Acquisitions Anonymous - #1 for business buying, selling and operating - A Dog Dental Care Business! - Acquisitions Anonymous Episode 104

Episode Date: June 24, 2022

Michael Girdley (@Girdley) and Bill D’Alessandro (@BillDA), and Mills Snell (@thegeneralmills) are joined by Peter Wirtshafter (@PeterWirt) to discuss 2 Deals: A dog teeth cleaning business and a Radon business. Peter has a background in sales which made the exchange interesting since his approach lets him evaluate potential growth opportunities based on his current skills.-----Thanks to our sponsors!* CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----* 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.-----Show Notes:(0:00) - Intro(0:57) - Cloudbookkeeping.com(2:18) - Peter’s story and background in sales & operations(5:00) - How does your sales background affect your SMB search?(8:27) - What common mistakes do you see in the process of acquiring a business? How do you evaluate the potential of a company?(10:00) - Deal 1: A dog dental cleaning business(13:07) - Challenges that we can foresee through the listing?(14:30) - The channel partner acquisition strategy: Leverage your network into new customers(16:40) - Is it capital intensive? What is the competitive advantage of this?(20:15) - How is our read on the niche? What makes this an interesting business?(23:26) - How do you think of the operational side of the business? What risks should we think of?(30:00) - How do you think about the business size, and your risk profile?(34:35) - What are you paying for here? What do we think about the price?(39:50) - Deal 2: A Radon service business for sale(44:25) - How do we think about it? What should we ask the seller?(48:25) - What is wrong with the price? (53:40) - What should you be asking yourself when looking at this business?-----Additional episodes you might enjoy:#96 From W-2 to Business Owner - Patrick Dichter tells us how to cold reach seller and we discuss 2 Deals#92 Wait... what? You laid-off 90% of your staff?!? - Pete Erickson joined us for an exciting WarStories episode!#Subscribe 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]

Hey, Michael here. Welcome to another Acquisitions Anonymous. We have a classic style episode for you today. We had a guest come in. Our new buddy, Peter Wirtschfter, who is a New Yorker, well, Clevelander, turned into New Yorker and now living in Denver and is out doing a search for a business to buy. And he brought us two deals. So he wins guests of the week for helping us bring two deals that we went through, one of which we loved, which was a dog teeth cleaning business, and one of which we thought was way overpriced, which was a radon business. So Peter was super cool because he brought in a salesperson's lens to all this stuff. And we've seen that with a few other searchers who come in, not from the finance side, but come in from the sales side. And it was really interesting to just

see how he thinks about deals vis-a-vis growth and vis-a-vis his strengths and weaknesses and all that stuff. So I really enjoyed this time with Peter. I think you'll enjoy it too. Had a ton of fun talking about these deals. And we'll get right into the episode after a quick word from our sponsor. Hey, Michael here. Want to talk to you about today's sponsor for the episode, which is cloudbookkeeping.com. So cloud bookkeeping is actually run by my neighbor, Charlie. So I've met him in person and can attest that he's a real human being and a good person. And what cloud bookkeeping does is offer a full suite of bookkeeping services all in the cloud for you around QuickBooks and other technologies that you're using as a small business owner. So if you're

interested in getting the bookkeeping part of running a business off of your plate and focusing on running your business, Charlie and his team are one to call. They can put together a bunch of other stuff in terms of helping you manage and grow your business besides just bookkeeping, sophisticated reporting, definitely helping you get your quickbooks online set up in the right way, and a number of things around payroll as well. So definitely know them and recommend them. If you want to find out more about cloud bookkeeping, you can go to their website at cloudbookkeeping.com. Reach out to Charlie. I know many of you have and see if he can help you, make running your business easier and more fun

by letting them help with a lot of the bookkeeping solutions. And when you call, mention this podcast. It would help us and help Charlie know that we're supporting him as well. So thanks a bunch. And cloudbookkeeping. com as the sponsor for today's episode. Peter, we are so excited to have you today. Thanks for being here.

Yeah, thanks for having me. Very excited to be on. Yeah, well, it's cool because we went out on Twitter and we wanted to do an episode that was very, you know, sales-centric. Well, for those of those members of our audience that don't know you, we'd love for you to introduce yourself. Tell us the Peter story. Yeah.

I spend the last 12 years or so building, leading, and scaling, large sales and operations teams at high growth companies. So the first half of my career was in B2B SaaS. The second half of my career, more in the B2C services space. Spent a few years at a clean energy startup leading a sales team there. I guess it's not a startup anymore. They just got acquired by shell a couple months ago. And then more recently was at Hello Fresh where I led the sales and sales operations teams there here in the U.S., which was about a, you know, You know, when I joined 150 plus people, we grew up to close to 400 before having to restructure that due to COVID. I ended up leaving.

I was excited about searching for a business to acquire and ended up leaving to do a self-funded search while also focusing on my growth consulting and advisory work I had been doing. And yeah, that's how I got introduced to your podcast. I don't have a background in private equity or investment banking, no MBA here. And so the process of acquiring a small business was completely foreign to me. I've been a part of a number of venture raises and there's virtually no overlap. And so a lot of the learnings came from, you know, Twitter and people like Mills and this podcast and people in my network. So it's been a really awesome experience. learning how a micro-private equity or a P-Fund would go about searching for a company, analyzing, and going through diligence.

