Acquisitions Anonymous - #1 for business buying, selling and operating - Weird & Wonderful War Stories with Clint Fiore - Acquisitions Anonymous Episode 102

Episode Date: June 15, 2022

Mills Snell (@thegeneralmills) is joined by Clint Fiore (@ClintFiore), to talk about 2 War Stories where we get the broker's perspective. We have an aging owner, health issues, family dynamics, and Key operators involved. Then we have a second Deal where there’s some creative financing that must happen in order for the Deal to come through.-----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:(0:00) - Introduction to Weird & wonderful War Stories with Clint Fiore(1:07) - Our sponsor is Cloudbookkeeping.com(3:39) - 1st story: The owner has a terminal illness & wants to sell(7:30) - Walk us through a normal valuation process: How many sellers agree with it?(8:00) - A seller’s perspective on minority owners: Avoid these mistakes.(11:35) - There’s a systemic risk: General Manager needs to be involved in the Deal(14:01) - Is it possible to use Equity instead of cash? Did you need third-party appraisals?(19:25) - What is special about management buyouts?(22:35) - 2nd story: Winning through a creative earn-out (25:34) - How to identify your low-hanging fruit for businesses on sale(28:22) - What did you turn around to add that value?(33:30) - What makes a seller pull out after LOI(40:09) - How did you establish an earnout scheme?(46:02) - Begin with the end in mind is my biggest advice-----Links:* https://cloudbookkeeping.com/-----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:#96 From W-2 to Business Owner - Patrick Dichter tells us how to cold reach seller and we discuss 2 Deals#92 Wait... what? You laid-off 90% of your staff?!? - Pete Erickson joined us for an exciting WarStories episode!#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]

Welcome back, everybody, to another episode of Acquisitions Anonymous. I'm Mills Snell, one of your co-host. We have a really fun episode for you today with a repeat guest, Clint Fiori. Clint is with Texas business buyers. We're going to get the broker's perspective today. And this is a war stories episode. So we're actually talking about what we have aptly named weird and wonderful. This is our weird and wonderful episode. We talk about a very kind of weird situation. We have an aging owner, health issues, kind of right down to the buyer, does the deal get done? There's family dynamics. There's kind of some creative financing that has to happen, but it does include the SBA. It's a good story, and it's one that's indicative of a lot of scenarios that I've seen and that we see in this lower end of the middle market. And then the wonderful is a creative earnout that Clint used in a really good situation. It created a win-win scenario for a seller, and we talk about it in pretty specific detail. I ask Clint a lot of questions about how it was structured, what was it based on, what's the amortization of the earn out, all those kind of things. So I think these details will be really helpful. And we had a

really fun chat with Clint. So I hope you enjoy and stay tuned for a quick word from one of our sponsors. Hey, Michael here. Want to talk to you about today's sponsor for the episode, which is cloud bookkeeping.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. So, 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 and cloudbookkeeping.com as the sponsor for today's episode. Clint, thanks for being back here again. Really enjoyed the first time around and you had some good stories and things have really, I think, continued to progress for you

since you were last on. I saw that you hit the 10,000 Twitter follower mark and it seems like you guys are doing good things at your brokerage firm. And thanks for coming back on to being willing to talk about some war stories and some experience from the trenches. Yeah, I appreciate you having me back. Well, you've brought some, I think, good and interesting topics today for us to talk about some things that are specific instances you've been through, but I also think that they're kind of indicative of the situations that a lot of buyers find themselves running into. Not every deal is perfect, not every, you know, path to LOI, and path to close is, you know, a smooth, well-paved path.

And so let's chat through some of these. You brought some interesting things, and I'll pepper you with questions until we decided it's time to move on to the next one. So let's maybe start with. You had one that is, I think, common, but hopefully not as common, is a situation where maybe there's terminal illness or, you know, an owner who's passing away or some kind of really acute need that helps precipitate the sale process. Yeah, so the stories I have today, I've got some kind of weird and wonderful examples to talk

through war stories. That might be the title for the episode is weird and wonderful. Weird and wonderful. But I just want to emphasize that every deal is different. No deal's done until it's done. And we can script this thing as much as we want, but you always get curveballs and you have to be adaptable and able to adjust on the fly if you want to succeed in this industry. And the stuff we'll talk about today is kind of why I think I have job security as a broker

because this is just stuff that no computer program can just spit out the answer to. It's a human dance every time. And there's health and personal stuff and egos and all these things. So, yeah, let's dive into the first one to talk about. And this was a situation where you've got to. an owner in his 80s. We're talking about a West Texas water well drilling company. Been around forever.

