July 16, 2025 • 48 mins
Ever wondered if entrepreneurship really delivers the freedom and flexibility it promises? In this eye-opening conversation, we tackle the myth head-on and reveal why business ownership often means you're never truly "off the clock." Between cash flow projections that tank just before your family vacation and the constant connectivity of smartphones eliminating any excuse to be unreachable, the entrepreneurial reality differs dramatically from the dream.
We pivot to a strategy many aspiring business owners overlook: buying an existing business rather than starting from scratch. This approach offers remarkable advantages, particularly gaining an established customer base—something that typically takes years to build and represents the most challenging aspect of any new venture. As Eric said, "Getting new customers is like the hardest and scariest thing you can do," which explains why acquiring a business with paying customers already in place significantly reduces risk.
The episode provides a practical roadmap for business acquisition, from approaching sellers and using letters of intent to negotiating seller financing arrangements where previous owners finance part or all of the purchase. We explore the critical differences between asset and stock purchases, with straightforward explanations of the pros and cons of each. Whether you're considering entrepreneurship or looking to expand your current operations, our insider knowledge about deal structures, due diligence pitfalls, and the importance of specialized legal counsel could save you countless headaches and potentially hundreds of thousands of dollars.
Ready to skip the riskiest part of entrepreneurship? Visit bigtalkaboutsmallbusiness.com to explore our resources and submit questions for future episodes. We're here to share real-world experience, not to sell you anything.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
What do you think is better a stock or an asset
purchase?
Speaker 2 (00:02):
Well, if I'm a seller , I want it to be stock, because
I want them to pick up all myliabilities, okay, Okay, that
they get when they buy thecorporation or the LLC as an
entity.
Yeah, if I'm a buyer, I onlywant asset purchase agreement.
Yeah, I'm buying all theirassets in known liability
specified.
But if there are otherliabilities I'm not aware of, I
(00:25):
don't pick those up.
Speaker 1 (00:27):
Okay, in the asset purchase agreement Correct.
Speaker 2 (00:37):
We are back again.
Yes, we are immediately back.
I know, gosh, we only had abrief break here.
Speaker 1 (00:45):
We can't act like all right, we'll be honest with the
reviewers, right?
We literally just cut anepisode.
Now we're back here.
We took a quick bio break, yep.
Came back Yep.
Pv team's got us set up forepisode two, yep.
But you're going to see thatwe're wearing the same thing we
were in the last week's episode.
Yeah, I mean, we're not goingto lie to you about that, no,
(01:06):
but it's okay.
Yeah.
Speaker 2 (01:08):
As far as you know, maybe I wear the same thing
every day.
That's true.
I kind of narked us out, didn'tI?
Yeah, that's okay.
So this isn't a.
We're not doing a fashion showhere.
Okay, we are talking aboutbusiness, small business and
entrepreneurship.
Yeah, hence our name.
Yeah, big Talk About SmallBusiness Dot com.
(01:33):
Whoa.
Speaker 1 (01:38):
Hopefully that got your attention today.
Hey, let's do something.
Let's take something out ofthis white cap.
Okay, let's do it.
Yeah, let me grab it yeahplease.
Speaker 2 (01:51):
We've got a lot of topics in there.
Speaker 1 (01:53):
There's a lot of topics, because we need to be
reaching in there more often.
I know it's trueEntrepreneurship is about
freedom and flexibility.
What are your thoughts on that?
Mark Zweig?
Yeah, right.
Speaker 2 (02:09):
It's not, is it?
No, freedom is a myth, Is it?
Yeah, I mean, I guess we canmake any choice we want to make,
but if we want to stay inbusiness, we're going to make
different choices.
That's a good point Than if wejust want to be impulsive and do
(02:30):
what we feel like at thatmoment.
Right, right, right.
Speaker 1 (02:33):
Yeah, so you can't expect and I think this is also
good for the existingentrepreneurs Because you hear
these things like freedom andyou know, and flexibility and
entrepreneurship, and it seemsit's that enticing candy that
you're going towards.
But if you follow that nowyou're in it You're like I don't
feel like I have freedom orflexibility.
(02:54):
What's wrong with me and mybusiness?
Speaker 2 (02:57):
It was a lot easier before we had cell phones.
Yeah, honestly, you could likecheck out for extended periods
of time.
Nobody could find you.
They almost didn of time nobodycould find you, and they almost
didn't even blame you becauseyou couldn't be found.
Yeah, it's just like you know.
Nobody could be, they couldn'tbe found either.
Maybe I mean that's very true.
Like you know he's tom, like Imean that, like you really buy a
ticket to non-freedom and nonand non-unflexibility it's funny
(03:22):
, yeah, it's like I used to loveit when, 10 years ago, 15 years
ago, my realtor would say, well, this, you know, we'd be like
trying to make a somebody madeus an offer and we make a
counter offer, or we're tryingto buy something we made an
offer.
It's like, well, they're, um,they're out of town for the
weekend or they're going on atrip.
I'm like you and I both knowthey got their freaking email on
(03:43):
their phone.
Okay, yeah, right, so bullshit,I'm.
I mean, I'm sorry I'm callingthat.
Yeah, that's no excusewhatsoever.
All right, yeah, so yeah, youare going to be tethered, but I
mean truthfully, I, you do havea certain amount of flexibility
that you may not have incorporate america.
Nobody's checking youraccumulated vacation time, right
(04:04):
, right, you don't have to askanybody if you can take off and
go to the dentist.
Speaker 1 (04:09):
Yeah, and you got to use that.
That's actually there's.
That that's a very isolatedflexibility that I take full
advantage of.
Yeah, I can bounce out you knowa couple of hours.
Yeah, no one has really theability to ask what I've been
doing and where I've gone.
Yeah, and that that does feelgood, I would say, but it's,
it's kind of my, it is reservedas my escape for when things
(04:33):
become well.
Then my fears have over, haveoverflown.
Speaker 2 (04:36):
Yeah, and you probably do it, so you can go
spend time on another one ofyour businesses.
Speaker 1 (04:41):
No, that's mostly what I'm doing.
Speaker 2 (04:43):
That's the other thing, it's not just to get away
, you know whatever.
Yeah, that'd be wonderful, butit's not.
It's like I got six differentthings I'm trying to do here
simultaneously, yeah, so yeah, Imean, I do think you have more
flexibility in some ways.
Speaker 1 (05:00):
And instantaneous decisions.
Yeah, yeah, but I don't think,like you have, like, honestly, I
have to go.
I'm going to vacation next week, yeah, you know, with the
family.
Speaker 2 (05:09):
I'm going for two weeks, coming up later in July
too.
Speaker 1 (05:12):
Yeah, but I don't feel like I have the freedom to
do that.
Yeah, I know.
Speaker 2 (05:16):
I'm sitting there looking at it Sorry.
I'm looking at a cash flowforecast that says I'm going to
run out of money exactly when Igo I'm like, oh crap, that is so
awesome, that always happens.
Four weeks from now, the cashflow projection goes in the
toilet.
Okay.
Speaker 1 (05:36):
Dude, you cannot, as an entrepreneur, disengage.
You cannot do it.
Speaker 2 (05:44):
Because it's impossible.
I'm just trying to push out aweek every week.
That's right.
Push the crisis out one moreweek.
Speaker 1 (05:52):
And it all, and because we're having a vacation
set for the last six months.
Yes, doesn't mean that week'sgoing to be any different.
No, because I'm going onvacation.
Yeah, it's so true, and I feelguilty for going on vacation.
Where are you going?
Speaker 2 (06:03):
We're going to, uh, destin, oh, destin, yeah, yeah,
so in the hot sun, yeah, weekone of my daughters is going
with um, her boyfriend's parentspeople, and they'll be there
somewhere.
And then my other daughter isgoing with her friend and her
friend's grandmother.
Oh, nice, all that beach yeah,they're all going to be down
(06:24):
there somewhere.
What is that 30 a?
Or beach yeah, they're allgonna be down there somewhere.
What is that?
30a?
Or whatever?
Yeah, they're all somewheredown there.
Dustin, sandustin, seaside, Idon't remember rosemary beach,
it's all those places.
Yeah, it's all the all that.
So you're, how long are yougoing for?
Just for a week, did you rent a?
Speaker 1 (06:39):
house or hotel, a little condo complex in a little
okay good, yeah, it's nice, wejust go back to the same place
of talent.
I love it.
That's what I do becausethere's some familiarity to it.
Yes, we always go to fortlauderdale same thing, yeah,
same place when I've been ableto uh request of my wife to keep
it as simple and convenient aspossible.
(07:02):
Like the price tag on it isn'tas much of a concern as the fact
that I can get there in adirect flight.
Speaker 2 (07:09):
Oh, the flights are cheap though, yeah.
Well, yeah, they are.
Speaker 1 (07:11):
I mean Allegiant, or whatever that is, or Breeze, I
can't remember which one, butthey're both called the other
two of those, yeah, yeah, but Ican get there in an hour and a
half, yeah, you know.
Yeah, you know, land drive tothe condo, be there in 15, 20
minutes, yep, and then Tara'sgot it worked out where
everything's like delivered byWalmart, love it.
Yeah, I mean, it's fantastic.
She discovered that.
(07:31):
I mean, what a convenience,right where she.
She's actually already made theorder last night, yeah, and so
she's gonna be at the condo.
You're set for the week.
There it is.
And then she just laced upawesome, yeah, and it's just
this routine thing.
But I mean, I've been able, andI and I've made some
requirements like I need it tobe like direct flight.
Yeah, I don't want me jumparound airports for no, I get it
(07:52):
.
Have time for that.
Crap stresses me out.
Yeah, you know.
And then I have to have goodwi-fi, yeah, you know, wherever
we're at.
Yeah, non-negotiable, right,otherwise I'm in, yeah, and then
I get down there and I and Istay in trouble, like literally,
my pattern is this we get downthere, I work for the first
couple of days really hard, youknow, because the girls are
sleeping here, or I'll go do itat a coffee house, but by
(08:14):
tuesday, you know, if we're downthere on saturday by tuesday
morning I started getting introuble.
Speaker 2 (08:20):
It's like you're going with us today, buddy,
you're going to the aquarium.
You're going to us.
Today, buddy, you're going tothe aquarium.
You're going to the beach.
Speaker 1 (08:25):
Yeah, I started getting in trouble.
By Thursday I'm fullcooperation.
I've realized that I'm onvacation, but by that time
there's only two more days left.
But I appreciate my spouse.
That's what's great about asupporting spouse.
It's a good partnership.
It is because they recognizethat you can't really disengage
(08:48):
and so they find ways to supportthat and then we can all have a
good family vacation.
Speaker 2 (08:52):
Yeah, I'm so thankful that my wife is the same way.
She's fantastic.
She knows when I'm goingthrough something.
To let me deal with it and notmake me feel bad about it.
Speaker 1 (09:04):
To let me deal with it and not make me feel bad
about it.
Like, even whenever things aregoing really well, as an
entrepreneur, there's not afreedom to me of not doing
something Because there's toomany things to fix, Exactly, and
so you'll never arrive at thisfreedom place.
I don't think as anentrepreneur if you're really an
entrepreneur because you'redoing something to fix things.
Speaker 2 (09:29):
Yeah, and no question about it.
And the other thing is you'vegot all the other ties, like
your bank loans that may besecured personally, in fact,
they probably are.
So if that goes bad, thenyou've got to cough up the money
.
I mean, so of course, you'regoing to be worried about stuff
all the time.
Yeah, I mean, it's just.
(09:49):
If you're not, you're crazy.
Yeah, honestly, yeah.
So, yeah, you're not free.
It's not like I can just gotake.
I mean, could you go borrowmoney and go buy a freaking boat
or it's million dollar boat orsomething?
Yeah, you could.
Or yeah, whatever, or use yourcash that you had to do that,
(10:10):
but it wouldn't be smart.
You know that.
Yeah, you're going to want totake that money and deploy it in
these other businesses.
