Acquisitions Anonymous - #1 for business buying, selling and operating - A $7M R&D tax credit consulting firm for sale (ft. Andrew Gazdecki) - Acquisitions Anonymous 305

Episode Date: June 11, 2024

In this episode, we review an R&D tax credit business in Idaho for sale at $6.5 million with Andrew Gazdecki from acquire.com as a special guest. The business makes $3 million profit each year. We discuss how it makes money, possible risks, and how to finance the purchase. Everyone thinks it's a good buy because of its high profit and low cost. Tune in and enjoyCheck out the listing hereThanks to this episode’s sponsor:Acquisition Lab and their team have been longtime supporters of the pod.Acquisition Lab exists to help people buy a business and navigate all the complexities of the process, as well as provide a trusted framework, tools, and resources to support you from search to close.If you are serious about buying a business, check out acquisitionlab.com or email the Lab's director Chelsea Wood, [e-mail] and mention us ;)Learn how to buy a business.If you are interested in buying a business but unsure how to start, you should check Michael's Buy a Business Course:You will learn:• Build a thesis for the type of business that's right for you‍• Learn how to stand out in a sea of buyers• Create a working, scalable Deal Engine getting you leads• Maximize your chances of finding great dealsSubscribe 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]

So Andrew, we're so excited to have you. Yeah, I listen to probably every episode. Probably. It's starting to slip at this. Probably. Maybe. Just the good ones. Cool.

So I think we like this one. We're going to start with Heather. Heather thumbs up or thumbs down. Andrew? I was trying not to say anything. Hello, and welcome back to another episode of Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. We have a special guest today. It is Andrew Gazdecki of Acquire.com. Andrew has been a friend of

mine for years back when it was still Microacquire.com. And I actually sold a business through a choir a couple years ago after talking to Andrew and I had found out I had underpriced it by half. So made a lot of money the first time I had Andrew on the podcast. So we had Andrew back again. And today we are reviewing a tax preparation firm with $3 million in EBITDA. It helps people file R&D tax credits. This business is for sale and acquire.com. We have all five of us here, the four regular hosts plus Andrew, turn into a really fun discussion. It's almost 40 minutes long, a lot of laughing, joking around, and some good insights from everyone. So without further ado, I hope you enjoy this episode of Acquisitions Anonymous. This episode of Acquisitions Anonymous is

sponsored by Acquisition Lab and their team. They've been longtime supporters of the pod, and they provide a really great service for people who are looking to acquire a business. So it's created by Walker Diable, who's become a friend. the author of Buy, Then Build, How to Outsmart the Startup Game. So Acquisition Labs is an accelerator with a highly vetted, cohort-based, educational, and support community for people who are serious about buying a business. So a lot of our listeners like you, you turn in every week to our deal reviews, you want to get in on buying a business.

You're on this podcast because you're trying to learn how to buy a business. But if you're not quite sure where to start, Acquisition Lab is a great place to start. So they exist to help people buy a business and to navigate all those complexities. of the process, everything you hear us talk about on the show. They provide a proven framework, tools and resources that support you all the way from search to close. They do it. There's a whole bunch of educational material and support. So if you're serious about buying a business, check out AcquisitionLab.com or you can actually email the program director, Chelsea Wood, directly. Her email is Chelsea at buy, then build.com.

To camera, Mills is a position of power. Yeah. So for our listeners, at the beginning, of every episode, we ask who's in charge, who's going to host, who's going to do all this stuff, because, you know, there's a lot of prep that goes into the show. And Mills happened to get a new camera and a new microphone. So he is now the host. A whole computer. So we got a certified badass here. Well, we actually have two certified badasses here, Bill, because we actually have a guest today. So, Andrew, we're so excited to have you. Yeah, thanks for having me. I was just going around the room and saying it's been a while. So good to be back. Thank you for, thank you for being here, Andrew, because Andrew is a sponsor of the pod, but he is also probably our most frequent listener.

I think you said you listen religiously, was the quote, or regularly. Yeah, I listened to probably every episode. Probably. It's starting to slip at this. Maybe. Just the good ones. I don't know if anybody has paid attention to this, though, but the last time Andrew was on the podcast, he was only. microacquire and now he is acquire.com. And so, you know, for those of you at home,

taking notes, if you come on the podcast, it could mean great things for your business. That's right. It's been the best thing to ever happen to me. I'm being honest. My whole entire life. The trajectory of your life. So it's only fitting that we look at an acquire.com deal while we have Mr.acquire.com himself. Yeah. Well, Andrew, for, for folks that don't know you, would you mind introducing yourself in like a minute and then tell us about Acquire? Yeah, I am the CEO and founder of Acquire.com. The name is Andrew Gazdecki. I've been building startups kind of my whole life.

