Acquisitions Anonymous - #1 for business buying, selling and operating - A fireworks store and a ski rental business for sale - Acquisitions Anonymous Episode 108

Episode Date: July 21, 2022

Michael Girdley (@Girdley) and Bill D’Alessandro (@BillDA) talk about two cool deals relevant to holiday vacations: A ski rental in Colorado and a fireworks store in Oklahoma. Both are traditional-type businesses. We get to determine if these crazy, fun deals are indeed interesting in terms of real estate captures, scales, wholesales, moats, and if the risk would be worth expanding the businesses.-----Thanks to our sponsors!* Guardian Due Diligence is the diligence solution for first-time buyers and self-funded searchers.You should be able to acquire a business with the comfort that the numbers are solid and the seller is not fooling you. Your lenders and equity partners want and need the same.Guardian's Quality of Earnings reports give you this confidence.Guardian Due Diligence offers free reviews of LOIs and company valuations at www.OfferFromElliott.com Contact Elliot Holland at [e-mail]-----Show Notes:(00:00) - Introduction(00:53) - Our sponsor is Guardian Due Diligence(02:09) - Deal 1: Ski rental shop for sale(04:21) - Financials and price: Do they make sense?(05:09) - What makes this deal catch the eyes of the buyer?(08:07) - What are the retail risks of the deal? What is the key factor to this deal?(09:27) - The value captures from Real Estate: How to protect yourself as a buyer?(12:39) - What are the limitations of this Deal? How does the location act as a limit for this business?(13:56) - The Deal’s trap: Think about the lifestyle choice(20:17) - Deal 2: Fireworks business(22:54) - Why would we say the seller has 2 operations?(24:13) - What about the retail part of the business?(24:42) - The situation for wholesale: Should we consider it valuable?(25:59) - What are the growth opportunities here?(28:11) - What are the regulations and permitting requirements if you want to add another business to the store? Is it worth entering risky retail markets?(31:08) - Commoditized product risk: defendable or vulnerable?(32:25) - Moats, scale, and building a defensible business-----Links:Guardian Due Diligence offers free reviews of LOIs and company valuations at www.OfferFromElliott.comhttps://www.bizbuysell.com/Business-Opportunity/Seasonal-Ski-and-Snowboard-Rental-Repair-and-Sales-Shop-in-SW-CO/1937618/https://www.businessbroker.net/business-for-sale/fireworks-premier-seasonal-business-oklahoma/50Subscribe 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 guys, this is Bill Alessandro, one of the co-hosts of Acquisitions Anonymous. I'm really excited to introduce this week's episode because of another one of our two idiots, two deals episodes, aka me and Michael, two deals, just kind of going through and riffing. The ones we did this week were really, really interesting. It was a fireworks store in rural Oklahoma and a ski rental shop in rural Colorado. So the cool thing about both these businesses is they both make great money in only a fraction of the year. workstores only open for six weeks. The ski shop is only open for six months. And they're both reasonably priced. And they've got, they're just really, really interesting business dynamics in kind of small resort towns, limited upside, but also really nice lifestyle businesses. So I think

you'll enjoy us breaking down kind of the pros, the cons, and the risks of both of these businesses. But first, a word from our sponsors. Hey, Michael here. Today's sponsor is Guardian due diligence, and that is run by our friend Elliot, who was on our episode number 88. And what Guardian due diligence does is provide the diligent solution for first-time buyers and self-funded searchers, so people that are buying businesses. And, you know, they believe that diligence is critical. We believe the same thing as you're digging into a business.

And he thinks that you should be able to acquire a business with comfort, that the numbers are solid and the seller is not fooling you. And your lenders and equity partners, they want to know the same thing, too. So that's where a Guardian comes in. You can get good financial diligence and providing you comfort that you're not buying a bad business and risking your entire net worth on a personal guarantee. So Guardian's quality of earnings reports will give you that confidence and belief in what you're doing and peace of mind.

So, you know, they offer free reviews of LOIs and company valuations and you can find out more from Elliott at Offerfromelliot.com. And mention that Elliot's been on podcast number 88 and that you heard him there and tell him we sent you. And you can reach them at E. Holland at Guardian Due diligence.com. and again also at offer from elliot.com. So I can get in touch with him. Now back to the episode.

