Acquisitions Anonymous - #1 for business buying, selling and operating - A $73k ARR Shopify Connector - Colorado $5mm CNC Machine Shop - e19

Episode Date: February 23, 2021

Two companies for sale get discussed this week:- A $73k ARR Shopify Connector Saas - A Colorado front-range $5mm CNC Machine Shop -----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

All right. It is the, it's February and it's no apocalypse. I don't know if you guys are aware, but Texas is the Arctic tundra right now. But good news is my Mike works and the internet works. So we can record an episode, which I'm pretty stoked about. The show must go on, Mike. Nothing can get in the way of me and my acquisition's anonymous. So, good morning to both of you guys. So Mills, you're looking great today. Beard is looking awesome. I hope the listeners can see it someday. It's a complaint pretty sharp. It's ironically not that cold in South Carolina, funny enough.

Well, thank you for rubbing it in my face. I appreciate it. So, Bill, we have two deals today. Bill, you have our first deal. So go ahead. Yeah, we'll get right into it. So this deal is a, quote, super fast-growing and profitable B2B SaaS Shopify accounting app.

So this is an app in the Shopify app store that Shopify store owners pay for monthly. And what it does is it connects Shopify to a widely used accounting system so that payouts reconcile to bank deposits. So as an e-commerce merchant myself, this is an important function that any e-commerce merchant really needs because you're getting every day payout from Shopify, like here's all the money from 100 different transactions, minus some fees, et cetera, here's the money. And you have to kind of reconcile all of that to, all the order numbers, how much did I pay in fees, how much this was revenue, how much this was shipping revenue, et cetera. So this is a tool that claims that it helps you to reconcile those

things and makes all of that easier, which is definitely valuable to an e-commerce merchant. It is $73,000 in annual recurring revenue, so annual revenue, but it is recurring because of subscription. It's growing on average of 15% per month over the last year, so very strong growth. that equates to 435% over the last 12 months and has 300 paying customers. They list kind of their competitors as A2X, formerly known as Amazon to Zero, but now they've expanded into Shopify, WebGility, and Bold. They did this set, what's kind of interesting to me is they said their last 12 months revenue is $36,000, but their ARR, their annual recurring revenue is $73,000.

So that kind of speaks to the growth. I assume what they're doing is they're annualizing the current month, and I would assume on that. They also say that on the last 12 months, the $36,000 of revenue, 14 or almost 15,000 of it was profit. So nearly a 50% profit margin. They've got a little over 300 customers. It's on Node React, Redis, et cetera, fairly modern tech stack. And it's all kind of all the billion revenue is handled through Shopify. What I thought was interesting is they said right now,

they, why are you selling? I'm a developer and I've generally lost interest in this market accounting and I want to work on something new, which I maybe just appreciate the candor, if that is true. And they say right now kind of growth opportunities is, you know, continue to recruit more merchants or potentially integrate with more accounting systems. Right now, they only sync with one popular cloud accounting system. There are several out there. So by doing some work, integrate Shopify with more accounting systems, you kind of increase your addressable market theory, attract more customers. So what do you guys think? Yeah, I have some questions and make sure I understand it. So first of all, are there, as you think about the Shopify world,

are there specialty accounting systems like there are, say, for restaurants now, there's like restaurant 365 and stuff that is like QuickBooks Online but special for these kind of online businesses? Are they all just use QuickBooks Online or Zero or whatever? They all use QuickBooks Online or Zero. There's not really, and then as you get bigger, some people would be using NetSuite, some people will be using other things. But for the vast majority, QuickBooks Online and Zero. Yeah. So basically what this software does is pretty simple. Just make sure I understand it is that as you make sales and Shopify and transactions happen there, this makes sure that all of that stuff synchronizes directly into Zero or QuickBooks Online. We don't know actually which one, but it's one of those

packages. Yep. Correct. Kind of set it and forget it and it reduces. It eliminates a lot of manual labor and lets you have accurate books. Got it. Yeah, maybe this is kind of a dumb question, but typically, right, in, I'll say, a traditionally offline business, your revenue is going to come kind of in a lumpier form. So on a daily reconciliation basis,

you may have 10, 15, 20, 30 transactions, and you're just manually making sure that they're accounted correctly in your chart of accounts and in your journal entries. But with e-commerce, right, Bill, you may have a thousand transactions in a day. And this is really just an automation tool, right? Exactly.