Very good reputation. I'm not going to use the name of the company or the exact numbers, but I'll approximate things. So call it, you know, a million-ish dollar deal. And just a delightful old man owns it. Everybody loves. But at this point in his life, he just kind of ambles into the office, fools around trading stocks on his computer and is the ornery old man in the corner, but he's got a GM that is running the show. The GM has a stake in the company. So years ago, this owner,

minority stake? Yes. So, and I'm thinking it was about 20%. And he earned that over the years, as he had been the long-term GM for, I'm thinking like 20, 25 years. So he didn't, he didn't come in and write a check, he, you know, it was kind of vested equity. Sweat equity. Yeah. Sweat equity over time. And so the cap table is essentially just the owner and his GM. The daughter of the owner called me, the daughter's a friend of mine. And she said, hey, Clint, I need you to go talk to my dad. He's in bad health. He has no plan on how to sell this business. And I'm just worried about it. And she had the perfect daughter instincts here. that you'll see was spot on later.

But she introduces me. I meet with the owner privately and value the business. And he is wanting to sell and be done. And everything's great for me. Like he believes my valuation. We tee it up in a way that's going to be SBA financeable, put a bow on it. It's a nice company. Everything looks good.

and so we engage. But I know this manager is what worries me because they didn't actually have a plan of how he was going to, is he going to go with this deal or is he going to want to buy it? But the owner's like, you know, he's probably not going to be able to buy it

because he doesn't have two nickels to rub together. He was like a divorce. He had just gone through a nasty divorce, had no money. And so the owner's thinking, this guy's probably not our buyer, but he's a key person and he needs to go with the deal. So you mentioned something that I just want to hit on and you said that the seller agreed with your valuation. How many, what percentage of the time is that the case?

Never. I mean, it's, it's, it's probably less than 10% of the time. Usually, actually, I wouldn't say that. They usually wanted more, but half the time, half the time they reluctant agree and say because we take the time when we present valuation we we don't leave them a leg to stand on we go into full details we go asset approach income approach market comps we show them how we got there and and they know we're trying to get to the best evaluation we can actually defend and get done and so usually once we take them through that educational process they usually agree even though the number nine times out of ten is is a lower number than they were they were hoping helping.

Yeah. All right. Second question on that is, you know, it's typical in an operating room and a partnership agreement for there to be drag along tag along rights, which for listeners who may maybe have or haven't gotten into that level of detail. As a majority owner, you want to make sure that if you're selling the business, that minority owners can be drug along into the sale, meaning they can't kind of hold out there and say, no, you can sell your 80%, and I'm going to keep my 20%, and, you know, the new owner has to deal

with me. There's also tag along rights, which is more for minority shareholder protection to say, hey, look, if you're selling the bulk of this business, I have to go along with it. I want to make sure I get a piece of the sale. In your typical review and engagement process and maybe brokers as a whole, you're trying to sell this guy. You're trying to get information from them and get them engaged. Are you reviewing like corporate governance documents? Are you getting to that level of detail? Or does it just emerge more naturally in due diligence with sellers? We do grab that stuff up front. My nightmare is to have surprises at the end of a deal.

So I try to grab tax returns, corporate docs, all that stuff. I don't always do it pre-engagement, but right after I get engaged, I kind of start populating the due diligence folder and reviewing all that stuff. But in this case, I did probe for that right up front because I could anticipate this might be an issue. Yeah, this is a red flag. Yeah. And it's just a back of the napkin kind of. of deal. It's a good old boy, West Texas, old guy, and like his corporate docs were

were non-existent. Which is true 95% of the time, right? Like, you have two partners and they're like, yeah, we meant to get an operating agreement 30 years ago and we never got one. So, yeah, that's certainly, you know, no shame to the people who don't have their corporate governance documents in place, but there's attorneys out there who would be happy to help you. Yeah, exactly. And so we didn't have drag along, tag along. We didn't have any of those things. in place. And so my first order business was, you know, we valued the business. We started building the package on it. And I said, I've got to talk to this manager and I've got to have kind of a private conversation here. So I went on another meeting and I didn't have the owner there. I just

went with the GM. And, and I said, hey, Mr. GM, like, I'm Clint and I'm your friend here. you know and kind of yeah and you know we know this guy needs to sail off into the sunset get out of his corner and be able to fully retire and he wants to sell the business and i just kind of said all right there's a menu of options here like you could buy the business you could we could sell it to someone else and you could sell out with it we just will probably need you for a time to help transition it or you know different things and he was immediately kind of bristly Like he, this scared him, this rattled him. He had a very comfortable, comfortable life and made good money and didn't like at all the idea of someone else coming in and buying this business that was his little kingdom at this point because the owner had been so hands off.