Hey, everyone. Welcome back to another episode of Acquisition Anonymous. This is another one of our deal episodes with just me, Bill Alessandro, and my co-host, Michael Girdley, Mills is out this week. So it's just us two bozos, two deals this week on Acquisitions Anonymous. So we got some cool ones that are both kind of holiday vacation traditional-type businesses. and they're in spaces, both of us actually have some experience in. So we have a ski shop in southwestern Colorado, and then we have a fireworks stand, which Michael is going to chime in on.

That will be deal number two. But first, I will throw it over from Michael to start talking about the ski shop, which will be deal number one. Yeah, awesome. Well, I'm actually in Vermont right now in a parking lot, recording this. So, like, this is perfect. We wanted to find a ski deal. And the other thing I love about these episodes, Bill, like when we're putting them together beforehand is just like because there's no guests we're just like okay come up

with the craziest most fun deal you can and then let's go so it's super fun um cool all right so here's the deal uh it is from our friends at biz buy sell they're they're friends but they're not as good of friends they could be we still want you guys to sponsor the pod guys uh but that's that's that's hint biz by cell we'll keep doing deals for you until you do uh but this one is listed on biz by sell it is a seasonal ski and snowboard rental repair and sale shop in southwest Colorado. Me having just come from 105 degrees in Texas, I am totally ready to start skiing. And so this is perfect. The ski shop is down in Pagosa Springs, Colorado.

And we look that up, Bill. It's out kind of southwest Colorado down by Durango. Is that right? Yep. This is, as you said, Michael, San Juan Mountains, southwest Colorado. Sam, Wormon. Perfect. So down southwest Colorado, pretty pretty, pretty,

part of the area. A little challenging to get to as a Texan, I will tell you. Like, you have to maybe fly to Montrose and then to drive like five hours to get to this place. As anybody. Yeah. Well, actually, most of my friends who go to Southwest Colorado, you know, they go to Crested Butte and stuff like that, Durango, they all drive. They all just do like the 12-hour drive because they're stupid Texans. It's really fascinating. Okay. So the, the picture here says ski rental shop for sale. It is asking price of 750. thousand dollars with cash flow of two hundred fifty thousand dollars so that's about three times uh three times cash flow according to the asking price they do about a half million a year in revenue so they

do a half million a year in revenue and then they do cash flow with 250 000 so about 50 percent net margins from this oh my god this is awesome um so then the inventory they have on hand is 203,000. And then furniture's fixtures and equipment is 48,000 established in 1989. Bill, were you going to say something? Well, I think it's just interesting to me that they've got 50% margins in there a retailer. I mean, that's crazy.

It's amazing. It's amazing. Well, we'll come back to that for sure. I thought you only got those if you were selling drugs. These guys are killing it. So business description, it's a seasonal full-service ski shop, offering clothing equipment and accessories for downhill ski cross-country. ski and snowboard. In addition to downhill ski and yada yada, they do snowboard rentals and tuning,

as well as repair service for all equipment. The business was founded in 1989 in Southwest Colorado near one of the state's premier ski resorts, and the business is open seasonally, typically depending November until April and operates from 7.30 a.m. to 6 p.m. 7.m. 7. a week with six employees and one full-time owner working out of a 4,000 square foot facility. So located in Picosa Springs, Colorado, they lease their real estate, 4,000 square foot building, six people. And the building has been built since 2005 in good condition. And then they have some other stuff that make the facility easy to do. Good access, good visibility, and has operated seasonally, as they said before.

So that is what we know about this one. So it's a ski rental shop out kind of in the middle of nowhere. So, Bill, I think you have some history with this. What do you think? Yeah. So let's just take note here. Not only is it 50% margins and $250,000 a year of cash flow. Your year is only six months long. So this is half the year you put up 250K and then you take the summer off completely, which is pretty cool. So my experience in this industry comes from selling into it. So at my business elements brands, we owned a ski sunscreen brand called SkiBob. which I founded when I lived out in Colorado, we sold into hundreds, if not thousands of stores

exactly like this kind of all over the country. And this, the dynamic of this industry is super fascinating because all of, there's basically two types of retailers. There is, are you in the, like one of the Vale Resorts towns, which is way more than you would think, you know, Vale, Breckenridge, Beaver Creek, but tons more. They own a ton in the northeastern United States. It's like a lot of resorts or Vail, basically anything on an epic pass. And if you're in a Vail resort town, those towns are basically Disney World. Vale owns almost all the resorts. Most of the shops, even if it says Gurdley Ski Shop, is actually owned by Vail.