I bootstrapped to SaaS business in college, which was acquired by a private equity firm. And then I built Acquire.com to help other founders get acquired and been running the business for about four and a half years now, which I was joking with Mills is like 30 years and start a plan. And yeah, love my job, love what I do, love helping founders. It's awesome. Well, one of the things I love about your Twitter is just always so positive and on message, which is something I struggle with.

So kudos to you. I love those two aspects. Well, I first met Andrew. He and I have a parallel story in that I met him when he came on our pod. And then at the time, I had this little SaaS business that was sending text messages for weddings. And I said, hey, Andrew, like, can we have a call after the pod? I think I might want to sell this thing. And I told him how much I was going to price it for.

And he goes, you should sell it for at least twice that. And I was like, oh, damn, I'm glad I asked. I would have just posted it at basically half price. So I posted it at the price. Andrew suggested I had 11 bids in like a day. And I had sold the business 11 days from posting it on what was then microquire. acquire.com. So that having Andrew on the podcast was worth a lot of money to me very directly because we had that phone call afterwards, which was great. I remember that. Well, I should say congrats on

acquisition, Bill. Yeah, it was a while ago, but thank you. The money's long gone. That's what Bill said. The money's long gone. I've long since blown it on this crazy backdrop and all these cameras and stuff. Super funny. All right. Well, you guys want to talk about this deal or you know what else we could do, we could let Heather talk. Yeah. Oh, am I supposed to talk? I thought I was just here to look glamorous for you guys. You do look glamorous, Heather. Can you see the deal or do you want me to read it, Heather? I can see it. So actually, agency startup, is that the top? I think you might have to scroll up a little bit for me. This is the top, yes. This is the top. Okay. All right, oh, things are getting serious. 47 buyers are in active conversations. It's an agency startup.

that assists innovators, startups, and tech companies, and leveraging R&D tax credits. Asking price 6.55 million, 2.2 times profit, one times revenue. Based on industry multiples and comparable sales, this represents an incredible value. Growth has been very rapid and bootstrapped relative to peers. TTM revenue 6.9 million. TTM profit, 3 million. Last month's revenue, 500,000. last month's profit, $250,000, looking good.

I guess scroll down just a little more, specializing or specialized consulting firm offering R&D tax credit consultation to support companies in sectors like aerospace, beverages, manufacturing, and technology, aiding in financial optimization, maximized retained earnings and enterprise valuation. The combination of our SaaS platform and credit experts is an unstoppable force, rapidly gaining market share and delivering the best tech-enabled tax credit service available.

Team size, 2-20, founded in May 2019. Business model is B-2-B. Services, agency-based. Clients sign a two-year contract that auto-renews perpetually unless they opt out 60 days prior to renewal. Tech stack is LAMP, Amazon Web Services, React, SQL, competitors are KBKG, Main Street, and Claris. growth opportunities, increased pricing, social media marketing, come on the podcast, I guess.

New product features. So it's very interesting. What do we think this is? Can anyone articulate very well with like what exactly this is? I think I have an idea, but has anyone actually filed for an R&D tax credit? Yes. Yes. All right.

Michael, what is going on? Okay. So I will say what I think it is and what I've done in the past. And then you all can correct me if I'm wrong. So there are multiple tax credits. You know, we see them for like EV vehicles, right? Like you can get a Tesla. If you buy a Tesla, you can get a tax credit there.

Businesses can do the same thing for certain types of research and development jobs. And basically the government, if you file for these tax credits, will give you a discount off of your taxes that you pay as a corporation for hiring folks that are engineers or building stuff in the United States or doing research and development. So, for example, let's say you are a software company. Your CFO could apply for these tax credits directly, or they could go to a service like these guys who will do it on your behalf and file all the forms. And it's not as simple as you think because what you have to do is actually detail a lot of how people are spending their time, what they're working on and prove to the government to some extent that they are indeed worthy of getting an R&D tax credit. And then there's different business models for these. The most common one I've seen is they tend to take a percentage of what they capture. So like if they save you a million dollars in spend, like they may get five or 10% of that.