What I'm curious about, though, is like if you use, let's say use QuickBooks Online, surely, right, QuickBooks Online and Shopify, they have some integration, right? Like, this is not the translator between Shopify and QuickBooks Online. So what stops those two bohemists from just, you know, creating some kind of translateer? kind of functionality that makes you obsolete. I guess maybe I'm thinking about it too simplistically. No, very possible that Shopify and online would just get there and say, we're going to integrate directly.

That as of yet has not happened. Your question, I think the crux of your question, is kind of why would they use this integrator over many others? They list their top three competitors, A2X, Bold and WebGility. There are even others. There are a lot of Shopify apps or SaaS apps that do this. And I would need to know more about the specific features of this one to figure out how it differentiates. What I will say is, I know A2X has been around for five plus years.

They cut their teeth sinking Amazon to zero in exactly the same way and is quite good software. And then you've got bold apps here who is a huge name in Shopify. And also WebGility, who I know has been around for probably pushed in 10 years. So my question would be, how do your features stack up? And these guys are relatively small, $73,000 a year annualized in revenue. Whereas bold, WebGility and A2X are probably orders of magnitude larger. I would want to understand why people were choosing this over those larger, more established solutions. Yeah. And I guess as I look at the big picture here, which I guess is my job on the podcast, like I'm thinking in terms of zero and QuickBooks Online, like you can't, I couldn't tell you why one of those is. different than the other for these type of purposes. And coming back to Mills, your question,

like they're going to keep trying to find ways to differentiate themselves and attaching to Shopify and working better with Shopify versus the other guy. It seems like an obvious product roadmap thing for them to try to differentiate themselves. So that's my first reaction is, man, this really smells like dead-in software. And that's tiny. Like, it has been worried. Well, I mean, you know software better than I do, Michael, but that's kind of my thought, too, is if this were certain,

serving some really interesting niche, right? Shopify kind of appeals to everybody. But if it were some way to connect like your dental practice software to QuickBooks Online, that might be really interesting, right, because it's a smaller market. But it just seems like Shopify could come in and kind of steamroll you if they wanted to for the sake of saying, hey, look, if you use zero, right, or if you use somebody else, you have to pay for this. But QuickBooks kind of beat us to it and all of a sudden, look, there's one less thing you have to pay for in a monthly basis because of this integration we pursued. Yeah.

I think you're hitting on kind of the core idea of why SaaS can be a great business. It can also be a very hard business, right? Your marginal cost to supply a new customer with software is easy. You just click the coffee button or you sign up a new person and take their credit card. And that's a compounding benefit to you when you're the number one category leader, right? It's why venture capital exists in tech, right? And you see markets end up with 80, 20, and who's in third place? Who cares, right?

So this smells like it's in the who cares bucket. So you would just have to price it as a buyer understanding that you've lost, right? All these other topics, all these other things are there. Assuming it's an undifferentiated product, which is best we can tell the case because they don't talk about how they're different in the information. And that's not mean you should have run screaming from this, not necessarily. you just price it. I love the way you said that. Price it as if you've already lost.

This is probably not going to become a Shopify to Zero or QuickBooks Connect, or it is. But it might, you know, you might eke out a nice profit mark over the next, you know, two or three years. And maybe you spend a little money to iterate it and it's a part-time gig. And if you're looking for,

if you're looking to kind of buy a part-time gig or add a portfolio of other Shopify apps, maybe you've already got a team of developers and you're just kind of buying the revenue. maybe this isn't terrible. I just wouldn't pay a price going into this where you think that you could 10-exit or 20 exit or become a category leader.

Yeah. These are precisely the people, by the way, these developer types who are like, well, you know, just business people can fix this. They can grow this. They know how to do it. They are precisely the people that their cousin told them that their app should be selling for five times revenue.

And there's a reason why this hasn't sold. Like, I've just seen this story like a lot. I feel like it's worth mentioning. So this is on microacquire. And I really like Andrew Gatseki, who founded Microacquire. And I feel like he's providing a really interesting service. To me, as an outsider, I look at some of the issues with this, mainly being it's outside of my core competency, right?

