Acquisitions Anonymous - #1 for business buying, selling and operating - Deal talk with first-time searcher Brock Briggs - Acquisitions Anonymous Episode 93

Episode Date: May 10, 2022

Mills Snell (@thegeneralmills) is joined by Brock Briggs (@BrockHBriggs), first-time searcher, to talk about 2 deals: A Florist company and a FedEx P&D Routes one. We talk about: operational aspects, financial modeling considerations, the trade-off of bringing a Limited Partner in, separating real estate from a business: when should you do it and how to limit your exposure as a buyer, and much more. -----Thanks to our sponsors!MicroAcquire is the #1 startup acquisition marketplace. It is simply the most efficient way to buy and sell startups when you’re ready to make your next move.-----* 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:1:27 Microacquire3:20 Brock’s background5:08 What are you searching for Brock? Where are you in your search process?6:48 Deal 1: A massive Florist for sale in CT10:00 What do we think about this one?12:14 What’s the potential upside from this deal? Where’s the ceiling? How does size relate to growth opportunities?15:40 How should we think about the Customer Acquisition funnel? What should we consider from an operational side? 18:01 Don’t assume growth opportunities to be low-hanging fruits20:07 How do we think about weddings as a revenue segment? What should we consider on the operational side?24:40 Thoughts on seasonality and part-time labor hiring28:28 Let’s talk about financing: How do we think about bringing a Limited Partner to your first deal? What collateral could you consider lending against? 34:27 Real estate and business. Should you keep them together or separate them? What other options are there for the buyer?42:02 Deal 2: FedEx P&D Routes46:45 What did you like about this one?49:34 Operational considerations, what should we ask the seller? What debt are we assuming in this deal? What is the impact on the listing price?54:17 Is it an owner-operator kind of business? What should we dig into from an operational perspective? What are growth opportunities?56:56 Macro perspective thoughts? Why would I take on a business that FedEx refuses to operate?1:00:25 How do first-time buyers can get comfortable with the risk of things going south?-----Links:* Scuttlebuck Podcast* http://Twitter.com/BrockHBriggs-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, MorgSubscribe 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]

Welcome back, everybody, to another episode of Acquisitions Anonymous. We have a really fun one for you today. Our guest is Brock Briggs, who is active on SMB Twitter and also has his own podcast. Brock has a military background. And so we talk about kind of how he got to the SMB space, what his progression was like. And he's very early on. So some of the feedback we've gotten from listeners is they want to hear from folks who are at a similar stage in their journey. Having those first site visits, reviewing teasers, getting Sims, figuring out, you know, how to go under LOI. And so we talk about two kind of more common, you know, Main Street related businesses. One is a local florist shop in the part of the country. He has a geographically confined search. So we look at two deals in his neck of the woods. But the florist deal is kind of retail focus, but it's had some impacts from COVID that we talk about. We also really dive into that one on the way that real estate plays a part in these main street transactions, how it provides a collateral base that can be lended against, but also how that doesn't always help.

And then we talk about a FedEx route in that same part of the country. If you've been looking for deals at all, you've probably seen on Bizby Sale and other listing websites where route-based businesses are for sale. So we talk about that, some of the things that are favorable, some of the things that make it challenging. I think you're really going to enjoy this one from Brock, and thanks for joining us again today.

Today's sponsor is Microacquire, and Microacquire is the number one startup acquisition marketplace, and it is simply the most efficient way to buy and sell startups when you're ready to make your next move. So we've had Andrew, who's the CEO and founded the company on the pod before, and he's been great. The cool thing about Microacquire is that most of the conventional options for buying and selling your company, especially a tech one, are expensive for founders. So microacquire puts all the cost and flips that the other side around. So they are free and anonymous listings, and they apply a rigorous vetting process. We're actually only 50% of the startups make it on average.

They have over 2,000 online businesses listed today at any given time, and a buyer can expect to see a range of startup types that will fit any profile from SaaS to e-commerce to apps and agencies, and of course more. So different sizes as well, anything from $5,000 all the way up to a million. or more in asking price, really, for buyers of all sizes. So founders like Microacquire too, and they come with the expectation that serious, fetid buyers will be showing up in great numbers

when they decide to bring their business to market. They've helped hundreds of startups successfully get acquired and facilitated hundreds of millions in closed deal volume. So if you're thinking about buying or selling an online business, then you definitely want to check out Microacquire. And thanks to them for sponsoring our episode today, good friends of the pod. So looking forward to

all that and definitely check out microacquire.com. And if you're somebody looking for the right business, definitely go visit there and consider upgrading to one of their premium accounts where you pay a bit to start the conversation and see deals and more information

than just the other options. So thanks again. And here's back to the episode. All right, welcome back everybody to another episode of Acquisitions Anonymous. This is Mills Snell. I'm one of your co-host. I'm joined today by Brock. Brock, thanks for being here, man. Yeah, I'm super excited to be here with you today, Mills. So, Brock, I know a little bit about your background, and I can't say I'm an avid listener of your podcast because we've just met, but I have been listening to an episode going into this to just get to know you a little bit better.

But tell us about who you are, your background, and, you know, kind of what brings you to the podcast today? Yeah, absolutely. So my background is military-related. I joined the Navy to kind of get my life going in a better direction when I was 21. Did four years. And in my last year in the Navy, I got interested in investing. A guy had handed me an investing book and really kind of fell in love with it, which led to me actually getting out and wanting to pursue a degree in finance. So I got out, went back to school, started investing in public equities mostly and studying the cash flow statements and balance sheets and all of the good things that come with that. And as I've kind of fallen down that rabbit hole further and further, I kind of found entrepreneurship. And one thing has led to another

that's really led me to the small and medium-sized business space as something as more of a hands-on and long-term option rather than just sitting behind the screen and studying businesses. So that's kind of what leads me here. I am searching for a business and what leads me on the show. I had actually messaged Michael and said, hey, I should come on your show as somebody as a first-time searcher and you guys can critique my thought process and give me a hand. So that's what brings me here. That's awesome, man. Well, we're really glad to have you. I know that jump. You follow this beautiful progression, right? You look at public equities and you think about like, you know, price to earnings and it's, you know, definitely double digits, probably, you know, high teens,

low 20s. And then all of a sudden you start to realize, man, these private companies, they trade at single digit multiples and they're probably even like very low single digit, you know, EB to earnings ratio. So, yeah, it'll be fun. It'll be fun to talk through some of these. So you brought two deals today. You are relocating to Connecticut. Is that right? Or the Connecticut area in general. The Connecticut area, yeah. Specifically, grant. later this year. It's not the Yale or like Hartford area, but a smaller, much smaller town.

