Acquisitions Anonymous - #1 for business buying, selling and operating - Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping - e62

Episode Date: January 27, 2022

We're joined this week by Mike Loftus, CEO of Connor's Landscaping in Orange County, CA.He's growing a landscaping business in Southern California one acquisition at a time. closed on 3, 4th currently under contract.We examine two landscaping businesses currently for sale.Thanks to our sponsors this week!Cloudbookkeeping.com - CloudBookkeeping sets the standard for bookkeeping services. If you run a business, you know the importance of having a reliable team keeping track of your finances and managing the complexities of bookkeeping and payroll. CloudBookkeeping is a team you can call that is responsive to your needs.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 that include sophisticated reporting, QuickBooks software solutions, and full-service payroll options.With over 100 years combined experience, the team at CloudBookkeeping provides dedicated financial management services and valuable insights so you can grow your business! Give CloudBookkeeping a call or visit their website at CloudBookkeeping.com to learn more about their custom solutions to strengthen your business.Morenow.co - With remote work becoming more prevalent and acceptable, the access to talent globally is exploding. Think about your needs as an owner - are you looking to offload tasks or build a competency that benefits from real experience? Open yourself up to hiring seasoned vets to add to your team. There is a dramatic difference for a reasonable increase hourly rate (efficient spend!). MoreNow helps owners build a high functioning, experienced team by leveraging the top manager / director talent in the Phillippines.We work as a typical staffing agency - fee is a % of first-year salary, includes embedded professional coaching and 12-month guarantee. Some examples of recent hires: head of operations, supply chain manager, forecasting analyst, controller, new product sourcing manager, customer service managerGo to morenow.co and fill out the form. Or email [e-mail]. Mention this pod for 20% of your first hire-----* 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.-----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]

All right, welcome back everybody to another episode of Acquisitions Anonymous. I'm Mills Snell, one of your co-hosts. And Acquisitions Anonymous is a growing and aspiring podcast. We are like Michael said, we are the number one and we are the last. Small business acquisition podcast because we haven't found another yet. But we usually will anonymously talk about two companies for sale. And we're often joined by a guest to bring some kind of subject matter. expertise, which we have today. But I'm joined by Michael Girdley today, our co-host. Hey, Michael.

Good morning. And we have a very special guest today. Also a Michael, but Mike, Loftus. Mike, thanks so much for being here, man. Thanks for having us guys. So, Mike, give us the rundown on you. I just found you on Twitter and started following you. And it seems like you are the real deal in the sense that you have not just done one acquisition, but you've done a few and all within a specific niche. So tell us a little bit about your background. Sure. So I got a finance degree at SMU and played football there. And then I moved back to California and I had zero clue what I wanted to do. I just couldn't be cooped up. And that's one thing I made sure I couldn't do. And kind of stumbled around, stumbled around and kind of realized that I like being outside and I like plants. And I was talking to

my old man and he's like, well, commercial landscape maintenance, like, you should look into that. I'm like, well, I don't know anything about it at all. I think I've mowed two lawns and I think I was drunk one time in college, so I don't think that counts. And I was like, well, how do I learn? So I went and worked at a huge landscape company at minimum wage to learn everything. I did that for about a year and a half. And then I was like, you know what, I've dug enough holes, I've mowed enough lawns at

$15 an hour or $12 or whatever I was getting paid. I'm going to start my own thing. So it's kind of the classic grab a truck and a trailer and just, just beat down everybody's door and, you know, just very gradually brick by brick added, you know, add a guy, add another guy, at a truck, you know, I kind of slowly kind of creeped forward and then I got to a point where I'm just hitting a wall like, you know, I can't find people, getting accounts takes forever. So I just Googled, hey, landscape business for sale. And biz by sale comes up and I spent probably two, three days just diving into, you know,

all this different stuff for sale and learning a lot about, you know, what they want for it and what's good, what isn't good. And looked at a bunch, finally found one about four years ago that I liked, made an offer on it. And I closed the first one and I did two more cents, similar size. We're at about 54 employees now and learned a lot, a lot. That's awesome, man. really cool. So you did your, you did your kind of one year down and dirty apprenticeship in the trenches. How long ago was that? So that was eight years ago, eight and a half years ago. So I've had my own business seven years going on eight. Okay. So you're kind of in it for three years. Then you do your first acquisition and then you've kind of continued a role with

additional acquisition. Yeah. First three years, very slow, very unglamorous. But good learning. Love it. Love it. When's the last time that you actually performed landscape maintenance work. Oh, I would say six years? Nice. You're doing good, man. You're doing good. That means you have some redundancy in the business. All right, we're going to get into our deals. But before we do that, Michael, you have a word from one of our sponsors? Yes, in our never-ending quest to have this podcast break even. We have two sponsors today. So the first one is the folks from Moore, and they're at more.com. So that's