And so this created this kind of systemic risk to the whole thing because it was clear he was not. not going to play ball. And at that point, it was kind of, it is becoming clear to me if we don't, if we don't figure out how this guy buys this business, he's probably going to sabotage this deal and make it virtually impossible to sell. It's going to make it very difficult to sell, or at least get what it's worth. At that point, you know, I talked to the family and we just kind shifted gears and said we're going to really focus on winning the manager over into this concept of we're going to help you become the new business owner. And so, you know, I had it packaged up as if we were going to third party buyers and we did have it on the market briefly,

but we brought an SBA lender into the conversation to meet with the owner because we had to solve the money issue of you know at first it was the buyer was like or the manager was like oh if he wants to sell it to me that's great but I don't have money and I just got a divorce and I can't buy this thing and

every excuse in the book and what the problem was is like the daughters of the owner didn't get along with the GM they were oil and water they didn't like each other and they were worried about dad's going to pass away and we're going to be partners with this guy that we don't that doesn't like us we don't like him they get he gets along okay with the old man but not with

the daughters and that we're the heirs um and so thankfully we were able to kind of get him to buy in on this idea of like okay if we can figure out how to do this and um where you're not having any money out of pocket that you don't have any ways and we can get you the right financing lined up, and we can make sure, you know, and so I had to basically educate him the whole way on how the SBA loan process works. So was he able to,

was he able to use his, his, you know, existing equity as equity? Yeah. Yeah. Yeah. And so that's, that's something that is a lesson up in this is,

you can gift or earn, you know, give sweat equity to a key employee and they can use that in lieu of, they can use it as their equity. in lieu of cash changing in closing yeah I had never done that before this deal

so I kind of learned this on this deal but there is a you can't do it like the month before closing there's a certain amount of years that it has to be seasoned what was what did the like loan to value

end up being did you have to get like third party appraisal and things like that yeah so I had to convince him that the value was the value I had to kind of walk him through the value show him my kind of convince him that I was unbiased here and this is what it would go for to someone

else and then the SBA process itself helps because they require a third-party valuation and the bank's due diligence and the banks the bank's underwriting of the deal gives the buyer a little bit more warm fuzzy because the bank's kind of on the same boat as them as they we got to make sure this thing is actually worth that much and that you can repay us exactly yeah so so the this was it really became a whole like financial advising and bringing financial advisors and counselors to walk him through this and I had to educate him on all this process and get him on board and we eventually did get a SBA loan and what we did was we decided to just sell him to business and write a long-term lease on the property because it was an owner-occupied piece of real

estate. And long story short, happy ending was he got his SBA loan. We got him where there's no more, no seller financing. We got it completely done with his equity and the bank. So he's not dealing with the heirs as his debt holders, which is probably a big requirement for him and for them. Yeah. So the heirs became landlords. We had a long-term lease. But not the bank. Exactly, yeah. So we got true mailbox money.

The airs have the real estate. And that's really what they wanted was the land and real estate that it was on because it was on a big piece of property. And the guy got what he wanted, which was 100% ownership and control of the business. And he's done phenomenal with it. And it's probably going to change his life and future forever because he's going to have this seven-figure asset that he'll own. free and clear in a few years that he had no path for that but the you know the sad part was the owner did did end up passing away he was on dialysis while we were doing the deal so I would he just had he was a sweet old man he had a great great attitude we all loved him and and so he would be

in the be in the hospital or on dialysis then we meet um to update on the deal we'd always go to restaurant. He's just a very generous man. He always insists on buying me lunch. He was always just kind of like standing grandpa for me and giving me advice. This is just a wonderful man and the daughters were so grateful, you know, that it got done because if that daughter hadn't called me when she was, we were literally within about a one month where this whole thing would have gone sideways. Yeah. And we were probably able to preserve about a million dollars of goodwill value for the, for this family for the estate.

Yeah. Yeah, for the estate that would have gone away. It would have been a mess. Were you guys to the point where you were like making sure that there was, you know, POA, power of attorney

and things like that in case he did pass away mid-deal or did that not really come into play? It did. So one of his daughters did have the kind of the keys to the estate if needed. So we had thought about that. But yeah, we cut it.