That's right.
So it continues to multiply andcreate opportunities
potentially, and they don't allwork out.
You know that.
So, yeah, yeah, free.
You're not free out the door.
Freedom is a is is a joke.
Um, well, let's talk today about, um, I think, a really good
(10:34):
topic.
Um, you don't have to start abusiness from scratch, because,
yeah, that's always been one ofmy things in entrepreneurship
and small business.
In at the higher ed level, theyconstantly push startup,
startup, startup.
I mean, if you look at how manyclasses we have in new venture
development, how many sections,yeah, how many people teach it
(10:55):
at the walton college, it blowyour mind.
We probably got like eightteachers of that class and most
of them are doing multiplesections, but there's no class
on how to buy a business.
Speaker 1 (11:07):
See that's a shame?
Well, because the reality is,if you buy a business, you're
buying existing revenue andcustomer base versus starting
one trying to get new customeracquisition so much less risky.
So let's talk about that, Goahead.
Speaker 2 (11:23):
I'm just going to say that I do actually cover that
in my small enterprisemanagement class, but I'm the
only one that teaches that, soI'm just it just kind of gives
you a sense of the ratio.
Speaker 1 (11:34):
Yeah, like the okay, like the as a, as an
entrepreneur, like getting newcustomers is like the hardest
and scariest thing so that youcan do, and it's like
everything's dependent upon thatworking well, which comes down
to the word marketing yes, itdoes which everybody discredits
and shoves under the rug.
Speaker 2 (11:56):
Yeah, and some businesses need a lot of
marketing before the businessstarts 100% In order to be able
to come out of the gate and havea viable business.
I see this all the time, though, with things like some kind of
a marketplace where you got toget buyers and sellers together.
You know whatever it is andthey don't do the pre-marketing.
Yeah.
So when you turn the switch on,there's buyers and sellers both
(12:19):
there people who want andpeople who provide.
Yep, and it's dead in the water.
You don't go there and they seethat it's not worth being here.
Speaker 1 (12:27):
It's so funny when you talk about that ratio of
what's being taught, becausehaving a customer base that is a
paid customer base, and if youbought a business that's been in
business for five years 20,even better, the longer the
better You're absolutely right.
That has built this customerbase.
And you have somebody that'sjust wanting to get out and
transition to retire or death inthe some sort of circumstance.
(12:51):
They just don't want to do thebusiness anymore.
Like there's probably not a ahigher percentage of success
than to buy something so truethat dude it's.
Speaker 2 (13:02):
So.
I mean, I got a friend thatdoes this.
Yeah, he looks for baby boomerowned businesses that have been
around a million years.
Okay, because they got allthese customers.
Yeah, they got employees, theygot suppliers, they got systems,
they got a location orlocations.
They have no transition planwhatsoever.
(13:23):
Yep, okay, and he swoops on in.
It's great every time and it'susually a win.
Went all the way around, heevery one of these businesses.
He immediately grows them andby doing several things, like
putting processes in that theydon't have and doing marketing,
yeah, yeah, none of them,they're not doing any marketing.
Speaker 1 (13:43):
Well, because they they become dependent upon that
flow and then they're like, atsome point, some along the way
they go.
Well, we don't have to do anymore marketing to grow the
business.
I don't really want to grow thebusiness because the more I
grow it, the more problems Ihave.
I'm making a good living rightnow.
Yes, yeah, and that's what I a.
(14:07):
Uh man, I've really I shouldget more into that.
Speaker 2 (14:08):
Honestly, you want to go buy some businesses?
I'm always into it, I mean, and.
And then the thing is the guyum, he, the businesses he buys,
though, are related to eachother.
Yeah, some way tangentially, soyou can share customers.
That's right between them, evenif, or you can share talent
yeah, customers, or talent,that's great, it's like it or
you can share talent, yeah,customers are talent, that's
great, it's like.
It's just such a great strategy.
(14:28):
And look, guys, it actuallyworks.
He's buying one right now, okay,for a couple million plus.
It's an old company.
It's been around, let's say, 50years.
It's great, all right, and it'sgot real estate.
It makes the owner of the, thecompany I don't remember what
(14:49):
the numbers are exactly, but areally good living right now.
This business, okay, one owner.
He's getting the business forfree just for buying the real
estate.
Yeah, because it has that valueto it.
Yeah, the guy doesn't even wantto deal with the business
itself.
He's just going to be like okay, we can keep doing it if you
want.
Okay, it's like is that notbrilliant?
(15:11):
It's great.
So the real estate is so easyto finance yeah, yeah, it's real
estate.
It's got a secured asset, yeah,okay.
And then he gets this businessand then he's just going to go
in there and do the same thinghe always does Study it, maybe
change out a few people, put hisprocesses in play, start
marketing yeah, boom, this grows, it's.
(15:34):
You're so right about that.
It's just so much I never told.
I mean, I always said when youbuy a business, you get the
customers or clients.
That's great, but I neverthought about it quite exactly
how you post it.
It's so hard to build yourcustomer base, okay, from
scratch.
It is so hard, it's like anexpensive.
(15:56):
Everybody says to me.
Earlier this week I had adiscussion with one of my former
students.
He's like I'm trying to figureout.
I want to start a business,okay, I'm on the side from what
he's doing.
He goes, I can put 150,000 intoit.
What do you think I had to do?
He's doing, he goes, I can put150 000 into it.
What do you think I had to do?
So I said, well, what are youthinking about right now?
(16:17):
Well, his first thought waspackaged um, uh, energy, uh,
drink or protein drink, okay,and I'm like dude, do you know
how hard it is to gaindistribution with a drink?
If you've got a one drinkproduct company, yeah, who is
gonna buy that?
Right?
Nobody, right?
No, you.
You won't get any traction, youwon't get any distribution.
(16:37):
Yep, super hard to do, veryhard, okay.
Or people come up I got a newproduct, I'm going to put it on
my website and I'm going to sellthat product.
Driving so hard, driving peopleto your website is so freaking
hard.
It is.
But if I can go buy a businessthat's already got hundreds or
(16:58):
thousands of customers, yeahthat have used it.
Speaker 1 (17:02):
If you have a business that's got like 10 000
people in your email database,yes, I mean man, that's just
like that's ismine, because ittakes years to get to that in a
lot of circumstances.
You know, I mean I think that Iwould love to see if you could
do a study, have your studentsdo a study about the true value
(17:24):
of an existing customer baseversus trying to build that same
customer base.
Like, really, what did it take?
Because it's not just marketing, it's just not call to actions,
it's not take, because it's notjust marketing, it's just not
call to actions, it's not sales,it's not just the people that
you got, yeah.
And then yeah, because once youget them in and they stay in
like now you're talking aboutchurn and and how much turn did
(17:44):
you?
That's a big factor, it's huge.
And then, like you've got aperformance customer service.
It's everything about thebusiness is locked up into that
customer base.
Speaker 2 (17:53):
Or I love businesses where it's really hard for them
to disconnect from yeah, thoseare my favorite ones Like
they're so dependent they can'tlike turn this thing off or
they're dead.
Okay, pretty much.
I mean it's like accountingsoftware, whatever.
They don't want to bother withconvert.
Yes, it's not perfect, perfect.
But you know what?
I'm not going to unhook, forthat's right, it's the, the pain
of transition.
Speaker 1 (18:14):
Yeah, it's just not worth it.
No, it's not worth it, yeah yep, so not worth it.
Speaker 2 (18:19):
It really is interesting.
Um and and this is so true, soyeah, I think um getting getting
the customer base is supercritical and then what about
this?
Speaker 1 (18:30):
this is something I'd love to hear you talk about.
On the financing yeah, likeit's easier to get financing for
a business that's been inexistence, oh gosh, yeah, yeah I
mean it's it, of course it isbecause it's a proven thing.
Speaker 2 (18:43):
Yeah, you can borrow money on the cash flow.
Um, you can get, you know it'sgot assets.
You can use accounts,receivable equipment, whatever.
So, yeah, and the equipment maybe depreciated too, so it's
cheaper.
Then you can go buy all thatnew.
Put that together.
I mean there's just a millionreasons.
(19:04):
It is easier to finance and ifI can get the seller to finance
part of it, that's always whereI go.
Speaker 1 (19:12):
Oh yeah, for sure.
And so to the point if you'relistening to this and say we had
a listener that's thinkingabout starting their own
business, yeah.
I mean the reality is, if youdon't have any money yourself or
access to other capital whichis not necessarily the best
thing I mean you've got angelinvestors right family and
friends or something like thatthat aren't looking for irrs.
(19:33):
You know investor returns andall kinds of craziness.
You know they're patient, verypatient.
I mean, just believe in you,not that they all are, I'm just
saying the ones yeah.
Yeah, they just want to help you, right, yeah, right, they want
to see you it's not a rational,financially driven decision and
I think that that's dangerous,like that's even more dangerous,
(19:53):
right, even if you do get thatvery, um, non-strength,
benevolent yes, benevolentcapital, yeah, angel capital
yeah, yeah, like that's, that'sgoing to put a lot of pressure
on you right out of the gate atleast it should but, but, being
able to like a good decision, ifyou're that person, that's like
man, I'm really itching to bemy own boss, like we talked
(20:16):
about last episode, or havefreedom, or have flexibility,
like we're talking about goingand buying a business based on
their current financials andgetting an easier loan against
that business without having tocome up with the capital
yourself like you could.
You know, that's just like sucha no brainer.
Speaker 2 (20:33):
Every time I ever got involved in buying a business
or most every time or advisingpeople, we always try to get the
seller to finance andunderstood all of it If possible
.
That's your goal.
I love it because I always askmy students because we do talk a
lot about this in my smallenterprise class and I have them
write a paper on it and if theytell me that the first place
(20:55):
they're going to do is say havetheir own cash or they're going
to their family or whatever, Itake it off points, I'm like how
many times have I told youpeople, you always, I don't care
if I got 100% of the cashsitting there, I want the seller
to finance it to me.
Why?
Two big reasons, okay, one isI've got a way to claw back at
(21:19):
them if anything wasmisrepresented, because they
haven't been paid all the money.
Speaker 1 (21:24):
You have a continued due diligence process.
Speaker 2 (21:27):
Yes, that's exactly right.
I've got a way to get back,okay.
Secondly, they want to see mesucceed the seller of that
business.
Yeah, okay, so they're going tohelp us?
Yeah, okay, yeah, because theydon't get paid.
Speaker 1 (21:47):
Unless you do well, Exactly so.
Can you talk a little bit aboutthe mechanics of that?
What does that look like?
So I found a business.
Say I found a plumbing company.
It's a two-person business.
The owner's ready to get out.
I want to buy a business.
How do I approach that seller?
Speaker 2 (22:04):
Well, I mean two-person is pretty small, but
let's just say 10, just for thesake of it.
Sure, how do I approach theseller?
I call them up and say look, Ihave no idea whether you'd
consider it or not, but I wouldbe interested in talking with
you about I don't know what yourplans are.
I would be interested intalking with you about
(22:24):
potentially selling me thisbusiness.
Yeah, and see what they say.
Then shut up Okay, and see whatthey say.
Then shut up Okay, and see whatthey say.
And if it, if it's a yeah, I'mopen to that idea.
Well then, let's get togetherand let's have a little talk
about it.
Okay, and if you got anynumbers you'd be willing to
share with me, that'd be great.
If you want me to sign somesort of an NDA, sure, I'll be
(22:47):
glad to do that.
So you know, I can't just labyour numbers all over the place
or recruit your people.
Yeah, right, I'm perfectlywilling to do that.
Speaker 1 (22:59):
But let's talk about it.
And so when you meet with them,then at some point you bring up
hey, would you consider ownerfinancing this?
Yeah, so financing this.
Speaker 2 (23:09):
I mean, I might, I might talk about that or I might
save that for when I actuallysend them an LOI letter of
intent or MOU memorandum ofunderstanding about a basic
offer structure, got it.