That's Greg and his team. We've talked to them, and if you're on Twitter and social media, you're seeing more and more people building teams offshore. So the more folks specialize in particularly building teams in the Philippines. So they do more than just virtual assistance. So you can bring in folks that are more specialized around marketing sales, operations as well. And they've helped people build teams,

the head of operations, supply chain, all that kind of stuff. And their model is pretty cool. they charge a fee as part of the first year salary, so a percentage there, just like a typical staffing agency, and then they do ongoing support and give a 12-month guarantee. So if you're interested in hiring folks overseas, especially in the Philippines, you can go to more now.com, talk to Greg and his folks,

and if you mention Acquisitions Anonymous, you get 20% off your first hire. So thanks to them for supporting podcasts today. That's awesome. Thanks, guys. All right, Michael, you have our first, deal, right? Yes, I have pulled this up. I always love a podcast. These podcasts, when we start with when the guest hates because they make really entertaining stuff. But Mike knows that this one

is one of those deals that looks cool at first, but then when you dig into it, it's actually horrendous. So I'm excited to learn from that. So it's a listing for Buy Biz Sell. The title of it is in contract, a luxury landscape design, build, maintenance firm located in Orange County, California. and for those of you not online, you can see, or not on YouTube, you can see that there's a beautiful picture of a wonderful backyard with an infinity pool and some crap like that. Based in Orange County, so Southern California, you know, Mike's backyard, they are asking a million dollars approximately for this business, $403,000 in cash flow they claim. Gross revenue is $1.3 million, has no inventory, and it's been around since 1987.

The way the description is, this is not an organization. manufacturing company for sale. This award-winning Orange County-based luxury landscape design-build maintenance company creates exceptional high-end outdoor experience for the most discerning homeowners. Typical design-build projects are over $100,000. So let's see. So if they're doing $1.2 million in revenue, that means they're doing about 12 projects a year? Okay, one a month. They also do maintenance services for luxury homeowners that want their landscapes maintained at the highest quality, and they do not compete with typical landscaping companies offering basic gardening services for tract homes. That's kind of a mean sentence.

The company had $1.2 million in sales of $400,000 in discretionary earnings for the owner and is on track for $1.5 million in sales in 2021. And they've been established for 30 years and has an experienced staff of six with several having been with the company for 20 years. It's been pre-approved by SBA lenders for qualified vendors with 10-year or qualified buyers with 10-year financing and a down payment of $100. 65,000. By the way, we learned in a previous episode, if you see the sentence, it's total BS. Like, there is no pre-approval for SBA. Also, just because SBA says something, that doesn't make it a good business. That's another interesting. Oh, SBA says it's good. You know, like, you should, you should too. I know.

This is a great point. Okay. So, the business being sold for a million dollars supposedly makes $400,000 in discretionary earnings. Seems like the owner is working in the business full-time in this situation. They are trying to lure you in with high SBA financing, and the owner is willing to finance a five-year note at 7% for $100,000 of the purchase price. So staff of six as an office manager, a couple of foremen, and then three construction and maintenance crew, and then there's a bunch of stuff in here about day-to-day. and it is, I think, important that the seller wants to retire after doing this for 30 years and is willing to stick around for a while, especially where the licensing is required.

So the C-27 landscape contractor's license, which I guess is a California thing, Mike, is that what that is? Yeah, a big deal in California. You got to have it. You got to have the license to do all kinds of stuff. You also have to have workers' comp, which is a big, big deal in California. It's a big hurdle. Yeah. Do you know what kind of license you need? to open landscaping business in Texas. It's a driver's license.

Yeah. And barely. Yeah. I left it at home. You're good. Yeah, Texas is wild. It's a different, it's the Wild West. It still is.

So what do we think of this one? So there's a few issues. So the margin that he says he's making is wild. There's no way he's making 400,000. So we can just start with that. I could slice that up a bunch of ways. But the other issue is... Why is that that's fantastic?

So a lot of times what these guys do is they have... There's six employees that handle, you know, part of these jobs. So these jobs are, you know, going to do plaster the pool, new patio, new pavers, new barbecue, new landscaping. So they might handle two of those in-house. And then they subcontract the rest of this work to other people. Where this guy makes his margin is he has subcontractors that aren't contractors. They're just guys in a truck that he can call that he pays out of pocket, which in the state of California is illegal because you got to have a license.

