Screw Banks… Buy Your Next Business With This | 347

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Transcript

SPEAKER_00 0:00

Welcome back to the Business of Beers Podcast, your daily dose of strategies, tools, and tips to help you build an eight-figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.

SPEAKER_01 0:16

Screw the banks. That's what I say. Chase Bank made $57 billion last year. And Bank of America, $30 billion. Wells Fargo, $20 billion. And they do it off of all the small business owners who walk in begging for a loan, paying their fees, jumping through tons of hoops, putting up their house as collateral, and doing all these things. But, you know, I've I've grown my business now significantly over the last couple years, and none of these banks got a single penny from me. I've acquired 35 auto repair franchises now in the last 10 years. Two of them, the first two that I ever did, were funded with a bank loan. Four we funded with cash, which includes two that were uh basically just startups where we like took over a competitor's location so didn't require that much. And the other 29 through seller financing. Didn't use the banks at all. In the the Midas business 35 stores as of today, all the yellow dots we acquired with seller financing. And so, and the craziest part is that the sellers preferred it this way. They wanted to lend me the money. And every time I talk about this, you know, the biggest question is why, right? Why would someone rather get paid over eight years, 10 years? I have one that's 12 years, fully just like amortized over 12 years, instead of just getting cash today. And so I'm gonna I'm going to break it down, kind of the reasons, the psychology, a bunch of the numbers. I'm gonna give you some real data, some real numbers, show you some PLs. Uh, that's the stuff that I love to see. So I figured if I'm gonna be sharing all this stuff with you guys, that's what um that's what I'm gonna give to you. So let's get rolling. The first thing is it's this mental game of you're not asking for a loan when I do these. I'm becoming their retirement plan. That's the mentality. Because as business owners, you're addicted to cash flow, right? You're used almost your whole life, even as like an employee, right? Every week you get paid, every two weeks you get paid. Maybe as a business owner, you might take distributions once a month, whatever the rhythm is. Like you live your life off cash flow. That's what the sense of security comes in because you have all these bills that have to go out, you have money coming in. And this idea for many of them of getting a lump sum payment, like a bunch of money all at once, is like terrifying. That they lose control, they give it to a financial advisor who maybe they don't even use right now, and now they're relying on that person to use that money to generate income. And for a lot of them, if from the all the deals that I've done, it's more comfortable for them to bet on me and to say, like, I'll I become their retirement plan because they they they trust that you know we are gonna perform. And and it's in an asset that they already know and that they've been doing maybe for 10 or 20 years, which is their own business or the business that used to be theirs. But they know that better than putting it in the stock market or putting it in bonds or or insurance product or whatever. And so I am the retirement for seven families, and plus I had two that are, you know, I've already paid off. Tracy, Herb, Herb, Dave, Kathy, Jay, Paul, Jason and Rich already got paid. And like I take it very seriously in terms of like understanding that it's not a faceless bank. These are like real people who have spent their whole lives, you know, working, and in some cases, you know, they are relying on me to fund their income for the next 10 or 12 years in some of these. And so I take it super seriously. Uh, it is part of the conversation and the pitch that we have is is this, and and for the fact, you know, I've been doing this long enough that you know, I've never even been late on a single payment. And so I have a track record. And so sometimes when we're looking at new deals, I'm happy to give referrals to nine other people who who we've done it before. And you know, we're gonna be you know, we have good credit, right? Uh in in this way. And they get ACH. Every month they get an ACH. And so it kind of is like this peace of mind for someone looking to get out uh that they can get those payments. And then here's the first deal I ever did. And so, funny enough, they came to me. So I have a I'm a franchisee in the Midas. At the time, I had three stores. I I became friends with an with another owner who was older and looking to retire. And, you know, I always wanted to buy a store. And he had like, you know, he would like call me all the time and ask me questions. And uh, you know, I I really wanted to build a relationship with him. And, you know, he would tell me, you know, when I want to sell, you'll be the first to call. And it's like, great, great. Uh and so he comes to me one day and says, All right, I'm ready to sell, Brian. Uh, here's the deal. I want you to um, the store's making about a hundred grand a year. Uh I want fifty thousand dollars down, and I want you to pay me like three thousand dollars a month for a period of time, and then you can owe me a blue payment after a number of years. And I'm like, wait, what? Like, what are you talking about? I had no idea that seller financing was a thing. I didn't even know what it was called. But he comes to me and he he explained, you know, that this is how it's gonna work. And we don't have to deal with the banks, we don't have to deal with anyone else. Like, we can just get the lawyers together, we drafted the paperwork, we can get this thing done in you know, 30 days. It's pretty quick. And so what the deal ended up being here was pretty much exactly that. I mean, I I I like the numbers. I had I had nothing to complain about. Uh so the stores make about 100. 