the point where we had two offices with, uh, 40 fulltime sales people, 35 dedicated to the representing, uh, mom and pop businesses like car washers, laundry, mats, car, um, supermarkets, et cetera. And then we had another division that would represent, you know, middle market companies, manufacturers, distributors, healthcare, it, et cetera. So, um, and that's who we were, uh, for, um, in the two thousands. Now during that process, we generated enough resources to lend our own capital, to, um, to businesses, to buyers who would wanna buy middle market companies or, and, or main street. So, and we would lend money to the buyers and we would arrange the business acquisition loan and get a commission. We would, uh, make, uh, represent owners of businesses and get paid a commission at the time. Speaker 2 00:06:51 And then we would lend our own capital to the buyers who were looking to come in and in exchange for that we would, uh, uh, serve as a consultant, uh, as a, as a condition to receiving our money. Um, then oh, 8 0 9 came, we lost a lot of money. We had a lot of money and lent out. So we had a, a portfolio of clients. Plus we had a book of business of companies that we were representing for sale. Very cool. Uh, but when the market crashed, you hit a lot of the retail main street world hard, and it hit the middle market hard, cuz a lot of the lenders pulled their line of credit and a lot of these businesses. So a lot of those businesses lost money, lost liquidity, and we had our money stuck in these places. And um, but we did receive some money back and we got paid by a very interesting, um, segment of the marketplace. Speaker 2 00:07:40 These were businesses that were not as small as the mom and pops, but they weren't as big as the middle market companies. So these were businesses doing three to 30 million in revenues, maybe a million to two and a half million dollars in their earnings, 10 to a hundred employees. And they were usually in manufacturing or distribution or commercial business service and even commercial subspecialty construction companies were still viable. The market had crashed, but some of them survived, uh, were able to stay alive. So, um, the segment at that segment of the marketplace actually paid some principle and interest back and that kind of flushed us with a little liquidity. And then when my brother at that time, who's my partner. We decided to reinvent the company and we became a principal buyer of those businesses that actually paid our money back. So, so, so that was around 2009, 2010. Speaker 2 00:08:37 And that's who we've been since we kind of converted ourselves from an investment banker merchant banking type that provided those services to this underserved, you know, main street and lower middle market area. Then we reinvented the company and became a principal buyer of some of those same businesses, particularly those businesses and service distribution, manufacturing, construction, and businesses, uh, that are, you know, too small for private equity, but too big for a lot of individuals in terms of size, uh, in order to buy. So we became this niche buyer who now systematically buys businesses in that market. Speaker 1 00:09:14 So do you buy them to run them or do you buy them for somebody else? Or Speaker 2 00:09:18 We buy 'em to own them and, and run 'em. And, and all these businesses that we buy the business is doing a million or two and a half million in net earnings. That's like a fancy word of to say profit mm-hmm <affirmative>, um, it, those kinds of businesses, um, they're we consider them to be high performance, small companies. And our goal is to buy those businesses and transform them into bonafide middle market operations. So take them to from five, 10 million to 50 million or from, you know, 15 million or a hundred million or, you know, in terms of revenues and then from a net earnings perspective, you know, a million or 2 million to 5 million to 10 million and operated as a middle market operation. And if the real estate's involved, we buy the real estate too. So that's what we do. And we do this by retaining the founder for at least one year who runs the company on a day to day basis for one year. And then we phase them out and bring 'em to the board level mm-hmm <affirmative> cause oftentimes our deals involves the founders retaining an interest in the business. And then after year one, we pretty much replace the founder with an executive team by either promoting from within or by recruiting outside talent. Speaker 1 00:10:32 I'm a business owner. And this sounds like almost an impossible task from somebody on the inside. Who's trying to do that with their business, but you make it sound so easy. Cause it is. And I guess Speaker 2 00:10:47 It's maybe my perspective, but you're right. It's a to point out that the complexity, the endeavor, Speaker 1 00:10:53 But no, I, I agree. That's what makes you the expert at what you do? So how is acquiring business related to building wealth or how can it be? Speaker 2 00:11:03 Well, I like buying businesses because they produce cash flow and the valuation could spiral upward at a faster pace in other asset classes. So, um, so these businesses, for instance, that we buying that produce a million dollars to $2 million in their earnings. Mm-hmm <affirmative>, those businesses are gonna usually trade for some sort of multiple earnings, three