I'm not a developer. And I would have no ability to underwrite or due diligence, the actual code and the way that this is written. And so I'm thinking, hey, this guy's been doing it. all the profit falls to the bottom line. If me as an outsider tries to buy this, I've got to go hire a developer, right? If you're a developer and you know these languages,

you know, forwards and backwards, you could probably do something great with this and then maybe milk it, right? And just let it be this bond that kind of pays you a perpetual coupon. But it's interesting. I like what Andrew's doing because all of a sudden he knows it, right? He knows the space inside it out. But he also is now sitting at kind of the nexus point

and can cherry pick if he wants to, he's starting to make investments into some of these businesses, which good for him. Me as an outsider, I look, and I'm already like I have no competitive edge that I bring to this whatsoever. Yeah. What do you guys think, though, sorry, that was a long-winded rabbit trail, but what do you think about the idea of, so there's no list price on this? It's open to offers. And I think Andrews talked about this a little bit on Twitter, or I've seen some dialogue around it. But to me, that's kind of like, it's a little bit, not a showstopper, but it kind of gums up the works, right? I don't know if this guy wants 10 times the trailing 12-month profitability.

I don't know if he wants five times ARR. There's just no way to know. And I wonder if that creates a weird dynamic because he's now probably filtering this owner, right? It's probably filtering tons of offers that are all over the map. Yeah, I mean, at this scale, I mean, you can't blame somebody for trying to make a market. It's SaaS acquisitions are really hot, you know, they've been discovered, which is fine. It's a good business to be in.

But yeah, at this scale, it does smooth things out a lot if the people are, you know, setting a price for things. That's one of the reasons I like by Biz Sell. It's like, okay, well, at least they're going to put a list price out there and you don't have to go back and forth and waste a bunch of time where they're like doing that. I don't know, make me an offer dance, you know, which is totally annoying because then you make an offer, you do all this work. And then they're like, no, no, I was thinking about 10 times that amount. Yeah. So it happens all the time. which, to be fair, on business by sell, they're always asking like two or three times what it probably will actually transact for. So you just got a discount in your mind. This comes back to our long-running joke that's not a joke of mortgage. And I had someone on Twitter replied to me and said, oh, well, if that's the case, here's what you should do.

You should pull, figure out where they live. You should pull the public records for the house, figure out what the house is worth, and when it was last transacted, amortize the mortgage since that date and guesstimate us their mortgage balance and offer that amount of money. Right. It's kind of genius in a way. If they're not going to all price, like I'll offer what I think to balance on your mortgages. That's really funny. Super crazy.

Yeah. These markets are so inefficient. It's hilarious, but also depressing. So it's hard work. Cool. Well, it sounds like we don't hate this one totally. Yeah. For the right buyer.

Sounds good. Yep. Buyer business fit. Again, comes back to it. All right. Let's move on to the next one, if that works for you guys. This is another listener-supported one. Continue our strength of listener-supported. Hi, Michael, our listener says.

Just started listening to the podcast recently. It's a great show, entertaining and informative. Thank you for putting it together. I haven't heard you guys discuss a machine shop slash contract manufacturer yet. So machine shop, I guess it's like making metal components and stuff like that using CNC machines and all that kind of stuff. Granted, I am only halfway through the episode, so I apologize if you discuss it in one the more recent podcasts, but here are two listings I pulled from Buy Biz Sell, and he sends those two different C&C machine shops, and I think we're going to talk about one of them, which is

the larger one. So there's a smaller one, which is about 365,000 in SDE, seller's discretionary earnings, and then a bigger one that is $1.5 million. So we're going to talk about the bigger one. So I will go ahead and tell you about the bigger one, and we'll go from there. The asking price is $5.5 million. The title is Colorado front range, highly lucrative CNC shop, and it's on buy-biz sell. So they're asking $5.5 million. Cash flow is $1.5 million. So 33%, basically, seller's discretionary earnings are a little less than that, 25% or so. Claims to do $3 million and even in gross revenue has $400,000 in inventory, a million and a half in real estate started in 1998 and ff and e is two million and maybe it's because it's

friday but i'm totally blanking on what f f f and he is everybody in their pictures and equipment perfect oh yeah this is a sign we're in your wheelhouse buddy none of this one of this techie stuff we keep talking i didn't know anything about the sass business but we can talk about it uh cool all right here's the business description and i will read it in my most dramatic voice because that's how it looks on this thing. As we experience a resurgence in domestic manufacturing demand, CNC shops are a core component to the supply chain. CNC shops provide critical manufacturing,

design prototyping, and production capabilities for a wide array of industries. This CNC shop is in the Colorado Front Range, and it makes precision parts for a loyal customer base, including military, aerospace, electronics, and analytics. Analytics. Oh, okay, so it's like analytics devices and stuff, like benches and benches. and bench, bench devices and test kits and stuff. Its team of machinists and operators have decades of combined experience in production

