Today’s guest went from a one-man show to a team of 120 in less than two years. He was pulling in millions of dollars per year, then lost it all within a six month window.
Then he got back up, dusted himself off and started a new business. Sold that. Then another. Sold that. And again, and again, until he realized he had acquired the perfect skills through his circumstances over the years to help other business owners decide when it’s the right time to cash out of their business.
Are you ready to grow and sell? Please welcome Chad Peterson.
- How to Sell Your Company (Free eBook offer):
Podcast Episode Transcripts:
Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Chad Peterson joins us today. He’s an expert business broker selling businesses across the country and enriching the lives of those who have built businesses who are ready to move on to their next adventure. Chad Peterson is also the author and has written several books and he’s an influencer within the business community itself.
Chad, I appreciate jumping on. Hi, thanks for having me on Damon. So this is going to be a great conversation because I have some personal interest in this topic and you bring a unique perspective as we were talking before we hit the record button, you know, you’ve, you’ve been in at all and not just as a business owner yourself, but.
As you helped others sell their business. You’ve gone into, as you said, just everything, like you said, everything, you see their taxes, you see the good, you see the bad. Yeah. And so it’s going to be really interesting to talk about what you’ve been exposed to and the experiences you can offer to these, these listeners.
So I appreciate that. Yeah, sure. And, uh, you know, one thing that I’ll say about that is your, your, your audience, you know, whoever’s listening you, if you want to get to understand me a little bit, you know, I have been self employed my entire life. Uh, I wasn’t, I wasn’t born the silver spoon. I had to go out there and I had to win.
And I knew that I felt like if I went and worked for somebody else, it just, it wasn’t going to paint it a money and it wasn’t going to give me the lifestyle that I wanted. So literally from the time that I was a little boy, I’ve been on some sort of self employed journey and it’s sent me through, uh, a long career of building and selling businesses for myself.
And ultimately I transitioned to doing it for other people, but I’ve, uh, I’ve had. Two and three man, small businesses that, that put out a lot of things. Ash flow maybe paid me a hundred thousand dollars a year, maybe two, maybe $200,000 a year. And I’ve owned corporations that have paid me upwards of nine or $10 million a year
And everything in between I’ve made big. I’ve also lost it. I’m one of the people that have gotten hit hard by Oh eight. And so I have a wealth of knowledge to share. It’s just a matter of how focused we want to get on that. Yeah, I think there’s a lot of opportunities and we’ll, we’ll, we’ll try to, we’ll try to, why don’t we just kind of start at the beginning and then see where the conversation evolves from there.
So as you said, you’ve had some big wins and some losses and where does it all start? So, as you mentioned, you did the business thing yourself before you got into helping others. So what was business number one for you? Okay. At what age? I mean, we could, I mean, the, the, the first big business, uh, let’s let’s, let’s just for fun.
Let’s do the, the first kid size business, and then we’ll skip past the handful of lemonade stands after that. And go to the first one you’d say was legit. Well, when I was a little boy, I mean, I would, I would literally pick up dog shit for money. That’s the mentality you have to have. Okay. I mean, no kidding.
I would, yeah. Pick up dog shit for money. I would walk dogs. I would do whatever it took. And I’m still the same way today, by the way, I’m, I’m nearly 41 years old. And uh, you know, while I’m not picking up dog shit for a living, I would, if that’s what paid the bills and that’s the mentality you have to have.
And, um, but, but to get serious about what. What I would, I’ve done, you know, I’ve built a lawn and landscaping company. In my teenage years, I was making double what my teachers were and I ended up selling that company and I put me through school. So this is what I’ve done forever. Um, after I got through school, I ended up, uh, having a short stint as a commercial pilot before nine 11.
And I lost my window to be a pilot. It was a major, uh, you know, major down swing for me in my life. I mean, I, I, I fell into a pretty good depression knowing that I just lost my career. Didn’t know what else to do. Went right back to being self employed. And I started from scratch. I started with no money and I only a prayer.
And by the way, I had a baby on the way. Okay. And when you have a baby on the way, and you’ve got a wife and you’ve got a house and you’re starting from nowhere, you know, it’s like starting from scratch. It’s a gut check. And I think that if anybody is in the self employed arena, it’s a gut check. No matter your circumstances, things on the line to become self-employed.
And it’s a, it’s a mentality that will carry you through. Rather than money, money, you know, everybody thinks, boy, if I just had enough money, I would, I would be able to run this business. It’s just not the case. That’s a mentality that pulls you through. So what I did is I took that mentality whenever I was starting from scratch and it, and it sub zero nine 11 just happened and.
