0049 - How He Bought a $3M Business With Almost No Money Down

I assumed, I think, like a lot of people probably do, that it would be very straightforward. I offer to buy your business, bank gives me money. I buy your business. Everything's fine.

That's not how it went. Welcome to Business Buying for Financial Independence. I'm Tim Delaney, and I help young professionals buy small businesses so they can escape the 9 to 5 and take control of their time, income, and future. If that sounds like you, hit the subscribe button and let's get into it.

- Today's guest is my first repeat guest, Jimmy Feeman. Jimmy is a Forbes 30 under 30 recipient and an entrepreneur who launched No Baked at just 23 years old and turned it into a nationally recognized dessert brand. He's run e-commerce scoop shops, franchise the concept and even explored the world of consumer packaged goods, which we discussed on his last episode, episode two. Now, he has just closed on a subcontracting business that we are excited to hear about today.

So, Jimmy, welcome back to Business Buying for FI. - Thanks for having me back, Tim. It's cool that I was number two. I didn't realize that.

That's crazy. - Yeah. Yeah. You were actually my first guest interview released, so I had, you know, I'd batched a whole bunch before I released the podcast.

And I don't think you were my first interview that I actually recorded, but you were the first, first interview episode I released. My episode one was just a little introduction of myself. So you were the first guest, and now you're the first repeat guest and the first guest that went from looking to buy a business to buying a business and back on the show. - Yeah, I know, I was like, I think when we first met, I was very like, I was hesitant.

I was also really excited to kind of like dive into, like, can I actually make this happen? And it was a very unexpected journey because I assumed, a very unexpected journey because I assumed, I think, like a lot of people probably do, that it would be very straightforward. I offer to buy your business bank gives me money. I buy your business.

Everything's fine. That's not how it went. - Yeah, that’s, I just got off a phone call with somebody else - That talking about that exact thing. It's - He's been looking for two years and hoping to close soon, but it's a roller coaster ride, right?

- It's a roller coaster ride. And I think the thing that struck me as kind of shocking, I got a really, really good deal on just the multiple that we bought the business at. It was doing really, really well. And the more we got into it in the very beginning.

So I got an LOI out to the owner. He was pumped. I came in in a little over asking, because I was going to ask him to do a little seller financing, and I knew like the SBA rules, like, hey, I get him to defer some of the seller financing that counts as equity. They've changed up the rules.

They changed them up while we were doing the transaction again. But that remains a true fact. And so we only had to come up with 5% down payment. And I figured like, oh, this is a like done deal, a bank laundry ride this.

And we ended up going to like eight different banks for them to, for someone to be interested. And I was like, this is so interesting that nobody wants to underwrite this deal. Like the debt service really ends up being about a third of what they were making, maybe a little less. And so like, it seems like a slam dunk, but apparently not.

And the biggest thing, the biggest hurdle that came up, and this is just funny for me was like, well, you don't have enough industry experience. And I was like, but I have a lot of experience in general. Can you please take that and do whatever you will? And they also had a really great key employee who's still there.

I'm actually about to promote him. We originally when we started doing the acquisition, Logan, who's like the guy who was running things for Brock, actually looked at him and I was like, why are you not buying it? And he's 26. And he was like, I just don't think I'm ready, but I'll gladly run things for you if you do buy it.

And I was like; I'll take you up on that. And then I ended up bringing in another business partner into the deal. So it's 50/50, me and him and Logan. I was like, I don't need you to like, come off the job site and do all the things I thought I needed you to do.

And that was kind of the assumption for the first month. And now, after a month of having the business, I've realized that that's kind of just not true. Like, I would rather have him off the job site faster, doing a few of the things that like, I'm just not comfortable doing. And I think it's an interesting for me to get inside someone else's head.

The owner had a lot of things in his head, not written down, and realized that, oh, I am the same way. So like if you look at No Baked cookie dough, we try to document as much as we can. We are a franchise system, so we have to. But there are a lot of things still that are just kind of like tribal knowledge.

And the thing that's been the most complicated and this is maybe this won't shock you, but like, it's literally been figuring out how to send invoices to the right people. So like, I have access to their QuickBooks still and I have access to my QuickBooks for the new entity. And I've been trying to just like, take the jobs I know we've been doing, get them out of the old QuickBooks, put them in the new one, and sometimes the jobs don't exist in the old cookbooks. And I'm like, but someone just decided that house, who are we charging for this?

Who owns the house? I don't even know who owns it. And I'll end up calling Logan and being like, hey, man, like, so like this house here, like this address, like, who's the builder? And you're like, oh, yeah, that's like this one.

Like, we work with a couple different, like, GCS and builders who exclusively use us on their new homes. And we put on siding, roofs, gutters, occasionally like some other stuff, but it's mostly siding, roof. And like our subcontractor for roofing sent me an invoice today because he was like, yeah. So like, usually we get paid on the 15th.

Awesome. I'll pay you. I haven't been paid for any of these jobs that you're asking me to pay you for, because I didn't even know they existed. So the transition period has been a little more shaky than I wish it would have been, but I know it'll easily get better.

We immediately implemented some, like project management systems to at least like track the jobs that are happening and link that to QuickBooks. But even like getting through this transitionary period, I'm like, oh, this is just so annoying because somebody knows that somebody isn't me and I don't really know who to ask. It has been great, though, because the old owner is still working out of the same office as us. We're all still kind of in there together every day, and he's going to stick around pretty involved for the next three months, so it's not a clean break.