engineering, tool and dye making, milling, turning, prototyping, and more working with a wide range of materials in the process. They specialize in quick turnarounds and short lead times, and they have been business since the 90s and have survived several economic downturns when other shops did not. Contact us to get our NDA and so on. Some other details here. They have a 10,000 square foot building, 10 employees, 1,400 square feet of office space. They claim the owners have not engaged in much marketing, but Colorado is a growing market,

attracting lots of businesses and people. There is room for expansion, and they go through a whole bunch of different stuff, including selling into high-tech areas like Boulder, which is nearby, doing social media marketing. Bill, social media marketing. For CNC machining. for C&C machining. Yeah, everybody looking for C&C machining is definitely on the Snapchat. Outsource HR, elevate key employees into leadership positions, and start a second shift.

Cool. So I will pause there. And if there's any questions or concerns, but then also I think our listener has his preliminary take on the business. So I'd love to share that. Cool. All right. So here's what our listener says. My initials take is that there are low barriers to entry in this space, startup costs of a couple hundred thousand dollars to buy a few.

CNC machines, and it seems like there's a million of these types of businesses out there for sale. That is a key phrase. The bigger hurdle, it seems, is gaining trust of customers to deliver product to spec on time. This leads me to the question the importance of an owner's relationship with customers, assuming the relationships can transfer, there is some value there along with the employee base. That's kind of two negative bare cases on this thing. Full case, aerospace and defense is a huge end market for these services. So you'd have to have a positive or at least not totally negative outlook on that segment,

given the kind of concentration around that customer base for these folks. At a 3.7 multiple, this deal seems too good to be true. I don't think the deal mouth pencils out beyond a four and a half times, even on multiple. Curious to hear your thoughts on this. What do we think? Mills, you're Mr. CNC. I'll leave this one to you. No, no, no.

You have the beard. That's why you're qualified to talk about physical products. I think the listener is right in a few cases. There are a lot of these listings, and that says something about, I think, about the industry, right? And the specificity of services that these companies provide. It also says something about a lack of aggregation within these services. It says something about the inherent ceiling in a lot of these businesses. and I think also probably the relative age of most of the owners in these companies.

Where I disagree with the listener is that I would not say that the barriers to entry in these types of businesses are low. I think in most of these businesses, it's actually a lot cheaper to buy an existing business than to build one from the ground up. Because I've never, I mean, I'm sure somebody's done this, but you rarely hear somebody specking a new business like this. hey, I've got a million dollars in the bank. I want to go start a CNC shop. I'm going to go buy $750,000 worth of mills or lathes or presses or breaks. This is big, and this is big, heavy equipment. And I don't think a million dollars would get you that far, all just to start to try and get your first dollar of revenue. Because if you go to any, so what ends up happening in these businesses is it's kind of hyper localized, right?

And what you don't know from looking at the outside is what do these companies actually do? You'll see CNC shops, you'll see specialty fabrication shops, you'll see tool and dye, you'll see stamping and pressing. All of those are vastly, vastly different things. But if you've never been inside one of these businesses or understand how they work, it kind of just all looks like the same thing from far away. And that's definitely not the case. and it also informs who they sell to and where they sit in the value chain.

So that's the biggest issue I have with these businesses is you are not in a very durable position in where you are in the value chain. So you have a lathe and you can mill this part for a second tier automotive supplier, right? If you're somewhere in the kind of greater, you know, Detroit area. Or like here in South Carolina, we have BMW, we have Boeing. So you may want to, if you own one of these shops, you may want to make a piece that you sell to somebody who sells something to Boeing, right? So it might be a airplane seat manufacturer. And you want to sell this bracket that goes on the tray table.

Well, you better believe that that person, that second tier supplier to Boeing is going to really ratchet down on you and they're going to drive the cost down. And if they can get it from you for $11, you know, $11, but they can get it from somebody else for eight, they're going to switch to the other person. There's really no, there's no durability in terms of where you are in the value chain, which is also why nobody's going to go take a million bucks and try and spec this because they've got longstanding relationships, which maybe are somewhat fluid, but you haven't proven anything. So he's right about maybe where customer relationships matter to a certain point, but I think that's only just because it's not a very open network in terms of generating sales.