I'm not necessarily going toask them if they're going to
finance it initially.
I, if I did, I would probablypose it as now.
(23:29):
I assume that you're going tobe willing to finance, um, this
deal, yeah, harder all of it,because there's not a lot of
buyers out here right clamoringto buy this business, right,
yeah, yeah that just they're not.
Speaker 1 (23:43):
Nobody's going to come in here and just give you a
bunch of cash and let you goout the door so literally like
on the l, like you might havehad multiple conversations
reviewing financials, all thisdiscussion, and then you say,
hey, I'm going to send a letterof intent over to you in the
next couple of days and when yousend that, that LOI in there
will talk specifically.
My offer is this upon youracceptance of seller financing
(24:07):
this deal, this is my offer foryou.
If you'll seller finance, thenmy offer stays true.
Yeah, there's going to be a lotof details on that.
Sure, my, this is my offer foryou.
If you'll sell our finance,then my offer stays true.
Speaker 2 (24:13):
Yeah, there's, there's going to be a lot of
details on that.
I mean, I don't necessarilyhave to have a lot of meetings.
Um, my approach is, yeah, Iwant to see financials.
Okay, but I'm going to take ashot across the bow real early
because I want to find out ifthey're realistic.
Okay, I don't want to waste mytime with anybody.
(24:33):
Yeah, okay.
So a typical LOI, let's say, orMOU, to buy a business or to do
an asset purchase agreement.
It's going to spell out likeright away this will be
considered.
The form of this transaction isgoing to be a stock acquisition
, um, or a stock sale, or anasset.
(24:53):
You know asset purchase and youknow we'd, we'd have that um,
will we?
We will pay you book value foryour business.
Okay, we're not specifying anumber at the time of closing,
and and we'd like for you tofinance that for 24 months based
(25:15):
on eight quarterly payments,okay, okay.
So you're going to spell outstuff like that.
We will have a note in there.
Okay, for a certain amount ofmoney?
All right, we're going to paythat over three years in monthly
installments at 9% interest.
We'll give you an employmentagreement for one to three years
(25:38):
, depending on your interestsOkay, and plans that will have
an expectation of reduced worktime commitment for you, but
you're not saying what thesalary is.
Speaker 1 (25:52):
You're not right Exactly.
Speaker 2 (25:55):
I'm not, if I can avoid it.
I mean I could do that.
Yeah, I could say we'll pay youbook value at time of close.
Okay, Right now it's 400,000.
Yeah, we'll give you a note foranother 300,000 paid over 30.
I mean we could say that, okay,that okay.
Um, you know, it's all based onthese current numbers.
(26:15):
What did?
Speaker 1 (26:16):
you mean a certain day.
We'll pay you 400 000, but giveyou a note at 300 000.
Speaker 2 (26:20):
The 400 000 is for the book value of the business.
Okay, so it's the value of thebusiness, the book value, assets
minus liabilities.
The 300 000 basicallyrepresents goodwill.
That coupled with theemployment agreement.
Okay, so so.
Speaker 1 (26:36):
So you would add all that up for the total price paid
for the business gosh, you sellthe, the book value at 400
grand plus the 300 000 of thenote, right?
So what does that go to?
I mean, is that seven?
What does it go to?
What do you?
Well, I mean, like, where's thethat go to?
I mean, is that seven?
What does it go to?
What do you?
Well, I mean like, where's the?
Like, what are you buying forthe note?
Like, what's the note buyingit's?
Speaker 2 (26:56):
buying the, the future cash flow of the business
.
Got it okay, okay, yeah, that'sthe goodwill all right got you.
It's not all secured by hardasset.
None of us would ever sell ourbusiness for book value, right
assets minus liabilities.
Hell, no, right, not Right, noteven close.
It's worth far more than that.
As you know, you sold yoursoftware company.
(27:18):
That wasn't based on book value, it was based on the future
potential earnings Got you Okay,so that's the two instruments
there.
The value of the business itselfIn the employment agreement.
Don't dismiss that.
The reason employment agreementis part of it is we may or may
not have them do anything to getpaid, that we may just want
(27:40):
them to be available.
Speaker 3 (27:41):
Yeah.
Speaker 2 (27:41):
Or we may want them to work full time for a year and
50% the next, whatever.
Yeah, all right, so that's partof the premium.
And the reason why is we canwrite that off as an expense of
the business, right?
Okay, so it's part of theconsideration, but normally
these payments we make to theseller would not be tax
(28:03):
deductible for us as the buyer,right?
So you understand that.
So the more of it I can shovetoward the employment agreement
Again, consult your legal andtax advisors on this yes, but
the more of the purchase price Ican shove over to an employment
agreement or consultingagreement.
Speaker 1 (28:22):
From the seller's perspective, it doesn't matter
how it comes, necessarily doesit.
Speaker 2 (28:26):
It may or may not.
It all depends on what they'vegot and what their accountants
are doing.
Speaker 1 (28:30):
Well, I guess if they're getting paid a salary or
something, then it's obviouslygot a tax bracket.
Speaker 2 (28:35):
Right, it's a tax issue.
It's not a capital gains, capgains or it's ordinary income.
But yeah, sometimes it's totheir advantage to stretch it
out.
Yeah, okay, it doesn't kickthem into the higher bracket,
true, yeah, true.
Speaker 1 (28:54):
So anyway, bracket, true, yeah, true, so anyway.
Yeah, I mean.
So why would a seller bemotivated to do the order, the
seller financing, like what'sthe value for their side, versus
saying, man, hell, no, you know.
I mean like I guess that if Iwas, if I was a seller of the
company, I'd be like I want allmy cash now, like I don't want
you to spread it out over townyeah, but you might not because
a there could be tax advantagesto spreading it out, right, okay
, right, maybe you're going toget interest on that, okay, yeah
(29:17):
, uh, you can't get that moneyout of the company right now.
Speaker 2 (29:20):
right, that could be really critical cash for you to
get sure, um, which is going toallow you to, like, pay off your
house or whatever.
Yeah, yeah, okay, in the nexttwo years and be done with that.
Um and um, uh, you don't haveany other options.
I was like you're sick, you got.
(29:41):
You got cancer, you got it.
You're going through a divorce.
I mean it you're tired.
Speaker 1 (29:47):
You don't have people knocking on your door every day
.
Yeah, tired.
You don't have people knockingon your door every day wanting
to buy your business.
Speaker 2 (29:51):
Yeah, and it's hard, like if you want they do they
all want to give you the samekind of deal I'm going to give
you.
Yeah, that's right, right, soyou got to think about who's
most likely to make thissuccessful going forward well,
and a lot of people got tounderstand too.
Speaker 1 (30:02):
If I was, if I had a business like that and I want
and I want to sell it, I'm in aposition that I'm eager to sell
this business for whateverreason.
That's not an easy, quickprocess by any means.
I mean, like, how are you goingto sell it?
It's like how do you sell a car, how do you sell a boat?
Like I mean, there's a lot ofwork in selling a business
because there's so much detailin it.
Speaker 2 (30:23):
It's more complicated than buying a house.
It does.
It takes time.
It takes a lot of time todevelop.
Speaker 1 (30:38):
And lot of time to develop and you got to market
that.
You got to pay the fee to thebusiness broker or the private
or the um, you know, theinvestment banker that's
representing you, yeah, so it'sa big deal to have somebody come
and offer you to buy thebusiness even at seller
financing.
Speaker 2 (30:44):
Yeah, it is.
Yeah, and I mean, especially ifyou have faith that they're
going to be able to operate it.
Yeah, you know, like I I talked, maybe you can keep the real
estate and you and that's anasset for you.
Like I, I had lunch yesterdaywith a friend of mine and we
were talking about another oneof our friends who's a.
Who's a uh it's as a certainmedical uh uh practice okay, and
(31:08):
his it's very profitable.
You know they do certain thingsprocedures there, surgery
related, yeah, and so he soldhis business five years.
You know, seller financed andgot to keep the building.
He's going to have ongoingincome from the building.
So he basically leased back outto the buyer.
Yeah, exactly, and you knowit's a great deal for him.
(31:31):
He's going to be making moremoney and he doesn't have to be
there for entirety, wants to doother stuff with his time.
Yeah, that works out well andand so, as long as the they have
faith at the buyer, yeah, hasthe capability to continue the
operation.
I mean, so that is a factor.
But if I came to you to buyyour plumbing company and I'd
(31:53):
already had a very successfulplumbing company, or I'd bought
three other plumbing companies,you'd feel a lot better about me
than if I never had a plumbingcompany or I never knew anything
about plumbing at all, becausebasically the seller turns into
the financier in this wholetransaction, right, and they
need to have faith that you'regoing to actually pay what you
(32:14):
said Exactly.
Speaker 1 (32:15):
You're not going to come in destroy the business six
months later, default on yourpayments, right, and then you
got a big pile of shit in yourhands that actually is lost
value, yeah, and so that's kindof a risk on that side, right,
yeah.
Speaker 2 (32:29):
Absolutely.
I mean that happened to us withthe private equity firm we sold
to.
We still had a going interest,we still had an ownership
interest in the in the companythat was created, with our
company being merged with twosmaller companies and they blew
it.
They didn't have experience inour industry truthfully
(32:52):
successful experience.
Now, the way we looked at it inthat case was we'd already
gotten enough cash that wefigured if it did blow up we
weren't going to feel bad, right, um, we felt like we got out of
it what we deserved.
Speaker 1 (33:06):
So could a seller get kind of screwed on this whole
deal?
Yeah, A seller could getscrewed.
Speaker 2 (33:11):
So what does that, what does that look like?
They, the, the buyer, um,doesn't run the business
successfully and can't make thepayments, and usually the
security is the business itself.
And so then that, or unless youget a personal guarantee.
Speaker 1 (33:25):
You might have a personal guarantee, but then
they may not have any assetsright, but then as a seller, you
have to go sue them and youhave to go through the legal
process.
Speaker 2 (33:32):
Yep, yep, yep, so it can backfire on you and you
can't end up with.
It takes a lot of faith in thebuyer.
Yeah, they've got to be solidpeople that have a good track
record.
Speaker 3 (33:47):
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Speaker 1 (34:02):
Okay, so you submitted the LOI.
The seller agrees to your LOI.
Yeah, Now what happens?
Speaker 2 (34:08):
Now we go into due diligence.
We've typically got, you know,let's say, 90 days to work out
the details on either a stockpurchase agreement or an asset
purchase agreement.
Speaker 1 (34:19):
What do you think is better a stock or an asset
purchase?
Speaker 2 (34:21):
Well, if I'm a seller , I want it to be stock, because
I want them to pick up all myliabilities, okay, Okay, that
they get when they buy thecorporation or the llc as an
entity.
Yeah, if I'm a buyer, I onlywant asset purchase agreement.
Yeah, it's no different.
I'm not.
I'm buying all their assets inknown liability specified.
(34:42):
But if there are otherliabilities I'm not aware of, I
don't pick those up.
Okay, in the asset purchasecorrect.
So as a buyer, I would alwaysrather do an asset purchase
agreement.
I don't get the sexualharassment case I was unaware of
, or the hundred thousand dollarcredit card bill that somebody
(35:05):
racked up that's not beendisclosed in the name of the
company.
Speaker 1 (35:09):
This stuff happens.
Yeah, all the time.
Yeah, it does.
So there's a lot of trust fromthe buyer in.
With this I mean you, basicallyto put it make it simple it's a
point of negotiation.
Yeah, yeah, make it simple.
It's like any other transactionto where you're buying a house
is a good example.
Yeah, to where you're buying ahouse is a good example.
(35:29):
Yeah, like, you don't like whatyou see and you like it.
But once you buy that damnthing, you start figuring out oh
wait a minute, this, like inour case, this one room is
really hot all the time.
Yeah, you know, I mean, it'slike why it's not insulated
correctly.
Yeah, that wasn't disclosed.
