How I Value Potential Acquisitions | 317

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Download my FREE 8-Figure Playbook

This playbook walks through the exact process I used to build from $0 in 2016 to $50M+/year today across multiple franchise brands

Grab it here: https://brianbeers.kit.com/b79cf77012

Let's connect:

Find me on X
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Transcript

0:00

Welcome back to the Business with Beers podcast, your daily dose for strategies, insights, and tools to help you build an eight-figure business. Today we're going to talk about business acquisitions. I have a number of deals I am working on right now that are in our pipeline to buy existing shops that are looking to retire, right? So they've been in business a long time and they're saying, I'm I'm done, I'm ready to retire. You've probably heard about this. Some people call it the silver tsunami. And it's real, man, it's a real thing. There are a lot of people who've been in business for the last 20, 30, 40 years, and they want to get out. They're tired. But guess what? Their kids don't want these businesses. They're hard businesses to run. They often, you know, buy themselves a job and they feel like it took me a long time to get up to this point. And like, I, you know, a lot of times the kids want to be in AI and they want to be in tech and they want to be in all these other things, not an auto repair business or a plumbing business or a roofing or pest control or senior care or anything that's like work. So if you're willing to do the work and build the systems and the teams like I've done, then this is a great, great opportunity, but potentially one of the best of our lifetime. And so, how do you find these deals? Well, like we find them any way that we can. We have through relationships and referrals. We find them through literally cold calling. Like we find multiple people that we buy, we drive by a shop, or if if you're in a different business, just you drive by and then you literally call them, right? And so some of them we do ourselves, some of them I have a number of guys that uh will just make cold calls on our behalf and then they you know get the commissions if they if they help get the deals done. Um we've knocked on doors, right? We send mailers. My content helps me. Like that's one of the reasons I do it. And so there's lots and lots of people out there for those willing to do the work to find it. You can have these opportunities. Now, the challenge though is that these guys have been doing the same business for 40 years in some cases. So selling it is a very big decision. And I can tell you, they don't move fast. You are gonna want to get the deal done in 30 days, 45 days. They're thinking six months, a year, two years from now. And it, I mean, I had a guy that I man, I worked with him for like five years. He ended up selling it to somebody else. I I kind of it the whole thing was like a weird arrangement. But it like these guys also get in their head that the businesses are worth way more than what they're actually worth or the real estate's worth. Everyone thinks it's worth $2 million. No matter who you talk to, no matter what the price is, they all think it's worth $2 million or more. They just like pick a random number. Where in reality, like in my business, as automotive repair, it's probably worth like a million, maybe one, two. Like we are we are on the like lower scale of dollars per square foot or business valuations. And so, like, in some cases, yeah, like it's worth probably more to not be an automotive repair shop. But in some cases, like they want to keep it an automotive shop, they want uh to give their people an opportunity to get employed by us or whoever you know buys it. They feel like it's a pillar in their community and they don't want it to be. Other times, like it just can't be redeveloped, like it can't, it doesn't have the square footage or whatever the thing is to be something else. And so automotive, it it stays, okay. Now, we are trying to buy the business and the real estate whenever it's possible. We want to control as much of the dirt as we can. We also, you know, I'm young, I'm 38 years old. Like, I'm gonna be in this game a long time. I like the idea of buying the real estate. We we pay it, you know, the business helps pay it down, and then you know, I've got a bunch of real estate that we own, which then, you know, maybe could be redeveloped, or maybe we're we sell it and we get rent. And you know, it's just a way to build asset. Real estate's a great way to have a long-term wealth building. It is a terrible way, in my opinion, to get uh like rich quickly, right? It's it's a long-term play, unless you're actively doing like that's all your business, right? But if you're listening to this, you're trying to try and you're probably trying to build a business through business, like operating an operating business, um, not the real estate. So, um, and by the way, I am helping other franchisees and small business owners think through acquisitions like the one I'm about to tell you every single week inside of eight-figure franchisee. Guys are bringing deals, we're diving into negotiation strategies, seller financing, potential terms to structure, banking relationships, all this stuff. So if you're doing at least a million dollars in revenue and you're willing to do whatever it takes and you're coachable