Acquisitions Anonymous - #1 for business buying, selling and operating - Inside a $4.85M Trampoline Park Franchise in Texas

Episode Date: April 4, 2025

Buying a Trampoline Park? What to Know Before You Leap!Business Listing - https://www.bizbuysell.com/Business-Opportunity/leading-adventure-park-franchise-strong-turnaround-prime-market/2338351/Sponsored by Acquisition Lab and Inzo Technologies.Take the leap into business ownership with Acquisition Lab – founded by Harvard MBA Walker Deibel, they provide hands-on support, resources, and expert guidance through every stage of your acquisition journey.Need to upgrade the tech in your new business? Inzo Technologies, led by a former searcher, provides IT audits and systems setup for newly acquired businesses. Email Nick directly at [e-mail] for personalized support.In this episode of Acquisitions Anonymous, the hosts were joined by Connor Groce to break down a listing for a $4.85M trampoline park franchise in Texas. They discuss the business’s cash flow, the real meaning of a "turnaround", lease and staffing dynamics, and whether this is a buy or build situation. With his multi-unit franchising experience, Connor shares valuable insight into the youth enrichment space, the dangers of basis bias, and how to evaluate recurring versus one-time revenue. Plus, they debate what kind of buyer this high-capex, high-weekend-traffic business would be the right fit for.Key Highlights:A trampoline park in Texas with $770K in cash flow and 37 employees.What “turnaround” really means (and why it may raise red flags).The role of franchise dynamics, especially “basis bias” in pricing.Youth enrichment sector trends—how leasing and switching costs affect operations.Buy vs. build decisions and how recurring membership revenue changes the game.Lending and SBA financing implications based on revenue quality and lease structure.Why multi-unit franchisees might pass on this listing and what that could mean.Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Some of the hottest opportunities in this space, youth enrichment space, are the ones that offer the same service. The fact that they started in 2019 made this a pretty tough venture for them. It's not the easiest kind of business to run to be an owner of. This person has done the kind of hard work, you know, and I think this market is not fully saturated, but it certainly seems like it's kind of maturing. So, an acquisition, anonymous. Hello, another episode of Acquisitions and Anonymous. We don't have 100% here anymore. and thumbs downing on just the plus inventory alone.

Hey, everybody. Welcome back to another episode of Acquisitions Anonymous. I'm Mills Snell, one of your co-hosts. Me, Heather, are joined by a guest today. Connor Gross. Connor has been on the podcast before. He brings a great perspective when it comes to franchising and multi-unit businesses. He's got a deep background in it from a bunch of different sectors.

And he brings a deal today that is a trampoline kind of family fun park in Texas. We talk about franchisee dynamic. We talk about buy versus build on a business like this where there is kind of some sunk cost and some outfit required for these types of spaces. They are transferable, but there is some switching costs associated with it. We talk about the lending dynamic for a business like this. What type of buyer makes sense for this, some other things in this kind of segment, youth enrichment. Connor brings a great term today about basis biased, you know, the sunk cost that a sell

has in the franchise is known across the board. It's listed in the FDD. So there's a lot of new things that we cover on this. We've talked about some adjacent things and similar things before, but we cover some fresh ground with Connor. Hope you enjoy. Stick around after a quick word from our sponsor. Are you ready to take the leap into business ownership but you don't know where to start? Well, look no further than Acquisition Lab, the premier resource for entrepreneurs seeking to buy their dream business. Founded by Harvard MBA, an acquisition expert Walker Dibble, is your fast-tracked success in the search diligence and acquisition process. With hands-on support, world-class resources and a community of like-minded entrepreneurs, Acquisition Lab gives you the tools

and confidence to navigate every step of the journey. And we're proud to call Walker and Chelsea, the lab's director, longtime friends of the podcast. They're passionate about helping entrepreneurs like you take the next big step. So don't wait to make your business ownership dream of reality, visit Acquisitionlab.com today to learn more and schedule your free consultation. And when you do, be sure to tell them the Acquisitions Anonymous podcast sent you. Hey, everybody. Good morning. Welcome back to another episode of Acquisitions Anonymous.