I still have access to all the people I need to have access to, but man, it has been so much more complicated than I thought it would be. I thought it would be simple, easy. We bill people, they pay us. No.

- Things are never as simple as they seem. That's one thing I've learned through my time in business. Ton of stuff to unpack there. I want to just start by backing up a little bit and explain to the listeners how you came about this business, what what was it about or how did you find it, and what was it about this particular business that made you send the LOI?

- Yeah. So, as you know, like I looked at many other businesses before as far as acquisitions, most of them in this food space. So things that I was familiar with. And then I had a little midlife crisis last year when we moved to Montana, I was like, I don't want to do things that I don't want to do anymore.

And then the second rule that I kind of came up with for myself was, I don't want to do another working capital heavy business, say something that holds a lot of inventory. I think when you - exclude restaurants and retail from that because so like all of our scoop shops are anyone that I know that has a retail store inventory stays flat like it doesn't fluctuate very much and there's not accounts receivable. So it's not this like constant cash strain or this thing that could, in theory implode and destroy you.

And so we dealt with that with No Baked in - It's part of why we shut the plant down that we were running. And then we started shifting into franchising. I think when I first came on your podcast, we were starting to franchise again. Since then, we've sold it will be four franchises.

Let's just keep our fingers crossed about that and their opening all over the country really excited. But franchising, running our Scoop shop, doing e-commerce, none of those things are necessarily like working capital heavy. The cash cycle is really fast. This is really important to me.

So when I was looking for a business to by, I especially once I moved here, I wanted to rethink what is it that I actually want to accomplish. And I wanted diversification away from food. I also wanted something that was mostly a service business. So we're providing a service to somebody.

They're paying us for it. There's no inventory, rarely inventory. It turns out in this business there is inventory. It just generally gets paid for pretty quickly.

And it's not on every job. So like any of the new home builds that we do, the GC provides all the materials if we decide to. And they currently do like a very, very small amount of it. If we decide to do direct to consumer, then that becomes a very different story.

Like you have to bring the siding to the job and do the whole thing. So that's been something we've thought about and we're considering. It's definitely something I'll do to drive growth, but we're going about it in a way where we can find something that will help the homeowner either finance it or be like, hey, can you give us a 50% deposit before we start just to balance the cash cycle? So anyways, full circle, I wanted something that was not No Baked.

So not food and I wanted something that had a very small cash cycle. So can we have a business that actually makes money? - Yeah. Yeah.

That's it's good for those of you listening out there. If you're not familiar with like the the capital that it takes to hold inventory can be a huge drain on a business, especially if you're trying to grow. Jimmy's right for the most part, a lot of retail, once they reach a certain point, we're not adding or increasing our inventory to a level where it's going to be a cash stream because we're not getting in enough cash. And so for this type of business, if you're just going to do jobs and showing up in the inventory is there, you don't have to pay for it.

It's not your cost and you get paid when the job is done. It's pretty quick cash, like a retail store or a scoop shop where the customers are not leaving until they've paid typically, which is great for us as business owners. We get the cash very quickly, a couple days with the credit cards. - It makes things a lot easier to deal with.

- Yeah. Yep. Cash is king, and having cash in your bank account as a business owner is very important. So you identified you narrowed in on your type of business pretty well.

How did this particular subcontracting business come about? - Well, I started searching a lot of places and also signed up for a lot of newsletters. And then once I got to Bozeman last year, I started just trying to network with as many other like business owners as I could. I actually found this business in two different directions.

So I found it originally through Baton, which is an exclusive marketplace for businesses. They do a really good job of curating, like good opportunities. I saw that it was in Helena, which is about 90 minutes away, like an hour and a half away. And I was like, oh, that's interesting.

And the numbers at first looked good. Checked my boxes. And then I asked a couple of my friends that I'd met here in Bozeman about that company to people that worked in like the real estate world. And they were like, yeah, like they're down here, their siding homes.

Occasionally they come to Bozeman. So I reached out through Baton to the owner, and we did an initial Zoom call, I think was supposed to last 30 minutes and ended up lasting hour and a half, where I just kind of got to know Brock, who's the owner of it. And, you know, what are your motivations behind selling? Brock's not that much older than me.

He's in his 40s. But like, you know what? What is motivating you to sell this business right now and then kind of like, what do you do every week? So like, those are the things that really mattered to me.

Kind of going back to like another thing that I wanted to change about my life when I moved to Montana was I would like to not work as much. So how can we avoid another thing where I'm going to be working like 100 hours a week? And I think for a lot of people, they hear that and they're like, well, you can't like have a business where you don't work all the time. And that's just simply not true.

If you have a business that's growing, you will be working all the time. And if you have a business that's established, there's a chance the owners only work in like five, ten hours a week. That's us with no bait right now. So like, we don't work all the time when it comes to No Baked because, I mean, Megan puts in a lot of effort right now on the franchising into things and supply chain.

And so she's been putting in like, you know, 30, 40 hour weeks. But if you look at like the core operation and like, why do we make money and like, what do we have to do that might be like five, three hours a week of commitment. And like all of the work you're putting in is to grow. And so I talked to bracket length about like, hey, so like what is it that you do every day?

You know, when you wake up in the morning, how much do you focus on this, how much you focus on your other business? That was the reason he was selling. So Brock has a home building company. He started that about two years ago.

And you can even kind of see it in the financials of growth completely stopped and you started focusing on the other thing. And he told me about the fact that he was like, well, I work like maybe five, seven hours a week. I'm on the job sites a lot because, like, they're citing my homes and I'm also in those neighborhoods. And so, you know, I see the guys and I check in on the crews.

