Meredith and Michael schlinker welcome to acquiring minds thank you for having us you acquired as a couple an interesting White Collar remote business which we're going to spend quite a bit of time on as well as of course your story and in particular buying a business as a couple Meredith why don't you start us off please with some background and then Michael will go to you of course so I grew up here in Houston uh I went to school for finance and Commercial Real Estate finance and after graduating I spent about four and a half years in commercial real estate uh I enjoyed it a lot I learned a lot but after a while I kind of realized that it wasn't necessarily something that I wanted to do long term uh I loved the people but I felt kind of stagnant in what I was doing uh but I wasn't sure exactly what I wanted to do and at that point Michael had found the ETA space in and kind of introduced it to me and through multiple conversations we um decided to kind of go through this path so my background will is I'm an attorney uh went to law school and was practicing in private practice for several years uh doing transactions a lot of m&a financing that type similar really to the ETA space but frankly at kind of a bigger scale as you know traditional private Equity or Investment Banking type deals um within that realm I had discovered the Harvard uh Business review guide to buying a small business several years ago and read it and the concept really intrigued me primarily because I mean I was working hard on these big deals and seeing my clients get most of the benefit most of the payoff from closing a deal um and I wanted to replicate that process for myself and really kind of jump into the seat and be a principal in what I'm doing rather than just advising on someone else's work so I you know upon finding ETA And discussing the process with Meredith it really just seemed like an opportunity to jump into being a part of business rather than just advising others doing business well Michael it's interesting I've had more than one guest who come from private Equity typically as analysts or even maybe even Associates within private equity and seeing you know where the value collects in a deal and and typically their observation is sure with the PE Partners but also with the entrepreneur who's selling the business and and saying to themselves well gee that looks nice I'd like to be in that person's shoes so you were kind of one one step removed from that because you are a vendor of the private Equity um firms but may be sort of a similar similar thing although it sounds like as I recall from the preall you weren't being enticed by the sellers and entrepreneurs in these transactions but by the private Equity Partners or no yeah no that's that's generally correct I mean go ahead M I think look the entrepreneur the entrepreneurial aspect of it is certainly enticing as well as far as having a business growing it and getting it to the point where it's ready for sale and just deciding having a lot more flexibility what we're going to do with life after that point but I'm not a Founder at this point I don't have a particularly great vision of some revolutionary idea or service or even just a better way to do things than everyone else is already doing so I really like the idea of you know buy and build as far as just finding something that works finding a way to work it make it work better especially you know as is a common theme in this space looking for an entrepreneur who may be a little bit out of touch with the latest technological updates and who's really kind of looking to wind down their business and gearing to settle down off into retirement that's really kind of what we were looking for was just an opportunity to take something that already existed and keep on growing and building it but just one other thing about what kind of the influence of where you were working as an attorney was that you all as attorneys do uh charged really high fees or build really at really high rates and many of your the clients that could afford this work were private Equity shops and so you know connecting the dots you're like okay I guess there's a lot of money in private Equity sort of I me absolutely yeah I my my rates were astronomical I couldn't afford to hire myself so the fact that I see these firms you know hiring me not just for a couple hours here and there but working me around the clock constantly keeping me busy it makes you realize man the real value in this kind of ecosystem is in owning the business and having access to those cash flows and just being able to weather the expenses whatever they are yeah sure sure thing great and so uh after getting your hands on the books and being enticed by ETA and taking this idea to Meredith how old are the two of you at that time when we started talking about it yeah I was probably 28 and I guess Meredith would have been 24 or 25 okay 28 and 24 25 how old are you now now I'm 30 and Meredith is as of yesterday 27 27 okay happy birthday thank you all right um and you're doing this younger than my typical guest I'll have I'll have late 20s people on often but it usually it's people more in their 30s and and 40s I wonder if there's anything to say there um why do you think you guys had the confidence to do this early why do you think you got turned on to it earlier than than many of my guests I'm just I I I wonder what the if there's anything to learn from that yeah I mean I would say my confidence from pre-acquisition just the actual deal process of searching finding a deal and trying to tile the ends together to get a deal done my confidence was skyh high because of my work I mean I do basically these deals at higher levels of sophistication day and day out or I did in PR life totally um so I was very confident that if I found the right opportunity we could get a deal done assuming we could make the numbers work with our financing side and you know our Equity Equity down um and frankly Meredith comes from an entrepreneurial background in her family so I felt confident that once we acquired the business we could figure out how to get this thing operationally running and frankly improving very quickly darl let you jump in yeah my parents both own their own companies they're both real estate related so a residential brokerage firm and a commercial real estate development company so it's always been around and they've been very helpful since postacquisition um just dealing with managing and QuickBooks and all all the little things that come with operating so it definitely has been helpful to lean on them at times so amth on the one hand you're getting away from the family business of real estate because you were in real estate Finance you're stepping away from that on the other hand you're getting closer to the family Vibe of small business ownership um do you think that you were always destined to be a small business person owner entrepreneur I think I've always thought about it I don't know if I would have done it this early on I think I'm a little bit more risk averse than him so I think Michael definitely helped push me I think I might have done it you know maybe in 10 years or what it might it be but I think this early on my career I I wouldn't have necessarily done it myself well Michael I like what you say about you you know that when we think very very broadly crudely about the skill sets here are needed it's getting a deal done and operating getting a deal done gets a ton of the attention including on this podcast but we all should be aware and all recognize that of course that is but one step that's you know that's getting to the starting line forgive the cliche and then after that is really when all the hard work starts and to really be successful at that it's this it's almost more important to have the the operational chops to make a business go than it is to get a deal done although both are are necessary the getting the deal done and the financial aspects of that it's the most technical piece really um and the steepest learning curve at least it appears that way and therefore the most daunting and intimidating so surely yeah you coming from an environment where you're doing that for bigger deals for and you had a couple years of experience at this point um that was a big Advantage yeah absolutely I would say you know thinking about it I think attorneys make great business buyers from that perspective in that they're very much masters of process and able to get deals done I'll say most attorneys you talk to probably don't make great business buyers from the perspective