Acquisitions Anonymous - #1 for business buying, selling and operating - There are 3 things that matter for Laundromats! Codie Sanchez joins us to analyze 2 Deals - Acquisitions Anonymous Episode 97

Episode Date: May 25, 2022

Want to receive this listing in your inbox? Signup for our weekly newsletter:https://landing-newsletter.acquanon.com/-----Michael Girdley (@Girdley), and Mills Snell (@thegeneralmills) are joined by Codie Sanchez (@Codie_Sanchez) to discuss 2 awesome deals: A Coin Laundromat & an accounting practice. We dig into the Laundromat business: valuing assets, operations insights, and what to look for. What makes a good or a bad CPA deal? What is the segmentation around this kind of firm? Tune in!-----Thanks to our sponsors!* CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.-----Show Notes:(01:00) - Cloudbookkeeping.com(02:29) - Codie Sanchez Intro(06:00) - What does your portfolio look like today?(12:08) - Deal 1: High Volume Coin Laundromat for Sale(14:58) - What do we think about it? Is the RE included package relevant? (19:22) - What is the typical lifespan of one of these machines? How do we understand its value?(20:56) - The 3 important things to look for in a Laundromat Deal(21:42) - How can we forecast repair costs?(25:29) - Are we going to find distressed companies for sale?(28:47) - Can you raise prices? Where can you outcompete other players?(34:05) - Do we like it? How can we make it work?(39:10) - Deal 2: An accounting firm for sale(42:06) - What do we think about it?(46:04) - What is the segmentation around these kinds of firms?(48:40) - What should you ask yourself before buying this business? -----Links:* https://contrarianthinking.co* https://unconventionalacquisitions.com/* https://www.youtube.com/channel/UC5fI3kxC-ewZ6ZXEYgznM7g-----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, Morgan Tate and more.-----Additional episodes you might enjoy:#Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey, Michael here. Welcome back to another episode of Acquisitions Anonymous. This week we had a really exciting guest. Cody Sanchez out of Austin, Texas, joined us. She is a prolific investor, media creator, and overall woman about town who does a lot of stuff in the buying and selling of small businesses and really getting the word out around those kind of things. So you can find more about Cody at contrarianthinking.co. That's her website. We talk a bit about that during the episode. We did through a laundromat deal, the first one we had on the podcast and learned a lot about how those work, as well as a CPA firm, both of those located in Texas and went through and kind of analyzed those as well. Talked about how deals get structured,

what makes a good deal, what makes a bad deal, and also the trends that she's seeing in the market and how to take those and take advantage of them as either an investor, a search funder, or an operator of a small business. So had a ton of fun with her, and here is the episode right after a brief word from our sponsor this week. Hey, Michael here. Want to talk to you about today's sponsor for the episode, which is cloudbookkeeping.com. So cloud bookkeeping is actually run by my neighbor, Charlie. So I've met him in person and can attest that he's a real human being and a good person.

And what cloud bookkeeping does is offer a full suite of bookkeeping services all in the cloud for you around QuickBooks and other technologies that you're using. as a small business owner. So if you're interested in getting the bookkeeping part of running a business off of your plate and focusing on running your business, Charlie and his team are one to call. They can put together a bunch of other stuff in terms of helping you manage and grow your business besides just bookkeeping, sophisticated reporting, definitely helping you get your quickbooks online set up in the right way, and a number of things around payroll as well.

So definitely know them and recommend them. If you want to find out more about Cloud Bookkeeping, you can go to their website at cloudbookkeeping.com, reach out to Charlie. I know many of you have and see if he can help you make running your business easier and more fun by letting them help with a lot of the bookkeeping solutions. And when you call, mention this podcast,

it would help us and help Charlie know that we're supporting him as well. So thanks a bunch. bookieming.com as the sponsor for today's episode. Cody, thanks so much for joining us today. I'm stoked to be here. Thanks for having me. It's awesome. Well, it's great that it's you and me here with Mills because I feel like we're finally, the Texans are overwhelming, the people from random states that nobody cares

about in the southeast, right, Mills? Yep, here, here, South Carolina represent. Poorly, that's your response to this Texas talking lived to you? I mean, there's no, there's no satiating the Texas. You know, you can fight them, you can ignore them, but they're always just going to give you a little. Because we're bigger, yeah. I'm actually demonstrating, Cody, that I've matured over the past year, which is I used to talk about his beard at the beginning of every episode. And now I just... You haven't brought it up in a while. You're right.

It just, it looks amazing. It looks amazing. It looks amazing. So we'll stop there. But Cody, maybe we get started with, you know, introduce yourself to the audience. I know a lot of people know you. We've gotten to know you. through social media. But for those of them that don't, take about a minute and tell them who you are, what you do, where you came from, all that kind of stuff. Sure. Well, I'm a fellow acquisitions nerd. So I started out, well, in finance, I started out doing the typical thing, you know, Goldman, State Street, Vanguard, did asset management, did investment banking, did private equity, did a whole gammon of things, and did it for a bunch of, you know, well, present company excluded because you all are very

youthful, but middle-aged white guys made him a lot of money. And then realized at some point in like the 15 years that I was doing that, wait a second. This doesn't seem that hard. You know, we take other people's money, we buy businesses with it, we extract some financial assets from those business, apply leverage, and make millions or billions of dollars. Why couldn't I do that out of smaller scale myself? And so it only took me 15 years to figure that out. No, I think I started actually buying businesses about 10 years into my investing career and first doing it on a minority basis, you know, going alongside people's smarter and more experience than I was, and then doing it myself. And I did that for years in tandem

with running a couple private equity funds with other partners and running a large business in Latin America, where we sold all different types of investments that was a couple billion dollars. And then I exited that after our last fund, one of those was in the cannabis space. And so after we had sort of recouped some of the money, it was the third fund, you know, I saw the market kind of plateauing until legalization happened. I was like, what am I going to do next? And just as I was thinking about, you know, the next maybe asset management firm I wanted to build COVID hit, and then I was not traveling for, you know, a year or whatever, and started a blog, called contrary in thinking, basically talking about, you know, obsessing on building