So you've got to be in this, you've got to be doing it for a long time, order to get the phone calls in order to bid on the work and say, hey, look, yeah, we need this thing. Yeah, we can provide it. We have enough capacity. We have enough machines, all those things. When I was in investment banking, we sold a couple of these actually for huge multiples, which they were a little bigger than this. But what was interesting is they, all the ones that we sold for big multiples, all specialized in aerospace. And I remember the deal toy was one of these little, they sold fan blades, like little engine fan blades. And the deal toy was one of these things in case in resin. And someone joked that like just the fan blade was like $2,000 or something.

And to me, it just looked like a piece of metal. And it had to do, of course, with the tolerances and the certifications and the insurance behind it and all that stuff. And those businesses went for a lot of money. So I think it probably, I'm not knowing this industry very well, it probably depends a lot on exactly what you are making. I bet there's a big range of like this concept of CNC shop probably encompasses a whole lot from I make generic $8 seat brackets to I make highly engineered $2,000 fan blades and you'd probably need to understand really which you were buying.

And I would imagine the $2,000 fan blades probably have contracts, you know, over a long period of time and there's intellectual property there or at least you're using someone's intellectual property. They've probably designed it in a collaboration with you. That sounds a lot more interesting than I bid on $11 seat brackets to a tier two auto supplier. So I want to understand exactly what kind of machine shop this is. Yeah, so I did a site visit a handful of years ago on one that was kind of in the Carolinas. And one of the things that they would stamp was if you have a lawnmower, you think about that little mechanism

on the front or back wheels where you can adjust the height of the lawnmower relative to the grass. Like, do you want to cut it really low? Do you want to cut it high? And it's kind of this thing that looks like a gear, you know, and you could insert it into different teeth. Well, they manufactured that, right? And really all they did was take a flat piece of metal stock and they punch it and they press it and stamp it in various configurations to get this thing from being a flat piece of metal to being contoured and having the right hole. and is it threaded and is it then coded in something? All those things. That's what they did. But it was cool to see the various cycles. But to your point, the guy who's making the lawnmower is going to sell it for $250. He knows he can't raise prices that much. So he's going to ratchet

down every single supplier to him, right, because he's really probably just an assembler and he's assembling all these various parts. You know you're not getting that much money for that part, right? It's not the engine, right? It's not a Briggs and Stratton or a Honda engine. And they have durability around pricing because of their brand awareness, you're just this no-name piece on the thing, and if he can get it from somebody cheaper, you will. Yeah, what I've also heard about this market, and this is super insightful, right? It all depends upon what your end-use case or end-user customer is,

because it sounds like some segment of it is fantastic and some of it is horrific, right? And it all depends on where you are in terms of those. Is there also a dynamic in terms of kind of the level of speciality, in terms of the types of things that people need out of these machines. I assume not every machine can make every type of, you know, use every type of material and every type of thing. And then also the kind of turnaround that people need. I've seen businesses where there's like, we specialize in you need a machine part done

for you in four hours because your combine is down like you call us. And we charge you whatever it takes to get that combine back up because you're losing $1,000 an hour when you're down. So it feels like there's these multiple different dynamics. where you really just have to dig into who your customer is to understand if this is a good business or a not so good business. Yep, yeah, exactly. And I mean, yes and no, right, Michael, so some of them, you know, if you, like the picture

that's on this listing is a metal lathe, right? Every machine shop probably has multiple metal lades. So that's the table stakes. But if you need to mill in a CNC machine, if you need to mill a very certain specific gauge of stainless steel, that's different than just maybe a run-of-the-mill CNC machine that can mill, you know, I don't know, harder or softer alloys, right? It just depends. So yes and no, but what ultimately is going to happen, right, because of where you sit in the value chain, the customer is probably always going to be stretching you to the limits because you also want

to win more work. So they come to you and say, hey, look, you've been doing X for us. Could you do why? And of course you want to, right, because there's revenue associated with it. But you realize, you know what, we've got to go buy another piece of equipment that's probably $650 to, you know, $1.2 million. And how much profitability are we actually, how much cash flow are we actually going to get from this contract? It's not always the best proposition for you, but you kind of have to, right? If you want to keep in the flow of generating revenue, it's just this kind of cycle that sucks you in and you can't ever achieve escape velocity from. This really sounds like to draw a parallel. This sounds like kind of the economic model and situation for like business consulting, right?

Or digital, the digital marketing consultants. Like you get into it building websites for people. And next thing you know, they're like, hey, do you do Salesforce consulting? And you have a Salesforce consulting practice. And it just keeps going. And it's it's feast or famine as well, right? There's very rarely recurring stuff here because you're in the one-off business. That's what you do.