I got probably eight months into it. It was about six days away from closing on a business in Chicago at the time my wife and I were in New York City. We were planning to move out there. It was a $2.5 million home services business. And about six days before we identified some seller fraud in the business that completely derailed. the entire thing. And at that time, we took a step back and said, let's pretty set on leaving New York still. So let's head out to Denver. So we moved out here about four months ago. I spent most of my time consulting through my company, Sunbean Growth Advisory, mainly working with small businesses,

much like the ones that I'm looking to acquire, as well as early stage tech companies. I just described it yesterday as a quarter sales consulting, a quarter management consulting, a quarter executive coaching, and a quarter of therapist. And some of those, sometimes just a shoulder to cry on. Yeah, I feel like our podcast is that sometimes. So we'll see how today goes, good news is we're bad in a thousand. No guests have cried yet. So we'll keep going.

So as you think about, you know, you're a relatively, unique beast in terms of people, you know, from my experience, making the transition from the corporate world to trying to own a business and do entrepreneurship through acquisition in that you have a sales background. You know, I think we, we tend to see people who come much more often from the finance background, like guesswork investing was a guest that we had, who was a search funder that comes from the finance background. And obviously classical MBAs are that way. You know, you're coming out from an entirely different set of strengths and weaknesses. How has that kind of changed how you're thinking about doing this versus some of those guys and gals who are

private equity or finance folks as a background. Yeah, it's funny because guest work, I won't reveal his real name just in case he's still going anonymous. And I used to meet up in New York when we were there, along with a number of other searchers. I have wanted to own and operate a small business for a long time. I have a number of mentors and people in my network that have had a lot of success doing this. I've been fortunate. fortunate enough to gain a lot of experience in the operating room. I sat on the senior leadership team at HelloFresh, fresh in the U.S., which is a $14 billion company. Prior to that, you know, had the opportunity to build and lead fairly large teams and cross functionally

in a number of different industries. And so that gave me the at least slight confidence and competence to feel comfortable in the room, building teams, you know, growing revenue, implementing process and changing technology. Where I, again, had absolutely no experience was, where the hell do these deals even live? How do I find them? How do I analyze them? I didn't even know what an SBA loan was when I started this process. And so, you know, I go back to going out to, you know, lunch with guest work, the way that most of these people with MBAs and, you know, coming out of Harvard, you know, HBS and, you know, private equity firms.

I felt like I had a, were there front loaded in the process of, you know, really highly technical and analyzing deals, running numbers that I don't even know exist. I felt much more competent in the actual room. And so I've kind of looked at it as I have to earn the right to get there by learning from all of them on how to successfully acquire a company. I, again, I think what's given me a little bit of confidence is just, you know, I've been in the room. I've hired 500 plus people in my life. I've restructured entire departments. I've grown revenue from zero to 100 million plus. I've been fortunate enough to just see a lot and make

a ton of mistakes. And I was confident or I'm somewhat confident that I can figure out the rest as I go. Yeah, totally dig it. And I mean, as you think about, you know, in your consulting work or in kind of these businesses that you're looking at, what would you lay out or is like, is there a common thread of mistakes you're seeing kind of around go-to-market-sales that comes up over and over again? Or the problem is different? I'd say the problem's very different.

You know, I'm happy to walk through how I approach like my sales diligence in a company. When I'm talking to them, there's a ton of things that I look at and things that I'm looking for. But it really just runs the gamut. Depends on the size and stage of the companies, the companies I'm looking at our about 300,000 to a million and a half in SDE. The primary focus is on companies with non-existent or limited sales and revenue functions. So I'm looking where I can take, again, my experience in building teams and growing revenue and apply value that way.

Man, the companies I've spoken to, there are some that are doing a great job here, and there are some that I can't believe they're still in business. So it's tough to say if there's a specific thing. I'd say if there was one that stands out, it's a lack of process and a lack of having a sales process and evolving that process. So a lot of times the sales process has been the same thing. It was 10 years ago, and it's just the owner, networking in the community. Or they brought in someone to do an event with the sales team three years ago, and they're

all using that script from the sales guru. But yeah, it really runs the gamut. Yeah, totally take it. Well, cool. Well, I think we would love to talk about, you know, getting to our first deal now because, you know, and look at those from a sales lens because I think it's going to be really interesting for me in the audience.

I don't have a sales background, right? I have a product management and engineering background. So it'll be really cool to see the lens at which you look at these. So if that works, Mills has our first deal this week, which is we're doing the dog services one, right? Yep. Yep. Peter, glad you're here, man.

I've always enjoyed our conversations in the past, and you always teach me things about sales. So my impression of anything pet-related or pet-service-related is that the sales do themselves. I know that's not always actually true, but that's at least what's advertised from the people who are trying to sell them. So we have this one up on the screen if you're watching on YouTube,

but this is Trans World. They're actually a franchise business broker, and a lot of the Trans World brokers, I've worked with in the past have sold businesses of some sort. And they're like, hey, that went pretty well. Maybe I'll, maybe I'll, you know, sign up as a franchisee and help people do this. So this one is Trans World. It's a dog service business for sale.

It says lender prequalified, which we could talk more about. And we have talked about a little bit in the past with the SBA folks that we have had on. But it says it's an established business that offers pet teeth cleaning services via remote clinics at pet supply stores. kennels, daycares, and other pet-related businesses. The business has been in operation for 20 years, built a strong reputation and customer pipeline to ensure future revenue and growth. They require veterinary and oversight at the remote clinics, and they have tenured staff in place. The business has been lender pre-qualified, which means you could, which means you could own a business cash flowing over $340,000 for only 10% down. The current owners are willing to help with the transition

and partial seller financing is available to a well-qualified buyer. Inquire for more details and learn how you can own a business for as little as 10% down on qualified SBA listings or how to use creative financing options to get a deal done exclamation point. At Trans World Business Advisors, most active business broker in the country, I have yet to hear a business broker who hasn't told me they're the biggest or the most active or the most listings or whatever. So the price is not, we don't have a ton of information here, but the price is $945,000. The SDE, the seller's discretionary earnings is $340,650. They say that their total sales, top line revenue is $836,000.