Groton has got about 30,000 people, I think, total. So pretty small. That's awesome. So you're doing kind of a targeted search geographically and you're in the early innings. Like, have you gone, you know, have you done site visits? Have you had conversations with sellers? Have you, you know, written any LOIs, been under LOI, kind of where are you in terms of, you know, at-bats?

Yeah, I would say my toe has breached the water a little bit. I have done a site visit with a dry cleaner that was here in my local area, and it ended up kind of being too small for what I was looking for, but no LOIs, nothing like that, really only have talked with brokers, sellers, and beginning my search process. Awesome. All right. Well, perfect. All right, well, you brought two cool deals today. So we're going to, I'm going to go ahead and pull up on the screen for folks who are on YouTube, the first deal. And then we'll read through this. And I'll get you to talk about it first. And then I'll kind of poke around and ask some questions. So this is a quote, I love this. As soon as I read it, I was just, I chuckled to myself. This is a massive. This is the title, massive florist for sale in Connecticut. I just thought this was so good. It's in New London County, Connecticut. It's on biz by sell. The asking price is $700,000. Cash flow is $249,000 a year. They have gross revenues of $823,77. Furniture, fixtures, and equipment, FF&E, that's just the stuff that's in the building is about $50,000. And then the inventory, they say, is $30,000. And it's not included.

in the asking price. The business has been around since 1991. So the business description here, it's the largest retail flower shop in southeast Connecticut and it's just come on the market. The business has solid sales even through the COVID pandemic. 31 years in business has allowed this florist to become a leader in the industry for its region. Business is a member of numerous wire services such as Telefora, Bloomnet, 1-800 flowers, and FTT. There's still a large amount of room for growth in this business is they haven't utilized the wire services due to profitability and also have not done any weddings since the start of COVID. The seller will continue including – well, sorry, the seller will consider including the inventory with the price and is willing to

sell the property, meaning the real estate with the business. The property is almost 13 acres, has a 1,200 square foot apartment on the second floor, and the building is 5,000 square feet. The asking price for the property is 1.2 million, 1.9 million, including the business. So it almost seems like a real estate deal that you might be able to get a business out of. Act fast before this business sells and contact the listing broker. They have his contact information to book an appointment. And then the business owner, I mean, the broker also puts in a plug here of, hey, if you are a business owner and you haven't to be seeing this, reach out to us because we, you know, we help sell businesses.

It mentions down at the bottom that there's two full-time and three part-time employees. Probably one of those is the owner or the seller, maybe seller and spouse financing. They say they want, this isn't totally clear, but they say something about $450,000 down. And then I think they mean $250,000 at 6% interest for 36 months. So the seller is willing to seller finance a portion of this. And they also have a link to the business broker's website. I went there before the episode. There wasn't really any more information there, just some more pictures.

But they really are promoting the fact and have a banner on this saying, you know, seller financing is available. They just say the seller is willing to train. They don't specify an amount of time and that the reason for selling is retirement related. All right, Brock, what do you think about this one? So I'm interested in this deal for a couple of reasons. And just as a first-time searcher here, I'm kind of looking for something that I could mold my life around, so to speak, from the beginning and kind of maybe grow from there. But I look at this, and first off, I see that the person is retiring. I love that. And like I mentioned earlier, I went and looked at a dry

cleaner, and the person was retiring. And that signals to me something. better than, oh, I'm looking to just do something else. And then that gives the opportunity to kind of maybe emotionally connect with the seller and talk with them about why you would be a good fit for the business. They're obviously going to be very involved emotionally, I think, just because it's been around for so long. And that's one of the things that's attractive. It's got some staying power.

It's been around for 31 years, 1991 established. So long history of business, that's a long time. to stay and stick around a lot of business cycles through there. One of the things I like about the florist industry, I guess in general, I have no background in that whatsoever. I personally enjoy gardening and working outside. My wife is really into houseplants and pressing flowers and whatnot. But it seems to me that this is kind of a year-round business and there's always going to be kind of a need. There's always a holiday, a birthday, something memorable that you need to gift somebody.

And so I think that that speaks to why it's been around for so long. Got a decent sell price around 2.8 times cash flow. As far as the lifestyle type of business that I'm looking for, it's got an apartment on the second floor. I was kind of imagining, I was like, maybe I'll live upstairs and kind of run the flower shop down below. But yeah, those were the things. that kind of drew me to the business initially.

Nice, nice. Yeah, that's, I think, I think you're right. Those are appealing, right? My concern, right, is, does this business have a low ceiling? Like, are you going to, if you do this deal in a year or two's time, are you hitting a ceiling personally and is the business kind of cap? Is there a ceiling on its growth where you're going to go, okay, I either have to to open new locations and in your new markets, I'm going to have to add new product lines or

revenue, like maybe, but this business probably is not going to grow to two or three million dollars in revenue, right? If they're at $823,000 now, how do you think about the ceiling that might be in place for what's been kind of a, you know, a mom and pop probably kind of geographically constrained business? I think that there definitely is a ceiling. somewhere, but doing just kind of some initial brainstorming from the listing here, I had to kind of dig into what wire services meant. And I kind of want to kind of unpack that for a second. But from what I can tell, wire services like the 1-800 flowers and whatnot, they basically will connect you your flower shop with other flower shops in the area. So let's say that, you know,

or like cross-country. And then there's like a revenue split between the to if somebody just searches flower shop, they pull up yours, and then they want to order something cross-country, you guys get kind of a split. And then they kind of send you business through that same channel as well. I kind of worry with what they're saying, worry about the margin profile of what that additional business looks like. They said in there that large amount of room for growth, but they haven't utilized the wire services due to profitability. So, there probably is some size where using the wire services more in-depth makes sense, but maybe they just need to be bigger to reach that point.