You do project work. So tough. unless you have the contracts for like the 747 and it's a 10-year contract, in which case you have a license to print money. Depends a lot on what you're making. That was the case, Bill. And those companies traded for double-digit multiples. But then what you had was it, I'm trying to remember who the Boeing manufacturer was

one of their main suppliers. I can't remember their name. This was probably in the last two years, right? When this was before COVID even, right? because of the Boeing catastrophe around certain plane models, that all of a sudden it doesn't just affect, right? That one supplier who had the main contract with Boeing, they kind of start to forecast, hey, we're slowing things down.

Maybe now we're dealing with solvency issues. Well, there's dozens and hundreds of suppliers that supply those guys for every jot and tittle that goes into a plane. And so everybody, the reason people priced aerospace-related, anything with aerospace on it was immediately a double-digit multiple, because people said, well, we're not going to stop flying. We're not going to regress from flying to trains, right? Surprise.

Exactly. And so you look at people who, you know, obviously they weren't paying all equity, right? If they were paying a 10x multiple or more, it was highly levered, which just introduces a ton of fragility. Another thing I think is worth mentioning on this one, because it's very common on, I'll say, kind of less sophisticated aspects of the market for primarily held businesses is that the owner is not including the inventory and the purchase price. So he wants, you know, it's a $1.5 million in cash flow, which you'd have to verify, right,

that may or may not actually be 100% accurate. He wants roughly $5.5 million for the business. But he's also not including $400,000 worth of inventory and real estate that he's appraising at $1.5 million. That seems a little bit high to me based on a $10,000. work for building. Also, the issue with that is, if you're going to do anything with this business, you're probably going to outgrow the real estate. And this is not an easy business to move. It's not like you just pack up your computers and move next door. Owners wanting to get value for their inventory is a really sticky subject. Up market, it turns into a conversation about working capital, not just inventory. But this is one of those instances where maybe the broker

hasn't really had the opportunity to advise the seller, or maybe the seller just doesn't want to hear it, and the broker wants the listing anyways. But that is a material, because what are you going to do, right? You're going to pony up $5.5 million. You're already at the upper bounds, probably, of what the SBA is going to lend. And then you've also got to come up with $400,000 for inventory. I'm guessing he's not going to include any working capital of any way, way, shape, or form, right? No cash, no receivables or anything. So the listener is saying, hey, this is too good to be true. The multiple seems so good. but when you actually get down to it, I think the deal attractiveness

starts to a road pretty considerably. And then also there's always the CAPEX question, right? I mean, this is a capital intensive business which you alluded to earlier, Mills, you got to buy new machines, what's the existing life on the current machines? Maybe they'll ask for 30 years, I don't know, but something I want to understand in this business

much like the equipment rental business we talked about, but we could do it go, is what's the delta between EBITDA and CAPEX and also what bullets are coming down the pipe in, you know, now plus four years where I've got to replace a million dollar machine. Yeah, yeah. The other issue I have, I'm just going to pile it on, is they've only got 10 employees, right? So on a business this size, they've probably got three folks in the office, right? A receptionist, somebody who's handling AR, AP, you know, there's not a lot of overhead in terms of

just SG&A. Then you've probably got, you know, let's just say seven-ish guys in the shop. not all of them are the most skilled, highly competent, you know, folks who can kind of run this thing with their eyes closed. So you're probably talking about one, two, three really senior guys who know how to handle every piece of equipment can diagnose and triage issues as they come up. That all of a sudden starts to be to me, you know, it's some key man risk that you're going to have to get comfortable with. The owner's probably fine with it because he's competent, right?

He started this business in 1998. he's learned all of those things, but you're going to come in and go, hey, look, I don't know how to fix this mill, right? I don't know how to fix, you know, this. I mean, it's just all of a sudden you're the deck stacked against you, I think, in a lot of ways. Cool.

Well, it's an interesting space for sure. So hopefully our listener has a good time waiting into it. Once again, it depends. Right. That's where the magic happens. Cool. All right, guys. Great job today.

We have a guest next week, so it should be pretty awesome. Yes, we're going to be talking about FBA businesses with a great FBI seller who's had a lot of success. It's going to help us break down some FBI businesses and talk about that space. So I expect it'll be one of our most downloaded episodes. Yeah, he's super smart. Pretty impressed with him. Cool. All right, guys.

We'll get this one up. And thanks for your hard work. We'll see you next week.