Community Highlight: Business Onboarding And Post-Acquisition Growth - Acquira

Community Highlight: Business Onboarding And Post-Acquisition Growth

What you’ll learn:
  • How to source for a business to buy
  • What to do when you’ve taken ownership of a business 
  • How to have fruitful relationships with business acquisition brokers 
  • An important easy-to-miss item to factor into your business valuation

Introduction

Acquira’s Acceleration Program (AP) call is a periodic meeting among Acquira’s team members (together with invited guests sometimes) and students of the AP where there’s a free flow of questions and answers around one or more business acquisition topics.

Recently, this conversation revolved around business onboarding and post-acquisition growth. The video is available on YouTube, but here are highlights of the call so you can benefit from the vast array of experience and insights that were shared.

The speakers featured in this highlight are:

Let’s jump right in…

Acquira seems to be focused on home service business acquisitions. What's your position on acquiring a manufacturing company?

Kylon: The training and guidance that we provide from sourcing to close fit most businesses. Whether you're buying a restaurant or a home services company, it's more after the fact when it comes to post-acquisition operations and the rest.

Our deep expertise definitely lies in home services, and that constitutes a ton of different businesses with a certain type of business model.

You generate leads via online channels, you visit the customer’s home to perform a service, you do it with excellence, you get a referral, you get a review, rinse and repeat. That’s what I keep in mind.

Outside of home services, manufacturing is the one we would definitely be interested in getting into. And we've already had acquisition entrepreneurs well down the road on closing those deals so far. A couple that we have had fallen through, so we haven't actually closed one yet, but we are definitely interested.

Quinn: If you had experience in manufacturing and you were buying that business, then we're more likely to partner on it. If it's a situation where you don't have experience and we don't have experience, maybe then it isn't a good idea. It's to protect an acquisition entrepreneur.

We’re hopefully gearing you up so you’re comfortable to have the conversations and the ability to purchase the business you want. So, don’t feel stuck on what we’re guiding you on.

Should you favor buying a business in your home markets?

Quinn: Some people look at the tax-free states. That's a pretty big thing for people who want to buy in tax-free states. And I think one of them was Boise, Idaho. It’s tax-free and there's very little competition.

However, you have a ceiling on your population, so your recurring revenue is always going to stay relatively the same because you can't market to new clientele.

If you're fine with that and your growth strategy is to expand from city to city and into other metropolises, that’s fine. But something to think about is that even though you want to expand into a densely populated area, you don’t also want to go where it’s too populated that you’re just another name. That’s specific to home service businesses.

If you're running another business, like a manufacturing plant or logistics company, you’d want tax-free states because you’re going to be shipping products or whatever it may be. So industry and population are things you want to be mindful of as well.

Kylon: It just depends on your strategy. With a smaller population, you won’t grow past a certain revenue, you’ll just be tapping out the market. That's why the other businesses I'm looking at are 1-3 hours away from me — that’s my acquisition strategy.

It also depends on the type of business you build. I like staying underneath that $5m revenue mark. Because for businesses like home services, your business has to morph every time your revenue triples. Now you have a bunch of middle layer management. There's a lot more overhead.

I like the $2-3m per year businesses because you can keep overhead lean and they can become really good cash flow machines. You can buy a number of them and keep them at that size versus buying a business in a very populated place.

I have a friend who bought a plumbing company in New Jersey, and he's grown it from under $1m to over $5m in revenue in under a year because his service area is millions and millions of people. And he's cool with building a company of that size and scale. Whereas I think I'd rather keep it small and lean with low overhead and have a lot of them. So, pros and cons.

Quinn: Another important factor to consider is that it’s much easier attracting people—especially those with licenses—to larger areas. It's very hard to get somebody from a bigger city to come live and work in the woods. From what I experience, you actually get better employees in the smaller cities because they're willing to move their family there, set up shop, and keep their job.

In bigger cities, you might get a younger crowd or a non-family person. They’re not usually the best employees but you’re able to attract better people. It’s all like a toss-up; it depends on your location and industry.

Kylon: For those folks who want to get into home services companies that require licensing and maybe an apprentice-to-journeymen-to-master-type progression, nobody hires journeymen. From what I’ve learned from 5 other plumbing companies, it rarely goes well.

