Carl Allen is an entrepreneur, investor, and corporate deal-maker who has worked on transactions worth over $50 billion, which includes over 250 acquisitions and sales, together with more than 100 capital fundraising projects. He is one of the world’s premier experts on buying and financing small business acquisitions and coaches more than 1000 entrepreneurs all over the world to buy small businesses rather than start new ones.
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3 Value Bombs
1) It’s so much easier and so much quicker – and it’s far less riskier – to actually go and acquire a business that somebody else has built but no longer wants to own. You can buy or invest in that business using the business’s own resources.
2) “The best way to find deals is networking.”
3) As you are teaching or mentoring, you’re going to help refine what you do and get better every single day. Every single time you answer a question, you remove an obstacle and you identify a challenge, and it’s going to help you as you move forward.
Billy Gene is Marketing: My friend Billy Gene has a completely free training that will teach you exactly how to use paid ads to get more customers in any niche. Visit WatchBillysVideo.com to access his free training today!
**Click the time stamp to jump directly to that point in the episode.
Today’s Audio Masterclass: How to Buy a Business Without Investing Your Own Cash
[04:40] – Carl shares something about himself that most people don’t know.
[06:43] – Carl gives an overview of today’s masterclass.
- Like in real estate investing, you can buy a business or invest in a business without YOU having to commit any of your own personal capital.
- It’s so much easier and so much quicker – and it’s far less riskier – to actually go and acquire a business that somebody else has built but no longer wants to own. You can buy or invest in that business using the business’s own resources.
[08:19] – What is the value of buying a business as opposed to founding one?
- 96% of all businesses that start up will fail in 10 years, and 50% of them will fail inside of the first 12 months.
- There are over 2.4 million businesses for sale today in North America alone.
[10:10] – Carl names what he thinks are good reasons for people to sell businesses (so it’s not a red flag if people come across that opportunity.)
- They don’t have what it takes to take their business to the next level, so they want to cash out and let somebody else take it to that next level.
- What happens when you combine businesses together is you can eradicate lots of duplicate costs.
[16:35] – Where can you actually find these opportunities?
- The biggest mistake that most business buyers come across is they just go to brokers.
- The best way to find deals is networking.
[18:38] – What’s another approach if you don’t have the kind of network that would allow you these opportunities?
- 79% of all small business owners who actually sell their business have never actually listed it through a broker.
[21:03] – How can you evaluate whether a business is worth buying? What numbers actually matter when you’re trying to figure out if this business is financially stable?
- You have to look at it quantitatively and qualitatively.
- From a financial perspective, it’s really straightforward. You’re looking for businesses that have recurring revenues, pretty solid balance sheet, and positive cash flow.
- It’s important that you find the deals that really resonate with you. It’s buying a business that’s in a niche you understand and you are passionate about.
[29:20] – Carl talks about ‘Psychology versus Numbers’ and how it balances out.
- When you’re doing these monster deals, they’re 90% financial engineering and 10% psychology. When you’re buying a small business from a baby boomer that burns out and wants to retire, it’s kind of the opposite.
- 78% of people who have sold their business say that when they sold their business, cash at closing was not their primary concern. Their primary concern was that they wanted a trusted, safe pair of hands that would take their business on, push it to the next level, and protect the brand, the legacy, the heritage, the culture, the employees, and the customers inside of that business.
[33:36] – Carl talks about the most important things to think about when making a buying decision.
- The legacy and heritage of the business is the difference that makes the difference. It’s the single kind of nucleus of how this entire thing works.
- You’ve got to go out and find a friendlier buyer that’s going to keep the name, keep the employees, and run the business exactly as it is.
[36:44] – Carl recommends a couple of steps for people who are looking to sell their business.
- The biggest payday that you have as the business owner is the day you decide to sell the business.
- First, and foremost, decide who you want to sell your business to.
- The next thing you need to do, and this is where most sellers fall down, is properly prepare your business for sale.
[46:05] – How teaching other people helped Carl refine his own system that he’s still using today.
- You can’t just talk about stuff and be very academic about it unless it works on Wall Street or you’ve got an MBA.
- As you’re teaching or mentoring, you’re going to help refine what you do and get better every single day. Every single time you answer a question, you remove an obstacle and you identify a challenge, and that is what’s going to help you as you move forward.
[48:46] – What are the action steps you should have for the first 100 days as a business owner?
- The first thing you do is go into the business and meet the employees.
- The second thing is to get into the working capital of the business.
- Carl has a 7-step plan he’s developed over the last quarter of a century to really get businesses firing on all cylinders.
- Next thing he does is quickly systematize the business so he doesn’t have to be there anymore.
[53:28] – Carl shares one super key take away from this masterclass – tune in, Fire Nation!
[56:04] – How do we do this without actually investing our own cash?
- You can pay for the business over time using the cash flow.
- If you want to buy a business that’s worth a million dollars, do not go and put a million dollars of your own money into that deal. You don’t have to do that.
[59:03] – Carl’s parting piece of guidance
- Check out Carl’s 90-minute Masterclass training where he goes through his proprietary 10-step system in detail! How to Buy Your First Business
JLD: Kaboom, shake the room, Fire Nation. JLD here and today’s special. And every Monday is special because Mondays are audio masterclass days. So, whether you’re listening to this on a Monday or a Wednesday or February 29th – that’d be pretty weird if you’re listening to this on a February 29th – then I have to say, this is a killer episode because this audio masterclass is about how to buy a business without investing your own cash.
I’m not gonna lie, I have a page full of notes. I actually just got done my chat with Carl, who is the featured guest today. And it was incredible. We dive into how to buy a business, how to do it without investing your own cash. We also even talk about the flipside, about how to sell your business and prepare your business to sell. There are some amazing stats that Carl kicks out that I make him repeat like six times, kind of awkwardly. So, you’ll get to hear that well.