And that's where they're making a lot of this margin that this guy won't talk about. he's showing you that, yeah, six guys do all the work, which I don't buy. I have six guys and I know how much they can do. It's not that much. So you buy this business and you're like, oh, you know, this will be fine. I'll keep doing it this way. And then you realize, oh, if I have a moral compass or if I want to do things above board, as far as the state of California is concerned, I now have to hire licensed subcontractors,

which is totally fine, right? You could do that, but you're not going to make nearly as much money, right? Because those guys have more costs too. And then secondary to that, which I think is actually more important, is these six guys will leave for a dollar each an hour. So, you know, and those guys are gone.

This million bucks you just paid, see it. See you later. It's gone. Delta the window. The labor market out here is a bloodbath. It's absolutely every day is a bloodbath. It's absolutely every day is a, battle. Keeping people is not easy. And if you haven't done it before, it's not, it's,

I'll wish you luck. So for that reason, I don't like it. You also have to keep bidding work to win it. So you got to go keep landing, you know, $100,000 projects to keep it going. There's no reoccurring here. The day that you stop going and giving estimates is the day that you have no work. And it's hard for me to pay a multiple on cash flow, even if it's the right cash flow, where I have to keep bidding stuff and winning stuff constantly. There's no, you know, yeah, well, you know, I'm going to take a few months off. No, you got to keep bidding, you've got to keep winning. It's kind of a vicious cycle. So let's talk about that a little bit, because that's, that's my world. That's, that's what I do, right, in commercial roofing. We have probably 20% of our revenue is, is, you know,

recurring from service and maintenance work. But everything else we do, we have to win via bid. And I hear what you're saying, especially if, you know, if 90 to 100 percent of your revenue is recurring or reoccurring, right? Like, you get churned, right? And you think about customer acquisition costs and lifetime value of customer and all those things. I could totally see how if you're used to 90% of that or 100% of that, that you look at bid work and you just, you know, you start sweating and you get uncomfortable. And it's like, man, that's so unpredictable. I think there's a volume piece of that. That's a big, like, I have no problem with bid work, but you got to get a certain size. You got to have estimators. If you have it big enough, it can work, right? Yep. But also,

any economic downturn, this is, you know, projects at houses where people are pulling a second, and yeah, it's been 100 grand in the backyard. Absolutely not necessary. It's not a commercial roof where things have to be done, you know, on a $10 million building, right? I don't really count what you're saying as commercial roofing in the same bucket at all. Sure, sure. Yes. Yeah, no, I agree. I agree.

This is definitely a discretionary, you know, category of spending. I love that he says, you know, we don't do work in track homes. I've been to Orange County. I have not been over every square foot of Orange County, but I didn't see any track homes there, you know. So I thought that was kind of an interesting jab to make. But to me, there's this tradeoff, right? If you have reoccurring revenue like your business or recurring revenue like your business, then that's probably more competitive, right?

Everybody wants that stuff. And you could, as long as you're doing a good job, you're probably keeping it, right? It's sticky. It's very, very sticky. And chances are nobody's going to come in and be able to do it for like 60% of what you're doing it for, or at least not sustainably, right? they're not going to have the same quality or whatever. It's not apples to apples. But it is competitive, right? It's, you know, it's a bloodbath in the sense that everybody wants that work.

To me, the tradeoff with bid work, at least for us, is that there's more margin there, right? It is one time, right? And, you know, you may own a million dollar building and you're going to have to spend $200 and $250,000 on your roof. That may only happen once every 20 or 30 years, but that's why we extract maybe more margin, so speak. But when I hear you, I just am fascinated in kind of the difference, right, between the nature of those two different types of work. Yeah. And I think that, you know, on commercial roofing, I don't care how bad things are getting. They're going to mow the lawn outside. And if there's a leak, they're going to fix it. There's just not, there's not like, well, the market doesn't look very good. Like, well, I got a roof and I got to fix it. You know, this, you know, I need a $100,000

pool. No, that's going to be gone very quick. So with six full-time and employees in this business, Mike, do you, is this kind of like maybe a person in the office, you know, a person who's kind of answering the phone, like a very junior person, a person who's kind of wearing a bunch of hats, handling AR, AP, some administrative duties, and then everybody else is in the field, like a project manager? Yep. I think they got one person, she's probably remote and she's taking calls. She's probably scheduling new meetings for new work, probably cutting the payroll is my guess. If he is paying payroll

and not paying under the table, which that's something you'd find out once you dig into this more. But I'm guessing he's going one project at a time, then everybody goes to the same project. What do you think the chances are that this owner is not doing, if not 100% of the estimating,