And if they don't save you anything, they don't get anything. So it's kind of like Advilorum, if you're familiar with that for tax, for like property taxes in Texas and other states. And these businesses will work that way. There are other ones that seem to do it around flat fees. And there are lots of folks that will do this. There are specialists like Main Street is an example here. that they list as a competitor, KPKG and Claris. They are specialist type of firms that will do this.

There are also practices in most of the accounting firms that will do this. So like if you go to BDO or KPMG or whoever, like they tend to have these practices and they'll be like, yeah, we'll do your R&D tax credits for you and they get paid, you know, percentage around that kind of thing. So that's my understanding of this market. So do these guys basically come to, you know, business owner and they go, hey, did you know, like let me dig in your P&L. Like, did you know, you've spent this money dollars on salaries?

And, you know, four of those heads are dedicated to designing new software. And did you know that in the state of North Carolina or, you know, under this federal statute, those, some fraction of those salaries are innovating new software. And so those are deductible. So there's like a consulting angle here where you have to help the business understand exactly what qualifies, right? It's not, it's not like you're just a tax filer where the business comes. it goes, I want to file a $100,000 R&D tax credit, and then they take a VIG.

Like, they're taking a VIG because they're helping businesses qualify for tax credits that business would not otherwise know or understand that they qualify for. Correct. Yeah. There's like a consultative nature there, and they can increase the amount you get, and they also decrease the risk of you getting denied or decrease the risk of them later coming back and clawing back. So, like, there's other tax credits that will even go even further where some of these

firms like this, in addition to taking a VIG will also sell you insurance that it won't ever get clawed back. So like a number of people who got a different tax credit called ERC or ERTC, which has been one of the more controversial ones post-COVID, like I know people that went and bought insurance on that, on the money that they received. And that other firm, like the firm, the Advilorum firm, basically who went and got it for them, the tax credits, It's like guaranteed that, okay, well, you'll never, if the government comes back and afterwards denies this, we'll never, you'll never have any liability around that. So they paid like an eight or a 10% big in terms of ensuring that kind of stuff. So it even goes further than that bill. Nice, nice little bonus business model.

If you feel like you do good work, you know, and then your client pays to ensure that you did good work. I like that. Yeah, one thing to add to, I've actually, I've seen a few companies take like a tech, tech enabled approach. to these types of businesses where you can just connect, let's say, QuickBooks, and then it'll analyze your spend and then give you an estimate of what they think they can save you. Then they'll advance that tax credit to you as kind of like a revenue-based financing model. Yep. I believe Main Street does that.

But this business, my knowledge is, like you were saying, Bill, a little bit more hands-on with a consultative approach. But, yeah, definitely an interesting email. If you haven't gotten an email about ERTC tax credits, you probably don't have an email address. I've gotten at least 100. Gosh. And then when you tell people, please leave me alone, I'm not interested. They're like, oh, you don't know, you don't know about it. And you're like, seriously, you guys email 10 times a day.

Of course, I know about it. The way to get the buzz off is I have already filed. Yeah, I found that. That's the way you know. Yeah. But to be clear, this is not ERTC. This is R&D tax. And so, Andrew, it's interesting you mentioned kind of that advance rate.

One of the most interesting investments I've ever had presented to me was a business that would finance tax credits that had already been approved and they were just waiting to get dispersed. So if you're a business and you know you're getting an R&D tax credit, like you filed like it's coming from the federal government, the investor would actually, you know, pay 10% less or whatever. and then just wait. It's like factoring receivable from the United States government. It's the best credit there is on the face of the earth. Like they're going to pay. You just have to wait. And they were printing like 15, 20 percent IRAs back by the full faith and credit of the U.S.

government. A phenomenal investment opportunity. That's not what this is, but related. Around all these tax filings, there is a ton of money to be made. Yeah. I wonder if with this business you could do the same just as a customer where you get your R&D tax credit estimate or what you think you're going to be getting back from the government and then go to a company like that and get an advance on the tax credit?

Yes, that's what this was. It was a totally separate business that just advanced. Like once you were filed, they just advanced you the money. So one of the questions I have about this, and maybe you all have some thoughts on it, is it lists their revenue as annual recurring revenue, $7 million. So I'm trying to think how this turns out to be ARR, right? Annual recurring is typically there's a level of money that you collect every year, like a metronome from customers. Like, how is this, do we think this is actually AORR?