But who is this Carl guy, you ask? Well, he’s an entrepreneur. He’s an investor. He is a corporate dealmaker who has worked on transactions worth over $50 billion, which includes over 250 acquisitions in sales. And together with more than 100 capital fundraising projects, this guy is an expert in what he does. There’s just simply no one better when it comes to buying and financing small business acquisitions. And he coaches more than 1,000 entrepreneurs all over the world on how to buy small businesses rather than starting new ones. So, let’s thank our sponsor and then get to the show.
Carl, say what’s up to Fire Nation and share something interesting about yourself that most people might not know.
Carl: Hey. What’s up, Fire Nation? So, really good to be on the show. JLD, thanks for having me. So, I think one of the coolest things about me is how I got started doing what I do, which is buying businesses, growing them, and then selling them without me investing any of my own personal money. So, the classic LBO, leveraged buyout model.
And once I grew up on Wall Street and did lots and lots of mega deals for big corporates, I decided to do what I do now, buying my own things. Ten years ago, I was in Moscow closing a very big, a very boring deal for a large corporate, and my wife went into labor 2,000 miles away, back in the UK. So, I had to run out of the hotel, in the middle of Moscow, flag down a cab, which is not the easiest thing to do, let me tell you. And I managed to get back to the UK, to the hospital, about five minutes before my son popped out.
So, out came Josh. He’s just turned ten. That’s ten years ago. And I decided, there and then, that I didn’t wanna work for anybody else anymore. I wanted to do my own thing and become an entrepreneur.
JLD: I love that leaving corporate story. And Fire Nation, I definitely would challenge you to think about your leaving corporate story if you have one right now. And if you don’t, well maybe it’s time to plan that leaving corporate story. So, Carl, thanks for sharing yours. Five minutes before your son is born. That was incredible.
And as I mentioned in the intro, Fire Nation, we have a dope, a value bomb dropping, audio masterclass, which is called “How to Buy a Business Without Investing Your Own Cash.” And let’s be honest, sometimes we don’t have cash to buy a business, so to speak. Or sometimes, maybe, we don’t wanna use the cash that we have. We wanna leverage and scale other things, and that’s why I’m fired up to bring Carl on the show today.
So, Carl, I want you to maybe give you just a quick overview about what this master class is gonna be about. Just kinda hook the listeners, so to speak. And then we’ll dive into some of the main points.
Carl: Sure. So, what’s very common and very widely understood, certainly in North America, is the whole concept of no-cash-down real estate investing. Everybody gets that. There’s a whole bunch of people doing it. Whole bunch of people coaching. What people don’t necessarily comprehend as well is that you can do exactly the same thing, though, with businesses. So, you can buy a business, invest in a business without you having to commit any of your own personal capital, whether you’ve got that capital to invest or you haven’t.
So, that’s what my core expertise is. That’s my skillset. That’s what I’ve been doing for 26 years. Been doing it on my own for the last ten. And my big mantra in this world is I don’t believe that people should go out and start a business. I believe that it’s so much easier, it’s so much quicker, and it’s far less riskier to actually go and acquire a business that somebody else has built, but no longer wants to own. And you can buy that business, invest in that business using the business’s own resources. So, that’s my area of expertise and that’s what I’d like to talk about today.
JLD: So, a lot of people are saying, “Well, John, like you founded your business. A lot of people you have on your show have founded their business. It’s their vision. It’s their show. They’re the founder or they’re the CEO. They’re the whole nine yards.” But what is the value of actually buying a business opposed to doing what I did of just founding one?
Carl: Yeah. So, there are a couple of points to that. So, the first point is – and I’ll quote Michael Gerber, who’s the author of the E-Myth. It’s the greatest business book that I’ve ever read. Michael’s worked with hundreds and hundreds of thousands of entrepreneurs and small business owners in his career. And his statistics tell us that 96 percent of all businesses that start up will fail inside of ten years, and 50 percent of them, 5-0, will fail inside of the first 12 months. And it’s not surprising when you think about it.
When you go into business on your own – and I admire you, JLD, that you’re one of the 4 percent that have made it happen. But when most people go into business, they have no cash, no credit, no employees, no premises, no equipment, no customers, products and services to sell. And the grind, the physical, financial, emotional grind of getting a brand-new business off the ground, for me, it’s just too much. It’s so much easier to go and find a business that somebody’s built and is prospering, but for whatever reason, they don’t want to own it anymore.
And America’s kinda gripped by this huge epidemic of the retiring baby boomers. So, did you know that there are over 2.4 million businesses for sale today, in North American alone. And according to Forbes, there are 10,000 baby boomers retiring every single day and 19 percent of them own a small business. And only 1 in 13 of those businesses will sell in the next 12 months.
JLD: Okay. I wanna kinda put you on the spot here because I’m just personally curious. So, name two reasons you think it’s a red flag if we find out people are selling their businesses for reason X and reason Y. But then on the flipside, name two reasons that you think is a good reason for people to sell businesses, so it’s not a red flag if we come across that type of opportunity.
Carl: Yeah. So, two reasons why people will try to sell a business and it’s a red flag is, No. 1, that they’re entrepreneurs, they’ve gone through the first couple of years of growing a business, they don’t have what it takes to take it up to the next level. So, they want to cash out and let somebody else take it to that next level. That’s a very plausible reason. You see a lot of that in the Amazon SBA space. Entrepreneurs get businesses up and running, and then they cash out and move on to something else. That’s great. I applaud that. Those aren’t the types of deals that I would do.
Other people will try and sell a business because it’s failed. And in a lot of cases, you can buy that business for a dollar, but you’re inheriting all the problems that that business currently has. So, again –
JLD: And are you, potentially, also acquiring the debt?