then like 95% of the estimating? He's doing everything. Yeah. Yeah. It says here actually, and this one thing I do like about this listing, a lot of the business brokers try to obscure the fact that you're buying yourself a job, this one is at least truthful about it. It's like, look, you cannot be an absentee person

doing this business. And I guess, Mike, what you're saying, which is you suspect very strongly that if they're making this much money, they are doing some illegal stuff to get there, then there's no, you can't hire somebody to be like, welcome to the job. It's time to break the law. So I do, but I do like that they're at least honest about it, that, okay, like, you're not buying, you're not buying an asset here, you're buying yourself a job. Yeah, it's, I wouldn't want to buy a job at a multiple, so. Yeah. Yeah, it's super interesting. And I guess there's also a slippery slope that if you're okay paying subs under the table, what other shenanigans are you doing with regards to some of these W-2 employees, especially, you know, in a bloodbath labor market,

like you're talking about, is he, is he handed people cash under the table? Is he doing shenanigans around that stuff. Once you start, it's hard to stop. And there's also different power dynamics within the six people, right? Even if they're all above board, they're great guys, everything. If that main guy,

that foreman guy, he could come to you and say, you know what, if he understands where he's at and then he can say, we all want five more bucks an hour, all of us, or we're going to leave tomorrow.

There's nothing you can do. You're going to pay them because you have no option. You're fresh into this industry. It's not like you have a list of 40 people you can go call. You don't have anybody banging on your door like, hey, I want a job. It doesn't exist. So that's another risk you're going to take getting into this.

Is there a price you pay for this business, Mike? I mean, clearly not two and a half times SDE seller discretionary earnings. I think it's a, you know, if he wanted to throw his hands up and I'm done, I'm done, I'm done, I got to go. I'm moving to Texas. It's the end of the world. I hate California. I'd say I'll give you $10,000 down, and I'll give you a piece of what I make for two years.

And you don't like that deal? No problem. I'm going to sit back. I'm going to wait for more deals to come. And you have to sell. I don't have to buy. And I like being in that situation. Yeah.

Well, it is consistent Mills with something we've seen a lot, which is there's a number of these businesses just have no transferable value whatsoever, right? it's not worth anything to anybody but you. And maybe even worth negative. Like you're going to have to pay somebody to take it off your hands. You'd have to pay me to take this. A lot of money.

Yeah. So I guess though, like when you look at it, right, and this is something we bump into a lot, you know, people are doing real estate deals for, you know, like four and a half caps. And here you have a business that if you just, you know, if you put $100,000 down, right? And let's say the margin is not real, right? And you deal with a bunch of surprises and the cash flow is only, you know, $200,000 a year. You know, you got some debt service. It's probably, you know, call it maybe $80,000 a year.

Like, you're still buying an okay job and trying to price it for a bunch of things going wrong. Like, as an outsider, right? I don't want to buy this business. but if I were in Orange County and I needed something to do and I wasn't afraid to work and get my hands dirty, except for the fact that this is all, you know, one time work and it's very discretionary. The price doesn't seem like crazy outlandish to me just right as a multiple. And I think a lot of people, right, if they're used to looking at real estate deals or used to looking at deals up market even in the lower middle market, they look at this and they're like, how could I go wrong? It's like two and a half times SDE. And you're saying, yes, yeah, it can erode. The more I think about it, the one person that should buy this is someone who's young and scrappy and who wants to make a deal with this guy, whether it's, hey, I'll work for you for a year at this wage, and then I'll buy you out over four or five years.

I'm talking about somebody that doesn't have any assets to bring to the table, except for time and effort. And then after, you know, four or five years, you own a business, right? and you can kind of correct things that weren't right and grow it if you want. And, you know, if he is making $2.50, you know, that's not bad over here. And that's not, that's not 10 hours a day what this guy's doing. I guarantee you. You can do this and four hours a day.

So if you just look at multiples of landscape businesses in your segment of the market and the things that you look at and because you obviously know what transacts because you've done three acquisitions, right? and then you own one kind of legacy business you created. And you see stuff, right, that gets away or like what you have, you have a good finger on the pulse of it. If this was reoccurring revenue is two and a half times reasonable? If it was reoccurring and they had the right staff in place,

there's no way he'd be making 400 on, you know, 1.2. Sure. Let's say it. I think he could squeeze 200, you know. And I think, in this market you can get, you know, two to three, you know, and I think the financing becomes very interesting relating to that price, right? Yep, yep.