Maybe. So on one hand, there's probably like some, we file your taxes, we look at the last five years, et cetera. But of course, if you're developing software every year, you know, every year you got to file and claim an R&D. tax credit, right? So that's why it's sending the listing, they sign a two-year agreement that auto-renews. So I'd imagine you just kind of keep these guys on retainer, and every year, every month, every quarter, or however frequently you can file this thing, you know, they either suck it down from QuickBooks or you send them your financials and they just file. Yeah. And for context, I know just as much about this listing as, as you guys, we have

about a thousand listings on Acquire.com. But from the contracts that could be considered in recurring revenue, but as a buyer of this business, that would be probably the first thing I dive into is how sticky are those contracts. Are they seeing churn? I'd also be curious if, because this is a competitive market, there's multiple different agencies, tech-enabled companies like I've mentioned. Are they seeing people potentially leave some of the larger businesses in the space? or are they just getting people entering the market for the first time?

That's what I would be most curious about. You mentioned it that, you know, I'm pretty sure I've seen where like, you know, paychecks, right? Everybody wants to jump on the bandwagon of additional revenue. So like paycheck started pushing ERTC. And I know we've had outreach before. It's kind of a misnomer, but my business, we have manufacturing in the name because when the business first started, they were making some roofing products. And we don't do that anymore.

But we get all kinds of people who reach out and say, hey, you know, we think you might, this might apply. Do you want us to look at it for you? But I'm pretty sure, you know, the major payroll providers, it's an easy kind of plug in for them to say, hey, you have X amount of dollars of payroll. Is any of it going to something that might be applicable and we can help you find out that type of thing? The documentation is really important because we've looked into this.

And like, for example, if you've got people building software, like you need to document how many hours in each month they spent, what features they were working on, whether it was net new development or whether it was maintenance, because the credits are only for like building net new stuff. And you actually have to have records of all that. So there can be a substantial lift here if, yeah, okay, you've had a couple developers and you've built a lot of new software over the last two years, but you didn't have like week by week, month by month records of what they were working on, where they spent their time. You have to go back and reconstitute a lot of that documentation. So there's definitely effort. I'd be interested in knowing for

this business, kind of how much of that effort is on the business, on their clients, versus how much did they take on? You know, and to Andrew's point, you know, is this tech enabled? Like, do they just suck in your quickbooks and they have a guess? You know, how is that actually done? Because this is definitely tech and manual service as well. Yeah. Another thing to think about, too, is you had mentioned Bill, which I think is a good point to bring up, the different sort of, I know, sorry, it was you, Gurley, the different business models. So with this business, are you get, is it cheaper, is it more expensive? Because you're on a two-your contract. Is it more affordable than the one-time fee shops that do this? Is it easier? Is it you were bringing that up, Bill? So those are other

questions I'd definitely be asking. Yeah, another interesting thing, you know, Andrew, one of the things we've done since you were last to guest is we end up spending some time Googling to see if we can forget it out in 30 seconds, so I will stop because that means it's too hard. But one thing I noticed looking at all these competitors, like they are all offering a much broader solution than just R&D tax credits. Like these folks are doing the financing stuff we talked about, but then you're seeing them do some of them are doing bookkeeping, some of them are doing accounting, some of the even doing audit.

it, like, there is a much broader set of solutions by a lot of their competitors. I think I would be really curious why a point solution like this that only does one thing really well in Idaho is, you know, as competitive, right, when other people have a more complete solution, more well-rounded. I mean, I think the answer to that is their clients have got to be smaller, right? I mean, if you're a bigger business, like, for example, our accounting firm has pitched us that they will do this for us. And they're all already doing all of our income tax and our audit and all this stuff, right?

So if you're already with a big firm, you're probably, probably not using these guys. Like, I wouldn't think this is like cutting edge where the big firms haven't developed an expertise in this yet. I would think the customer here is business that has a bookkeeper or a tax accountant, but not like an accounting firm on retainer, right? So this is kind of supplemental to their, the expertise they already have access to. It would be my guess. Yeah, I would agree with that.

Gurley, can you scroll down a little bit? How many customers does this listing have? Between 100 and 1,000. Oh, I think I found it. Sorry. I just went to Google Maps for Idaho, and I typed in R&D tax credits, and it gave me the name of the company. So how many customers between 100 and 1,000?

I don't think that was it. I've seen the website. Oh, okay. Darn it. Oh, great. Thanks for bursting our bubble. We thought we felt so smart. You got it, really.