They've been buying up kind of all of them over time. So when you go like through Vail Village, half of those seemingly independent businesses are owned by Vail resorts. And they're continuing buying them up. They have a subsidiary that used to be coal. VRL, VAL Resorts Retail. It is now called something else. They changed the name. But the point is that most of these are operated by Vail. So there are very few independent ones in those towns. And if Vail has not already bought the one that you're looking at, you should really want to know why. And then you should also really understand whatever kind of lease and whether your landlord

is Vail Resorts and whether they're going to shoot you in the head of the end of your lease. Really interesting. So do we think this one, I mean, I guess so location, this is all going to come down to location in the end. Is that kind of how you think about a rental business like this? You want to be on the right road and have kind of the right niche of kind of drive up traffic that you're looking for? I think so. So this one is in Pagosa Springs, Colorado, which to my knowledge is not Vail. So to my knowledge, it's probably an independently owned ski resort in a small town,

which I think in some ways makes us more attractive, right? Because it's been around since 1989, in some ways, I mean, global warming aside here, as long as Pagosa Springs continues to have snow, in some ways you kind of have a built-in clientele, assuming you got a good location, it's like near the mountain, I mean, there's tons of history here. Your main risks would be like your classic retail risks, like does, based on your, are you the closest one to the slopes? And then someone else opens one closer to the slopes and cuts your business. business in half or something. Those are like a big risk, but I kind of like it because as long as

people are, you know, our friend Brett B. Shore says as long as people dip their bodies in water for fun, pool businesses will continue to exist. It's kind of the same thing here. Like as long as people like to slide down snowy hills for fun, you know, they're going to need to rent skis. And so if you are positioned well and you've got a good cost structure and you've got a good lease, this is not bad. I mean, it's a decent lifestyle business if you have a good lease. The lease here is everything, the location and the ownership on the property. Yeah, because potentially you're in a situation here where the landlord, and I guess Trent Griffin on Twitter, talks about wholesale transfer pricing, and there's this idea the real estate guys talk about, which is eventually all the value in the

chain of commerce gets captured by the real estate guys, you know, all are in part because they just keep raising rent until people can't afford it anymore. So that really comes I think the first thing we'd want to look at in this deal, you know, what is your relationship and that lease look like in terms of how long you know you're going to be there? Because if you're out in 18 months, that could really be the entire enterprise value here, just go up and smoke. So, Michael, I have great news for you. Buried at the bottom of the Biz Buy Sell listing, it says the real estate is owned by the seller,

who has indicated a willingness to enter into a lease agreement with buyer at $3,000 per month, which feels quite reasonable, $36,000 a year to lease the most important asset to your business. So I think you as the buyer here should realize that you have a ton of leverage and you should negotiate a almost perpetual lease, right? Perpetual, transferable. The thing you also got to be careful about is what if this guy sells the real estate and all of a sudden it's undermarket and the new owner wants to get you out and your business is toast. So if it were me, I'm either trying to find a way to buy the real estate as part of this transaction or negotiating some incredibly tenant generous infinite lease if possible.

Yeah. Yeah. I mean, I would be really curious how above or below market $3,000 a month is. To me, that just for commercial out in the ski area just seems incredibly low. And I know this isn't this isn't Vale or Beaver Creek, right? this is because of springs but yeah very very curious about that but yeah I mean the other thing that comes to mind this is another one of those situations where you probably have a business that was started by somebody 20 years ago that's worth X and you know they built that business thinking that business was going to be their their ticket to retirement and it turns out the building that they bought to house that business in is probably worth four or five X what that business

is worth. You know, we've seen that with the plumber guys kind of in Savannah, and now these guys were it's just like, you know, if you're using your business to buy the real estate that's housing your business, you get a double whammy of being able to protect your future cash flows like this guy did by owning the land. And secondarily, like, it's just an amazing savings vehicle to totally take care of you. Well, you also get some really nice tax treatment in the interim as well. Yeah. Yeah, for sure. Yeah, you're deducting all that depreciation and all that kind of stuff. So, What don't we like about this deal? Potentially the risks here are, you talked about global warming.

