Mike day welcome to acquiring minds thank you will happy to be here Mike after a career in corporate first as an engineer later as a manager you decided to step off that track and into ownership by what else buying a business we want to hear the story please start us off with some background on you Mike sure and just and thanks again for having me will I really appreciate this program great okay so I uh I grew up in the Houston area um pretty nerdy kid I always liked Legos and tearing apart toys and things like that so I was always kind of mechanically minded and so and and math oriented and so um as I grew up I decided engineering was the right field for me I also was a real Aviation nut um my dad is a retired helicopter pilot and we would go flying in small airplanes and so I definitely wanted a career in aviation um and so Aerospace engineering seemed like a great path for that maybe professional piloting something like that but but aerospace engineering was what I ultimately decided so I went to University of Colorado in Boulder uh and got an aerospace engineering degree and then uh was hired right out of school by boning so got to move to Seattle which is where I still live so spent my entire post college life here in Seattle uh and worked for Boeing and basically what was my dream job at the time um designing the cockpit designing the flight instruments for the pilots on the Boeing commercial airplanes so exciting dream job as you said for for a kid who is engineering mathmind Aviation minded first job out of school designing cockpits I mean it really is uh yeah I mean just to repeat what you said it really does seem like a dream go ahead yeah and so that was that was great um although you know Aerospace is a very cyclical industry and so after the two and a half years or so they went through a downturn and I and a lot of the young Engineers that were hired got layoff notices some were laid off some were found other positions but um while when that happened I went and found another job in the Seattle area in the industry for a midsize company that makes uh airplane Electronics avionic systems um and that was a pretty formative experience for me in the sense that I knew that the big company wasn't necessarily always going to protect me so I you know I knew that this couldn't always last potentially and working for the midsize company was really great I grew a lot there I spent about six years there uh but then I felt that I had topped out uh in the small company because it had a very flat management structure great people and great products but I wanted more and um and so I went back to Boeing I had maintained my connection ctions and uh they were starting an exciting new program called the 787 at the time and uh and so I I went back and again had a wonderful multi-year uh experience there in total about 16 years with Boeing between my two stints and so in my longer stint went back to the cockpit design uh and then you know matriculated up through management layers managing engineering teams developing new products um and then ended up transitioning into corporate strategy after a few years because I became more interested in the broader business the engineering work while exciting was kind of the same thing over and over again and I just became more interested in the business side of things so ended up um becoming a corporate strategist working on some m&a and product development and things like that and so while in that job uh in order to grow they recommended my my mentors recommended that I get an MBA which is something that I never wanted to do before I I felt like after aerospace engineering degree I was done with with school that was hard enough um but by then I was interested enough in the growth that that I wanted to get NBA so I did a hybrid program offered by Rice University in Houston where you work full-time and then you're attending mostly online but some on campus weekend uh activities and uh and so while doing the MBA I was introduced to the idea of search and ETA and that's and why did why did it resonate you see it seems like you were doing great at Boeing and 16 years um on the one hand one might say well yeah time time for a change on the other one might say well if you were somebody who didn't like that environment you probably would have stepped off it much sooner so what was it yeah so there was a Confluence of of events I started school January 2019 this is SEC my second year of school was during covid um and then the company was going through struggles you know it's been beaten up a lot the last few years at that time um we had the the 737 Max crisis we were dealing with uh the industry then downturned you know during covid and um the Outlook just wasn't great you know still great people working on great projects but the long-term Outlook had dimmed and the second thing was as I was growing in my career I was feeling less satisfied with my contribution I liked managing teams I liked mentoring younger employees but the grind of non-stop meetings and corporate bureaucracy had really gotten to me and it sort of um it just drained my enthusiasm for that kind of life you know people talk about looking up the hallway looking at the people one or two positions above you yep uh and I did that you know senior leaders that I admired I thought about that job which would be exciting and you'd have a lot of respect uh but what you traded for that you know long hours tons of travel um and for what you know a nice salary but money at that point was not a major motivation so that just kind of soured me on on um the corporate growth idea and so when I heard about ETA it would just a spark you know it just completely grabbed my attention and but in fact you hadn't been somebody who'd been entrepreneurial before the idea of starting a business or doing something entrepreneurial was not in your on your resume or necessarily in your DNA if you will that's right I over time I you know and certainly in retrospect I've been around people that were business owners and entrepreneurs um that type of Entrepreneurship but I never really thought about how I would achieve that um during these years of living in Seattle my spouse my wife has worked for a couple of different startups so I was familiar with that ecosystem and um saw the grind that that people go through and the kind of uh um ideas and ego it takes for Founders to succeed and I know I definitely didn't have that I didn't have some Earth shattering idea nor really like the fire in the belly to start something uh and so the idea of buying something just wasn't even something I knew about and how old were you at when you're in this hybrid MBA program Mike yeah yeah I thought I'd be the old guy I actually wasn't the oldest but uh I started that program in my mid-40s okay so you are making the decision to Pivot out of a long and successful career and do what will what will prob probably be what you do for the remainder be that 10 years 20 years or however long you choose um so big decision and is there anything though that's drawing you to it you're talking about what's pushing you away pushing you off of the corporate pack but but is there any what's the what's the carrot to to to to the stick here yeah yeah absolutely a number of of draws the first one being control control of your time and flexibility to do what you want essentially that was probably the biggest appeal um my wife and I or my wife had been through a health scare a few years prior and that really was kind of a wakeup call for us to to just get out um YOLO you know make life happen and start to make our lives the way we want them to be and part of that was figuring out how to be less tied to office jobs if we could so this was a major carrot was the flexibility um of owning a business that that that can bring secondly you know being a mid-career person or mid life person two two professionals and uh and we never had children you know we had invested prudently over the years and um and we're getting interested in real estate you we had bought a couple of properties by that point and um the returns are good you know can be good but are not um it's a real long-term Prospect sure and when I started to see the numbers the return that you should expect from a small business acquisition it was really shocking and um you know motiv ating that at a minimum you should be seeing 20% return on your Equity versus owning a piece of real estate that would never return that in one year so those P you know figuring out how to grow our wealth so that we can retire um and Achieve flexibility were kind of two big carrots that attracted me to it well those are good ones and just for that quick math that you did for us the 20% return on equity that is assuming kind kind of very crudely assuming you buy a business in cash for 5x so after 5 years you're you're you you're getting 20% every year so yeah that's that's where that was coming from yeah and we can talk more about it but that's the framework that I learned in in the MBA program and the way that the Jones school at Rice teaches it is not so much um multiples but more about a risk buildup some of your guests have talked about this but coming up with the risk buildup and the return you should expect based on the risk you're taking on with this specific business but yeah Tim it's yeah yeah okay well well and and let's just jump forward a little bit to say what your now role is at Rice 2 for a little extra context what is that sure yeah I'm uh I'm a profession or a a lecturer um at the Jones school now there are a few of us um who support the program the online program um who are the live session instructors so the students in the course watch asynchronous material from the lead Professor Al Danto and then we fill in and essentially teach and have the the ongoing weekly conversations with the students and the ETA course at Rice's at Rice's NBA program yes Rice's ETA course which is called Enterprise acquisition and when most of us start the class we think it's going to be about m&a but it's really small business buying okay well I want to hear more about the kind of risk framework that you you're you're saying is um somewhat different than the way that ETA or the napkin math is often taught we'll return to that so let's hear about what you what's next in your story so you're turned on to Eta and what this by sell yeah yeah so um let me let me kind of set the stage so we are um I start the ET ETA class in the summertime uh and we are on a vacation from our normal jobs our nine-to-five jobs and uh but I'm still doing my cour work even though I'm on vacation and um and just in the first section of the material I'm just so energized