No, I'm just kidding. It's interesting, too, like when you think about the, you know, tax credits have kind of, they ebb and flow in terms of whether or not they're in vogue. The ERTC was the big one recently. I'm pretty sure research and development tax credits have been around since the 80s. And they are maybe slightly easier to automate and put, like they talk about being tech enabled. I've done some state and federal real estate, you know, rehabilitation tax credits, abandoned building credits. They're incredibly labor intensive. And it's like almost as when you work with those people, they're almost as much artist as they are practitioners because they go back through historical photos and they build these pitch decks to like the state historic preservation office.

And they kind of know, hey, we need to navigate things this way. I like the fact that this is probably a little bit more automatable, you know, versus hiring an artist who's like, well, I know all the people at the local office and I know how to, you know, dance the way that they want me to, to be able to get them to, you know, give us a thumbs up instead of a thumbs down. I think that is positive in this case. Yeah, I'm definitely going to be a little biased here, obviously. But I got a soft spot for agencies where you find some sort of service that you're,

going to need every single year or on a consistent basis so you can have a subscription-based business rather than just, you know, one-time projects. And we work with a lot of agencies like that, like, for example, a web design shop or something like that. I think we looked at one not that long ago, Andrew, that was like marketing for dentists, right? I think it was an Acquire.com deal where we were like, this is awesome. Like, you're at a disadvantage if you're not using them. I don't remember that. That sounds awesome. And when you look at the multiple, too, you know, 2.2 profit.

I mean, not bad. So that's the other thing's worth mentioning. This thing is phenomenally profitable, right? They got roughly six, a little over six million in sales and three million of profit. And they're asking $6.5 million. It's been around since 2019. I mean, normally you'll see something pop up like this and it's like a hustle. it's been around for 12 months and they're trying to flip it before all the competition comes in.

This thing's been around for four or almost five years. They've got three million of profit. It's phenomenally profitable because I think probably once you do the work to like set up the mapping for each client, it's almost pure margin, right? Of course, the clients take home a bunch of money too. Is there any, where's the risk in this deal? What are you guys afraid of? Because it looks pretty good on its face. I'm a little afraid that it's bootstrapped.

and it's rapid growth. So it makes me wonder if it's a little bit seller dependent. How did they get, you know, what is the growth being driven by? How do they get there? And how, you know, how long have we been at this level of revenue and profit? For me, I would say, is there like some sort of customer concentration? Did they get one really large, you know, tech startup, you know, what have you? and that's driving a lot of the revenue?

Or is it equally spread out, like you were guessing, Bill, as a bunch of small businesses, which would be much better, in my opinion. I think my concern is that, you know, even if they have a recurring revenue relationship with a, you know, somewhat diversified customer base, is the nature of their revenue, like 80% of the lifetime value of the customer is realized in year one because there's a look back, usually with these credits. And you can also carry them forward, but in most cases, people can use. use them right away. And then all of a sudden, the, like, the residual lifetime value of that

customer is very small. And so if they've been growing really quickly, it could look great, but there could be kind of like an impending cliff if you can't maintain that same pace of sales. I just don't know, you know, until you actually could get in and look a little bit more at the revenue composition. Right. Like, if there's a five-year look back, you're going to do 50% of the lifetime value up front and then the second 50% over the ensuing five years. Yeah. Yeah, I like to what Heather said, too, in terms of, you know, the scope of the work. So if a new client comes on, what does onboarding look like? How much time are they spending on it?

How much of the processes is automated? So if I was to step into this business, do I need to be an accountant? Do I need to have, you know, a strong financial background? I'm not a tax expert. So that's probably the first thing I would, you know, be worried about. Is there the other thing I would want to? to know is are these tax credits going anywhere? Like sometimes these will be limited time programs, like a, or like maybe coming out of COVID, like, are they specializing in like a COVID-era tax

program that is sunsetting in two years? Or, and sometimes this is even state dependent. You know, you really want to understand like when these programs have to get renewed by Congress, you know, was this past under a Republican administration? And I think we're going into a Democratic administration. you know, you've got actual political risk here. So you need to actually understand the underlying legal framework and basis for these credits even existing at all in the first place and whether they're going to continue to. Yeah, that's a super good point. I remember after COVID, we saw a bunch of different businesses like that. And not too many of them would sell, but you kind of see this like rush into the market when you see something like that.

So that's a huge risk. I agree, Bill. Yeah, and the COVID stuff, the ERTC was a whole different ballgame because there was such a gold rush where, you know, that program was only going to be around for a couple years. And it was how much money could you grab. And there's a lot of very unethical behavior by a lot of tax preparers on ERTC where they were taking just a percentage of revenue and they were going to be long gone by the time their clients got audited at all. So I wonder also here what the tail liability is. So they're doing six million bucks a year of filings or probably more. If their revenue is six million, they probably filed millions, deca millions, hundreds of millions of R&D tax credits for people.