Carl: You are, yeah. But those are the types of deals that I don’t wanna do. I wanna buy a business that’s a good business, that’s going to carry on treading and operating without me being in that business every day. So, I own 17 different businesses all around the world, from LA to Brisbane, Australia and all the places in between. I don’t work at any of my businesses. So, I wanna buy good businesses that can function without me and have got good managers inside of them, day to day, that are kind of just trading those daily operations.
But going back to the second part of your question. There’s many, many reasons why owner managers want to sell good businesses. The No. 1 reason is retirement. As we talked about earlier with the baby boomers, we’ve got this unprecedented wave of people trying to exit their businesses because they wanna retire. They could be sick. They could be dying in some cases. They’re bored, frustrated, burnt out, or just run out of ideas.
So, there comes a natural evolution in someone’s business ownership that for all those reasons, they want to come out of their business. It could be still a very, very profitable business, but they just don’t have it in them to carry on running that business for another two, five, or ten years, depending on how old they are.
So, for me, those are my perfect deals. Those are the deals that I absolutely love to do. And I coach my 1,200 strong band of global entrepreneurs on how to find those deals and how to negotiate and structure these no-cash-down business transactions.
JLD: So, Fire Nation, even if you’re listening to this right now and you’re like, “Well, I’m actually running my own business, and I’m kind of happy doing that. I don’t wanna give it all up and maybe buy and acquire another business.” One kind of food for thought that I would toss in here is you can look at acquiring a business that’s going to improve your current business, so it kinda would be like a strap on. So, if you’re doing a business in X and then you come across this awesome business opportunity because this person is retiring, like a baby boomer, and this business does Y, but it complements each other so well, that could be a huge opportunity. Like Captain Planet with our powers combined, you can make a better business.
So, it’s not like you’re stopping your current business or giving it up. You could look at it as, hey, I’m going to improve my overall business by acquiring and adding this to that. So, have you seen some scenarios of that, Carl?
Carl: Absolutely. So, now, we’re really starting to have a wonderful conversation. And a lot of the people that I coach, in my system, are doing exactly that. But they’ve got different kind of paying points. So, if you look at the two types of people that I work with, point one is they could be a frustrated employee that wants to own their own business, but doesn’t wanna start one.
And then the second avatar, the second example, is what you just described. So, it’s the CEO or it’s the owner of an existing small business. And they’re struggling to grow their top-line revenue. They’re struggling to generate increased cash flow. And they’re struggling to find and retain high-quality talent to bring into the business. If you go out and you acquire another business to bolt in or tuck into what you’ve already got, you’re solving all three of those problems.
So, No. 1, when you’re buying an existing business into what you’ve already got, that business is going to have products and services and customers that are complementary to what you’ve got. So, for example, let’s say that you owned a PR business, a PR agency, and you went and acquired a social media marketing agency. That’s gonna have different sets of customers and different product offerings. So, you can cross-sell and cross-promote the PR services to the web customers and vice versa because they both buy up all these services from other people.
What also happens when you combine these businesses together is you can eradicate lots of duplicate costs. So, premises, other overheads, employees, all those different things. So, there are a lot of cost synergies that come about from doing these combination deals. And those cost synergies just dropped to the bottom line, make the profits and the cash flows of the combined entity much stronger.
And then thirdly, when you’re bolting on another business, you’re getting the employees, the good employees, that are coming along with the journey. So, a lot of the people that I’m coaching, they’re buying these extra businesses for those three reasons. And what they’re finding is one of their frustrations is that they don’t want to be the manager of their business anymore. They want to be more of the kind of owner-investor. So, by bolting on another business, they’ve got high-quality managers that they’re brining in that can run that combined operation for them.
JLD: I guess the main question I would have, kind of moving forward now, because this is all starting to come together, and I can see it forming. I can see all the different reasons for acquiring a business or buying a business. I can see all the reasons that it really makes a lot of sense for a lot of different businesses and the criteria. But where? Where can you actually find these opportunities? Personally, I feel like I’m pretty plugged into the scene, but I wouldn’t even know where to start.
Carl: Yeah. So, there’s multiple ways of originating deals. The biggest mistake that most business buyers come across is they just go to brokers. So, they go to an online broker, like a BizBuySell.com, that’s probably the largest online broker in the States. Or they go to a Sungard or one of those or the broker franchises. And they’re just kinda looking at the deals that they’ve got listed. Some of those deals can be very good, but most of them, they’re not great deals.
The best way to find deals – and I’ve been doing this for – this is my 26th year of doing this. The best way to find deals is networking. So, you’re networking with your personal network, but we’re also – we do a lot of work through leveraging LinkedIn, leveraging Facebook, leveraging a lot of online groups and forums. There’s so much activity online in terms of deal making and buying businesses, whether that’s specific to a certain industry or a location. So, the vast majority of the deal flow, that so many is coming across my desk – because I’m still deals. I’m buying four businesses at the moment. All of those deals have come through not only own network, but networks that I’m now plugged into pretty much using social media.
And what’s interesting is 26 years ago, we didn’t have Facebook. We didn’t have LinkedIn. We didn’t really have a functional Internet. So, all of these tools, they’re now enabling this notion of going out and finding businesses that you can buy without spending your own capital.
JLD: Fire Nation, it’s so true, the quote that your network is your net worth. Really think about that and always be looking to improve your network. Why do I end every single EO Fire episode with, “You’re the average of the five people you spend the most time with?” Because you are. That’s your network. That’s your mastermind. Those are your people. What if people are listening right now, Carl, and they’re saying to themselves, “Well, I don’t have the kind of network that would allow me to have some opportunities.” Where do they start? What’s another avenue of approach?
Carl: Yeah. So, I just wanna kind of double-down on the networking piece, again, just because it’s so lucrative. Even if you don’t have a network, here’s how you can quickly build one in a matter of days that’s super, super primed for you to get deal flow. So, one of the other interesting statistics is that 79 percent of all small business owners that actually sell their business never actually list it through a broker. And one of the reasons for that is when you sell through a broker, it’s pretty easy these days to find out exactly who that business is before you sign the NDA and you get all the particulars about the deal.