And I'm not exactly sure how being a member works but not using their services. I know that there's kind of fees involved with being a part of those. So that's something to investigate. I would be curious what scale makes sense to actually start using those in a way that's profitable. And I think that there's some other unique channels you could look at. The last, I don't know, a few years or so, those fruit baskets have gotten really popular as a kind of something that gets paired with flowers. You know, those like edible arrangements or whatever. Yeah. So I'm wondering if that's an opportunity to get into. And then, let's see, on.

On top of that, like I was saying earlier, my wife is really into houseplants and like pressing flowers. And I'm wondering how much of a channel there is for like maybe custom pieces. When she started a little e-commerce shop like on Instagram and was doing custom wedding bouquet, like pressing and stuff. And the prices that people charge for those are insane. Like it is not cheap to have your wedding flowers pressed and put into a nice thing. So I'm wondering if there's maybe a channel for that. I don't know if they're into that already, but those would be a couple of things

that I'd be looking into. Yeah, yeah. On the, there's a few things there that I think are interesting. On the edible side, I would say, you know, that is probably an uphill battle, right? Because you think about the different, it is almost the same top end of the funnel

in terms of customer acquisition. It's like, hey, I need to send a gift to somebody. I want to do something nice. Like maybe I send them like, flowers in candy or flowers in like a gift or flowers in an edible arrangement. I think the operations of that is probably a good bit different, right? You have coolers on site for your flowers more than likely and you would need coolers for the edible arrangement stuff.

But, you know, having a, you know, food safe kitchen and prep area is different than having a, you know, florist shop, you know, where you're not worried about people ingesting these things. So there may be some operational just difficulties, not impossible. More of my concern than that, though, would be competing with, you know, edible arrangements, which I think is a franchise, if I remember right. And, you know, they're just laser focused on customer acquisition of that segment alone. So that's just a thought that comes up with trying to expand into that revenue channel. The wire business, I do think you bring up some good points there.

I think the best way to think about those is it's a customer acquisition funnel if you subscribe to these. But the cost associated with that customer acquisition is probably just astronomically high relative to the organic traffic that they live off of right now that gets them to their kind of three quarters of a million dollars in revenue or so. If I am in Columbia, South Carolina, and I want to send flowers to my aunt who's in old lime or something, I'm not calling my local florist to do that. And maybe if I do, right, they're like, sure, yeah, we can accommodate you. But more than likely what I'm going to do is I'm going to go to 1800flowers.com. And 1,800 flowers is going to go to their network and say, hey, we have a lead that is really valuable to you. And yes, it's not probably, you know, a flat fee. It's a percentage of the revenue split that, they're going to take off the top, and then you still have all the same cost associated with that bouquet or with that arrangement or whatever it may be. So I think there is probably a scenario, right, where that becomes more interesting as you want to grow top line. But this is one of those perfect instances where you look at a business and you have a conversation with an owner and they're like, oh, man, there's great ways we can grow and there's things we can do. We just haven't. There's

probably really good reasons why they have it. It might be too hard. It might be too competitive. It might be dilutive to margins. And like in this case, and it's one of those, you know, things that you would want to be careful of when you model this, right? If you're building a cash flow model around it, don't, if you're going to model in more than nominal growth rates, probably three to five percent annualized growth at best, don't model. in 30%. So if you're going to say, hey, look, I think I can grow this thing at 10 or 15% top line year over year. Don't assume that you're going to maintain the 30% net margins or at least just cash flow margins on the numbers that they report because it will probably cost you margin in

order to get that excess revenue, which is fine. 30% margins probably aren't sustainable, right? There's something about this business and the ownership that are a little bit idiosyncratic that allow them to get that margin profile. Does that make sense? Yeah, it does. That was one of the things that I called out in my head mentally from the beginning is that seems very high. And the first number that shocked me was the $800,000 or $800,000 in revenue for a town or area this size. And they're not using the wire services. I'm like, man, how many flowers can people buy? And they're saying in the description that they haven't even been doing weddings either. So I mean, maybe they can buy a lot. That brings up a really good point on the weddings thing. I mean, my guess is that, you know, they're, it seems like weddings is a part of their business. They just mentioned they haven't done any since the start of COVID because people basically stop, you know, having big, elaborate weddings. What do you think, Brock, about weddings as a revenue segment? What do you like and

dislike about it? Obviously, you've never, you've never provided flowers for a wedding. And you said you're engaged, right? So maybe you're, you're, you're, you're, fiance is starting to price them. But what do you think about that as a revenue segment? Pros and cons. Yeah, on the front of being engaged and going to look at wedding venues, I'm not a big fan. But one thing that I see as the big challenge, and I kind of have seen her deal with this as she does, like, the wedding bouquets and stuff, is you're dealing with customers that are just a pain. Like, it's not just, hey, I'm ordering flowers and I'm sending them to so and so. It's like, this is somebody's huge day and it's got to be right. And so I think that

that would be something, I think it's a lucrative opportunity and probably is a meaningful segment to their business. I would love to take a look at what their numbers were prior to COVID and see how wet the addition of weddings influences those numbers. But I think that I don't know if I'm the right type of person for it, but I would need a person that is very patient and, like, ready to just dial in on what a customer wants it and make sure that it's right, because there's just a lot of room for error. There's probably an opportunity there to, I don't know if they're going directly to the consumer and, you know, a bride and groom are contacting this floor specifically and saying, hey, we want these flowers, but maybe reach out and partner with, um,