of not being too risk averse um and I think that's probably where I differ from your traditional attorney profile is I'm I wouldn't call myself risk-seeking but maybe risk premium seeking if I can find a good deal I'm willing to bet on myself to try and make it work any anything to say about that Michael why you have that that little quirk in your personality that most attorneys don't which I have also observed uh you know honestly it's a family thing I would say mama raised a Gambling Man I uh I grew up playing you know Texas hold on poker games of All Sorts with my family most of my life and it's really I found that if I want to win anything whether it's a game small or big or you know a race a competition in life I need to play and I need to be willing to risk loss well we we understand all that Michael so iess I guess the better question is how did an entrepreneur end up as a loyer not how did a lawyer end up as an entrepreneur well yeah I'll say I mean I graduated with a bachelor's in psychology didn't quite know what my next step was at that point and found law school was an easy path to at least kind of keep the wheels turning and start working towards something I knew that it would bring me I suppose credibility uh with whatever my next step ended up being and in this case my next step ended up being going to business owners and talking to them about why we would make the best stewards for you know taking their business over and bringing it to the next level and I think having a legal background brings a lot of credibility that there's a level of professionalism some other small business buyers might not have at the surface totally totally so valuable although it is funny that you did the old I got this useless Humanities degree now what do I do Ian useless in the job market but Psych the psychology aspects have been very helpful to me really in everything I do I mean yeah all right so before we get into what the search looked like the perameters ETC how Meredith did Michael finally convince you how did how did he how did he get you over the hump it definitely took a lot of conversations I think what finally convinced me when I started looking with him at the different businesses for sale and kind of picture myself in those roles I think that really sent me over the edge where I you know thought about it a lot more and I was still not happy with where I was at so I think just imagin yourself in those sh steps and talking about it and knowing that I had him and my family as support I think really helped me so you were being pushed in the sense that you wanted to change and you were being pulled eventually by the sense that you actually did what a lot have the experience that a lot of us do which is you browse listings of businesses for sale and you kind of start fantasizing a little bit oh that seems like that'd be fun to run that business sort of thing so it kind of right wet your appetite a little bit exactly okay and and Mom and Dad were supportive because they're small business people yes very supportive they're actually were were they excited by this or were they like well how what was their reaction yeah they they were very excited about it they were very proud of us for doing it especially at this young of an age and uh we're excited about the possibilities of what we could grow this business to they and they we can get into it later but this business is great because you know anyone can be our client so there's lots of potential for growth so yeah that was exciting just from my perspective on her parents I mean they they were excited but pretty hands-off as far as letting us lead the show I mean this is you know our deal front to back but you know we've had a lot of fun with it we've really been enjoying the stewardship of the business and kind of operationally running the thing now they're talking to us about like how they want to get a deal done they want to see what it looks like to potentially buy other businesses interesting at and they're what in their 50s they're in their 60s actually 60s early 60s I know I love it not the typical buyer profile no but um but no no reason why they can't be successful in then some with all the experience they already have great yeah we'll see well if they do it you know connect me put them on here all right guys so what what was your search G to look like parameters share share share the process and the plan yeah sure so the biggest specific thing that we had in our search was a geographic constraint on Houston Texas I moved here a few years ago um and have loved the city City Meredith's from here has lived here most of her life other than college and frankly we had been lobbying my parents for years to move down here as well and we got them here so if we had found another business and moved away right as i' convinced my parents to move here that wouldn't have been a great look um you know we're trying to settle some Roots down and really build a family so that's a tough constraint obviously because when you're just looking in one market the pickings are a lot Slimmer than if you're able to look Statewide or Nationwide certainly beyond that we were a self-funded search so there were some size constraints but we had a pretty good amount of flexibility there and we've been working with a loan broker actually Matias Smith I think who advertised with you I'll give shout out to him he's a fantastic job at his work anyone in this space really should go work with him and find the best loan financing opportunities they can awesome for the audience I did not know that you guys used Mias so that's great this is not uh a plug sometimes we do plug him but this time is it's not at all go ahead no it's authentic can't speak highly enough of great guy great um so we had a pretty good idea of what we could afford just between we were self-funded uh so we didn't raise outside Equity at all so we knew what our Equity down payment stretch was we knew approximately how much financing we could get and we were looking potentially at seller debt um other than that I mean it was really your typical search or profile search right enduringly profitable uh not a lot of swings just given the nature of the timing we were searching we were aware that every business that's in existence had to deal with covid some businesses were more heavily impacted by that than others but we kind of had to Discount you know 2020 21 a little bit in that analysis but I would say those are kind of the big picture parameters parameters of our search I don't know if you anything to add you were this is 2022 now that you're searching yeah we had started searching in 2022 I'll say I was working full-time while I was searching which is a little unusual um so I was kind of searching part-time mostly looking at broker deals for that reason were you going to add anything to the parameters actually I know I recall from a preall you did have one that was pretty strict yeah I wanted a business that I could easily wrap my head around uh I think there was some businesses I feel like home services is one of the biggest businesses that people got into and I just didn't think that me as a 26 27 year old um woman could I mean I think it would take time to learn a lot about the particulars of Home Services and so we ended up purchasing a B2B business and I think that was something that we both were more comfortable feeling like we could learn and grow it pretty easily I I want to press you on that I mean people buy a plumbing business they don't expect to learn Plumbing or is it maybe that like a trades business and going from White Collar to Blue Collar being a young woman was it that thing that aspect yeah I it I I think it was I think I felt more comfortable in this businessto business kind of White Collar environment that we both came from and felt like I knew kind of how how in general they run and how I could potentially grow it and I think that I could wrap my head around that better than the more blue color well that narrowed your search further because trades blueco collar businesses are way more easy to find way easier to find which is why some researchers guests on acquiring minds are usually buying are buying those businesses um so at this point you're your your search criteria is pretty tight white collar Houston based I would say so now I'll say if if I found a perfect opportunity that was blue color I might have spent more time trying to convince Meredith to broaden that aspect yeah but yeah thankfully we ended up finding something that really ticked all of our boxes yeah and I'm eager to