about this whole concept of ETA and super excited about it and so I decided I'm going to take this time while I don't have to do my day job and just see what this is like really apply myself to the class using the framework as if this is what I'm doing is searching and see where it goes and uh and so yes started with bis by cell you know the typical uh process quickly found the um you know the local brokers in the Northwest who are big and and do a lot of deals and just started networking and and making introductions and learning more about it but at this point I was not I was pretty sure I this would be something I would eventually do but I was not yet seriously considering leaving my job yet so you start kind of going through the motions to get a taste and do does that then pull you down your search proper or or no do you pause and go back to work and what what happens then no absolutely by the end of the week I've seen enough even just with the limited listings and then um having networked with brok ERS who share listings that aren't directly on buis Buell uh I'm absolutely energized and and by the end of the week I'm thinking this is what I'm definitely going to do what was it in the week that you liked I mean because you actually what you were doing was the the least fun part the search which nobody likes talking to broker Brokers was it just kind of envisioning yourself in these businesses that you whose Sims you were looking at or you actually maybe you did like the mechanics of searching what was it yeah envisioning myself in the businesses but also just seeing what was out there when you start looking it's just so fascinating how many different kinds of things whether it's the obvious stuff like restaurants or car washes laundromats to like a million different Niche companies that that do a million things and yeah that was eye opening and just seeing all that possibility the other thing I did was looked at um broker sites with closed deals some often they'll list uh deals that they've successfully negotiated and that was a way for me to see the types of companies that get transacted even if they weren't currently for sale and that's how I also you know directed myself towards other brokers who had sold some of the types of businesses I would be interested in based on my criteria well just want to call out your use of the word possibility there I think it is uh one of my favorite words and it so applies to the The Epiphany uh of the possibility of buying a small business is is possibility itself there's just so many um interesting Corners in which you can explore okay so keep going so how does your search start to start to seriously take shape yeah so after I'm very fortunate I'm a um I'm a one Loi and done person the first real Loi I submitted was the business that I bought but it took it took some time to get there so over the following several weeks couple of months I um I was just using all my spare time to look at deals continue networking um start talking to Banks the light the nice thing about being in class was that I was already doing a framework and the framework that we teach at rice is a very uh methodical process starting with coming up with your criteria and what are you all about and then you know coming up with your um we call them eliminators but things that would that you wouldn't consider in a business and then you know so I was just doing my assignments but I was using them for real in my search and so that it was great a great motivator to just keep keep going with it and um and so after a few weeks I had three candidates that I thought were actually realistic uh and so that was about the point where I'm starting to have serious conversations with my wife about you know I think this might be my next chapter I might seriously consider pivoting to this and you know quitting the corporate world and starting to have those conversations and I want to hear how she responded but first what were your your criteria and your eliminators yeah so unlike a lot of Searcher well I started with a geographic search so I we are very connected to the Seattle area area we love the nature and we have lots of friends here and so I wasn't considering moving so I I felt like anything within a few hours drive of Seattle was a possibility so from Portland Oregon to the Canadian border was the geographic search region uh and then I unlike a lot of Searchers I was not interested in services not home services not SAS not anything that was kind of virtual because of my engineering interest and my love of anything mechanical I wanted something that made a physical product ideally you know that we could brand as made in America and I just was really attracted to this idea of manufacturing and physical things that I could really get my hands on and dig into um and so that was the kind of businesses that I was looking at and it was everything from um instrument manufacturers that me make measurement tools to uh outdoor equipment bicycles uh people that Pro provide parts to the Aerospace industry and other Industries so all over the place but there's a lot of companies that do a lot of interesting things with physical products which is what I wanted so that does then become pretty narrowly defined you want a manufact manufacturer I mean that's what that that's what that is of course ideally although for example uh I looked at a uh ay that does home generator installations and in fact a fellow Searcher ended up buying that business who comes to some of the events here in Seattle so that Cory is it is it Cory that's right Cory I think you've talked to Corey yeah yeah yeah not he hasn't been on the Pod but we've talked offline and um he's has a an ad on Smith list uh for he's trying to explain he is expanding to Portland actually and so he's looking for somebody to run to run that operation yeah and so that kind of thing more more than just a Serv Home Services it's like a little more technical okay okay and how did your wife react as this when you brought this to her very well I have a great great spouse we have a great partnership in that sense and where we had come from was she had been the one for many years who had the riskier career she took more risk in uh she worked in the advertising industry and then in startups here in Seattle and so there were times when she left a company did some Consulting whatever happened and we could use my health insurance for example so I always had kind of the stable corporate job while she had the freedom to do a little more risky things but by this time in our life she now had a more stable job with a midsize company and uh and so she was like it was your turn yeah exactly well what you were about to embark on not to take away from the risks your wife had taken earlier in her career but this is quite a bit riskier I think than in what she in some of her stuff yes and we'll talk about things like personal guarantees later but um yeah in terms of the personal um risk it is arguably riskier than working for a startup because you're not personally invested in the startup right in the same way right but yeah we will return to pgs CU you're actually not somebody who is I think you have a um a more understanding acceptance of of the of the PG and the risk there we'll get to it um okay so you got three uh candidates what is is it do you want to talk to us about the two that didn't make it or should we just jump to the business you bought well I will say first that the business I bought originally was eliminated because it only has one market which is the constru ruction and home building industry really and I was I thought I was being smart by having criteria that that was um ideally you would serve not only have a broad customer base low customer concentration but also have multiple Industries as your customers so that you could sort of survive downturn so I had originally kind of eliminated it um but then came back to it after convincing myself that the home the construction industry is pretty big but we can return to what that means in the LA that sub subsequent to buying it uh it hasn't been a great ride the last year you know broadly speaking because of everything that's happening in the in the home buying and selling space or not happening as the case yeah exactly uh so so the two one of the ones that I was really interested in made a specific kind of instrument that um basically was a very the moat was intellectual property and they had a design on a tool that measured a thing that pretty much everybody on Earth who needed to measure that thing would use and so I was really excited about that the challenge or or the thing that ultimately kept me from making an offer was that um well the other deal was starting to go but the seller was either a PhD or very uh skilled in that chemistry space and he was the one going to like conferences and talking up you know he was the expert and I couldn't see a way that I could fully replace him so it was kind of a keyman risk thing where you'd have to come up with a way maybe maybe he consults and he still is the face of it but that was one of the biggest reasons why I didn't love that one plus it was a little smaller in terms of uh revenue on SD MH the second one I eliminated was um was more of a passion business so I I love the water I love boating and and boats and this was a shop that did um small boat kind of repairs and engine service and sold small boats and engines and Associated parts and things and um I was originally kind of thinking well do what you love you know be in the environment you like to be in as your job but um two thing one was it wasn't generating enough cash flow and secondly was uh the again the owner was pretty involved dayto day he was doing some of the work some of the mechanical work uh and finally I was worried that if you do the thing if your job every day is the thing that you like you're gonna start to hate that thing and I didn't want it's not crazy if you didn't say it I was going to say it be beware turning your passion into your income that really finally stopped that that path yeah yeah yeah but it it must have been tempting because I I know you said you like boats and boating but I'm not sure you did say I know from the preall that you and your wife are out on the water boating is a big kind of hobby of you how you spend time so that that must have been quite tempting uh what a what a lovely compliment to the lifestyle you wanted right exactly yes yeah that was the yeah yeah well good discipline okay and so tell us about as yeah American spray technologies uh is a manufactur American spray technologies yes go ahead American spray technologies is a manufacturer of large pumps uh these