Connor, Gross, is with us today. Connor, you've been on a couple times and you always bring a great perspective, especially to the franchise world. For those of you who maybe haven't listened to previous episodes, give us a quick background on you, Connor and how you got into the multi-unit space. Sure. Yeah. I've been in franchising for about six years now.

A little longer than that, if you don't count, when I was working for another group. But I was working for a boutique fitness ownership group in franchising and then ended up partnering with those owners to open a home service franchise in 2019. And then in 2022, got into a separate franchise in the waste management space and have done some acquisitions there. And that led me down to the road, you know, and becoming a franchise consultant as well. So that's the bulk of what I do now is just helping people that are looking to get into franchising, but I don't know where to start. I just help them source opportunities,

evaluate them, and then, you know, if necessary, get connected with lenders and other providers that can help. You've touched like all the great segments of franchising except food service, it sounds like. Is that, is that calculated? Somewhat, you know, I think that that food catches a lot of flack, you know, online without talking about the advantages of like why food has been so successful and so scalable. In my mind, I think the scalability of food is the main advantage of it. And it's just like, frankly, for me right now, like, I don't have the capital to deploy to really get to that level of scale, but you're still, and get that advantage, but you're still incurring like all of the disadvantages that come with the food business. And it's the same for most of the people that I work

with, you know, that are looking to deploy between $100,000 and $5 million in capital. So I just try to be aware about, you know, the lane where we can compete and win. And for me right now, that's not the food business. We talked about a few episodes ago. I think it was like five locations of Fazolis. So it's just, it's amazing what's out there, you know, and especially in the franchising world, food or not. So you brought a, you brought a deal today.

And I'll pull it up on the screen. We've talked about some of these before, but this one, you're going to bring a really helpful perspective on. You want to read it. Connor? Yeah, that sounds great. So the heading here says leading adventure park franchise, strong turnaround prime market. I'll be interested in to hear what strong turnaround means.

So the asking price here is a 4.85 million. They disclose about 2.7 million in gross revenue, 774K of cash flow, $7,000 of inventory. They pay about $31,000 a month in rent, and they have $135,000 in F and E. It's actually a lot lower than I would expect. but it's been established since 2019. So the description is step into a high profit adventure park franchise with a spacious 31,000 square foot footprint.

Boasting a stellar gross profit margin and a strong turnaround, this gym offers untapped growth potential through diverse income streams and synergy with a growing portfolio of child-focused brands. With season management in place, including a GM with ever five years of tenure, this turnaround turnkey, excuse me, I'm getting too hung up on turnaround. Turnkey opportunity is primed for expansion. contact us for details, more details on this exciting opportunity. It says the reason for selling is other business interests and confirming that this is

an established franchise. So we really don't have a lot to work with here, but I just think the space is really interesting. And it'll be interesting to talk about this industry in general and who it may be a good fit for. It says, too, in the heading that this is in Texas, but they don't tell us anything else about where in Texas. Yeah, I'm curious about the term.

part. Like, is it that they have already turned it around? I can't tell, you know? It seems like a poor, poor word to use in the headline for any business that is being listed. I question, you know, anybody that would do that. And then not tell us anything more about it. So it just leaves us with negative. I mean, the numbers don't suck. So I'm going to assume that this is on the back end of a turnaround, which is one thing. I mean, I think that the multiple is asking multiple is high and we could talk about that. But just on a sheer like revenue and profitability basis, there's nothing about that that screams, you know, turn around to me. Maybe post-COVID is maybe what they're hinting at.

You know, it was shut down for a bit and now it's open maybe. But it was established in 2019. Okay, that there's a hint there. That's a bad. That would be a bad year to start this business. Yeah. You get your feet under you and then they get completely swept out. Yeah. Okay. Connor, are there, are there, you know, I think about in any business, especially when you're talking about franchising, kind of the franchise versus non-franchise dynamic and where the kind of pros and cons are. I am familiar with, I think, just some of the names on the franchise side for these kind of family fund centers, trampoline parks, you know, these types of things. Are there, you know, are there big dominant players or is it majority mom and pop? Like, do you have any idea of the landscape for these?