bank accounts and freeing minds and my philosophy was kind of, why can't we question things more often. Why is nobody questioning anything right now? That makes no sense. As an investor, the only way you make any money is if you ask dumb questions continuously ad nauseum and you pretend like you never understand anything. And so I started contrary and thinking to do that. And then that thing kind of ballooned. And now we're at, I don't know, 1.5 million followers. I don't know. I do know. I track it closely across social media accounts. And we launched a fund to invest some boring businesses. So I have that now. And then I have a hold call of about 20, well, now 24 companies because I just sold two

all across the SMB landscape that I've accumulated over the years. So that's me. That's awesome. So in terms of your personal portfolio, like what types of industries and sizes do you tend to own more of or less of? What is typical for you? Yeah. Well, I think when people talk to you or I about our businesses, they're like, oh, so you're a golden retriever distracted by every squirrel imaginable because we have a lot of things in both of our portfolios that don't seem congruent. Mine probably more than yours. But everything across the board, we have laundromats, which we'll talk about today. We have car washes, we have mobile home parks, we've had plumbing companies, we've had video production

companies, we've had podcast production companies, we've had roofing and landscaping companies. We certainly had lots of media companies inside of there. And then I would say my biggest companies typically are some version of a financial firm. So like I own a pretty decent chunk of a brokerage firm. I own a pretty decent chunk of a private equity firm. I like being an investor in the GP of asset management firms too. And so, you know, sort of across the board. But the through line is it has to cash flow to me on an annualized basis and paid out quarterly

with some consistency. And there has to be a good operator in place because I only operate right now really two, I just got rid of one business I sort of operated. So now two businesses only. Everything else is pretty much passive where I send them on the board. Yeah, totally dig it. And you said in the pre-show, like you're starting to get more attracted to kind of media and tech-enabled things. Like, I'm curious, like, is that because of what's going on in the market? Or are you just seeing the natural trend of that stuff? Or is there just personal interest? Yeah, I think, well, I mean, I remember when I first started talking about boring businesses,

I think the only other person that was doing it in like a big, loud splashy way was probably sweaty startup. And now when I go on Twitter, I see a lot of people saying like, the fastest way to hit the first 500K in revenue is buy a business. Boring business. I'm like, oh, this is funny because two years ago, everybody, like, nobody could care less, right? And so anytime I see that to a big degree, I get slightly nervous about an asset class. And so with boring businesses, the cool thing that we all know is they're not, they don't trade in a herd. It's not like tech stocks or NFTs where the entire markets can sort of collapse. It's their independent universes for the most part that operate on the fact that they cash flow

and they have customers to continue to use them. So if I buy a, I don't know, if I buy a Carvel's ice cream and it's cash flowing continuously, but a bunch of people are buying laundromats, they're yoloing and the laundromats doesn't affect my Carvel's returns, right? So that part's cool. But I do think the market's gotten kind of expensive on the low end of the, of the spectrum in like the micro PE space. And also I think, you know, as you guys know, hiring really good operator, that's my biggest, I think about my biggest pinch point. It's good operators

that want to run this, even if I incentive-lawing them and pay them a lot. And so the problem is not capital. We all could raise a lot of money if we wanted to. The problem is, you know, having these operators. And so I like the idea of operators that allow me, or businesses that allow me to minority invest in them with enough juice and upside, which is what these sort of investable picks and shovel businesses have. The operators can stay on. I can give them enough money that it's meaningful for me, but it won't destroy their long-term incentive because they can grow more than like, if I take 51% of a laundromat, why would anybody continue to operate that unless I'm going to go with the guy and buy 10 or 20 of them, right? But that's my thought.

Yeah, dig it. Well, I think, you know, I'd love to double click kind of on how you structure those things, but probably the best way to do that is in the context of the two deals we're going to talk about today, which are very different. Though they both involve money. I think that's the common threat. So that's good. But the first one is actually a laundromat, which I don't think we've ever had a laundromat before, Mills.

I don't think so. Fantastic. We did parking lot outside of an airport. That was a good one. Was that a good deal? I've always wanted to own a parking lot. Parking lots are ridiculously good businesses. Yeah.

This one was an obscure airport, though. Wasn't it, Michael? It wasn't like... That was a bad business. That was a bad parking. It's like anything else, you know, it's location, location, location. But if you dig into like, say, like in Austin, like any of those surface parking lots near the Capitol that charge you $25 an hour to be there, like they are like, they're better businesses than like Pablo Escobar could ever imagine. Like best businesses ever.

They're better than software. You name your best business, I'll take a parking lot over it any day of the week. Yeah. I agree. Well, I didn't even know there's an arbitrage. that I didn't know existed, which is that at least in Chicago, I was talking to one of the developers there. And they, like, a lot of times you, you know, sell your apartment or your condo or whatever, and you can buy a parking lot or a parking spot with it for like 20 or 30K.

But oftentimes the owners don't buy those parking spots and the lots are open for general use case. And so it's like, yeah, there's a market where a bunch of people come in and they put themselves on a wait list to buy the parking spots for people that don't take the apartments or condos, they buy them for some discount. And then they cash flow on them just like you would a rental unit. I was like, that is, that's wild. I didn't know you could, you could fractionalize a parking lot, apparently. I have some friends here locally who they're in the valet business, but they went and did leases on all the parking lots downtown. You know, it's like $2,000 a month, but then it's $5 to park here and then they corner the market on the valet because if somebody

comes in and tries to steal their valet contract. They're like, that's totally fine. You can give it to that guy, but where's he going to park the cars? We have all the parking lots. Interesting. I like that, too. There's always, every time I get on phone calls like this with guys like you, it's like, I get off of it and I have 42 ideas.