Yeah, exactly, nobody knew.
But it's my damn house, it's myproblem.
Yeah, yeah, right, but exactlyso that in an asset purchase
situation, that would actuallyfall back on that seller.
Speaker 2 (35:53):
Not necessarily.
No, the asset purchase?
It wouldn't necessarily.
The main reason is not to pickup liabilities that we don't
know about.
Yeah, okay, yeah.
So because I'm spelling outeverything I'm buying and every
obligation I'm taking on.
Speaker 1 (36:08):
These are all the assets I'm buying.
Here's all the knownliabilities that I've agreed
that I will assume from you,correct, in order to close this
deal.
But it's really I'm buyingthese assets.
That's why I'm going to giveyou this money, whereas the
stock is.
Speaker 2 (36:23):
Hey, I'm just going to buy your interest, I'm buying
the company quote, unquote yeah, okay, and that means I inherit
all the liabilities, everythingthat's involved in that.
Yeah, like they did a job fiveyears ago, now they're getting
sued.
Okay, that's my lawsuit.
Speaker 1 (36:37):
Now, now I'm hitting it.
Swing the other way.
From an asset standpoint.
Let's say that you bought fromme an asset purchase, right,
right, and you listed out theassets.
Okay, eric's got, you know, 15cameras and 15 microphones, blah
, blah, blah.
But what I also have that Ididn't talk to you about and you
weren't aware about is I have atrademark on a product that
(36:59):
I've released in the market,right, but you don't have that
listed out.
That could be.
You're missing that then.
Exactly, so it works on theother side too, like there might
be unknown assets that mycompany owns, but you could
spell out I'm buying all assetsof the corporation, all right,
okay.
Speaker 2 (37:17):
And then I'm specifying these specific
liabilities.
You see the difference in that?
Oh, yeah, for sure.
All assets of the corporation,yeah, okay.
Speaker 1 (37:27):
Is there a tax implication on either or both?
Oh yeah, I can't.
Speaker 2 (37:31):
I'm not good.
Are you not a tax accountant?
I'm not a tax accountant, butthere could be.
Yeah, in some cases it mayimpact whether it's treated as
capital gains or ordinary income.
Yeah, I can't tell you and Idon't know what the basis.
If there's going to be adifference in the basis, Anybody
that's interested in doing this.
Speaker 1 (37:48):
They definitely need to get a finding a really good
business attorney.
Thank you, deal attorney, dealattorney.
Even yes, yes, granular yes.
And uh, shout out to adam flockwith rmp law firm.
I mean, I just wanted to saythat we don't really do that
very often, yeah, but he was,he's a fantastic deal.
Speaker 2 (38:07):
Great, I've passed it along.
I mean I, I, I could say in theae industry george cristodula
was the guy that it's just he'sthe best dude.
Speaker 1 (38:15):
It's like like on that, like it is such a big deal
to find a really good attorneythat knows how to do the deal.
Speaker 2 (38:26):
It's money well spent , so well spent, and my
experience is that the reallygood ones they actually don't
cost you more money because, Athey're such good negotiators,
Right, and B if they've done alot of it, they're not learning
at your expense and justcharging hours and hours and
hours against it Do not get yourbrother-in-law, who is an
(38:48):
attorney, a divorce attorney ora p.
Speaker 1 (38:51):
I mean nothing against those folks, but I just
it's disastrous.
It is because these things thatyou spell out in this contract
are massive right and there is aspecialty to knowing what to
ask and how to classify things.
Speaker 2 (39:04):
Yep and just knowing the process and knowing what to
look out for.
Speaker 1 (39:07):
Dude, and not to mention.
The worst thing that couldhappen is that maybe you say
they know all the paperwork butthis attorney starts getting in
negotiations and they pisseveryone off because they're
asses right and they're justthey think that's their job.
That's bad.
Speaker 2 (39:24):
Some of them.
That's not what you want.
You want the one that thinks myjob is to get this done.
Speaker 1 (39:30):
Get this deal done, so people get paid Right and
that's how I get paid Exactly.
I'm not the litigation.
You know.
To that point there's adifferent type of attorney for
litigation.
Speaker 2 (39:41):
Exactly.
There's a different specializedattorney for everything.
Attorneys don't generalists arenot what you want, guys.
Speaker 1 (39:50):
Not in business, man that is.
I had to learn that the hardway, yep, kind of time and time
over a few times, sure, becauseI wanted to believe it was
really not that complicated, itreally should not be this
expensive.
I'm getting ripped off bysomebody that says, oh, I can do
, I charge 500 an hour.
I'm like my god, there's no way, you know.
(40:11):
But the reality is man like andyou need to ask your friends,
you need or not, your, yourpeers in business, trusted
mentors and advisors, to findthese people.
Yeah, because it's.
It's not like going to a bank,you know like it's not a little
bit of difference, it is amastering.
So you know it's so, juststruck, potentially destructive.
(40:32):
Yeah, piece of difference itreally.
Speaker 2 (40:34):
I mean some.
I mean good attorneys too.
They can provide a lot of taxadvice.
Oh, it's, I mean it's a hugedeal.
Speaker 1 (40:41):
yeah, that's the thing with like, with adam, like
he's a tax attorney too right,he knows like.
And so how you set up theentity, how you come to the
table and how you buy thatcompany, or even how you sell
that company, big implications,big implications.
Speaker 2 (40:56):
Yeah, so, yeah, all that is so true.
I mean it's just we could talktill we're blue in the face and
there's still going to belisteners out there who get
their brother-in-law or the guywho handled their traffic ticket
because they really liked him,or the person who did their
wills, trusts and estates, orwhatever, and they and they and
their uh and their attorneywants to get in this, and so
(41:17):
they're going to use them as aguinea pig and learning example,
like you said.
Yeah it's it.
They people just won't listento us on that all the time and
so to to close this conversation.
Speaker 1 (41:28):
I mean I know we hit one point, but I think that's
really important, like in thediscussion of buying a business
versus starting one.
You know that whole deal-makingprocess and like do you have to
be an expert in deals to go buysomebody's business?
Speaker 2 (41:42):
No, I don't think you have to.
You just need some good adviceFrom I mean.
There's a lot of resources youcan read up on it.
There's a lot of informationout there if you want to capture
it.
Speaker 1 (41:54):
Yeah, the first thing that I would honestly do is go
find that attorney.
Yeah, that attorney is going tobe critical.
You can ask your network andyou can research a lot.
You can do a lot of thingsfinding a good deal attorney and
just can research a lot you cando a lot of things finding a
good deal attorney and just gostart with that conversation.
Speaker 2 (42:13):
But I have interest in this business over here.
What, yeah, how should Iapproach this?
Yeah, exactly, I mean, I helpedone of my students this last
year go through this really, andyou know he drafted a
preliminary loi.
I added some things to it.
Then I sent him to the attorneyto look at it.
Okay, the attorney made somechanges on it this isn't a legal
zoom, huh loi don't get it.
No, no, thank I.
(42:34):
I'm glad you said that, okay,and then, and then you go with
the loi at that point, okay.
Speaker 1 (42:42):
So yeah, I mean, there's resources out there for
sure so after the loi, you gothrough your due diligence,
maybe 90 days, and that's a veryimportant time period as well,
right, extremely important.
And I've been a hasty person onthat side, yep, on the buying
side, yep, and I was dreaded up,yeah, and there's always
(43:03):
something or some things, well,that you don't really catch in
due diligence.
Speaker 2 (43:08):
The problem I think with a lot of buyers is that
they get so psychologicallyinvested in the idea we're
buying this company over there,we're growing, we're buying this
emotional attachment yeah, yeah.
And then there's red flags comeup.
It's like we're we're buyingthis company.
I don't want to bail out of it.
I mean I had this one studentof mine.
(43:29):
She bought a 3pl really smartgirl, yeah, okay.
Uh, I mean I can't say I everas a speaker.
3pl, third-party logisticscompany right, okay, you know
she'd worked as a cfo in a steelcompany that sold steel.
She worked for fedex, okay, soshe had a lot of experience in
that field.
She buys this business, okay.
Now it did turn out to bemisrepresented and she clawed
(43:54):
back.
But that's not easy At thebuyer, okay, and she had a very
rough couple years out there.
Speaker 1 (44:03):
People don't Big warning thing on the whole.
This is why an attorney is isso so damn important in these
things, because, yes, you canclaw back if you have the
language in there to begin within the contract, right, yeah,
and there's laws and you knowregulation.
Speaker 2 (44:18):
but the pain, right she just refused to pay the guy.
Yeah, okay, yeah and so, butyeah, I mean back on the due
diligence topic.
The reason why is that thebiggest client of this business
pulled their business and theseller knew that, which she
(44:41):
could prove, because when shebought the business she got got
all the email.
So going back in the emailprior to the purchase being
closed was the evidence thatthis guy knew he was losing this
big client.
You see what I mean.
But that due diligence couldhave a better due diligence
process would have uncoveredthat.
(45:01):
Let's just say yeah, and that'swhy it's so critical, as you
said.
Speaker 1 (45:06):
Yeah, say yeah, and that's why it's so critical.
As you said, yeah and and andagain, I don't do not minimize
the pain of going through somelawsuit trying to get this stuff
done, because it will be verycostly and it's risky.
It's like a whole another levelof risk on itself, like if
you're, if you have a, even ifyou have evidence and you're
trying to sue for that, yeah, itdoesn't mean you're good oh no,
it doesn't.
Speaker 2 (45:26):
They may not have anything.
Oh, back on this deal I wastelling you about, though.
They spent like $2,500 onsomething I don't remember what
it was during this due diligencephase, whether it was appraisal
of the business or legal workor whatever and her husband's
like we've already invested$2,500 in this.
We're going to go through withthis deal.
She laughed.
(45:48):
You know, $2,500 compared tothe six-figure losses that we
had annually.
Okay, so true, man, after thatit's like $2,500?
That's gone.
Okay, that's nothing.
Speaker 1 (46:03):
It's kind of like deciding not to get a home
inspection before you buy ahouse because it costs $600.
Speaker 2 (46:09):
Yeah, exactly You're going to spend a million dollars
, but I don't want to spend $600.
Speaker 1 (46:13):
That's right.
And then you find out the aircondition goes to the capoots
after you buy it.
Yeah, it's obvious.
Speaker 2 (46:19):
Would have been obvious it's the same kind of
thing.
Speaker 1 (46:23):
It is man that's a good discussion, man we're out
of thing.
It is man that's a gooddiscussion, man we're out of
time.
Speaker 2 (46:27):
But we need to come back to this because I think a
lot of people don't understandthis process.
They think it's impossible todo.
They say I don't have the moneyso I can't buy a business Right
.
They don't think about buying abusiness Right as an option.
It just doesn't even come up.
But it is such a great option.
Speaker 1 (46:47):
It really is.
I'm getting really intrigued byit.
Yeah, you know.
Speaker 2 (46:52):
So Cool.
Well, it's been a greatdiscussion.
Once again, we appreciate ourlisteners.
Yeah, we're growing Correct,we're growing.
We're on Instagram now too.
Okay, it's huge.
Yeah, youtube, facebook, yeah,linkedin.
Speaker 3 (47:11):
Come on.
Speaker 2 (47:12):
We're everywhere.
Yeah, that's right.
We're on Apple, yeah, we're onAmazon.
We're on Spotify, we're oniHeartMedia dude.
Speaker 1 (47:23):
Yes, we're freaking everywhere on the internets.
Speaker 2 (47:27):
We are ubiquitous.
One might say yeah, so no, butseriously, tune in, share our
podcast, write in with yourcomments.
We'd love to hear from you.
Yep, get onwwwbigtalkaboutsmallbusinesscom
and see all our past podcasts.
Yeah, man, and learn and learnand then ask questions.
Yeah, smallbusinesscom, and seeall our past podcasts, and and
(47:48):
learn and learn and then askquestions.
Yeah.