We ended up cutting it really close. And, yeah, I think it was just within the next month or two after the deal closed. They ended up passing away. And they gave me a little momentum of his pocket knife he carried around every day. I still have it as a gift from the family. And so it just felt it was a feel, it was a sad in a way, but he lived this long, happy life with a family that loved him. And they helped him, they raised their hand at the blast moment. I said, hey, dad, you've got to figure this out.

And so just kind of a word of encouragement and warning if you're in that situation with an aging parent with the business. Like you have to get that plan figured out. And especially if you have an equity owner in this thing, you've got to get those documents in place. And you've got to think through just because they're the natural buyer of choice doesn't mean that they've got their ducks in our own. And doesn't mean that they're on board with. Yeah. Yeah. On board to get this done.

So we had to do all of that in a very rapid kind of almost. under duress situation, but got it done. A couple of things stand out to me on this one that, you know, you definitely see if you've been around the block a few times. Right out of the gate, in the first 30 seconds of you describing this, major red flag to me is 80-year-old owner. You know, it, like, it says probably something, like, fantastic person, right? The kind of guy you want to go have lunch with and, like, is just probably an amazing

human being. It probably says something about some of the systems and the culture of the business. if an 80-year-old owner is still there, you know, you just start to realize, okay, the type of manager who is typically kind of subservient under that type of owner, you know, it may not be the person who's going to grab the reins and say, hey, give me this thing. I want to do a majority buyout. I want to take it over. But you see those things from time to time. And to me, I have a lot of questions or I have a lot of assumptions when I go into a scenario like that. second one is the family dynamics of business ownership are prevalent 100% of the time it's just that a lot of times they might be underneath the surface you know the spouse is a big driving force if and when they're still alive in this case you know it was children who you know who were very involved but i've been um constantly surprised at how much you know power a spouse has how much influence a spouse has over you know

sometimes it's pressuring the sale like hey i'm really ready for us to go move to the beach full times or whatever it may be or be be more present with our grandkids and you know my spouse who owns the business is not able to do that but that's that's almost always in in the background the last thing i'll say about this is management buyouts i think are so good so powerful so effective but they also are so precarious because like you mentioned if this guy let's say the aging owner, the, you know, terminally ill owner is out of the picture. That's not a dynamic. If you try a management buyout and it doesn't, you know, it doesn't go well, you're losing your key management because chances of them tasting and seeing what's possible with ownership, understanding the earnings power of the business, feeling like they're going to be owners and then it all eroding.

I've seen it a lot of times where failed management. buyout means like gutted management team and that is brutal especially for somebody who's you know thinking about selling the business or then going and trying to sell the business to a third party seller and they're like why do you have all this turnover you know in in the recent history yeah we were I mean I knew what I was looking at right away that we were we were pretty much dead in the water if this guy walked and he and he threatened to right off the bat you know and and it took it took some soft soft skills and and really that's a broker's job I think is kind of navigating those tough conversations under the surface of these situations is usually decades of conversations they've

been meaning to have but have avoided and you've got to step in in this case an accelerated situation and tactfully have all those conversations that they've just been kicking the can down the road and now we're at the end of the road and guys it's time let's get let's get it's figure out kudos to you on that one. And you're right. A lot of times you're sitting across the table from a seller and they're talking to you about things that they haven't talked to their spouse about. They haven't talked to their closest friends about.

And you realize this is a real place of vulnerability for them. All right. Let's talk about the next one. You had one where you described a creative earnout. And sometimes creative workouts are necessary. And sometimes creative earnouts are shenanigans, you know, that are used to try and create a, like a win-lose deal. So I think you got a good one,

more of the former than the latter. But tell us about this scenario. Yeah, so this was a fun one. There was a time when I was a little greener in my career that I was trying to do consulting because I didn't have as strong of a deal pipeline and I was trying to make some money to feed the kids in between deals. And so I got this certification called Value Builder

that allowed me to, it exists to kind of, help an owner maximize their value prior to exit. And I had done this webinar with score, and they had me teaching about maximizing business value prior to exit. And I got a caller, came in from that. And it was this lady in her 60s. Her reason for sale was she has a 10-year-old husband, or 10-year-old husband.