times, four times, five times, that's how kind of they get valued. So when you're a buyer, you usually pay a multiple earnings to come up with a price. Um, the beautiful thing is that if you increase those earnings and you build earnings, you know, beyond 5 million, beyond 10 million, the, the multiple actually goes higher. Uh, because at that point there are buyers, public companies and private equity groups and other types of buyers that'll pay more for a business that is performing at a certain level. So what I like about what businesses with regard to wealth building is that the appreciation of the asset could skyrocket. If you do the right job, plus you have control of the performance because as an owner, you're, you're, you're responsible for the results of that, of the performance of the asset. So that's why, and, and that, along with the fact that it produces a lot of cash flow. So Speaker 1 00:12:17 If it produces all that revenue, do you get paid as a shareholder? Speaker 2 00:12:22 Well, I, I partner with entrepreneurs to buy companies mm-hmm <affirmative> so I don't have a fund. Um, but I do raise capital. So I'm, I'm not using my own money strictly I'm typically, um, I'm not investing per se. Um, I procured a deal, put it together, arrange the third party financing. And then I bring in a partner in each deal and, and that partner usually will sign on a business acquisition loan of some sort mm-hmm <affirmative> and, and sit on the board of directors and become a partner in that acquisition. That's simply what I've. Speaker 1 00:12:54 Gotcha. And so for, for like that person in that position, do they get paid like, like as a salary, as, as running the business, do they get paid dividends? How to Speaker 2 00:13:03 Obviously, well, my company gets a management fee. Speaker 1 00:13:05 Okay. Speaker 2 00:13:06 And then we get a part of the, you know, uh, anywhere between 30 and 50% ownership of the business and our partner receives, uh, a percentage ownership of the business. Uh, and then depending on who puts up money in terms of fulfilling the down payment requirement usually is a down payment requirement on each deal. Mm-hmm <affirmative>, um, whoever puts up money, you know, will get a straight line return on the capital and then we'll split distributions along the way. And, and our goal is to hold the business long term. Gotcha. Cause I'm buying businesses that are typically not, they're not gonna be displaced by technology. They're typically essential businesses. And I know that's the COVID term mm-hmm <affirmative>, but um, the businesses, they manufactures the distributors, the, the subspecialty construction companies, the business service companies, a lot of them were deemed essential during COVID. Yeah. So, um, so, you know, um, so I didn't use the term back then, Speaker 1 00:13:59 But because essential business COVID Speaker 2 00:14:01 Gave us a new term and often, so basically yeah. Buy essential businesses that are essential to the infrastructure of the United States in these areas. So they're not going to be displaced. Um, so there's no reason to sell them, actually, mm-hmm <affirmative> um, all we gotta do is continue to grow the business and the value sky rapids upward. So that's the advantage of this, uh, particular asset class. So that, so that's, so what, what long term holders? And we build wealth and we build, and we grow the earnings of the business. We make money along the way. And then, you know, when you have assets on the books, you know that in a portfolio, it gives you options. You don't necessarily need to sell anything in order to get access to cash when you have that kind of. Speaker 1 00:14:41 So that's how you achieve wealth through business acquisitions, Speaker 2 00:14:45 Through business acquisitions and establishing management teams in each business that we buy. A lot of times management team kind of exists already when we buy the business, but we could also recruit outside talent and, and, and we establish an executive team that runs the business on behalf of ownership. Gotcha. And then I establish a board of directors typically with whoever I'm partnering with, along with the founder of the founder, retains an interest in the business. And I establish a board of directors, which is then the board is just a fancy word of saying ownership, right? So I establish an ownership group that supports the executive management team. So the executive management team is responsible for the day to day, but the board of directors is responsible for creating the strategic direction of the business. They're responsible for providing top line management support. They're, they're responsible providing capital support, business planning, support. Speaker 2 00:15:38 Um, and, um, and, and we also sign the players. We, we bring in the talent that's needed so that the business can function on group intelligence, as opposed to just relying on a founder. Cause there's a, there's a, there's a, there's a limitation that the business has. If everything is all the intelligence built within the business stems from the founder. So we're bringing in group intelligence that enables, um, us as a team to create more fire power. So, um, so that's that, and, and the key this, by the way, the establishment of the executive team mm-hmm <affirmative> and the establishment of a competent ownership group, that is what we call