Acquisitions Anonymous - #1 for business buying, selling and operating - How One Small Factory Built a Business Around Hot Rods and NASCAR

Episode Date: July 10, 2026

In this episode, the discussion focuses on a 54-year-old performance exhaust manufacturing business and the creative SBA financing structures, inventory risks, and seller financing strategies that could make—or break—the deal.Business Listing – https://www.sunbeltnetwork.com/sacramento-ca/buy-a-business/listings/listing-details/northern-california-exhaust-component-manufacturer-sc2139-53520/Welcome to Acquisitions Anonymous – the #1 podcast for small business M&A. Every week, we break down businesses for sale and talk about buying, operating, and growing them.Looking to build a professional website in minutes? Try Wix: https://wix.pxf.io/c/6898629/3115214/25616?trafcat=templateHubSpot is the backbone for how businesses scale without chaos. Try them out here: https://go.try-hubspot.com/OeG9VrSubscribe for more episodes: https://www.youtube.com/@AcquisitionsAnonymousPodcast?sub_confirmation=1Subscribe to our Newsletter: https://www.acquanon.com/newsletter💰 Sponsored by:FRANZY - Thinking about buying a franchise instead of an independent business? FRANZY is a free platform built for acquisition-minded entrepreneurs who want to explore franchise ownership without broker bias. FRANZY matches you with franchise opportunities based on your capital, goals, and lifestyle—and includes free coaching from experienced franchise operators. If you're exploring ETA but want a structured, system-driven alternative, check out https://franzy.com/ Quiet Light Brokerage specializes in helping entrepreneurs buy and sell businesses with experienced operators as brokers. They offer a free valuation clarity call to help owners understand what their business is worth and how to increase its value before selling. Learn more at https://quietlight.com/This episode examines a fascinating Northern California manufacturing business that has been supplying high-performance exhaust components for more than 54 years. The company generates approximately $2.08 million in annual revenue and $410K-$480K in EBITDA/SDE, serving professional racing teams, performance shops, and automotive enthusiasts through a specialized catalog of exhaust fabrication components.Key Highlights:- 54-year-old California performance exhaust manufacturer with $2.08M revenue and $410K EBITDA- Includes approximately $525K of inventory and $1.25M of equipment in the asking price- Discussion of creative seller financing structures and SBA refinance strategies- Major diligence concerns include inventory accuracy, SKU complexity, and equipment valuation- Hosts debate whether the business is overpriced or a hidden bargain due to asset valueSubscribe to  weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking hereDo 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. I'm Mills Snell, one of your co-host, me and Heather Anderson from Biso Capital today have a conversation about a fascinating California-based business that is a leading exhaust component manufacturer for high-performance cars. It's super interesting because we probably spend more time talking about SBA nuances on this one. I got to ask Heather all my selfish deal questions about, does the SBA allow this? What about this? Could I do this thing?

Can I get creative in this way? What are the pros and the cons? This business has a lot of really attractive things to offer. It's about $2 million in revenue, $4 to $500,000 in SBE, SDE or EBITDA. There's a lot of inventory. There's a lot of F&E. They're included in the purchase price.

There's a lot of dynamics about this that are kind of nuanced and cool. So hope you enjoy. Stick around after a quick word from our sponsors. Well, so Acquisitions and Audits. Hello, another episode of Acquisitions, We don't have 100% beers anymore. And thumbs downing on just the plus inventory line.

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You also get free coaching from people who have actually built and scaled franchise businesses. If you are exploring ETA and want to understand whether franchising fits your acquisition strategy, visit franzi.com. That's F-R-A-N-Z-Y.com. And thanks to them for sponsoring today's episode. Hey, Heather, welcome back. Hey, good to see you, Mills. You too. It's just me and you holding down the fort today. But we brought a deal that is near and dear to your geography. And I scanned this one, which we rarely like look at them very much before. But I looked at this one. And I don't know. It just seems really cool to me from a handful of perspectives. But it's in California. So I'm going to try and pitch you on this. And we'll see one, if you like it. And two, what the bank ability of this of this deal is. So it's on business by. sell. It's a leading exhaust components manufacturing business. It's B-to-B and it's been in business

54 years. And there's some pictures of some amazing like race cars, like NASCAR cars on this. The asking price is $2,850,000. The SDE is $480,000 in EBITDAV-4-10. So I guess they're saying the owner makes $70,000 a year. The revenue is $1,9,900. 180,000. So pretty compelling 20-ish percent net margins. It has been around since 1970, and it says it's a 54-year industry-leading performance exhaust manufacturing company. They give the financials again. It says this Northern California exhaust component manufacturer is a California escort that's been in business past 54 years and under current ownership for the last 31 years. They offer a complete line of exhaust components for exhaust fabricators.