350 was the purchase price, so three and a half times, which yeah, maybe is a little rich for what it was, but we're gonna get into this of like why they do it. And sometimes it's because you can get more money uh when you have flexible terms. Down payment was 52,500, 3150 if you want the exact numbers. And so, what does it actually look like? So, when you're doing these deals, uh like what are the documents, what do they look like? Uh so you have a couple. I'm gonna go over real briefly. I'm not trying to get too into like all the legal stuff here. And and I use really good lawyers that I've used the same law firm for 10 years, they've done every single deal. Huge, huge uh benefit or you know, important things. Like, you got to have good lawyers who know what they're talking about here. But basically how it works is you know, you have a purchase agreement. You say, hey, this is the assets we're buying, this is like the business, and we set the purchase price, and as part of it, you know, you sit the seller shall provide financing to the purchaser in the form of a note. In this case, it was $297,000 and payment termed over five years, and I, and whatever, my my down payment between escrow and um my down payment. And so we have that document, so that's the first one we need. Then we have a note, and so the note is just a matter of like that explains the terms of the payment. And so in this case, $297,000, you know, between my entity, his entity, it details, you know, the interest rate and defaults and all the stuff that you know a bank would have, right? Because the point is that the seller is using the same mechanism, but instead of borrowing it from the bank, this you're just making payments to the seller, and you have all the you have the similar protections in place. Right? But you have security. So we have a security agreement that basically says, you know, hey, all the collateral, all the things are at the store, like we are gonna put them up. So if we don't make payments, you know, you you can come and basically take over all these things to be able to pay yourself back. And then a personal guarantee as well, right? Um that that I'm personally guaranteeing it, which basically means that you know everything I own is you know kind of at the uh you know, could be used to have to if I had to pay it, right? That's the um that's the idea. And so that's the main, there's a kind of the documents that have you in place, you gotta have a good lawyer, but um it's super quick. 30 days we can get these done. Next is a seller's accountant can also become your ally. Because as part of the pitch, I I you tell them, hey, did you know that when we do this, you can spread out your capital gains tax bill over the life of the loan. Go talk to your accountant about it. And so they go, they talk to their accountant, the accountant says, Yeah, that's that's right, 100% accurate. And now we have them on the side, and they're like, Yeah, the accountant confirmed everything you told me. It's happened multiple times. So, as an example, let's say it was a $300,000 loan, let's say, you know, at 5% interest, let's say they owed $50,000 in capital gains. You know, each year they'd pay a portion of the capital gains based off of uh you know the amount of money we're paying them here. But then I'm also paying them interest. And what's interesting on their side is that it's possible, depending on like the math and stuff, that the interest payments could cover the capital gains tax that they owe, or at least in this case, be very close to it. And so now instead of like the bank getting the interest, they're getting the interest, they spread out their payments, they get the cash flow, and you know, it it like they start to come around. Because often, you know, it's not not every seller's gonna be jumping to do this. All right, it's not always like the first resort. But when they start getting educated on some of the numbers and some of the math and some of the benefits, and they talk to some other people, then things start to click, and and now all of a sudden it's like they're not totally turned off on it. Another thing, time kills a lot of deals, and they know it. So sellers have seen tons of deals fall apart, and the longer things take, the more that can go wrong. And I and I and I I'm in a talk to a go about just some of the time stuff. You know, we all know bank deals, like they could take three months, six months, not like not like it can get crazy on the amount of time that it takes because of just their their process. And you know, they they make so much money, they don't want to lose anybody, they obviously have a very good system to ensure that. Uh on the other hand, I mean, I can I could literally get documents within seven days. And if the if the sellers are good with it, like I could get a deal done in two weeks. Like if they're if it if if it all went super smooth. Most of the time it's like four weeks. Here's another example. Seller, it was three stores I was buying. Seller was starting a new job, and so he was selling the business. The stores made no money, like they were, he was just kind of like, I want out of this thing. This is like not the thing I want to do. There's this fear, right? That says, Well, what if I am stuck in this thing while I'm trying to start my new life? I'm trying to like turn the page. I just like I don't I don't love it anymore and I want to get out. You know, a lot of times when people are at the stage of of selling a business, they've they've kind of lost it, but usually they've been losing it for more than just then, right? They've been losing it over time. And so I become the safe choice from it from a time perspective. Like he called me in December, and when we had this paperwork done in January and like mid-January, we took it over. It was like it was super quick. This was this was that deal. $50,000 down, $6,200 per month for five years, three and a half percent interest. I want to talk about how we negotiate these and how we come up with some of the valuation. There's like a very specific process that I've had success in you know, the nine deals that I've done. I follow the same the same process every single time. That's how we get to some of these like weird purchase prices and interest rates and stuff. But anyway, those stores in the first 12 months made $173,000 for me as as the owner. So I put $50,000 cash into this thing. We did get the done deal done in a matter of weeks. They make a hundred and hundred and seventy three grand over the next 12 months.