There's a situation where you have to worry about more competitors coming in and maybe setting up shop next to you and having the business. Are there any other things we have to worry about? Is there supplier risk here? Do we have to worry about the suppliers cutting you out? I don't think any of that is there. Just global warming and kind of the increased competition are probably the two big things to think about. Well, there's another one, which is, for one, that this,

business is never going to get any bigger. Like, this is exactly as big as this business is, right? I mean, it's been around since 1989. So many people come through Pagosa Springs, skiing, some fraction of them need to rent skis, some fraction of them buy sunscreen. Like, you know, the math model on this business is baked, right? And the only input is velocity of skiers coming through Pagosa Springs, right? So if you, you will be very leveraged to the number of skiers coming through Pagosa Springs, But if you feel like that is constant, that also means there's not much downside either. So I think you would need to, I think it would be very hard to buy this business with any kind of growth thesis. Right.

I mean, you're just going to, it's an annuity. And then the other downside is you got to work there because of the bottom end. And it says six employees and one full-time working owner. Yeah. Well, I think there's another risk that when I heard you talking, I just thought of this. And it's going to come up in our fireworks business discussion next, which is, I think there's a definite trap where you go into a business like this and you say, I love skiing.

And basically, like I do personally, like I love skiing. It's one of my favorite activities. And you end up buying a business like this because you think it would be the most fun thing ever to spend all day talking about skis, hanging out with skiers, renting them skis. But then when you look up with it, the last thing you want to do, you're like a chef, right? Like chefs routinely just like scoop peanut butter out of the jar at home instead of making themselves fancy meals, like they're the worst eaters. And I think that's the same thing.

you know, like the last thing you're going to want to do at the end of day after a bunch of dealing with people's shoe bindings and how angry they are about their skis is want to ski some more. So I would actually discourage people who look into this or a fireworks business saying, you know, I really love skiing and I want to do skiing and I want to talk skiing all day. It's just the worst way to probably get closer to your hobby. So I actually think there's a big trap here that I would encourage people to be scared about. Yeah, this feels like lifestyle business, but very soon a couple of years you may hate skiing and be married to this business. Right? I mean, it's possible. I mean, you may, you may, here's the other thing,

too, by the way, like, you got to live in Pagosa Springs. I've never been there. I'm sure it's beautiful, but I'm also sure there's not going on there, right? Especially in the summer, you know, when your store is closed and the mountains closed. Like, you know what I mean? Like, so you got to be really sure this is a lifestyle you want. Now, if you're going to retire there and you think it would be fun to putter around behind the counter and talking about skiing with tourists and stuff, like maybe this is amazing for you. Like, it's a great retirement gig to keep you young in your retirement for only $750,000 and you cash flow 250k and you live in Pagosa Springs and life is good. Buy your business fit, Michael, as I always say. What's interesting, I had a buddy, he's probably 15 years older than me. They're in

their early 60s and they had a vacation home at altitude up here by Durango. And they had to sell it because the gentleman's wife couldn't take the altitude anymore. So there's some risk here that you get out there. You're like, I don't know. But that's probably in the end why this business is selling for a relatively low multiple. Like just the universe of potential buyers is pretty low. Like I can't imagine, I can't imagine they're able to widely market this to tons of potential buyers. Yeah.

I mean, this is like your classic, this business trades at 3X because it should. You know, you find the right buyer. It's probably fairly priced at 3X. And if everything goes good, somebody, like this is a win-win. transaction probably for the seller and the buyer if everything goes good and you're the right buyer. All right. Well, it's not for me, but I'll go ski there. I'll be a customer. Yeah, yeah. I think it's fun. I mean, you indulge your ski bomb fantasies by this business, you know, I live in Pagos Springs. Not terrible. I think it's cool. Nitch retail, you know,

work six months a year, move to a real city, you know, like enjoy some urban life in the summer and then winter in Pagos Springs. Not bad. I think this also just shows how good. the economics of rental businesses could be because there's no way they're getting 50% net profit margins from from selling gear like it's just not happening but I guarantee and maybe there's some pieces of that you're selling lip balm and you know random gloves to people who you need them at the last minute but like I've seen when these guys are renting skis and I have never dug into the economics but I could do the math right it's a $600 pair of skis and they're renting them to me for $400 for two weeks.