either venues or wedding planners and see what it takes to become like a designated, like the floral person, a preferred vendor, I think is usually what they call them, and see if you can kind of work your way back into the wedding space that way. I think you're exactly right. I mean, that's how that, that's how that events, that segment of the events business in particular works is, you know, the guy who owns the cool venue is not going to provide the flowers. He might rent you the table, right and chairs and maybe the linens if he's you know really savvy and and maybe has catering or something you know on a short list of people that he works with depending on the scenario but flowers

is rarely one that I've seen you know insourced um i i kind of like the wedding side of this because it is difficult right and most retail flower shops probably do avoid it for for good reasons but like you said if you can find a way to be really good at navigation navigating the just the kind of difficulty of those customer relationships, you can extract, everybody knows, right? Like, if you just were calling to say, hey, I have flowers for a corporate event versus, hey, I need flowers for a wedding, the price is just significantly higher. There's just a factor for weddings that people put on it that probably would be a really great,

you know, revenue driver. my guess is is that this revenue number that they provide, this $823,000, I'm really curious if you ever get more information on it, let me know. But I'm wondering if this is, you know, last 12 months, if it was full year 2021. If it's like an average of the past few years, there's got to be some way. COVID impacted this business a lot, I feel sure. And so, and they allude to it. I just really want to know, are they kind of sugar-coding the numbers to make it somewhat normalized, to try and smooth out the impact of COVID? The other thing I'll say about the wedding side of things is that, I mean, retail is kind of largely nights and weekends.

This business definitely has a strong retail component. The wedding business is all weekends, obviously. So from a quality of life and just kind of optimization around what you're targeting, if you're in the wedding business, right, and you're extracting all that revenue, you've got a really busy like Thursday, Friday, Saturday, you know, every week, weekend, and week out. I also, as kind of another point of concern for me is initially I was like, you know, this is probably a year-round business. You know, there's always, holidays, there's birthdays, there's whatever. But as I've kind of like looked at the details in the

description a little bit more, I wonder how seasonality, especially in talk of the weddings, plays into maybe there's some lumpiness and the cash numbers. You know, in the pictures here, I think these are Christmas trees. I don't, I, yeah, they look like Christmas trees. And so if that is a meaningful portion, maybe like the, the holiday months are a bigger, deal, but maybe that's offset by more wedding stuff during the summer. I'm not exactly sure. Yeah, and I think this is like one of those, you know, Michael talks about it a lot with the fireworks business, but like this is, you probably have to staff up and bring on a lot of part-time labor going into Valentine's Day, Mother's Day, you know, some, some kind of just absolute, you know,

just one time a year, you know, just bellwether type events. but that's that's not a bad thing right it's like michael will talk about right if it's raining on fourth of july or if it's raining on new year's eve it really impacts their sales um this business it kind of probably doesn't matter if it's raining right or what the weather is people still feel like they need to buy flowers in and around valentine's day yeah what um so you're if you don't mind me pitching a question back to you yeah in the roofing business, how do you think about managing cash flow in terms of really, I'm sure that you're not doing a lot of roofs in the middle of winter. How do you manage that and think ahead? Are you really

just trying to stockpile cash through those really busy months and then just hold on to it to make it through not as busy season? Yeah, that's generally the case with seasonality. We, you know, part of the reason I really liked this business and its location, it was in my backyard, is in South Carolina, we have 12 months worth of roofing weather. I was talking to a guy the other day who is in the Chicago area, and they kind of have maybe seven or eight months worth of roofing weather. And, you know, they may keep some of their, you know, highly skilled guys around,

and they may try and pivot and do some other things. But when there's snow covering up a roof, you know, they might have some services like, hey, we'll go get the snow off of your building's roof because of the weight load, the dead weight load. That is not okay. But we don't, we have 12 months worth of roofing weather. You can navigate it, you know, in a business like this. If you own the real estate, that probably helps, right? Because you can kind of manage your, you know, your rent flows a little bit with a little bit more.

leniency, but you would really want to get monthly financials on this, which they may or may not have on a business the size and really understand not just the timing of revenue, but the timing of expenses month a month. And then if they have, probably don't, right? But if they have revenue broken out by category, it would be really impactful on this one to see, you know, just what the different customer segments are. And this one, you know, if it's owner operated like this, you know, you're probably having to go stand behind the counter with them and really understand the day-to-day dynamics. Yeah, I would imagine.

And I, from looking at the weather reports, I think that that will probably, I know it snows a lot in the northeast. And so we're not, maybe not roofing, but this storefront, I would worry about any kind of foot traffic coming in in the middle of December for flowers. Brock, let me ask you a question on this one about the way that you're approaching just any acquisition, but this one brings up an interesting element on the financing and just what your capital stack. How do you anticipate it looking? This one advertises some seller financing. They talk about real estate, but how are you thinking about kind of equity you would bring to the table and debt in the way you would mix those two? Yeah, I'm definitely prioritizing the SBA loan.

I've been getting involved after you guys put out that conversation with the gal from Live Oak, been kind of going down that rabbit hole and getting that process started. I was really interested Clint Fior on Twitter, put out a really good

thread on financing a business with a limited partner and kind of, I guess personally, I'm not really sure whether that that's the right thing for me. And maybe I'll kind of kick it back to you and see what your thoughts are. But I think

from my perspective, as somebody who maybe isn't, I'm not sitting on a big pile of cash. I want to bring what I can to show the SBA and like maybe potentially a limited partner that I'm bought in and I'm going to do it. But I'm also not bringing a huge pile of cash to the table either. So I guess like I said, I'd kick that back to you and here. I'd love to hear what you have to say about bringing on a limited partner maybe for even your first deal. Yes, I mean, that is a big, a big question. It's an important question in a lot of ways. And it is so contextual, it's so specific that it's kind of hard to answer in broad brushstrokes.