So, the kinda whole world knows that you’re for sale. And your employees get anxious, your customers get anxious, and competitors can swoop in and get all the juicy information about your business and potentially harm you in the market. So, for that reason, most business owners won’t list with a broker. And it’s also very expensive. So, what most small business owners do is they tell four people. So, if you own a business and you’re 62 and you’ve decided it’s time for you to retire, here’s the four people that you’re gonna tell.
No. 1, you’re gonna tell your spouse. So, we’re not gonna network with the spouse. But then you’re gonna tell your CPA, you’re gonna tell your local attorney, and you’re gonna tell your bank or another financier that’s invested in your deal. So, the quickest way, Fire Nation, to go and build a very, very quick, very profitable network that can give you great deal flow is go and network with people in your local area, in CPAs, attorneys, and financial services providers. And you will get unbelievable deal flow.
JLD: Wow. Fire Nation, it’s right in your neighborhood. There are the CPAs, there are the lawyers, there are the financial experts. It’s right there. Just go out, let the word be known that this is something that you’re interested in. That can really be the next step for you. But when it really comes down to it, Carl, and this is where I’m fascinated because I am a numbers guy. So, how can you actually evaluate whether a business is worth buying? What numbers actually matter when you’re trying to say if this business is actually a financially stable business that would make sense for you for any number of factors? How do you do determine that?
Carl: Yeah. So, you gotta look at each deal in and of itself. And you’ve gotta look at it both quantitatively, so tapping into the financials. And you’ve also gotta look at it qualitatively. So, most of the deals that I do, most of the businesses that I buy are – I start, first of all, with the qualitative stuff. And the sort of deals that I love are deals where – when I’ve sat with an owner, either in person or on Skype, the first thing they always tell me is that they don’t do any marketing. So, I say to them, “How do you market? What’s your marketing strategy? How do you get customers? How do you get leads?” And they say, “This is the great thing about our business, Carl, we don’t have to do any marketing. It’s all word of mouth, and it’s all repeat customers.”
And I love those deals because I know that that’s the bread and butter revenue and earnings that’s coming into the business. But as soon as I take over and I put in some real-world marketing systems, we improve the website, we start leveraging social media, we start to get affiliates and other partners involved, then all of a sudden, the business can just take off from the existing cost base that you’ve got inside of the business.
So, for me, I’m looking for businesses that have got great potential that the owner just hasn’t exploited for the reasons I mentioned before. That they’ve just run out of steam. They’ve run out of ideas. They’re happy for the new buyer to take that business on the next stage of the journey.
And then really, from a financial perspective, it’s really, really straightforward. You’re looking for businesses that potentially have got recurring revenues. You’re looking for businesses that have got pretty solid balance sheets. They’ve got good assets in the business that we can use for financing. They’ve got positive cash flow. And sometimes the business might have some debt that’s been inherited by the existing owner, and that’s fine. As long as the business is generating more cash flow than what the business needs to survive, then it’s a pretty simple analysis.
And yeah, once we’ve made an offer and we’ve landed the financing, then we do go through a slightly more detailed process of due diligence. So, we’ll hire a CPA on a contingent fee basis just to kinda go through and really dot the Is and cross the Ts on all of the numbers. But looking at deals, it’s a lot like a sales funnel. You’re throwing opportunities into the top, and you’re kind of filtering them down to the handful of deals that really make sense, qualitatively, quantitatively.
And then more importantly, which we haven’t talked about yet, is doing deals that really fit your requirements as the buyer. Because there’s so many deals out there for you to go and target. It’s really important that you pick and choose, and you find the deals that really kind of resonate with you. If you’re an individual, it’s buying a business that’s in a sector that you understand. It’s in a sector that you’re passionate about.
Or if you own a business already and you want to bolt something into that, it’s making sure that there are some synergies. There’s a complementary nature of putting those two deals together. A bit like the PR business merging or acquiring the kind of web design business, the social media business. There are synergies and complementary facets to bringing those deals together.
JLD: I like the analogy, Carl, of how it’s like a sales funnel. Where you start with a lot of potential deals, and at the end, there’s only gonna be a few that make sense for you. And Fire Nation, just to run through some things that Carl talked about: recurring revenues, really important; a solid balance sheet, very important; assets. What kind of assets does that business have? Do they have a positive cash flow? And debts, don’t be afraid by debt. Don’t run away from debt. If it’s good debt and make sure you hire a CPA to dig a little deeper, especially maybe in that area of debt. But also, to make sure all the other numbers make sense.
So, Fire Nation, I hope you can see that the thought of buying a business, which at the start of this masterclass might’ve seemed very daunting and unattainable because you don’t have millions and millions of dollars in the bank. I hope it’s starting to seem a little more reachable and a little more possible for you. And then maybe people thinking of how adding a business to your existing business could be a huge value. Because again, we’re talking about how to buy a business without investing your own cash. And that is really where we’re gonna be getting into some cool specifics when we get back from thanking our sponsor.
So, Carl, we’re back. And I feel like a lot of people, when it comes to buying a business, think that it’s all about the numbers. And we went through the ends right before the break, the end of the first segment, some numbers and some really important numbers to look into. And numbers are important. But there’s also a lot of psychology that goes into this as well. So, kind of talk to us about that psychology versus the numbers and how that balances out.
Carl: Yeah. I’m so glad that you brought that up. This is one of the big misconceptions. We’re talking here about buying businesses between one and five million dollars in annual revenues. That’s the bulk of the market. That’s the bulk of the businesses that both exist in the world and for sale in the world today. But what’s interesting is when you’re buying a billion-dollar business – which I’ve done when I was at HP and at Bank of America. I’ve done loads and load of those deals, hundreds of them. When you’re doing those monster deals, those deals are 90 percent financial engineering and 10 percent psychology.
