Elliott Holland is a business buying expert. He has a Harvard MBA & almost 15 years experience in acquisitions. His consulting company prevents clients from losing millions buying bad businesses.
GuardianDueDiligence.com – We Stop You From Buying a Bad Business.
Gift for Fire Nation! – Have your Letter of Intent (LOI) and valuation model reviewed by an expert -a $2,000 value, FREE for you today!
Elliott’s LinkedIn – Connect with Elliott on LinkedIn.
3 Value Bombs
1) Be careful in falling in love with sellers too quickly.
2) Never miss an opportunity to build rapport, that’s critical to getting deals done.
3) The best time to bring in advisors is 3-6 months after you start your search, or about a month before you get serious about a particular deal.
Thrivetime Show: Looking for a business coach who has helped thousands of entrepreneurs just like you to increase their profitability by an average of 104% per year? Schedule your free consultation today with Clay Clark at ThrivetimeShow.com/fire!
**Click the time stamp to jump directly to that point in the episode.
Today’s Audio MASTERCLASS: 6 Biggest Mistakes Entrepreneurs Make When Buying Businesses
[1:24] – Elliott shares something that he believes about becoming successful that most people disagree with.
- Don’t trust THE process. Trust YOUR process instead.
[2:22] – Let’s talk about falling in love too quickly… In the world of the bachelor and bachelorette where people are getting married after a handful of hours together, is it possible to fall in love too quickly when buying businesses?
- 100%. 80% of my clients have fallen in love with their first couple of deals.
- Be careful in falling in love too quickly.
[3:45] – Quick example of one of your clients that you feel fell in love too quickly.
- Sometimes sellers under report earnings. A client came across a deal close to his home and he liked the seller. When we started everything was great. When we started peeling it back the seller had reported no earnings for the past 4-5 years, but had spent money remodeling their houses and buying cars.
- The buyer wouldn’t let it go despite the situation. Elliott had to grab him and say ‘Is this really what you want to bet your 5 year future on?’
[5:36] – Most people believe that they are an inspector or auditor when analyzing a business sale… but you say ‘leave your clipboard at home’. What do you mean by this?
- When analyzing in an academic way, you want to go in with your 75-item list on a clipboard so when you’re done you feel comfortable.
- Asking your questions in order, in an academic way, will equal you missing out on building rapport with the seller and that’s critical to get deals done.
[7:09] – You also have a saying ‘Believe more in adjustments than cash flow’. What do you mean by this?
- In general business acquisition, 70-80 percent of the cash flow should be reported to the financial management, 20-30% can be adjustments. That’s normal.
- 40% of the businesses I am looking at have 20-30% being reported, and 70-80% adjustments.
[9:01] – Why do you think people believe more in Cash Flow than Adjustments?
- They believe that they will earn the cash that the business generates.
[12:50] – Let’s talk about when it’s the right time to bring in advisors…
- ‘Don’t wait until it’s [11:59]’
- The best time to bring in advisors is 3-6 months after you start your search, or about a month before you get serious about a particular deal.
- The reason for this is because most advisors are busy doing great work for clients, and by the time you may need them, they might not be able be provide their services right away.
[14:44] – Where do we need to go when we want to start looking for advisors?
- First go to your network, ask for recommendation.
- Second, online forums for business acquisitions, like LinkedIn and other business acquisition websites.
[15:22] – Should we rely on documents we’re given or the primary documents straight from the source
- You have to make sure that the data the seller presents is accurate.
[18:10] – At what point in this process should your team be set up and ready to rock?
- You must have a financial diligence person on your team at least 30 days before you get serious about a deal.
- You must have a transaction lawyer setup.
- You must know the industry, and you must have someone who is an expert in the industry on your side.
- You must know the business operation and be able to run the company after you acquire it, so you, or someone you hire, needs to understand the whole operation of the business.
[20:01] – Elliott’s key takeaway and call to action for Fire Nation!
- The opportunities to buy a 7-figure business have never been better or easier for buyers; I encourage you to consider it but get the diligence and legal side of things right.
- GuardianDueDiligence.com – We Stop You From Buying a Bad Business.
- Gift for Fire Nation! – Have your Letter of Intent (LOI) and valuation model reviewed by an expert -a $2,000 value, FREE for you today!
- Elliott’s LinkedIn – Connect with Elliott on LinkedIn.