But it depends on where you feel like you need help. Right, Brock, if you feel like, hey, look, I've never done a deal before, you know, I really want help with due diligence. I want help with, you know, the legal. I want help with, you know, finance and modeling the deal and all these things. That's going to be, that's going to be really important, right, to potentially have a partner to help you with that. A lot of searchers are like, hey, I have all that covered. I don't have any operating experience. And I want a partner who's going to be, you know, kind of my right-hand person and be standing, you know, kind of over my shoulder,

helping me make day-to-day operating decisions. So it really depends. I would say, you know, it would be helpful to have more help with your first deal. But it's going to be dilutive in some sense. If you have a partner who's providing the lion's share of the equity, they're going to, the line share of the capital, right, they're going to want the lion's share of the equity. And there's hybrid models, right, where if maybe you're personally guaranteeing it and they're just providing equity, then, you know, it lessens the hurdle rate that they would have.

But it's, there's tradeoffs, right? If you get help right from somebody, then it's going to cost you something somewhere down the line. You know, this one, what's very intriguing about this is the way that real estate could play to your advantage. So they say that the business has, you know, one point, let's just say $1.2 million worth of, you know, of property and $700,000 for the value of the business. The interesting thing about that is that most operating businesses like this, they're hard to loan against it. It's hard to find enough collateral. They list $50,000 worth of F, F&E. and $30,000 worth of inventory, a lender's going to look at this and go, there's not real asset

base to lend against. Maybe they have like a van or something, you know, where they deliver flowers, but there's not a lot there. And so it's a tough, it's a tough lending kind of scenario to figure out. The fact that there's $1.2 million worth of real estate gives you a really nice asset to lend against. And a lender would like that. A $1.9 million, you know, purchase. purchase price is very different than a $700,000 purchase price and the equity requirements are different. But a savvy lender would be able to look at that and potentially help you, you know, quite a bit, you know, be able to dig through and understand, hey, here's how this, you know, kind of helps and here's where you have some real advantages. My guess is, is that this business

probably, you know, does not cash flow enough to be able to pay the debt, service on the real estate and the operating business. You know what I mean? So if you did try and lump them together to meet some collateral requirements, I would say it's at least probably, you know, 50% or more of the cash flow, probably a good bit more to service that amount of debt, depending on the amortization schedule. You know, the owner does mention wanting $450,000 down and being willing to seller finance.

You never know. Maybe they would sell or finance more of the real estate. But that's an important factor here because there is a big kind of nice asset on the table that you could sink your teeth into. Originally, when I was looking at this, I was really just focusing on the business and kind of thinking about the real estate as you start seeing those bigger numbers as a first time searcher. And we're going to maybe get into that in this next deal where just like the price tag is you got that sticker shock. and like, oh, man, that's a lot of money. But I think that that makes sense about being able to lend against the real estate, whereas in the business there may not be a whole lot of hard assets.

How do you think about breaking up like a business sale and a real estate sale? I know a lot of people on Twitter talk about why it's important to separate those. Do you think that keeping the business sales separate from the real estate? would be important or in this case, like you said, would it be important to put them together in order so that there's kind of like a backstop? I think at a worst case scenario, what you want is you want to underwrite how important is the real estate to this business? If this, you know, 13 acres is like on Main Street in, you know, New London County or

it's like right on the kind of main drag in this town, it's probably pretty important. if all of a sudden the seller becomes your landlord and you haven't really negotiated a very good lease and he kicks you out, it's maybe pretty hard to find a replacement and to not, you know, have the real core drivers of the business not erode out from underneath you. So you have to understand and really evaluate on site and with the seller how important and how critical is the real estate and then let everything else really pivot around that. it may be that the real estate is completely irrelevant. Like in most of the bills businesses, right, e-commerce, where they do business maybe has very

little impact unless it's some really specific like cross-stock facility or something like that. But in this case, I think that, you know, if you try to just running like kind of rough numbers, if let's just say you're financing like $1.6 million of this, your annual debt service is probably around $180,000. So you're leaving really very, very little margin to pay yourself. And depending on how this cash flow is calculated, if you're planning on drawing a salary, it's functionally not that possible to buy the building and the business at the same time. What you find, though, is it's usually a really great carrot to dangle for the seller to say,

hey, I'll sign a three to five-year lease or maybe longer, depending on how critical the facility is. And look at what your kind of net sheet is. He's been making $250,000 a year. The business may or may not have been paying rent. So you want to check that in your pro forma and his financials. But you can show them, hey, look, I'm going to pay you this much cash down. This is what you're going to get net from the seller note. This is what you're going to get from me and rent.

And then if the business real estate is critical, then you make sure you, you have an option to buy the real estate at kind of some preset terms and at least a right of first refusal or a right of first offer so that somebody doesn't come in and buy the building out from under you. 13 acres is depending on the area, right? It might be really, really prime for redevelopment. You want to make sure that you're not, you know, forced out. Yeah, I like that idea of the option to buy it. And that's kind of, I think what I was going into it thinking is saying, hey, I'd be interested in the business, but, you know, just the size of the real estate. I would want, hey, maybe in three to five years, like you said, can I have the option to buy

this later once, you know, a couple of years of established and running the business? Pure financial modeling would tell you that there's really no reason why you would want to sink, you know, limited amounts of equity into the real estate if you have high returns of equity on the operating business. So if you're buying this business at, you know, let's just call it a three times multiple, then functionally, if you unlever it, right, no debt and it's just cash on cash returns, you're getting like mid-30s, right, percent cash on cash return. If you go to buy the real estate, what cap rates are right now is, you know, easily, let's just say under 10 percent. So if you're going to allocate dollars in one place, it's financially, from a model

perspective and just purely objectively, it makes sense to keep that cash compounding, that equity compounding in the operating entity rather than getting it stuck in the real estate where it's very hard to get it out, unless, again, where there's special consideration why the real estate is critical. And it's never bad to have real estate, you know, in the background. It's actually a great tax shelter in a lot of ways. So that's where a lot of the contention comes in. And I, so I guess if this were you going into this, maybe look at getting an option to buy the real estate and or maybe locking up a really long-term lease.