Like, the math adds up really pretty good in terms of your ability to be super profitable on these ski rentals. So you've got to love that. That kind of sell small time slices to make a lot of money. Like, I love that aspect of it. One thing that's interesting about this is when I live in Colorado, I was a customer of many ski rental shops. And I learned that they actually, every, like, two or three years, they replace all

the skis. Some of the busy ones, they replace, they just get rid of them all. And I think that's because they kind of want to have, it's kind of like a rental car fleet. Like you're, you want your rental cars to be like newish. The rental car companies kind of want to show off their cars. The ski companies have like whole buying programs for rental stores because it's sort of like a paid for demo, right? So the, as I understand it, skis are like fully paid off like with like half a year of rentals. and then however long you keep them is all gravy, and then you replace them with a good financing deal from the ski companies. It's insane.

So maybe you know, I have never figured out what they do with the skis at the end of the season. Like I don't see them running sales on them. Do they just throw them away? Are they just so beat up that they're done? Or what do they do with them? So that's the weird part. So when I lived in Denver, this is a small confession to make,

they have this season-long rental program where you can rent them, like you can rent them for like two weeks for like $200 or you can rent them for like a whole season for like $300. It's just like the amusement park pricing. You know, it's like $100 ago once or $150 for the season pass because they just want you to come back twice basically. So I lived in Denver, so I'd rent them for the whole year. And actually how I found all of this out was I forgot to give them back at the end of the year. And I discovered them in my storage unit like two years later or like a year later or something. I was like, ooh, like these are not like I should have given them like these back.

So I took them back to the store and was like, sorry, here's my skis. And they were like, yeah, you just keep them. They're like, we didn't have those anymore. Like we moved like we don't even rent those. Like, and the crazy thing was they hadn't noticed by the way, which means they had just moved out all those, all the bad model of ski. And they must have either sold them or trash them or something, but they did not sell them one by one. They must have sold them in mass. I don't know, maybe to a lower end.

company or something. Crazy. All right. Well, with that with that with that with that soul-wrenching admission by you, maybe we'll move front of the next deal. This is why we can't have nice things, Bill. I know, I know. This is why if you rent anything to anyone, you should assume that it will be ruined or never returned to you. And that's why, by the way, all renting businesses are priced that way. We're not talking about real estate. We're talking about like asset rental businesses are always priced that way, that the assets are disposable. Okay. So this next one is, super cool because we have our resident fireworks expert Michael Gurdley on the podcast today, and this is a fireworks business, which is really cool. It's in Stevens County, Oklahoma.

So it is there. It does $285,000 of revenue, $83,000 of cash flow, and it says it is only open for six weeks a year. So work six weeks, make $83,000 of cash flow. This doesn't sound so bad. with $5,000 of FF&E, which I'm pretty sure is like a folding table and some signs. Although they say they have four employees. So it says, this wholesale and retail fireworks business is open for just six weeks a year. This amazing business splits its revenue between consumer sales and a large indoor air-conditioned retail space and supplying independent seasonal retail stands. Perfect for the absentee owner.

This property even has a residential apartment built in. So I don't understand how this is perfect for an absentee owner, but also. also has a place for you to live if you own the business. That is like the definition of not absentee owner. You live in the business. But it's perfect if you don't want to live in the apartment, I guess. The deal comes with a complete business plan to at least double sales and profits in the first year of your new operation. It says they've been in the same location for 20 years of the last nine under current ownership. So it must have transacted once before. The long time employees who have largely run the six week operation are motivated to stay. I don't really know what

that means because what did they do in the other 46 weeks of the year? I don't know if that counts just staying. It says it's the only wholesale fireworks operation within 50 miles and the only indoor retail location within 50 miles. Huge opportunity to grow the wholesale operation. It's limitless growth opportunities. Most independent stands in the state drive to Missouri to get their inventory because they don't know that they can buy wholesale in Oklahoma. It says here's where the story gets interesting on growth. Since the business only operates from June 1st to July 15th, the entire calendar is open for exploitation. Many fireworks are sold the last two weeks of December for New Year's, wedding and event fireworks, convert the retail space to a Halloween store in October,

convert the store to a Christmas holiday store in November, December. The owner wants to put a golf simulation franchise inside of the retail store and set up for the summer. And the opportunities are limitless. So I get the sense, I mean, I know Michael from talking to you, this is a very specialized business. Like there are some really unique things about the fireworks business. What is your take on this fireworks business for sale? Yeah. Super interesting. I was trying to figure out where the hell Stevens County, Oklahoma is. It turns out it is like two thirds of the way from Oklahoma City to Wichita Falls, Texas. So that is basically, You go to the middle of nowhere, you take another left, and you take two lefts and drive 50 miles, and you end up there.