When you’re buying a small business from a baby boomer that’s burnt out and wants to retire, then it’s kind of the opposite. It’s really 90 percent psychology and 10 percent numbers. Because if you really delve into the mindset of a baby boomer – and it doesn’t necessarily have to be a 62-year-old person in Pennsylvania that wants to retire and hand their business off. This could be a young entrepreneur that’s just completely burnt out.
There’s a great story, about three or four year ago, of a great entrepreneur in the UK called Simon Cohen. He owned a PR company in London. He built it up. It was a seven-figure business. And he’d missed his family. He’d not spent enough time with his wife. And he came home one day and just said, “You know what? I’m done. I just can’t do this anymore.” And he launched a national campaign to give his business away to, what he called, a safe pair of hands.
And I massively latched on to this. And that’s when I decided that I would not only do these deals myself – I’ve been doing these deals for many, many years – but I would coach entrepreneurs on how to do this. How to find the millions of Simon Cohens out there, young and old, that have just had enough and cared more about the legacy of their business and the protectionism of their employees and the care and feeding of their customers. They care more about those things than they do about the cold, hard cash that one typically would get when they sell their business.
And the first thing I decided to do is I did a survey. So, I spent a lot of money on this. And I surveyed over 2,000 business owners that had sold their business in the previous two years. I did this thing in about 2012-2013. And the results were staggering. 78 percent of those people told me that when they sold their business, cash at closing was not their primary concern. Their primary concern was they wanted a trusted, safe pair of hands that would take their business on, push it to the next level, and protect the brand, the legacy, the heritage, the culture, the employees, and the customers inside of that business.
JLD: Fire Nation, we have to remember that these business owners, some of them have put 30, 40, 50 years of their lives into growing this business. And they’re proud, rightfully so, of the people they employ, of the business they’ve created, of the products or the services that these businesses actually provided. The service that it does to the world. That is something to remember. A lot of times, we don’t think about on the other side of that equation. That number, to me, is staggering. 78 percent of business owners said cash was not the priority.
And Fire Nation, that’s why if you can come across as the type of buyer, as the type of person who’s going to take over that business and continue its legacy and continue to grow, you could absolutely win out over people that are bidding a much higher rate if that business owner knows for sure that you are going to do what they want you to do and grow that legacy. So, those are just some really huge things and important things to really note on. And I wanna kinda flip the script, Carl, about actually selling your business. But before we talk about that, is there anything you kinda wanna add to this section because I think this is really important for people to think about when they’re actually going into a buying decision?
Carl: Yeah. So, the bit we just talked about, about the legacy and the heritage of the business, that is, I would say, the difference that makes the difference. It’s the single kind of nucleus of how this entire thing works. And I can relate to this both for the first business deal that I did privately, back in 2008. And the last one that I closed about two and a half weeks ago over in Los Angeles. So, both of those businesses were retirement sales. The LA deal is a media business. That’s doing seven figures in revenue. I bought that business for less than $20,000.00 down. And that money came out of the assets that are in the business already.
But the better story is the first deal I ever did. It was a transportation company in the United Kingdom. So, this was back in 2008. My son had been born. I decided to take a year off. I lasted about three weeks. My brain turned to mush. I needed to go out and do deals. And initially, I started off as a broker. So, it wasn’t my intention to go and buy my own businesses. My intention was to go and broker deals for sellers.
So, I got my first mandate, it was a transport company. I sat down with the two brothers, Colin and Allen. And they said to me, “Look, you know, we want $4 million for this business. Can you go out and find us a buyer?” So, I did my work. I figured out who were the larger companies in the area that this would make a great kind of bolt-on acquisition. I wrote to them. I sent them copies of the financials, solicited offers, and we got a $4.7 million-dollar offer for this business. And it was great. Everyone was happy. I would’ve made a $250,000.00 fee as the broker.
And it was the night before the closing, so it was a Thursday night. And it was cold, rainy night, and I got the phone call from Colin, one of the owners of the business. And he was in tears. And this was a 250-pound, 6’5” big guy, and he was crying floods of tears. I said, “What’s the matter?” He said, “We’ve pulled the deal.” And I’m like, “No. I got a quarter of a million dollars fricking riding on this. You can’t pull the deal.” He said, “Look, can you come down? Come down to our house, we need to talk to you.”
So, I went down to their house and they said, “Look, we’ve pulled the deal because the buyer came into the office today with a list of all the employees that he was gonna let go tomorrow.” He just said, “Look, I’ll be honest with you, all I want is the trucks and the customer and the assets. I don’t need any of your employees. I’m changing the brand of the business. The old name of the business will be no more tomorrow. It’s gonna get swallowed up into our gigantic UK operation.”
And he said, “We just can’t do the deal. We can’t go and retire on a beach knowing that all the 25-30 years’ worth of work that we’ve put into this is gonna evaporate just for a big, fat check. So, we’ve pulled deal.” And they said, “You’ve gotta go out and you’ve gotta find a friendlier buyer that’s gonna buy it, they’re gonna keep the name, they’re gonna keep the employees. They’re gonna run the business exactly as we’ve envisaged.” And I just turned around, and I don’t know what came over me, but I just said, “I will buy your business.”
Carl: And they said, “Really? But you know, you don’t know anything about the transport sector.” I said, “Well, I don’t need to know anything about it. I know enough from working with you guys for the last few months. But your financial controller, your operations manager, and your sales person, I’m gonna give them each 10 percent of the company. I will take the other 70 percent, as the owner.” I said, “I think I can get you just under $2 million. I’ll pay you a million dollars down because I can finance the trucks.” There was a lot of cash already in the business, and there was some other assets that I could leverage. “And then I’ll pay you the rest over five years.” This was a really profitable business.