Light that sparked Fire Nation. JLD here and welcome to Entrepreneurs On Fire brought to you by the HubSpot Podcast Network with great shows like a business infrastructure today, we'll be breaking down the six biggest mistakes entrepreneurs make when buying businesses to drop these value bombs. I brought Elliot Holland and to EOFire studios. Elliot is a business buying experts. He has a Harvard MBA and almost 15 years experience in acquisitions. His consulting company prevents clients from losing millions buying bad businesses. And today Fire Nation will talk about falling in love with businesses. We'll talk about leaving your clipboard at home and about bleeding more and adjustments than cashflow.
And when is the right time to bring in advisors and so much more. When we get back from thanking our sponsors, are you looking for a proven business coach who has helped thousands of entrepreneurs, just like you to increase their profitability by an average of 104% per year, all for less money than it would cost to hire a full-time minimum wage employee schedule your free consultation today with Clay Clark, a former small business administration entrepreneur of the year at ThrivetimeShow.com/fire. Interested in BDB sales strategies. The salesmen podcast is the world's most downloaded B2B sales podcast. Hosts Wilburn helps sales professionals learn how to find buyers and win business in a moderate effective and ethical way. I recently tuned into Will's episode on digital body language, how to have better zoom sales meetings.
0 (1m 28s):
And I love how he provides a relatable example. So the strategies are easy to understand, listen to the salesman podcast, wherever you get your podcasts. Elliot's say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with.
1 (1m 45s):
Hey, Fire Nation. Glad to be here. A lot of people talk about trusting the process. I hear it everywhere and it makes me cringe. I think the reality is you have to trust your process or your journey. Most of the most successful people I know or who have walked the face of the planet, had a very circular, weird, different distorted path. And so you can't trust the process. The process was created by somebody else, trust your process or your journey,
0 (2m 14s):
Your process, Fire Nation. Cause what else are you going to do? I mean, this is where you are in your life right now. You're listening to entrepreneurs on fire. You're listening to Ella, you're listening to me. You're about to hear the six biggest mistakes that entrepreneurs make when buying businesses trust the fact that you're at the right place on your journey. And I want to talk about falling in love too quickly. I kind of tease this in the introduction a little bit. Elliot's sure let's be honest. I mean, in the world of bachelor and bachelorettes, you know where people are getting married after literally just a few handful of hours alone together, is it possible to fall in love too quickly when you're buying a business
1 (2m 51s):
100%, in fact, 80% of my clients and probably a larger segment of the business buying population fall in love, particularly on their first couple of deals. I mean, it really is similar to dating, you know, and in middle school or high school, whenever you get started, the first couple of interactions are just beautiful, rainbows flowers, everything is great. As you become more mature in your process, you start picking out things that are sort of mission critical for you and you become more discerning. The same thing occurs with companies. I think particularly when people are trying to move from six figure salaries, which a lot of my clients do to seven figure earning potential.
1 (3m 35s):
It's very easy to see the 10 acts and fall in love with the deal that you think would get you there without doing the work of diligence,
0 (3m 42s):
Fire Nation falling in love too quickly. Just be careful just because it happens on the bachelor and bachelorette. Guess what most of them break up after just a couple months of being engaged? It's the truth. I follow. I follow that stuff. Now, Elliot, maybe quick example. What's a quick, concise, clean example of one of your past clients falling in love with the business too quickly. No names need to be said if you want to keep them out, no company names, just a quick story.
1 (4m 11s):
One of the big things that happens in business acquisition is people. Sometimes sellers underreport earnings. And so in this particular case, one of my clients came across a deal close to his home and the industry he understood and he liked the seller. And so when we started, it was just everything positive. Everything was great. When we started peeling it back, the seller had reported no earnings for the past four or five years in taxes and had a bunch of sort of other things that they had spent their money on. So remodeling of their house boats, cars, there was a Maserati on the income statement and all these things were supposed to be added back to get to the true profit.
1 (4m 56s):
And the buyer was just unable to separate himself from the fact that even though a lot of these things might be reasonable, the, the lenders and other people who are going to be involved in that process, just weren't going to be able to handle it. And as he spoke to more lenders, they kept dinging his deal and he just would not let it go. I had to at a certain point kind of just grab him and say, Hey, is this really what you want to bet your five-year-olds? And we had a good conversation and moved along, but that was a three week process. John, that person should have been looking at other deals
0 (5m 29s):
And that's time Fire Nation that's time that you could be looking at other deals, sniffing out other opportunities. I mean, I get that there was a friendship involved in this example, but listen, you can't let emotions get involved when it's your future. It's not your friend's future. It's your future. The next five years. I love how Elliot put that. And a lot of people, they believe Elliot's that when the looking at a business that they're an inspector or an auditor, or when they're analyzing the sale, but you actually have a phrase that is leave your clipboard at home. What do you mean by this?