And this is what I love. They list a bunch of things. And like, I'm kind of an automotive person, but like I have no idea what any of these are. So ranging from mandrill bins, CNC header flanges, merge collectors, collector flanges, stainless bellows, v-clamp bands, and ceiling flanges, as well as formed collectors and accessories. Many of their clients work in the high-performance car arena, such as the National Hot Rod Association and NASCAR. Once considered one of the more backward-looking segments of the automotive aftermarket, the hot rod and street-ride markets have changed radically over the past generation. No longer exclusive province of the 30s through 50s roadsters and sedans,

equipped with traditional running gear, today's hot-ride market spans the automotive spectrum to include 60s through 80s mussels cars, pickups and utility vehicles sporting 21st century technology, and all the market has grown into a global industry that constitutes a $1.26 billion market sector, according to most recent survey from Seema's Hot Rod Industry Alliance. It's located in Northern California. They say the city is Northern California, but I think they're just trying not to tip their hand here. they say that their seller financing may be available for a portion of the purchase price. The amount in terms finance will be dependent on the offered price and quality of the buyer.

The reason for sale is that the seller would like to pursue other interests. They do not tell that this is lender prequalified or SBA prequalified, which kudos to them. I like the transparency and the, yeah, realisticness of this. one of the things that caught my eye about this though, Heather, is so they're going to train for four weeks, 30 hours a week and whatnot, but they say they operate out of a 22,000 square foot base rent facility, $17,200 per month on a triple net lease, and it's owned by the seller. It includes a showroom, office space, very spacious manufacturing space. Down here, though, so inventory, they have 520,000. $25,000 of inventory, and they have $1,250,000 of FF&E, both of which are included in the asking price. So that gets us up to $1,775,000. Keep in mind, they're asking $2,850,000 for this business. Right. So you're getting a lot of assets. Yes. Nine employees. And let's see, they talk about, this maybe is a little bit dated because they say COVID-related disruptions over the past year.

But let's see. They talk about just general growth things. That's kind of it. I did go to the broker's website, Brett Sargent from Sunbelt of Sacramento. I did go to his website just to make sure that like it was still up. And it is. And it looks like most of the information kind of matches. is there's no conflicting information that I scan.

So what do you think about this, Heather? So I'm a little confused who they sell these products, too. Are they for hobbyists who are, you know, hot rods? They talked about hot rods. Or is it like the photograph? Is it actual professional race cars? Or maybe it's both. I certainly don't know anything about cars or this kind of stuff.

So I don't think they made it clear. At least I didn't see it who the customer is. And they do say B to B in the head. Okay. So, you know, it'd be, I think, different and described differently if they had their own e-commerce website and they were selling direct-to-consumer. So there may be a B-to-B component. Unless they're saying, you know, hey, we sell to, you know, this NASCAR team, and that is B-2B, not B-2C.

Yeah. The margins make me think they're not, you know, selling exclusively through a middleman. Sure. Okay. So they're manufacturing in the U.S. I guess that's a good thing. SBA loves any kind of U.S. manufacturing these days. There's a few incentives now. This particular deal doesn't seem like it would qualify for any of the incentives because it's a small enough deal

that it will fit in the $5 million SBA limit that we already have. The real estate piece of it might be interesting. They didn't tell us if you wanted to buy the real estate, you know, whether it's for sale and how much it would cost. And I'm always curious when it's California because real estate values are so high. Yeah. I want to make sure if I'm a buyer that in that EBITDA, that market rent has already been taken out. Yeah, that's a great point.

That's 17, what did they say, $17,000 a month? If they're not expensing that $17,000 already in their own P&L, and this is very common if you own the real estate. There goes half of their margin. Yeah, and I think a lot, unfortunately, a lot of brokers don't catch that, and the buyers end up having to catch it. So hopefully Brett caught that, and the advertised EBITDA already has the market rent baked in. So it might be an interesting deal if you could buy the real estate because I'm going to guess the real estate is worth more than the enterprise.