They're in Denver County. They don't have any inventory. They have very, very minimal, $3,000 of, $4,000. furniture fixture and equipment, FF&E, aid employees, and the owner wants to retire. That's what we've got on this one. Kind of interesting. So they focus on, it sounds like, and Peter, you may know more about this one. Does this business only do pet teeth cleaning?

They're not doing like, I don't know, spay and neutering. They're not doing dog grooming. It's just pet teeth. Yeah. I like it. I didn't know something like this existed. Yeah. So why, I have a question from the listing.

Why do you have to be supervised by a veterinarian to brush a dog's teeth? Like I don't understand. I don't understand that part. Is there something that they're doing more than just like teeth cleaning or is it like, no, I think it's going on here. My take is that it's somewhat of a regulated industry. And so I think it's different state by state. I don't know the limitations there.

And I think that's to me, like one of the biggest downsides here is that you do need a veterinarian oversight. So, you know, what does that mean from hiring challenges right now? But I can't answer that fully. I don't know. So do we think a veterinarian has to own this? Or do we think that when you place your people in the veterinarian clinics, the vet there will supervise your people and make sure they're not doing it the wrong? wrong way. Yeah, I think, I don't think you need to be a vet veterinarian to own this. My take is that they have vet techs who can be anyone as long as they're trained who are going out to these clinics.

And these clinics, this is one of the things that I think is really fascinating about this, is that they kind of have this channel partner acquisition strategy. So they partner with daycares and kennels and dog stores to get access to their clients. clients and customers. And I love that. You know, whether I'm working with a client or I'm looking in an acquisition, I'm always asking what relationships can I build that lead to multiple customers and clients in the long run? And I think they're doing an awesome job there. But I think the veterinarian just needs to be on site in case something goes wrong. Maybe in case it's a deeper issue than just teeth cleaning. That's my read on it.

Peter, on this business, are they setting up, you know, it seems like they're doing like almost pop-up shops to use a very cliche term at these places. It's not that it's not that the pet supply store says, hey, we're handing out your business card. And then they have to go to those people's houses and track them down and close them. It's like, hey, you know, in the same way that, you know, you may be able to show up and all your dogs get their, you know, heartworm medication or their shots or something. Bingo. Like bring your dog.

You know, we're going to do teeth cleaning on site. So it's kind of an amenity maybe for these people, you know, the daycares and the kennels and everything to have these folks come out. Yeah. That's exactly right. Which again, goes back to that channel sales acquisition. You know, these companies, these daycares, these walkers have incredible credibility and trust they've already built. And they're always looking to add more value to their customers. And so if you can create one relationship with a daycare that brings 20 dogs to one of these clinics,

I think that's a great deal of leverage that you have. But yeah, that's, I believe how it is. It's these pop-up clinics where their approach is not to put the dog under anesthesia and to do this different approach to, you know, cleaning and keeping a dog's mouth healthy. Is there specific equipment that is? required for this? They don't, I mean, they don't list, you know, any inventory, obviously, your FF and E, but is there, are there like special machines? Is there like Sonicare for, you know, for dogs or sonicare for cats or, I don't know, rabbits or something like that?

I don't think so. I mean, I'm looking at the FF&E numbers, but now I don't think that's the case. So I'm just thinking, you know, then your, your competitive advantage, in your moat in this is not like we have the exclusive rights to use the special toothbrush that nobody else can use in you know Denver County it's just that you know we have a relationship with the pet stores and you know sure somebody could come in and try and compete that away but if you could have enough ability to fulfill you know there's certain contractors or or on-site service providers that win. I know a guy who they do a ton of interior renovation work for like Lowe's and

Sherwin Williams. And the only reason they win jobs, it's not because they're the low bid. It's because they are like, we'll handle everything on the East Coast. Every lows that needs a new customer service kiosk or you know where you do the returns, we'll do all those and we can do it while the store is still open. And they can beat out other local contractors because that guy's like, I don't know how to price 250 of these. can only do one at a time. I'm wondering about that dynamic in this business where, you know,

theoretically a mom and pop, you know, pet store, they could have anybody come in and do dog, you know, dog teeth cleaning. Maybe, maybe part of their strength is this is a lot of teeth to be brushed, you know, to do $836,000 in sales. Any idea what the average price point is? Is this like a $5 thing, a $25 thing? I don't know a frame of reference. I think it's, uh, probably like 250 to 400 is my guess on basic Googling. I think the advantage they have here is the typical process right now. So you go to a vet. The dog's put under.

It's a big process to clean teeth. I just got a bill yesterday, actually, or an estimate for our dog. It's like $1,200 to do that. And I think this is just a much less invasive, quicker and cheaper way to do it more regularly, get out in front of any, you know, maintenance issues or things that could come up. I think that's their competitive advantage. I also think there is training, a significant amount of training that needs to be done to be a tech here. It is interesting that it looks like some of the bigger chains are kind of charging just what you talked about.