That’s because they’ve been in the trade for a long time and have established habits and might not be a culture match. They can clash with your business right away.

Our star employees are people that we've hired straight out of high school or people who have been with us since they started working in plumbing. These guys are lifers. They're a complete culture fit and do things the way we like them to be done. They're all rock stars. 

If you talk to any other plumbing company owner, they'll pretty much tell you the same thing. The phrase is “grow your own”. And with this talent shortage in the trades right now, that's where everybody's headed. Everybody's realizing we have to hire people straight out of high school and train them as apprentices. It's a longer-term play.

So, your growth is quite literally capped there. How fast can you take an apprentice and get them in a truck so they start earning? Don't expect to jump in and attract a bunch of well-licensed experienced plumbers because that almost never works out.

Are there any red flags for buying a business in the Greenville area of South Carolina?

Quinn: The South Carolina population has kind of dwindled recently and I'm not positive about how it's looking with the COVID situation. Even popular areas like Myrtle Beach are not what they used to be. It’s getting a bad impression out there.

But it’s super hard to determine where anything is going to be in the next 6 months these days. For instance, the influx of people from California to Texas has gotten Texas so gentrified that it’s becoming like one of those weird situations. Then, there are the power problems.

So, you're going to see a lot of fluctuation over the next year while COVID restrictions are still around.

When you look at all these businesses, read through prospectuses, and talk to sellers, you’ll learn a lot about why different industries are different ways in different parts of the states. You just need to take the punches and find ones that maybe have something a bit wrong with them and why someone wasn’t interested.

That’s when your expertise comes in. For instance, introducing an ERP system or CRM into a business that does everything on paper could get it blown out of the water. Take your expertise and skills and see how they can fix faults in the business.

Take your expertise and skills and see how they can fix faults in the business.

How should we be sourcing for businesses to buy?

Quinn: You have a couple of different options here. For instance, BizBuySell. BizBuySell is going to hold 90% of any listed deal that you're going to find. It's basically a repository for everything.

Create filters for the specific type of business you want and get on those email lists, so you’re alerted as soon as those businesses are listed.

Also, I would not hesitate to ask the broker, “Hey, can you send me more information?” Start building relationships because one broker usually represents the same types of businesses in the areas that you're looking at. It's very rare that it's one-to-one.

Sharing your preference with the broker can get you on a preferred buyer list. Note that they’re going to get you to sign an NDA. Once you move past that, you can evaluate the businesses for red flags.

Then speak to the seller. You’re going to find out more from the seller than from the broker-created prospectus. The broker is trying to sell you on something; the seller is not always trained on what the proper answers are to the questions that you want to ask.

You’re going to find out more from the seller than from the broker-created prospectus.

One of the main questions I always ask is, “Can you tell me what your day-to-day is like? How many hours a week are you working?” Once they start getting into that, just let them talk.

Many business owners love to talk, and if you let them, they'll just keep going. You don't want to rifle questions at them, you want to ask a follow-up question to whatever they're talking about. Make them feel comfortable.

You're trying to build rapport with this person. If it is a really good business, the seller who has already spoken to 10-15 interested parties and a lot of tire kickers would tell the broker “Hey, I like this person. Can you follow up with them and let them know we want to have a call?”

That happens a lot when you show interest and have a good conversation.

There’s also our assisted sourcing program. If you are ready to buy a business and you're ready to go for it right now, we scrape the internet to find businesses that match your criteria. We email them and follow up with phone calls to get some base information. These are usually off-market deals and are not represented by a broker.

They're more difficult to get information from but come with a lot less competition and potentially a lower price because they haven't been tainted by a broker.

I don't prefer working with brokers but when you’re ready to buy a business, broker relationships are important. Since they usually do not like to always build a prospectus and email a hundred people back and forth, they love to send businesses to qualified buyers first before anyone else.

I'm looking at a landscaping business and their fleet of equipment and trucks are pretty old. They have quite a bit of expense associated with repairs and maintenance of their fleet of trucks. How should we factor that into the value?