Speaker 1 (47:51):
We won't want to be here for you.
Speaker 2 (47:52):
We're here, we're doing this for you guys, that's
right.
We're not trying to sell youanything.
No, okay, no.
So all right, eric.
Well, until next week.
This has been another episodeof that big talk about small
business.
Speaker 3 (48:15):
Thanks for tuning into this episode of big talk
about small business.
If you have any questions orideas for upcoming shows, be
sure to head over to our website,
wwwbigtalkaboutsmallbusinesscomand click on the ask the host
button for the chance to haveyour questions answered on the
show.
Stay connected with us onLinkedIn at Big Talk About Small
(48:36):
Business and be sure to headover to our website to read
articles, browse episodes andask questions about upcoming
shows.
What do you think is better a stock or an asset
purchase?
Speaker 2 (00:02):
Well, if I'm a seller , I want it to be stock, because
I want them to pick up all myliabilities, okay, Okay, that
they get when they buy thecorporation or the LLC as an
entity.
Yeah, if I'm a buyer, I onlywant asset purchase agreement.
Yeah, I'm buying all theirassets in known liability
specified.
But if there are otherliabilities I'm not aware of, I
(00:25):
don't pick those up.
Speaker 1 (00:27):
Okay, in the asset purchase agreement Correct.
Speaker 2 (00:37):
We are back again.
Yes, we are immediately back.
I know, gosh, we only had abrief break here.
Speaker 1 (00:45):
We can't act like all right, we'll be honest with the
reviewers, right?
We literally just cut anepisode.
Now we're back here.
We took a quick bio break, yep.
Came back Yep.
Pv team's got us set up forepisode two, yep.
But you're going to see thatwe're wearing the same thing we
were in the last week's episode.
Yeah, I mean, we're not goingto lie to you about that, no,
(01:06):
but it's okay.
Yeah.
Speaker 2 (01:08):
As far as you know, maybe I wear the same thing
every day.
That's true.
I kind of narked us out, didn'tI?
Yeah, that's okay.
So this isn't a.
We're not doing a fashion showhere.
Okay, we are talking aboutbusiness, small business and
entrepreneurship.
Yeah, hence our name.
Yeah, big Talk About SmallBusiness Dot com.
(01:33):
Whoa.
Speaker 1 (01:38):
Hopefully that got your attention today.
Hey, let's do something.
Let's take something out ofthis white cap.
Okay, let's do it.
Yeah, let me grab it yeahplease.
Speaker 2 (01:51):
We've got a lot of topics in there.
Speaker 1 (01:53):
There's a lot of topics, because we need to be
reaching in there more often.
I know it's trueEntrepreneurship is about
freedom and flexibility.
What are your thoughts on that?
Mark Zweig?
Yeah, right.
Speaker 2 (02:09):
It's not, is it?
No, freedom is a myth, Is it?
Yeah, I mean, I guess we canmake any choice we want to make,
but if we want to stay inbusiness, we're going to make
different choices.
That's a good point Than if wejust want to be impulsive and do
(02:30):
what we feel like at thatmoment.
Right, right, right.
Speaker 1 (02:33):
Yeah, so you can't expect and I think this is also
good for the existingentrepreneurs Because you hear
these things like freedom andyou know, and flexibility and
entrepreneurship, and it seemsit's that enticing candy that
you're going towards.
But if you follow that nowyou're in it You're like I don't
feel like I have freedom orflexibility.
(02:54):
What's wrong with me and mybusiness?
Speaker 2 (02:57):
It was a lot easier before we had cell phones.
Yeah, honestly, you could likecheck out for extended periods
of time.
Nobody could find you.
They almost didn of time nobodycould find you, and they almost
didn't even blame you becauseyou couldn't be found.
Yeah, it's just like you know.
Nobody could be, they couldn'tbe found either.
Maybe I mean that's very true.
Like you know he's tom, like Imean that, like you really buy a
ticket to non-freedom and nonand non-unflexibility it's funny
(03:22):
, yeah, it's like I used to loveit when, 10 years ago, 15 years
ago, my realtor would say, well, this, you know, we'd be like
trying to make a somebody madeus an offer and we make a
counter offer, or we're tryingto buy something we made an
offer.
It's like, well, they're, um,they're out of town for the
weekend or they're going on atrip.
I'm like you and I both knowthey got their freaking email on
(03:43):
their phone.
Okay, yeah, right, so bullshit,I'm.
I mean, I'm sorry I'm callingthat.
Yeah, that's no excusewhatsoever.
All right, yeah, so yeah, youare going to be tethered, but I
mean truthfully, I, you do havea certain amount of flexibility
that you may not have incorporate america.
Nobody's checking youraccumulated vacation time, right
(04:04):
, right, you don't have to askanybody if you can take off and
go to the dentist.
Speaker 1 (04:09):
Yeah, and you got to use that.
That's actually there's.
That that's a very isolatedflexibility that I take full
advantage of.
Yeah, I can bounce out you knowa couple of hours.
Yeah, no one has really theability to ask what I've been
doing and where I've gone.
Yeah, and that that does feelgood, I would say, but it's,
it's kind of my, it is reservedas my escape for when things
(04:33):
become well.
Then my fears have over, haveoverflown.
Speaker 2 (04:36):
Yeah, and you probably do it, so you can go
spend time on another one ofyour businesses.
Speaker 1 (04:41):
No, that's mostly what I'm doing.
Speaker 2 (04:43):
That's the other thing, it's not just to get away
, you know whatever.
Yeah, that'd be wonderful, butit's not.
It's like I got six differentthings I'm trying to do here
simultaneously, yeah, so yeah, Imean, I do think you have more
flexibility in some ways.
Speaker 1 (05:00):
And instantaneous decisions.
Yeah, yeah, but I don't think,like you have, like, honestly, I
have to go.
I'm going to vacation next week, yeah, you know, with the
family.
Speaker 2 (05:09):
I'm going for two weeks, coming up later in July
too.
Speaker 1 (05:12):
Yeah, but I don't feel like I have the freedom to
do that.
Yeah, I know.
Speaker 2 (05:16):
I'm sitting there looking at it Sorry.
I'm looking at a cash flowforecast that says I'm going to
run out of money exactly when Igo I'm like, oh crap, that is so
awesome, that always happens.
Four weeks from now, the cashflow projection goes in the
toilet.
Okay.
Speaker 1 (05:36):
Dude, you cannot, as an entrepreneur, disengage.
You cannot do it.
Speaker 2 (05:44):
Because it's impossible.
I'm just trying to push out aweek every week.
That's right.
Push the crisis out one moreweek.
Speaker 1 (05:52):
And it all, and because we're having a vacation
set for the last six months.
Yes, doesn't mean that week'sgoing to be any different.
No, because I'm going onvacation.
Yeah, it's so true, and I feelguilty for going on vacation.
Where are you going?
Speaker 2 (06:03):
We're going to, uh, destin, oh, destin, yeah, yeah,
so in the hot sun, yeah, weekone of my daughters is going
with um, her boyfriend's parentspeople, and they'll be there
somewhere.
And then my other daughter isgoing with her friend and her
friend's grandmother.
Oh, nice, all that beach yeah,they're all going to be down
(06:24):
there somewhere.
What is that 30 a?
Or beach yeah, they're allgonna be down there somewhere.
What is that?
30a?
Or whatever?
Yeah, they're all somewheredown there.
Dustin, sandustin, seaside, Idon't remember rosemary beach,
it's all those places.
Yeah, it's all the all that.
So you're, how long are yougoing for?
Just for a week, did you rent a?
Speaker 1 (06:39):
house or hotel, a little condo complex in a little
okay good, yeah, it's nice, wejust go back to the same place
of talent.
I love it.
That's what I do becausethere's some familiarity to it.
Yes, we always go to fortlauderdale same thing, yeah,
same place when I've been ableto uh request of my wife to keep
it as simple and convenient aspossible.
(07:02):
Like the price tag on it isn'tas much of a concern as the fact
that I can get there in adirect flight.
Speaker 2 (07:09):
Oh, the flights are cheap though, yeah.
Well, yeah, they are.
Speaker 1 (07:11):
I mean Allegiant, or whatever that is, or Breeze, I
can't remember which one, butthey're both called the other
two of those, yeah, yeah, but Ican get there in an hour and a
half, yeah, you know.
Yeah, you know, land drive tothe condo, be there in 15, 20
minutes, yep, and then Tara'sgot it worked out where
everything's like delivered byWalmart, love it.
Yeah, I mean, it's fantastic.
She discovered that.
(07:31):
I mean, what a convenience,right where she.
She's actually already made theorder last night, yeah, and so
she's gonna be at the condo.
You're set for the week.
There it is.
And then she just laced upawesome, yeah, and it's just
this routine thing.
But I mean, I've been able, andI and I've made some
requirements like I need it tobe like direct flight.
Yeah, I don't want me jumparound airports for no, I get it
(07:52):
.
Have time for that.
Crap stresses me out.
Yeah, you know.
And then I have to have goodwi-fi, yeah, you know, wherever
we're at.
Yeah, non-negotiable, right,otherwise I'm in, yeah, and then
I get down there and I and Istay in trouble, like literally,
my pattern is this we get downthere, I work for the first
couple of days really hard, youknow, because the girls are
sleeping here, or I'll go do itat a coffee house, but by
(08:14):
tuesday, you know, if we're downthere on saturday by tuesday
morning I started getting introuble.
Speaker 2 (08:20):
It's like you're going with us today, buddy,
you're going to the aquarium.
You're going to us.
Today, buddy, you're going tothe aquarium.
You're going to the beach.
Speaker 1 (08:25):
Yeah, I started getting in trouble.
By Thursday I'm fullcooperation.
I've realized that I'm onvacation, but by that time
there's only two more days left.
But I appreciate my spouse.
That's what's great about asupporting spouse.
It's a good partnership.
It is because they recognizethat you can't really disengage
(08:48):
and so they find ways to supportthat and then we can all have a
good family vacation.
Speaker 2 (08:52):
Yeah, I'm so thankful that my wife is the same way.
She's fantastic.
She knows when I'm goingthrough something.
To let me deal with it and notmake me feel bad about it.
Speaker 1 (09:04):
To let me deal with it and not make me feel bad
about it.
Like, even whenever things aregoing really well, as an
entrepreneur, there's not afreedom to me of not doing
something Because there's toomany things to fix, Exactly, and
so you'll never arrive at thisfreedom place.
I don't think as anentrepreneur if you're really an
entrepreneur because you'redoing something to fix things.
Speaker 2 (09:29):
Yeah, and no question about it.
And the other thing is you'vegot all the other ties, like
your bank loans that may besecured personally, in fact,
they probably are.
So if that goes bad, thenyou've got to cough up the money
.
I mean, so of course, you'regoing to be worried about stuff
all the time.
Yeah, I mean, it's just.
(09:49):
If you're not, you're crazy.
Yeah, honestly, yeah.
So, yeah, you're not free.
It's not like I can just gotake.
I mean, could you go borrowmoney and go buy a freaking boat
or it's million dollar boat orsomething?
Yeah, you could.
Or yeah, whatever, or use yourcash that you had to do that,
(10:10):
but it wouldn't be smart.
You know that.
Yeah, you're going to want totake that money and deploy it in
these other businesses.
That's right.
So it continues to multiply andcreate opportunities
potentially, and they don't allwork out.
You know that.
So, yeah, yeah, free.
You're not free out the door.
Freedom is a is is a joke.
Um, well, let's talk today about, um, I think, a really good
(10:34):
topic.
Um, you don't have to start abusiness from scratch, because,
yeah, that's always been one ofmy things in entrepreneurship
and small business.
In at the higher ed level, theyconstantly push startup,
startup, startup.
I mean, if you look at how manyclasses we have in new venture
development, how many sections,yeah, how many people teach it
(10:55):
at the walton college, it blowyour mind.
We probably got like eightteachers of that class and most
of them are doing multiplesections, but there's no class
on how to buy a business.