are cond industrial machines sold to commercial contractors who need to apply thick heavy materials often drywall texture that's the main Market but also fireproofing and um and certain kinds of paint and other thick products that are mixed in the machine and then sprayed through a very big hose for efficiency um so these are on trailers or mounted in box trucks and um it's something I didn't know existed before I saw the the SIM for the business well of course I didn't either but it also does sound like one of those where now that you describe the application it would seem to be widely used and therefore I would think that a kind of a giant company I don't even though the giant companies in construction Hardware but that that one of those big names would be already be a manufacturer of this product of which probably tens hundreds of thousands are sold a year or at least being used a year yeah you would think that but as I as I learned in due diligence and now in operation um the big player is grco in these kinds of paint and material pumps uh they're a you know a large International Company publicly traded company based in Minnesota and they sell similar machines and we do compete with them with a small portable product but it's all portable it's all small stuff that you could roll into Home Depot or out of Home Depot um they don't make big trailer mounted our machines are anywhere from 150 to 500 gallons of material so it's a very large machine um so that prevents some of the offshoring and some of the you know possible threats like that like being manufactured in a lower cost place but also it's a niche and so there really aren't that many um of these machines across the country as you might imagine there are a lot of the small machines tens of thousands but it's a much smaller niche market for the big what we call spray Rigs and there are only um currently really three manufacturers in the country that make them ah okay so I think it's too small of a market for a big a public company yeah yep and average order value or average cost of one of these rigs yeah they're a big purchase it's something in the order of 30 to $70,000 depending on the size so it's a piece of construction equipment like like you would like a excavator or other tools that a contractor would use well it is um physical manufacturing um got check that box engineering you know appeals to your engineering uh proclivities um you've already told us you didn't like that it's kind of served a single industry what what other things to say about what you did or did not like there are a lot of things to like as I as I started to dig into it um it's been around a long time this the the this company has been around since the mid 1960s and in fact the seller was himself a Searcher although it wasn't called the search back then he bought it he was also a corporate Refugee from Aerospace he bought it in 1994 and owned it for 25 years um and so that longevity was certainly appealing um you know when I started to look at this you hear the word texture and immediately most of us are turned off because you think popcorn ceilings 1970s thick texture and a lot of you know if you do a web search around texture it's how do you remove it how do you scrape it off how do you you know that kind of thing but as I dug into it um I realized that or learned that for large home builders and Commercial projects apartment buildings um the vast majority of construction today uses a light texture to smooth out the walls before they're painted it's just the the standard thing you do in most of the country there at Pockets where where they don't but that and the fact that drywall wallboard um it's a really boring in a good way part of the construction industry it's such a benign material and it's kind of the perfect material for what it's used for it's in every built space that you're in for the most part and there's not really anything that's going to disrupt it anytime soon and so that those aspects really started to to catch my interest and and sorry Mike to be clear this would spray so wherever drywall exists but in a very large on a very large wall cuz you said this is not the portable you guys W produce the the portable version of this that would that that a home builder would do in the living room of a new home where give us an exact like like a precise example yeah no we do it's absolutely used in new homes and that's our main market so this the portable machine it's it's a little bit counterintuitive perhaps we do make a portable machine on wheels that you can roll into a building but that's usually used used actually for like a highrise or a place that's hard to access from the outside our main use case is in a new development you can park our trailer in front of three or four new homes start it running and the applicator can walk from home to home with the long it's 300 feet of hose in some cases and spray multiple houses in just a few hours with just a crew of one or two people so it's a huge labor savings value proposition and so new home construction is really the biggest Market because they can knock out a new home in in a matter of hours versus the alternative which is a much more manual labor intensive process with a smaller handheld little sprayer um or in high-end construction what they call Smooth Wall which takes a lot of Labor and is very expensive and to be clear so this is a some it sprays a film a layer of something on top of drywall so up goes the drywall and then the guys will spray using your product yes yeah product yes that's right they joint they tape you'll see the tape joints which is a paper tape and then um they'll do a few layers of joint compound and then spray the texture which is just another form of joint compound it's all all of it all the material is this gypsum based very benign ground up from the Earth product so it's pretty cool it's not petroleum based you know it's it's just a very boring sensible product and so anybody who has home building experience who might be listening to this would they instantly know what this is oh yes yeah okay okay so this is really okay great well it sounds really really interesting um but again so that's your current market but this does have other other applications your current market that you serve primarily but it does have applications where some other substance needs to be sprayed in some kind of industrial strength way that's right and thickness too it's the the the the Innovation or the the niche is a thick material and so fire proofing that you'll see in a parking garage covering all the metal structure that kind of flaky looking stuff our machines will spray that um log homes need chinking between the logs that's a thick product that our machines spray um deck coatings on certain Navy ships in fact there's a small market for that that we are in so so any kind of thick product but I should mention not things that need to be mixed like if you think about spray foam insulation that's a much more complicated system that has to control heat and mix two chemicals together in a very precise way and those are very very expensive Specialty Products ours is a much simpler machine great now let's hear about the business of the business what what what did it look like in terms of um well employees but also revenue and and SD margins all of all of any of that that you can share please yeah for the the two years prior to the sale um it was doing in the low three million in revenue and was returning about half a million in SD so that was right where I wanted to be as a Searcher um you know that kind of sweet spot of of about a half a million SD and that's with 16ish employees 13 full-time and a few part- timr um and a very importantly for me and my criteria was a management layer which is rare at this size of business but for me it was worth additional value um that there was essentially a GM managing day-to-day operation and the seller uh they always claim to spend little time in the business but as I as I learned he really was only spending a few hours a week on the business so those were kind of the key the key metrics I was attracted to and the GM being in the business was attractive for basically the obvious reason that you just have somebody there so you can come in and have a back stop or start focusing on strategic stuff working on the business not in the business all that good stuff um was there anything were was that one of your was that one of your criteria or was it just a nice to have and this business had it no cons since I was searching a fairly broad I mean even though it was a geographic search I would I was considering businesses a couple of hours away or more I it was very important that there was somebody running day to today so that I unless if there was a crisis I'm happy to be there every day but I I wanted to only have to be present part of the time so that was a very important criteria for me okay but were you envisioning your uh your time involvement in the business being less than full-time or you just mean boots on the ground your own boots on the ground less than full-time but you were going to devote your full-time to the business wherever from either from home on the ground exactly expecting to make this my career and to vote full-time but just to have the ability to not physically have to be present and and everything that brings with it um all the interruptions and good things but um it prevents you from working on the business where was it based after all in the South part of Seattle metro area um about 35 miles from home but unfortunately through the worst traffic path between where I live and where where the business is so um that was not ideal but certainly within easy driving distance great and just say a little bit more about The Sweet Spot 500,000 SD being The Sweet Spot um I've often said on this podcast parting others that if you can get at 750 800 is the or is The Sweet Spot and the more the better 500 to be The Sweet Spot while common um probably is maybe sounds a little bit lower for quote Sweet Spot than people are used to hearing on this podcast so what are your thoughts on Sweet Spot how many times can I say that in a paragraph yeah so that's a great point and in retrospect maybe I would have now knowing what I know and and having been in this space a lot longer I might have wanted to go bigger I'm totally happy with my situation and that I didn't but here's the some of the back ground additionally is um I was not intending to take on investors so I was somewhat Limited in Deal size based on what I had accumulated what we had accumulated over the years through our investments and one of the decisions my wife and I had made totally