And that came off a little weird. but yeah and so he wants her to retire she's got plenty of energy and is building this fast-growing company but they realize you know this is a personal reason we're only getting out so many years together we've got to enjoy it and and try to cash this thing out so I valued the business and sure enough it was lower than she was hoping you know and this is typical I because I could well it was it was one of those um i think i valued it around 600,000 and most people that have a small business they always want a million dollars at one of those smoke clears it always seems to be like this magic like i want my million dollars and on this one that seemed

to be the case of you know they had invested they had other assets but they still had a nice nice business the business was evolving and this was the interesting part is, you know, I said, okay, I could do Value Builder with you and help you grow the business or we could get you $500,000, $600K right now. Your choice. I'm here for it, whatever you want to do. And she's like, yeah. And I'm like, you know, the only thing is, is we're going to meet monthly and you need to do what I say

because this doesn't work unless you put in the work. Are you willing to put in the work? And she was, and I believed her. And most owners aren't. You know, most owners, when they call me, they're. stick a fork in me, I'm done. I don't want to, I don't want to build value right now. I just want to cash in my chips. But she was willing to, and she did. She was very faithful. We worked together for about a year and doubled the value of the company. What kind of things were you guys doing,

Clint? I mean, is this better working capital management? Is it focusing on, you know, increased margins, higher margin work? What talks through just like high level? Because this applies to every business for so yeah high level the value builder scores me on eight different metrics and you kind of figure out where's my little hanging fruit here and i immediately saw um there was this huge opportunity in uh basically done for you services so uh she did this specialized consulting for um for schools i'm trying not to give away exactly what it was but but imagine it's a it's an industry that's highly regulated where people get into it to serve children, but then they realize they're running a multi-million dollar business that's in a highly regulated environment that has a bunch of

red tape. And she has this major, she's like a financial whiz and good at compliance. And she came in and helped one of her friends. The her origin story was she was semi-retired from a big consultancy. and she came in and helped one of her friends in this situation, just figure out how to navigate the compliance and office management and financial management of this type of operation. And then she became an expert at it. And then she had other people calling her, hey, can you help me with mine?

Can you help me with mine? And she had no interest in doing it. And so she's like, I know what I'll do. I'll start a business. I'll make videos and I'll teach people how to do this so they can better run their operations. So you're thinking about just going to teach you the easy way to go through the red tape and the compliance in this in this industry. Right. And so she had made hundreds of videos and packaged them beautifully into these nice packages, which her sales were their repeat.

She got approved for continuing education credits for this type of operation. And it was a good recurring revenue. But each sale was like, you know, 300 bucks here, 500 bucks here, or 600 bucks here, 600 bucks here. or 600 bucks here with these packages of educational videos that she would keep updating as a regulations change. So it's a nice little business. But she still had people that were saying, that's all well and good, but can you just do it for us? And she's like, well, there's only one of me. So I'll tell you what, I'll just hire somebody and plug them in. And now instead of charging a few hundred bucks, she can charge tens of thousands for almost like, like a fractional back office management type of thing with the specialists that are in this space.

And that worked. And she had maybe a half dozen clients that were these big dollar, very sticky clients. And my light bulb came off of when I was looking at that business. I was like, you got to stop selling these videos and sell more, sell more of these big dollar things. because, and she was like, yeah, I've been wanting to, and I've got some bids out. And I'm like, well, how are you getting your customers? And she's like, well, I get referrals. Somebody finds out, I do this, and then they tell their friend, and that comes in.

And so every year she would get one or two more. And I said, hey, you've got 3,000 people over here watching your videos. Do they know this even exists? And she's like, yeah. And I'm like, and she didn't, she didn't, she'd never put it together. right? And so to me it was like a no-brainer, but I'm more of a sales and marketing guy. And I'm like, all right, here's what we're going to do. We're going to shoot videos and we're going to do pre-roll post-roll on all these videos. And we're going to add it to every single one.

And you're going to say, her name, her name was Karen. And it's like, hey, I'm Karen. Today's video. I'm going to show you exactly how to do XYZ. This is the same process we use with our done for you clients when we come in and do this for. But she's not even selling. She hated sales. Sales was a bad word. And I love sales. And I'm like, okay, Karen, we're going to teach you how to sell without selling.

You know, we're just going to do it. We're just going to be subtle. And all you're doing is educating. You're a good educator. So let's just educate. Let's not sell. And so at the very end of the video, she'd say, okay. And what you've seen, that's exactly how we do it for clients that we do this for them.

And for our next video, click here, you know, whatever. but just those two little hints, the beginning and the end of each video, her phone started ringing off the hook of like, oh my gosh, you could just do this. You could just do this for us. And so you unlock basically some value in the business by turning on a more predictable revenue stream on higher margin revenue, which if you compare kind of preimposed that decision, the financials have measurable difference in terms of the revenue and the profitability, if I had to guess.