And that means you could put them both together in an SBA loan for a 25-year term. And so you get 25 years on the business enterprise portion of the deal as well. So that could be interesting. I think they're kind of asking, I mean, if I base it on EBITDA, not SDE, you know, the multiple seems a little too high. It's like it's almost a seven multiple. That's the part I'm kind of puzzling over why they're asking so much. Maybe it's because they're including so much in assets. But at the end of the day, you've got a cash flow alone and a deal off of, you know, the EBITDA, not the assets. Yeah, exactly. And I think this is one of those, you know, situations where when you talk to a seller and you're like, like how much equipment do you have? And they're like, oh, I paid, you know, $250,000 for this and I paid $200,000 for this. And like that piece of equipment over there is worth like $180. And they're just kind of adding up the FF&E at cost, not taking into account replacement costs or depreciation or like all the, you know, wear and tear on older equipment too that might have to be replaced.

So it could be that the 1.25 looks good on paper. But when you actually get there and are staring at the piece of equipment that's, you know, a quarter of a million dollars is very different. Yeah, exactly. So, and at the end of the day, like, the lender is only going to care about cash flow. They're not going to care about the assets very much either, other than the working capital piece. The inventory part, they would care about. They'd want to understand, you know, the cash conversion cycle, how much permanent working capital does this business need. And the fact that inventories included is great. You might also need some cash. And we don't know anything about receivables, you know, how quickly they're turning here. But, I mean, there seems like there's a nice business here. It's been around a long time. Very established. The thing I like about these, and I looked at one many years ago that was kind of similar, and I was like, you make how much money doing what? They would make these really high-end automotive performance enhancing, not just like, you know, I'm a high schooler and I want my car to look better or something like that.

But they would make these really high-quality stainless steel braided hoses that were expendable parts, but they lasted longer than the alternative, and there were performance-enhancing characteristics, like what they're talking about here. The thing I like about that business and this one is that you have a very, very discerning clientele who is probably not, this is somewhere in between,

like you're pulling stock items off the shelf. Like, I don't think they have a bunch of pre-made skews, but it's not 100% customized every single time. So they probably, get a call from somebody and they say, hey, I have this, you know, make a model or I have this engine block type. And then these guys know,

okay, like, for example, if it's like a head flange or something, we know that the header on this has these, you know, measurements and specifications and criteria. So we're going to take maybe like this flange off the shelf and then we're going to weld like, you know, aluminum or stainless steel

or something that's like a high performance, you know, material. We're going to put this together based on what you need. So it's it's mostly custom, but it's not purely custom every time where they're not like going to the garage of this person measuring something and like, you know, making like a truly custom thing all the time. I like that because there's some substitutes, right? Like, is there somebody else who does this exact same thing somewhere in the world? Probably. But it's a very, very discerning clientele who, you know, know, hey, we bought this thing, you know, three times a year.

every year for this vehicle, you know, and we get what we pay for. So your customers are sticky because this is unique. And once they know it works for them in that vehicle, they're going to keep coming back here rather than the switching cost or the, you know, the pain of switching is too high. And so they probably got a very loyal customer base. It feels like they might have a lot of skews, though. Yeah, with that much inventory.

That list that they gave us that we didn't understand what any of it was. And then customizing from there. It feels like I might be, you know, in that 22,000 square foot building, I might be looking at, you know, a lot of shelves of feels like a lot of little parts and a lot of skewens. And probably, you know, you need some really good inventory tracking systems. That's what worries me about acquisitions of businesses with a lot of skews is we start out with an assumption about the inventory amount. And often that changes when we really learn we really dig. again on the inventory. And then, of course, at the end, at some point, you've got to do a hard count. So one of the questions I always ask early on when I see something like this is, how often does this owner do a hard count? And when was the last one? That gives us a little bit of a clue as to how messy it might be. I've certainly seen my share of deals where the inventory number on the financial statements and reality were completely two different things. Far off. Yeah.