the separation and church and state, which is one of the wealth principles that we teach, which is that if, if you, as the owner is running the business day to day and is also self financing, the business, there's going to be a limitation, the amount of wealth you could create, and there's gonna be an limitation in terms of the amount of value you you can create. So what we preach is you've gotta separate church and state, which in our vernacular means separate ownership and management. So ownership is, is responsible for the strategic direction of the business. And management is responsible for working and running the business day to day. Speaker 1 00:16:56 So is this something that all businesses should consider like this wealth through acquisition as a growth strategy? Speaker 2 00:17:03 Well, it really depends on what your goal is. So if your goal is wealth building, then I, I think it's detrimental to be running the companies that you own. Speaker 1 00:17:15 I'm very much in, in the business. Right. And I'm, you know, I'm thinking that sounds great, but like, what do you tell people that come to you? Like, I don't even know how to do that. Or, you know, you've run businesses, you know, you get into it. And especially as a business owner who whole life is involved, how do you, how do you reassure them that, you know, I think that's probably why a lot of businesses fail or whatever it's because they won't pull back and give control to somebody else. Do you have any like specialties on talking to business owners that way? Or how do you get 'em on board to do all this? Speaker 2 00:17:51 Well, a lot of successful business owners are control freaks and they wanna control everything. So they just have a mentality of controlling everything because that's what kind of got them to the first level of success, which is to build a successful business. So, uh, a small business needs tight management in needs, lean management, because in order to survive in the small business arena, you, you have to be able to work with finite resources. So what entrepreneurs learn how to do is to preserve their resources and operate lean and mean, and be able to be in control of every single detail of the business. That because in the early stages, the business could be very vulnerable. That's why, what nine outta 10 businesses fail. So the founder has to be competent, has to be a competent executive. So one of the survival skills that you develop is you learn how to be a control freak, because you know that if you don't have every detail down, you're probably gonna fail, especially in those early stages. Speaker 2 00:18:52 The problem with that is the survival skill that you develop in order to get to that first level of success is the same skill that would, that could hurt you in building wealth. Because as the business grows, the business is gonna have, um, a need for intelligence that is D that is diverse. They need diversified intelligence. And, um, the owner who's a control freak would then at that point, have to relinquish some control of the business in order to bring that intelligence to the table, or he has to pay a lot of money for that intelligence. So what happens is these owners who are successful and kind of get, you know, they don't become, um, prey to the normal scenario, right? Which is failure nine outta 10 businesses fail. So, um, instead they, they, you know, become this control freak survive, and maybe even get themselves to making a million or $2 million a year in income. Speaker 2 00:19:48 So they're now be they become part of the one to 5%, um, you know, uh, part of the income earning bracket in the United States. However, if by not bringing in other forms of intelligence that actually limits the business to a certain level of performance. So if your goal is income, and if your goal is to, you know, let me own the business for 20, 30 years. And then when I sell it, I can, I'll have even an additional amount of money that I can take from it. In addition to the income I made along the way, then buying companies for wealth purposes strictly may not make sense. Speaker 1 00:20:23 How does acquisitions help an owner in construction? Speaker 2 00:20:26 Think about what the most cherished commodity in construction is right Speaker 1 00:20:30 Now, labor cash, all of the above. Speaker 2 00:20:33 Yeah. Yeah. Cash and labor. So acquisitions is, is a great way to procure a talent. And in the construction, you can't have enough of it. You need your estimators, you need your project managers, your superintendents, your foremans, you need, um, you need management to, to kinda oversee all this, right? So when you do an acquisition, think about what you get, you get a whole labor crew and, uh, you get control of a labor force. So acquisitions and construction is actually a very good idea. Cuz a lot of construction owners don't even try to make acquisitions. So you don't have a lot of competition. And then most buyers outside, the realm of construction are certainly not gonna feel comfortable with construction. Cuz construction is not a one of those business that newcomer is like to buy <laugh> Speaker 1 00:21:21 Right. Why is that? <laugh> Speaker 2 00:21:24 Um, the barrier is entry is a barrier of entry in construction. You really have to make it your career in order to eventually get involved in the business. So, um, there's barriers to entry