get to it because I I really like your business um and Michael can you give me a little bit more visibility or specificity on your numbers when you said what you could afford Etc yeah I mean without getting super specific we had planned for you know a down payment Equity injection at the start of no more than around 300,000 okay um we ended up going with the number lower than that which thankfully we wanted to preserve liquidity as well you know obviously ly no one can predict the future and having an adequate amount of cash Reserve or liquid Securities in reserve available to whether whatever storm may come was important to us so we didn't want to stretch ourselves too thin sure you were but you're prepared to go up to 300 which would mean very crudely potentially as much as call it a $3 million business with transaction costs probably less than that but let's say crudely 10% big picture that was kind of the top range of what we were potentially looking at and so 3 million if we assume 20% margins uh is a um 600,000 if you assume 5x if you if you assume it trades for 5x is that what you're assuming well sorry 20% Mar yeah yeah I'm sorry yeah 3 million is the purchase price not the revenue you're right although they're often they're often quite close exactly yeah so a so let's say 7 call it 750 um that would trade for something like 4X um which would be nice that's actually that's actually kind of the ideal and and that's actually the ideal but typically at that range people think they're going to get have to have some investor infusion or some investor Equity there so so three 300,000 starting point is is pretty pretty good uh and nice that you didn't even have to use all of that because now you're you're liquid what was the plan in terms of division of labor who works in what when Etc so yeah so the timing worked out kind of interesting I was actually in the process of switching jobs when we finally kind of found our Target got under Loi it was funny I we signed Loi and I think the same week I submitted my resignation from private practice I was switching to another firm but it gave me a couple of months off to really focus on driving the deal home which was just worked out perfectly for us but our plan going in was really as we kind of previewed for me to run the operational aspects of getting the deal done for Meredith to be involved in all of that and start seeing and learning how the business works and then for her to take the lead operationally day-to-day post closing and I'm really here kind of to help with big picture concerns or if there are specific legal aspects to weigh in all right so you were going to be the deal guy and and Meredith was going to be the operator I'm simplifying obviously you guys were going to be working on everything together but that was kind of the the the division of labor Michael are you do you ever see yourself stepping off of the legal track or are you going to remain a full-time attorney indefinitely I obviously you're going to have a hard time saying wh what's the long-term plan for you Michael I would love to be in a place down the line where whether it's building background connect to a larger to a larger organization I'm involved or whether it's starting a hold Co and trying to find another acquisition or potentially even multiple and really partnering with other operators um I see ETA really this kind of space as my future uh for now though I enjoy being an attorney I work for the government now without getting into too many details I'm kind of the stability and the risk aversion that Meredith sought through our process uh so you know I don't expect to ever give up my law license but I do anticipate that 10 years from now I will not be a full-time attorney MTH anything to add no I mean I think that he's very excited about this space and I think that he's only going to be happy long term if he does something himself whether it's helping me with the background connect growth or if it's doing another deal and operating or doing a hold Co like he said so I think that would be his plan so so the vision is do this first deal wrap your arms around it get it stable grow it and then probably either expand it as maybe maybe this business be just has so much growth in it that you just continue with that but if not it becomes more of a cash cow you buy second business and you basically are kind of starting to build a bit of a family Empire and Michael eventually you turn your full attention to this Empire building but for now as you transition into this Empire Building you uh are D are our your W2 is providing security and and safety net right absolutely and to be fair it's meaningful work I do at my W2 that I really enjoy okay and anything to say about searching together were you just both kind of talk I mean how did that work were you both on bis byell or did you have a list of local Houston Brokers and Michael you call this half I'll call the other half what what did that look like was the mechanics a little bit we were both browsing listings from bis byell as well as you know a few of the other online brokerage listings especially those with a focus on Houston and this area around Texas I would say most of the time I would be approaching Brokers signing ndas getting Sims reviewing things and if I found a deal that looked like it pass the STi test I would bring it to Meredith and we'd kind of sit down and discuss it over dinner did you guys ever disagree on a business yeah I would say so I mean there's one in particular I think that was um it was a franchise retail actually that Meredith was interested in the substance of it was um what was that a spa uh and it seemed like an interesting opportunity Meredith was interested in the substance of it but as we kind of drilled down into it I was concerned that a it was a little bit further away from us than we would have liked uh a little bit of a hike given the geographic constraints we already discussed we weren't going to be moving for the business um and then B just not only the managerial aspects but managing retail employ employees I think is something that can be difficult you're nodding Meredith but there was something you liked about this opportunity I think that I liked how the franchise offered support this was our first deal we young I think I liked how I could lean on that and similar to the deal that we ended up doing with the seller being involved still I think that offered support as well that made me feel more comfortable in going further well spas or Med Spas at least are hot or at least they were I don't know if they still are but that was that is an area of of like activity um absolutely yeah before we move into hearing about the business that you uh I guess agreed on and went forward with um you had mentioned just offhandedly building a family Michael you you convince your parents to move to Houston Meredith your parents are already there you're from there um so is there a timing is there for maybe other couples listening is there some sort of like did you want to do this before you got serious about building a family sort of thing if you know what I mean like kids are in the future but was this like we got to do this now sort of sort of kids are in our future for sure I think you know timing on that is still TBD I don't think we felt pressed to get the deal done before we were ready to have kids but you know we were looking before we were ready to have kids and we found obviously the business that we ended up acquiring and liked it went after it I'll say that's something we're still thinking about today is I mean okay now that we've got this business Meredith particularly given Meredith as the operator uh what does you know that process of actually having children look like when she's going to need to take some time off I'm in the throws of that uh myself it's it's always a tricky one well congratulations well thank you thank you sir okay so let's here about background connect enough teasing so background connect uh we're a pre- and post employment screening company so our brand butter is background checks we also offer 52 different services so our most popular are drug screens verifications Occupational Health screens motor vehicle records so any any screening that a company wants to do for a potential employee we can help them with that so most people will understand this but just to be clear an employer wants to hire somebody but one of the steps is to do a background check on that person right and is that is that basically something that all employers do for all hiring or not all employers