And he was doing like some project management, interacting with the builders, doing a little bit of sales, nothing else. His team. And it was really, really important to me to hear this. Like his team, the people working there who were younger than me were running most of the company, and that was good news, because that usually means, at least in my experience, like someone really has things systemized, even if it's not written down, even if it's a lot of tribal knowledge.

There is a system. And he had an office manager. She was keeping things organized. So at the end of the day, it's about as good as you're going to get with like a small business, right?

You're not going to get like more systems than that. - Yeah, yeah. I think that's the opportunity to grow and put your own kind of fingerprint on the business as well. If it was all completely automated and systematized, you're probably going to pay a pretty good premium for that, that type of business versus, okay, there's something there to work with and improve and grow is where that opportunity comes in.

- It's definitely where the money is too, right? Like you said, you're not going to pay as much of a premium for a business like that. We didn't. And the main reason being is it's like there's a lot of risk.

There aren't necessarily a lot of systems today. And, you know, it could go really, really well. It could also go relatively poorly - depending on like if you're able to retain the clients that are so important. I mean, really, if you look at what I bought, I bought a brand, I bought an experience to labor force who's really good at doing a specific trade.

And then I guess I bought the relationships with the builders. And if those builders decided we're not going to use you anymore because Brock's not here, that would be a problem. So, there is risk. - That's it.

That's a huge risk for a business like that. Especially in the construction trades industries, there's a lot of relationship based transactions going on. How if at all did you mitigate for that and why? - You know, it's my main focus right now, main focus of me and my business partner.

So the first way we're mitigating that actually, and Brock helped us do this. So when Brock put the business up for sale about 12 months ago, he took Logan, who was one of his crew leaders, and he was like, hey, man, you've been with me for six years. You're really good at your job. I'm gonna teach you how to do everything, and then I'm going to push you to the front.

So when a builder has a question, they reach out to you and they don't reach out to me. So what that inevitably did is over the last year, people have started to realize, well, Silver Creek delivers like a really, really good product and it has absolutely nothing to do with the owner. And so Brock is still there for relationships. I'm still siding Brock's homes.

He's still in Helena, he's still there in the community and still a big advocate of our brand. But he's not the reason that we do good work. And I think showing builders that was really important. It's actually why we're accelerating the timeline of when we were going to promote Logan to be off the job site and start being like the face of the operations of the company in Helena.

And then my partner and I are at the same time as like pushing on the Helena market and saying, okay, so Brock stopped being as aggressive because he was busy building homes. We need to go out and like reestablish these relationships and start asking people. So we do really good work. What's the hang up on us doing more for you?

Like, why aren't you using us for all of your jobs? They have incredibly high market share in Helena. It's a very small town, but they're building a lot of homes, so their market share is probably like 60%, maybe 70. So like most of the homes being sited are cited by them.

All of the commercial jobs in that city are done by that company in my company. So our next focus was like coming down to Bozeman and doing the exact same thing. People aren't familiar with Western Montana, Bozeman and Big Sky and Belgrade are like blowing up. Like lots of money, lots of construction, lots of like 3 or $4 million homes.

And so our goal was to come down here and try to take Silver Creek reputation, which could also helped us with this. Right before the transaction closed, he had done six luxury homes in Bozeman. He did it as a subcontractor for one of his old business partners. But it gave us a foothold here to where?

When I go out and do sales in Bozeman for the last three weeks, I could talk to a builder and be like, hey, so the Creekside development, we just did six homes over there. If you'd like to see some of our work, check it out. We're expanding the big Sky in Bozeman. If you have projects coming up, let us bid them.

And to just be very, very aggressive about making it a good relationship for the builders. But then at the same time, taking all the advice that Brock has given us, namely, you know, be plus work done and do it fast, make sure your customers are happy and make sure they don't have to talk to you. I think as soon as you like, take the advice of the person that you're buying the business from and take it seriously. I hope it works out.

I don't know yet. You know, we could do an update episode in a year and I'll tell you what went wrong. But for the first like months, the thing that's been really, really key for me at least, is putting systems in place very quickly and then being very aggressive about the sales process, because I was aware of the fact that those builders could leave. And so rather than letting them leave to be extremely aggressive and actually try to take more business, just show them that they were very, very confident in what we're doing.

- Yeah, that's good. It was good foresight from Brock to start putting Logan forefront if he knew he was going to be selling the business. But that still leaves a risk like from a buyer's perspective. And I can hear my audience asking the same kind of thing, well, what happens if Logan disappears?

You're still in that risk. - That’s the main question the bank had, Tim. We had to take Logan's name out of everything because I was like, okay. So in reality, if we're if we're being real, Logan is not leaving.

And I've developed a good relationship with this kid. He's awesome. I've also promised him like, money, glory, the whole nine. And he's a really motivated guy.

So like, he has no reason to leave. He likes working there and I'm giving him more responsibility and more money. So you would think he would stay. But in the eyes of the bank or the eyes of your audience or anyone who's evaluating risk or a risk-averse person, they are going to say like, what happens if he leaves?

And that is scary. You have to be ready for that. Like I said, it could go completely sideways. Like everything can go sideways at any time.

Whether you lose a key employee, you lose a key account - you have like an insurance claim because something goes terribly wrong. A lot of risks, but there's a lot of risk to every business. And I think you have to be comfortable understanding what they are. And then just saying to yourself, we will mitigate them, but we're not necessarily going to get rid of them because you can't.