and you want to win to get to $10 million or more, then click send me a text at the bottom of this podcast description, or on Instagram, if we're for friends, Brian TBR, just shoot me a DM. Tell me, tell me you listen to the podcast, you want to know what it look, what looks like to work together, and I can send you more information. So here's my framework of when I'm looking at deals. A couple things. One location within the footprint. I talked about this yesterday on the pod uh when I'm looking at like I want to color in the line. So the the closer the location is within a footprint that we currently operate, the better. That's my first thing. Does it fit our model? So, like, ideally, we find a shop in in our business that fits as similar to what we already do as possible. If it's like real janky or real totally different configuration and multiple buildings, like not ideal. Uh copy, paste, copy, paste. It's like the whole point of building a multi-unit uh business. And here's where it gets tricky. The next thing we have to we have to figure out is a renovation budget. So if we were to buy an independent Bob's Tire and Motive or Dave's service center, there we have to make it look like our brand, right? So we're gonna have to upgrade equipment possible. We have to upgrade facade, paint, waiting room, signage, maybe you have to redo the roof. It's a leaking. We're gonna probably make sure the structure's good. We're probably gonna repave the parking lot and stripe it. And we're gonna have grand open marketing, we're to pay franchise fees, like we're gonna have a bunch of costs on day one to get that up to our standard. And yeah, like we could cut corners, we could keep that paint an extra year, we could like, we could make it look really uh just like cheap, but like that's not our style. Like, we intentionally invest in these things so that we can have be perceived and deliver on higher quality work and then charge more and then make more money. So, like we want to put money in to make put to take money out. So uh we were to spend in my business at least $100,000 on every one of these, probably $250 on the high end. It could go higher, but like $250 right now is kind of like the max uh of the things that we're looking at. And so when I'm considering any of these deals, that is a huge factor, right? Is how much more do I have to put into this thing to get it up to the level that I'm gonna play at. So then what I look at is what is gonna be my purchase price of the the business and the real estate. Now, you know, when you come to an evaluate evaluation of what's it worth, it's kind of like it's it's it's a hard thing because like the the the the real estate will be worth a certain amount of money, $200, $300 a square foot, let's say. But then the business potentially is worth something, right? But the challenge for me in in all these is that like if they've been going to Bob's tire and auto or whatever it is for for a million years, are they necessarily going to come to uh Midas? Some of them will, but some of them won't, right? Some of them are gonna go find another independent, they don't want to work with a national brand, even though they were family-owned. There, but there is no guarantee that we are gonna continue um that business. Some of the things I'm looking at are transmission shops. We don't do transmissions. So, like any money that they're doing in transmission work, like literally not gonna happen for me. Or if it's a used tire shop or glass shop or a um tint wrap, right? There's like all these services that, yeah, their business is making money. And if someone else bought that business and continued under the same name in the same exact thing, then then yeah, there's value to that. But that's my challenge is that I can't, I can't say just because you're making 200 grand out of this thing, like that's not gonna translate to me directly. I might make more than 200, totally possible, but I also might make less if we lose a bunch of people for a period of time until we get it going. So I like to look at it not as like, oh, it's this plus this, but more of like what's my total budget? All right. So what's the total amount of money that I'm gonna outlay for this business uh and the real estate and equipment and just like everything that you've got, and then I'm gonna take that number and I'm gonna add my renovation budget. So for example, if I'm looking at a $1.3 million purchase, which includes the real estate, the assets in it, like the equipment and stuff, the business, quote unquote, which is like really just like the phone number, uh, because we're not gonna like we're not gonna do anything with a customer list. Like, and I think, okay, $1.3 million. Then I'm gonna add my $200,000 that I think it's gonna take to renovate this thing and get it up to my standard. So now I'm all in at $1.5 million. Okay. I'm gonna need $300,000 down because most banks are gonna require 20%. And that would put me, uh, right now we're at like a 6% amortization or 6% interest rate. I normally can get about a 25-year amortization, which put my monthly payment right at $7,000, almost $8,000. Okay. So that's like that's the way I'm thinking about it, is more of what's my total amount of money that's gonna cost me to get into this thing? How much money do I need down? And then what's my monthly payment gonna be? Because we're in a cash flow business, right? Like, we're