And it's near Lawton, which I think is where Oklahoma State is, if I'm not mistaken. There's one of the big universities is there. You know, so, I mean, it's interesting to think about with this business. And my first initial reaction is that it's important to understand in the fireworks business, wholesale and retail are really two different beasts entirely. wholesale is where you are selling to third party people who are running their own retail operations and selling to the public. And in Oklahoma, you basically have two different types of sales functions. You have indoor stores where people are like walking in supermarket style. And then the second type you have are these tents where people put up tents and you like go up and there's tables there and stuff like that.

We don't have those in Texas because we don't want them. They suck because tents blow over in high wind. But that's what he's got here and the seller has is really a two-pronged operation. One is this retail operation and the second is the wholesale. So the first thing I would dig in here is to understand that wholesale is actually a really terrible business to be in. It's very low margin and the customers are incredibly fickle because you're selling to these people who will frankly drive, it's worth it for them to drive two hours to Missouri

to save 3% over you, right? because that all dropped straight to their bottom line. So I put, in looking at this business, I would put actually very little value on the wholesale, even though it bumps up the gross of this business significantly. The interesting part of the business, much more interesting is the retail part of the business. And that's where, to me, the business can be sold

and the products are sold at much higher margin and are much more interesting. So I would be first curious how much of this business that they have of the $285,000 annual revenue is wholesale versus retail. And my guess is that the wholesale is probably most of it because it's very low margin, blood bath, all that kind of stuff. And then the retail is where they're making the majority of their profits. Interesting. So that would be the first thing you would have. I would totally look at that. So the first thing you would say is break it up into two. Yeah. Yeah, we're lagging a little bit here,

I think. Oh, yeah. Sorry. Tell me how much is wholesale and tell me how much is retail. That's B-W. where I would start first. Okay. So Michael, so he's asking, so he thinks he makes $83,000 a year in six weeks, which is not bad. And he's super psyched for all of this other Halloween store, Christmas store, all that stuff. I know you have a lot of experience owning fireworks businesses. Do you guys mess around with all that stuff? Or like, do you sell fireworks all year long?

Like, what is the real opportunity here or is it just not worth the squeeze on other stuff? It is very rare that you can find a property that in Texas or Oklahoma is very good for fireworks and also very good for those other businesses. You know, I know of the kind of like several thousand, I think there's 5,000 retail locations in Texas. I think as far as I know, there are four of them that actually succeed at selling Halloween as well. it's just not really practical. You end up being out in the middle of nowhere in the case of most of Texas or Oklahoma. Like it's just you're winning by losing by getting to those businesses. So most of the stuff he really lists here is other opportunities.

If they were real, given how easy these are to put together, I think he would have already done these. I give basically 0.1% chance you could actually do some of these other growth opportunities they want to do. It is just so rare that you have a fireworks location, which is so geographically dependent, and you're able to take that and turn it into something that is not fireworks. And is that because, like, the ideal fireworks location, I'm sure there's a lot of code and regulatory, like you can't put it next to a nursery in a strip mall or something, right? It's chemical.

It's explosive, like all that stuff. So they probably tend to be, at least in my experience, a fireworks store, freestanding, like, more like on the side of the highway. but your Halloween store, your Christmas store, you want to be in a strip mall with foot traffic. Is that like the core problem? Yeah, totally. There's also, you know, it gets even more complex in some other states. Like in Texas, for example, they are actually, there's the most recent interpretation makes it very difficult to switch your uses during the year from fireworks to other stuff during the year. So you actually have to go through all these like permitting things four times a year to switch back and forth from different.

use cases. So in many cases, depending upon the local fire marshal, it's not worth it. You know, and the local regulations are hugely varied. So you may have, for example, a municipality in Oklahoma or a part of Texas that allows fireworks, but only to be sold in heavy industrial parts of town. Or it might be that you have to be right outside the city limits. In the case of Texas, most of Texas, you have to be outside the cities. The cities preclude you from both possessing shooting and selling fireworks inside their city limits by and large. So there's just like there's there's just no places where you would actually want to put fireworks sales as opposed to just paying a bit more and going next to the Gulf

Galaxy or down in the strip center. You know, it's just not worth it for you to be seven miles out of town. It just makes no sense whatsoever. This guy may not have that problem. He could be an unincorporated Oklahoma. But my guess is with that comes another problem. He's out in the middle of nowhere unincorporated Oklahoma. There's not that many people that are going to show up and spend a bunch of money at your Halloween store.