and there's fear. So I think for someone in the construction arena, who wants to actually buy businesses, this to be a great opportunity because you're not really gonna have as much competition because most people, even if they think about acquisitions are probably not gonna be able to execute, um, in this realm. So, Speaker 1 00:21:54 So that's the next question. So should they focus on growing their business through acquisition or should a person consider acquisitions outside of their field of expertise? Speaker 2 00:22:04 Well, if you're gonna build wealth, then you probably shouldn't really buy something that's in, within the realm of your trade background or your professional background because of member. If you're a business owner you've succeeded in your trade, you probably control freak. You're gonna buy a business in your realm. You're gonna, you're gonna go back to your old habits of being a control freak, and trying to control everything when, but when you buy a business that is outside your realm, it forces you to learn the business and rely on people who are smarter than you in the trade. And that's what leadership's about. Surround people that have skills that you don't have, but it's UN it's an uncomfortable feeling, a lead a group of people who might be smarter than you in the trade. So that'll make you a better, you know, um, entrepreneur, a board level entrepreneur, meaning, you know, you're buying a business that you're not necessarily gonna run day to day, but you're gonna be a part of the board and you're gonna be helping operate the top line management intelligence that the business needs in order to grow. Speaker 1 00:23:00 So you're looking at the business side of business, right. You know, and actually just running the business, which, you know, like when people start out, they start out in business in my, you know, most people I know because they love what they do. And it's very fast. They're removed from that role and they're running a business, uh, and they become really good at it out of necessity. Like you've said, Speaker 2 00:23:22 Um, if you're running, if you're running the business, you own it and you're running it. You, what, what you've done is you've developed a business that's completely dependent on you. So that reduces the value of the business one, but more importantly, it puts more pressure on the business owner. So that's why the best approach is to build an executive team that runs the business without you. And then you provide top line management support to that team. And, and then the next level after that would be to establish a group of partners, bring in other partners with a diverse level of skill sets so that the ownership group has skillsets necessary to take the business to the next level. So that's where, I mean about group intelligence. So I think you asked the question before why a little easier said than done and, and yes, if you start the business from scratch and then you are that control freak that I'm talking about, it's very difficult to break that chain, so to speak, break, break that pattern. Um, and then all of a sudden get to the point where you're gonna establish a board, et cetera. Speaker 1 00:24:25 So once you're at that board ownership level, like, are you involved daily, monthly, weekly, just generally. How, how often are you involved? Speaker 2 00:24:32 Well, if you establish a, a board level team, then the group will be typically involved, um, in terms of owning the, uh, supporting the executive team. Um, but usually it would be a smart thing to do if you bought a business and you weren't running it, it would be a good thing to have weekly management meetings to go over key performance indicators and key metrics that tell you a little bit about how the business is performing. Um, uh, we, you do monthly board meetings. So to, to kind of discuss, uh, important topics of the business, you have quarterly planning sessions and annual planning sessions that kind of help, you know, get the team together and try to help conceptualize the whole planning component to it. I think you have to have a business plan. I think you have to have a standard operational procedural manual. You could bring in consultants, you bring in talent to come in and help your team. You can establish, uh, executive training programs to the team itself. So you see what I mean? There's a, it's very possible, but you have to do, you know, there's a own being an owner. It takes work. Wow, absolutely. But you're in the brains part of the business. You're not in the labor part of the business. Speaker 1 00:25:42 So what are some characteristics of a business that would be worth acquiring? What do you look for when you're looking at businesses to buy Speaker 2 00:25:48 Them the, the quality of the founder, when you buy business, you're buying people. I want, uh, the quality of the founder and the key management, right? That's that, that's really what you're getting. You're getting the people. That's, that's essentially what's happening. You're buying people now there's cash flow that comes along with that. So there's a numbers component, but my determination to buy a company is all depends on the people and whether they're reasonable. And what I'm also trying to avoid is a greedy owner. I don't want an owner who just wants to sell to the, for money strictly. I want an owner who's believes in his