Interesting. All right, well, let's hear a word from our other sponsor, and then let's look at a deal that we may like a little bit more. Cool. Our second sponsor is cloud bookkeeping. So we've talked before. This is Mike, by the way, this is our only sponsor that happens to be one. one of my neighbors.

I met Charlie through this podcast. So the power of social media is that I'm connecting with people that live three blocks away. So what Charlie does, and he's got an all US-based staff, is outsourced bookkeeping for small businesses. So he and I went to lunch, seemed like somebody I would trust doing my books. And they specialize in QuickBooks oriented bookkeeping.

And so if you're in the market for wanting to get your company, out of doing your books and focus on things that are more important, you can try them. And you can reach Charlie and his folks at cloudbookkeeping.com. Great domain name does exactly what they talk about. And yeah, give them a try. I think good pricing model and good service and good people. And they're from San Antonio. So like, you know, it's wins, wins all around.

So thanks to cloudbookkeeping.com for sponsoring the podcast today. So back to you, Mills. Yeah, thanks. This next one, we're going to anonymize a little bit. and not pull up a teaser or a sem, we're just going to kind of obfuscate the details a little bit. So this business is also based in Southern California. It is a landscape and commercial property maintenance business.

So still within Mike's wheelhouse. The business has been around since the 70s. They're asking a little over $1.5 million, and they want almost all of that down, cash up front, but they're willing to hold a little bit of a seller's note, about 10% sellers note. And the business has kind of held steady from the revenue that we can see. In 2018, it was, you know, a little over a million bucks. 2019, a little bit of growth still a little over a million dollars. 2020, still in that range. But then on a trailing 12-month basis,

and these numbers are kind of from the end of 2021, the business has grown a good bit. It's up over one and a half million. And the earnings on that in the previous, years was all kind of, you know, low 300s to mid-300,000 dollars in SDE is what they're saying. Obviously, in the last 12 months, as the business has grown from, you know, kind of 1.1, 1.2, to this 1.6 level, a lot of that has fallen to the bottom line. And their SDE reported is a little over half a million dollars. They're saying that they hold very little inventory, you know, a few thousand dollars and that the estimated fair market value of their equipment is just a tad over 300,000. They've got, you know, some facilities, some yard space and storage space. The rent is nominal,

you know, less than $1,000 a month. They have 14 employees and they say that it's, you know, recurring and returning revenue, stable income stream. They've got a good customer base and the organization's really efficient. It's interesting. So this business actually, you know, We said it's been around since the 70s, but it was acquired by someone a handful of years ago, not too long ago, about, I guess, five years ago. And they've grown the company, and I guess they're looking to transition. So it seems like they've made some improvements, like they have GPS in their vehicles, right? Not typical of a mom-and-pop business that's been around for, you know, almost 50 years.

And they use, you know, internet-based time, you know, time tracking for their employees. They have, they say they have 14 loyal employees, but then they also can occasionally use, you know, independent contractors. The business, you know, they're showing some historical financials that go back prior to the acquisition. And it looks like, you know, it's kind of held steady, right, until this last 12 months. The current owner, you know, lives, I think it looks like in the area, but manages most of everything remotely. and then, you know, he travels into the company, so he's just within driving distance, you know, one day a week. He's saying he spends 10 hours a week on the business doing, you know, scheduling, you know, some kind of customer requests, overseeing an office manager, doing some spot inspections it looks like, approving the billing, you know,

in any kind of major equipment purchasing and training and those kind of things. Maybe let's kind of leave it at that because, Mike, you know this deal better and, you, you know this deal better. you'll kind of help us hit the highlights of it. What things jump out at you about this business? Good, good, bad, and ugly. So the first thing that jumps out, I think someone on Twitter actually mentioned something similar, is when people say the reason they're selling is for other opportunities, right?

So tell me about your opportunity that's 10 hours a week that makes you half a million dollars. And what's better than that? Because I want to look at that. You know, this is interesting, but I want to go look at it. whatever is a better opportunity than that. Yeah, show me the deal that you're going to redeploy. Yeah, love to see that one too. So that's a little fishy to me.

You know, it looks like a pump and dump a little bit. You know, you added half a million dollars of revenue in a year. I'm in the business. You know, I think it also says on there that there's no advertising. So I love to hear how you explain that one to me. You know, maybe you got a big customer. or something like that. But in my mind, this is a, you know, a business that does 1.1 or 1.2 million.

You know, you're the average of three, four years. You're not your last year. So in my mind, the 500 is an interesting number. Might be real for that one year. But to me, it's a 1.1 making 300. Yep. And I would base, you know, an offer based on that and not just on, you know, hey, here's this beautiful year I put together.

you should pay me multiple on this beautiful year. So that's my take. Does this kind of fall into that category of business that we're not really sure what COVID did to that business for the long term? And of course, the seller wants to use this past year as the basis for valuation. You're the buyer you want to use the average of the last five years. I don't think this, COVID has not affected this guy, in my mind.