And they said to me, “If you can get that done in 30 days, then we will applaud you from the sidelines.” And we did it. And that was my very, very first deal. I owned it for about two years. I gave equity to other people in the business, as well. We doubled it in size, and we sold it. The vast majority, the bulk of the market, that’s the seller psychology. That is the way that these people want to do deals.
Granted, there are entrepreneurs in there that they start a business, they grow it, they wanna get out, they wanna go out for big bucks, and they’re not interested in receiving the majority of their payments over time. That’s fine. We filter them out very, very quickly in our funnel. We’re only targeting the people that want to do these friendly deals because we’re positioning ourselves as these safe, credible, trusted buyers that are gonna look after and cherish and honor the business that they’ve built. But at the same time, take it to the next level, improve it, put better systems in place, put new marketing funnels in place, and really take the business on to a whole different level. And they’re gonna sit on the sidelines, and they’re gonna applaud that.
JLD: Now, I did not see that coming. That was a great story. Thanks for sharing it, Carl. Oh, I definitely love that. And now, this is not the point of this masterclass, so I don’t wanna spend too much time here, but I am just curious. Because I know Fire Nation, I know that some people are listening are fired up, and they’re looking to potentially run some numbers and see what buying a business would look like. But some people are like, “Well, wow. I’m actually at the point where I might wanna sell my business for any number of reasons.” Maybe I’m retiring or this or that. So, maybe just, pretty quickly, give us a couple steps that you would recommend, people that are looking to sell their business do to maybe start that process.
Carl: Yeah. So, that’s a great question. I have a three-point framework. Because don’t forget, I don’t just buy businesses. I grow them and I sell them. The biggest payday that you have, as a business owner, is the day you decide to sell the business when you’re ready and then, finally, get paid for it. So, the three things that I would do – the best three pieces of advice I would give to anybody that’s contemplating selling a business that they own is, first and foremost, decide who you want to sell the business to.
So, there are only three buyers of businesses. There are individuals, like me and all the people that I coach and mentor. There are other businesses. So, if you own a business right now, you can sell it to another business that’s typically gonna be larger than you. Or you can sell it to an investor. So, you can sell it to a venture capital firm or a private equity firm or even a hedge fund, if it’s big enough. And they’re brining financial resources and other management teams to plug in to help you take that business to the very next level.
So, that’s the first determination is, who do you wanna sell to? Are you the legacy person, the culture person? That you want your business and your brand to survive the transaction. You want your employees and your customers treated properly. If so, sell your business to an individual. It could be somebody that works in the business already. Or it could be somebody external to the business, like me or anybody else that you know that can take that business, structure that deal, protect it, love it, cherish it, and take it to the next level.
If you sell to a trade buyer, then there are inherently more risks. They are, potentially, going to pay you more money because, as I mentioned before, a trade buyer, a competitor, can buy your business and do a lot of things with it. There’s a lot of leverage. It can cross-sell its products and services. It can take costs out of the deal to make more profits, to make more cash flows. But that’s inherently risky. If, as a seller, you’re not bothered about those things, you’re happy for your brand to disappear, you’re happy for some of your employees to be let go; if you don’t worry about all those sorts of things, then selling to a trade buyer is definitely the way to go.
So, once you determine who you’re gonna sell to, then the next thing that you need to do – and this is where most sellers fall down is they don’t properly prepare their business for sale. And what I mean by that – and most brokers are guilty of this. If you’re a seller and you go to a business broker, they’ll list your business online, and that’s all they’ll do. I’m negotiating the purchase, this is quite a large deal. It’s a $25 million revenue construction business in Florida.
I’m going out there on Thursday, this week – so two days from now – to hopefully finalize that deal. And for such a large business that’s been around for so long, it doesn’t have any of its financial ducks in a row. Its accounting system was a whole bunch of shoe boxes just with receipts and pieces of paper tapped into it. The owners of that business or their broker or even their CPAs have not properly prepared that business for sale. If you’re selling your business and a buyer is interested in it, instantly you’ve gotta be giving them your tax returns. You’ve gotta be giving them copies of your financial accounts. You’ve gotta be giving them their asset register. You’ve gotta be giving them your customer lists. You’ve gotta be giving them your employee lists and copies of all their contracts.
So, having the kind of administration all tied up in a nice bow that you can give that, like a business in a box, if you will, to a potential buyer is really, really important.
And then the third thing that I see is when most business owners decide in their mind that it’s time to sell, before they’ve pushed the button and they’ve started contacting potential buyers or trying to broker a deal is they take their foot off the gas. And what you see is, you see a gradual decline in business performance because they’ve mentally checked out. They’ve mentally sold the business. They’re sat on the beach, they’re drinking margaritas. They’re already spending their retirement in their mind. And buyers will take advantage of that. They’ll see a slight dip in performance, and they’ll use that to negotiate a lower price in a worse type of deal structure.
So, what I always recommend to sellers is before you push the button and you form your list, not only decide who you’re selling to, not only get all of your business admin in a row so it’s easy for somebody to study it and buy it, but have a goal. Just three months, six months, just grow the business a little bit, put some plans in place. Either ask yourself some kind of really big questions, like if I was 20 years younger and I wanted to have another five years in this business, what are the three things I would do to grow it? And then put those things in place. So, then you’re proving to a buyer that there’s all these things going on that they can pick up, take that baton on, and carry on growing that business once you’ve gone and once you’ve exited.
JLD: So, Fire Nation, you decide who you’re going to sell your business to. Are you going to sell to an individual, a business, an investor? And then get those ducks in a row. Get those financial ducks in a row. Prepare your business for sale. That is so critical. And then don’t take your foot off the gas pedal. Your foot should actually be pressed on that gas pedal even more all the way through the finish line. It’s kind of like that sprinter who lets up right at the finish line, and then he gets passed last minute and the gold medal was right there. Don’t be that person. Run through the finish line.
Now, Carl, you have business buying systems just like you have that selling system where you kind of start that checklist out. You have buying systems as well. So, how did teaching other people help you actually refine your own system that you currently use right now, today?