Speaker 1 (11:07):
See that's a shame?
Well, because the reality is,if you buy a business, you're
buying existing revenue andcustomer base versus starting
one trying to get new customeracquisition so much less risky.
So let's talk about that, Goahead.
Speaker 2 (11:23):
I'm just going to say that I do actually cover that
in my small enterprisemanagement class, but I'm the
only one that teaches that, soI'm just it just kind of gives
you a sense of the ratio.
Speaker 1 (11:34):
Yeah, like the okay, like the as a, as an
entrepreneur, like getting newcustomers is like the hardest
and scariest thing so that youcan do, and it's like
everything's dependent upon thatworking well, which comes down
to the word marketing yes, itdoes which everybody discredits
and shoves under the rug.
Speaker 2 (11:56):
Yeah, and some businesses need a lot of
marketing before the businessstarts 100% In order to be able
to come out of the gate and havea viable business.
I see this all the time, though, with things like some kind of
a marketplace where you got toget buyers and sellers together.
You know whatever it is andthey don't do the pre-marketing.
Yeah.
So when you turn the switch on,there's buyers and sellers both
(12:19):
there people who want andpeople who provide.
Yep, and it's dead in the water.
You don't go there and they seethat it's not worth being here.
Speaker 1 (12:27):
It's so funny when you talk about that ratio of
what's being taught, becausehaving a customer base that is a
paid customer base, and if youbought a business that's been in
business for five years 20,even better, the longer the
better You're absolutely right.
That has built this customerbase.
And you have somebody that'sjust wanting to get out and
transition to retire or death inthe some sort of circumstance.
(12:51):
They just don't want to do thebusiness anymore.
Like there's probably not a ahigher percentage of success
than to buy something so truethat dude it's.
Speaker 2 (13:02):
So.
I mean, I got a friend thatdoes this.
Yeah, he looks for baby boomerowned businesses that have been
around a million years.
Okay, because they got allthese customers.
Yeah, they got employees, theygot suppliers, they got systems,
they got a location orlocations.
They have no transition planwhatsoever.
(13:23):
Yep, okay, and he swoops on in.
It's great every time and it'susually a win.
Went all the way around, heevery one of these businesses.
He immediately grows them andby doing several things, like
putting processes in that theydon't have and doing marketing,
yeah, yeah, none of them,they're not doing any marketing.
Speaker 1 (13:43):
Well, because they they become dependent upon that
flow and then they're like, atsome point, some along the way
they go.
Well, we don't have to do anymore marketing to grow the
business.
I don't really want to grow thebusiness because the more I
grow it, the more problems Ihave.
I'm making a good living rightnow.
Yes, yeah, and that's what I a.
(14:07):
Uh man, I've really I shouldget more into that.
Speaker 2 (14:08):
Honestly, you want to go buy some businesses?
I'm always into it, I mean, and.
And then the thing is the guyum, he, the businesses he buys,
though, are related to eachother.
Yeah, some way tangentially, soyou can share customers.
That's right between them, evenif, or you can share talent
yeah, customers, or talent,that's great, it's like it or
you can share talent, yeah,customers are talent, that's
great, it's like.
It's just such a great strategy.
(14:28):
And look, guys, it actuallyworks.
He's buying one right now, okay,for a couple million plus.
It's an old company.
It's been around, let's say, 50years.
It's great, all right, and it'sgot real estate.
It makes the owner of the, thecompany I don't remember what
(14:49):
the numbers are exactly, but areally good living right now.
This business, okay, one owner.
He's getting the business forfree just for buying the real
estate.
Yeah, because it has that valueto it.
Yeah, the guy doesn't even wantto deal with the business
itself.
He's just going to be like okay, we can keep doing it if you
want.
Okay, it's like is that notbrilliant?
(15:11):
It's great.
So the real estate is so easyto finance yeah, yeah, it's real
estate.
It's got a secured asset, yeah,okay.
And then he gets this businessand then he's just going to go
in there and do the same thinghe always does Study it, maybe
change out a few people, put hisprocesses in play, start
marketing yeah, boom, this grows, it's.
(15:34):
You're so right about that.
It's just so much I never told.
I mean, I always said when youbuy a business, you get the
customers or clients.
That's great, but I neverthought about it quite exactly
how you post it.
It's so hard to build yourcustomer base, okay, from
scratch.
It is so hard, it's like anexpensive.
(15:56):
Everybody says to me.
Earlier this week I had adiscussion with one of my former
students.
He's like I'm trying to figureout.
I want to start a business,okay, I'm on the side from what
he's doing.
He goes, I can put 150,000 intoit.
What do you think I had to do?
He's doing, he goes, I can put150 000 into it.
What do you think I had to do?
So I said, well, what are youthinking about right now?
(16:17):
Well, his first thought waspackaged um, uh, energy, uh,
drink or protein drink, okay,and I'm like dude, do you know
how hard it is to gaindistribution with a drink?
If you've got a one drinkproduct company, yeah, who is
gonna buy that?
Right?
Nobody, right?
No, you.
You won't get any traction, youwon't get any distribution.
(16:37):
Yep, super hard to do, veryhard, okay.
Or people come up I got a newproduct, I'm going to put it on
my website and I'm going to sellthat product.
Driving so hard, driving peopleto your website is so freaking
hard.
It is.
But if I can go buy a businessthat's already got hundreds or
(16:58):
thousands of customers, yeahthat have used it.
Speaker 1 (17:02):
If you have a business that's got like 10 000
people in your email database,yes, I mean man, that's just
like that's ismine, because ittakes years to get to that in a
lot of circumstances.
You know, I mean I think that Iwould love to see if you could
do a study, have your studentsdo a study about the true value
(17:24):
of an existing customer baseversus trying to build that same
customer base.
Like, really, what did it take?
Because it's not just marketing, it's just not call to actions,
it's not take, because it's notjust marketing, it's just not
call to actions, it's not sales,it's not just the people that
you got, yeah.
And then yeah, because once youget them in and they stay in
like now you're talking aboutchurn and and how much turn did
(17:44):
you?
That's a big factor, it's huge.
And then, like you've got aperformance customer service.
It's everything about thebusiness is locked up into that
customer base.
Speaker 2 (17:53):
Or I love businesses where it's really hard for them
to disconnect from yeah, thoseare my favorite ones Like
they're so dependent they can'tlike turn this thing off or
they're dead.
Okay, pretty much.
I mean it's like accountingsoftware, whatever.
They don't want to bother withconvert.
Yes, it's not perfect, perfect.
But you know what?
I'm not going to unhook, forthat's right, it's the, the pain
of transition.
Speaker 1 (18:14):
Yeah, it's just not worth it.
No, it's not worth it, yeah yep, so not worth it.
Speaker 2 (18:19):
It really is interesting.
Um and and this is so true, soyeah, I think um getting getting
the customer base is supercritical and then what about
this?
Speaker 1 (18:30):
this is something I'd love to hear you talk about.
On the financing yeah, likeit's easier to get financing for
a business that's been inexistence, oh gosh, yeah, yeah I
mean it's it, of course it isbecause it's a proven thing.
Speaker 2 (18:43):
Yeah, you can borrow money on the cash flow.
Um, you can get, you know it'sgot assets.
You can use accounts,receivable equipment, whatever.
So, yeah, and the equipment maybe depreciated too, so it's
cheaper.
Then you can go buy all thatnew.
Put that together.
I mean there's just a millionreasons.
(19:04):
It is easier to finance and ifI can get the seller to finance
part of it, that's always whereI go.
Speaker 1 (19:12):
Oh yeah, for sure.
And so to the point if you'relistening to this and say we had
a listener that's thinkingabout starting their own
business, yeah.
I mean the reality is, if youdon't have any money yourself or
access to other capital whichis not necessarily the best
thing I mean you've got angelinvestors right family and
friends or something like thatthat aren't looking for irrs.
(19:33):
You know investor returns andall kinds of craziness.
You know they're patient, verypatient.
I mean, just believe in you,not that they all are, I'm just
saying the ones yeah.
Yeah, they just want to help you, right, yeah, right, they want
to see you it's not a rational,financially driven decision and
I think that that's dangerous,like that's even more dangerous,
(19:53):
right, even if you do get thatvery, um, non-strength,
benevolent yes, benevolentcapital, yeah, angel capital
yeah, yeah, like that's, that'sgoing to put a lot of pressure
on you right out of the gate atleast it should but, but, being
able to like a good decision, ifyou're that person, that's like
man, I'm really itching to bemy own boss, like we talked
(20:16):
about last episode, or havefreedom, or have flexibility,
like we're talking about goingand buying a business based on
their current financials andgetting an easier loan against
that business without having tocome up with the capital
yourself like you could.
You know, that's just like sucha no brainer.
Speaker 2 (20:33):
Every time I ever got involved in buying a business
or most every time or advisingpeople, we always try to get the
seller to finance andunderstood all of it If possible
.
That's your goal.
I love it because I always askmy students because we do talk a
lot about this in my smallenterprise class and I have them
write a paper on it and if theytell me that the first place
(20:55):
they're going to do is say havetheir own cash or they're going
to their family or whatever, Itake it off points, I'm like how
many times have I told youpeople, you always, I don't care
if I got 100% of the cashsitting there, I want the seller
to finance it to me.
Why?
Two big reasons, okay, one isI've got a way to claw back at
(21:19):
them if anything wasmisrepresented, because they
haven't been paid all the money.
Speaker 1 (21:24):
You have a continued due diligence process.
Speaker 2 (21:27):
Yes, that's exactly right.
I've got a way to get back,okay.
Secondly, they want to see mesucceed the seller of that
business.
Yeah, okay, so they're going tohelp us?
Yeah, okay, yeah, because theydon't get paid.
Speaker 1 (21:47):
Unless you do well, Exactly so.
Can you talk a little bit aboutthe mechanics of that?
What does that look like?
So I found a business.
Say I found a plumbing company.
It's a two-person business.
The owner's ready to get out.
I want to buy a business.
How do I approach that seller?
Speaker 2 (22:04):
Well, I mean two-person is pretty small, but
let's just say 10, just for thesake of it.
Sure, how do I approach theseller?
I call them up and say look, Ihave no idea whether you'd
consider it or not, but I wouldbe interested in talking with
you about I don't know what yourplans are.
I would be interested intalking with you about
(22:24):
potentially selling me thisbusiness.
Yeah, and see what they say.
Then shut up Okay, and see whatthey say.
Then shut up Okay, and see whatthey say.
And if it, if it's a yeah, I'mopen to that idea.
Well then, let's get togetherand let's have a little talk
about it.
Okay, and if you got anynumbers you'd be willing to
share with me, that'd be great.
If you want me to sign somesort of an NDA, sure, I'll be
(22:47):
glad to do that.
So you know, I can't just labyour numbers all over the place
or recruit your people.
Yeah, right, I'm perfectlywilling to do that.
Speaker 1 (22:59):
But let's talk about it.
And so when you meet with them,then at some point you bring up
hey, would you consider ownerfinancing this?
Yeah, so financing this.
Speaker 2 (23:09):
I mean, I might, I might talk about that or I might
save that for when I actuallysend them an LOI letter of
intent or MOU memorandum ofunderstanding about a basic
offer structure, got it.
I'm not necessarily going toask them if they're going to
finance it initially.
I, if I did, I would probablypose it as now.
(23:29):
I assume that you're going tobe willing to finance, um, this
deal, yeah, harder all of it,because there's not a lot of
buyers out here right clamoringto buy this business, right,
yeah, yeah that just they're not.
Speaker 1 (23:43):
Nobody's going to come in here and just give you a
bunch of cash and let you goout the door so literally like
on the l, like you might havehad multiple conversations
reviewing financials, all thisdiscussion, and then you say,
hey, I'm going to send a letterof intent over to you in the
next couple of days and when yousend that, that LOI in there
will talk specifically.