Kylon: Plan for that in your carry-forward cash flow. We have a couple of templates out there that can help with that. You could also use that as a negotiating tool on price.

Quinn: It’s a variable that you add to your cost analysis. Take note of the average age of the truck, the mileage, and the cost of replacing the trucks. Depreciate this over a certain period of time and add it as a carry-forward expense so it’s in your cash flow until a problem arises with the trucks.

In your case, if they're very old, you're going to want to look to replace that fleet, probably within the next year to 2 years.

How can we triage and prioritize what we want to accomplish in the first couple of weeks of owning a business? What should the goals and objectives be?

Kylon: My recommendation is that your first priority should always be getting to understand every facet of the business and getting to know the people in the business. Build relationships. Talk to people. Ask tons and tons of questions.

Your first priority should always be getting to understand every facet of the business and getting to know the people in the business.

I would literally just take my laptop here and sit next to our CSR. As she was taking calls, I would write down her current process. It sheds light on how everything in the business is currently running. I log it because I need to understand that first, in order to understand what the next step is.

Basically, what are the changes we need to make or the gaps that need to be filled? And then the relationship factor… I don't feel like I could step in and start making decisions and telling people what to do and saying “this is the way it's going to be” because I have no trust built. And I don't want to be that guy that just comes in knowing nothing and thinks I know everything.

So, it takes a solid month of understanding how the business operates and building enough trust and rapport before we can start having the tough conversations around the way things are running now and how it’s going to be from now on.

Also, note that people are nervous during the transition phase, so it’s best to keep it simple when it comes to creating a great culture or retaining a great culture. It boils down to one simple thing: you need to care.

Are you making people's lives better? As long as it checks that box and they understand that you're never going to go wrong in creating a good culture, then they will be excited to be there and excited for the future. You can raise their wages, launch a commission structure, give them benefits like health insurance, etc.

For instance, I've given my people insight into our P&L and how much we have to earn as a company to cover our overhead, and what their role is in that process. And then once they've hit that benchmark that makes sure we can pay our bills and we have our net profit to reinvest back into the company, anything else they earn, there's a commission structure on that.

So, they know a part of that billable hour is getting returned to them. And if you run the math, these guys can go from earning $35/hr to $40-50/hr. These guys can be six-figure earners if they really want to through this system.

This is something that's a game-changer for these guys. They get a tool allowance as well. All these things just make their lives better. And that, in turn, makes everybody excited to be here and work here.

The one other element to that is just your core values. This is another aspect of observing the business.

How do you deal personally with the pressures and stresses of business acquisition and keep looking after yourself?

Kylon: It hasn't been incredibly easy. I think I've probably got it easier than a lot of folks. We've had some of our AEs close these deals and almost get into a depressive state. It’s because they are moving away from everything they know to a brand new environment where they're taking a lot of risks.

They put a lot of capital on the line and then all of a sudden they're thrown into this environment that's existed for years. It could be this massive company with all these people, and they're running around like a chicken with their heads cut off. They have no idea what to do and that can quickly spiral out of control.

So, it's an important thing to do some soul searching. It's not something to take for granted because we have seen people just mentally crash and burn.

I'm very fortunate that I've got a wife that is a rock star. She's my partner in this. We wouldn't be able to be doing anything to the extent we are without her. I've built and sold three other businesses with her. So I have a lot of support there and we have a two-year-old who has been a rock star too. We live very, very simply, and we don't have a lot of things.

We don’t have one permanent home as we travel to new locations for business. We bring little elements from our home like my wife’s essential oils, the sheets, and stuff like that because it makes it feel a little bit homier.

We brought our dog over here too. Now, this is starting to feel like home. We don't feel like we're isolated or anything like that. Hours and hours every night, we're out on the porch having drinks and chatting, reliving the day, talking things through, asking ourselves if we are still doing the right thing.

So, there's a ton of communication. We actually have an article about this where we had a sit-down and got granular about our relationship and how we are doing this. We had a writer interview us and we introduced our tenets or principles for our relationship.

We've been married for almost 11 years now and follow those tenets like a business system but for our relationship. So, that helped a lot.

The whole family is on board. That makes a big difference there with me.

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