Carl: This is such a great question, and I’m so glad that you asked this. Because what’s really amazing is – so, I started my deal-making journey in 1992 on Wall Street. So, I started working for Bank of America. And I did all these massive deals. And then I went into private equity, then I ended up working for Hewlett-Packard in the corporate merges and acquisitions team. So, I was doing all of these deals and was classically trained. And I did my MBA and all my financial qualifications. And I’m thinking, I’m a really good deal maker. I know how to do this stuff.
And then I started doing my own deals, like the transport deal we talked about, back in 2008, and a whole bunch of others ones since. It’s only in the last couple of years, two-three years, where I’ve built my system. I actually got better at doing deals because when you’re coaching somebody – so, when you’re coaching somebody that’s never bought a business before and you’re taking them through soup to nuts, A to Z, how to do this from start to finish. What are the ten steps, and then what are the ten steps within each of the ten steps to get this done? Color by numbers.
When I had broke that down and systematized it with all the templates, the tools, the training, the people to really be able to do this, I actually got better at doing deals because I further systematized how I was actually working. And I tell this story all the time, I’m working on five deals right now, and I’m doing all of those deals using my own system. Using my own tools, my own templates, my own processes because it’s the most efficient way to do it.
And I have to do it that way because you can’t just talk about this stuff and be very academic about it. Because unless you’ve worked on Wall Street or you’ve got an MBA, you’re just not gonna be able to do it. But if you break it down in kind of a simple step-by-step process that people with just some basic business experience can follow, can understand, and implement click by click. Once I did that in my own business, it actually made me better at doing deals.
JLD: Fire Nation, that’s why I’m such a big believer in teaching and mentoring and answering people’s questions because as you’re doing that, you’re gonna help refine what you do. You’re gonna get better every single day. Every single time you answer a question, that you remove an obstacle, that you identify a challenge is going to help you as you move forward. So, I like to be actionable, and we’re kind of coming to the end, Carl, of our chat here. So, let’s really get actionable with some action steps that you have for the first 100 days as a business owner.
Carl: So, we’ll start with day one. So, you’ve just left the attorney’s office. You’ve just signed the contract. It’s called a SPA, a sale and purchase agreement. So, you’re now the legal owner of the business. Any money that was to be paid at closing has just transferred through the system. So, the first thing you do is you go into the business, and you’re gonna meet some of those employees for the very first time. Sometimes you will have met them all as part of the deal. But if you’ve bought from a very, very cagey seller, that can be the first time that you’re gonna meet some of those employees.
So, the first thing I like to do is spend some time with them. It’s the Tony Robbins CANI framework. What’s worked really well in this business? What should we do a lot more of? And then on the other side, what’s going on in the business that’s kind of limiting growth, limiting performance that we need to eradicate. So, I figure all that out very, very quickly. And I make that plan – I make the employees own that as much as possible, so they feel like they’re part of owners of the business, maybe not in name, but in terms of the strategic plan going forward. So, that’s the first thing that I do.
The second thing that I, then, do is I get into the working capital of the business. Because what I have found hundreds and thousands of times in my 26 years is particularly with baby boomers and older sellers of businesses is their working capital management, their cash flow management of their business can be an awful lot better. So, I’ve got lots of tools and frameworks that I use where we can squeeze every dollar out of the existing operation, which provides additional cash flow for us, then, to go out and start to grow the business, which is step number three.
So, once I’ve generated my kind of marketing budget, my fighting fund, to really have a good go at the market with this new business, is then I implement a seven-step plan that I’ve developed over the last quarter century. To really get businesses firing on all cylinders and looking at lots and lots of other areas of growth.
And then what I also, then, do is I quickly systematize that business so that I don’t have to be there anymore. And I limit myself to working a maximum of two hours per week on any of the businesses that I’m involved with. I have a simple dashboard, a KPI chart. So, I’m looking for certain things in the business on a weekly basis, like sales and cash flow and size of our pipeline, number of new customers, and then any of the operational metrics that are going on throughout the business. And then I’ll spend a maximum of one hour per week with the general manager that I’ve put in to run that business for me.
JLD: Fire Nation, this is a system that’s been developed by Carl, and he’s been doing it for, now, over 26 years. I’m sure he’s made some mistakes, but the fact that he’s been able to narrow it down to two hours for every business per week. He knows what his KPIs are. You need to know what your KPIs are. And for me, that’s just – it’s all about the focus. If you can really sit down, you can follow one course until success for those two hours, you can really make sure that your business is moving in the right direction. You can do that in a couple of hours a week.
And guess what, if it is, then you’re good to move on to the next step. And if there’s some major red flags coming up, well then maybe it’s gonna take some more time. You need to dive deep. You could have some conversations with some key people at those companies to really make sure that you’re getting back on track. And Carl, what I love about this chat is that we’ve learned things from both sides of the equation. It’s about what to look for when it comes to buying a business. Why buying a business isn’t always about the numbers, but there’s a lot of psychology involved. Why it makes sense.
But then also, on the flipside, the sellers – if you’re going to sell your business at some point, Fire Nation, you need to be doing these steps that Carl’s talking about to prepare your business, to get your ducks in row. To make sure that you are going to be very appealing so that when you – when it comes time for you to sell, you have the power. You have the decision to choose the right buyer and not just go to that highest bidder and potentially see your legacy disappear, which would be really sad.
So, I really hope that you’ve learned from both sides of the equation. So, Carl, kinda wrap this up for us. Maybe finish off what we’re talking about with these first 100 days, and then give us what you would consider one super key takeaway from this masterclass. You really want Fire Nation to make sure that they get before we say goodbye. And of course, if you have any final calls to actions, ways that people can connect with you, etc., let us know for sure. And then we’ll let you go.