independent of this process was um we had purchased a investment condo investment property that was a condominium several years earlier and it it would generate a small income but it wasn't a good use of equity the the return was pretty small so we had already decided that we were going to sell that and purchase look for a maybe a Triplex or quadplex or something with the idea being we could lever up to something that should produce a better return on our Equity while we were you know that plan had been in motion then I learned about ETA and started doing the research uh and discovered some of the benefits of bundling real estate in a deal and so my pitch to her was well what if we don't what if our investment property is an industrial building that's part of this deal and that's how we apply this capital and so that the value of that and some of our savings was kind of limiting me in Deal size uh without having to take on additional investors and you didn't want to take on investors because you didn't want to have to answer to anybody primarily yeah yeah exactly I liked the idea of total control um I had a business school cohort buddy who was ready to write a check who was really excited about my search um he was also doing a search and uh and so we that was a really useful sounding board because we talked through you know I shared with him my progress and and we talked through what it might look like what the terms might look like as an investor and he was great about being willing to be silent and you know all that but I knew that I would always in the back of my mind be thinking about not necessarily answering to somebody but uh every decision I make that affects the bottom line is going to affect somebody else outside of me yeah and my just on back on the real estate bit so you your point was that you this was kind of a way of positioning to your wife exiting the your current real your current condo but staying in real estate by buying a business that had real estate so it was kind of like we're not getting out of real estate altogether we'll still have a real estate investment um it'll just be bundled with this business that I buy is that did I get that right partially I I think I was pretty heavily it was more than a ni to have that real estate be part of a deal um not that we would get out of it we The Proposal was just we'd still have investment real estate rather than it being a Triplex it would just be an industrial space that my business would be the tenant of yeah so it was just a different play but but the intent was always to try to use most of those proceeds for a real estate part of the deal and if if I did find a perfect business that didn't come with it well then we would still go do something else in real estate with whatever was left and and what is your what is the appeal of real estate I mean just that's where kind of you want to have money parked for long-term for long-term wealth building for obvious diversity yeah yeah and then when we talk about kind of risk um we that's a big piece of how I feel how I got comfortable with the deal and the downside um possibilities is well let's let's talk about that now although actually first what was the size of the business what was it selling for I don't think we got that and how are you going to structure it yeah so there's no price as a lot of um this was not a Biz byell type listing this was a broker you know a private broker listing that I was um that I found through the process of networking with Brokers and um so the Sim had the numbers and and you need to come up with evaluation but luckily I had just done that homework assignment so I had my my uh my MBA style way to value and so I came up with a uh kind of a pre-i proposal that included the real estate and the and the business together and the um I had a purchase price right around 2 million so about a 4X iida and what was your your MBA process for coming up with evaluation it's interesting you know I I kind of take it for granted because so often my get the the price of the business is on the listing one way or the other um and but there of course are occasions where it's just this is for sale bring bring us an offer uh in and certainly in larger transactions that becomes increasingly common um and so I'll get the question from listeners from time to time how do you value a business and I realize we we talked so much about multiples we're doing we're backing into a multiple based on what the asking price is but going forward and and you originating what you think the multiple should be and therefore the purchase price should be we spend virtually no time on this podcast on so Mike how did you come up with basically Forex and how did you value come up with that multiple and come up with a real estate value please yeah so if you can condense it into two minutes I'll try yeah so this is uh this the standard method that we teach at the Jones school but it basically comes down to cash free cash flow you have to determine what is the business throwing off in free cash flow and this is different than a iida or sde because it basically it's it's the sde but you have to subtract what it costs to replace the owner whether that's you or whether you hire an operator so let's say uh SD is 500,000 um in my case let's say the owner was working halime so we'll put in 500,000 for that so you're left with 450 of free cash flow you also have to subtract um Capital expenditures what does it take to keep this business running if it has equipment Vehicles whatever in my case there wasn't really it's a nice thing about this manufacturing business is it doesn't actually have a a big Capital component um and so that's your free cash flow number then you do a risk buildup to understand you know what you this money you're bringing to the deal as an investor what could it get at the risk-free rate what could it get in the equity Market you build up to um a number and for a small business acquisition the kind of industry standard is it should return at least 20% so that's starting at that 5x multiple um and then you start to add risk so you assess the business for all the standard things um customer concentration keyman risk uh you know whatever just the the whole list and you sort of try to you then inch that risk lever up and you may come up with then a specific company risk that's anywhere from zero if it's totally unrisked up to maybe as much as 20% if there's a lot of risk or it's turning into a turnaround and so that range if if it was much riskier um you would expect a 40% return total on your investment and so that's only like a two and a half times multiple fascinating so so let me just repeat back to you you start at kind of 20% minimum and that's already baking in the the risk of just being in this asset class A small business versus all these other places where you could deploy your Capital that are far less risky like the stock St market index or what have you so that's kind of the starting point and then you as you assess the additional risk particular to this business you kind of probably somewhat arbitrarily assign further risk pre further risk values to each of those items that increase the risk and what that's doing is bringing that five five 20% that 20% number is going up or if we translate that to multiples that 5x number is coming down the multiple is getting smaller I.E the purchase price is getting cheaper or less expensive to account for risk so the riskier it is the less you should have to pay very interesting um I mean it's totally intuitive uh but it is a different angle to to to come at this yeah and I like it because it's not just a multiple and you're arguing about multiple it feels like there's a little more um I mean it is it's not a total science there is a lot of estimation but it just feels like something a little more concrete that you're assessing the risks of this specific company not that every plumbing contractor trades for 3x it's like this one has a management layer or it doesn't or it has 60% of revenue from One customer you know all those things should bump up or bump down this risk premium right right now of course what it doesn't take into account probably many things but one that immediately comes to mind is supply and demand so the if a lot of people want to buy that HVAC business that's going to push multiples up and that has absolutely nothing to do with the risk profile that's just competition in the market for this asset um doesn't doesn't really take that into account in any way correct and what I would say about that is uh as we as the great Al Danto of rice business says is it's okay to overpay for a great business in other words you're going to make it up in the long run and and another way to think about that that I like some of your guests have said is if you don't buy this one the opportunity cost of letting all that SD go by till you find the perfect one in six months or a year it's going to have made up that difference anyway potentially right exactly so so yeah everybody if you're thinking about if you're negotiating between 3 and a2x and 4x with a seller um and it remember what that half X that you're disagreeing about represents it basically represents 6 months of SD so if you don't buy the business walk away and another six months comes and goes they you've you've kind of left that haven't earned that money that you would have otherwise um now of course the but the the other thing about multiples and what you pay for the business is it is it does inform the loan payments that you have so that's that's important to not forget as well um it's not just about the SD opportunity costs go ahead yeah so so all that being said that's all great in theory when I actually made the proposal to the broker pre-i she said that's great but it's significantly below what yeah what we'll accept and so um so I had to the the great thing to me about there being a real estate component was I was able to kind of um I I was able to basically increase the offer on the real estate more than I increased the offer on the business to make my in a way that made me comfortable and I let the seller decide how he was going to allocate that so he was already going to accept the real estate offer I had made um but in talking with a buddy who's a commercial real estate broker he gave me some um you know kind of an estimated value that was a bit higher and so I went up to that number which luckily it did appraise for and that way we were able to meet in the middle otherwise just buying the business alone I think I would have been pretty I would have been above my comfort level I don't know if I would have gotten there but um but that was another benefit of having