The leases seem to be a really important element of an SMB purchase, you know, especially maybe if you're like in a strip mall, I was saying I was looking at a dry cleaner. People can just kind of up and move you out. And so those leases, and I think that the SBA wants you in kind of a long-term lease. as well. Yes.

Yeah, exactly. I mean, they're thinking about, and an underwriter from a credit perspective is thinking about mitigating risk, and they want to see probably as few of those changes, you know, as few operational changes that could negatively impact you as possible. And there's a lot of tools there.

A clear cut option to buy with preset terms, a right of first refusal is almost like a stalking horse where it can negatively impact, the seller's ability to sell the property. If they're marketing the property, but they're like, hey, by the way, I have this guy who has a right of first refusal, it makes it kind of less interesting, less appealing to a buyer because they're like, well, I could do all this work and somebody could just come in and sweep it out from underneath me. So a right of first offer is a little bit less taxing to the seller because what you're saying is, hey, if you decide you want to sell

this property, I just want to have the ability to offer you something for. it first. Instead of, I want last look, you know, at all costs, no matter what happens, I get last look. That's a right of first refusal. Right of first offer is, hey, just let me go first. If this is that important to me and you decide you want to sell, then I'll, you know, I'll give you a number and you can decide if you want to go shop around. But an option is kind of the cleanest, safest for you as a buyer to make sure that, you know, the terms are set in terms of what's the purchase price going to based on? Is it appraised value? Is it the average of two appraisals? Is it a preset price today? Is it a certain cap rate? Like, there's a lot of different things you can decide. And when is that option effective?

Is it anytime in the next five years? Is it zero between now and five years and then it's effective after? There's a lot of different variables that you can decide. And it just is situation specific. I like that. I appreciate you kind of bringing that up. I got that written down to kind of investigate. And it sounds like from the description, the owner probably wouldn't mind just sitting back and collecting rent. They probably own the property and a guaranteed tenant probably isn't a bad deal for them. Yeah, yeah. I may have bored most of our listeners with that kind of in-depth talk. So we'll move on now to the second deal, which may be a little bit more exciting than talking about legal language. This one is also in New London County and it's 13

FedEx P&D routes. What is P&D? I don't even know what that is. Do you know, Brock? That's a good question. I have no idea. And I feel bad this is my deal. I know that it's a local thing versus so like in a route from the research that I've done, you've either got line hall or you have P&D. I think it's pick up and delivery. Oh, okay. So of course it's the most simple. I'm going to I'm going to just say that confidently and then we'll have somebody correct this on Twitter. Perfect.

So this business is 13 FedEx. We're going to say pick up and delivery routes in New London, Connecticut. The asking price is $2.2 million on cash flow of $446,000 and some change. The gross revenues are around $2.1 million, $254,000. So it's about one-time's revenue and call it five-ish times on cash flow. The inventory is $636,500. And it doesn't really see if it says anything down here. I don't think they really have inventory.

I'm wondering if that's trucks. And they just didn't list that in FF&E. But business description is profitable P&D operation with spare trucks included. That to me does not. They intended as a good thing. I read that as a bad thing. But the route composition is 13 routes. Total revenue, we've said, 2,154,000, net operating income of 446,000.

And they say it's a well-run and highly profitable operation with more room for organic growth. There's two full-time managers that handle all the daily operations and logistics at the terminal. there's a tenured roster of friendly responsible drivers, two spare trucks to mitigate peak expenses and to cover routes during maintenance, and they say SBA financing is available. 16 employees, there's no franchise royalties. This is under the facilities title, but there's no franchise royalties, marketing costs, business development expenses, inventory overhead, or real estate to oversee. that is kind of confusing and I would have a lot of questions about that. They say that FedEx ground P&D operations deliver to local homes and businesses within a designated territory or a CSA. In the last five years, the percentage of retail completed by e-commerce has more than doubled to nearly 30%. I don't think that stat is totally accurate.

Just Bill could probably correct us on this, but it says meaning 30% of all retail, transactions occur online. I think I've heard stats that it's way less than that, but somebody can in fact check us on that too. While a significant number, e-commerce still has steep growth trajectory ahead of it, which will expand the value of P&D operations. Furthermore, P&D operations are incredibly stable, recession-resistant, and make them lucrative businesses to own. The depreciation from the assets, specifically the fleet vehicles, also make these businesses incredibly attractive tax opportunities. Route consultant is the name of the broker here, and they say route consultant is known as the premier logistics consultant in the industry. We serve investors working both FedEx ground routes and Amazon routes.

Our team is an active contracting team, one of the largest in the country with 225 employees, 275 trucks in both last mile and line haul operations. They have unparalleled experience, logistics industry, acquisition support to our marketplace this insight or on a mission to provide educational tools to help you be successful in the space. That's a little weird to me that they, I'm going to pull up their other listing, which may, it's probably just copy and paste it. But if they broker deals, but they also run them, the skeptic in me is like, well, why didn't you buy this one? Right. If, like, you have your pick of the litter of any listings that come to market and you run some, why is this one not one that you

want? Right. So this other page does say they have 15 trucks, and they say two of those are kind of, you know, on standby and can be used. There's a video here. I'm not going to necessarily play. And then they have some similar routes. So you at least can kind of get a sense for, you know, revenue per route and maybe density and some things like that. I bet they would have some good. Oh, interesting here. Assumable truck debt. Let's talk about that in a minute. But Brock, tell me what do you think? think about this one, what attracted to you? What attracted you to this one? Yeah. What attracted me to this one initially is just that I see so many of them. And I originally kind of wrote all type of like

another really popular one in the Connecticut area is bread roots. And so I figure if I'm going to be looking into the trucking business, I may as well kind of go big here. I almost wonder you talk about them running routes and then also brokering them. I almost wonder if this is some type of breakup because I think that these guys have multiple listings. There's like five or six listings with the exact same picture and I think are all being listed by root consultants. So I'm wondering if they operated several of them and are kind of separating them out and selling them. Yeah, almost like a corporate divestiture kind of situation. situation. Yeah. But yeah, so I started digging into it a couple of the things that were interesting

to me. I wouldn't look at any business as like a hands-off type thing. I want to be involved and learn the business, especially as a first-time searcher. But I'm attracted to the fact that they've got some managers involved already. They've got two full-time managers. They say that handle all the daily operations and logistics. It's good to have some managers. It's good to have some experienced people that are there and know what's happening. And I think that that shows that it's established or fairly established. I also like that the whole idea of e-commerce in general, driving a larger share of shipping over time is probably a good thing.