for all hiring it just depends no I mean it's up to an employer what they want to do we we advise that they do a standard for this role if one person's getting a background check then you should do that for anyone who's in this role but it's it's completely up to the employers what they want to do if they just want to do a standard background check or if they want to add on drug screens or anything else that they might want for that particular role well just to so so just to wrap up so employers hire people and they at their discretion choose to do background checks and as you said it's not background check or no background check there's there's a suite of checking you can choose from and sort of you all offer that Alla cart so they can you can do the standard and then plus this xyzabc sort of thing right uh and and then you all run so they Outsource that step in their hiring process to you you do these background checks and we'll get into the numbers here in a minute we don't need to go there just yet but this is a volume business you're doing a lot of these a day actually you're at least the number of orders you're receiving per day is in the dozens sometimes yes absolutely yep okay you going to say Michael oh I I was just going to add on I mean like meridi said not every employer does background checks for every employee we really recommend especially for any employee who's going to be critical to the operations of an organization that it's important to add a very minimum do a cursory background check and make sure that they're not convicted felon don't have specific issues that are going to cause concern some Industries are regulated in respects that you know for Dots most most people who are driving around interstate ways are required to get physicals we can help with a lot of that type of issues um and then frankly in some Industries it's the norm for companies to require their vendors or suppliers to background check their employees so it really it's it's an IND industry specific ecosystem analysis of whether companies are performing these background checks but they're more or less always recommended so you know who you're getting into business with and then so as we consider quality of Revenue in the business like in a business like this it's not it's not the highest quality where it's some sort of contracted recurring Revenue but you're seeing a imagine a ton of repeat business from these same employers who whenever they hire somebody they basically send you guys an order as long as you continue to deliver them service they'll continue to come back so tons huge quantities of repeat business so pretty high quality Revenue you might say absolutely yeah it's not contracted recurring but it is just reoccurring naturally so to speak and some of our clients have processes where you if they have a bunch of employees that work with children they'll redo it every year even if it's it they're still working for the company it's not just when they're applying for the job so we have that reoccurring we do motor vehicle records once a year for a lot of our clients as well a lot of our Trucking clients so we don't have contracts like Michael said but it's nice because a lot of our clients will have reoccurring outside of just the normal hiring process so you may not have this at your fingertips but if you had to say roughly what percentage of your orders are coming from clients you've already served almost all of our uh our clients are reoccurring yeah we have a few that will maybe do four a year but for the most part you we get a good amount almost all of our clients will do something each month wow so every order that comes in the Dozen that come in today you will have already have those are going to be all existing clients or clients that you've worked with before correct great okay and so this is one of these like how big is this market now obviously there's a lot of hiring that goes on in a country of our size but you're also serving the local market as I know from the preall so hard it would be hard for me to to pin how big a comp how big a company something like this could be tell us the numbers of this particular business please yeah I mean we can do everything remote which is amazing so we have clients all over the the country and some that we do International screens for so it's really a huge market and we're able to serve a lot of different Industries we do not only do we do pre-employment but we help nonprofit organizations with volunteers uh screening volunteers and there's a lot of there's some people who want to do it on a potential business partner uh so there's a lot of different ways that someone might want a background check or a drug screen or whatever it might be so yeah it's pretty good Market sorry when we purchased that grand connect it was doing just under half a million in cash flow or EIT um Revenue was almost double that so tick under a million and then our purchase price for your context was between three to three and a half times that cash flow number and I as Meredith kind of alluded to this is not a large organization within the industry I mean there's a lot of room for growth this is really a drop in the bucket how many employees so we have two employees as well as as we'll get into the seller has kind of done an extended transition period with us so between the seller and two employees we've got three other bodies working with us with us on this and but Michael you're not full-time in it you're not you're not even you're correct B you're supporting Meredith so you don't count as basically zero hours Meredith you're full-time the seller continues to be involved and two other people so four people are generating a million and a half excuse me a million dollars in Revenue $250,000 ahead head and before you got there Meredith was it just three people was it just the seller and these two employees yes so 300,000 plus per head that's uh that's a lot of Revenue per employee but I mean another way to look at this is the margins right so 50% margins uh net margins so what's not to like um when I said the thing about the local market that was I'm jumping ahead a little bit here but we had talked a little bit about the kind of acquiring more of these and in in other geographies and Michael you'd made the point that there is the relationships really matter here so and many of your customers in fact are are local to you or localish to you and so buying a background check a a background check company in Maine isn't as trivial as that because some local background cheack company up there is probably going to have local relationships that you coming in from far away that going to be a little a little dicey um so so that's why I was saying the point about a lot of these being local customers but respond to all of that yeah absolutely I mean as we've mentioned we can service customers anywhere in the country and I think right on one-off cases we can even handle inter International searches as well but beyond that the way that we're acquiring customers and the way that the industry really runs especially kind of at the level we're working at is customer satisfaction customer relationships and customer service so being local being able to go out into the industry talk to HR folks talk to organizations around Houston for now and get in front of them and explain to them why it's so important to be doing these searches what the benefits what the value it brings to their organizations are and why they should be working with someone who's responsive and able to handle any issues that may come up in their processes is important um so for us frankly we found that getting in front of people and being real humans is one of our competitive advantages uh if we went and bought a background check company in Maine assuming we kept an outpost office there sure we could do that and keep relationships there but then we'd be spreading our attention between people in Houston and Main as opposed to if we went to Austin or Dallas for example it' be much easier for us to take a bus over there and stay there for a day or two and talk to people and now is this but is this an industry where there are a lot of background check companies is is are all employers using third parties to do these background checks or do some companies do it in house or I mean i' I'll say other than Checker the big startup YC startup that I remember was a big deal and may still be a few years ago um out of Silicon Valley I wasn't even aware of this as like a category of business so is this like there's 20 of these in every city and I