Let's say he just did as much revenue at Halloween as he does with fireworks. That is a subscale Halloween store. You're not going to make money selling $350,000 or the Halloween for two months and then cover all your expenses and have some cash left over. It's just not going to work. So yeah, that's just a, it's a pipe dream. It's a total pipe dream. Yeah. Well, I recall that earlier on the pod, Michael, we did a couple of

Halloween or costumes businesses. We will try to find those episodes and link them in the show notes. But I seem to remember when we did that, we decided that the Halloween business was also a terrible business because of all the inventory. I mean, have you guys ever been in like a Halloween store on like October 30th? They're just like stuff strewn everywhere. Like the employees are disheveled. Everything is 50% off.

You know, it's terrible. And then it's like the net by November 1st, you've got all these costumes that were like fad costumes from that year that people won't want to dress up as, I don't know, Hillary Clinton or something next year. And so it's just like a horrible inventory-based business where you've got to like scale up your inventory and it all goes bad instantly on the same day. Like the Halloween business is not a good business. So like you're already in, at least I guess your fireworks keep, but like you're already in this like scale up a whole bunch of working capital, blow it all the door in six weeks and then like wind down and lick your wounds. You're already in that business

of fireworks. Like do you really want to. want to like get into the Halloween business and the Christmas business, like it feels like I want to shoot myself. I would shoot yourself. Being in that situation, if you would shoot me, you would put me out my misery. Not in general, not like old yellow. I mean, like just if you do, anyway, anyway, we'll go from there. But yeah, I mean, the fireworks business, he's got a great little business here. And I think that's, that leads to kind of the second point I want to make about retail is Retail in fireworks is just like normal retail. It's all about location, location, location.

And really what gets interesting is a twist on the fireworks business is understanding how vulnerable you are from somebody coming in next to you and selling a commodity product. Because ultimately, like the little secret of the fireworks business is there's only several dozen types of fireworks that are made through several dozen types of factories. We're all selling the same stuff just with different labels. and this guy, you run a real risk that somebody could come along right next to you and you're both selling it 70% gross margin. And the guy comes it next to you and decides to sell it for 50% gross margin. And suddenly you've got a problem on your hands and you're both losing as opposed to winning. So that's the second thing I would really dig into what he has is to understand how much defensiveness he has in that retail location. Like how vulnerable is he to somebody or somebody's coming along, setting up right next to him, putting a bigger sign,

or a bigger building next to him and your revenue cuts in half. Like I've definitely seen that happen. It's totally possible. So you have to understand what sort of defense you have against just another commodity vendor coming on right next to you and trying to capture your margin. Yep. Yep. Kind of skip.

But so, okay, Michael, but you're in the fireworks business. Are you just telling everybody it's terrible and no one should come into the fireworks business and compete with you? Like, what is good about this? Like, why, this guy is putting $83,000 a year in his pocket for six weeks of work, right? Like, is this horrible on every dimension? No, I mean, I think so the inverse of what I just talked about is if you have a very defensible spot or you have a good location and you have that locked up, which is pretty

easy to do in the fireworks business, or you have a brand that you've built like we've built, like we have a pretty strong following around our Alamo brand in Texas and other places, like those start to be pretty substantial modes to where you have the ability to depend on new revenue coming in from people, you know, year after year because they want to come back to your particular place and know your people and know your spot and they're comfortable with it. They know the deal they got. So if you if you can start to build those moats, that becomes very attractive. And then you can also get to where we are as a business, which is we have 200 locations or so and we have economies of scale that a guy like this doesn't have.

You know, we're not going to operate it the same kind of net profit margin he has, but like once you start to get to scale, things get really pretty interesting with a business like this. there are moats here that just like any other business you can build out a pretty defensible place and you know there's some national chains that have built 5,000 plus locations phantom t&T and stuff like that and then there's midsize guys like us who've carved out really nice lives just building a pretty defensible business around kind of those things I just talked about so again it comes down to location location all right cool uh well let's wrap it up that that puts the cap puts a bow another episode of Acquisition Anonymous this is a fun one two

to local businesses with some very interesting seasonal dynamics. Thanks, Michael, for the inside takes on the fireworks business. And we will see you guys next week.