the bundled deal but there was one purchase price right that's right right and so you increased you met his number by in your by in your own mind basic effectively raising the price of what you were paying for the real estate um and kind of that's how you saw it and you let him on his side see it as you've just now increased the the business valuation by that much yeah yeah but it wasn't it wasn't in any way um Shady because the bank and everybody it was very clear I I broke down in the LOI the two components this is how much I'm offering for this this is how much I'm offering for this and the deal terms so it wasn't um you know he could have then turned around and traded it to somebody else like well here's an offer can you beat the offer on the business you know yeah yeah no not that you were manipulating but was kind of like he had his number and you figured out a way to to get to his he had like a primary number he wanted to get to and you figured out how to get there uh for the package yes and that is one of the key the core principles that is so important to these deals is understanding the buyer needs and there's almost always a way to find some common ground you know it's the old adage of you name the price and I'll name the terms yeah there there's often some way that that you can resolve the difference unless it's just to wildly out of out of um you know out of range but that is also an advantage I think of a broker deal is a good broker SL intermediary they're going to educate the seller their interest is in getting a deal done fast and so they will help the seller with this you know expectations on price yeah yep exactly um have you said everything you want to say Mike about real estate in your kind of how it got you comfortable with risk and have we said everything you wanted to say about risk because this was a big feature of our of our pre-call but maybe we've we've had everything or no um no I think there's a number of other aspects of this because now that I now that I teach this material this is a a very big theme that comes up is people perceive acquiring a small business as sort of excessively risky versus a traditional job and um and so just in my case the risk was really tamped down by having the the real estate component and so for example if all I do is keep this business alive at the same level turning along you know maybe I'm inching up uh to cover inflation or whatever but I don't grow it at all it still can pay the rent on the building and so at the end of however many years it will have bought me this piece of real estate which if I SN my fingers today and it was paid off or nearly paid off we could have a com comfortable retirement simply on the income of this commercial building yeah so to me um you know I'm I'm doing everything I can to grow AB absolutely grow this business um but as a kind of worst case scenario if it did go to zero um I could lease the space to somebody else and I'd have a lot of problems to deal with if that happened but I could lease the space to somebody else and and still make my loan obligations yeah another piece of this risk concept is that you do all this work to come up with criteria for a business that all the you know recurring Vue customer concentration all the typical things those don't change unless there's some huge shock or some major disruption in an industry those are still true after you take control and so there's still intrinsic asset value to the business uh which means that you could turn around and sell it again and that that's something my banker um said to me late in the deal when I was I might have been on tee nashing about some aspect or the PG or something but um she said you know we're not wanting to come take your assets and take this away from you if you decide in six months that it's just not for you uh we want to work with you to to remarket this business and get it keep it going you know they're they're not trying to bankrupt people if they can avoid it and so those two things the fact that I had a back stop with the real estate piece uh and that unless I really messed up or something terrible happened um the business will always have value and I may lose money yes it might be significantly painful but not so much that we couldn't survive yeah yeah Mike you know you're the you're the second person to say um the point about you can resell the business if it's not for you in as many weeks I think Rob Carpenter said it his episode will have aired by now but hasn't yet um he bought much smaller businesses $200,000 uh in three cleaning franchise territories but he still I mean his point was like this I'm doing you know I'm committed to doing this but it it's it's not necessarily forever and ever and ever and I it sounds like you kind of directionally are similar like you you you assuming things go well you do intend and want for it to be basically indefinite but it it's not maybe the marriage that it's sometimes uh held out to be that it's that it's kind of a forever thing now I'm I'm treading so lightly because of course we all agree that this should be taken extremely seriously this is big boy stuff to buy a business and to get in there and operate a small business we all know that and it I'll never Tire of reiterating it um but there's a point in there too that's like maybe let's not overstate that assuming it doesn't absolutely collapse and go to zero if you just find that you just need to not do this you can probably re the business probably still has a lot of value especially if it's just basically chugging along where you bought it and you can turn back around and sell it it'll be messy you'll lose a couple years of your life you'll likely lose money and all the transaction fees but you're not going to be bankrupt ruined and you know it's not going to be the nightmare that it's some sometimes held out to be right yeah knock on wood and two other things in my case that were also um that calmed me about it one is there's a large installed base of these machines across the country and we sell parts and that's a significant not insignificant chunk of our revenue and so there should always be kind of this tale of support and so even if sales of new equipment tanked there's the support and service element that we could survive on and furthermore because I have a GM running the dayto day if all I was in doing was in maintenance mode then probably the best use of my time would be go do something else so I could be a consultant back in Aerospace or I could do something else just to pay my own personal bills in that in that um you know in that scenario yeah yeah so so you actually think if if sales had collapsed just the maintenance and repair the business could have held on just on that Revenue well in a much smaller way I mean we'd have to you'd lose people and it would be very painful yeah but it wouldn't go that's the other another aspect of this is I see myself almost as a steward rather I mean I am I enjoy being the owner and that's my role and and I take it seriously but because it's been around for 55 years I don't want to be the guy that that destroys it I'm want to Steward it as long as I can or as long as make sense for me uh onto the next person because I don't see this industry significantly changing you know all the elements are there in terms of um the United st's population growing and the need for Millennials to buy homes and uh these macro things are good for this type of business along with the difficulty of finding construction labor you know we're mechanizing we're bringing that efficiency value proposition to Home Building um all those things make it feel like it should always be you know there should always be a market for this Mike before we get too far away from the the risk framework or the valuation framework what did you call what do you guys call it at Rice well it's um I mean it's a cash flow based valuation we do a risk buildup the risk buildup I maybe I think that was yeah the term I was looking for just before we get too far away from that also wanted to say that um what can be the reason I'm if a buyer is looking at a business which they likely are that already has an asking price attached to it you can use this separately uh this your analysis this risk buildup analysis to try to see if the business is under or overpriced now again a lot of this is just going to come down like like you found it's just going to come down to seller emotions and market dynamics but at least it gives you some some uh framework through which to analyze if something is over or underpriced so so it's um it's not just useful it's not only useful in the case where you need to come up with your own valuation because the business doesn't have an asking price even if there's an asking price you can kind of check their check their work uh by using this exercise so I really like it I'm surprised it's taking 250 episodes to come up absolutely yes and I would absolutely encourage people to yeah to do that and I do it as I look at SIMS all the time I use my same course material and I just plug in the numbers from from the business yeah yeah and of course some of it is is is intuitive when we do it without realizing it so if you're going if you're negotiating back and forth with a seller and they're saying 3.8 and you're saying well yeah but you've got all this concentration over here so I want 3.6 you're effectively doing this but okay yeah and I just to Le before we leave price um you know price is a big deal but again the whole buyer seller relationship seller needs um is equally if not more important and I so in my case I found out later I've become friends with the broker and uh we occasionally meet up for lunch and she did share that I was not the highest offer so the fact that my background and maybe the fact that I wanted to bundle the real estate um that combination maybe made it more attractive to the seller but he could have sold for more I don't know how much more but um but so there's always other elements you know that's why it's so important to to understand what you're bringing to it and what the sellers needs are yeah yeah and and so just going back to your purchase price you you said it was about 4X that you offered and then inched it up that via the real estate so it ended up paying 2.8 for the real estate so the total deal was about 4.8 M okay 2. million plus 2. 