My poor team gets pissed off. I'm like, now look into this. Should we own one of these? You're like, find me a ballet business that owns parking lots. Yes. Lame Mills. Super cool. All right.

Let's do this long or bad. Mills, you're going to, going to talk us through this one. Yes. Yep. So this is a biz-by-sell deal. We'll pull it up on the screen. If you're watching along, it's a state-of-the-art high-volume coin laundromat with real estate included in Denton, County, Texas. Asking price is $2,790,000 on $575,000 of annual cash flow. They say that their gross revenues are a little over $1.3 million, $1,000 worth of inventory. They're listing about $700,000 worth of FF&E, which I would have to think in this case is all just your machines and maybe some chairs or something like that. They say that the real estate is worth $1.1 million.

and the business has been around since 2002. They say that it's been organic growth for the past 19 years, extremely well-maintained workforce in North Dallas. It includes the real estate. The business was established in 2002 by the current owner. So this is like founder, seller situation, and he's built it from the ground up. Equipment is in impeccable condition.

And they provide top-of-the-line service. They're located in a little over 3,000 square feet. It is a freestanding building, and it's next to one of the busiest roads of a city with heavy traffic throughout all hours of the day. Numerous retail businesses surround them with restaurants and things that attract people to the area. They have pickup and delivery vans that go around DFW Metroplex servicing many large corporate accounts. That's a really good thread for us to pull on, as well as the residential area. it looks like there are competitors, but they don't really view them as competitors

because they're the only ones that do pick up and delivery, PUD, is the way they reference it. So they say that sales have grown steadily. They're running at, I guess they were running at $690 to $710,000 over the last several years because of COVID. And then they have increased their pickup and delivery business in 2020. COVID dropped their self-service and pickup and delivery initially, but now it's recovered.

As of 2021, the business is now on track to exceed the 2020 sales by over 82%. That seems staggering. With all three revenue streams totally recovered, they do a little bit online marketing through Google, and they say that, you know, obviously online marketing would help their business, and you could generate more revenue that way. The employees, it's seven full-time employees, six part-time, and the lot looks like it's a little bit less than a half an acre. What do we think about this? Well, what's interesting, I think, is,

first I saw this deal on what I didn't think real estate was included, and so I thought it was ludicrous because, you know, you wouldn't want that kind of a multiple on a laundromat. With real estate included, there's a couple problems. One with real estate included, laundromats are like basically never the best use case for a piece of real estate, probably in somewhere like Dallas that's growing rapidly. However, you have like all of these hookups and it's really expensive. It costs anywhere from, let's call it, $200,000 to build out a laundromat new. That's why I think you should pretty much always buy them. So the hookups can be

expensive, permits can take a long time. There's sometimes rights with water usage because you use a lot of water, obviously, and like contamination of water because of all the soap. Depends on where you're located. So I don't know. One, I like to evaluate these separately. So I'd look at the real estate independently and say, is it worth $1.1 million? And what if I can't find somebody else to sell, that wants to buy a laundromat? Can I still sell this real estate for that amount independently? So that basically, then I would look at the business price. And I would say, okay, so let's call this business than 1.69 for this business. That multiples is still a little high based on the cash flow numbers. And the biggest issue that I would have here is it depends on what kind of human you are.

I talk about laundromats because I think they're the gateway drug to buying businesses. Because if you can't understand, coin goes into laundry machine and your clothes get cleaned and then you take it back, like you should not buy a business, any business. I don't care which one. And so I talk about laundromats first for that reason. I don't think that everybody should really start with a laundromat because it's hard to get them to like three to four to five million dollars in profit where you can have like a nice business and you can actually have great operators in there and great senior management. So with this deal, what I would be nervous about is if there's a wash and fold component already in it, that's a logistics heavy business with a lot of employees that you're going to have to manage and contractors that probably have a pretty decent churn. And so that would make me nervous. If you already owned a laundromat, I think this one would be interesting because it already has wash and fold in it.

And I think that's one of the only ways you can get a laundromat up to millions of dollars in revenue. But then the problem is you have to be able to manage that business. So this would be an interesting business maybe at a slightly lower price if the price of the real estate is real for somebody who actually wants to manage a logistics heavy business as opposed. This is not a passive laundromat. This would be a very active operation to run. You'd also really want to make sure that whoever's already in there knows how to run this business. So those are my initial thoughts. What do you guys think?

Cody, I mean, is this a large laundromat at 1.3 million in revenue? I just don't know where the dispersion is and where they typically fall. Yeah, it's a large laundromat, especially to not be in California, New York. I mean, Dallas is a major metroplex for sure. and the fact that they have commercial is interesting in this, like we talked about. I'd be wanting to see those contracts long term and see what that looks like. But, no, typically laundromats are like great little mom and pops. You know, they make a couple hundred thousand dollars a year in total revenue.

Maybe you could get it up to, you know, a million dollars a year in revenue from a direct laundromat. But this one of this size to do $1.3 million a year is on the bigger side. I mean, we have some laundromats that maybe do two or three million dollars, but that's because they're basically, they're basically just warehouses for wash and fold that happen to have customers coming in. A couple of things you really definitely want to make sure in this environment, too. You talked about the equipment in FF&E. It's really easy to get a quote on that.