just didn't realize it or what what is what does the the lay of the land look like in terms of actual businesses devoted to this service I don't think there's 20 in every city that would be a lot I think for example in Houston I don't know off the top but I would guess four or five yeah and mostly smaller shops there are a few really big organizations within the industry uh those look like Checker or higher right is another big one Higher right okay and you know they tend to service larger organizations where you've just got massive volumes and they're doing kind of lower price and probably frankly lower intensivity review into each search um well I I recall um a colleague who may or may not have been on this podcast who worked for Uber and uh while Uber was growing Uber had a an insatiable demand for some sort of background checking you need to background check all your drivers um so they were industrial scale needs of background checking probably something where they turned to Checker or some or you know Powerhouse like that yours is going to be you know classic sort of Boutique service versus industrial scale service absolutely yes when I got off our preall and was so enthusiastic about your business and searched around the DC area for businesses like this I didn't spend a lot of time on it uh maybe my Search terms were wrong but all I could find were fingerprinting businesses like where you go in yeah I guess and I'm you know I'm near the federal government so I don't know if that's common or that's something you know specific to the DC area but I couldn't even find what looked like an equivalent to your business I was also searching Google Maps and since yours a sort of a virtual business maybe I should have maybe there there isn't an office um anyway react to that what are these fingerprinting businesses is it tangential to your business is that a service line that you do offer or could offer and then why did I have a hard time finding a business like background connect in the DC area my initial guess as far as why you're having trouble in the DC area and why they're focused on fingerprints there is it probably does relate to the federal government and all the Government Contracting that's going on up there and the needing to be sure that I know for security clearances you've got to have fingerprints done I don't know the specific nuances of that there is a pretty good amount of overlap in our industry of background checks with personal investigation uh and know of a few agencies that do both like Pi Services private investigation as well as background checks so they kind of do the whole shebang but that's less focused on employment aspects that's more focused on what clearance well potentially security clearances or you know if you've got a cheating significant other or someone you think may be cheating if you've got personal situations that you'd like investigate further or you know if your daughter is dating a new guy and you want to know if he's a good guy or a bad guy if he's got anything on his record you might go to one of those outfits right right sorry but you said that personal investigation in fingerprinting is there's an adjacency there is that what you said I think so yeah I think because you can search with fingerprints you can search if any you know if that person's basically been arrested and any jail organization has uploaded their fingerprints has fingerprinted them and uploaded that to their files anything to add on that yeah I think fingerprinting is we don't currently offer it I think it's a additional service that would be for like Michael said a higher clearance or something more secure that you need um for whatever reason and it might not necessarily be for employment so it is something that we could get into but I don't think that it's something that we're really looking at at the moment okay and and how old is background connect your business it's 10 years old and is there anything to learn about the market from the origin story your seller the founder what did they how did they do this 10 years ago was there a did they perceive a gap in the market maybe a gap that still exists for example like this is this is again I'm just kind of trying to um decide if this is something people should be looking at in their markets these types of businesses I mean because I'm so enthusiastic about it yeah yeah absolutely so I think the seller as far as he's described to us us really noticed that there was a gap in the market as far as these so background connect is what's called a consumer reporting agency it's significantly regulated under federal law especially the Fair Credit Reporting Act or fukra um so you've got to make sure everything you're doing is in compliance with that our seller had some exposure to the area and realized that the existing consumer reporting agencies in the market were not as customer service oriented as most busines to- Business Service organizations could be and probably should be and with his background he felt confident that if he could learn how to operationally handle these reports he could handle it in a customer service oriented Manner and really you know keep these organizations happy help them smooth out their hiring and review and compliance processes and get things done fast and cost in a cost-efficient manner speed you just just mentioned so let let's let's get more into the weeds of the actual Service delivery here tell us more about speed the the you get an order and what do you have to then go do obviously depends on what they've ordered but give us kind of a an average order and how quickly do you have to turn it around and what are you doing on the back end what is a background check exactly yes so as far as timing goes if it's just a background ground check then we can typically turn it around in one to two days it depends we look criminal records are all in a county level or almost all of them are in the county level so we're looking at each County that this person has lived in and seeing if there's any records in each of these counties timing depends on the counties so there's some counties that are in more rural areas that might take a little bit longer there's some that even aren't even digitalized records so they have to manually pull records um but for the most part it's pretty digitized it's pretty fast and we can get it turned around within a day or two if you're going to do drug screening or verifications that's going to take a little bit longer because the applicant needs to go perform the drug screen that could take a day or two um or three and then verifications it depends on how fast the applicant gets back to us to verify that they graduated from this school or worked at this company MH and on the background checking where you're going to all these counties so you first figure out where they've lived there's a record of that somewhere and then you go county by county and you go to their websites or something in the case where it is digitized which is going to be most cases and you're manually plugging in their name sort of thing and and into the County website to see if anything comes back and assembling that into a report yes so we get their social security number and that's able to give us an address Trace so we can see everywhere they've ever lived and then we add each of those counties to the report and as you said we go online a lot of it is public information and we type in their name it depends on the county some of them you can put in your datea their date of birth to be able to report any any case any charge you need two verifying information so date of birth and middle is their most common one but we're also able some of the records we'll have where they were living at the time so we're able to confirm that with address trace and yeah we go from there we just look online and get that information and some of it is not online some of it we have to use vendors to help us gather that information and that can take time but for the most part we're able to find it online and you mean so for some rural County you might have this vendor means a person on the ground in that county who will go physically check for you correct mhm interesting and all of the digital aspects of this feel wrote like it's it's a process and you just kind of you know social list of counties they've lived in County website check County website check County website check assemble into a report um feels very automatable you know where I'm going with this uh feels like the sort of thing that AI or Tech is is is bound to disrupt how how did you