I googled this. Yeah. He has $300 to $700 for a dog teeth cleaning and that the internet recommends it happens once per year. So, you know, you can always trust what you read on the internet. Done without anesthesia and all that kind of stuff. But it's interesting, some of the bigger clinics like VCA, veterinary clinics of America, which is actually, Mills, I don't know if you knew this,

but have you seen the VCA chains of animal care clinics, of vets? Yeah, I've seen. Yeah, it's actually owned by the Mars Corporation. I know the previous owner, I'm friends with his son. It's a hell of an ETA. story. A hell of a roll-up and then they accident to those guys for a big money. A decent amount of money. So this looks like the niche smells like it's actually smaller vets who want to offer this as a service but probably don't want to, don't have enough volume to justify going through all the

overhead worth of it. Is that kind of your read on this one, Peter? Yeah, as well as I think, again, like daycares, dog stores, dog walkers, especially out here in Denver, the tailwinds are astronomical. There's so much population growth. And if you walk down the street, it appears that if you don't have a dog, you know, something's drastically gone wrong in your life. And so to me, I think the biggest, you know, some of the challenges in this are that there's a huge education component

for your consumer, I still think. I've had dogs my whole life. I haven't spent much time thinking about their teeth until recently when my dog had some teeth issues. So I still think it's probably early in the education of this is a, this is something that needs to be done on a, you know, once a year basis if Google is correct. And or is it even necessary? You know, how recession resistant is this? Do I need to get this down or is it a nice to have?

But I think through education properly educating, partnering with these channel partners, I do think there's an easy way to explain how this is a very, viable preventative measure. The things I love about this are, you know, the margins are fantastic. You know, 340K SDE on, what was it, 836 in revenues. That's, you know, 40% an SD margin. I love the industry, mainly because I love dogs as well as I generally think that people are willing to spend on their dogs before themselves. I love that it's been around 20 years, you know, show sustainability in the model. Again, the thing that it gets me most excited is the sales and growth aspect. So as you think about how they're selling or meeting their customers right now, it's through that channel partnership. And that's really easy to kind of create this playbook

of here's how we create a relationship, here's how we schedule that, here's how we communicate that, here's how we pop up on a daily basis, and here's how we follow up on that. And if they've proven they can do that in one metro in Denver, I see no reason why you can't expand up the front range or expand into other states even with a very similar playbook. I think that to me is what gets me most excited about this is the ability to just replicate what's happening there over and over again. Yeah. So that would be kind of your gross thesis on this deal of how it seems like perfect for somebody of your skill set who has that kind of business. development and sales aspect to them. So as you think about this deal, so that's how we can grow it, you think.

I mean, just, you know, best definitely as Bill would say, kind of buyer deal fit here for you, right? This is like relationships, opening doors, you know, doing that at scale. All that sounds right in your wheelhouse. How do you think about, you know, the operational side of this deal? Because that seems like the other part, right? You got to get good at recruiting these texts. You've got to deliver it. You got to make sure that the vets are very happy because you're, you know, as I understand it,

you're subletting space in these doggy take cares and stuff. So it's very easy for them to get mad and kick you out relatively easily if they're not happy. They have all the control of the customer as well. So how do you think about kind of doing well on the operational side for, you know, with somebody of your kind of skill set and background? Yeah, I think it's a, it's a very logistically heavy business. when I was at Hello Fresh, we had 19, I had 19 offices across the U.S. all doing events like this on a daily basis.

So 300 plus people in the field on a daily basis and, you know, a booth in the front of a Target, a Walmart, a gym, a farmer's market. And I can tell you right now there's no perfect solution to transporting tables and tents and the logistical nightmares of being in the field on a daily basis. I think that can be solved by having good processes, documentation. But yeah, that's the biggest headache here. The building of the relationships, that's easy. Showing up on a daily basis and running a good clinic. That's a good customer experience. That is timely.

That's a challenge. I think the second biggest challenge is hiring in particular, in particular if you need a veterinarian to stand there and be oversight, that's difficult. I do see an opportunity to say this is an additional way for you to make money. This isn't full time. You know, maybe you get a host of veterinarians who want to work on the weekends. So I do like that. But yeah, you need to get really good at hiring.

You need to have a really strong training program to be able to take anyone off the street who's interested in dogs and wants to build a career there and train them on how to be an effective tech. But yeah, that would be the big scary things for me here. Yeah. So it sounds like risk, as you see them are operational risks for sure. You know, kind of as you kind of think through those, what are one, two, or three, you know, that come to mind in terms of, you know, first of all, how do you like not lose your shirt on this? And then it sounds like you have a plan to grow up. But how do you think about downside protection, you know, for you to make sure that this goes right. Sounds like the operational thing is a big focus. Anything else come to mind?

I think having the veterinarian bench to be able to grow is probably the biggest challenge. I think as well, I don't know enough about the need for this on an ongoing basis. How necessary is this? And then again, regulatory environment scares me a little. It is a flirts with the regulated environment. and that could present limitations. It could help in the future. I don't know. The sales and growth component to me is great. It sounds like they've done this for 20 years here in Denver,

and there's no reason that you can't create process in the playbook to be able to replicate that. I think the education component would be fantastic to be able to market with them and share the need for why this is important. But, yeah, the three biggest things would be the hiring of the staff, the logistical complexity of having this in multiple states.

And then just again, how recession resistant is something like this? I don't know. How do you view it? What would you guys see as the biggest risks? I guess the question that comes to mind for me is, you know, as somebody who this is the first deal that you're doing, you probably have a little bit of a fallback where, you know, you could buy this business and theoretically continue to do some consulting and things like that, you know, if you needed to, right, if you needed a safety net or wanted to keep it in place.