If it comes back and those clients get audited and those credits get invalidated, are you obligated to refund the client? Could the client sue you for a refund even if you're not obligated? you'd want to be very careful you weren't stepping into the shoes of a pretty major tail liability where some fraction of the past revenue was potentially disputable. And the old clients of the old owner could come after you for money that he had pocketed. Very good. Yeah, that would not. Gurley, can you scroll down and see the reason for sale?

Where is the reason for sale? Did I miss it? Scroll a little bit. Down, down, down. Oh, partner. Oh, there it is. How did I miss that? Yeah. Partner or family needs, health reasons, lifestyle change. Andrew, just because this is your system, is this like people are selecting from a drop-down menu and they can select multiple choices or they're writing these in and it's just fill in the blank? Good question. For these, these look like custom ones. So we do have some pre-selecting.

ones that you can pick, like lifestyle change is a pre-selected one. But then you can also add in custom ones to give a little bit more context. So the bottom one is pre-selected and then the health reasons and partner family needs looks like they enter that in themselves. Yeah. And I mean, it's worth saying, I think these are, from a buyer's perspective, these are good reasons for a seller to be selling, right? Like this is an exogenous reason, not like he feels he's top-ticking it and would like you to hold the bag, right? Like something, he's been hit by a meteor or maybe and, you know, while sad, you don't have to worry so much about nefarious reasons for transacting at this point.

Yeah. The other thing I'm curious about Andrew while we've got you is I don't, and it may just be sample size because we look at things that we find are interesting, but all of them say that there's, like, I think pretty much all of them are like, it's getting serious and there's a lot of people looking at them. How do you measure that on the system? Is it like, are we counted in this, you know, people who are interested, because we're on the website right now,

or is it somebody's initiated a conversation with the seller? So that number at the top, we have a few different ones. Depending on where the listing is in terms of activity, we'll either show the amount of visitors. So we'll show that if it's lower than, say, a number of NDAs signed. So in this example, when it says 47 people are in active conversations,

that means 47 people or more than 47 people have signed an NDA with the seller and they've started a active conversation. So it's gone beyond just signing an NDA and they've started asking questions and there's been a little bit of back and forth. That's cool. That is a decent amount of interest. I mean, 40 some people under NDA looking at this listing. That was what blew me away when I sold on a choir. It's just like the volume of buyers. Yeah, and you have to lose.

This one, I believe this one's been up for just a couple weeks, too. So this one, I would assume, sometimes we'll get to 100, 150, if it's, you know, priced correctly, recurring revenue. And this is kind of checking most of those boxes as we're going through it. But yeah, I agree. From a multiple standpoint, like, there's a lot to like. I mean, we look at stuff that's at the other end of the spectrum. And this, at first glance, seems super fairly priced. I mean, you get your money back in 2.2 years.

I mean, that's honestly, Michael, that's the only thing that's wigging me out. It's too fairly priced, right? Like, this business has 50% margins. It's been around for four to five years. I assume it's growing a little, but like two points, like, I think this might be underpriced, right? I mean, what is it about this that is riskier than we can see here? Because it seems like it'd be something or be priced at 4x. Poor Andrew, 18 months ago, when it was still microquire, had everybody complained that

prices were too high, there wasn't any explanation of prices. It's on the podcast, and it's like, oh, it's too cheap, Andrew. I want to, I want to mention that. I can not win on Acquired.com. Either prices are too high or too low. It doesn't make sense. But I agree with you, Bill. I mean, this is kind of the dream.

I mean, you're, you know, seven figures and profit per year. Unless the owner is working 100 hours per week, that's a, you know, you guys know this, but they say the best businesses to buy are the ones that the seller doesn't want to sell. And I feel like this kind of falls into that, especially at this price. Well, that's what I'm wondering is why does he want to sell this thing? And especially for 2.2 profit. And the reason, you know, maybe he's sick or someone is sick or he's at a lifestyle change. But it also sort of gives another hint that it's maybe a little seller dependent because

he needs to sell to get out of the chair is my guess, right? He probably is spending a lot of time. And that's why he's got to sell. and he's priced it. I would guess he's priced it to sell quickly and close quickly. And so that may be, you know, court kind of the way you win the bid in this case is you're the right person to replace him and or her. And you can close very quickly.