Carl: The two biggest takeaways that I want everybody to really embody is takeaway number one is if anyone’s got any inkling of going and starting a brand-new business and going through that pain and that challenge of making it work, it’s just so much easier and less expensive and far less risky just to go and buy a business that someone else has built and doesn’t want anymore. I’ll give you the stats. There are over six million entrepreneurs in the United States in 2017 that went and started a brand-new business. 96 percent of them will fail and close the doors inside of ten years. Half of them will fail by the end of this year.
And there are over 2.4 million businesses for sale in the United States today, and only 1 in 13 is going to sell. So, just connect the dots. Don’t start a company. Go and buy one that someone else has already built. Let’s say you wanted a Tesla. You want to own a Tesla car. Would you go and buy the aluminum, the battery? Would you go and buy the wheels, the glass, the giant iPad in the middle? And then would you sit there and build it yourself? Would you go to the Tesla dealership, buy one that someone else has built, and then finance the purchase? That’s exactly the same thing.
So, my advice is do the latter, not the former. And then the second biggest takeaway that I would love everybody to really kind of embody is buying a one to five million-dollar business is a lot more about psychology than the numbers. It’s playing that psychological game, and it’s really giving the seller what they want. That safe, trusted pair of hands that’s gonna take the business, they’re gonna love it, they’re gonna nurture it, they’re gonna take it to the next level. And if you position yourself that way, they will applaud you and cheer you and help you all they can from the sidelines.
JLD: Easier and safer to buy a business that someone’s already built, Fire Nation. Think about that. They simply might wanna shift their life. They might be retired. They might be moving on to another opportunity. And then that one to five million price range, it’s more about psychology than the numbers. Think about that. And before you kinda tell us where we can learn more about you and give us a call to action, Carl, just really hammer down for us, how do we do this without actually investing our own cash?
Carl: So, when you’re buying a business – and Facebook do this, massive companies do this. They’re leveraging deals all the time. That the largest leverage buyout in history was the $25 billion acquisition of a company called RJR Nabisco back in the late 1980s. There’s a film made about this. A great book that I’d recommend people read called Barbarians at the Gate. The guy that bought that business, Henry Kravis, he bought that business, he didn’t spend any of his own money.
Carl: He used other people’s money. So, all I’m doing is I’m teaching entrepreneurs how to do that with one to five million-dollar deals, not $25 billion deals. Basically, that the structure is really, really simple. You’re paying, in some cases, no money down. You can pay for the business over time using the cash flows. So, let’s say you find a business and let’s say it’s doing two million in revenue, and it’s making $350,000.00 in free cash flow, and you agree to buy that at a three-times multiple. So, you’re paying a million dollars for that deal. You could just pay the seller $200,000.00 a year for five years.
And why that’s appealing to some sellers is they’re getting the same cash flow that they used to get as the business owner, but they don’t have to get up and go to work anymore. They can go and play golf. They can go and do other things. And selling a business and getting cash flow that way is a lot more tax efficient than getting paid that money as income.
But that doesn’t work on all deals. In other deals, you actually have to pay the seller some of the money at closing, maybe 20 percent or 30 percent or 50 percent. And you can leverage the balance sheet of that business to raise financing to be able to make that down payment.
And what’s also unbelievable in the United States – and I wish we had it over here, in England, but we don’t. In the United States, you have this great thing called the SBA, the Small Business Administration. And they have something called the 7(a) Loan Program. So, if you’re an entrepreneur and you wanna buy a business, the SBA will provide you with 90, 9-0, 90 percent of the financing for you to be able to buy that business. You either get the seller to carry the other 10 percent as a note, or you can use some of the cash that’s already in the business to make that deposit payment.
So, those are just two simple ways that you would structure these no-cash-down deals. If you wanna buy a business that’s worth a million dollars, absolutely, please do not go and put a million dollars of your own money into that deal. You just do not have to do that.
JLD: Fire Nation, 90 percent, if you’re in the United States, SBA loan. That’s incredible. And Carl, let’s end with a final call to action, and then we’ll let you go.
Carl: I knew that I’d get the asked the question, how can we learn how to do this a little bit more? So, what I’ve actually done is I’ve created a 90-minute masterclass training where I go through my proprietary ten-step system in detail. It comes with a lot of the tools that we use. If you go over to ninjaacquisitions.com/fire, you can opt in for that masterclass training. Hundreds and hundreds of people have been to that training. They’ve gone through, they’ve taken action, and they now own small businesses, and they haven’t had to invest any of their own money.
So, if anyone’s interested in how that works or if you’re thinking of selling your business and you want to understand how the deal works, psychologically, from the buying side, you can get a lot more insight as to how I do these deals, how I structure them, the sorts of methods that I use. And that would prepare you, I think, even more as a seller. But primarily, it’s there for somebody that wants to go out and wants to buy a business. Whether it’s their first deal or whether it’s one of those bolt-on or tuck-in acquisitions that they want to combine with a business that they already own.
JLD: So, that was ninjaacquisitions.com/fire?
Carl: That’s correct.
JLD: Fire Nation, that’s a 90-minute masterclass training that’s gonna go even deeper into what we talked about. And I’m guessing there’s gonna be some great visuals, etc. So, definitely get on over to ninjaacquisitions.com/fire. And you know this, Fire Nation, you’re the average of the five people you spend the most time with. And you’ve been hanging out with CA and JLD today. So, keep up the heat and head over to eofire.com. Just type Carl in our search bar, and his show on his page is gonna pop up with everything that we’ve been talking about today. These are the best show notes in the biz: time stamps, links galore. And again, last call to action: ninjaacquisitions.com/fire for that 90-minute masterclass training. Get over there. You owe it to yourself.
And Carl, I wanna thank you, brother, for sharing your truth and masterclass and knowledge and value bombs with Fire Nation today. And for that, we salute you, and we’ll catch you on the flipside.
Carl: Thank you very much. Great to be here.
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