You can basically go to a few providers, give them the VIN numbers on the laundromats, and verify what those are actually worth. and it's really important because each one of those could be the cost of like a Honda, like 20 to 30K, maybe more in this environment. So basically you do want to make sure that all of those are working,

and they're expensive to replace, and they take a long time to replace right now because of supply chain. So that would be another thing I would check out. So when you model out, like, what capital expenditures look like to be upgrading these machines, like what is the typical lifespan of,

like a coin-operated wash and fold machine? Does it, do they last 20 years, two years, forever? How does that, how do you model that in, say, for when somebody claims to have 700K of furniture and fixtures and equipment here, what's your, is there a rough number that you model in? Like, here's what we're going to be spending just to maintain those each year? Yeah, 15 years is about right for these equipment, for these pieces of equipment. You can definitely, if you've had somebody who, like, one of the things you might see sometimes is that like a laundromat or a laundry machine service,

guy might also own a laundromat. So sometimes you can feel kind of confident. They almost keep it like a car. Here's the record of all the, you know, things that we've had to fix on the machines. But I would say 15 years is about average. Anything over 15 years, you start to get worried. Right about, you know, at 10 years, you're like, okay, that's all right. I got like five more years on these. As far as costs to roll more moving forward, that is usually a line item I asked for, like how much do you spend on this a year? If you're located somewhere like California, let's say, and you're by the beach, you have to be thoughtful about how much sand is going into these machines, right? Sometimes in like super hard water areas, you have to think about, you know,

is the water going to, you know, have continuous blockages within the piping. But for the most part, these things are pretty hard to mess with. And the upkeep on them is a line item, but not the biggest one. Really, there's like three things that matter in laundromats, which is the lease or the rent of the place. In this case, you'd own it. That's really important. You need a long lease 10 to 12 years to make these make sense. Then the second thing that's important is utilities cost. In Texas, we actually have variable utility costs. And so I would be curious, like what that line item is, what does it look like in Denton County? I have no idea. And then the third thing is your employment cost. Now, in this business, because you do a lot of wash and fold, your employment.

may be one of your highest line items, depending on how they have it structured, especially I have seven full-time employees, is a lot at $1.3 million in revenue. I'm actually surprised. I would think that they would just have a few full-time employees and a lot of contractors. Cody, on that CAPEX thing,

when I typically am looking at a deal, the EBITDA is fine or the cash flow is fine, but I always want to take into account, you know, free cash flow minus CAPEX, at least maintenance CAPEX. And then I definitely want to know what the growth Cappex is. If you look at this $575,000 in cash flow and you normalize that for, you know, whatever your amortization of Cappex is going to have to be, is it $50,000 a year?

Is it, like, if you're saying, hey, roughly 15-year life over that $700,000, is that kind of the way that you think about it? Yeah. There's a couple ways. I usually get a quote regardless from some providers on what happens if a few these machines go because think of what that could do to your profit. If you have to replace two or three of these machines a year, that becomes a substantial issue. So usually in my models, I'll do something that says, like, what's a worst case scenario? So I think we have like a nine

segment sort of future forecasting model that basically says, okay, the worst laundromats that we've ever seen or had. Let's say that we have 20% of them that for some reason go sideways. What would that look like in our model? The best case scenario, you know, we've had no, no, nothing needs to get replaced and we're good to go for five years and then this is what the returns looks like. So I like to kind of do a varied scale from that perspective. But, you know, I think the other thing is to try to not get too cute to predict future like potential issues and instead really focus on, can I just set the price in terms in a way? where if stuff starts to go slightly sideways,

I just have enough buffer in there. So that's why I don't like buying these. When I was buying a lot of laundromats, there's a two to three X profits. And at that level, I don't have to stress too much about, am I depreciating correctly? And am I going to have issues

with a few laundromat or a few laundry machines going sideways? So I take it the implication of what you just said is laundromats aren't trading for two to three times cash flow anymore. That's right. Now, I think we just put a video out on YouTube the other day about this, about a deal that's like one of the ones that I think is more funny for people because I'm sure you guys have seen this too, but people on the internet, like if you say, I just did a deal for

$50 million and it revs this and does this and this much profit, that's not very attainable for people, right? And so instead, sometimes I talk about the littler deals that we've done. So we did one where we bought a laundromat for $100k and the cash flow in year one was $67K. And then people, we're like lies, you know, no way. And, you know, why would some idiot sell it for that? And like, there's a couple things going on that you guys already know, which is $67,000 is like not really enough for a lot of people to want to deal with some of the laundromat headaches that come if you're operating one independently. And so those deals are actually on the table all the time. But, you know, as you guys also know, the P&L's awful on those. Like, you have to go do an actual coin count to make

sure that it's real. Like the tax returns don't match anything. And, um, and so, you know, I have a guy that goes and does that for us in this region. And so that deal, though, doesn't even exist today, even with bad P&L and bad numbers. It's more like four to seven X laundromats because I think people think they're easy to do. Um, but I think coming into this next market we're going to see, there's going to be actually a lot of messy stuff picked up. Um, and I think we'll get back to those two to three X profit numbers unless maybe there's just too much money on the sidelines and everybody will jump in right away, I'm not sure.

I'm really, yeah, I am really curious to see if that actually happens, if there's going to be a bunch of distress stuff or even partially distressed stuff that comes along. I talked to a friend and he's like, yeah, I just raised a deal last week. $13 million, $22 minutes.

I was like, oh, I don't know. I don't know if the distrust stuff that's going on in the stock market is started to be reflected in Main Street in any regards. So, I don't know, I'm very curious. I hope there's distressed stuff because it's sure as fun as hell to work on. Yeah, I agree. I do think with the distressed stuff, though, what I would say is, like, I don't know what

the average listener on here is, but I like, I never, not that I recommend anything, but I never think people should buy somebody else's problem for one of their first couple of deals. Like, I think distress deals are fun once you've done a lot of them. And by fun, it means that we're all, you know, sadistic matters. masochists that like, like lawsuits and, you know, people yelling at us and cleaning up contracts and, you know, whatever. But from normal people, like, even if this market gets crazy, I do not think they should be buying distressed assets. Like, they could invest alongside other people

that are doing it, but probably not. Just like a word of warning, in my opinion. But then for the people who have been doing this for a while and in the trenches, that's where all the money's really made, I think. Yeah. So one thing I'm curious about laundromats, it means. you mentioned that by and large, typically the real estate that is underneath a laundromat is often not the best and highest use for that property. So, you know, as I look at these and I'm like, oh, you're going to have a 10 or 12 year lease, are you going to be looking up a decade from now if you're buying like a lease laundromat and your landlord's going to be trying to capture all the value and you're either going to have

to pay it or figure out what to do with 80 machines that you have in a strip mall somewhere? How does that kind of factor in the attractiveness of this asset class? And I guess also in particular this deal where there's real estate that comes with it. So at least you own your own destiny in that regards. Yeah, I think it's something to be thoughtful about. That is why we want a long lease for sure. You really don't want to be, you want a long lease with extension options. The good part about laundromats, if you are leasing them out, is, you know, the equipment