That's a great point. That's a great point. Heather, how, assuming you didn't have to close in 30 days, which would absolutely rule out an SBA loan. And I know that they're asking $6.5 million so you'd have to put it in at least. least a million five of equity. But that's, you know, that's not crazy from a percentage point of view. Assuming you clear those hurdles, how would a lender look at this business? Is this attractive business to lend on as a service kind of R&D tax credit business or not?

I think they would have that political risk question would be a big one for a bank. You know, sometimes we call it stroke of the pin risk. You know, somebody could just change the R&D tax credit system and maybe your revenue gets cut in half or something. So I think a bank would really have a tough time with that. They would probably want quite a bit of equity, or this is an all equity kind of deal. They would also be really concerned with the rapid growth. Hockey stick growth is hard to finance. Every bank will look at it very skeptically. Is that sustainable? And if it hasn't been performing at this level, you know, let's look back a couple of years. And if we could size the debt to a couple of years ago, you know, revenue, maybe we would lend at that level.

That's, those are the kinds of things that would jump out at a lender. Okay. But service based or kind of percentage of, I would call it almost contingent, right? Not necessarily on its face. Not necessarily. Really totally depending on what kind of answers you'd get back. They would ask a lot of questions about that. And that same question. about it churn and is it really recurring. Is there a cliff? I mean, I think they would get into all those questions. If they came back, you know, positive answers, I think that a lender could get on board with it potentially. Cool. So I think we like this one. I mean, are you guys joining the list of 47 people who are interested on Acquire.com in this one? It's getting serious.

It's a good reason to move to Idaho, too. Now, do you have to live in Idaho, do you think? Or do you think this is a virtual business or is it's like a walk into storefront in Idaho. So one thing I'm suspicious about in my Googling is there are state tax credits in Idaho. So I think that's maybe part of this. It's not just federal. So being in Idaho is potentially a good thing. And having Idaho customers is a good thing for this business if they're doing state tax credits, which I suspect they are. So in which case you're going to, you should plan on spending a lot of time in Idaho. Yeah. I like it.

I'm just curious, what do you see? Because you guys have kind of expanded your offering to include, I think, some, like, you know, access to legal advisors, maybe even access to financing. Do you, do you have any kind of idea from a financing perspective just because of the platform? Like, is this something that lenders that you guys have kind of partnered with in some way, would they be all over this? I would think this one would, I think Heather brought up some good concerns. with SBA, but we also work with other third party lenders that would definitely be interested in lending on this business. The businesses in my experience that are the easiest to get finances, as you want to

know, typically have some sort of form of recurring revenue, they're priced correctly within, you know, fair market multiples. And this business seems to really hit on those boxes and just the cash flow that had seeing. I think, you know, aside from an SBA lender, I think if someone was interested in buying this business, an SBA wasn't a fit, we'd be able to find probably two or three other different lenders. And what types of lenders are those, Andrew? I mean, because we talk a lot about SBA deals on the pod, but we don't talk a lot about kind of alternative financing. Like, what does alternative non-SBA financing look like for a deal like this? Who are the lenders? Like, how do they

think about it? Is it more expensive, et cetera? Yeah, definitely. Like, we're, like, one example would be a company called Bupos. And then there's another company called e-commerce lending. They're called e-commerce lending, but they do lend outside of e-commerce. They actually lend mostly to SaaS. And they'll provide lending similar to SBA, but there's no personal guarantee. But with that comes the downside of typically in higher interest rate. So as an example, Bupos, to my knowledge, will lend at, I believe,

20% plus interest rate. So 22, 23%. The term of the loan is typically two to three years. And I believe average SBA is around 10 or 11% right now. Yeah, that's about right. So yeah, so you're going to be paying a little bit more in interest, but you're going to be working with a company that can typically move and close faster. And so that's a plus. And then also the personal guarantee can also be attractive as well. but typically the loan sizes will be smaller, I should add. So you won't get the full $5 million that you'll get from an SBA loan. On this, I would estimate you could probably get pre-financed or maybe $2 million,

but not the full $5 million like an SBA loan. Yeah, we can use it as equity. And it's really hard to combine an SBA with any other lender because the kind of conditions that they would want, the SBA wouldn't allow. So generally the answer is no, you can't. But you could, and I've talked to Bupos about this, you could, after the two years is up with Bupos, and if the company is performing well, you could refinance into an SBA later and get that rate reduced and the longer term. So I think Bupos and those other providers are a good way to get in the door on one of these.