My offer is this upon youracceptance of seller financing
(24:07):
this deal, this is my offer foryou.
If you'll seller finance, thenmy offer stays true.
Yeah, there's going to be a lotof details on that.
Sure, my, this is my offer foryou.
If you'll sell our finance,then my offer stays true.
Speaker 2 (24:13):
Yeah, there's, there's going to be a lot of
details on that.
I mean, I don't necessarilyhave to have a lot of meetings.
Um, my approach is, yeah, Iwant to see financials.
Okay, but I'm going to take ashot across the bow real early
because I want to find out ifthey're realistic.
Okay, I don't want to waste mytime with anybody.
(24:33):
Yeah, okay.
So a typical LOI, let's say, orMOU, to buy a business or to do
an asset purchase agreement.
It's going to spell out likeright away this will be
considered.
The form of this transaction isgoing to be a stock acquisition
, um, or a stock sale, or anasset.
(24:53):
You know asset purchase and youknow we'd, we'd have that um,
will we?
We will pay you book value foryour business.
Okay, we're not specifying anumber at the time of closing,
and and we'd like for you tofinance that for 24 months based
(25:15):
on eight quarterly payments,okay, okay.
So you're going to spell outstuff like that.
We will have a note in there.
Okay, for a certain amount ofmoney?
All right, we're going to paythat over three years in monthly
installments at 9% interest.
We'll give you an employmentagreement for one to three years
(25:38):
, depending on your interestsOkay, and plans that will have
an expectation of reduced worktime commitment for you, but
you're not saying what thesalary is.
Speaker 1 (25:52):
You're not right Exactly.
Speaker 2 (25:55):
I'm not, if I can avoid it.
I mean I could do that.
Yeah, I could say we'll pay youbook value at time of close.
Okay, Right now it's 400,000.
Yeah, we'll give you a note foranother 300,000 paid over 30.
I mean we could say that, okay,that okay.
Um, you know, it's all based onthese current numbers.
(26:15):
What did?
Speaker 1 (26:16):
you mean a certain day.
We'll pay you 400 000, but giveyou a note at 300 000.
Speaker 2 (26:20):
The 400 000 is for the book value of the business.
Okay, so it's the value of thebusiness, the book value, assets
minus liabilities.
The 300 000 basicallyrepresents goodwill.
That coupled with theemployment agreement.
Okay, so so.
Speaker 1 (26:36):
So you would add all that up for the total price paid
for the business gosh, you sellthe, the book value at 400
grand plus the 300 000 of thenote, right?
So what does that go to?
I mean, is that seven?
What does it go to?
What do you?
Well, I mean, like, where's thethat go to?
I mean, is that seven?
What does it go to?
What do you?
Well, I mean like, where's the?
Like, what are you buying forthe note?
Like, what's the note buyingit's?
Speaker 2 (26:56):
buying the, the future cash flow of the business
.
Got it okay, okay, yeah, that'sthe goodwill all right got you.
It's not all secured by hardasset.
None of us would ever sell ourbusiness for book value, right
assets minus liabilities.
Hell, no, right, not Right, noteven close.
It's worth far more than that.
As you know, you sold yoursoftware company.
(27:18):
That wasn't based on book value, it was based on the future
potential earnings Got you Okay,so that's the two instruments
there.
The value of the business itselfIn the employment agreement.
Don't dismiss that.
The reason employment agreementis part of it is we may or may
not have them do anything to getpaid, that we may just want
(27:40):
them to be available.
Speaker 3 (27:41):
Yeah.
Speaker 2 (27:41):
Or we may want them to work full time for a year and
50% the next, whatever.
Yeah, all right, so that's partof the premium.
And the reason why is we canwrite that off as an expense of
the business, right?
Okay, so it's part of theconsideration, but normally
these payments we make to theseller would not be tax
(28:03):
deductible for us as the buyer,right?
So you understand that.
So the more of it I can shovetoward the employment agreement
Again, consult your legal andtax advisors on this yes, but
the more of the purchase price Ican shove over to an employment
agreement or consultingagreement.
Speaker 1 (28:22):
From the seller's perspective, it doesn't matter
how it comes, necessarily doesit.
Speaker 2 (28:26):
It may or may not.
It all depends on what they'vegot and what their accountants
are doing.
Speaker 1 (28:30):
Well, I guess if they're getting paid a salary or
something, then it's obviouslygot a tax bracket.
Speaker 2 (28:35):
Right, it's a tax issue.
It's not a capital gains, capgains or it's ordinary income.
But yeah, sometimes it's totheir advantage to stretch it
out.
Yeah, okay, it doesn't kickthem into the higher bracket,
true, yeah, true.
Speaker 1 (28:54):
So anyway, bracket, true, yeah, true, so anyway.
Yeah, I mean.
So why would a seller bemotivated to do the order, the
seller financing, like what'sthe value for their side, versus
saying, man, hell, no, you know.
I mean like I guess that if Iwas, if I was a seller of the
company, I'd be like I want allmy cash now, like I don't want
you to spread it out over townyeah, but you might not because
a there could be tax advantagesto spreading it out, right, okay
, right, maybe you're going toget interest on that, okay, yeah
(29:17):
, uh, you can't get that moneyout of the company right now.
Speaker 2 (29:20):
right, that could be really critical cash for you to
get sure, um, which is going toallow you to, like, pay off your
house or whatever.
Yeah, yeah, okay, in the nexttwo years and be done with that.
Um and um, uh, you don't haveany other options.
I was like you're sick, you got.
(29:41):
You got cancer, you got it.
You're going through a divorce.
I mean it you're tired.
Speaker 1 (29:47):
You don't have people knocking on your door every day
.
Yeah, tired.
You don't have people knockingon your door every day wanting
to buy your business.
Speaker 2 (29:51):
Yeah, and it's hard, like if you want they do they
all want to give you the samekind of deal I'm going to give
you.
Yeah, that's right, right, soyou got to think about who's
most likely to make thissuccessful going forward well,
and a lot of people got tounderstand too.
Speaker 1 (30:02):
If I was, if I had a business like that and I want
and I want to sell it, I'm in aposition that I'm eager to sell
this business for whateverreason.
That's not an easy, quickprocess by any means.
I mean, like, how are you goingto sell it?
It's like how do you sell a car, how do you sell a boat?
Like I mean, there's a lot ofwork in selling a business
because there's so much detailin it.
Speaker 2 (30:23):
It's more complicated than buying a house.
It does.
It takes time.
It takes a lot of time todevelop.
Speaker 1 (30:38):
And lot of time to develop and you got to market
that.
You got to pay the fee to thebusiness broker or the private
or the um, you know, theinvestment banker that's
representing you, yeah, so it'sa big deal to have somebody come
and offer you to buy thebusiness even at seller
financing.
Speaker 2 (30:44):
Yeah, it is.
Yeah, and I mean, especially ifyou have faith that they're
going to be able to operate it.
Yeah, you know, like I I talked, maybe you can keep the real
estate and you and that's anasset for you.
Like I, I had lunch yesterdaywith a friend of mine and we
were talking about another oneof our friends who's a.
Who's a uh it's as a certainmedical uh uh practice okay, and
(31:08):
his it's very profitable.
You know they do certain thingsprocedures there, surgery
related, yeah, and so he soldhis business five years.
You know, seller financed andgot to keep the building.
He's going to have ongoingincome from the building.
So he basically leased back outto the buyer.
Yeah, exactly, and you knowit's a great deal for him.
(31:31):
He's going to be making moremoney and he doesn't have to be
there for entirety, wants to doother stuff with his time.
Yeah, that works out well andand so, as long as the they have
faith at the buyer, yeah, hasthe capability to continue the
operation.
I mean, so that is a factor.
But if I came to you to buyyour plumbing company and I'd
(31:53):
already had a very successfulplumbing company, or I'd bought
three other plumbing companies,you'd feel a lot better about me
than if I never had a plumbingcompany or I never knew anything
about plumbing at all, becausebasically the seller turns into
the financier in this wholetransaction, right, and they
need to have faith that you'regoing to actually pay what you
(32:14):
said Exactly.
Speaker 1 (32:15):
You're not going to come in destroy the business six
months later, default on yourpayments, right, and then you
got a big pile of shit in yourhands that actually is lost
value, yeah, and so that's kindof a risk on that side, right,
yeah.
Speaker 2 (32:29):
Absolutely.
I mean that happened to us withthe private equity firm we sold
to.
We still had a going interest,we still had an ownership
interest in the in the companythat was created, with our
company being merged with twosmaller companies and they blew
it.
They didn't have experience inour industry truthfully
(32:52):
successful experience.
Now, the way we looked at it inthat case was we'd already
gotten enough cash that wefigured if it did blow up we
weren't going to feel bad, right, um, we felt like we got out of
it what we deserved.
Speaker 1 (33:06):
So could a seller get kind of screwed on this whole
deal?
Yeah, A seller could getscrewed.
Speaker 2 (33:11):
So what does that, what does that look like?
They, the, the buyer, um,doesn't run the business
successfully and can't make thepayments, and usually the
security is the business itself.
And so then that, or unless youget a personal guarantee.
Speaker 1 (33:25):
You might have a personal guarantee, but then
they may not have any assetsright, but then as a seller, you
have to go sue them and youhave to go through the legal
process.
Speaker 2 (33:32):
Yep, yep, yep, so it can backfire on you and you
can't end up with.
It takes a lot of faith in thebuyer.
Yeah, they've got to be solidpeople that have a good track
record.
Speaker 3 (33:47):
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Speaker 1 (34:02):
Okay, so you submitted the LOI.
The seller agrees to your LOI.
Yeah, Now what happens?
Speaker 2 (34:08):
Now we go into due diligence.
We've typically got, you know,let's say, 90 days to work out
the details on either a stockpurchase agreement or an asset
purchase agreement.
Speaker 1 (34:19):
What do you think is better a stock or an asset
purchase?
Speaker 2 (34:21):
Well, if I'm a seller , I want it to be stock, because
I want them to pick up all myliabilities, okay, Okay, that
they get when they buy thecorporation or the llc as an
entity.
Yeah, if I'm a buyer, I onlywant asset purchase agreement.
Yeah, it's no different.
I'm not.
I'm buying all their assets inknown liability specified.
(34:42):
But if there are otherliabilities I'm not aware of, I
don't pick those up.
Okay, in the asset purchasecorrect.
So as a buyer, I would alwaysrather do an asset purchase
agreement.
I don't get the sexualharassment case I was unaware of
, or the hundred thousand dollarcredit card bill that somebody
(35:05):
racked up that's not beendisclosed in the name of the
company.
Speaker 1 (35:09):
This stuff happens.
Yeah, all the time.
Yeah, it does.
So there's a lot of trust fromthe buyer in.
With this I mean you, basicallyto put it make it simple it's a
point of negotiation.
Yeah, yeah, make it simple.
It's like any other transactionto where you're buying a house
is a good example.
Yeah, to where you're buying ahouse is a good example.
(35:29):
Yeah, like, you don't like whatyou see and you like it.
But once you buy that damnthing, you start figuring out oh
wait a minute, this, like inour case, this one room is
really hot all the time.
Yeah, you know, I mean, it'slike why it's not insulated
correctly.
Yeah, that wasn't disclosed.
Yeah, exactly, nobody knew.
But it's my damn house, it's myproblem.
Yeah, yeah, right, but exactlyso that in an asset purchase
situation, that would actuallyfall back on that seller.
Speaker 2 (35:53):
Not necessarily.
No, the asset purchase?
It wouldn't necessarily.
The main reason is not to pickup liabilities that we don't
know about.
Yeah, okay, yeah.
So because I'm spelling outeverything I'm buying and every
obligation I'm taking on.
Speaker 1 (36:08):
These are all the assets I'm buying.
Here's all the knownliabilities that I've agreed
that I will assume from you,correct, in order to close this
deal.
But it's really I'm buyingthese assets.
That's why I'm going to giveyou this money, whereas the
stock is.