guys get comfortable with that how do you think about that I will say from a as I kind of previewed from a compliance perspective you're required to have an individual actually go do this investigation and confirm this information uh the Fair Credit Reporting Act and other state law on this matter provides a lot of Consumer Protections and for good reason I mean we're talking about people's employment their livelihood their ability to create a living and support themselves and their Ames it's important that you don't want a bunch of false positives showing up on reports so what can happen a lot if you're not careful is you've got a 100,000 John Smiths across the country um and a lot of them have lived in the same place or been in the same place at the same time if you start reporting issues for this John Smith when it's John A Smith when it's John B Smith who's applying for the job you're going to run into issues with The Fair Credit Reporting Act with fukra very quickly um there are aspects of state law that are both always evolving you know you've got to keep your eye on and keep track of as well as just jurisdictional issues that depend on the facts of the time for example we've got people now who are applying to jobs with Employers bced in Louisiana but the applicant lives in California and would be working remotely from California does California state law apply we've got to go figure that out because frankly California as you would expect has a number of Consumer Protections above and beyond fukra that Louisiana doesn't apply um so there's a regulatory overlay and then frankly as I mentioned it's a customer service issue when we've talked to customers in the industry who have used these bigger uh bigger vendors such as Checkers such as higher we've noticed while they're able to handle large volumes the customer service they're getting is not topnotch especially on a per report basis um so for organizations that are smaller that are growing that need to make sure that they're collecting and cultivating the right group of people the right team but need to be able to do that fast we're able to jump in and handle it and like I said you need to have an actual human handling these reports in order to ensure you're complying and to ensure you're really doing a thorough investigation and you believe that that will remain the case for the in indefinite future that as everything be moves to AI the regulations won't soften with respect to that I don't think they'll soften I think they may even strengthen to some extent if I had to guess but you know I guess time will tell well you're also touching on something I wanted to ask so we'll do this now the like you said this is this is we're we don't want to treat the people who whose backgrounds are being checked as Commodities and just orders in in a database that need to be processed this is really sensitive for folks for people um so there isn't there is is there an element of this that at times presses against I don't want to say your ethics that's too strong but that you that not everybody might be comfortable with with with a a business like this or a process like this we all understand the background checks it's not like they're it's not like to your point before it's not like this is pi these this is a personal investigation business which feels way closer to aign but it still may feel a little bit like an enabling of something that if we if we are on the other side of it um would make us uncomfortable did you guys feel that at all am I overstating it how do you respond yeah so I I mean that was certainly something we looked at and a concern we considered but frankly you've got to look at it the situation holistically if a given applicant employee has a criminal past or a criminal record a history there we don't want them not to be employed but at the same time we can't just Overlook that history in determining whether they're suitable for a given job um I mean if you had a daycare and they weren't running background checks on their employee applicants and you found out that the people watching after your children were you know let's say a convicted murderer would you feel happy or safe or would you trust that daycare going forward I think the answer has to be no so really you've got to look at it as these organizations need to get the best information they can in order to get the best people and the right people in to do the job that they're performing and what that is what those qualifications are are going to differ job to job if you are if you have a violent criminal path you're probably not going to be in a great position to be working with children going forward and is it perfect it's not a perfect world it kind of is what it is but if someone finds thems in that situation we've got to look to our justice system and hope that that person was at least involved and culpable in whatever LED them to being there yeah or someone who's operating heavy machinery it might be a good idea to do random drug testing every once in a while so you are comfortable and no one gets hurt I also want to note that we're not making the decisions if someone needs to be hired or not we are just giving them this report of facts and they get to decide as the employer if they're going to hire this person yep great guys so going back to the service delivery and the speed and the volume we mentioned before that this is a high volume business we mentioned before that there's only four people there so walk me through an order first of all what is the average order size give or take um I would say about $120 and that would include a background check and probably one other screen whether it's a drug screen or a verification or MVR but included in that 120 yes okay so the the typical just criminal is about 60 to 80 a person depending on how many counties that they lived in so we charged Per County um once you get past the county that they already live in which is included in our basic package then we charge per County after that so it's linearly correlated with the amount of additional work you need to do is is what you're charging the so let's do some quick math call it a million dollar a year business million dollars a year is $3,000 a day roughly $3,000 a day $120 average order value is what 25ish 25 orders um give less than 30 more than 25 um so you're doing and there's eight hours in the day and there four of you so how so I mean that just seems like a lot to be doing um every day I guess it's my point uh is it a mad scramble or is it comfortable or is it talk to us about the fact that this is like a high volume business is that something you've ended up liking or does it feel always like you're putting out a fire sort of thing or or under the gun to deliver you know the next and the next and the next and the next and the next yeah it depends some days are slower than others obviously I think it is interesting when you don't know in the morning what that day is going to hold because you can't predict I mean sometimes our clients will let us know ahead of time if they're going to put in a lot of orders but for the most part you can't predict so it is interesting at times we we've gotten pretty good about being efficient and some of that 120 is you know a drug screen well the applicant will schedule their own drug screen and we'll see the time period that they're allowed to go in to take the drug screen and we'll get the results automatically and put it in so it's not a bunch of work there uh for verifications we have the applicants send us materials that will verify that they worked at this company or graduated from this University so it's not that much work and for the backgrounds themselves since we're doing it so often we've gone pretty efficient with it but you're not using for example overseas overseas folks to do this because it sounds like a lot of the work could be done is done via the web classic sort of you know call center in the Philippines doing this work no no we're not currently maybe that's something that we'll think about in the future but not right now okay you mentioned the seller being in the business how's that going what's that like it's been good uh like I said I that definitely made me feel more comfortable in pursuing this company knowing that we had someone who has been doing this for 10 years who could take his time teaching us so we're aware of all the nuances and so that's been great there's definitely some Growing Pains of stepping on toes sometimes um just he has a certain way he's always done things and we're making changes but for the most