legacy and wants to preserve it. I want an owner who believes in his people want to give them opportunities. Maybe there's some FA family relatives in the business. The owner cares about them too. If you only think about the money, then you're really disregarding the people because it's, you know, usually the highest bidder's gonna come in and change the business, right? Speaker 2 00:26:43 They're gonna change things around. They're gonna, they have to justify the higher acquisition cost. So they're gonna be more apt to kind of change things around and try to see if they could squeak out the highest return possible. It's all about dollars and cents, right? So they're not gonna really be paying too much attention to the people aspect of it as much. But, um, the way we are, the way we kind of look at it is the, um, if you're gonna build the business to the next level, we have to retain the current intelligence work with the current team so that we can kind of take the business to the next level. Speaker 1 00:27:18 And how do you determine that? How do you get to know how do you get the, how do you get to know if a business has those characteristics or not? I'm just curious. Speaker 2 00:27:26 Well, remember, it's the owner now, there are some qualities I'd like to see from the business, but that, uh, I think everybody would likes to see from a business if they wanna buy it. You know, I wanna see quality earnings. I wanna see consistent revenue. I want to have a customer base that's reliable. And that's been coming back to that business for a period of time. Uh, I want the books and records to be clean. I want the business to be free of any legal problems or litigation, et cetera. I want the licensing process to be somewhat straightforward and, or at least we have an answer to try to solve that problem. So, um, so I wanna overall clean financially healthy business with a reasonable valuation. But my number one determination is, is the quality of the founder, the management team, and whether they're willing to take some risks themselves. Speaker 2 00:28:11 So I would never buy a business where the seller does not finance a proportion of the business. My preference would be for him to be a 10 to 20% partner. Uh, that means they would basically finance about 10 to 20% of the purchase. I in the form of equity, meaning they're gonna just retain an ownership stake in the business. That's always my preference. And then I'd like maybe someone management to step up and put some money up or sign on a business acquisition loan or, or, or be willing to participate in a, in a, a, a lucrative bonus program that, that is, that has a lot of upside to it, but not as much front end cost. I want something, whether there's some skin in the game and that's what makes determination whether I think I buy a business or not. Speaker 1 00:28:54 And so that it kind of answers. My next question is how is important is the seller to once you've bought the business? Well, I mean, I guess on the front end, they're that important, but how are once the transaction is already complete, how often, or how important is keeping the seller? I Speaker 2 00:29:07 Keep the seller on board forever. I don't want the seller to leave. Well, I'm trying to do is change the seller's role in the business from a primary executive day to day operator to someone at the board level who can provide strategic intelligence and trade expertise. That's gonna be necessary for us as a board to, to utilize in the growth of the business. Plus the founder typically has a lot of relationships that we certainly wanna retain, and we certainly wanna build and expand our relationship base with the founder kind of being, you know, a source of for us. So a lot of bodies are trying to get the seller out of the business, right? They're trying, they buy a business and try to get the seller out. I think that's a big mistake. I think that's a huge mistake by the way. Um, it's the other way around your risk is mitigated by to the degree that you could retain the, the founder and, and, and have 'em somewhat involved Speaker 1 00:30:02 And have, have an interest as Speaker 2 00:30:03 Well. No, it doesn't work that way. I mean, that doesn't mean I don't buy the business, but that's always a preference to have some level of, um, you know, some level of skin in the game, so to speak cuz because that's how you make a deal. That's fair. And that's how you protect yourself from risk. Speaker 1 00:30:20 Absolutely. So how do you get the money to buy a business? Speaker 2 00:30:23 Well, you can use your money and then use third party lenders. The SBA has a great program, so that that's a good source of money. Of course, if you're gonna buy a bigger business, like a middle market company than there's a whole, uh, range of middle market business acquisition lender is that'll lend, uh, lend money. Uh, but that's with larger transactions. But I would say for any deal that's lower than 10 million in purchase price. The, uh, the seven a SBA program would be the best. Now, now that the SBA is not direct lender. So you have to find an SBA lender who is, uh, pretty aggressive when it comes to business acquisitions. There's a, there's a handful of the there's about a handful of them in the, in the country. Um, that would, that are aggressively lending money, but, but they're using it within the scope of the SBA seven a program. So