1 (6m 2s):
Tell a story about me. When I first started looking at deals, this was 2009. I was a consultant, just talking to my first sort of private equity professionals. And when you're academic in your analysis, you want to go in with your seventy-five item list on a clipboard. And when you go talk to a seller or a business, you want to start at 0.1 and go to 0.2 and 0.3. So that when you're done, you feel comfortable. And one of my mentors even let me go into a meeting with my, you know, air quotes, clipboard, and go through my list. And after I was finished, he asked, so did you get your ass? Your questions answered. I said, yeah. He said, did you notice how the seller checked out five minutes into your questioning and you lost them.
1 (6m 48s):
And I had to sit there and realize that by asking all these questions in order and an academic way, I had missed my opportunity to build rapport with the seller. And that's mission critical to get comfortable and get deals done
0 (7m 1s):
Our nation. These are the types of things that you really need to make sure that you are doing correctly. If you're going to, again, ensure that you're spending the next five, 10, maybe the rest of your lifetime with this business. I mean, this is so critical to get this right the first time. And you also have a saying that I love, which is believe more in adjustments than cashflow, which I think is really interesting because I think so many people focus so much on the cashflow. They're like, look how much money this business is bringing in yada, yada, yada, explain to our listeners what you mean by this. And then let's tell a story about how this is applicable
1 (7m 41s):
In a general business acquisition, call it 70 to 80% of the cashflow that you're paying a multiple load to buy the business should be reported on the financials and maybe 20 or 30% can be adjustments, personal items to sellers running through the income statement. That's about normal, but in 40% of the deals that I'm looking at instead of that being 70 reported 30 adjustments, it's 70 adjustments, 30 I reported. And what I call that is more icing than cake because to buy that business, you're betting more on adjustments that were not present to create sort of the business you're viewing that are going to be changes that you think you can actually operate the business differently.
1 (8m 28s):
And that's just not going to work. In most cases, I'll give you an example. I was helping a client buy a online business that essentially sold content writing services to a myriad of businesses and to sell the business, the sellers had reported call it about a hundred thousand dollars of profit, but when they put all the adjustments in all of a sudden, the adjusted profit was near a half a million dollars. Well, to believe that 80% of the profit is adjustments. It's like one of those cakes that has too much frosting. You know, you get a headache after. It's just, it's not a great place to be.
0 (9m 7s):
Let's be honest, Fire Nation. There can be a situation when there's frankly, too much frosting and I kind of want to move into cash flow. Like why do you think Elliot's cashflow something that people really believe in and hone in on more so than adjustments? Why is
1 (9m 25s):
So I won't get into a valuation class. I'll tell you business valuation is a multiple on cash flow. And so the reason people believe in cashflow is because the reason you buy a business is to earn the cash related generates. So if you want to buy a million dollar business for say four times or a $4 million purchase, the reason you'll pay for a million dollars is because you expect to get a million dollars in cash flow each year in perpetuity. And so it's worth it to pay four times that to get it for 10, for 20 years, for those who are financially inclined, if for anyone who's not, you have to recognize that profit does not equal cash dollar for dollar.
1 (10m 6s):
And so real investors are very keen on how much cash flow, how much in the bank money each business creates because they're willing to pay a multiple of that and not a dollar
0 (10m 17s):
For an issue. We're gonna talk about when, when is the right time to bring in advisors, we're going to talk about the documents themselves and also your team. All of this is coming up. When we get back from thanking our sponsors in order to grow your business bigger, faster, and stronger, no matter what challenges come your way, you need a solid team in place to help support you. What else do you need an effective way to unite that team and the flexible and customizable HubSpot CRM platform can help you do just that HubSpot is continuously adapting to the needs of businesses with sales teams like yours, with brand new updates and features. And what they've just rolled out is something you should be very excited to check out.
0 (10m 58s):
Not only have they created business units that allow you to manage contacts, marketing, and sales assets, they've made these settings available across multiple brands. They've also just rolled out new admin features, including permission, templates and integrations, making it easy to add, remove, and edit users as needed. And the feature I know will be a game changer for so many businesses sandboxes, which give you and your teams a place to test experiment and iterate on ideas before actually going live. Learn more about how you can customize your CRM platform with hubspot at hubspot.com. That's hubspot.com. Looking for a business coach who has helped thousands of entrepreneurs, just like you to increase our profitability by an average of 104% per year, all for less money than it would cost to hire a full-time minimum wage employee Fire Nation meets Clay.