Yeah, just like the equipment, the inventory. they could say, well, you know, our cost was this and, you know, it's not that obsolete. It's, it hasn't been sitting or stale. These are probably not things that actually spoil. Um, but they may just be irrelevant, you know, it may be that they have a bunch of pipes sitting on the shelf that is to be used, but people are not using that component or that diameter or that, you know, material type as much anymore. So you just don't know. Yeah. Um, or tricky businesses. In that, in that respect, you, that, what is the total inventory turnover and yes, how much of this number is actually kind of obsolete or just isn't

going to be used and you've got to throw that out. So it's interesting because it makes the deal is a little more tricky to kind of figure out from the front end LOI all the way to like what you can actually close on. But it seems like a great business aim owner for 34 years. They say they're moving on to other interests, but probably retiring if they've owned the business this long. Yes. But they didn't say that. So kind of interesting there. I like that. I like the fact, so I think that there's a prominent place in this business. If you were going to buy this, I think there's a really prominent place for like true guerrilla marketing, where you are going to the blogs, you were going to the, you know, trade shows, you're going to like the hot rod day or

whatever, you know, at this like track. And you're just like the apostle of this brand and what you do. I don't think it requires like all the technical competence coming in. And you're just like, the apostle of this brand and what you do. I don't think it requires like all the technical competence coming in, but you need to be prepared to be the technical expert of this. Yeah, the car guy. You've got to be the car guy. Yeah, exactly. And if this person, I mean, the business is 54 years old, the person who is selling it has been the owner for 31 years. That's really impressive. I think that's a good sign. I think that, you know, my tact on this deal as a whole, what I would do is I would sign the NDA. and get the information from Brett that he's got compiled. And then my tact is always, let me get on the phone with Brett, and in a very respectful way,

ask him questions that I don't think he's going to be able to answer. And he's going, let me just get you on the phone with the seller. Like, let's skip this step. You showed me that you've done your due diligence and like, you know what, you're going to like this a lot better if you hear from the seller.

And then you get on the phone with the seller and are talking shop, Even if I don't know what, you know, mandrel bins are, we can talk about things that we really can relate on. And I think in the first 10 minutes you understand, like, is this a seller that there might be an avenue to, like, really partner with in some way? They've already opened the door to seller financing, which is huge. And, you know, they say they want other interests, but, like, you could find out pretty quickly. Is other interests the beach house or is other interests that they have a, you know, a 12, million dollar revenue brand that does something very similar, you know, and it's just their

faster ship they want to run with. Right, which could be if you, if the seller is a real expert and well known in this space, they could very well have another, have another business. Yeah. It's bigger. Yeah. But I think you need this seller to help you transition to like the main apostle for the brand and figure out like, hey, what's worked? Like where can I bring new energy in life to this? Hey, everyone, it's Bill.

and I want to talk to you about Quietlight brokerage. I was so psyched when Quietlight agreed to sponsor the podcast because I am a customer. I have used Quietlight to sell three businesses. And if I were selling an e-commerce or a SaaS business, I really would not consider anyone else. Like I said, I went back to them three times. I worked with three different brokers at Quietlight. Had a great experience all three times. Even on one occasion, they found a buyer for a business that I just didn't know it was even going to be possible to sell.

So they have pulled rabbits out of their hats several times for me. Just they've been in the e-commerce and SaaS business brokering game a very, very long time. They really know what they're doing. They have great reach with both buyers and sellers. And the other thing I really love about Quietlight is all the brokers there are former operators. So you can't just show up and go, hey, I'm a lifetime business broker. I want to work at Quietlight. You have to be a former operator.

So they all know what it's like to be in the operator chair. So if you go to Quietlight.com, they have free business valuation calls. which they'll do with you, no obligation, just tell you what they think about your business, what they think it would be worth, and then what you might need to do to kind of get it ready for market. Those guys over there are great, great SOPs, great systems. I just felt like I was really in really good hands all three times with Quiet Light. So if you're interested in selling your business, especially in e-commerce or SaaS, hop on over to Quietlight.com, fill out their onboarding form for a free valuation call, and you can tell them Bill or Acquisitions Anonymous,

Heather, what would happen if, so I like in cases like this giving the seller an A, B offer and saying, you know, hey, I'll pay, for example, in this case, they're asking 2.85. I'll pay you 2.85. I'll pay you 2.85, but it's going to be, you know, 90% seller financed and we'll do a balloon in two years or three years and I'll refinance you out. or I'll pay you, I'm just making up numbers, I'll pay you two and a quarter million, so $600,000 less, but I'm going to go, I'm going to have to go get traditional financing. And, you know, that's going to be a lot more work and a lot for me and for you, you know, seller. And I'm going to get an SBA loan.