So when it comes to that, like I got very comfortable with it very early on, but I've also made it a goal to retain him and retain any other talent that we have. A lot of the guys have been there for a while. Ironically, one of them is quitting and I don't know if it has to do with the transaction or not. But at the same time, I talk to Logan about it, talk to some of the other members of theeir crews, and it's like, you know, it's not going to kill you.

It's not going to be fun. We'd love to keep this guy. He's our second crew leader and he's very, very good at his job. But, you know, you can't force people to stay with you.

And I learned that the hard way while running No Baked is really hard to retain good people. And if someone wants to leave, you cannot stop them going to leave. - Yeah, yeah. People are always going to transition.

It's always a risk when you're buying a business. You don't want it to happen too soon. But for the most part, employees like their jobs. They're going to stick around as long as you make them feel comfortable and seen and appreciated, they should stick around.

There's, you know, and to those people that are looking at this and thinking this deal was way too risky, I would never do something like that. I always kind of encourage people to look at their own life in their own situation, and it's easy to identify the risks of doing something new. But it's often you kind of overlook the risks of your current situation. What are you risking by doing nothing?

What are you risking by relying on your current corporate employer that might lay off 30% of the workforce tomorrow? So just kind of know that there's risks in everything. I think, like you said, there's always going to be risks. And when you buy a business or if you don't buy a business.

So make sure you're evaluating. - I think the job has to be the biggest single client risk in the world, like having a normal job, like because you have one client and they 100% can let you go. At any time. - And I usually do caveat that for small businesses because we're as a small business owners, we're more reliant and appreciative of people.

And we're not over-inflating our workforce on a daily basis and then realizing it two years later of, oh, wow, we hired 30,000 people. Too many for this - For this job, we need to like we may need to get rid of some of these people. - And it's like, why'd you hire them in the first place? - Exactly.

So you're a month into this. It's going well, but there's still obviously hiccups and and potential risks and downfalls. You have growth plans, which is another thing that I tell everybody, if you're buying a business, you need to have a growth plan. It's don't buy a business just to keep it stagnant.

So you're looking at other markets. You said you changed one system already. How much change are you trying to do in the first few months here? So I don't want to change anything about the operation at all.

I want to change everything about the things that the front line guys didn't see. The only thing that I've asked them to change has been I implemented Slack. I was like, guys, I think we should all be on Slack, mostly for like company announcements. It's just a big thing of mine, whether it be like, No Baked, have a small consulting agency where like all of us are technically part-time - Slack, really great for just, you know, not emailing each other a thousand times and not having a bunch of group texts because that gets confusing and mixed in with your personal life.

So, you know, I implemented Slack for them. And I was like, look, nothing's going to change. Just download the app on your phone. And, you know, if we are like doing a company announcement or I want to buy you guys all a drink.

I'll post it in there. - That's a good way into it. - Right. And then the only other two changes that we're making before the first this quarter is over, like this first three month period, just being way more aggressive about bidding jobs.

I wouldn't say it's necessarily a change. It's more of like a bringing back what they were doing in the beginning anyways, being way more aggressive about like entering the Bozeman market. We have been some really cool jobs just in the first like months through personal connections that me and my co-founder or me and my co-owner have. And then we implemented a project management system, but that's mostly for visibility on my end, my co-owner and then Logan, so that we can actually track the projects that are happening.

Before, they didn't necessarily have like a very good way of tracking workflow and like seeing the slowdown coming because Brock had been doing this for so long that he could see it coming without seeing it coming. Yeah, like he understood the avid flow. Ironically, everyone always wants to say like, oh well, you're in Montana. The winter is probably slow.

No it's not. April is really slow because they poor foundations three months before siding a house or a commercial project. And so you can't really pour a foundation in like December, January, or February, except for this last year because there was no winter. So you guys got a bunch of stuff, but we got it done.

- Yeah, yeah, you could have gladly had ours. That's interesting. Yeah. People always assume different things about different industries until you get into it.

That makes complete sense. What - And, you know, change change is tough on employees. That is one way that you can make sure you lose your employees when you first by a business is try to implement way too much change too fast. - People do not like change, man.

They do not like it. They get upset. I have a different way of paying people at No Baked than using QuickBooks anymore. And I signed up for QuickBooks to pay people because I was like, that's how they're getting the paychecks right now.

I do not want them to get confused or upset or scared. I want to be like, look, you got paid the same way you were paid before. Everything's fine. Calming anxiety is really, really - There's other things too, that I would have changed.

But in order to prevent mutiny, I'm just like, I'm rolling with it right now. One thing is, and this is literally against every core value I have, Brock was paying all his subcontractors on the 15th for the last 30 days of work. That's not what you're supposed to do. You're supposed to say like, you did this work in May, and on June 15th, I'm giving you a check.

Yeah. And people get used to, like, the whole, like, easy money thing because he. We're not going to get paid for those projects by the time I paid you. I'll get paid a couple weeks later.

And I just got done telling you how, like, I don't want to get into that situation again. So I think over the next like 2 or 3 months, that will be the only other like big change that we make is like, where were you guys leaking money and how can I prevent that from happening? We came into this deal with actually like a lot of cash left over. And the way that we accomplished that's actually really interesting.

Even if you have 100 grand, you don't need to light it all on fire. So I would prefer to fix those problems and get to thing cashflow positive every month. But yeah, it was interesting because like the month of takeover, I didn't I mean, we were prepared to do it, but it's interesting that I will end up sinking like, I don't know, call like 50 grand into like working capital in the form of receivables because I paid someone before getting paid. You do have to do that with your staff.