It's all exterior stuff at buildings, which has stayed really steady throughout everything. So why did they see, do you have any theory for why they saw such a big bump during COVID time? Yeah, I think they got a big customer. I think he acquired, he got some customer that represented, you know, half a million in work or 400. And I think he saw a good opportunity to sell. That's my intuition. The info we have does say, and I didn't get to this part, but, you know, they have one account that's 30,

30% of their revenue. And the top three customers are like almost 50% of revenue. So yeah, it could be right. Looking, you need to look at that historically and really get detail on the history of those accounts. But, you know, okay, yeah, 1.6 million in revenue, 30% of that, you know, so maybe had a little bit of organic growth, but then a lot maybe came from one account. Mike, so is this work typically, you know, obviously if you're going to a homeowner, you know, it's just kind of month to month, right? They can cancel any time or maybe they have a one-year contract or something and you cut them a break. The commercial work may have a little bit more contractual basis, but I'm thinking like not necessarily just to a building owner.

Like if you went to a municipality, right, and said, hey, we're going to handle, and it doesn't seem like these guys are doing this, but like we're going to, you know, we're going to keep the parks, right, or a couple parks or the side of the road, right, or some public space. or around municipal buildings. That might be maybe three-year contract at the most. Yeah, they're one to three. Okay. It's interesting you bring that up. So the city stuff is, you know, razor thin margin. You're playing with big, big players who are massive, and they'll only let you make so much.

Sure, it's a one-to-three-year contract. But at the end of that contract, you're rebidding it, and all those guys are coming back trying to take it. Whereas you have these, you know, one-off. buildings or shopping centers or whatever that are technically a 30-day contract. But in reality, it's a contract till, you know, you mess up most of the time. Yep. Yep. And somebody who wants to grind you on the price every, you know, 60 days, that's not a customer you want anyway. So it's kind of a get out of here.

It's really, you're hinting about one of those things that is, I've seen it happen in software too, where people are like, I want to have two-year contracts or I want to buy a business with three-year contracts. and when you get into it, you understand that eventually there's some things that are a lot more attractive about being just months to month with an indeterminate amount, right? There's no break point where some building manager has to be like, okay, well, it's time to renegotiate and shop our deal because it's up. And there's also the other side is if, you know, and one of the things I'm worried about with this business is if you start having to pay $30 an hour to have people go out and do the maintenance and you're stuck

in a fixed price contract, what happens to your margins? So, yeah, you can't respond to cost increases, you know, very, you know, in a very agile way. So how do you think about the labor pressure on a business like this? It's not as bad. You have more people. But I think that the real pressure here is, you know, do you know how to keep these customers?

Do you know how much, you know, you want to buy stuff that's low touch? the more times I have to reach out, meet with you, all the stuff, that means if I'm not doing it, I got to pay somebody to do it. So I make less.

This kind of work, the good news about this, I guarantee you it's very low touch. They've had these customers, you know, that million dollars solid that he has, that's been there for a while and it's going to stay

as long as you kind of do what you're supposed to do. You know, in looking through this material, there's, you know, they said $300,000 worth of assets. And I, you know, I would think, okay, a million bucks, landscaping.

You know, you got trucks, trailers, stuff like that. But they have three pretty big, you know, specific pieces of equipment, like, you know, sweepers. And this is an interesting facet of this business that they have sweeping routes. You know, so you got three trucks. That means three drivers, right? And they sweep seven nights a week from 9 p.m. to 7 a.m. That is super interesting, probably, you know, reoccurring in nature, right? That's going to be a contract with a municipality or a neighborhood or an HOA or something. But, man, that's kind of asset intensive, right? One of those trucks goes out and those aren't, you know, it's not a $50,000 pickup truck. No, no. The new stuff can be $150,000. Easy. Yeah. Yeah. I think on the flip side.

That's 50% of SDE on a normalized basis, right? For one truck, I give three. This, The sweeping stuff is very valuable. They don't come up a ton because they're easy to run. I talked to a guy that has a small one and he said, you know what, Mike, I work 45 minutes a day, you know, and my company makes, you know, 10,000 bucks a month. And, you know, I hang out with my wife. I get my coffee, go about my day.