So here's the steps that it's going to require both of us and see if they bite on that. I've had some success with that. And then what, so that would be my tack. My question to you is, if I would. was going back to the SBA in three years, I own a majority of the business and I want to refinance out a seller note, or maybe I own 100% of the business and I want to refinance out a seller note. How does the SBA look at that? Yeah, good question. And it is a very good strategy, but there's one thing you have to know. The SBA has a rule about seller financing being refinanced that it has

to have been seasoned for two years minimum. And season means monthly payments. So, So when you come to the SBA for the refinance, not only do you have to have the cash flow to cover it. And if you paid full price here, you would have to grow into that cash flow to do this as number one. Number two is you've got to show the bank a schedule of payments, like proof that you were making payments every month. They don't want a situation. You couldn't have been interest only or like, you know, let the interest accrue. I think, no, you certainly can't let the interest accrue. And I think the consensus is even interest only is not good enough.

It needs to be principal and interest, some principal at least. So yeah, it's like regular payments are being made, the debt's being serviced, and you can show that transcript. So I did a deal like that. Here's the kind of interesting advantage. Two years later, you would know if anything was wrong with this business. Yeah. So I did a deal like that. They closed it with the seller note.

Two years, we followed it along every quarter or so. We talked. And two years later, we were ready to refinance the loan, the seller note. But the seller note had language in there for representations and warranties. And basically, they weren't honest about some things. They had done some weird stuff with accounting. And at the time of the refinance, the seller had to discount the note by a big chunk. So basically it right-sized the deal.

By the time the buyer had to put a PG on the line and get into a real SBA loan with, you know, a bank, they had a better deal. And so I love that strategy. because if you write the note correctly, you can do that. Two years later, you absolutely know what you bought. And now you can pay the right price for it, basically upon refinance. Yeah, if you have that true-up mechanism, something, you know, in there, which that's... If your lawyer's got the right language for you, for sure. I think that's, like, a great point because when you're talking through reps and warranties,

it's the part of the deal where everybody's like, okay, okay, like, let's get it done. You know, and I'll, okay, that seems like it's never going to come up. Like, I'll, I'll concede. Buyers and sellers both do it because you're like, I mean, yeah, whatever. Like, just, we can't let this hold it up. And good counsel will help you walk through why, you know, the nuances of reps and warranties really matters. Like, the devil's in the detail for a reason. Totally. And I mean, most of the problems I've seen post-close, most of them were not the seller being malicious or outright lying, but really doing a terrible job with the bookie. keeping and accounting to the point, to the point that once you figure it out and you unwind it, you realize, you know, you didn't buy as much EBITDA as you thought. So I think that, you know,

I think it's a great strategy. And you can pay, like you said, you could get the deal under LOI because you're paying the higher price. And hey, if everything works out, the seller's really going to get that price when the refinance happens. But they've got to be patient. And I think that's the challenge with a lot of these deals is how anxious are they to get the cash at close versus how willing are they are able are they to wait a couple of years to get most of the cash. Yeah, yeah. And I mean, like we said, the real estate being a component of this could skew this deal in a totally different direction, like, you know, very quickly. The other thing that we don't talk about a ton because it is so nuanced and it just doesn't come up like with the high level overview that we do on deals is purchase price allocation. And I think in this case, you've got this interesting scenario where you're,

your purchase price allocation in terms of, you know, how long you can depreciate some of these line items. Yeah. Like, okay, inventory is one thing. FF&E is another. Real estate is another. Goodwill is another. And so, like, the, again, good counsel could help you a lot with this because the purchase price allocation could really be like a wind in your sales in terms of managing cash flow in, you know, the post-close environment. Or it could be a thorn in your side where you're like,

I just didn't know any better. And now all of a sudden, you know, I'm not able to, you know, amortize this, this goodwill over a very long period of time, you know, versus, you know, maybe some of these other things like that. Yeah, right. I think that's real allocation is very interesting. And it's gotten more interesting in the SBA space lately because of this new 7A 504, you know, uncoupling of the $5 million limit. If you're going to take it, you're going to use a, use the 504 on a business acquisition deal alongside a 7A, you really need the allocation early on. You need to figure out, you know, because the only thing you can use the 504. You got to agree very early on, like at L.OI.

Yeah, very early on to structure your financing because you have to know how much is long-term equipment and how much is real estate out of your purchase price kind of right away. It'll get backed up by appraisals later, but, you know, you've got to at least start those allocations. So I think that is a good point. any deal you're trying to structure that's got some assets, you need to start thinking about the allocations early and what the implications of those allocations are.