Yeah, exactly. And here we introduced kind of a double-edged sword because now it starts rocket ship growth. And the million dollars she wanted is now well within reach where I'm like, okay, like every quarter I was kind of updating the valuation. And seeing like as a broker, what do I think I can get you? When it hit that point, which only took probably three quarters, I was like, okay, we got your million. no problem even after fees and everything you're going to get your million bucks um because these were you know three year contracts she was signing this this was solid stuff yeah very marketable revenue and cash flow to it to yeah and i knew buyers were going to love it you know and it's growing and there's

a strong pipeline but now she's like well maybe we should ride it a little further and so what sucks is she told me yes like let's do it right and and so i i prepare the package i go to market get tons of interest from good buyers we have all the buyer meetings screen them and we find this this couple that's just the sweetest couple that is the perfect match we have dinner together sparks fly home run like this is our buyer we want to do it they put in a very clean full price offer and we get assigned LOI and she so she signs the LOI she's like yeah great they hit my number they hit asking price. It's not like heavily contingent, you know, seller financing, earn out. It's like we're going to, you're going to walk away money. It's a finance deal and you're

going to walk away with money for a complete sale, 100% of the business. Yep. And so I think we're good. I think we're good as gold, right? And then as we're going through, you know, between L of Y and closing, there's usually a good 60 to 90 days there. She, she lands another big account, like a big one. And now, and then she's got maybe six bids out. And she's thinking, man, I'm going to get probably five or six of these. And she starts seeing dollar signs. And she knows the game now. I've been teaching her for a year how to build value. I've been teaching her how these deals turn into enterprise value pretty immediately with the, with the way we had tweaked her business model. And so now she's thinking, holy crap, I could get a million and a half in another

six months or you know this and so it's it makes sense and so it's almost like these older sellers they're playing chicken with like the timing of you know in the meantime husbands had a surgery for something and you know i see him with an eye patch on next time i see him and and he's like and i know he wants her to be out but she's riding this rocket ship now and having fun and and gets a lot of meaning from that. And, and, and she pulls the deal on me. So, okay, so you're under LOI. She's got a large amount of revenue that has a high probability of, of hitting. And what does she do? I mean, does she basically, she says, hey, look, I'm not, I mean, I'm, LOIs are non-binding for, for, you know, for those, those of you who haven't been in that process. And she says, I'm, I can't move

forward. I, I want to go capture some of this revenue and cash flow. Like, I'm about to get a bunch of new accounts. Let's take it off the market. I just need six more months, Clint. I promise you I'm going to use you to sell the business. I actually still want to sell it to this buyer. Just tell them six months from now. And I'm like, oh, crap.

Because how far into due diligence are they? Like, have they drafted legal documents? Have they? Yeah, we're drafting legal docs. Yeah. And these were well off buyers that we were, I don't even think we were using, a bank.

And this is what made it fun. This is when the light bulb came on. This is another lesson. For your listeners that are going SBA lending, you have to know that process inside and out because there's certain levers you can pull and there's ways you can play with an SBA loan to get different goals accomplished.

But when you're outside of the SBA world, it is game on. Like you can do anything you want, creatively. And so when she pulled it on me, I was just heartbroken because I love these buyers and they were deep into this thing. They were gung-ho. I mean, they were already like had somebody on deck that they wanted to hire into this thing to help them run it. And so, you know, Karen's like very apologetic. She's like, I love these buyers. But it's just like, oh, it's going so well. I just want to wait. And so I just said, you know what? Can we just go to dinner? Me and you. Let's leave the

wires out of this. And we went to dinner and I, you know, we agreed, okay, when you first met me, a million bucks is what you really want, right? We have that in our hand right now. Your reason was that you could spend time with your husband, right? Because you don't know how much time you have to spend and you want to enjoy it. This is still the reason, right? You have to go kind of under the surface as to what's really going on here. And so we had to kind of zoom out. and take that holistic view here, like, why are we here? What's, what are we doing here, you know? And, and we agreed, like, we did achieve our goals. So what's, what's the fear behind this or what's the thing that you're, that's hanging you up here that says, give me another six months?