Like so making payroll, you have to do that. But with some contractors, the margins earn is good. So I was like, I want to avoid doing that with them. And if I have to float payroll, I will float payroll because it's that should be easy.

And then, you know, moving forward, as long as workflow doesn't get weird, you know, you get paid for last month's jobs the next month and it's, you know, as much, if not more than you needed. So I'm not that worried about it. But it has been interesting as far as like other things where I'm like, that's a bad habit that now became culture. And if I were to say to like our roofing subcontractor who exclusively works for us, he should be an employee.

It's another change that I'm tempted to make. But it's like I'm probably going to say like, hey, if you guys want to keep being paid like this, you're going to have to work for me. No more, this 1099 sh*t. On the flip side, like, you could continue to be a subcontractor, and I'm just going to change your pay schedule to be a normal pay schedule, because if they were to work directly for the home builders that we’re interacting with, that's how they would get paid.

Generally, most of the builders, like you have to invoice them by the 1st, for all the work you did the prior month, and then they pay you between like the 10th and the 15th. So like the pay schedules are fast, but like I think what people don't understand is that like that does end with a 40 to 45-day cash cycle for the subcontractor, which most people who are running a business should understand. Like that's just the way things are. But like you got to be careful about like your overhead in the interim.

And to your point, you said earlier, you have to hold working capital at a certain point to make sure that you can deal with that. Yeah, yeah. And it can be a long time, 45 days for subcontractors. And you're not talking about small amounts of money here with construction, those numbers get pretty big pretty fast.

So if you're consistently out laying more than you're bringing in for even a couple week period, it can be a huge burden on the company, especially like you talked about. The certain months slow down. All of a sudden you're in a pinch, you don't have more coming in and you're you're stuck on what you're paying out. You talked early on about this was a good multiple.

I did an episode about multiples a while ago. So we're not going to go into what that means exactly. But how did you know it was a good multiple? What made it such a good deal?

- I had a rule going into this, and I still have that rule because our goal after buying Silver Creek is to definitely do more acquisitions in the same space. As you know, it's not as easy as saying I want to do more acquisitions in the same space. Got to find people who are willing to sell, and it's a whole thing in itself. But the rule was generally like, I will not go above ForEx like seller discretionary earnings because at this, this scale, when you're below like 2 million in EBITDA, you might as well look at that because that's a better number.

And so I wouldn't go over ForEx and then anything over under three was like attractive. I was like that's awesome. So this was under three caveat. They had been growing really fast.

So like if you were to go back to their 2021 numbers, it was like a 10x. So like though again, like there was inherent risk there. There was also like that's a really good signal. And they weren't pricing that in.

They weren't pricing. The growth in is something that like was causing the valuation to be higher because the growth actually had like tapered off. So like they grew really quick, like 21 to 2024 talking about like 5x growth in revenue. And then it tapers off to where 24 to 25 is essentially flat.

But again, like I was trying to sell the business. He's not in there anymore - trying to grow it. In order to grow it, you'd have to take on like probably more working capital, like, you know, you'd have to, you know, refrain from taking money from the business, hire some more guys, go get some more jobs, and most likely enter a new market. These things are things that we're doing now.

But that made it attractive for me because I believed, you know, I ran the numbers a lot. But then I got down to, like, first principles, what drives revenue. And it's essentially houses. So you could say like the unit is a house.

And how many houses do we decide per year to keep this thing going? How many homes are being built? And can we take some of that business? Are they already taking a lot of it?

And, you know, is there a ceiling that I don't see that they're hitting right now? Definitely not hitting a ceiling. Definitely could do more, and... you just kind of slowly ease your way into believing, like, this thing is going to just kind of continue as it is.

Just knowing that there is a risk that it could not. And I was real weird about seeing the financial projections. I did them like eight Ways to Sunday. I took like his QuickBooks numbers, modeled those out with the loan payment monthly numbers, which like honestly were terrible to look at because Brock was doing things like, I was like, every January you make a shit ton of money.

He's like, oh, well, I wait to deposit checks and I'm just kidding me, dude, $300,000 last January. How's that possible? But it's like that. And then I lost money the prior months because there was no revenue.

Yeah. No revenue. Yeah. So like, I was slowly getting myself comfortable with like, workflow.

What does the real cash flow look like? What are the actual strains on cash? Like what could come in like bite me in the ass? It turns out it's really just what we were talking about earlier where it's like, I got a float wages or subcontractor cost where I'm like, essentially floating wages and not getting paid yet.

Like, that's the only risk you really run and after you've ran the business for long enough because it is so profitable, that slowly becomes a nothing burger unless you were growing like a tech company. But that's not going to happen. I, I think like we will quickly reach a plateau probably in the next three years, just based on the fact that there's only so many homes being built in a place. And you can only take so much market share, but there's definitely like a lot of room to run like I bought.

The business is around a $3 million a year operation. It probably could be a ten, $20 million a year operation just operating in like the western Montana market especially. It could be a 30, $40 million operation if we added on the other two large cities in western Montana. But yeah, it was like wrapping my head around, like, does it seem as though this is going to collapse tomorrow, or does it seem as though this is just like a well-run machine, and you can only know that by putting your eyes on it and then really understanding what they do for a living.

So like the numbers only tell you so much. The books only tell you so much. The books are really, really good for understanding, like revenue and, you know, like profitability and the unit economics. But then on the flip side, to understand where the revenue is coming from, you know, like, have you gone on to a job site and looked at like how long it takes to hang siding and how much you're paying these people per hour, how much they're generating per hour with your eyes?