the SBA guarantees like 75% of the loan principle of these loans. So they, they incentivize these lenders to make these kinds of deals. Speaker 1 00:31:24 Gotcha. Um, so, Speaker 2 00:31:27 Oh, so in addition, addition to that, um, well you either have, usually it, there's a down payment requirement between five and 10%, depending on how much you can get to sell it to hold back. So if, if you, you know, say you buy a business, if so, if you have the resources you can put money up, um, but you can always take on a partner. You can always raise the money, you have a good deal. You wanna talk to people in your community and certainly talk to them about putting out money. You could talk to them about coming on the loan with you. So there's lots of, there's lots of ways to get ahold of money. But I would say your professional network combined with these SBA lenders would be a primary source to get money. Speaker 1 00:32:10 And so what kind of, you know, advisors or people would you need to help do this acquisition? Make sure it's done properly and, and, you know, ends up successfully. Speaker 2 00:32:18 Well, first things first, if you're gonna do this alone, you better know what you're doing. If not, you're better off partnering with someone. Who's bought a lot of businesses. Um, and you gotta be honest with yourself. If you're a business owner you've never made an acquisition before, or maybe you've made one you're, you're not an expert. I would say, even if you bought five companies, you're not anywhere close to being an expert. So, um, if, if, if you don't have experience, your experience is limited. One way you can mitigate risk is simply partner with someone who's actually experienced with acquisitions. So, so that would be, you know, one main thing to consider. Um, two, if you're gonna do it on your own, you better know what you're doing. You better study this craft, understand every single nuance and how to bake business acquisitions, how to finance them, how to do due diligence, how to create value, post transaction, how to identify problems in the executive team. I mean the accounting part, everything from the accounting part, the finance part, the contract know everything there is to know about contracts in this arena. If you, if the business owner's not prepared to put into work, to learn this space, to learn the craft, there's no advisory team. That's gonna protect you from yourself. Speaker 1 00:33:34 And that's like, so what can go wrong? If they try to do it on, on their own? Speaker 2 00:33:38 Well, one or two things can happen. I I've seen one or two things happen. You have a personality who doesn't have ano who simply does not pay attention to any of their advisors because they think they're smarter than everybody. So they may have an advisory team, but they're just a bunch of puppets. And, and they don't take any advice from them, even though they may know, you know, they may need them or you have the opposite. You have, um, you could become hostage to your advisors. So, so other buyers, they just become hostages. So they're, they won't pull the trigger unless their attorney says so they won't prove the trigger unless their account is happy. They, they, they generally get influenced very easily and it's hard for them to pull a trigger on a deal. So those are the two things I see. Typically when, um, when a, when a business owner doesn't put into work, if you wanna acquire businesses, you either have to put into work or partner. Speaker 2 00:34:28 If you're not prepared to do one of those two, then don't buy a business. That's that simple as that. Now you talked about the team, assuming you did put in the work, and now you have general knowledge in five or six different areas that are important. Then I think you gotta get one, you gotta get a good M and a advisor or business broker that can help you source deals. So I think, um, it's gotta be a business broker with experience a business broker. That's not a high pressure salesperson either. It's gotta be someone who has a long term vision to help you. Um, someone who has good financial acumen, someone who's accurate, someone who can kind of put you on the right path, someone who can help establish, or at least understand your business acquisition criteria. So a good investment banker, a good M and a advisor, a good business broker, they call 'em different things, but to, depending on the size of the transaction. Speaker 2 00:35:14 So if it's a smaller business, they, they call business brokers. If it's a, a business in the lower middle market or, or the kind of the space that I buy in, you know, they call 'em M and a advisors. And, and then if it's in the middle market, like companies doing 10 million plus in net earnings, you know, and, you know, a hundred million dollars, 50 million, $200 million in revenues, you know, that kind of business, those are MI that's the middle market. And they usually call 'em investment bankers. So, but to find one and have one on your team or someone that you have a good comfort comfort level with. And I think certainly that's, um, that would be step number one. Um, then I think on top of that, you'd need, uh, an accountant, um, uh, that can particularly a accountant that has a good, strong business valuation background. Speaker 2 00:36:00 Um, and then someone who has a good forensic background who could also be equally as effective. And