So let's say you get a 10-year lease and you have equipment in there. And this 10-year lease, there's an equipment cycle that sort of goes along with that lease cycle. So you're going to have a diminishing cost on your equipment regardless. But yes, these businesses, a lot of laundromats have been in their same spaces for 20 or 30 years. But let's say that this is in the middle of like, I don't know, the newest suburb in Dallas. It's something that I'd be very thoughtful on because it's definitely not the highest and best use case. And unlike a car wash where the landlord would have to tear the whole thing down and rebuild an entire endeavor, a laundromat, you don't necessarily have to do as much tear down work. You know, you can just gut the inside of the unit. So I am thoughtful on that. I do like buying real estate, but I don't know if I like buying real estate in this market right now at these rates. So I'm also not sure that I love this deal for that reason. Definitely if you could have a locked in rate, you could negotiate something decent. But, yeah, that part's a little bit tough.

Yeah, dig it. So, you know, one thing that happens in a lot of industries is you go find an asset or a business where, you know, you asked, hey, when was the last time you raise prices? And they're like, you can raise prices? So that's, you know, I asked that of a seller the other day. And he's like, no, we never do that. I was like, okay. But like in a business like the laundromats like this, you know, when and when not do you have the pricing power to kind of to raise prices. And I assume

since there's really three businesses in one here, you have the walk-in, then you have the walk-in, wash, and fold, and then you have the we're going to pick up and deliver to commercial clients. I guess there's different kind of pricing powers that you see in each one of those business models, and kind of how do you think about that as you underwrite a deal like this?

Well, you know, sadly, but truly the pricing power that you have is actually the best at the lowest end of the pyramid in almost every industry, right? and most margin is captured, and the less optionality that they have, right? So you can increase laundromat prices by 20, 30, 50, 100 percent,

and a lot of times you will see people continue to utilize your services. The biggest differentiator in laundry is not necessarily the price. It's do the machines work, is it clean, is it safe, and is it close? And as long as it's those four things, then you can charge quite a nice premium, actually. And same thing for wash and fold. We invested this company called the fold who does this wash and fold service throughout Texas, actually. And that was their biggest push for this last quarter is they probably waited a little bit too long to raise prices in their opinion. And then they did raise prices.

And the consumers didn't care. There was basically no churn to those consumers. And the service is really useful. I mean, what's interesting about this wash and fold model is it's great for, you know, apartments. And we're starting to see a lot of those in the Dallas Metroplex area, even more so than before. And for like new moms and transitioning employees and people who are moving, there's a lot of like transition periods in which you can capture somebody and then keep them forever. And so, yeah. Cody, question for you on the, on the commercial side, to me, when you look at a business that's

primarily B to C or residential right home service businesses. They treat commercial like it's just this white whale. I mean, it's just if we could only get more commercial. To me, I look at this and I say total BS. These guys, their likelihood of being able to compete with like an Alco or somebody who does high volume, thousands of tons, you know, a week or a month. I just don't see that being able to scale. Do you, what do you think about that segment?

if you're just a retail laundry facility and you're trying to pick up people's stuff. Yeah, I agree with you. I don't think that's where you want to compete unless you're going to have a ton of different laundromats and really go at that segment of the market. That being said, I do think you have a lot of space in, you know, what I call it, like, more like boutique commercial.

You know, so let's say those guys might not be going to the local, you know, multifamily apartment complex that owns like three or four or five of them, which could be a material game for this company, right? It's like one centralized drop-off and pickup location. They're pretty like price agnostic. You could go to some of the more luxury buildings for this. There could be tailored services.

The cool thing I think versus some of those commercial, those big commercial groups is like, for instance, with the fold, they have an incredible app interface that is very user-friendly because they're thinking D to C. and that company, most of the big commercial laundry companies are thinking B2B, and so they make it really easy for the B, but they don't make it that easy for the C. And so if you can actually have an app that's really user-friendly that basically allows millennials because we don't like to talk to anybody on the phone to do everything via text messaging,

never speak to another human, do drop off and pickup, you can charge a premium for that. And so that's how I would play that game. But I would be going really hard on B to C in this market. The only problem is, you know, it's logistics intensive. It's expensive with the cost of fuel now and labor. And so you do have to make sure your pricing models are right. You can get really hurt if you price yourself wrong in this business, for sure. Yeah.

When I was at permanent equity, we looked at a pretty large business in this space. And I didn't realize this before, but most of these commercial guys who service restaurants, they own all the napkins. The launderer owns the napkins. and then just gives them to the restaurant, you know, baked into the fee for, and then it's like, the restaurant's like, hey, we don't want to wash and Hopkins and tablecloths. And we don't want to own them either. I had no idea that that was a thing.

Yeah. Yeah. And these guys, I'm sure, are not playing. I mean, maybe they are, but that would be, I would be surprised if they're playing in that space. I would think their commercial contracts mean that they do wash and fold at apartments, maybe at hotels, but I doubt it. So that would be my guess. I'm not sure.