Like you said, sometimes it's a benefit, and sometimes it's really not. Yeah. And with the right buyer-seller dynamics and conversation, I mean, it is usually zero-sum. Like, what's good for me as a buyer is kind of bad for the seller in terms of tax. Right. But there's a way to, I think, navigate some of the nuance of that.

And it is something that is not as high. hotly contested as like, you know, purchase price, right? Or, you know, a payment on a non-compete or a lease rate if you're going to lease this building back. Like those are the things that everybody is ready for with their boxing gloves on. Purchase price allocation, without a good advisor, I've seen people just completely roll over on it and not know that it even matters. I've seen deals and I, we have one right now where we try to show it to the banks. The banks aren't always as savvy as they should be. Sometimes it's a great deal just because there's so much working capital included. Like, it's more than we need. So

if you sort of minus out the excess working capital that you're buying, your actual price multiple is actually much lower. And that's just something that's hard to translate sometimes to the banks. We help our clients with that, but it can actually get you a great deal if the, if the seller's willing to sell you a lot of working capital. Does the SBA have any provisions on, like, limiting distributions in any case. Like, for example, I've looked at some deals that maybe had a lot of debt service coverage ratio and a bank is saying, hey, look, if you want that long in an am, I want a cash flow recapture component instead of just a straight, you know, a straight line amortization or

straight line payments of principal and interest so that you're not getting rich and the bank is still carrying all the risks for a long time. You see that in conventional lending, that those kind of interesting payment schedules, that being one of them, like a, you know, earnings recapture. If you make a lot of money one year, you're paying our debt down by X percentage. And it makes a lot of sense for the bank. But in SBA, I guess it's sort of an advantage for a lot of buyers. SBA lenders are going to want, for the most part,

for the vast majority of loans, they're going to want a homogenized payment schedule because they are mostly selling these loans on the secondary market. Yeah. So they don't want any fancy. As cookie cutter as possible. Cookie cutter as possible, because they've got to, fit in these big pools of loans. So, you know, you're not going to have these earnings recaptures. On the other side, on the other end, you're not also going to get interest only and, you know,

principle for the first three years or any of that. You're going to kind of have to start doing P&I over 10 years pretty much right away. Are there any restrictions, though, on the back end? So maybe more restrictions on the front end, like limited seller role, you know, limited, you know, amount or terms on a seller financing component, like all those kind of things that we talk about more regularly. Are there ever, you know, kind of covenants that are sneaky with the SBA about limiting distributions or... Yeah, I forgot about that part. Distributions is a tricky one with SBA. They don't really have covenants. There's no financial covenants because SBA doesn't want banks for closing on small companies on a technical default. So it's really payment default is your

is your primary thing and there's not really financial covenants. However, the SBA's gotten pickier about distributions lately, especially if they're two investor, you know, minority partners. And so they don't want any mandatory distributions. They haven't really put covenants in, but they don't want any kind of like schedule of mandatory distributions. You have to have lots of excess cash flow and lots of excess cash. And I think the safest bet, even without a covenant, is for a borrower to write an email to the bank saying, hey, we had a great evening. we would like to make this distribution and getting the consent to do so. In most cases, I think the bank would say, yes, as long as the financials look good. So, no, I mean, technically, if things are going well, there's not a restriction against distributions, you could go ahead and make them. Yeah.

Yeah. That's helpful because in the scenario that you described where maybe the business is overcapitalized, you don't want to say, okay, well, we found, you know, a quarter of a million dollars or half a million dollars in excess working capital. But it's locked up in the business and we can't ever get. it out because of our lender, you know, having, having preclusions around it. Right. You will not have that problem with SBA. If you're building up excess cash and you go to your lender, your lender's going to say yes. As long as you're making your 10-year amortization payments. And, you know, when banks have a good loan, they don't want you to pay it off fast. Yeah. It's in the beginning. Yeah, when they're worried about how it's going to turn out, usually that they want to kind of grab more principal repayment. But later on, if you're doing well, they'd love you to keep the loan. Yeah. Yeah. All right. So, Heather,