not in this big equity multiple that I'm gonna have some big 10x or um you know payday one day. Like this business needs to be making money every single month. And then one day I'm gonna sell it, but it's not gonna be at like some some massive thing like SpaceX or Tesla, right? Like it just it just doesn't happen. So I can't bank on that. I need to bank on cash flow. So this thing has to make money every single month. And so, first step, get your total renovation, figure out what your monthly nuts are gonna be on your on your debt. Most of the time, if you're doing renovate, if you're buying a building and you're doing renovations and equipment, all like assets that are like in the like building improvements, generally you can wrap all those into your uh rent, you the same loan, which is kind of nice because then on that 200k, you get um you know, you get that 25 year like amortization to pay it off. Versus if I give it a separate, you might only get like a five or 10 year, so your payments would be higher until it's paid off. Okay. Then what we're gonna do, so we got we got the payment, then we're gonna look at the the projection of how much money do I think this store can do. For us, we average about $1.5 million a year in revenue per shop. Uh, so like at minimum, I'm gonna be like, this thing's got to do at least $1.2 million a month, but ideally we get it to our average, if not a $2 million store. Now we have multiple stores that are due to $2 million. I have a few stores that are that are tapping on $3 million. So we know that like we have the systems and the process to be able to hit those bigger numbers. And it's really this question of can this site, can this market, uh, how long do we think it would take to get us to the level that we're like excited to be in? Now, we allocate 7% of our revenue to rent payments. So on a $1.2 million a year store, that would be about $7,000 a month. So I would just take $1.2 times 7% divided by 12, about 7K. If I think the store can do $1.5 million or it's a $1.5 million store, about $9,000 would be our like budget for rent. And if it's a $2 million store, you know, it's like $11,000 to $12,000 a month, is what we can afford. I like to think of it in percentages. I'm not gonna get into all that today, but like I think about my entire business in percentages, way easier to slice and dice and know if you're like you're on target or off. So now the rent question is in this case, because we're buying it, is really our mortgage plus a little bit of margin. Because I don't want the the rent, the mortgage number to be what the market rent is. In case eventually, what if it doesn't work? And we say, hey, we gotta like like we're selling it, I gotta charge another franchisee rent or like a competitor or like an independent independent shop. Like, and if if my mortgage payment is higher than what the market rent or somebody's willing to pay, then I'm like upside down on the whole thing. So you gotta be we gotta be careful to not uh go too aggressive on the purchase price without being like without this like longer term uh like I guess vision or plan or just like backstop of it all. So back to my example, that $1.5 million budget gave me a seven, almost $8,000 a month rent, which means as long as the business is doing between 1.2 to 1.5, then I can afford to pay it. And I have lots of stores in that number, I my average is higher. And so I'm like, all right, that's a totally reasonable, right? Like if that's good, then everything else should be fine. We should make the our our target margins. If it was like my rent and mortgage and all the stuff would be like $13,000, right? It's like this big, big number. And I'm like, I don't know about the site. Like, I think the site can only do like one, three, but then we have this giant rent. Now rent's all all of a sudden like 10 or 11% of your revenue. It's like that all comes right out of your profit. So that's really the point of the exercise is really have good, tight controls on your numbers to know what you can afford to pay every single month so that the business can can be profitable in a cash flow month-to-month basis. The final thing that I do like and that is a benefit to this strategy is you're also taking out a competitor. So in our case, you know, if if that guy's currently doing $1.2, $1.3 million of revenue, all of a sudden that $1.2's gotta go somewhere. So it might come to us, versus if I just took uh one of those new development deals I talked about the other day across the street, like all of a sudden now we're competing for that same customers versus I take them out, then like it's it's more likely that I can gain a bigger market share quicker. So uh always a benefit. So these are all the things that I'm looking at for you. Develop a clear buy box. Yesterday we talked about development buy boxes. Today, uh think through like acquisition buy boxes, specifically around what does your total budget have to be, your your renovation budget, and then uh what does that final payment look like in your in your model, right? And if you want my help or you want my coaching, I work with a small number of new people every month that we get added to to the program. We help you go from at least at least a million dollars to $10 million or more. So just send me a text. Happy to tell you more. And uh I would love to help you build an eight figure business. Cheers.