Those were things that were really important to me. And then also to make a zero-based budget where I threw out all of his numbers. This is like a month before the acquisition closed. New zero-based budget.

They throw everything out, say like, here's what we're actually going to be spending. And I know this for a fact. And then like, here's how much we're gonna pay on the loan, here's how much revenue is likely. And so like, those were totally different than like the historical financials because in reality, like the past isn't predict the future very well.

But once I had like here's the backlog of jobs we have. Here's your loan payment, here's the insurance quote that we just got like all the big expenses for a company like this, you can figure out pretty quickly, like exactly what things are going to look like. Very similar to like No Baked. If you wanted to understand a restaurant, I can tell you really quickly it's labor, rent, cost of food, labor, rent, cost of food.

And then if you have a debt payment, if you understand these things and then you understand like the ebb and flow of traffic into the restaurant, I can tell you how much money it's going to make. It's pretty simple. You just have to not be a clown. - Yeah, yeah.

Interesting. I like that approach. I like the way that you analyze the numbers multiple different ways, because that's gives you a good perspective of worst case, best case scenarios and from different lens. You mentioned you have a partner in this.

Why did you go that route and was that planned from the beginning of your search or what - How did that come about? - Was it planned from the beginning? And it's actually become a staple of everything I do over the last 12 months, and I guess it was a staple of everything I've done since I was 23. Having a business partner is pretty awesome.

You can rely on them, lean on them, and you can split the ownership level tasks in half, which generally means like you get two people who are very invested. You don't have to pay them a lot of money, and they will work really hard at things that they're good at. And so I've made it a goal of mine to bring in partners. You know, I didn't do this on purpose with Megan, but Megan is good at things that I'm not good at, and it's caused us to be very successful with No Baked.

It also has given us way more bandwidth. And so in December, John, I had met him probably in June, and we talked about starting a different business together. I was renting out this like school bus that I converted into an RV, and my friend was like, you should talk to him because I was telling him like, oh, this could be like a real thing. Like, we make really good money.

And John had worked at an RV rental company for five years, ended up leaving. Prior to that, he was a Navy SEAL and just a really interesting, like really driven, very friendly person and really smart. And so like I had these great conversations with him about like renting RVs for months. And then the government shutdown happened because he actually was on orders in San Diego.

He had quit the RV rental company because they wouldn't give him equity. And it was a startup, and he had been busting his ass to take them from 0 to 1 and did a really good job. It's a very thankless job. And so he had left and he had gone back into active duty with the Seals.

And then when the government shut down, he came back to Bozeman and he was like, well, I guess I'm not working. And because his contract was also over, so he was going to be in the reserves again. And I was like, well, you want to buy this business with me? And he was hesitant.

And then he was like, “I’m all in”. And it ended up being a godsend. John ended up helping me get that deal closed for a lot of different reasons. One of them was simply my credit profile was not like perfect.

After running no big for so long. Most of the all the dings on my credit are from the pandemic. So, you know, I could have waited a year. I don't want to wait.

I didn't want to wait here. So, you know, like my credit was good enough to get an SBA loan. But then when they get into the underwriting process, they start getting like very like picky, especially with a loan of the size. And then with all of the risks that we both have pointed out so far.

And so John's credit profile made them feel a lot more comfortable. And John also had access to a very interesting form of capital that we ended up using. They can - so when you're in the military, you can borrow from your retirement plan like you take out. Basically, it's kind of like borrowing against a life insurance policy.

And so we were like, okay, well, in this situation specifically, we just need to have the down payment money for about a week. And so it was like, what can you borrow from my retirement plan? I was like, great idea. So we put up no money.

So we borrowed it from a retirement plan, wired it to the lawyers. They wired us back six hours later, and then we put that money back to his retirement plan and moved on, which was really interesting, something I had heard about people doing before. And again, like I went into this process. I guess the good thing is, like, I was surprised that some of that nonsense worked because at the end of the day, like you built something that’s - supposed to work a certain way cashflow-wise, but then many of the times in real life, it doesn't have situations all the time where it's like, yeah, on paper this is sounds great, but this isn't how it's going to happen.

But for that specifically and like figuring out the down payment and essentially buying the business for $0 out of our pocket, that apparently works. Apparently you can do that. I, I will caveat that with like, John and I put our own money into the bank account for the business, and we also borrowed a little bit of working capital. But like, you obviously have to have cash to run the company after you've bought it.

And so that's why that was so important to us. - Yeah. Yeah. I'm guessing you spent some money on like preclosing stuff between attorneys and accountants and other stuff just on his loan.

Two questions. One can is that only for active duty or can people that are already out tap into that themselves? - People are in the reserves - I don't know if you're “out” out if you can tap into it like that. Okay, I can't I'm blanking on what it's called.

It has a special name. Starts with the T. And I would recommend people like. Yeah do some digging but I honestly it's kind of like when I'm helping people buy franchises from us and get their store open.

It's like there are a lot of different ways to like, fund your, your business. And more people should probably be a little more creative around like, hey, here are all the options that you have, and if you're really willing to go all in on something, you know, I'm not opposed to like someone using their 401K to start a business. Are you going to Probably. You're also going to work, so it's a little different.

I wish people would caveat that more where it's like, man, like these return profiles are so great. It's like, yeah, like if you have a business, business like a real business, you definitely can make 100% on your money every year. But you're also trading your time, not just your capital for like that sort of situation. - Yeah, it's not completely passive like living in a SNP index.