Yeah, so there are several big dominant players, some of which are franchises and some of which are not franchises. I'm not as familiar with the mom and pop side of things. I'm sure that there are. But I don't know as far as like how much market share the franchise versus non-franchise brands have in the space. And I think in some industries it matters, right? Like, you know, where you have really, really big name recognition nationally, you know, especially maybe in service. services more than, and I mean, food also, but, you know, we talked about two men in a truck before we hit record. There's some brand value there where you might be moving from California to

North Carolina and you know the name and so you make the phone call. You know, and it may be that trampoline parks and family fund centers, you do have some of that brand awareness and value, you know, versus a mom and pop. Yeah. And they mentioned in the description that this is a part of a growing portfolio of child focused brands. And basically what that means to me is that they, it's a part of it. It's an umbrella company that owns multiple franchise brands all in the child, you know,

youth enrichment space. And so part of the value that they're proposing there is that there will be some kind of, you know, cross-selling synergy between those, even if you don't own those other franchises. We've talked about some of those in the past. I think we looked at a like a swim, it was like a swim lesson, I think. or like, you know, teacher gets out of swim.

And I think it was in like a strip mall, which I thought was fascinating that somebody installed pool, in ground pools, you know, in a strip center. But what is the landscape right now of, you know, youth enrichment? Like I've seen some soccer, you know, coaching ones, these family fund centers. What's out there kind of in this landscape? Yeah, well, so the pool ones, they,

some of those performed really, really well. And then they're getting crushed right now because basically, when you build a pool in a lease space, the landlord knows that you've built a pool in their space and they know your switching costs of picking up that pool and taking it to another space, and they're using that to their advantage as these five to 10 year lease terms are coming due. So really just based on what I'm seeing right now, some of the hottest opportunities in this space, youth enrichment space, are the ones that offer the same service, whether that be swim lessons or soccer or whatever, but they have a creative solution to where they're not

needing that facility and that expense. So, you know, in the swim lesson example, there are some cool brands that are, again, doing, it's the same business, but they're partnering with hotels and gyms and, you know, universities and places like that so that they don't have that same overhead. But, but yeah, and that's not to say that something like this can't work because this is a different business. I mean, this is just a warehouse, right? You could, you know, the switching cost isn't nearly what it would be, the moving cost rather, as a pool, because presumably you can pack all this equipment up and take it elsewhere. And location really doesn't matter as much. I don't know if y'all have been to any of these, but some of these are in some sketchy parts of town. And because

it's a destination that you're going, you're driving just for this, you don't need to be in a high traffic strip mall for that. So that's an interesting piece of this that I, you know, is important to think about. Do they move very often, though? I guess I'm thinking of the ones that are sort of established around me and I've never seen one of them move. You know, they've stayed where they are. You know, I think maybe once you've got the location established, it might be a little hard to move or a little scary to move because your customers might not be able to find you.

But I get your point. Otherwise, it's not expensive to move. Yeah, I'm talking about that more of as a, you know, if you're negotiating with a landlord at the end of a lease, you know, but I don't know. I have four kids and I am a membership holder. of one of these. And the pricing strategy was so interesting. And my kids are between six and 11. I think we've had this membership for like four or five years. And we used to use it a lot more

in the beginning. I told my wife, I'm pretty sure that, you know, even when our kids are in college, we somehow signed like a contract where we're never going to be able to get out of this thing. Because it was so cheap when they first opened. But I think they just had to get to that critical mass. But I want to say it was like $10 per kid. per month and you could come every day for like two hours. But it costs like $12 per kid to come once, you know, kind of thing. And so we, my kids are homeschooled. So they would go meet other homeschool kids for like an outing and an activity on like a Tuesday at,

you know, 1030 a.m. And there's nobody in the place. These are like a godsend when it comes to you need an outing with the kids, especially if it's raining. they host birthday parties. Like it seems like they do like maybe some school fundraisers. They've, you know, tried to find ways to get like the, you know, the roller skating rink used to be when I was growing up, like have a PTO night or whatever raise some money and just try and get, you know, 200 people in the place. And it's really, it's really making some cash flow at that point.