And, and it really came down to the money part of, you know, the retirement will enjoy is going to be a lot better if we can, if I can work another six months. and make a bunch more money, et cetera, right? And so... Which is absolutely fair. Like, if you're being prudent, you're being a good steward of your business, you're staring down X amount of dollars of free cash flow over the next six months and then whatever the multiple is on increased earnings,

it's probably a material amount of money. So, you know, totally fair for her to ask these questions. And she was right. Yeah, yeah. She was right. And she's very smart. Like, she's smarter than me. extremely accomplished business person and I was really impressed with her performance as an

operator here and she she really turned it on when I asked her to and so nothing but respect for her I get it but I just pulled out a blank sheet of paper at that dinner and I said all right let's just pretend we want to sell it now and we want to achieve everything that we just said how could we do that. So basically reverse engineer. Yep. And so I had told at this point the deal is dead. I had already had the call to the buyers because she was serious. Like she, it was done, right? And so I said, sorry, but she wants to take out of the market. She wants y'all to be the first ones in. She's going to relook at this in six months. Probably be a little bit higher, but it'll be worth it because of all this stuff.

and they were just they got it to but they were very disappointed because they wanted this was their dream business it was like they'd been searching for a long time and this was perfect that checked every checkboxes for them

and so I already knew they were like Clint we get it if there's anything we can do to save this thing or bring her back to the table just let us know we don't want to wait six months we want to do this right now and so that's where I was with the buyers when I went to have this dinner

and when I had this dinner we just pulled out the sheet of paper and said, all right, how can we do this where everybody gets what they want? The buyers get what they want. You get what you want. And we ended up basically reworking the deal where we closed it essentially where it was at right now. But we did an agreement for her. You're going to stay CEO for six to 12 months. And then your job is going to be to land these contracts that are out there. And these buyers are going to take all operational responsibility off plate for delivering.

All you got to do is schmooze the owners and land the stuff that's in the pipeline, those big deals. And then we kind of reverse engineered the numbers to say, what would this deal be worth if these landed on the next six months? And we wrote that into an earn out contract. And it turns out, and we went back to the buyers. and pitch them on this. And they loved the idea because it was really no risk to them.

It was each contract that lands, even paying the seller, you know, the additional point, which was going to turn into a note, not into cash. Okay. I want to talk about this. Yeah, yeah. So, um, so basically, so basically you close, she sells 100% of the business. She remains CEO in title. her compensation stays the same for six to 12 six nine 12 months and her sole focus is hey let's take all the

headaches off your plate you just get to go be a closer close these things these identified opportunities for everyone that we close we are going to let's say it's a dollar of revenue right where you guys basing it on revenue were you basing it on profitability revenue okay so for every dollar of revenue that you generate, we're going to pay you some factor of that, some ratio of that. Yeah, we essentially took how the current translated into valuation and just applied that same formula to the hypothetical stuff hanging out there. So if the business was trading it one and a half times revenue, every dollar of revenue that gets added, they're going to pay her one and a half times that. But it's not, hey, here comes a dollar of revenue and we have to turn around and pay you a dollar

50 because you end up upside down really quick. But we have a time where we're going to do the math. And we actually in the paperwork, we listed out the specific clients that are on the hook. So there was not all new revenue in the next 12 months. So there's maybe 20 of them out there that she's going to try to land and she's got a window of time to do that. And then we have the formula set, the time and day that we're going to do this math set. And then we close the deal.

So 12 months from now, we're going to do the math, figure out what all landed. We're going to apply this formula to that revenue. And we're going to establish a seller's note at that point for, let's just say, $500,000 at a preset interest rate at a preset amortization period. And she gets cash at close that she's already gotten. And then she's going to receive residual payments on the revenue she helped bring in. Right. And so what was the magic of this one was,

it was the coolest win, win, win for all three of us. But six months was the best six months of that business is life post-closing, because she was so motivated. She saw the finish line. She didn't have any other distraction. She didn't have to handle the people drama of the day-to-day oversight of the business. All she had to do was stay focused on closing those deals. And they were set up like Domino's.

and she knocked him down. And in the next six months, the business doubled. The earn out ended up being roughly exactly equal to the sale of the business. So we got another million bucks six months later, but it was structured in, I think, a five or ten-year note. So now she gets to sell off an unmanageable burden for the company's cash flow. Right. Yeah. And the way the math worked out, it was all gravy for the buyers.