part he's been very receptive to everything that we've done we've made a lot of technological changes so um he's been very impressed with all of that he he wasn't necessarily able to make those changes himself so he's excited about because he's not as Tech forward as you as you all yes okay all right so there was even though this is just a very process oriented what every business is process oriented but this is very kind of like even maybe even much more so um every order looks and feels very similar even though that's the the nature of this business he hadn't dialed in a pretty Tech forward kind of automated where he could or or Tech efficiencies where he could so that no no I think he was comfortable with where he was at he was getting reoccurring business he he didn't want to take theis risk of making a lot of changes when he was nearing retirement so he knew that there was definitely improvements that could be made but he wasn't necessarily willing to make those before he sold and when you've had stepping on toes moments how how have you handled that Meredith it's been mainly when it comes to managing our employees he's used to saying hey do this do that and I've been having to sit down with him and be like hey I would like to talk to our employees and be the the point person moving forward and and also with our clients I I'd like to be the person that they talk to in this transition I want them to feel comfortable with me running the show they're used to him so that has been a particular I think that's something that was nice that he's involved still is because our clients even when we initially told told everyone that we had made this change a lot of our clients were a little bit weary about it and he was able to get on the phone and and comfort them so I thought it was interesting because I wouldn't have expected it to be as much of a I guess push back like they I didn't think that they would care as much yeah as they did um so it's been good to have him for relationships and uh sales but I think the managerial aspects have been what we've been having to kind of figure out through time chain of command sort of stuff yes okay yep well this thing about clients actually caring more than everyone thought when they learned the business was sold that goes again to the point about buying one of these in some far-flung geography is easier said than done sounds so so it sounds really like the the clients because I just Envision you know clients just send you once they've gotten comfortable with background connect they just email you over an order or maybe you have some portal they just you know right it's almost like you know um self-serve buying something on Amazon like background check please sort of thing pay with my credit card or whatever it is um but no it sounds like there's actually that that human touch is still something that all your clients expect or some of your clients expect yeah yeah I might jump in here just to add I mean that's all true and I think the reason that's all true especially is because of the downside situations if we send a report to a client that says hey this person that you're looking at hiring this applicant has this history you should be aware of and the client determines they would like to not hire that person anymore because of that history like I mentioned you know it's a common theme there are a bunch of aspects of federal and potentially state law that need to be applied um and frankly the client the companies the hirers need to know that you as the consumer reporting agency are doing everything by the books have ensured complete compliance with the law and that they're able to make the decision not to hire this person fairly in accordance with law and just to minimize the risk that they're going to get sued or anyone involved is going to get sued you've got to be able to handle these applicants and talk to them about what was in their report ah I think our selling point of having really good customer service also ties into that so these we we're mainly dealing with human resources people so these people are very comfortable with calling us to ask us questions or to get more information about things and so I think that is what ties into them feeling a little bit unsure when there was a chain of command change um because they were used to talking to the seller and having that relationship I think it also depends there's some clients who were referred to us and depending on their personalities might not be calling us as much or have the personal connection so they might be what you were saying of just s putting in the orders and waiting for the results to get back but others are a little bit more Hands-On and want to talk to you about certain things so it really depends growth uh obviously it's getting more clients as it always is um but how do you envision doing so so we've got natural Outreach uh you know Word of Mouth we really encourage our clients to talk to other organizations they're aware of that might need help with dis regards or anyone else who either has a service provider they're not happy with or doesn't have a service provider and needs to look into doing these background check services or employment screening services um We are continuing to build an online presence which was pretty close to non-existent when we acquired the business um and frankly we're starting to go out into our local market in the Houston area and attend events especially related to the HR industry and just talk to people get the name out there um longer term I think we'd love to hire specific sales staff to help with this but right now we're kind of figuring out as we go anything to add I I think the only thing to add is there's we've thought about maybe going into different Industries so we're thinking credit checks for apartments could be a huge Market that we could get into so I think there's there's lots of opportunity whether it's number of clients but also range of services but credit checks that is isn't that fully automated I mean isn't that just a log into Experian or whatever and pay a flat fee and I get the person's credit report sort of thing yes but if it's connected to someone already doing a background check then you can have it all in one report in all in one place so it would be something an allart option on top of somebody wanting a background check you wouldn't do credit checks either way but could do a standalone we could do it yes and the seller founder was proactively doing any marketing or sales or was this all a word of business that grew Word of Mouth he was in the beginning but the past few years he hasn't been because he's been comfortable with the size that it was currently at and didn't want to expand more than that so he hadn't hasn't been doing sales or marketing for a number of years and that half a million in earnings was that way was that for the PRI previous year or previous number of years or what was more what was the history of what were the earnings year two year three year four in the past I don't have the numbers in front of me but it was not tremendous growth I think 2020 was a particularly down year as you would expect not a lot of people were hiring um and as I previewed we kind of excluded that from our analysis if there's you know another Black Swan event we'll deal with it as it comes up m um there was probably minor growth I I would guess fiveish percent year-over-year outside of the covid anomally that's desirable in our world actually absolutely like I said enduringly profitable yeah right anything I didn't ask about the business guys I want to start closing us out here in return to um kind of the personal Journey but anything about the business or about the industry that you think is interesting that people should know or tell tell everybody why it's such a crappy industry and they should stay you guys are going to roll it up well it it's difficult to break into just to understand how to operationally fulfill these orders uh if you see another consumer Reporting Agency for sale look at it I think it you know for us it's a really good opportunity and if you don't like it for yourself let us know because maybe we we'll roll it up um but really just if you're going to jump into this or if you're considering this be very wary of the legal compliance aspects of fukra and applicable state law that's something We are continuing to work through to this day and I imagine frankly it's just an an inevitable aspect of the business is you've got to be on top of what you're allowed to do what you're required to do and how those two