I like your call-out, 30% of all retail transactions, that's probably far from accurate. it, I would just guess. But I think that as like a macro tailwind, I think that that's a good thing. I think it cuts both ways, though, and kind of brings into one of my bigger concerns with the businesses, you're kind of tied to the fate of FedEx, if I really understand how this works. Amazon is increasingly a larger threat in the e-commerce and, like, shipping space.

logistics. I just am continuing to read all these headlines about how Amazon's logistics network is going to be the largest in the world. And that comes directly out of FedEx's pocket. Yeah. Yeah, absolutely. You know, you mentioned this. Part of the thing I don't like about these businesses is that they are so, they're so prevalent, right, on business by sell and in the kind of lower, you know, kind of Main Street marketplace. And anytime something changes hands frequently, it makes me skeptical about, you know, okay, the guy who's only owned it for maybe a few years doesn't want to own it anymore. What does he know now, you know, what does he know now that I don't know that causes people

to kind of fall into this fallacy of this is a great business. I really want to get in it. But, you know, there's, I think, some reasons why this isn't consolidated and it's probably very difficult to consolidate. You know, if, I think if the underlying economics were as attractive as it's made out to be, there would be people coming in and rolling up a lot more of this. And these kind of mom and pop, you know, small owner operator type sized ones would just be absolutely gobbled up. You see that in plenty of other industries where it, you know,

the biz by cells of the world are not, you know, inundated. They're not completely swamped with, you know, dental practices, right? Or veterinary clinics or, you know, different like, you know, counseling practices or drug addiction practices. The reason that those aren't on bizby cell is that There's consolidators who love the unit economics and love the business and they never make it to bisby sell, right? Because the businesses are so attractive that they get scooped up long before. And there's plenty of other types of consolidation. And you could say it about just about any industry. But this is one, and you mentioned bread routes. Like down here, there's also like, I think it's like Lance Cracker or Frito Lay, like where I guess that whole distribution model is it's, you know,

a guy on a truck with a route and he restocks, you know, the grocery store and the convenience store and the pharmacy, right, with those certain products. I think there's probably some folks who could elaborate on this more from experience. I don't know a ton of them personally, but these businesses are really are really scary to me in terms of the amount of variables that are outside of your control. Being tied to FedEx is one of them. The assumable truck debt is kind of an interesting one because, This business is very asset heavy, obviously.

You've got 15 trucks. They're probably, you know, call it $100 to $150,000 apiece, you know, new. And obviously all of these are not probably new because they allude to the fact that maintenance, you know, items take them down. You're not really at a size where you, you know, have enough margin and scale to have your own full-time mechanic. And that's why they say they've got to, you know, have some capacity for, you know, pay, if one of our trucks goes down, we can't not deliver.

And our existing trucks can't soak up all the, all the capacity because of the way that these routes work. And so the assumable truck that just tells me that, you know, there's debt on the company's balance sheet right now that's tied to the acquisition of their fleet. And they want you to take it over, right? They want to say, hey, if we owe, they say the value of the fleet is $636,500. If they owe, let's just say $400,000, they want you to assume that debt. how that plays with the listing price is really going to be critical, right?

Are you going to pay a five times multiple on this thing, you know, basically one times revenue, and they also want you to assume the debt? So you're talking about now not, you know, let's say it's 85% loaned value on 2.2 million. Are you going to, you know, issue new debt, take on new debt from a lender in order to buy the business and then also have to assume some debt as it relates to the vehicles. No, don't do that, right? If you're in this scenario. But it's going to be problematic for sure,

especially when you start to think about, call it $450,000 worth of net operating income. I don't know if that includes. It's hard to tell from this listing if the owner is active or passive. They say they have two managers. So maybe they're a little bit more passive. Maybe this is kind of a true seller's discretionary earnings that doesn't include a salary for the seller. But I think you're probably hitting a level on this level of net operating income where you can't service the debt associated with the asset base and the purchase for sure.

Yeah, that size, and especially if you tack on that if we assume that $636 is debt, it's pushing it. for sure. I think I ran the numbers a little over asking, and it's sizable for sure. And to be fair, they do say that's the fleet value. So my guess is that's the asset value of the fleet, and hopefully they owe less than the asset value. You know, hopefully the fleet isn't worth 636 and they owe 700 or something like that. But, you know, the other thing about these businesses that I see is a lot of times, like with the bread routes and, you know, the, Lance crackers and stuff like that. It's very difficult for them to grow more than just I'm driving the truck.

A lot of them are, you know, hey, maybe I'm driving one truck and I have an employee who drives another, but they really can't break out of that, you know, owner operator, you know, driver owner operator. So to these guys' credit, they have done that. You know, they doesn't seem like they're driving one of the trucks. And, you know, based on the number of employees and the number of trucks, maybe there's a little bit of redundancy there. So, you know, kudos to them for sure for, you know, having a layer of management. You'd want to really press and figure out, you know, how does this business

function operationally day-to-day? What are the managerial duties? And what kind of, what kind of roller are you going to have if you buy something like this, if it even pencils from a financial standpoint? Speaking to the growth opportunities, too, that seemed to be from my research into this line of work, seems like a really challenging business to grow without just acquiring more roots. You can kind of maybe just operate more efficiently. That's kind of really the bulk of what you can do from that standpoint. Maybe optimize your roots and try and run really lean on drivers, but that will come back and bite you the same way. And then to grow, you're maybe buying another route,

but it seems like the overlap wouldn't be very much. If it's in a completely different area, you maybe need another terminal or however, like another warehouse or however that works, it doesn't seem like there's a lot of things that are within your power that you can just say, hey, we're going to go out and drive revenue this way. You're tied to what FedEx is shipping and, you know, short of buying another one, that's your option.