So the buyers were actually delighted to take on another million dollars of debt because they were covered by these long-term, sticky customers that all were entering with like three-year contracts. And they almost never quit after the three years either. And so they were positive cash flow on every single one that happened. And so every deal she closed, they made more money. Yeah, it was accretive for everybody. What, Clint, what, how long ago did this transaction? action happened. Was this like a month ago or was it more than a year ago? This was three years ago. So it was a few years ago. What's what I mean you kind of have the you know the benefit of hindsight now and

looking at it as it continued to pan out well for these these buyers. I mean it's obviously yeah I talked to them not long ago. They they've taken the business three or four X from when we closed and so they have now a middle market yeah powerhouse business. business and this was the perfect kind of acquisition for them. They were experienced business people. They were just new to this industry and they could see the vision. And so it's really panned out for them. I think at this point they've got at least an eight figure value company. And you said to them, here is what it here. Here's my engagement letter and we can get started right away. Yeah, exactly. Yeah. They've already told me they want they want to use me when they sell. And that's,

That's what is fun is if you keep these relationships. And I've always tried to be the broker that even though I'm engaged with the sellers, I end up kind of being best friends with the buyers. They need your help kind of navigating through the tough, you know, when that seller wakes up that one morning and says, never mind, I need to wait, pull it. If you don't have that buffer there, if you don't have that broker there to kind of get creative, solve that problem, find a way that everybody gets.

it's what they want, then you're just out of luck as a buyer. And so those buyers love me for solving that problem in a way that considered their side, not just try to get my seller the most money, but also how can we structure this that it's a win-win? Yeah. And now they're going to be my repeat customer down the road because they saw that I handled it in a way that was winning all around. Yeah. And so that's a deal we like to do.

Yeah. Any closing thoughts on this one before we wrap up? These were good. What did you call it? Wild and Wonderful. The weird and wonderful. Weird and wonderful. That is going to be the title, Mirko.

Make a note of that. That's definitely going to be the title. Any closing thoughts, Clint? These have been two good ones. No, I mean, I would just say, this is a lot of lessons for sellers on this one, is to don't get your valuation when you're ready to sell. you know like if she had come to me years earlier we could have done a very clean deal we could have figured out this sweet spot of how to grow this business and position it to sell earlier and not have to ride the emotional roller coaster of the timing of her retirement and enjoying time with her husband and all those things and so begin with the end in mind is is my biggest advice for people that own businesses is regularly update yourself on what is your business work today what is my exit plan and in and how can I make sure, you know, you always want to own a business where you kind of know

what it's worth. You never want to sell it, but you easily could. And you easily could sell it for big bucks. And that's the kind of business you want to own. Well, and I think it's also true. We can invert this and think about it from the buyer's perspective. If you walk into a meeting, whether it's brokered or off market or just, you know, conversation with a friend who's a business owner, and all of a sudden you hear them, they're 80 years old, they haven't thought about it, they have family issues, health issues, they haven't prepared their valuation. They don't know what the business is worth, but they know they need a gazillion dollars. You can reverse engineer.

You can invert this and figure out, hey, here is a scenario that those deals get done all the time, but they're probably going to have some difficulty. They're going to have some friction. And I've seen plenty of cases where somebody has a great off market deal. There's no broker involved. Everything's going great. And then the rug gets pulled out from. under them and the seller just goes dark.

And they're like, well, I don't know what's happening. And you kind of don't have an avenue to figure it out because the seller may just something came up and you don't have any way to, to, you know, hear and back channel and understand what happened and nobody to kind of help, you know, reinforce like you did. So kudos to you on, on those deals. And I know you got many more stories. So we'll come back for another round, another time. And it'll, you know, I know it'll be good and helpful to folks.

Clint, that was awesome, man. What can our listeners do to follow along with your journey and you post deals regularly? You talk about deals that are live. So what can our listeners do to stay abreast with what you're doing? Yeah, there's a couple ways. I would love to meet the listeners and help them out on their deals. But my Twitter account has had tons of action lately. It's kind of been Grand Central Station of people buying and selling deals.

My Twitter handles Clint Fiore. It's at C-L-I-N-T-F-I-O-R-E. And there's also a newsletter I put out that's right on my Twitter page called Probably a Good Deal. And probably a Good Deal.com is where you find that. And it's kind of a funny name, but it's exactly what it sounds like is I find deals. And once I know enough to think this is probably a good deal, then we'll send it down to the newsletter subscribers. But it has that probably grain of solid. It's like, I'm not vouching for it.

I can't, I didn't do my due diligence. on it but I've been around the block enough where I can kind of say it's probably a good deal. And so we do that and then our main brokerage is in Texas, Texas Businessbuyers.com if you ever want to check out our business. But really, really appreciate you have me on Mills. Yeah. Thanks.