Yeah. My understanding of kind of like the sales funnel of this business is that they really drive events as first of all, because that's a their high ticket. so you're getting more revenue up front. But, you know, if you can drive events, get people in the door for a birthday party, you know, they make you sign the liability waiver that also, you know, you have to enter your contact information, then you're in their funnel. And so if they can drive events, then that's where they try to drive you into memberships. And, you know, that is a key variable that we don't know here is how much of that revenue

is membership recurring versus how much is non-recurring. Because I think that where this business can get exciting is if you have enough of that recurring revenue to cover all or part of your operating costs. And then the high ticket non-recurring stuff is just, you know, is more or less gravy. That's where this gets exciting. Up until that point, though, it gets a little bit scary if you're relying on all of those birthday parties on Saturdays and, you know, you're burning cash the rest of the week. That's a that I think would be a little bit, a little bit scary.

Why do we think they're selling after only six years? I have my, I have my thoughts. But, you know, I think the fact that they started. started in 2019 made this a pretty tough venture for them. And I do think of some of what we're talking about, you know, how much of the revenues dependent on Saturdays and Sundays. You know, I think it's not the easiest kind of business to run to be an owner of. It's my guess. Yeah. And they mentioned down in the bottom, they have 37 employees, which I would think that you have a lot of like maybe, you know, high school and college age students who, or you're bulking up staff on, you know, maybe Friday

afternoon or on like a holiday weekend and then over like Saturdays and Sundays. But I'm thinking that the majority of the time, you know, there's not a lot of activity. You know, the capacity utilization is very bulky on those kind of prime time. My son's first job was in one of these and he was a high school student. I love it. Yeah. I mean, I, you know, I think about it. If I had started this business in 2019, my guess, I don't know this for a fact, my guess is this cost somewhere between two million and 3.5 million to start. So they have been through the ringer from thinking that they were going to lose that amount of money to now thinking that somebody might pay them, you know, 4.9 million for it. And it makes 775K a year. I think if I own that business, I would probably be looking at selling too.

If that's what I thought I could get for it. Now, I don't think they're going to get that personally. Honestly, this description doesn't even read like something that's brokered. It looks like it is. but that may be the thing here is they're just throwing this out here with a, you know, with a, whatever it is, a 6x multiple. Let's just see if anybody bites at it. Could be a possibility. Right. A listing that is really more based on the seller's economics over the last few years than the market value of the cash flow. And I think that's just something that is hard for so many buyers.

They see so many listings that are overpriced from a financial perspective. Maybe it makes sense from the seller's math, but it doesn't make sense. sense from a buyer's math. And this is just one more example of that. You know, I don't know what the right multiple is, but to me, something like this, it's a four or below, right? It can't be, it certainly can't be above a four. Yeah, we see that a lot, I think, specifically in franchising. It's amplified that like basis bias because the basis in a franchise is disclosed in the FD. So you can go and see how much it costs to start. And so a lot of, you know, franchisees have this, just their expectations are anchored as we're taking.

that number that it costs to start and just marketing it up, irrespective of how the business is performing financially. And that can make it really tricky to align on price and terms sometimes if those numbers are close. I never thought of that basis bias. And I didn't realize, you know, that's a different perspective in franchising. We can actually know it. Whereas in everything else, we don't necessarily. Right. I'm thinking, too, that, you know, they took on some debt, you know, associated with the sunk cost of the trampolines. And it looks like, you know, I don't know, this is a stock photo or not, but there's like a ball pit or a foam pit and, you know, these kind of cages and stuff like that. You know, they, they probably borrowed some money for their, you know, upfront franchise fees and all that kind of stuff.

But then also the equipment, this FF&E, which they're listing at $135,000. That seems low to me, you know, but this picture doesn't make the place look that big, but they say $31,000 square feet. So my thought is that they also are probably factoring for, you know, the basis bias, which I really like that term too. And then also, you know, I've got to pay down my debt. And then I want to walk away with something. And so you start layering all those things on top of it. And, you know, it just feels a little, yeah, it feels a little thin. I want to go back because I think that you both hit on like the, you know, the staffing of this is a lot of high school and college age students.