So maybe to try to put a bow on this one. What, I mean, is there any way to make this deal work there at three times cash flow plus real estate? Sounds like there's some stuff that makes it pretty hard with these other kind of heavy logistic parts of the business, not just a walk-up, coin-up, laundry. You know, how do you think about this one, Cody? Is there any way to make this one work or is it just priced in a way that, you know, does it make sense for somebody looking for a deal? Well, I'm going to send it actually to the guys at the fold because I think if you, I think if you already operate a couple of, laundromats and you want to scale up your operations and you want to add wash and fold, this is actually a really interesting acquisition. It's also really interesting because it's pretty

big. And so I wonder if they're at full capacity for all of their machines or could they operate a wider geography. I'd want to know, like typical laundromats operate about 30% capacity. These guys are probably slightly higher because I bet they're running their stuff all night for the commercial stuff. But I bet they're not anywhere near 60 to 70 to 80% capacity. So if they could add more wash and fold, this business actually might be pretty interesting. So that's what I would do. So, you know, if you are interested in building sort of a little laundromat empire, this one I think could be intriguing. If you want it just a cash flowing asset that's not incredibly active, this would not be the deal. Yeah, sounds like a lot of work.

Yeah, and then this is in, the only major town in Denton County is actually a college town called Denton, Texas, and University of North Texas is there, which is actually a pretty big university here in the state. I think they're like the mean green or something is their name, really good music school. But this is also one of the things I probably should have mentioned earlier. This is a college town. Oh, that's interesting. Yeah, and it's a hike from here to get into Dallas. Basically, the interstates go up from Fort Worth and Dallas and kind of meet in the middle, and they meet in Denton. And then 35 keeps going up. So anyway, that's just an interesting niche to it. So there might be some labor and that kind of stuff around. Yeah, or that's interesting from a labor

perspective, but also I think from a services perspective, like maybe what you want to do is just absolutely get incredible ties with the university, hire a bunch of their students, and then get a bunch of those commercial contracts to just drop off laundry all day, every day at the colleges. I think that makes sense. I don't know the demographics of the university, but that could actually be, that could be interesting. Or, you know, this could be like Nick Huber's deal. Like this one, I think would be interesting if there was, you know, some interesting money backer and then a couple of really aggressive college students that actually wanted to try a run out of business. This one could be interesting to do that with. Yeah, I'm totally dig it. I don't know. I think I'd just open up like

a restaurant franchise before I do this. I mean, the one thing you forget is just like, hey, when you own a business at this scale, you're going to be standing around, there's going to come a day when you're standing around a laundry machine because somebody didn't show up that day and those rooms are often not air conditioned. Or you're loading a truck. Anyway, I just kind of visualizing myself.

I'd much rather be slinging chicken chicken fingers. Holding somebody else's underwear. Yeah, for sure. Yeah. I don't like doing my own laundry, much less somebody else's. But Cody, one last thing on this one

before we move on to a second deal. I'm curious, like, if things go wrong, I always kind of try and pick picture, right? Worst case scenario, what can go wrong, what breaks, and then what's the outcome for the investment? What can go wrong on a deal like this? It seems like the stream of revenue is fairly predictable unless you just absolutely, you know, obliterate it in some way, shape, or form. But as long as the lights are on, as long as the building has water, unless, you know, just 50% of your machines, you know, are out of commission and you're not fixing them. How bad could this

go for somebody as a first-time buyer of this type of thing? Yeah, I think that's a good point about laundromats is they're not complicated businesses for the most part. So what could go wrong in this business? When it comes to the straight laundromat, your machine's breaking is really where it's at. You know, there's annoying things. Like if you don't have the right security, you know, how do you manage some of that? Somebody breaking in and stealing coins, you know, that is a thing.

But for the most part, having something go nuclear would be pretty tough, except if there was like urban flight. That would not be good. You need the population demographics to be continuing to grow. In the wash and fold business, I think you have more variability, right? That's where you could have a couple contracts, go sideways and maybe you lose a chunk of this revenue. Or, you know, some guys crash your truck, you know, or crash two trucks and then you got to buy new ones. I could see something like that happening. But overall, I think that would be hard. You've just got to make sure you're buying the deal at the right price. And I think the biggest issue for this kind of business is just, is it real? Like, are the tax returns real? Is this the real right amount of money? Don't get defrauded on the deal up front.

Super cool. All right. Well, let's move on to something even more exciting than the laundromat, an accounting firm. Are you guys with me? Yes. I know everybody wants to buy an accounting firm when they grow up. The more terrible accounting firms I run into, the more I'm like, how hard could this be? Like, come on.

It's so bad. And every one of my friends calls me and they're like, hey, do you know a good accountant? Do you know a good CPA? And like, do you know what I say to them? Not right now. Sometimes I do. But anybody who's good is 100% booked. That's the problem.

Yeah. You know, I was just looking at buying one of these and was this close to doing it. but on a little bit of a different model, because I don't love, we'll talk about it, but I don't love the straight CPA model. Maybe we could talk a little bit, too, about some ways to flip the script on that. Yeah, well, let me read this one,

and then I guess there's a universe not only of CPA firms, there's bookkeeping firms, and there's attestation firms. There's the whole kind of segmentation. So I think you educating everybody in the audience, like how that works would be great. But let me read this one first,

give us some context of a deal to talk about, and then, you know, I need to be educated on it too because I clearly don't know what I'm doing. All right, so this one is from an accounting-specific brokerage called Accountingpractice Sales.com. So, kudos to them for some very specific and functional branding there. So it says Fort Worth, Texas CPA Practice for Sale is the name of this particular listing. It is currently available located in Texas and specifically in Fort Worth.