2 million plus 2.8 million for the real estate cat which really helped my debt service because now the 7A loan bundled the real estate because here in a very expensive Market the real estate was more than half the value and so um I had a long amortization schedule and uh and that really helped debt payments in the beginning back when the rate was six six and a quarter I think but so that was great in terms of the acquisition it ended up really burning me as interest rates went up well sorry why did it burn you because it wasn't a fixed rate correct yeah it's a regular 7A loan with a variable rate that adjusts every quarter ah okay important Nuance that I hadn't um gotten before so so first let's let's back up thank you for calling that out I can't believe I almost let that slip by but reminder for the audience if in you're buying a business with real estate in a bundle and the real the valuation of the real estate is more than half of the total bundle then you can amortise the entire loan over 25 years versus the traditional 10 so that's a seriously decreased loan payment and very attractive um and but so okay so that's Point number one great but this important point you made is that that will almost because SBA 7A loans are typically variable rate not always um but typically your real estate is also going to be at a variable rate which is not good in a rising real estate um a rising rate environment and also and also an exception to the rule with real estate where typically real estate are fixed fixed rate loans exactly yes so I'm paying on that big multi-million dollar building by the end I've sent refinance to Conventional but towards the end I was paying 11 and a quarter perc and my annual Debt Service was like an extra six figures it was over 100,000 more that I hadn't planned for that um you know had just was coming out of my bottom line so it was very very painful to have the real estate be under that variable rate I couldn't have done the deal otherwise I didn't have enough money to buy the real estate convention so it allowed me in but it was just a painful period when rates were going up and and then the refinancing how how did why were you able to pull that off later and was it as simple as that or what there must have been not R to that not easily I mean it took it took some doing and one of my lessons learned is um I would use a loone broker the next time um but the value of the real estate had appreciated over the three years and so I had more room to take out a conventional loan against and reduce the debt on the business and then that same lender offered a new business loan at a fixed rate and so in the total package um I was able to reduce my total debt service and refinance Rec you know all because the real estate had appreciated nicely in three years right so when you see that Equity buildup that gives you options but you shouldn't you listener shouldn't assume that will happen potentially that's right yeah okay and the earlier you said that you got comfortable with the concentration in the home construction Home Building Market you gotten comfortable with that and then I think I heard you say but actually now that I'm in it I'm a little uncomfortable with it what what is there to say there yeah so I mean it turns out thought I was right in trying to eliminate businesses that are totally beholden to this Market because the last year you we had Co Tailwinds I should say so you know that 3 million my first year turned into um 4.2 or so I mean significant growth the first year and then grew more almost to five million Revenue the second year which was 2022 so um we had great Co Tailwinds I was doing some things in the business but mostly I just inherited great processes and people and um you know I should say that the seller during his 25 years of ownership had done a lot of the things that we suggest you do to a um unsophisticated business he had digitized the drawings of for the machines and he had you know provide brought in a um kind of a business caliber accounting system and had processes and so I inherited all that and that was part of the value proposition and and paying a a high multiple um and so that was all great so I didn't have to do a lot to enjoy increasing revenues and um some nice Tailwinds from that perspective but now uh there was certainly a lot of struggles we had a lot of supply chain struggles and other struggles during those two years but in terms of Revenue it wasn't difficult uh but subsequently 2023 and you'll hear this from people in home services and and other related Industries to construction it's just been flat you know it's just been um people are on the sidelines waiting new home starts which is the best metric I have for my market are low you know are down and and flat because of interest rates and so there's just this waiting game that most people in this type of Industry are in waiting for things to pick up again and so that's been difficult so we did have we did go down about 10% % 10 12% in 23 from 2022 but you're still well above where you bought where the revenue was when you bought the business yes but there's the J curve to keep in mind so I'm also you know I've I made significant Investments I implemented health insurance which the company didn't have I'm investing in a new product developing a new product line um people were kind of were underpaid you know when I took over so I'm definitely in that jcurve trough and it doesn't help that revenue is flat when you're trying to to grow yeah yeah well it's funny what you said Mike about how um digitizing the business and some of that some of that uh those things that we often Searchers often will go in and do had already been done and you paid up for that uh where where some of the other stuff that's more expensive to do like health insurance and prop paying everybody he let he he let you tackle that one yeah pretty smart on his part so Mike you you Le let's just hear now kind of stepping back you were a guy who was in corporate for call it 20 plus years and now you bought this business what's it like maybe emotionally or the responsibility or you know what we hear that it's so it's so difficult and gritty dramatic to hold a small bu to own a small business and everyone underestimates that compared to the cushy corporate life so speak to to that was the the romance of this that you had been chasing when it made contact with reality did they agree or what for the most part yes I mean it's in a good way um I've right away felt tremendous satisfaction you know from ownership but I came into it from a very humble position you know no ego in other words coming in to learn not intending to make any drastic changes in the beginning and those first few months were really just a fire hose of learning all the details and getting to know the business and the industry um and then you know just doing a lot of listening getting to know the team uh and that kind of thing and that was hard I mean hard work but a lot of fun and kind of learning about this new baby of yours and all the little intricacies and I like details um you know I still I see all of for example the credit card transactions every day and I like to see oh this drywall guy in North Dakota bought this part so I like details and um and so learning them was fun but just very challenging and timec consuming there in the beginning um but this is a part of that I would advise a younger person um who's maybe interested in this pth uh if you're in a corporate en environment that offers leadership opportunities advocate for those even if maybe you're unsure that you want to be a leader because having a job as a manager with that level of mentorship and processes and an HR department I think is really useful and I think I benefited greatly from having senior leaders mentoring me and having the processes of a corporation so that now being in my own company I've seen everything in terms of what people you know all the people issues and how they're resolved and how you how you work through them in a big business culture and and those processes are not always the right thing for a small business but my comfort level was totally fine with managing people uh being a leader that kind of thing so that piece to me was smooth and fun and I would hope my team would say the same thing but um yeah so so that part of the transition was well oiled because of my corporate experience as a leader well such an important Point Mike because I think that is probably challenge number one for most Searchers is is the is the people piece you know these are people businesses and um it's messy and if you're inexperienced there or even if you are experienced there it can be very very challenging um and and what about the other theme that comes up so often going from corporate um office environment to a manufacturing environment which is going to have a different culture yeah I mean it's definitely a bluecollar business these are majority of the guys are turning wrenches or or welding and grinding all day and um I already liked the idea of that I worked some with people in Aerospace that were machinists and mechanics so um you know I can kind of relate reasonably well but there are certainly things that you have to tread lightly on um for example I do a monthly as a culture thing I implemented a monthly barbecue where we just do hot dogs and burgers and we hang out together in lunchroom for an hour but I I can't remember how I decided but um I felt it was important that it be on the clock because for somebody who's clocking in and out they want to be in control of their time time and to me I understood having been around people that punch a clock break times lunch times are are significant you know it's important to people that they're not beholden to the company during those those times so when we have our group meetings or our um you know lunch if it's a lunch and learn or our monthly barbecue it's on the clock because I don't want people to feel like resentful that I'm interrupting their personal time and that just is I think how a lot of um hourly workers might see it or I just want to be respectful of that yeah that's a that's such a great insight and by on the clock you mean they're being paid that's right even even if it's kind of ostensibly a chill session and everyone's just having having Burgers um they're being paid for that that's right any other or any challenges uh about about not specifically in the business supply chain issues or what have you but just going from middle man corporate middle manager to a small business owner or just smooth sailing all day long well other than the the business itself challenges that have been difficult at times supply chain and covid and stuff like that no the kind of personal cultural change has been totally great yeah it's the flexibility um you know the sense of satisfaction uh that has just been totally fine so yeah I mean and the evidence is Monday mornings I'm excited to get up and go to the shop yeah yeah for example and and Mike you