Speaker 2 (36:23):
Hey, I'm just going to buy your interest, I'm buying
the company quote, unquote yeah, okay, and that means I inherit
all the liabilities, everythingthat's involved in that.
Yeah, like they did a job fiveyears ago, now they're getting
sued.
Okay, that's my lawsuit.
Speaker 1 (36:37):
Now, now I'm hitting it.
Swing the other way.
From an asset standpoint.
Let's say that you bought fromme an asset purchase, right,
right, and you listed out theassets.
Okay, eric's got, you know, 15cameras and 15 microphones, blah
, blah, blah.
But what I also have that Ididn't talk to you about and you
weren't aware about is I have atrademark on a product that
(36:59):
I've released in the market,right, but you don't have that
listed out.
That could be.
You're missing that then.
Exactly, so it works on theother side too, like there might
be unknown assets that mycompany owns, but you could
spell out I'm buying all assetsof the corporation, all right,
okay.
Speaker 2 (37:17):
And then I'm specifying these specific
liabilities.
You see the difference in that?
Oh, yeah, for sure.
All assets of the corporation,yeah, okay.
Speaker 1 (37:27):
Is there a tax implication on either or both?
Oh yeah, I can't.
Speaker 2 (37:31):
I'm not good.
Are you not a tax accountant?
I'm not a tax accountant, butthere could be.
Yeah, in some cases it mayimpact whether it's treated as
capital gains or ordinary income.
Yeah, I can't tell you and Idon't know what the basis.
If there's going to be adifference in the basis, Anybody
that's interested in doing this.
Speaker 1 (37:48):
They definitely need to get a finding a really good
business attorney.
Thank you, deal attorney, dealattorney.
Even yes, yes, granular yes.
And uh, shout out to adam flockwith rmp law firm.
I mean, I just wanted to saythat we don't really do that
very often, yeah, but he was,he's a fantastic deal.
Speaker 2 (38:07):
Great, I've passed it along.
I mean I, I, I could say in theae industry george cristodula
was the guy that it's just he'sthe best dude.
Speaker 1 (38:15):
It's like like on that, like it is such a big deal
to find a really good attorneythat knows how to do the deal.
Speaker 2 (38:26):
It's money well spent , so well spent, and my
experience is that the reallygood ones they actually don't
cost you more money because, Athey're such good negotiators,
Right, and B if they've done alot of it, they're not learning
at your expense and justcharging hours and hours and
hours against it Do not get yourbrother-in-law, who is an
(38:48):
attorney, a divorce attorney ora p.
Speaker 1 (38:51):
I mean nothing against those folks, but I just
it's disastrous.
It is because these things thatyou spell out in this contract
are massive right and there is aspecialty to knowing what to
ask and how to classify things.
Speaker 2 (39:04):
Yep and just knowing the process and knowing what to
look out for.
Speaker 1 (39:07):
Dude, and not to mention.
The worst thing that couldhappen is that maybe you say
they know all the paperwork butthis attorney starts getting in
negotiations and they pisseveryone off because they're
asses right and they're justthey think that's their job.
That's bad.
Speaker 2 (39:24):
Some of them.
That's not what you want.
You want the one that thinks myjob is to get this done.
Speaker 1 (39:30):
Get this deal done, so people get paid Right and
that's how I get paid Exactly.
I'm not the litigation.
You know.
To that point there's adifferent type of attorney for
litigation.
Speaker 2 (39:41):
Exactly.
There's a different specializedattorney for everything.
Attorneys don't generalists arenot what you want, guys.
Speaker 1 (39:50):
Not in business, man that is.
I had to learn that the hardway, yep, kind of time and time
over a few times, sure, becauseI wanted to believe it was
really not that complicated, itreally should not be this
expensive.
I'm getting ripped off bysomebody that says, oh, I can do
, I charge 500 an hour.
I'm like my god, there's no way, you know.
(40:11):
But the reality is man like andyou need to ask your friends,
you need or not, your, yourpeers in business, trusted
mentors and advisors, to findthese people.
Yeah, because it's.
It's not like going to a bank,you know like it's not a little
bit of difference, it is amastering.
So you know it's so, juststruck, potentially destructive.
(40:32):
Yeah, piece of difference itreally.
Speaker 2 (40:34):
I mean some.
I mean good attorneys too.
They can provide a lot of taxadvice.
Oh, it's, I mean it's a hugedeal.
Speaker 1 (40:41):
yeah, that's the thing with like, with adam, like
he's a tax attorney too right,he knows like.
And so how you set up theentity, how you come to the
table and how you buy thatcompany, or even how you sell
that company, big implications,big implications.
Speaker 2 (40:56):
Yeah, so, yeah, all that is so true.
I mean it's just we could talktill we're blue in the face and
there's still going to belisteners out there who get
their brother-in-law or the guywho handled their traffic ticket
because they really liked him,or the person who did their
wills, trusts and estates, orwhatever, and they and they and
their uh and their attorneywants to get in this, and so
(41:17):
they're going to use them as aguinea pig and learning example,
like you said.
Yeah it's it.
They people just won't listento us on that all the time and
so to to close this conversation.
Speaker 1 (41:28):
I mean I know we hit one point, but I think that's
really important, like in thediscussion of buying a business
versus starting one.
You know that whole deal-makingprocess and like do you have to
be an expert in deals to go buysomebody's business?
Speaker 2 (41:42):
No, I don't think you have to.
You just need some good adviceFrom I mean.
There's a lot of resources youcan read up on it.
There's a lot of informationout there if you want to capture
it.
Speaker 1 (41:54):
Yeah, the first thing that I would honestly do is go
find that attorney.
Yeah, that attorney is going tobe critical.
You can ask your network andyou can research a lot.
You can do a lot of thingsfinding a good deal attorney and
just can research a lot you cando a lot of things finding a
good deal attorney and just gostart with that conversation.
Speaker 2 (42:13):
But I have interest in this business over here.
What, yeah, how should Iapproach this?
Yeah, exactly, I mean, I helpedone of my students this last
year go through this really, andyou know he drafted a
preliminary loi.
I added some things to it.
Then I sent him to the attorneyto look at it.
Okay, the attorney made somechanges on it this isn't a legal
zoom, huh loi don't get it.
No, no, thank I.
(42:34):
I'm glad you said that, okay,and then, and then you go with
the loi at that point, okay.
Speaker 1 (42:42):
So yeah, I mean, there's resources out there for
sure so after the loi, you gothrough your due diligence,
maybe 90 days, and that's a veryimportant time period as well,
right, extremely important.
And I've been a hasty person onthat side, yep, on the buying
side, yep, and I was dreaded up,yeah, and there's always
(43:03):
something or some things, well,that you don't really catch in
due diligence.
Speaker 2 (43:08):
The problem I think with a lot of buyers is that
they get so psychologicallyinvested in the idea we're
buying this company over there,we're growing, we're buying this
emotional attachment yeah, yeah.
And then there's red flags comeup.
It's like we're we're buyingthis company.
I don't want to bail out of it.
I mean I had this one studentof mine.
(43:29):
She bought a 3pl really smartgirl, yeah, okay.
Uh, I mean I can't say I everas a speaker.
3pl, third-party logisticscompany right, okay, you know
she'd worked as a cfo in a steelcompany that sold steel.
She worked for fedex, okay, soshe had a lot of experience in
that field.
She buys this business, okay.
Now it did turn out to bemisrepresented and she clawed
(43:54):
back.
But that's not easy At thebuyer, okay, and she had a very
rough couple years out there.
Speaker 1 (44:03):
People don't Big warning thing on the whole.
This is why an attorney is isso so damn important in these
things, because, yes, you canclaw back if you have the
language in there to begin within the contract, right, yeah,
and there's laws and you knowregulation.
Speaker 2 (44:18):
but the pain, right she just refused to pay the guy.
Yeah, okay, yeah and so, butyeah, I mean back on the due
diligence topic.
The reason why is that thebiggest client of this business
pulled their business and theseller knew that, which she
(44:41):
could prove, because when shebought the business she got got
all the email.
So going back in the emailprior to the purchase being
closed was the evidence thatthis guy knew he was losing this
big client.
You see what I mean.
But that due diligence couldhave a better due diligence
process would have uncoveredthat.
(45:01):
Let's just say yeah, and that'swhy it's so critical, as you
said.
Speaker 1 (45:06):
Yeah, say yeah, and that's why it's so critical.
As you said, yeah and and andagain, I don't do not minimize
the pain of going through somelawsuit trying to get this stuff
done, because it will be verycostly and it's risky.
It's like a whole another levelof risk on itself, like if
you're, if you have a, even ifyou have evidence and you're
trying to sue for that, yeah, itdoesn't mean you're good oh no,
it doesn't.
Speaker 2 (45:26):
They may not have anything.
Oh, back on this deal I wastelling you about, though.
They spent like $2,500 onsomething I don't remember what
it was during this due diligencephase, whether it was appraisal
of the business or legal workor whatever and her husband's
like we've already invested$2,500 in this.
We're going to go through withthis deal.
She laughed.
(45:48):
You know, $2,500 compared tothe six-figure losses that we
had annually.
Okay, so true, man, after thatit's like $2,500?
That's gone.
Okay, that's nothing.
Speaker 1 (46:03):
It's kind of like deciding not to get a home
inspection before you buy ahouse because it costs $600.
Speaker 2 (46:09):
Yeah, exactly You're going to spend a million dollars
, but I don't want to spend $600.
Speaker 1 (46:13):
That's right.
And then you find out the aircondition goes to the capoots
after you buy it.
Yeah, it's obvious.
Speaker 2 (46:19):
Would have been obvious it's the same kind of
thing.
Speaker 1 (46:23):
It is man that's a good discussion, man we're out
of thing.
It is man that's a gooddiscussion, man we're out of
time.
Speaker 2 (46:27):
But we need to come back to this because I think a
lot of people don't understandthis process.
They think it's impossible todo.
They say I don't have the moneyso I can't buy a business Right
.
They don't think about buying abusiness Right as an option.
It just doesn't even come up.
But it is such a great option.
Speaker 1 (46:47):
It really is.
I'm getting really intrigued byit.
Yeah, you know.
Speaker 2 (46:52):
So Cool.
Well, it's been a greatdiscussion.
Once again, we appreciate ourlisteners.
Yeah, we're growing Correct,we're growing.
We're on Instagram now too.
Okay, it's huge.
Yeah, youtube, facebook, yeah,linkedin.
Speaker 3 (47:11):
Come on.
Speaker 2 (47:12):
We're everywhere.
Yeah, that's right.
We're on Apple, yeah, we're onAmazon.
We're on Spotify, we're oniHeartMedia dude.
Speaker 1 (47:23):
Yes, we're freaking everywhere on the internets.
Speaker 2 (47:27):
We are ubiquitous.
One might say yeah, so no, butseriously, tune in, share our
podcast, write in with yourcomments.
We'd love to hear from you.
Yep, get onwwwbigtalkaboutsmallbusinesscom
and see all our past podcasts.
Yeah, man, and learn and learnand then ask questions.
Yeah, smallbusinesscom, and seeall our past podcasts, and and
(47:48):
learn and learn and then askquestions.
Yeah.
Speaker 1 (47:51):
We won't want to be here for you.
Speaker 2 (47:52):
We're here, we're doing this for you guys, that's
right.
We're not trying to sell youanything.
No, okay, no.
So all right, eric.
Well, until next week.
This has been another episodeof that big talk about small
business.
Speaker 3 (48:15):
Thanks for tuning into this episode of big talk
about small business.
If you have any questions orideas for upcoming shows, be
sure to head over to our website,
wwwbigtalkaboutsmallbusinesscomand click on the ask the host
button for the chance to haveyour questions answered on the
show.
Stay connected with us onLinkedIn at Big Talk About Small
(48:36):
Business and be sure to headover to our website to read
articles, browse episodes andask questions about upcoming
shows.
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