And it's always easier to refinance into an SBA loan on something like this two years down the road when there's some performance history. The transition risk is gone. you know, maybe you've even grown it. So that's a good strategy for folks to think about. This is one of those deals where if you can do this and keep the profit at that current level, I mean, let's say you do a million and a half of the thing in a seller note, right, which is, I know you don't like full standby, Heather. But anyway, you're just talking about like some sort of seller note.

You do an SBA note for $3 million or a straight up Main Street note. you know, that you personally guaranteed for one and a half times, one half times earnings here. And then you go put together a million and a half in equity between you and investors. Like, I think you could basically return 200% on equity per year if this thing keeps doing $3 million year in cash flow. Like, yeah, this is, it's, it's there. It's there. Well, I mean, it's important to note, like the thing that is driving this that gives you a lot

of flexibility is the low multiple. Yeah. right because you have a lot of cash flow to cover the debt so you can you can use that bupos piece or you can use some stuff on on faster amort to buy this with less and less up front because the multiple is much lower at 2. So many doors. It's crazy. Yeah. So it's just so much easier than a 5x deal. So you say on the bupos deal, it's not fully amortizing over the two years. It's just kind of partially amortizing and then you would have to refi out. I think you have to do something at the end of two years.

Yeah, my understanding is that you would not be fully paid off in two years because that would be tough to cash flow too. That's what I'm thinking. At 20% interest and amortizing over three years, you know, it's difficult. I think it might even be interest only, but don't quote me on that. Burroughs. Gertley, what have you been doing? This whole time, man.

He is determined to figure out who this is. No, no, no, no. I'm past all that. I'm trying to figure out how hard it would be for me to ski every morning and then work every afternoon if I bought this business and moved to Boise. That was what I'm trying to figure out. Speaking of crazy stuff, have you guys seen the movement that Eastern Oregon wants to split off and join Idaho? Have you guys followed this? No.

You mean Western. Western Oregon. No, no, no. No, Eastern. Eastern Oregon. Yeah, like all these people. So if you look at the West Coast of the United States, these are a Portland and Seattle. Seattle, basically, you know, as far to the left as you can go on progressivism.

These people in Spokane and Bend in all these places, Yakima, like on the east parts of these states, they have nothing in common with Portland and Seattle. So they all, there's a separatist movement. And I think it's an Oregon where they're like, they want to become greater Idaho. They want to leave Oregon. Get us as far away from these cooks in Portland as we possibly can. They're like, all that pooping in the street stuff going on. We don't want any of that.

like they are like let's get away from the people's republic of portland this is their words not mine and move over to greater idaho check it out on youtube it's it's crazy i was wondering where what what information source you were going to quote was it going to be reddit or twitter or it was you too very credible source there's a viral ticotker who keeps telling me about the republic of oregon it's come bro i'm a hamburger expert. You are. Separatist movement in Idaho.

The movement to shrink Oregon and expand Idaho from CBS Sunday morning. Wow. Ironically, the YouTuber is probably more credible with CBS, at least as far as as far as reach. Look, it's, I mean, here's like KTV8, like straight outlayer, right? Wow, that's real. Yeah, this is a real thing. This is a real thing.

Can you imagine if you bought this business, like expect it? And maybe they're different sales tax regimes, like expecting it was in one state and then suddenly, whoops. Talking about regulatory risk. Yeah. All right. You guys want to wrap this one, this thing up? Anything? I think we got to do, Gustavo's like giving me the hand signal, like thumbs up or thumbs

down on this business. We're going to start. Andrew will let you go last. We're going to start with Heather. Heather, thumbs up or thumbs down? Definitely like it. Thumbs up from Heather. Mills.

Thumbs up from Mills. Gurdley. Yeah, I like this one too. Thumbs up from Gerds. I got, I guess thumbs up. I think thumbs up for me. Andrew?

I'm a thumbs up. I'm extremely biased. Wow. I was trying not to say anything. Two thumbs up because it's an aquarium. Two thumbs up. I mean, the only reason he gives us thumbs down

is you literally spend your entire life filing taxes, so shoot me in the head. But other than that, financially it seems good. That was a fun one. Good one, Andrew. That was a fun one. So Andrew, thank you for being here.

Andrew from Acquire.com. If you are looking to sell a business, it is easy on Acquire.com. I have done it personally. If you're looking to buy a business, there's cool ones like this. So check them out at Acquire.com. And if you like this episode, please follow us on Twitter or get on an email newsletter on our website, Acquisitions Anonymous. And we will love to see you in the next episode.