I'm just wondering, you know, how do you kind of underwrite and anticipate what if you buy this business and it doesn't grow? Where does that kind of fit in your framework for thinking about it? Is it like, hey, it'll be fine. I'm okay if I own this thing, you know, kind of as a quasi-owner operator. or are you like, this would be an absolute utter failure if I'm not in five states in three years? I'm always fascinated by how somebody defines success. Because to one person, you could buy this business and maintain the status quo and it would be very successful.

Yeah, it's a great question. I don't know the answer. I haven't thought about it that well. To me, what I'm looking for are, you know, on the younger side, I have a, wife with a good career, I can take some risk. And so the opportunities I look at are those companies and are those cultures that have the ability to 3, 5x over the next, you know, five years. So that's what success looks like for me. However, the numbers here are, you know, great. 40% you know, SDE margin is healthy enough to be able to say, you know, it's 945 price. So it's

two and a half two two and a half x you know multiple you know you could maintain this with no growth even have some downside and still have a decent uh dollar coming your way after servicing the debt um so yeah for me personally i would want to grow this i'm not super interested in companies that don't have that upside yeah it sounds like financially you'd be 100% okay if it stays flat and continues like it is. And to be a home run at two and a half times SCE, emotionally, it sounds like you'd be hugely disappointed, which I think are both totally valid, totally dig them. Yeah, I think those aren't mutually exclusive. But yeah, again, you know, 340K SDE and 2.7X, you know, you have some wiggle room. Even if things go down, you know, there's no customer

concentration, I imagine, which is nice. You know, something really drastic would have to happen probably in like a macro front, or I would need to get put in a bind with staffing, you know, if that's the biggest risk. And we would probably want to write that into the deal structure around maintaining the existing veterinarians that they have. Otherwise, that could, you know, become an issue quickly. Yeah. So this is our, my first time talking to you, I know you and Mills have talked, you come across

as very sharp, savvy and capable. You don't know me well enough, I promise. This question will be both an insult and a compliment. So you can see how this goes. Anyway, so I think my question is around, how do you think about this vis-a-vis opportunity cost, which is there is a chance here that you get stuck being an owner-operator of this? And frankly, based on my impression of you so far, a business of this relative size is potentially kind of below your skill set, right? And if you're going to be doing an SBA loan or maybe, you know, there's other things available to you,

both internal financials or outside, you know, why not set your credit? criteria a little higher, right? Should you be looking at a million dollar SDE deal? Because it's still a deal, right? So how do you think about this size relative to your risk appetite and your skill set and your, you know, how you feel about it? So anyway, I hope you feel both complimented and insulted. So you sound, yeah, it's, it's, I don't know. It's the bit, that's been like one of the biggest challenges. When I started my search, again, very naive and uninformed on how any of this works. I was looking at companies that were a million and a half to four million in EBITDA. And very quickly learned that that's just not realistic with my capital structure, especially in an

environment where private equity was coming, you know, even below the million in EBITDA range at times. So I've significantly lowered my bar there and my parameters. I'm definitely more selective. Now there was a point in time where, you know, I left my job to go buy a business. And there were, there were companies I was looking at that were not good companies, but I, God damn it, I said I was going to do it. I'm doing it. I've taken a much slower approach, partly because, you know, I'm not only looking

in Denver, there's less deal flow, but partly because I've built up my, my growth advisory and consulting work to say I can take my time and be more selective. The opportunity cost here, you know, I don't, I agree. I would ideally like to go larger, but at two and a half or 2.7x here, I think it still is a decent, again, assuming 10% decline in numbers even. I think there's a decent path where you can do this for a year or two and hire yourself out of the business, neither maintain it or put yourself in a position to grow it. So it's a good question. It's probably not a great answer.

I try not to think about those things. I try and just think about can I grow this? And I'll let someone on like Mills or friends of mine that I run these things by, tell me where that's a horrible thesis. Yeah. Well, I do think there is a natural evolution. And it's okay to go in like a little bit below your pay grade on some early deals to get your feet wet and start to understand how it works and get some reps in.

and especially since this will be your first kind of rodeo of running a business, like, yeah, cool. But, you know, I love your aspirational attitude and, like, where you want to go on stuff. So just curious, like, there is a risk you get trapped in this business. Totally. And I've run and been responsible for a lot of things in my past lives and overseen a lot of folks. But I've never run a small business. And so there is a learning curve. And there is a comfort knowing that worst case scenario here, I'll be okay.

You know, let's say I buy this and I find out I'm a horrible operator and I suck at this. You know, at that price, it's not the end of the world to be able to take a second swing, you know, a few years from now. However, I think that's somewhat of a, that tends not to be the view I take. I tend to be more optimistic and more aggressive. So I think about it more as, you know, why can't I 5x this over the next five years? and what would I need to do that? And it's relatively, you know, asset-like business, primarily driven on, you know, building a high-performing team, a culture, and building a hiring and training process that's elite.

Yeah, I dig it. Well, one, you know, before we move on to our second deal, and we definitely need to talk about whether we like the price of this one or not, you know, the thing I think about with a deal like this is like making sure I really understand, like, what I'm buying. And to me, what you're buying here that we haven't really talked about is these relationships with the established clients, right? And there's some, the staff as well. But really, at its core, if you had to pick one, which is the thing you're really going to keep, you're going to make sure that those vets who have you in their offices and the daycares, they're super happy with you.