And, you know, I got two guys that run around, you know. And I think it's got to work for you, not necessarily, you know, anybody else. it seems like part of this company's strategy is we do landscaping, we do sweeping, we'll pressure wash, we do, they have Dave Porter down. What is that? Like, hey, you're doing some work in your yard and you want us to send you a guy? So basically Dave Porter is at a building shopping center oriented. You got trash cans, you got all this different stuff. You kind of, you have to have someone goes by and takes the trash out, you know, cleans up. You know, if somebody dump some crap. you got to have someone that picks it up. And that's going to probably, you know, it's kind of sweeping down, you know, sidewalks and kind of just keeping things generally clean, which is, it's recurring,

and it's a good business. I agree. And it's interesting because if this guy gets a new property, let's say, hey, we want a landscape quote. Okay, you go in there, you get the landscaping quote. Oh, by the way, we do sweeping, and we can do pressure washing, and I'll make you a package deal.

Yeah. You know, so you almost can double, you double on every customer you get. You can potentially get, you know, the other facet of your business to grow as well. What do you think of that strategy? Like, hey, you know, we're the one-stop shop, right, for some of these, for some of these needs versus, hey, all we do is pressure washing, right? Or all we do is landscape service. Do you guys, have you employed a similar strategy? A little bit.

An interesting thing about this one for, let's say you're a bigger landscaper, a quarter. acquiring this is the first day that you acquire this business, you're going to all your existing customers and you say, hey guys, you know, all this, you know, two, 300 buildings or whatever you have, we offer, we offer sweeping now. Yeah. Do you want to quote, you know, and you kind of overnight can can cross-pollinate those and probably grow just, just on the customers you already have once you understand that, that side of it. Yeah, yeah. So my, If you were to pursue this deal, which it sounds like you might be, you sound much more enthusiastic about this than the big-dime building dumpster fire we looked at before.

So how would you underwrite a deal like this? Like how do you figure out what you're willing to pay for, what you would offer, and maybe even second step of that, how would you justify it to the seller? So in my mind, you know, last year was an outlier, and I'm not paying you multiple of that. So I can kind of almost, you know, it's great you had a good year. It's interesting. It's better than a bad year. But I'm going to look at who you really are. You're doing 1.1, 1.2, and you make 300.

So I'm basing my multiple on 300 and not at 500. And also understanding the market. This is not a big player. You're not going to have 10 people beaten down the door that are, that really know what they're doing that are going to get in here and make real offers. So I would base my multiple on the 300. and I think I think two to three times is very reasonable

at that multiple so I think you're in the seven to 900 to a million range and then you know then come in the financing is as a big part of this yeah what could you elaborate on that what do you mean by that?

You know I think you know buying a business is like the Wild West at the small level right you know, you can technically walk in with, you know, three gold bars and 100,000 in cash and say, this is a down payment. There's no, there's no rule against that. There's no rule against seller finance. There's no rule against, you know, I'll pay you over 22 years that you can make up anything you want, basically. The seller has to agree and you have to agree. And obviously, there's going to be a document, you know, in between that. But, you know, it's very wild.

Southwest and what's available and what he'll accept. He might say, I want it all now, and that's it. I might say, okay, well, you know, maybe this isn't a deal, right? So I just kind of take the approach, Mike, of, you know, I'm thrilled that he just gave me his price, right? And I've found it to be really helpful in the past for me to end negotiations say, great, I'll pay you your price. But under my terms, right? So if you want a top tick and you want the multiple to be based off of the last 12 months, there's going to be some teeth, right, in this structure.

Because if, like, and obviously I'm not going to do this. I couldn't do this because you have the bandwidth and the capacity and the operations to fold this in. But if I were in your shoes, I would probably be thinking about it. And it's easy for me to say in the cheap seats, I'd be thinking about it going in saying, hey, look, I'll pay you the price that you want under my terms. but a big portion of this is going to be earned out or in a, you know, a seller note that maybe has some, you know, downside protection or a clawback. And, you know, if we're pricing it based on, you know, 500,000 in earnings, then you're going to get fully paid if we maintain $500,000 in earnings, right? For the accounts, right, or based on attrition or however, you want to measure it. And, you know, you probably want it based on earnings and he probably wants it based on revenue or something like that. But I think there's probably a scenario. right, where, and it takes some work, right, some education on his part and communication to build that trust and help show him a path towards, here's how you're going to get the number you want,

but I'm not giving you $1.5 million the day of closing and you ride off into the sunset. It usually, people aren't usually thrilled about it, right? Right out of the gate. Like, sure, I'll just take it. But if what you're saying, you know, pans out, which is that his door isn't going to get, you know, knocked down, a few months goes by, you keep in touch, you hang around the hoop, and then all of a sudden he's like, you know what? I mean, I keep getting low ball offers. And you're like, well, actually, those are market.