0 (11m 46s):
Clark Clay has been coaching businesses just like yours since 2006. Yup. Even through the great recession. And he does it for less money than would cost to hire a full-time minimum wage employee at a time when Inc magazine reports that by default 96% of businesses will fail. Within 10 years, clay is helping businesses like yours to grow on average by 104% annually. How's this even possible clay only takes on 160 clients. So he personally designs your business plans. Plus Clay's team helps you execute that plan with access to graphic designers, Google certified search engine, optimizers, web developers, online ad managers, videographers workflow, mappers and accounting coaches visit thrive time show.com/fire, to see thousands of video testimonials from real people, just like you, who clay has helped over the years.
0 (12m 30s):
That's right. Do your research and view thousands, not hundreds of proven, documented and archived video testimonials from real people, just like you at ThrivetimeShow.com/fire. Then schedule your free consultation with clay himself to see how he and his team can help you thrive. So Elliot's before the break, we mentioned the winter talk about the right time to bring in advisors. There's obviously a wrong time, which is after the sale, but when exactly is the right time and why.
1 (13m 3s):
So one of my favorite phrases is don't wait until 1159. And by that, I mean the last absolute minute. And so I deal primarily with self-funded business acquirers. So people who are paying for diligence and buying companies for themselves, for those individuals, the best time to bring in advisors is probably three to six months. After you start in your search or about a month before you get serious with any particular deal. And here's why the best advisors are busy, doing great work for clients. And if you don't alert them that you need their help by the time that you actually do need their help tomorrow, they won't have the ability to put you onto their program and or schedule.
1 (13m 46s):
Additionally, if you get to your advisors and select them, call it 30 days before you get serious on a deal. What ends up happening is you can get advice from those people to how the best processes and the best acquisitions they've seen have occurred. And you can take lessons from those things as you go in to make offers on businesses, first analyze businesses. And so you get the double benefit of making sure that the advisors have time to work with you, but also you get free game from them because you selected them early. So that's the best time John.
0 (14m 20s):
Now, of course, we're going to talk at the end of the episode about how Fire Nation kit connects with you. If they have more questions or maybe they want to inquire more about your services, but obviously you can't work with every single person on this planet. So like where do you even recommend people's starts when they want to start looking for an advisor? Like where does he even one go?
1 (14m 40s):
The first thing you should do is go to your network. If you have other people in your network that have bought businesses, you should ask them who they've used. And if they'd recommend them. The second thing I would say there are so online forums for business acquisition, you can search financial due diligence and Google. You can go to LinkedIn and search for people. There are even other sites like search funder.com that you can go to, to find people. And a lot of those places have ratings, or you can find out people who have used our services before and ask them how those services were. And so in this very exciting growing marketplace of small business acquisition, there are many places to find your advisor.
0 (15m 20s):
I want to move into next are documents because of course there's a lot of paperwork. There's a lot of documents when it comes to buying a business. So let's just break it down. Should we be relying on the documents that were given by the other party or should these primary documents becoming straight from the source and kind of dig into this and maybe give us an example or two of how a deal has gone wrong because they didn't go this way
1 (15m 45s):
And the diligence game and acquisition game trust, but absolutely verified. And so John, when you're dealing with paying four times cashflow for a business, when a seller is able to misrepresent profit in their favor, you don't pay them dollar for dollar. You pay them four times that dollar. And so a seller probably has the highest impetus, motivation to tell a story of any time in their life. And so you have to be laser focused on making sure you're getting good data. Let me give you an example of when data is presented, that that wasn't accurate. So I was looking at buying a company in Texas.
1 (16m 27s):
I went to fly out to meet with the seller before they accepted my offer, which is normal. And as soon as I get to the office, all of a sudden the financial system they were using was on the Fritz, just so happened. It was the day I was there. So instead of getting financials out of QuickBooks, which was their financial system, they had a series of spreadsheets, spreadsheets on spreadsheets, on spreadsheets. And they all had numbers and pluses and minuses, and they all look really neat, but the problem was since they didn't come directly out of the financial system, there was no way to believe them. And what ended up happening is that the seller was playing a huge game around financials that weren't accurate and trying to push it off to any buyer who would take it.
1 (17m 11s):
If they accepted the spreadsheet representations that did not come from financial systems. Let me tell you another story. I was in Chicago looking at a manufacturing company and they were well-represented by a business broker. So the business broker had this immaculate memorandum on the deal, but just had every single thing you want to know about the business. The data started, why it was started, the business plan, but at the end, they had copies of the financials on the broker company's letterhead. And they look really neat, John. But when I compare to the actual financials, they were off by over 40%.