And so, you know, I think that's a risk here that I would dig in in in your diligence process. If you were to pursue this one, like understand the state of those relationships. What's contractual? you know, how durable are those things? Because if these are a situation where it's a handshake and the vets can kick you out tomorrow if your employee shows up drunk or whatever, because it will happen, then, you know, you have a situation where at least you have some protection and all of the asset value isn't going to just disappear.

Because I think that's where I would focus a lot of my attention in the diligence process. So just two cents. Yeah, it's a B to C model in the sense that those partners are my client. So there probably is customer concentration there in some sense, even though the individual end user is a individual customer or a consumer. But yeah, I think you're spot on. Yeah, love it. Well, what do we think about the price of this business? So it's $945,000 and it makes $340,000, including the salary for the owner who works in the business on $836,000 in sales.

What do we think about that price? I think I heard you, Peter, you think it's good. it's two and a half times seller discretionary earnings. That's pretty good. I think I'd probably want to write in, I'd be okay with those terms as long as I can control some of the terms of that, you know, some of those things around partners, around the staff tying certain language into the contract to ensure that, you know, there is protection there.

I also would love to see a note here. You know, I would even consider, you know, if they're retiring something like this, 20 years, doing no SBA and doing an earn-out structure to say, here's my growth vision, you know, here's what I want to do. Let me give you some upside here. And I've done that in the past on LOIs that have gone over relatively well. But yeah, I don't think it's an egregious price. I don't think it's outrageous.

I would love to be proven wrong, though, with Mills's next comment. No, I mean, I think with the level of information that we have, it seems like a, you know, a realistic price. I'm just reminded of the fact, though, that the deal never looks as good as when you first see it. And so, you know, it's, I think it looks okay at face value right now. Chances are you get into due diligence and you're in the weeds and you're realizing, okay, this went from a great deal to maybe a fair deal.

And then, you know, you post close, you're like, oh my gosh, you know, if I knew. now, you know, if I knew then what I know now, you know, I would have done X, Y, and Z different. And that's, I think that's just the nature of, you know, of doing deals. You learn something new every time, whether it's your first or your 15th. But it seems at face value, it seems fairly priced to me. Yeah. Another, another lens for me to look at the price of this deal is what is what is the multiple of, you know, EBITA on this. And if you added what you would have to pay for a general manager, let's say all in with benefits and everything is probably low six figures. You know, you're really looking at this as probably price closer to four and a half times,

EBDA, which a little pricey, but that's high end. Yeah, I think that's a good call out. Really quick, Michael, the tricky thing with this, and I think it's going to be true of the other business too is, but it's more so with this, like, what would stop you from doing this on your own. You know, if you're good at sales, Peter, which you are, you know, I'm not saying you go poach this guy's customers, but you can kind of do the math in your head and go, okay, for, you know, half a million dollars, I think I could more than recreate this thing. And if it can be done kind of largely remotely, right, you remotely setting up a team, sales team, and then a

fulfillment team, start doing this, you know, two states away and see, does it work? And your sunk cost is probably very minimal. I just, I think about kind of the opportunity cost in that way, too, is something that's, that's at this, this end of the size spectrum. Yeah. Usually, I'm the one of the podcast, by the way, that's like, why would you buy this? Just start it. So I'm glad Mills. I'm glad Mills is doing that for me. Yeah. And my answer is, I just don't know enough about the industry or, you know, how regulated this is, what kind of training goes into this, what, what are those relationships, are they contractual with all those, I doubt they are very contractual. But that's typically how I look at this stuff, especially as we get into like the home

services side of things. It's like the first question I asked myself. It's like, why can't I buy a truck and get a poll, you know? And so we can, maybe that's more relevant for this next topic or this next business. Yeah. Yeah. Dig it. All right. Let's move on. to talk about the world's sexiest industry, Radon. So I'll pull this one up, and I am going to read this one. So this is from Biz Buy Sell, aka Buy Biz Sell Mills, the world's greatest marketplace for selling or buying a business. And so we pulled it up for those of you on YouTube. And if you're on the podcast itself, we will read it out now. So it is titled Radon, All Caps, has a picture of a tree of you.

truck and it is the listing is one of Colorado's largest most trusted and experienced radon services businesses located in Denver, Colorado and is claims to be relocatable. They are asking $1.75 million for the business. It cash flows 250,000. So 250,000 in cash flow on 1.75 million asking price. So that's a lot. What is that like seven times cash flow? That's great. Okay. Gross revenue, they do $3.2 million a year, $10,000, or $10,000 in inventory. EBIDA, earning before, earnings before interest taxes, depreciation, and amortization, $350,000, has a million dollars in real estate that does not come with the asking price.

$500,000 in furniture, fixtures, and equipment. So it's a bunch of trucks and stuff like that. And it was started in 2011. This is an opportunity to own one of Colorado's largest, most trusted, and experienced residential and commercial radon testing and mitigation businesses. It is 60% residential, 40% commercial. They have no two other smaller but related businesses operating out of the same facilities that with the same people and equipment including in the sale of the radon business.

What? Okay, so you're getting, it's a three for one deal, guys. I love how they throw that in there. Oh, by the way, you get two more businesses. Don't worry about it. This is like go to Dairy Queen for dinner. Michael, click on hunger buster for you. click on that attached documents.

There's a lot more information. Because it's the last point in the bullet point list. Yeah. Oh, and by the way, there's two other related businesses that, like, what is that? Is there revenue included in this? You think? I mean, obviously they're saying it's shared staff, so the costs are shared. But is this?