know we we we've gotten a clear picture of you who somebody who is an engineer at heart uh could this business have been acquired by somebody who was not an engineer the the the the technical aspect of putting out a pro building a product um is it does it require your expertise in in you know natural talents or not I think it's a nice to have I don't think it was required I think that's one of the things that swayed the seller about my profile that I was the right buyer but one thing that I've learned and that I advise other people is whatever shortfall you have as long as you recognize what it is you can bring in Talent to to help you can always butress yourself with experts you know contractors that kind of thing and for certain engineering tasks tasks I do have um a couple of contract Engineers that support me for example so no I don't think it had to be an engineer but I think the owner the seller really liked that I was and I'm enjoying it that's where part of my satisfaction comes from is new product development and solving technical problems that kind of thing and so you have the expertise to actually contribute to new product development to read these plans I don't even know what they're they're not blueprints but the the plans and yeah whatever make suggestions and drawings and it's a more yeah how mechanically things work I I just like to dig into that kind of thing anyway um so for sure that's part of the fun the fun of it okay I want before we get off totally um yeah can we go back to the deal process for a moment yeah please um we're wrapping up here Mike so if there's anything oh good you you go okay so they say that there's all these at least a few things that are deal Killers that'll crop up and so part of what I didn't finish saying I guess is that the total process from Loi acceptance to close was about six months and that was not the intent the intent was to do it in about 3 months but after after Loi and initial due diligence got going the lender that I had chosen to go with um you know was all was going well and sort of out of the blue after about two and a half months just called me up and in fact I was on a plane and so it was a voicemail and said that this deal isn't going to work for us basically we're done and um so I did I was at your uh your lender webinar earlier oh great this exact point came up which is that is a risk of I won't name that lender but um all sounded good from the sales guy from the guy that tries to you know get the deals in the pipeline um and never gave me an indication that this wasn't going to work or that there was a lot of risk and so after two and a half months of all this work I had no lender and that could have easily killed the deal but but fortunately um by then I was almost at the end of the LOI period but but fortunately by that point I think that then the seller and I had developed enough of a relationship and mutual trust that he gave me some Grace to try and find um a better lender and that's what I had to do and was able ultimately to do that and I would I'll call out um Gulf Coast Bank uh they're a small business lender and Connie castelo was the was my banker who who made the deal happen so that was really what stretched it out was having to switch lenders Midstream um reset the process and so so so the takeaway is kind of first of all realize that the front-facing Folks at Banks who are out there with the SBA Loans and saying that they're can give you a loan are salespeople uh nothing wrong with that but they are they're bringing in deals they're not the ones they're not the the underwriters who are going to be really crunching the numbers and really really looking hard at your deal um so just recognize that Dynamic that they're not that they're not the decision maker and they're looking to hit quota or whatever whatever their incentive structure might be um again nothing wrong with it just it's it's not totally clear necessarily to the to the naive eye what what's going on there um and you want to is as early in the process of talking to a lender as you can really press to make sure that the people who will be the decision maker the underwriters the the underwriting folks um are gonna smile upon your deal yes and I think now in retrospect you know I started out on this process doing the advice which is talk to a bunch of Banks and so I talked to a bunch of regional banks in the Northwest and I got references from Brokers on what Bankers to talk to and that's a lot of work and they all want to see the deal and they all want to see your personal financial statement um and furthermore you don't know if they close a lot of SBA Loans without a lot of research so I think in retrospect one of my lessons learned W is that I would go ahead and use a broker the next time and just let that person's expertise and contacts uh let them shop the deal and me as a as a um you know as a risk or as the borrower around and then you at least have a partner to get you through with the bank and you do pay for that some I think some um sometimes you the bar borrower doesn't directly pay but but you can roll it into your deal your deal fee at the end the fee that the broker takes but I would definitely take advantage of that next time well and and to be clear the way it's usually positioned is that the bank that you ultimately go with is is compensating the brok er um now I guess there can be some argument about that eventually that that makes its way to U lender I mean excuse me U borrower and that ultimately you're eating that cost and it's kind of tucked in there somewhere but at least it's positioned as the banks pay not you you borrower right yeah that that is how it's positioned yeah yeah yeah yeah okay great thank you for that call out what else might be yeah yeah the second deal killer was um all around the note the seller note so the deal structure which we didn't finish was um that that that it would be like 80% financed All of My Equity from the condo sale would roll in as the cash and then the seller was going to have a seller note of um forget what it was roughly 12% of the deal that was all fine and agreed to months before we actually got to the issue which is the standby and so I my own naivity and um lack of communication from maybe the bank and the broker I don't know I don't blame anybody in particular but once the seller saw the actual wording of the standby feature which is that the bank decides when you can pay the seller note maybe after two years you can request to start making payments um he did just did not like that level of uncertainty he he I think trusted me that I was going to do everything I could to pay his note but um he didn't want a third party determining it and I think maybe also saw that um yes I'm the right person to take over but there is risk that something could happen and the business wouldn't do as well and the bank would say no you can't pay the seller note so we ended up having to do a late retrade to eliminate that in order to get to the finish line so I was able to um the deal would have died I think if if I hadn't been able to eliminate the seller note and again on the theme of finding a way and and finding good terms um we kind of split the difference where he accepted a slight reduction in the purchase price and I gave him a very nice um Consulting agreement for one year that kind of paid about half of what he was going to have loaned me so because the SBA allows the one-ear you know Consulting from the seller um he he didn't actually have to be around you know it was sort of a declining Consulting agreement where for the first few months it was a lot more and then it tailed off but that way we were able to overcome this issue uh that otherwise would have killed the deal great Mike and and to be clear on the full standby what that means is that you don't actually the a full standby seller note is you don't pay it uh until whenever it is two years five years right and you're so you're just you're just paying the bank back in those inter whatever that time period is and I guess the bank can decide then the bank determines when you pay can start or could pay the the seller note that was my yeah that's my understanding I'd be curious uh I haven't heard from very many sellers of actually how it works because once things are in motion it's kind of up to you to decide what to do but you do have to submit financials to the bank so it's in your best interest to be totally open with everything and um I don't actually know how it would have worked in terms of requesting to make those payments yeah okay anything else yeah if you want to talk just a few like kind of what would I what have I learned or or what would I do different sure um one small thing is uh the payoff date this almost was another deal killer but um we got to closing we picked a date at the end of a month at the end of March on a Monday because of a pay you know that was when the payroll period started and we thought that would be the cleanest almost the end of the quarter and the beginning of the payroll cycle and we signed everything and literally went to Escrow millions of dollars are sitting in escrow waiting to be dispersed and the lender on the building wouldn't accept the payoff because they only accept payoffs in the first 15 days of each month of the year so people blew all the attorneys were upset and people hadn't seen this before which subsequently I I've asked on um SMB Twitter and and I think Heather Anderson was like yeah that sometimes happen but and nobody in my deal had heard of this and so we were in limbo for two weeks while everything got redrafted we had to have the signing party all over again the seller at that point was taking a huge risk because I had taken over the business and I was the new owner but on paper you know he had not paid off his building loan yet anyway so we we had to redo everything we got through it but it was a huge hassle and and it's not something I've ever heard somebody talk about but make you understand the lending the selling Banks payoff date yeah great what a what a an irritating detail um another thing is the PG and the fact that again mid midlife person you've accumulated some Assets in our case some real estate and a feature of the personal guarantee is putting leans on anything that you own any real estate that you own your home and any other real estate but only if it's if you have more than 20 or 25% equity and subsequently I've learned that if you open a home equity line of credit even if you don't use it then the bank doesn't consider that as long as you go over their limit you know as long as there's not a lot of equity there then they won't put a lean on it which is um just a piece