Is this, you know, we still have a lot of questions about, you know, the exact nature of the company's balance sheet and the questions around the inventory costs and FF and E. Is this in the realm of financeable? Yeah, but not at this price. I mean, or if you paid this price, you'd have to put a lot of equity because your rule of thumb here is EBITDA times four max. I mean, I usually say three and a half to give yourself more room. But at the absolute limit, 400,000 of EBITDA times four is a lot. only a million six SBA loan. That's where your DSCR, your debt service coverage ratio is going to be too thin if you go beyond that. So you don't have a lot of an SBA runway just based

on the earnings here. Maybe you'll get more. If you buy the real estate and you make this a 25-year loan, then you could afford more than a million six on the enterprise portion because you're getting the longer amortization. Would the SBA preclude you from doing like a consignment of the inventory or something like that with the seller? I think most lenders don't like consignment inventory because they worry about how it'll affect the working capital of the buyer. You could, you know, under the right circumstances, if you know what you're doing, you have a good lender to work that through with you, you could buy the inventory and consignment. Yeah. It's not a hard no, though. It's not a hard no. It's just wouldn't be easy. Wouldn't be easy. Like I'm doing the math and going, okay, if I have to

bridge about a million and a quarter or something like that to get it down into a financeable range, The other thing I love about what you're saying is having a thoughtful conversation with a lender and then going back and just laying your cards on the table with a seller can be so helpful because you can say, look, I'm not trying to shortchange you. I can just only afford to pay what I can afford to borrow. And here's my equity. I'm bringing meaningful equity to the table. Short of somebody coming and writing you a check for all two plus million of this, which by the way, people don't do that. If somebody has that, much excess liquidity, they're not spending it on this, you know, exhaust components manufacturer. No. So help me help you. There's only, you know, a bank's going to have to be involved one way or the other, whether it's me or somebody else. So that kind of helps establish like the line and the sand that then maybe you dance around. Does it always work right away? Absolutely not. But I've seen it like be a helpful litmus test on, hey, I have to have a certain debt service coverage ratio. I can only put so much equity into the deal, and we both agree it's a reasonable amount.

It's not like a percent, you know, or two percent or something. So something's got to give, like, the only, the only movable object. Yeah, mathematical logic. And I think the litmus test, honestly, when you do it that way, and I've certainly helped lots of our clients just like, let's take the spreadsheet to them and, you know, show them what we are talking about. We're not, you know, we're not making this up. So I think the litmus test is, are they, is this a, is this a, seller that's got a, that actually wants to sell. You know, is this a, is this a fantasy valuation that's just wasting

everybody's time? Or are they actually ready to sell when they look at these numbers? Are they, are they, you know, using their brain, using some logic and going, okay, I get it. And I do want to sell. And this is an okay price. Yeah, I think that's a smart way to go. And at least, at least don't waste your time if, you know, they don't come to that conclusion with you. Yeah. I think I've found that like being thoughtful and being intentional and kind of differentiating as much as you can on the front end, even if somebody is unrealistic, sets you up for some success. It's a low probability event, but you're going, hey, if you can go get that price in terms on the market, like, I wish you the best and I really hope you're successful and maybe a strategic or a competitor or the only people who would be able to

pay under those terms because they have a different balance sheet and they approach it differently. But like, if you don't find what you're looking for, like, I'm still here. I'm not going. Yeah, exactly. Exactly. You, yeah, you've shown them you came at it fairer. honest, and yeah, I think it's a very smart way to go. And you leave an impression with a broker too. You know, they might have some other deals for you later. Exactly. You're not blowing them off or, you know, wasting their time. Totally. Any other thoughts on this one, Heather? No, I'm glad they didn't say SBA pre-qualified. Good job. Brad, kudos to you. You have Heather's vote of approval. I like this a lot. If I was in

California or nearby this business, because I do think physical proximity is very important, And I was a car person. I mean, this, I think, checks a lot of boxes and is probably scalable, although I wouldn't underwrite it to significant growth. I think there are a lot of ways that you could just over time grow this business more significantly. Yeah. Yeah.

Absolutely. For the car enthusiast that also knows some, you know, financial spreadsheets, I think this is a cool deal. Yeah. Yeah. Well, thanks everybody for sticking with us. I hope you enjoyed this episode. If you enjoyed it, there's hundreds.

literally 500 more at ACQUAnon.com. We talk about a full range from e-commerce to manufacturing to professional services, some early stage. We talk about a little bit of everything, and you can find deals there that are relevant to the things that you're looking for. Thanks, and we'll see you next time.