If that loan - like you guys put that money back pretty quickly. If you had needed that money for a longer period of time, is that also possible or - Yeah. So we borrowed it with a five year loan agreement. Just to make sure like, hey, if we need to keep some of it out, we can.

But the great thing is like, you can like go back and borrow the money at any time. And I would, you know, I'm not like of the Dave Ramsey school of thought particularly, but there's no reason to pay interest on the money if you don't need it, especially when you can just go back and access it again like a credit line. There's also the thought for me now, which is that, like, I want to stack up cash from like operating income, but I don't necessarily want to stack up cash from like debt.

So like, I won't necessarily pay off debt that we have for like assets. But I also don't necessarily think that someone should like leave an open credit line if they have the cash to pay it off. It's like you just pay it off, draw it again. They like that.

Anyways. Thank you. Yeah, that's a good thing. - Don't pay interest if you don't have to.

And then just because you kind of touched you, you glossed over this quickly. But you wired the money to to close on the business. And then you got to wire back. And you mentioned you technically bought the business with no cash really out of your pocket.

How did that structure work? And maybe just kind of touch on the financing of the whole of the business overall. - Now we're getting into why they were uncomfortable with my credit profile. - Yeah, yeah.

We can talk about that - - Also probably uncomfortable with me because they knew what I was trying to do. So you're not supposed to do this. I'm just going to throw this out there. This is not what you're you're putting on paper.

But I had in my head. I'll tell you what I had in my head then. Why I told the bank what I had in my head was okay. I can defer seller financing for 5% of the 10% equity injection.

I can use seller financing in the SBA loan for the other 90%, which it is a blend of both make payments on that seller. Financing is usually a lower interest rate. So if someone will offer it, take it, and then I need to come up with 5% in cash. But I said to myself, well, this debt payment is only like 25% of the free cash flow.

A lot of SBA loans will go up to 100% if it's your business, like if you want to get a seven day loan and you have a cash flowing business right now and you've been operating it for more than two years, they'll give you 100% of your cash flow. That can be an enormous loan. So I was like, look. I'll go for some working capital and I'll do it under the guise of before I get to that, actually.

So that's how I'm going to structure it. But in my mind, I'm going to get an SBA loan for more than the purchase price, because that will allow me to service the debt easily, but also have no money into this thing, have money left over to actually run the thing. When I'm done, hopefully I'll have to take money out of my pocket to do that. So the way I went to the bank and repos to this is like, we get there, like proposal letter, I go back to them with like, well, would you be willing to entertain some working capital?

They said, sure, write me a memo. So I wrote them up a very detailed memo into financial plan detailing how I would use the money to create more jobs, because the SBA likes to hear that. And that's a really great advice, honestly, for anyone who's going after a 7A loan, even if you already own a business generally like I'm going to borrow this money. 7A Loans are mostly for working capital.

Then when you know what you're going to use that working capital for, generally you say like growth. And this growth will result in more jobs because the reason I need the money is to pay for those jobs. So I went into it basically saying like, hey, we're going to open up in the Bozeman market, we're going to hire two new in-house crews. I'm going to hire an office manager here.

All their salaries here are the costs associated with that. He was exactly how it's going to help us grow the business. And also when I have an in-house crew as opposed to a subcontracted crew, my margins are better. So I'm going to improve the overall gross margin of the business.

That was kind of my argument. And then they came back to me with a much lower number than I asked for. And then when we got two weeks away from closing, they were like, all these numbers don't add up. The loan is too big.

And I was like, what would you like to give me the rest of it? And working capital. And they were like, well, I'm not really supposed to do that. I was like, I’ll write you a memo and wrote up this thing that was like, hey, if you keep like, we keep this money in, here's what we'll use it for.

You know, just let me know if you'll approve. It may have proved it, which is great because honestly, the bank wants to lend you more money. They just it's an economy inside of a bank. But I don't think a lot of people understand, which is that you have the deal makers on the customer facing side, and then you have the firewall, and then on the other side of the firewall, the underwriting team.

And then if you have an SBA loan, then you also have the SBA. So you have to make the underwriting team in the SBA happy to guys in the front office of the bank because they make commission. Would love to lend you $500 million. So like if you can get these two groups to align, then everything works.

And I think for us it was like pulling teeth. A lot of the times. It took a lot of convincing, a lot of getting on the phone, talking to people. But I think if you don't ask, you're never going to receive.

So that's what we did. - Yeah, yeah. The front line people in the bank that you talked to are salespeople. They want to they'll tell you everything that they can do for you, sometimes to your own detriment and their own detriment, because the underwriters will block it completely.

But they want to give you money. That's how banks make money. So ask for it. Try to push it when I close down the line.

- It’s also guaranteed for them. - The SBA is backing it up for them. So there's really no reason not to. And that's when I closed on my business 13 years ago.

We had extra like we realized a couple days before closing there was going to be a lot of extra cash. And they just kind of said, yeah, that's okay. I mean, that service covers it. Keep it in your bank account as working capital.

- And man, I wish they would have done that for me, Tim. They made me jump through hoops again. - And when I say when I say a lot. It was a lot relative to the deal.

It was not a ton of cash. I mean, I was at a $350,000 purchase price. So, and the inventory, the reason it was off was that the inventory came in a lot lower than we were anticipating. It was supposed to be the right amount.

It just the inventory count was lower. So they didn't want to go back and read, do everything and read. You know, all the documents were ready at that point, so it was easier to close and not worry about it. - The closing process is the last thing that was like very complicated.