I think you mentioned it sounds like a, you know, a difficult business to run because it's because of the Saturday revenue. And I get that. But I kind of have the opposite, like, gut reaction to where this doesn't sound like as challenging of a business to run to me. I mean, and to staff. Like, I get that you're dealing with a lot of fragmentation as far as your staff is concerned. But I don't know. To me, Mills, you think it's easier to get somebody to say, hey, let's come jump on a trampoline. then let's go roof a house in the middle of August.

Yeah, as you started to say that, I was thinking, you know, we we start at 5 a.m. right now. And then it gets earlier in the summer. So, yeah, and, and, you know, we work six days a week and it's hard to get people to show up. So, yeah, I think, I think, I think you're right. I think there are some pros to this. You would just kind of have to, we talk, like, I feel like every episode, we come back to buyer business fit. And I don't know that, I don't know that this is. one of those things that you like maybe if you own like a soccer franchise or something and you're

used to you know what feels like perpetual demand in youth services or kind of like youth enrichment like you said maybe you feel more comfortable with this um my question always every single franchise that i come across is why hasn't an existing franchisee pick this up Connor, you're in the space. Like, does that is, I feel like that would just always be, not even in the back of my mind, but the forefront of my mind. Like somebody, five people have probably already passed on this and now I'm looking at it. Okay.

So everyone knows that one of the first levers you want to pull in an acquisition is updating their technology. Updating their systems that might still be running on a spreadsheet or even on pen and paper. But tech is complicated. There's a lot of solutions out there. So choosing the right cloud platform, the right CRR. the right telephony, compliance, cybersecurity, not to mention implementing all that stuff. That's a job in itself. And I want to tell you about this week's sponsor, which is Nick Acres and Inzo Technologies.

So Nick actually knows about all this firsthand. He is a former searcher himself and bought Inzo Technologies, which is an IT firm for small businesses. So Nick has seen the tech challenges that searchers face when acquiring businesses. He's seen him up close firsthand because he is a searcher. Now his team at Inzo regularly works with searchers. on acquisitions, offers a complementary IT audit of your target so you can make a plan for what you're going to do on day one. Nick takes a personal interest in all of their searcher clients

and draws on his own experience in the search base. And his business, Inzo, actually dates back to 1989, even before he acquired it. So the company has deep expertise for managing the tech in for hundreds and hundreds of small businesses over decades. So if this sounds like something that would be helpful to you, check out Inzo Technologies.com. I-N-Z-O-Technologies.com, or you can just email Nick directly, Nick at Inzo Technologies.com. Yeah, correct. And again, this could be a, this could be what, you know, you would call in basketball a heat check where you've hit six shots in a row and you're going to throw one up and see if it goes in. Again, if they're asking six X for that, that may be what this is. And, you know, the reality is is that a lot of franchisees that have looked and looked at this in past, it's because they don't think that it's worth. 6x or they may just not have the capital, you know, to invest 6x in it. So that's what this could be.

It's just a pricing thing. But if not, then yeah, you would definitely, you always want to understand that to your point of why have the people who are, who know the business better than I do and who are a lot of times are in a better position to create value than I am because they already have a team, they already have, you know, infrastructure in place. Why have they passed over that? And yeah, you have to get the, you know, some clarity around that before. you move forward with a franchise acquisition when you're not a franchisee. Is this the kind of franchise where you see multi-unit owners a lot? I mean, I know for sure in food you do, but is that still the case here where the,

you know, the density might not be as much. These things may be further apart from each other. It is with the caveat that these are expensive to open, you know, so really who I think this makes sense for in mill your, mills your spot on, because a lot of the people that I know that have gotten into these kinds of franchises have come from. There are, and still are, like, a lot of, like, school franchises or early childhood education franchises that are also in the youth space. They're also, you know, pretty expensive to build out.

And so, like, that archetype of an individual, that is who I've seen gravitate towards this. But, like, you know, that's the thing, Heather, about, like, multi-unit is if there's somebody that has $3 million of capital, for example, that person, if they were, looking to get into a franchise that costs like, you know, 600,000 to start or whatever. That's where they would be looking at like, hey, maybe taking that 3 million, five or six units and they're going multi-unit or in something like this, they would say, I'm going to take the same amount of capital and only do one unit.