1 (17m 53s):
So had I believed those, I may have overpaid by two times. And so you must go back to the primary documents. When you're looking at buying a company,
0 (18m 1s):
Primary, primary, primary Fire Nation, go to the source. Now I want to talk about team. We need to have a team if we're going to be a success. And that's something we've talked about a lot on this, but what I want Fire Nation to get from you is that they're buying a business. At what point in this process, should the team be up and ready to rock if they want to have success from day one?
1 (18m 28s):
Absolutely. And the way to think about this is the jobs that have to get done to successfully buy a million dollar business and make a return. The jobs that must be done, you must check the financials. So you need a financial diligence person on your team set up at least 30 days before you get serious with the deal, you must write a purchase agreement and associated legal documents. So you must have a transaction lawyer set up at least 30 days before you get serious on a deal. You must know the industry. And so you need to know someone who understands the industry, or you need to be researching that yourself.
1 (19m 9s):
And you must know the business operations to be able to run the company they want after you acquire it. And so you or someone that you are going to bring on as an advisor needs to understand the operations, the real nuts and bolts of how these companies run. Those people need to be either yourself. If you're an expert or set up 30 days before, because you would not want to bet a million dollars on financials, you don't understand. You will not want to bet a million dollars on legal documents. You didn't understand, you need to get those folks set up beforehand
0 (19m 41s):
And you have gone to a master class on what it takes to buy a business the right way. But of course, there's so much more and there's only so much we can cover in a show like this. So what I want you to do now, Elliot is number one, give us the one thing that we've talked about today that you really want to make sure Fire Nation walks away with knowledge wise, you know, is super important as a takeaway. Then give us the best ways that we can connect with you in your business. If we want to learn more, if we want to just have a conversation and then we'll say
1 (20m 14s):
The one thing I'd like to leave everyone with is the opportunities to buy a seven figure business have never been better or easier for everyday buyers. So I encourage you to consider it, but absolutely be a good steward of your money and get diligence and legal, right? In terms of how to meet me or connect with me. You can go to guardian due diligence.com. That's my website, where you can find all of my contact information. I'm also very active on LinkedIn. You can find me there. Elliot Holland, two L's and two T's. I also have a special offer for Fire Nation, where you can get a valuation review and letter of intent review that we normally charge $2,000 for, for free.
1 (21m 2s):
If you just go to guardian due diligence.com/fire,
0 (21m 5s):
Wow. Fire Nation. I mean, if you are even considering a letter of a tent in your future, I mean, how are you not gonna take advantage of this offer? Fantastic, huge value. Thank you for that. Elliot's and financial, you know that you're the average of the five people you spend the most time with. You've been hanging out with EH and JLD today. So keep up the heat and head over to eofire.com. It's hype Elliot two L's two T's in the search bar in his shows page will pop right up and one more time. guardianduediligence.com/fire for that incredibly generous offer, as well as learning more about Ellie and his company and check them out on LinkedIn. Elliot, thank you for sharing your truth, your knowledge, your value with Fire Nation today, for that we salute you and we'll catch you on the flip side.
1 (21m 52s):
Thank you so much for having me. I enjoyed it. Take care.
0 (21m 56s):
Hey, Fire Nation today's value bond content was brought to you by Elliotts and Fire Nation. Do you have an online store idea? Check out the ideato store contests by.store domains. They're giving away cash prizes up to $30,000 for sharing your online store ideas. Learn more at www.ideato.store. That's www.ideato.store. And I'll catch you there or I'll catch you on the flip side. Are you looking for a proven business coach who has helped thousands of entrepreneurs, just like you to increase their profitability by an average of 104% per year, all for less money than it would cost to hire a full-time minimum wage employee schedule your free consultation today with Clay Clark, a former small business administration entrepreneur of the year at ThrivetimeShow.com/fireinterested in BDB sales strategies.
0 (22m 52s):
The salesman podcast is the world's most downloaded B2B sales podcast. Hosts Wilburn helps sales professionals learn how to find buyers and win business in a moderate effective and ethical way. I recently tuned into Will's episode on digital body language, how to have better zoom sales meetings. And I love how he provides relatable examples. So the strategies are easy to understand, listen to the salesman podcast, wherever you get your podcasts.
1) The Common Path to Uncommon Success: JLD’s 1st traditionally published book! Over 3000 interviews with the world’s most successful Entrepreneurs compiled into a 17-step roadmap to financial freedom and fulfillment!
2) Free Podcast Course: Learn from JLD how to create and launch your podcast!
3) Podcasters’ Paradise: The #1 podcasting community in the world!