It has to be. Are they actually getting $3.1 million worth of radon business? I wonder if it's like, oh, we also will encapsulate your crawl space or we'll do, you know, pest control or termite or fix wood rot, like something that's tangential and related. It's got to be, I would think. Yeah. All right. Let me finish reading the rest of this deal.

So we've got to understand what we're getting. So the seller founded the business 10 years ago, 20 experience management and staff operate the business with minimal oversight. They have reputation of the highest quality installations and customer service in Colorado. Payment due upon completion. I assume that they get paid when they do the work and profitable virtually every year, except when they're not. I have to accept when they're not part.

I love it virtually every year. Low op-ex, cap-ex, and working capital requirement, consistent revenue, net income, and free cash flow growth. The owner prefers very controlled growth, meaning I think they've been very conservative, and they have a GM in place now. So potentially, this is attractive because you can. going to have somebody run it without buying yourself a job. No dedicated sales team with 100% organic growth, excellent safety record, solid financial control systems in place, and 15 late model vehicles and radon-related equipment come with the deal. Sale includes two small but related

businesses that we still don't know what they are, but I'm sure they're amazing. But they could be this crawl space cleaning. It could be anything else we don't know. Is that what you're thinking? Okay. And then they give us the historical average. The business has been growing, 2019, 2020, 2021. This seems to be a COVID-proof business. If you have radon testing in your house, it needs to be done. I think you really need to do it. The average cash flow per year has been $203,000 over the last three years.

And the average EBDA plus sellers discretionary earnings has been $286,000. So I wonder what the first thing comes to mind. I wonder what is causing the delta between the EBDA and the free cash flow given the business. does not appear to be uner operated. So that's interesting to me. There's an $80,000 delta year. I guess that's interest on their trucks and stuff, maybe. What do we think?

The thing that I love is the no dedicated sales team. When I see that, I don't care what the deal is I'm going to stop and take a little bit deeper dive just to say how much shit is on this. But I love that. You know, so my first questions there are, you know, what are they doing today? It talks about slow growth. I want to understand the customer journey. I want to understand what's working today, what's not working today.

But really I want to suss out. Is there an opportunity to grow this? Have we hit peak? Is there a reason? Do they even have a culture that would tolerate growth or to grow? We need to do a complete, clean out half the team. That to me is my first indicator to say, okay, let's dedicate some time to actually learning a little bit more about this business. I don't know enough about radon. I think it's regulated

and required in some states. I don't believe Colorado is one of those. Mills is shaking his head. Well, it's very interesting geographically. Like, we don't have any radon stuff in South Carolina, and there's not a lot in the southeast, but it depends on your soil conditions. But I think Colorado is a very big market for it as far as I understand it. And it is regulated in that the service provider has to be regulated. And it's also mandated that you have to get radon checks, I think, with some some frequency or regularity. Love, love those elements about it. Yeah. Yeah, I love, I like that. I love the minimal ownership. I love the GM in place. Probably good cash cycle. I think it mentions, you know, cash on delivery. Yeah, payment due on completion. I always get scared, especially lately.

When I hear 15 late model trucks, you know, what does that even mean? You know, I've seen businesses, I looked at a landscape business where they had 23 trucks and that one of them was newer than 2001. And that just, you know, terrifies me. I'm not a mechanic in this environment. that could mean a lot of upcoming capax. Well, oh, here on the second page, they tell you they will let you buy the real estate for a million dollars, which, by the way, I think the pattern I see over and over again is sellers will have somewhat reasonable expectations for the business and then their real estate sales expectations are just out of control, like way high.

So I'd be really curious as you dig or someone digs into this one to understand is the real estate they really have worth a million, which, you know, whatever who knows um so i mean i think i think the thing that this deal comes down to for me is the price is just extremely high you know i'm doing the how long will it take me to get my money back calculation on this and if they're asking 1.75 million for the business and it throws off uh two hundred and three thousand dollars on average per year uh correct me if my math is wrong but like it's going to be like eight or nine years until i get all my money back like that doesn't not very good.

Yeah. Like, it seems like you should go get a job and do this deal at this price, Peter. What, what are I doing? I'm not looking at this deal. I don't, it's weirdly marketed. Like, what is EBDA plus SDE? I've never seen that. Is that just SDE?

Is that, you know, and as well as there's confusion around, is the real estate included in the, you know, certain things, is it not? But at face value, yeah, I, I'm seeing. what you're seeing, which is 203,000 and, you know, free cash flow on $1.75 million asking prices fairly, fairly heavy. Yeah, you should be clean a dog teeth over this thing. What I want to do in a situation like this is go back to them and show them, I think the last time I said this, I was screaming it, but it doesn't pencil. The deal doesn't pencil, right? If you have to borrow the money required that they're saying this business is worth with the real estate, on a 10-year am, it's $360,000 a year in debt service.

So it just doesn't work. It doesn't get anywhere close to working. And so it's a red flag in my mind that you have a guy who is a real estate broker who is also selling businesses. Those usually do not, you know, they don't end well. They might kind of start, okay, but in my experience, they don't end well. But maybe this is a guy that you could talk to and say, hey, is this the seller dictating the price here? Or do we have some room to have a conversation? Because it really probably doesn't pencil that well either if it's just the business and then you're renting back the real estate.