Yeah, yeah. And from a macro perspective here, again, we're kind of known on this podcast for, you know, pooping on companies for sale and being maybe more critical than we need to be. But in that vein, another critique of this is, I look at FedEx, right, who is just a massive, massive business, and they clearly are shrewd capital allocators. If they don't want to be in the last mile business, if they don't want to own these assets, what makes me think that it's good for me to do it, right? If they can't or won't do it, why do I want to be on the other side of that trade?

And there's plenty of things that you can say about that where it is worth being on the other side of the trade. But I just, I look at their business model and what they're really good at, and they specifically avoid this, right? It's like, hey, we want to handle all the middle mile. We want to handle all the air freight and all those things. None of that is, you know, in essence, delegated or subcontracted out. But this last mile is, and I think it's because it's the, it's the messiest part of it. It's kind of the lowest margin part of the value chain. And, you know, always, always, always go back to asking the question, where does this come? company sit in the value chain? How is it that they extract value and, you know, what is their ability to extract more or less margin given different characteristics? You are totally at FedEx's mercy, right? Whether they could just hand it down, same as Amazon, right? They could say, hey, we're changing, you know, the unit economics per parcel for our last mile folks, for our P&D, pick up and delivery. And you don't, you don't have any say. over that, right? There's no, there's no ability to, you know, pass pricing changes through to the

end user because I think it's all just being handed to you from FedEx. And obviously, they want you to succeed because if not, you know, you're not going to, you know, you're not going to survive to deliver their packages, but they're not going to give you any more margin than they have to. Right. And I have read maybe anecdotal evidence, I guess, but I, from the reading that I have done from people that have operated these before. They do speak very positively of FedEx in terms of, you know, they understand that it needs a lot of cash and they're very quick about getting you paid and they're not screwing you around on long terms.

But I think that your point there of not being in control of pricing literally at all, but then also being subjected to, I've got drivers to pay, you know, you live in a small town area and you need people who can drive big trucks, CDLs and whatnot. And God forbid, nobody wants to see me behind the driver wheel of a truck here. So, yeah, I think that that's certainly a problem with this type of business. Brock, any other questions on this one before we wrap up? I don't think so.

This kind of maybe go into a larger question. You were mentioning a few minutes ago that you guys tend to poop on pretty much every business that comes across the desk here. And I had a specific question written down about that. From your perspective for a first-time searcher, and this is calling myself out a little bit, I catch myself falling into the analysis paralysis rabbit hole. and especially listening to your guys' podcasts and others and people on Twitter, I find myself looking for more things wrong than there is right. And so I would love to hear maybe from you and you can kind of pass on some advice as to

where that line is of when it's the right to swing. I know that that's a very broad question, but when is accepting that there's going to be problems no matter what. You're not going to buy something that just is a perfect business right off the start. How do I get comfortable with that? That's a great question. And it's, I mean, it's, it's very, very difficult, right? The market for these businesses is incredibly fragmented. It's very illiquid. There's lots of inefficiencies. And so you have to wade through that. And there's a lot of right, people bring when they've been in this world for a while and they, you know, they're skeptical. They're kind of scarred, right? I think that there's this idea in the buy side,

in considering acquiring businesses that is the deal never looks as good as the first time you look at it. And you see that to be true time and time again. The first time you look at the deal is the best it's ever going to look. Once you get the SIM, it's maybe, you know, okay, there's some things that I'm going to have to work through. You have the site visit. You're still excited, to be fair, but you're only going to find out more problems.

And so part of this skepticism, I would say, is a really high bar to say, if I have this many reservations before even getting, you know, the financials, it's probably only going to get worse. And some of that, you just have to wait through it. You just have to go and get excited and then find something terrible and get disappointed

in order. It's a maturation process to just have that experience and there's no substitute for it. And you have plenty of experiences, right, that have matured you that I can't borrow from. I don't know what it's like to serve in the Navy. I don't know what it's like to go through a lot of the things that you've been through. and there's no substitute for that, right? You could tell me time and time again, but there's no substitute for experience. There's no compression algorithm for experience. And so I think with this, you have to go through it. And you're right. You have to get excited. You have to just go all in on a deal and be ready to,

you know, commit your life to it. And then you have to get disappointed and you have to realize, oh, you know what, I'm going to be better than next go around. And I'm going to ask these questions that I didn't know to ask before. And that's just the cost of tuition. Yeah, I will say that that's encouraging to hear and seeing some of you guys that have been in the space for a little bit longer, you're not, you're more skeptical on the deal side, but that's not keeping you from moving forward on new deals. So I, I think that that's encouraging and, or at least to me and hopefully to other first-time searchers as well. Yeah. Well, Brock, I'm really glad you were here, man, and I'm glad that you brought these deals. These are good ones because they are,

they're things that you see and experience day to day. What can our listeners do to support you? What can they do to be helpful to you and follow along with your journey? Yeah, absolutely. I appreciate you offering that. Thank you. You can follow me on Twitter at Brock H. Briggs. I post a lot of S&B content, a lot of public equity content, and occasionally cigars and whiskey content if you're into any of those things. And also, if you're current or former military, I do host a podcast called The Scuttlebutt podcast. And we talk to current and former military members about all things transition and professional development.

We've had a couple SMB folks on. I got to interview Rich Jordan this last week and have him coming out in an upcoming episode. So yeah, you can check that out as there. Looking forward to that one, man. And thanks for being here, Brock. if me or Michael or Bill can help you at all in your search or any of our listeners, you know, in that,

in that part of the country, I know that it's a very cordial and kind of, you know, help each other out kind of community. So good luck to you, man, and keep us posted on your search. Absolutely. Thanks so much, Mills.

All right. Bye, everybody.