They do annual revenue of about $839,000, and they're asking $1.1 million. for the practice, and it is a CPA firm, certified public accountant. Description is this reputable CPA practice for sales in the Fort Worth, Texas Cultural District area, and has annual gross revenues of approximately $839,000. The practice caters to a first-rate client base that includes a substantial number of businesses as well as loyal individuals. They have a strong fee structure that yields exceptional cash flow to the owner of about 60% of gross income, so I guess 60% of 839, so that's,

a little over 500,000 a year. Approximately 76% of 6% of the income is derived from tax prep and the balance from accounting services, which helps provide year-round income, though obviously the tax prep stuff, tax prep stuff would happen mostly around tax time. There is an experienced staff in place, and the seller is willing to work with a buyer for some time

after closing to facilitate a smooth transition. Located in a desirable upscale area of Fort Worth, this turnkey practice is the perfect size and opportunity for an experienced individual ready to step into practice ownership, it would also make a very profitable addition to another firm seeking expansion in this booming area. So reading between the lines there, Cody, doesn't look like we get an operator with this deal. It looks like they're expecting somebody to kind of buy themselves a job here. So what do we think about this one? I think they'd be in trouble if you and I were the one doing people's taxes.

This would be no blow. Terrible. Total nightmare. Everybody's getting audited. But besides that, here's a couple things I think. The glass line that they said is perfect. Sometimes I wonder, and part of the reason I beat the drama buying a business is there's so many of these businesses out there. If you were, I don't know, working at KPMG or something or Deloitte in their accounting practice, and you've been doing it for a few years, and you understand accounting and you're a CPA,

why would you continue working at Deloitte or KPMG? I would buy a business like this all day long, and I would buy it with seller financing because you're going to have to have a CPA that wants to buy this business unless the strategic requires. it, and I think they're too small for that, probably. I would buy a business like this, and you walk into, let's say theoretically that they say they're right, making about $503,000-ish dollars a year if you're the one operating the business and probably still doing a bunch of the taxes.

But I definitely think that's more than you were making at KPMG and Deloitte, and then hire over some of your buddies and let them take a bigger cut on the clients that they have at the business. That's what I would do for this one. I mean, the multiple is really low on it, if that true that they actually take home in their pocket $500,000. So I actually think that's a really interesting deal, but I wouldn't want to run this business myself. And I wouldn't want to own an accounting firm. There is some liability as far as I understand. And I'm not an attorney. Like I give no advice on that. But there is some liability with doing other people's accounting depending on what kind of accounting practices they actually do. So that's why I would probably

want to be an accountant if I bought this business or do it with somebody else that is an accountant. And the second way that I would see to do a deal like this is if you are at another boutique-ish firm and you're working up the corporate ladder, you want to make partner or whatever, I would pitch something like this to somebody to another partner at the firm. Hey, you want to grow us by $500, you know, by a million dollars a year in revenue, okay, we could go out and do a bunch of marketing or why don't we acquire this firm and, oh, by the way, it's hard to hire people right now and there comes, I don't know, however many people work at this firm with us. So we do an aqua hire and acquire. We put it into our operating

system. We probably decrease our costs almost immediately because I bet they have a bunch of backend shared services that they wouldn't need. And I think that would be interesting. Those would be the two ways I'd do this deal. What do you guys think? I think when you do the math, if they're saying they have, you know, let's just say sellers earnings of around $500,000, there's only $300,000 worth of overhead. So I think you're talking about a few people, a few staff at best. And, you know, I like to buy businesses. I like to get involved in businesses with people who I just generally want to be around. And I have an accountant who is good, but I don't like most accountants. I don't like being around them. They're not like the life

of the party, you know? And so one, this is not the type of business where I would just be excited, running in guns of blazing and just can't wait to spend time with these people. Two, I think that... It is accounting. Yes. Just roll the same page. This is accounting. I think that buying a business from an existing accountant would be second only to maybe

buying a business from an attorney, right? The sale process is going to make you want to poke your eyeballs out, dealing with this guy or gal. Because, you know, whatever questions you have, I think is just... It's just going to be a nightmare to work through the details. Their books are probably clean. Also, they could deliberately defraud you if they wanted to, and if you're not an accountant, you're probably not going to figure it out until it's too late.

Yeah, I agree. Yes. So, Cody, maybe real fast. So this is a CPA firm, which does a specific type of bookkeeping and preparation of stuff, including taxes and that sort of thing. And then I understand there's also just plain Jane accounting and bookkeeping firms that don't prepare certain things. They don't prepare like financial statements.

And then I believe there's also what are called attestation firms and they do like audits and reviewed and stuff like that. Is that kind of the taxonomy of firms like this that are out there or do I have that kind of wrong? No, I think you're right. I mean, and then, you know, also you have accounting firms that are just going to do, let's say, M&A due diligence, right? Or, you know, firms that are only going to,

I mean, I like the first kind of second type of firm, you said, where they're basically just doing bookkeeping, they're not making any representations or warranties about the actual underlying assets. I think there's probably less risk in that type of business. This would have more, I assume, and be highly cyclical, I would imagine. Like, you know, one time of year,

you're going to be pretty miserable, and that's around tax time each year. And then the rest of the year, you know, you're going to have like seasonality and a lot of variability in your business unless you could maybe build those other things into it. If I was owning a business like this today, I would also much rather be on the high end of the spectrum than the low end of the spectrum. The other thing that I would ask for this accounting firm is like, how many clients is that, or is in that one million?

Is that like 2,000 clients, you know, at a couple hundred bucks, right? Is that, you know, 50 clients at a much higher price? That would be something else I would watch out for. So I'd really want to see their client list because I'd rather serve a higher market at a much more expensive price point than have a huge Rolodex of a bunch of people that are expecting stuff for me. I'd also want to know since it's called the Holmes Group. Or is that the, oh, no, no, that's the broker. I think that's the broker. I guess that's the broker. Yeah. So whoever, whatever the name of this firm is, I'd want to make sure that that isn't just a like a lone wolf. It's sort of like buying an agency. You know, sometimes if you buy an agency, you really got to be careful. careful about the key man risk, key woman risk, right? So is there just like one accountant, a bunch of people have used for 50 years that they trust that the second somebody new comes in, they're going to bail on you. So I would think about those things too.