things change over time and Michael are you bringing your legal training to bear on that or do you guys have other Council that you that you lean on yeah we have outside specialist Council but me having an attorney background has been very helpful as far as just being able to read things and talk to outside counsel in their language and their lingo and pick up on these Concepts I think quicker than we would have otherwise yes for sure just a side point about the size of opportunity here the total addressable Market industry whatever you want to call it the fact that there's regulation here the fact that there's kind of um enough attention put on this category of business or this service suggests that indeed there are a lot of companies out there that do this in to to to the to the point that they need to be regulated no yeah right yeah I mean it's yeah there's certainly a number of players Nationwide in the market but and this other thing about the regulation other point to make about the regulation too is that that's also a bit of a moat I mean if this was just so easy to do this then it would have been commoditized away by now probably um so so the part of the service that you're delivering to your clients is in fact being compliant being on top of the legal requirements doing everything you know dotting Crossing teas yes absolutely Meredith anything to say as as a now operator of one of these businesses or has Michael covered it are you working in the business or on the business I would say that I am about 5050 I was talking to Michael about this the other day I think currently our size kind of it makes more sense to work a little bit in the business but we'll see moving forward I think that kind of relates to starting a family as well what that's going to look like uh whether we hire someone to operate or find a different path who knows but currently I would say about 50/50 and so the 50% of the time that you're working in the business you are doing background checks yourself uh not necessarily doing the background checks but talking to clients um some figuring out different ways to improve processes um making it more automated uh sometimes I'll be doing background checks but for the most part I'm making sure that we're pushing things along getting our employees to be on top of everything yeah managing employees is safe fulfill okay guys well to close out the let let's talk about doing this as a couple and a young couple at that has this changed your relationship at all I mean yes absolutely but I it's you know I would quote I think the old philosopher an old philosopher said no man ever steps into the same river twice for it's a different River and a different man um I think the process of acquiring a business has changed not only us as a couple but each of us individually I've seen a ton of growth in Meredith that she's kind of stepped up to operate this thing learn how to lead it and frankly Drive the organization forward um I've seen some although probably more modest growth in myself as well throughout the process um and frankly I have just a lot of it as well is we have a lot less time than we did a year ago um we are always dealing with an issue with the business now and that's a good and a bad thing I mean it's exciting we have this thing to always be working on and working together on but you know there's always a stressor it used to be that we could close our eyes and forget about everything else for a little bit yeah yeah anything bad said the couple without a child yeah exactly so you're just you're basically just getting a a taste of what it's like to have kids this is like getting a dog what you guys have done like the trading Wheels before having a kid no I'm kidding go ahead what were you gonna say Miranda no I agree with what Michael said I think we've both grown a lot um I've I never been a manager prior to this so there's a lot of growth in that and wearing all the hats that comes with operating a small business has been interesting uh but it's it's great that we're able to lean on each other through this Michael knows basically almost as much as I do about the business so I think it's it's great that we can talk about this in the evenings on weekends and and we're excited about the potential so we'll see well to that point yeah no Michael please sorry one last thing I'll add on this is I I think we found that our strengths really complement each other well I'm able to think about big picture and kind of address big picture concerns very well well Mer's very detail oriented and on top of everything and making sure we're not forgetting about any any issue at all well the point about talking about it at night and on weekends I'm I'm reminded of Doug Jon's uh different stage of life I think he's in his early 50s he and his wife bought a business he's been on twice and he did joke that they talk about the business constantly you know they bought it together and so and so this is like they just default to talk about this to the point that it kind of maybe crowds out other things that they might talk about or spend their uh Collective time together talking or thinking about um so it's but again you know the analogy to kids like that also kind of happens when you have kids anyway but it sounds like you are kind of experiencing this phenomenon that you're kind of always talking about the business yes I would say so I so far it's been great I mean it's been six months so see but uh I I think we're very passionate about it and really excited about it so it doesn't it doesn't hurt our relationship we love talking about it what about the way people react to you as young people for example I suspect this gets into a little bit of the stepping on toes marith that you were referring to earlier you as a mid 20s late 20s woman and the founder who started and ran this business for 10 years now reporting to you and and his employees becoming now your employees and there's probably 20 years maybe 30 years of difference in age between you that's got to be it's got to be a dynamic yeah I think it it has been interesting the the closest in age employee is 13 years older than me so it I think it's more in internally my confidence in that than anything that they have said or acted to me I think I have to kind of remind myself like I'm their manager like this is what I say you know to an extent obviously but um I think there's been some insecurity in in my own beliefs of that but I don't think that anything that any of our employees has said are acted around me is reflecting that and I don't see the direct interactions between Meredith and the team um because I'm more removed but just from talking to her I mean she's getting in there day and day out and really leading by example and grappling with whatever issues are coming up in the business dayto day so I think my expectation my understanding is she's really building respect within the organization from everyone's seeing that she's not bossing people around and telling people do this do that while she doesn't have any skin in the game or any kind of direct involvement in the issues or understanding she's not you know a surface level manager she's engaging with the issues and trying to help everyone get jobs get done yeah well and and the other thing I think about this Dynamic is that like while maybe a reflexive reaction of employees to some young person or young couple coming in and buying the business is maybe initially negative at the same time eventually every it Dawns on everybody what a big risk this represents for you all and and how much skin in the game you have and and kind of how much initiative you're taking to do this and there's got to be begrudging or otherwise some level of respect just for just that comes from the realization of that fact yeah I'm sure and I say that to everybody listening who who buys a business not just for the the two of you great guys I like your business thank you will story oh thank you appreciate that Michael no and you guys have a really neat story um the doing it as a couple doing it young finding a really cool business um thrilled to have you on people have questions how can they how can they reach out LinkedIn is probably the best Meredith and Michael schlinker it's um an intimidating last name but I'm sure you'll have it spelled on the podcast for good deal Meredith and Michael schlinker thank you very much for coming on thank you thank you 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 of new interviews and stories to come stories that will help you along your own path to acquiring a business