Because chances are, and you never know, but is rent actually a real expense line item for this business? right now, you know, how are the sellers treating it if it's owned separately or owned, you know, by this exact corporate entity? But it just doesn't pencil. It's the craziest thing. But I love being able to go back and show no matter what, no matter who buys this thing, no matter what their capital structure is, they will not be able to borrow any money to do it because no lender will actually provide it. Yeah, I always love finding out, you know, how did you come to this conclusion? How did you come to this? Talk me through how you valued this.

And then let's confirm assumptions because I have a lot of questions as well. I mean, even then it's, I was just going to say, the real estate's a million, the business prices. So I guess that'd be blended at like 17 years. It's not more than 50%. But still, yeah. It's interesting. I mean, there's two possibilities here. One, either you have an unreasonable seller or you have an unreasonable, you know,

dufous broker who is either unreasonable in dufis or the broker has decided to get the listing, they're making wild promises to the seller, which is one of the things I think we hate on this podcast more than anything is brokers that do that, you know, just waste everybody's time on the buyer's side and it also waste the seller's time. It's just disingenuous. You know, not all listings or good listings to have if you're a business broker or a real estate agent. So, you know, I think it's interesting maybe to dig in and understand where, you know, who's the problem here? And sometimes if it's the seller, then you can get paid sometimes by just, you know, as one of my colleagues calls it hanging around the hoop, you know, looking for a rebound

for when the seller gets reasonable. But otherwise, yeah, I mean, it's just like double click, look at the next deal. This one's not a way to, you know, to make any money from your investing. I was just going to say pricing aside, I don't know enough about how somebody chooses to purchase radon mitigation services. Is there a certain point in time where the majority of, you know, this business comes, such as new construction? Do they get fed a lot of customers through real estate agents? I don't think most people are sitting around just, you know, saying,

oh, let's do the windows next year. We want a new kitchen island and, oh, honey, we got to do the radon mitigation system. So I don't know enough about that customer journey to understand where the optimization would come from a sales side of things. So that would be something I'd want to dive in much deeper on. Yeah. It's interesting. I just Googled, do I have to get a radon inspection when I buy a house?

And all of the radon inspection companies say you have to. So there you go. It must be true. Yeah. So then I would go ahead and start building relationships with real estate agents and, you know, home builders and, you know, yeah. Well, they do, I mean, it sounds like they do installation of radon monitoring systems. I wonder if there is a way to do radon remediation because this is a gas.

Radon, I looked it up. So is a gas that comes from soil that is heavy in uranium. So there's a lot of uranium in your soil. You can get radon your house. And it's odorless, tasteless, invisible, and causes lung cancer. It's the fifth leading cause of lung cancer in the United States. So it's not good. So I bet these guys, at least looking at these trucks, they do more than just walk in and do testing and that sort of thing.

There's some sort of remediation here going on as well. Yeah. And I think a breakdown of service, you know, a breakdown of revenue by service would probably be the thing I'd be most interested to see here. I mean, putting the price to the side. Yeah. Well, thank goodness they have the price listed. So you know. I don't have to ask that question.

Yeah, invest any time in this deal at all. For me, this is a double-click move on. There's a phenomenon that's present here, too, where, you know, this is, this is an industry that's been highly consolidated, and a lot of that has been PE backed, and much like, you know, pest control and some other home service-related, you know, trades that have some similar gross margin characteristics. And so you almost have to ask yourself when you see this type of business. for sale, why hasn't it sold to a consolidator or, you know, to a private equity backed, you know,

strategy? And there, you know, first answer is there's probably a reason why. And then, you know, also the inverse is they're probably, they're waiting, right, for somebody like that to come along and pay this type of price because I don't think that type of, you know, multiple is outlandish if that's your buyer. But there's no owner operator who can make those. numbers work. And so it's a little bit of a catch-22 when you look at these because they're anchoring at what, you know, they heard somebody who's doing a million or two million dollars in EBITDA in this industry is getting. And you're like, yes, but that's not you. You can't, you can't get that. Yeah, I mean, even like looking at the quality of the revenue, this seems, and again, I don't know

enough here, but if I do my job well, that should be the last time you see me. So that makes it even more challenging to pencil a 7 or 8x multiple that they're asking. I can't imagine that this is a service that you would do more than once every 15 years. But what do I know about Ray? I'm into teeth cleaning of dogs. That's my thing. Hell yeah. Well, at least, you know, I have this belief that you got to look at a lot of deals to know when you run across one really good. And When you look at a total turd like this one, then you can realize like brushing Fido's teeth is maybe not the worst outcome. So there you go. So we are at a time.

You've been amazing, Peter. Thank you for doing this. In closing, you know, we want this podcast experience to be a real benefit for you. And thanks for giving your time and insight into all this stuff. And your lenses, you know, sales background person has been awesome. What ways can we or our audience do to help you and support you kind of in the things that you're working on these days? Yeah, probably best place to reach me as Twitter at Peter Wirt, P-E-T-E-R-W-I-R-T. Reach out.

I love connecting with folks on Twitter. I love just talking about the stuff. That's me, not the one with six followers. We're going to edit that part out, by the way. Yeah, I don't know who that guy was. But I believe I'm the only Peter Wirtch after in the world. So it's probably something I should know about. But yeah, whether or not you're an operator looking to talk about growth strategies for your business,

if you're a searcher who is looking at just talking through diligence or sales in a company you're looking at or just on a shoulder to cry on in a very dark and lonely period of your life or, you know, anyone. I just please reach out, love helping any way I can. Other than that, I mentioned my company's Sunbeam Growth Advisory. but the best way to probably reach out about that is simply through Twitter. Right on. Thanks, Van. This has been fun. Thanks for having me on.

Thanks for joining us here.