But yeah, you're right. I don't want to run an accounting firm. But thank God, there are people out there that like running accounting firms. Like I bet there's somebody listening right now that's like you guys are a bunch. You know, it'd be terrible running a podcast, you A-holes, you know, like that. I'm sure there's that too. You know, I'm a real nerd about thinking about the way people are white. And the funniest thing is, like, the people like you that are wired very strongly to be capital allocators or to be entrepreneurs and risk takers, they're exactly the opposite.

You know, that that ends up what you do ends up making your pretty darn good owner of businesses because there's a risk reward balance and everything you do. But the people who get attracted to being CPAs, like, they're the opposite of you. Like in the opposite of me, like they love rules. And rules make for people who just want to follow rules in a playbook, they often make for terrible entrepreneurs. So you end up with these CPA practices that I think are pretty darn good businesses if you were just a good business person. But unfortunately, the people that want to do it, they're wired to be terrible business people. So it always drives me nuts. But then I'm like, oh, yeah, this is just how the universe works.

That's actually a good point. You might want to take a good, hard look. Well, I think you should do this every time you buy a business. Take a good, hard look at yourself in the mirror and ask yourself, like, what is going to be the worst thing about this business to me? What am I going to be the worst at in acquiring this business? And you're right, Gurdley. Like with an accountant, you might actually be really good at doing the due diligence, the underwriting, closing the deal, transactional analysis, contracts, whatever.

And you might be great at servicing, but you need to partner with a rainmaker that's going to grow this business and who's going to be different than you. And I think a lot of people always say, I'm sure this is the same with you guys. Everybody's like, but where do I get the money? I'm like, that is the least of your, you know, It's pretty easy. Just find a good deal. Yeah, that's the least of the worries.

The worries is can you run this business? Are you the right person? Can you get people to lead? Have you done your due diligence, right? And if you do all those things, the money's going to be there. So true. So true. Well, so curious, like, is there a way to make a purchase like this work?

You know, like do you, like, let's say you're an investor like yourself or maybe one of our listeners and you don't want to buy yourself a job or you're not a CPA. Like, is there some sort of structure where you could go find an operating? and like structure or purchase like this. They are selling for two times free cash flow. So there's that going on for it, at least in terms of asking price. Could you imagine a structure where this makes sense for an investor?

Or are you just like now? Like this is pretty hard. I almost, but I'm problematic because I feel like every deal can make sense for somebody. It just is it the right deal for you? But for this deal, I think given the economics of the deal, and if you like the client list underlying, and if you are or partner with the CPA and have it structured correctly,

I think this is absolutely a type of business you could buy. I looked at acquiring a series, I looked at acquiring one marquee foundational accounting firm that served ultra-high net worth people on a retainer basis paid quarterly. And then I wanted to add to that business lower-level services, so like bottom of the pyramid, and then I wanted to add some education to it,

and then I wanted those businesses to grow. And so, you know, if I was an investor, I'd probably want to add some stuff to this mix. But I think there's plenty of people out there that are like, hey, Tom, you're an accountant. You want to make $200,000 a year. Go make $200,000 a year in this business, running your own business. I'm going to take $300,000 because I'm going to put up the $100,000 for you to buy this deal. I'm going to put up part of it and do the restseller financing or SBA or whatever. And, you know, you'll get a percentage of the profits if you grow the business. but keep in mind that it is an accountant,

so actually have a set amount where, you know, a way to protect yourself because I wouldn't anticipate massive growth unless you're hiring somebody with that amount. That's probably how I'd do this deal. Diggin, dig in. Okay. Well, cool.

Yeah, this is our first accounting deal on the episode. Very cool to talk through it. So, Cody, thanks so much for being here. I think we'd love to kind of close with giving you a chance and love to hear of you highlighting some of the ways that people could follow along in your journey. I know our listeners, not only do they support us, but they're also really good about supporting the guests.

What can our guests do to help you and follow along with your journey? Well, you can sign up at Compturingthinking.co. That's our free newsletter. We talk about a bunch of stuff like this on there. We actually just launched a YouTube channel that is all about businesses that we've bought, invested in, other people that are running businesses.

So I love people to get engaged there. Share it, comment it, tell me what other business you want to see us cover. I think that's going to be a big focus for us for 2022. So those would be the two ways. And if you're interested in learning more about buying and selling businesses, I think you'll like both of those. We talk about that at ad nauseum. Yeah, amazing.

Thank you for democratizing that. But on behalf of all the people who are trying to buy laundromats right now at five times, EBITDA, I think you're guilty of socializing. that a lot. So something probably to be proud of and also also like, uh-oh, what did I create? A monster, a sedzy monster.

Yeah. Be careful out there. This is why I don't talk about software. Software is a terrible business. Don't get into it. Parking lots, go for parking lots. They're great. You got to vote around software too.

So I think that one helps. Yeah. And low, low capital requirements. You know, stuff that I'm in where you have to like, hey, you want to open up another location, it's like, okay, go buy some land and this building and all this kind of stuff and then hope you get some revenue from it, and then maybe you'll get profitable

when it stabilizes. That is totally less fun than, hey, these people pay us $50 a month no matter what, and if we turn it off, they're going to be really sad. That's great. I'll take the second one all day long. Yeah, I agree. We've been trying to acquire a bunch of the,

what would you call, ancillary services to born businesses. So I want to keep trying to do that. We'll have to come back. We're in the midst of acquiring this one deal if we do it. I'll come and tell you guys about it. That's actually the stuff that gets the most pickup on this podcast is, well, the tied for first is this style of, hey, we talk about two deals and kind of how you think about them and you hit on those things that people just don't really, like, they don't teach you in business school until you sit down and actually talk about a deal. So that's kind of number one. But then tied for number one is when people come on and talk about their war story of how they made a deal happen, that's like tied for. for first. People really love to see how it was done. So we'd love to have you back. Awesome. Cool. We can make that happen.