I think I got some stuff re-signed like 18 times. And I was like, you've got to be kidding me, guys. One of the things and this was like compliance from the bank, like their lawyers were reviewing some of the documents and they were like, so you guys signed all these? That's amazing.

But like the doc you signed signature is covering up some of the document. So we need you to go back and sign this. You signed this saying your name is Jimmy. Your name is James.

Can you go back and sign it as James? I'm like, yes, but yeah, me and the buyer and my business partner resigned the purchase agreement to make the bank happy. Eight times we edited it and signed it eight times, and everyone was like, I'll just keep signing it because we all like operationally and like the actual mechanics of the deal. Nothing changed.

Nothing changed at all. And so like, Brock was like, give me my money. And I was like, yeah, same, whatever we need to do to make you happy. Yeah, yeah, it is crazy.

Signing documents for a bank just blows my mind. They make me sign as Timothy Delaney. Timothy T. Delaney just on some - just to make sure that they've got everything covered.

I don't even DocuSign anything for the bank because it just doesn't seem worth it. I guess it's not from your perspective. I just started signing stuff because I was like, this is the only way to get this done fast. I would send out all the signs, we'd sign all of them, send them to the bank.

Then the funny thing is, I sent all those to the bank and they were like, we need the certificates. And I was like; those are on them. And they were like, well, we need them separate. So go back into DocuSign, download everything, be like, uncheck the document.

And just like I just need the certificates for all of these. And this is like 18 things to sign because you're shining like a lease and purchase agreement and non-compete. And like all of this different stuff, two seller financing notes like this is a lot of junk. But again, like, I think jumping through those hoops and being very prepared for them is super important.

And we had a really great deal maker on the SBA side who helped us kind of like get the get through the process in an intelligent way and also know, like what not to say and what to say to the bank. And I think that was really important. - How'd you find that person, Keith? - Keith found me.

We became friends on LinkedIn probably a year ago. He's really well known in, like, the CPG, like food and beverage space. Keith at one point had his own manufacturing company, went bankrupt. I started helping founders get debt.

This is like back in 2015 or maybe prior to that. And then I we met through mutual friends and started following each other on LinkedIn. We talked about a lot of different things over the years. And then when I went to do the acquisition, I was just like, I need to call Keith because we had we talked about doing SBA loan for No Baked, which I haven't been loan at no big, but just like a larger one.

And then like, you know, I was doing some stuff to help founders out and I would introduce them to Keith and yeah, I just he was a guy that I knew personally that like, he does this stuff for a living. And that's the other thing is, like, I wouldn't have known what eight things to ask. Like Keith did that I didn't. I put together deal memos and like a packet and gave it to him.

And then he did his thing and the bank pays him. We don't - And you're going to end up paying the same amount of money anyways. So I recommend finding someone like that that knows what they're doing. They've been through the process before like, a couple times and just, you know, working with them to get the deal done.

And again, like he like worked on it with us every step of the way. Like came up with solutions, got on the phone with the portfolio manager at the bank. Like was like, hey, like, what do you guys need from us? Can we figure this out?

I think he just gave us a lot of, like, advice that, you know, in the past, I've learned a lot from the school of hard knocks, and I prefer not to do that again. So it's really helpful. - And you touched on earlier the fact that the banks didn't like that you didn't have industry experience. I didn't have industry experience.

When I bought the wine and liquor store, I mitigated that or convinced them that I was okay by writing up a very thorough business plan, which kind of sounds like your memos that you wrote for extra working capital. - I wrote them a business plan to they were asking for it and I was like, I'll give it to you, but I think you just you have to do everything you possibly can to convince the person on the other side of the table. That's a good idea, because they have to convince their underwriting team.

And even though I'm sure, like the CEO of the bank, like a lot of people at the bank are like SBA program. Hell yeah, 80% guarantee from the SBA. We can't lose. We make money.

This is awesome. We'll repackage these loans and sell them. I don't even want to hold them on our balance sheet. So like from a business perspective, those banks should be handing out money like candy.

But they don't. Because if they do that and then they get a bunch of defaults, the SBA won't let them do it anymore. So they do have some incentive to not be insane. But like, you just got to convince them That’s a good idea.

You have to help them help you because they're going to try to convince the SBA it's a good idea. Anyways. - Yeah, this has been awesome. A lot of good information.

Super happy for you that you got this business and closed on it. It's awesome. Anything else you want to leave the listeners with about the process, or any advice or any surprises or anything like that? - I will leave you guys with one last piece of advice, and it's you just really have to stay persistent.

Like if you actually are dead set on like going, finding a business to by doing the due diligence, it's going to take a long time to find the target. It's going to take a long time to do due diligence. You have to not be afraid to walk away. You gotta start the process all the way over again.

And then once you find the right target and get them under your lie, it might take six months. Yeah. And that's okay. - Yeah, yeah.

Great advice. It’s a process. It will take longer than you think. But it's worth it at the end.

So Jimmy, I really appreciate you being here. Thanks for coming back again. Congrats on the new business and look forward to having you back again another year. For an update on how this one's going or how the future acquisitions go.

Thanks everybody listening out there. If you're interested in buying a business and you're struggling with the mindset, the the kind of confidence to get forward, I do have a new mastermind. Happy if you check out the website PowerofBiz.com and schedule an appointment, I will talk to you all again soon.

Thanks for watching. Thanks for listening to Business Buying for Financial Independence. If you're serious about owning your time and building long-term wealth, make sure to subscribe so you don't miss the next episode.