you want that accountant to be able to just really financially scrutinize the business, all it's financial information. So that's really what I want from that kind of account. I don't, I don't need that person to tell me what to do. I just need 'em. I need them to help me verify the numbers representations of the business. So that's that, and then an attorney, um, an attorney that is proficient with contracts, an attorney who's a deal maker and a problem solver. And that, you know, we know there's always problems, but the attorney has, should, should be, um, to be value added and, and coming up with solutions. You're gonna, so, um, and that's probably gonna be one of your biggest expenses, um, but it's a worthwhile the investment. Speaker 2 00:36:48 If the attorney, um, knows what they're doing. I, I also think that having the attorney to have to be administratively sound is very important. Um, I think it's important that attorney has a paralegal or has an office or office support, so that the documents that are being drafted back and forth, you know, are, are done in an efficient manner. So I would look for that. Um, and then I would look for someone you can trust who is knows your goals and, and give them some incentive to help you close out the deal, because there's a lot of work on the back end that attorneys do that are not only involve legal advice, but also involve the administrative components as you know, a lot of paperwork on deals. So, so that's absolutely so that's, so I'd say those are your three main areas. You know, if you, if you're buying a real estate, having a real estate appraisal company is good, an en um, you're gonna, if, if you buy real estate, having an engineering company or company does phase one of phase two analysis, that's good. Um, if, if, if some business owners I've seen utilize business consultants to kind of help from jump from the jump, whether the business is viable or not what the growth plan would be. So, yeah, so I think, uh, surrounding yourself with the right advisory team is good, but that will not replace the work that's needed to do your homework and become proficient in these areas. Speaker 1 00:38:09 Gotcha. Absolutely. And so how do you find businesses that are for sale? Speaker 2 00:38:15 Uh, I would say through the M and a advisory community, it's just easier when a seller just makes the emotional decision to, um, to sell and that they kind of go through the process and educate themselves. And, um, I think, um, uh, I think it's important that, um, they make that emotional decision as opposed to me trying to buy direct from them. So my pre preference is to have some sort of business intermediary involved, and that's where I source most of my deals from that whole community. So, and it's pretty, not a large community, but it's a niche community. So that, that would be yeah, one way to do it. Uh, and then I think networking with attorneys, accountants, associations, other Avi, other like consultant types. Those are good ways to source deals too, as well. Speaker 1 00:39:03 Gotcha. And so once you decide you're gonna do this and you set up the, how long does it normally take from, like once you have a buyer that's interested to the time that that the sale actually is done, Speaker 2 00:39:15 Oh, if someone's selling, it could take a year or two to solve the business. Really. So, um, there's a lot of work involved. That's administrative from accounting to banking to legal it's, uh, the, the whole transaction is action is, um, is laborious. Speaker 1 00:39:35 So how is business for you though? I'm just kind of curious, is, is it this a good time to be in the buying business? Like if, if this was, you know, is this a good time to do it, or should you wait, is there, is it better time than now? Or Speaker 2 00:39:48 I'm kinda curious. Speaker 2 00:39:50 Um, I look at, like, it doesn't matter what the, the environment right now, I think we're in recession, but I don't. I think that just, I don't believe the media. I don't believe anything I'm hearing. I, I think the environment is all screwed up material. The inflation is out of control. The cost of materials is out of control. We have a major labor crisis in the country right now. That's been kind of brewing since the mid two thousands, but it's getting worse every year, particularly spaces like construction and trucking logistics, warehousing, manufacturing, agriculture, I mean, um, and of course the whole hospitality space it's this labor is just, you know, a major issue right now. So given the cost of labor and its scarcity, given the supply chain issues, you see the fact that now there's a war, um, interest rates have just creeped up a little bit. Speaker 2 00:40:46 Stock market has not been doing well recently. Um, wages are somehow down in a, in an arena that costs are up. I don't even know how that's happened. Yeah. You have a considerable amount of Americans who just don't wanna work. Um, I think all this is a sign that we're in a recession. And, um, so yeah, I would say the economic climate is difficult. Now. The great thing is if you CA buy a business now and you structure it in a careful manner, um, you can have something long range that's gonna perform well, cuz at least if you buy a business and it's performed in this environment, I would say that asset's pretty durable cuz it's not an easy environment. So I think it's good