I actually like that for that kind of an individual, because if you're, if you have like, let's say all things considered and it's like, okay, I could open four franchises that are going to make 200k a year or one that's going to make 800K a year, even if the financials are the exact same. I like the idea of driving more of that profitability out of the same four walls, you know, all things considered. I'm thinking too about the kind of buy versus build dynamic here. And, you know, the franchisor of this particular franchise would probably not let you, you know, go open one up like a mile down the road. But you could go to another franchise, you know, and another system and probably open one up, assuming that it's not saturated.

But I don't think that it's kind of unique and proprietary enough that you're going to be prohibited from finding another option. How do you think, Connor, about the kind of buy versus build for something like this where they do have kind of like a restaurant, you know, they've got a lot of upfront kind of upfit related cost. We don't really know about their lease. I don't think they said anything about when it expires, but you got to think if they're six years in, you know, hopefully they've already had a renewal and they have like five to 10 more years left on the lease. I honestly think the buy versus build calculus comes down to how that revenue is split between memberships and the non-recurring stuff. Because if it's already to a point that it's like, you know, they have enough membership

revenue coming in to outrun all their part of their operating costs. I mean, to me, that is the key inflection point in a business like this. So I do think that there's value and, you know, in paying, to acquire something that's already past that inflection point and there's goodwill to be had there. If it's not, that's where, you know, I think that you would call into question, hey, am I really, is this worth $2 million, $3 million plus really, you know, in goodwill over, you know, what it would cost to go out and start this on my own? The other thing I think about with these is, you know, there's, I think I watched it in

some of the like premium fitness concepts where they can. came in, you know, they spent the money opening the stores. They did the hard work of growing the membership base, which is all membership, you know, for like the orange theories and the, you know, the different spin ones and the like all the different, you know, now I think a lot of them are like the like hot, is it hot works is one of the big ones right now that's like a yoga and sauna type place. We have one that just got announced. But they do the hard work of getting the membership up And then an aggregator comes along and is like, I'll pay you for, you know, the last three years of the installed base that you've created. And I'm mindful of like where these concepts are in kind of their life cycle.

This person has done the kind of hard work, you know. And I think this market is not fully saturated, but it certainly seems like it's kind of maturing. These aren't, you know, this isn't 10 years ago when nobody had heard of a trampoline park like this before. How do you think about Connor, like the maturity of the kind of brand and the maturity of the concept unit count of number of franchisees and like where where that, you know, you don't want to be the first franchisee and you probably are, you know, it's probably a highly competitive market if you're the, you know, the 500th unit, you know, that's being open. How do you think about all that? Yeah. I don't, this is my thoughts on it. I don't know if this is a. you know, right or wrong. But my thoughts on like understanding saturation is probably more marketing oriented than how a lot of people think about it. Because like I think that it's very easy to think about saturation anecdotally and say, okay, if I'm looking at, you know, this roofing

business, it's like, well, you know, the the goalie on my son's soccer team, his dad owns a roofing business. And then my, you know, my sister's, you know, cousin's spouse owns a roofing business. Therefore, the roofing business is saturated. I just think it's a lot better to look at it. from a marketing standpoint and say, okay, if I'm looking at getting into the trampoline business, if a lot of my digital marketing is going to be oriented towards getting events, and that's what starts the sales funnel, how much does it cost? Like, how much is my lead cost? What's my conversion rate going to be?

Therefore, what's my cack to get an event? How much is that going to be? And just do the economics check out to be able to start that flywheel, presumably that it keeps rolling and rolls into membership, and that's that virtuous cycle. That's more of how I think about saturation and something like this, just rather than how many are there out there. Does that make sense? Yeah.

Yeah. Oh, absolutely. Yeah, because it's like that, that idea of like it, just because it's familiar to me, just because I feel like I see a lot of them doesn't necessarily mean that there is saturation there. Right. Yeah. That'd be my thought. Heather, I feel like we always like, you know, climax up to this point in the podcast where we're like,

and then Heather, what could you borrow to buy a business like this? And then I ruin it, right? We're having fun. energy throughout the episode. And you bring the lender in and it's just downhill from there. Yeah, this, you know, 774,000 of cash flow. Now, they didn't call it EBITDA. They didn't call it SDE.