You know, those aren't low ball. They're market offers. But, you know, hey, what do you think about that offer I gave you that's kind of creative and gets you to your number? I've seen that work and work fairly consistently. Not every time, right? Because as one of my friends said, all the fools aren't dead, right? Somebody could come overpay him for this business.

But I, to me, if like, if you want to get aggressive, That's the way to do it, right? You're to show him how you want to hit his number. Completely right. So, you know, your price, my terms, I love that. That's huge. I think that the most underrated thing you just said is the teeth, right? So if he's going to take a note back, we're going, hey, you make half a million bucks, right?

You make half a million bucks? Okay. Well, you know, I better make half a million for five years. You know, and if I don't, if it's really a 300, well, you're going to take a haircut. Yep. it's you can do it it's just you know it's going to be a battle because you know that if he's not really doing the 500 you know he's going to battle you back and forth back and forth the whole way the whole way down the road yeah oh people people will you know law you know and pat themselves

on the back about their earnings and how confident they are and yeah this is sustainable and you know we're not going to churn these contracts for whatever it may be and then all the sudden when they're you know, when the road goes both ways, right, then you'll really test that metal, right? And I've seen cases where they're like, no, I feel confident. I'll back that up. And I am willing to roll risk forward or, you know, however you're able to structure it. If that's the case, I'd love to pay you $1.5. No problem over time, but I'll pay you out your $1.5. If you really make half a million bucks, no problem. I like what you said. I mean, it's very true. It is the Wild West. You could show up with three gold bars and a stack of cash and, you know, whatever deal structure you want,

hey, I'll pay you a dollar a year for the next 20 years, and then I'm going to pay you one point. Then I'll pay you $2 million, right, 20 years from now. You can make up whatever you want. And the small, this is all the small deal stuff. I mean, you know, it's, like you said, you got to be creative. And, you know, I think look at what other people have done and, you know, listen to podcasts like this is a perfect example, you know, where people come in with all kinds of ideas and ways of structure and ways to, you know, attack these.

Mike, this was really good, man. What are you going to do as we wrap this one up? Are you going to pursue this one? I'm definitely going to meet with the seller and kind of see, get more into the weeds as far as the details of stuff that's kind of not on paper. I think another really interesting thing about when you do your, you know, initial meeting with the seller is, you know, is this a man of? integrity. The person you're meeting, do you believe this person? Do you think that they're

a good person? You know, that's not in the numbers. It never is. And all the guys that I bought a business from, old school, buy the book, very, you know, steady eddy kind of guys. And, you know, I think it's, I think it's difficult for someone like that to go make up three years of books and be this, this sneaky, right? Yeah, yeah. So I think that the meeting with the seller is a huge deal, huge, huge deal. That's not on paper. Yeah. Yeah, absolutely.

You can learn probably as much in five minutes, right, as you need to know. But then getting that face to face, it helps them bet you to your, right? I mean, that's a big part of you're choosing, but also they're choosing. Well, you have to keep us updated on how it goes. Yeah, we'll do. You know, one thing that always is interesting to me in the small business world is how aggressive of, you know, anticipated timeline. line to close sellers want. Oh, yeah.

Right. You've done this several times, right? This isn't like, you know, hey, you know, 45 days, 60 days to close, you know, something like that. It's, you know, in nine months, right, this deal could be getting done or longer, right? It just depends on how long it takes for things to kind of germinate and actually take root. So keep us posted, man.

We're rooting for you. We'll do. Big thanks to our two sponsors. More now. If you're looking for the ability to hire and retain talent from overseas, more now seems like a really good kind of turnkey solution to that. So thank you to those guys and to cloud bookkeeping.com. If you have any cloud bookkeeping needs or bookkeeping needs that you're thinking about upgrading and getting a trusted partner, you should give those guys a look.

Mike, what can our guests do to follow along with your journey and see what you're doing and support you in whatever way? So the only social media I'm on is Twitter and my handle is sign the fronts. It's something I stole for my dad when he would talk about his business saying, yeah, I'm just signing the fronts of checks. It's all I'm doing, you know, not signing the back. So it's kind of a little homage to my dad. But yeah, so you can find me on Twitter at sign the fronts. I love that. I had one of my jobs, when my first job, one of the coworkers was complaining to the boss, and the boss said, you know what? The differences between you and me, I sign the front of the check and you sign the back. I love that. That's really good.

Yeah. Well, thanks, Mike. Looking forward to following along. And thanks to everybody for listening. We'll see you again next week. Thanks for having me, guys.