time to buy my portfolio app 22 companies. Um, the portfolio's doing pretty well despite some of the challenges. Uh, but that's because I buy the types of businesses that are not gonna be displaced or are not gonna be put out of business because there's a bad market. I'd like to buy businesses that are durable, that I can build and hold for the long haul. So, um, I would say you gotta be careful what kind of business you buy in this market. And I, I would, I would focus on businesses that are essential to the infrastructure in the United States because the United States has infrastructure problems and it's only, and, and they're gonna have to address some of those, uh, infrastructure problems, uh, in the next 10 to 20 years. So, Speaker 1 00:42:18 And we just had that huge infrastructure bill too. Speaker 2 00:42:20 That's too. And it's not gonna be the first. It's probably gonna be the first of many. Speaker 1 00:42:24 Yeah, I agree. So, okay. So if somebody wanted to learn more about buying or selling businesses, how would they get ahold of you? Where can they find your contact information? How can they contact you directly? Speaker 2 00:42:34 Um, uh, my email address is JC Biro partners.com. So at B Iz, G R O partners with an asset in one word biz grow plan is.com. Speaker 1 00:42:51 And we'll put all this in the show notes. So somebody wants to reach out to you directly and has more questions or, you know, and wants to get to know a little bit more about it. They can reach out to you directly, but I appreciate you giving all this information, cuz this is kind of something that's, that's not very familiar to me, you know, uh, as a, as a business owner slash runner. Um, and, but the idea is very dreamy. Speaker 2 00:43:10 And why is that? Speaker 1 00:43:13 Just because I, you know, I guess you get so far into your business, especially at this point is like, what do I wanna do? I I'm trying to grow this every day. Is that really where I wanna go? What am, what is my end? What is my end goal? Speaker 2 00:43:27 Oh yeah. Uh, well, I, I think, uh, for most business owners, the, the frightening thing is losing control, but they actually gain control by developing a team that runs the business on their behalf day to day. So that's one of the things that we, um, we believe is, is critical for wealth building. So I think you ask how's wealth building and business acquisitions related. It's, it's the opportunity to establish the separation of church and state from day one, separating management and ownership just day one. Whereas it's hard when you start a business and you were the primary executive that kind of built the business and, and, and if that business is related to your professional trade and expertise, then it's hard to kind of separate church and state because remember that survival instinct would be in a control freak would probably work against Speaker 1 00:44:15 It. Absolutely. I mean, I, yeah, absolutely. Uh, I feel the same thing. It's like, I know where I'm going, but it probably would be helpful to have outside opinions on it as well. So Speaker 2 00:44:25 I knew an attorney, uh, years back and, uh, he had like 50 attorneys working for him and he had a whole law firm and their specialty was, um, you know, um, they did a lot of lobbying and they also, um, and, and they did a lot of transaction real estate stuff. Um, and he was a, but he was also a real estate developer. So I, his core business was real estate development. Yeah. He had this law firm with 50 attorneys. He was a partner in the firm and he founded the firm and he, I think he had two other partners and then they had 50 attorneys working for him. So it was three partners at the time having 50 attorneys working for them and they would cover all types of areas of law. He had divisions. So that was, um, um, so that's an example of having a team mm-hmm <affirmative> and he didn't run his prac the practice at all. He now he created a tremendous amount of relationships to his other business and to his efforts to, you know, network with politicians, but he did build a business where, um, he was not running it day to day and that's a law firm. And I, I think probably what he did was harder than it's probably harder to do that in your profession than it is to do it in construction, just because of the nature of the specialization of being a lawyer in entails. Right. Mm-hmm <affirmative> so, um, Speaker 1 00:45:39 Especially in construction, right? Cause like I can get all the attorneys all day long, but then I gotta teach 'em on the construction side. Right. And then, you know Speaker 2 00:45:46 Yeah, sure. Although you have a nice niche, you have a, I think you're doing, you did great. Just coughing out a niche in this particular Speaker 1 00:45:53 Space. Thank you. All right. Well thank you so much for being on the podcast. JC. I appreciate it. Appreciate it. Awesome. We'll see you again. Next time on the quick inning screwed podcast. Speaker 2 00:46:02 All right. Thanks. Speaker 1 00:46:03 Thanks. Thank you for listening to this episode of quick getting screwed. I hope you found it helpful if you like what you hear, please like us and follow our podcast. If you want further information, you can find [email protected] We're also on Facebook, LinkedIn and Instagram, and the book is available on Amazon. Thank you.

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