So I'm not sure. But I want to make sure there's maintenance CAPEX coming out of that number first as a lender. So maybe it's a slightly lower number when we figure out what the cost of maintaining and replacing all this equipment is every year. And then I want to lend about three. three and a half times of that, say, you know, comfortably, maybe a little more. If we're at a really low rate bank, you know, the rate will matter a little bit. But a general rule of thumb right now on where rates are is about 3.5 times adjusted EBITDA.

So if you're going to pay over five times, which is what they're asking, and I don't think you are going to do that. But if you did that, that means you're going to have to have one and a half to two times EBITDA in equity. you know so so then you then your math becomes it can i grow this or can i do something to make the return on that equity worthwhile that's kind of the simple math the way a lender thinks about it is you know what's the mat what's the ceiling on the leverage here so when you pay more than that you're paying with equity and you've got to get a good return on that equity to make this make sense how how do lenders think about the difference like what we've talked about in this case with the revenue you know how much of it is recurring versus not

non-recurring? How do lenders think about that or do they? They absolutely care about it too. So they're going to always ask that question and they're going to understand. Now, they will think differently like they like contractually recurring revenue better than reoccurring revenue, which, you know, the memberships, you know, depends on the kind of analysis and data that a seller can produce, how much weight they'll put into that. But they would certainly get their arms around that and understand it. And, you know, the more stable the cash flow appears to be because of something like that, the lower the DSCR or the debt service coverage ratio they might tolerate. So for example, in a project-based business where, you know, there's nothing reoccurring, they might want

1.5 or more DSCR, a big cushion. And for a business with more reoccurring or recurring revenue, they might go as low as 1.25 DSCR. So they will set the leverage sometimes based on that, but they have to get really comfortable with the revenue visibility, not just, you know, here's one answer to it. They have to probably ask a lot more questions to reduce the DSCR that they would tolerate. What about the lease, Heather, and how that plays for the SBA? Yeah, so there used to be a rule, and they removed it now. Now it's at the bank's discretion.

But the rule was you had to have the same term on your lease as the term on your loan, which is 10 years for business acquisition. You could use options for renewal, but that was the rule. And then you had to get an exception to it if it was anything less than that. This is the kind of business where the bank would probably want that, right? They want the five-year term and the five-year options because they don't want a borrower with a loan still outstanding that suddenly has to move. This is what they would consider this location dependent. All right.

Are you guys thumbs up or thumbs down on this one? I'm thumbs up on everything but the price. I think if they were, I would be very interested in this business if it was a multiple that, you know, we thought was reasonable because I like I like the business overall. I think it sounds kind of fun. And like I said, I like the fact that they're driving a significant amount of cash flow within four walls. But, you know, not to the tune of 6x that cash flow.

So thumbs up. I'm going to go thumbs down on the new term that I just learned today, basis bias, because I don't believe the seller is going to be reasonable on the price, so I don't want to waste my time. Otherwise, I might be interested. I'm thumbs down just because, Connor, to your point, this business is like the complete inverse of mine. It's a totally different staff. It's a different kind of value proposition to them.

It's kind of the inverse hours, you know? So like, I can't burn the candle at both ends. I've just got to double down with early mornings and less weekends. So, well, this is, this was a great one, Connor. I appreciate you bringing it and you brought some really good insights. How can people find you? What's the best way to connect with you? Yeah, you can go to my, my website as Connor Gross.com and join my newsletter.

We've got some awesome stuff coming out and then find me on Twitter or LinkedIn. Pretty much anywhere else, feel free to reach out to me if I can help. If people are thinking about a franchise, like those are conversations that you have on a day-to-day basis. Certainly. Yeah, just anybody that wants, it's interested in learning more about. the franchise world or yeah just struggling with where to start that is that is where I come in. Yeah. Well, thanks everybody. Thanks, Connor. It was a great episode and we'll see you next time.