of paper but it prevents you from having flexibility you subsequently want to refinance a property or do Home Improvements or whatever you have to your bank Your Business Bank your SBA lender is now in a position on your property and that's a hassle so I would have taken out home equity lines on all on my home if if I had known that ahead of time sorry to be clear you take out the home equity loan to protect against the PBA lender being able to have a lean against your property yeah just because they they don't see enough equity there right to bother essentially right right okay because you so you kind of convert all that Equity to cash or to a loan to yourself it could be the line of credit as far as my understanding even if you don't access it it's just there's another bank in the way and they won't be third position oh that's quite a tip yeah so I don't know if that causes other problems but I know of other Searchers who have done that successfully and I might try that if I did that again ah wow okay great great at least to look into um yeah and another another point on the PG um you know the unlimited aspect of of the PG is something I intellectually got my mind around and got more comfortable with when I think think about um the fact that once you own the business you're completely in control of everything and two bad scenarios are one is that something happens you did your best but you the business fails that's one scenario another scenario is some kind of fraud where somebody builds up a bunch of cash and leaves the country whatever um the SBA quote un quote isn't a magic pot of money they're just backstopping the bank so when the actual lender gets all it can from that defaulted borrower now they turn to the SBA who makes them whole well those dollars are ours as taxpayers we're paying you know that's it's all probably only a few cents to each of us but intellectually that is how I kind of part of the way I got comfortable with saying okay this is the right thing to do because we as a community are backing one another uh through this SBA program which is wonderful and and makes the US the best place for entrepreneurs you know in the world and um and anyway so it's still uncomfortable in some ways but that's part of the way way I got comfortable with it interesting so so the back stop of the 75% that the SBA guarantees these Loans To The Lending Banks is the the giant American Community supporting it's our one another great great our tax dollars well that's a very wholesome perspective Mike thank you in this time of partisanship and exactly election cycle I like it all right um couple other things if you indulge going yeah so uh the last kind of major learning is uh you know we talk about it a lot in the space but the stress and responsibility was something I didn't foresee in other words the yeah it's you understand this is all on your shoulders but when you actually dayto day looking at your bank accounts looking at your receivables cash flow payrolls coming the bank payments coming um maybe somebody's late a customer is late and paying or whatever that really is more stressful than I realized it would be you know in terms of sleepless nights and thinking about okay well if by Friday this cash hasn't come in you know what am I going to do and always having a contingency plan is a way to to help with that but it is much more stressful than than I would have imagined and so that's something important and I'm a very relaxed person if you talk to any of my friends I think you would you would hear that from them that I'm very easygoing um but I would caution people that this path is very stressful at times and um that's just it's a lot of responsibility when you have this team of people depending on you to pay them so they can pay their rent and feed their families and and all of that type of thing well I'm glad you you mentioned it because because that was one of the things I was wondering about when I talked about how does it feel going from corporate to this um the the there's a psychological shift that occurs URS and it's certainly heavier on this side of things yeah exactly and I I think uh an important so Counterpoint to that is having advisers having people you can talk to you know it's another thing that you hear often is it's kind of a lonely and so um some kind of peer group I would highly recommend in my case the rice Alumni network uh sponsors MBA alumni peer groups of entrepreneurs and business owners and for me the joined one of those and that's a great um space you know to share these kind of stresses and provide each other advice and that kind of thing so I think that's really important and a lot of I know a lot of operators have said the same thing yeah absolutely you hear it uh routinely the the value of peer groups yeah yeah all right yeah sure um the last thing maybe is the kind of the acquiring minds community and how open and helpful people are um so for example Casey Clark who was a guest of yours he's the CEO of cultivate advisors sure early episode yeah early episode um after his appearance I reached out to them and ended up um signing up and I have a wonderful coach advisor slash um business adviser who who has helped us tremendously and I definitely recommend cultivate as a small business focused consultancy that um has really helped with our sales process implementing a new CRM um helping me with cash flow forecasting and a lot of other things so oh that's great that's that's great to hear Mike I I hadn't I know cultivate as a business itself is doing very successful is is very successful is growing a lot so great to hear that thank you for sharing that yeah my advisor is called Rudy and he's he's a superstar so that's been a wonderful relationship to have um and just a couple other couple other notes after Shane ome was on I think the first time um I reached out to him because I was going to be at a trailer our main product line is delivered on a trailer and he sells trailers and so we met at a industry event and he's a great guy and uh I actually owe him a followup because we might have some um ways that we could work together in the future but another cool little connection through the acquiring mindes uh ecosystem I love it Mike I love it I I I've said I said recently how I have this actually when we announced mind's Capital how we have this um that there are these connections that happen just like the ones you're describing that are kind of I'm completely unaware of but I hear that they happen uh and it and it sure makes me feel good and it's kind of exciting to think that they're that it's sparking these connections and um and and not and not just um kind of peer and friend connections which of course are valuable but also actual you know Commercial Business being done thanks thanks to acquiring wine so that's great exactly yeah are are you done Mike because I I still got I still got an it yeah those are my main items those are great thank you for bringing so much so so much preparation to this I really appreciate it um I only maybe I only have really I really only have one other thing that I'll close with which is what would you you are a little bit older than my typical guest you're just a few years older than me so we're we're similar there um what would you tell people who are mid-40s mid-career about this path talk to talk to them for a minute yeah I think that uh the main thing is it's not as risky as you might think think that seems to be the main hurdle holding people back uh if this is something a path that you think you would like to do then you should absolutely dive in and and explore it um I think a lot of us where I was getting to the point in my career I felt pretty trapped sort of in Aerospace like I don't know that my skills were getting transferable to to other places so it's almost like you feel penned in Hamm in uh as you get more experience and so the MBA was a step towards broadening myself and then I didn't even know that it was going to lead lead to Eta um and so yeah that that's the main thing is it's it's not as risky as you might perceive well one thing that I will say about uh the the value of doing it midcareer is what you said earlier that you have all this management experience and that's something that a 25-year-old or 30-year-old or even a 35-year-old might not have we hear commonly that vets and people coming out of the military are well positioned for this because the military trains them in precisely that leadership um but a a a a corporate or commercial career Private Industry career um doesn't necessarily or doesn't until later or doesn't as you said unless you you you raise your hand and you really you really reach for kind of management training and Leadership training as you did happily um so um so that that seems like it's been a great Advantage for for you um that if you had done this 15 years ago you wouldn't have had yeah absolutely management experience and just life experience you know a few gray hairs probably helps in the room with sellers with banks you know with with people you're trying to win over and convince um you can be the right Steady Hand to successfully lead this thing uh which isn't to say you have to have gray hair but I don't think it hurts for for this type of thing well we'll leave it there Mike day uh really really great interview congratulations on buying as and doing this pivot in your career and that it's going well not to say that it's been easy of course um but you seem pretty content and uh even though there's a bit of a lull in the industry at the moment I assume you feel that long-term prospects are consistent with your thesis yes absolutely def definitely excited about the future and Mike if people want to reach out uh is there a way that you like them to do that email LinkedIn sure LinkedIn is is the best way it's Michael Day Dey and just a reminder audience that if you choose to reach out to Mike please have done a lot of homework uh treat his time respectfully this is a community where people help each other but let's also make sure if we're asking for people's time that we are intelligent and respectful about doing so no uh just picking your brain uh come with some some some strong questions and some pointed questions for Mike if you want to get him on if you ask him to get on the phone Mike day thank you very much sir great interview appreciate it thank you very much will and thanks for everything you've done for the community I hope you enjoy that interview make sure you subscribe to the acquiring minds Channel below we are now publishing twice a week so tons of new interviews and stories to come stories that will help you along your own path to acquiring a business