The economy wasn’t so hot. Um, it was a scary time. It was an unusual time. And I didn’t know anything about, uh, mortgages, you know, my friend. They told me, well, Chad, you should get into selling mortgages. At that time, the rates had gone down to whatever they were back then. They’re, you know, they’re much lower now, but there were like 6.7, five, 7% back then.
And that was a big, a big downturn in the rates. And so I didn’t even know what a mortgage was. I was like, what the hell is a mortgage? What, you know, how am I going to sell mortgages? So he invited me to his office. I spent 30 days at his office and I realized the money that was in it. And, uh, I decided to go borrow just enough money to get started from a friend of mine and open up that business.
And I built it from me and myself and I in an office, a one man office to 120 employees. And just over two years and was bringing in $10 million in sales a year. And how I did that is, you know, I just had consistent, steady marketing while continually building a better mouse trap. So, you know, if you don’t have marketing and a good mouse trap, and you’re in your content annually, focusing on both of those, uh, you got your eye off the ball.
Because it takes continual marketing. And then, you know, you’ve got to be able to handle those clientele whenever they come in the door. So with every new hire that I made, it was an act of God to get them to be trained exactly how I wanted them to be. And then I was spending massive amounts of money on marketing and relying on this person to retain what I taught them.
And that was how I made my money. How do you go from, so you kinda answered the question that I had in mind already about going from yourself to 120 employees and he talked about a mouse trap in marketing, but yeah, in addition to that, what’s, what’s kind of a key takeaway to keep quality control in check while scaling that fast.
Well, the answer for me was that, um, I have to hire that out because I’m not good at that. You know, trying to be good at everything will make you terrible at everything. And so that’s just not, that’s not my wheelhouse. That’s not where I live. I’m not a process driven person. I’m not an accountant. Uh, yeah.
You know, I don’t have that mechanism in me, you know, for, for quality control and systems and protocol and things like that. So I simply, uh, found a guy within the company that fit that role, uh, much better than me. Yeah. And, uh, I hired him to do that job. You know, people forget that Henry Ford who, you know, a lot of people think that Henry Ford had been in the automobile.
He didn’t, he invented the assembly line process, right? Yeah. He had been on the assembly line, but he didn’t even know how to do it. He hired people that were better than him. To do it. And he only had an eighth grade education. So, uh, I hired people that were better than me at what I was terrible at. And I, and I focused on what I was really good at and I just kept hitting as hard as I could, what I was good at every day.
Uh, and, and so that’s my advice to your audience, which is if you’re not good at it, leave it to somebody else and focus on your strengths. So what would you say your biggest strength is that you brought to the table for your own business? For my own business, let’s start with balls. Okay. All right. Let’s start there because when you open up a lease, uh, let’s just say you sign a lease for five years and it costs you $78,000 a year, just starting there, you know, and, and you’ve got everything on the line.
Okay. The entrepreneur is the one who has the balls to sign that lease, not even knowing if it’s really going to work out. So there needs to be a leader and a Crusader. And that’s, that’s my number one skill. But secondly, it was coming up with a direct marketing direct to the consumer to contact us directly and then, uh, hiring the right people.
And running a tight ship. Those are my strengths. Do you have, I know you said you’re not really a process kind of guy, but do you have, um, you know, some sort of process where you calculate the risk? You know, I, I’m not much of a spreadsheet guy sitting around and making a business plan. In fact, uh, I don’t even believe in business plans and the reason I don’t believe in them is cause I’ve never seen one work.
Uh, so no, the short answer to your question is no, I don’t. I, an entrepreneur looks at the opportunity and they have a dream and they have a passion and they have a vision in their mind as to what they want their business to be. And that’s all I really had now, did I, did I chicken scratch some numbers out, maybe on a bar napkin while having a cocktail?
I certainly did, but did I get stuck in analysis paralysis and, and, you know, typing out spreadsheets for the next three years and analyzing the risk? I did not. Uh, I committed, I, uh, I saw the limb off behind me. I, there was, there were, you know, there was no going back and I committed to it fully. And uh, if I had to work seven days a week, 12 hours a day, if I had to sleep in my office, that’s what, what I would do.
And that’s the kind of guts and grit that you have to have because everybody wants the glory, but you have to start with the guts and the grit to do it, and you have to be completely married to your business. You know, it sounds crass, but if you have a wife and a child at home, You know, for the first two years they come second.
If you’re, if you’re just starting your business, you better be married to your business first. And if those around you don’t understand it, then they’re just gonna, then they just don’t understand it. Um, I see so many people that try to start a business and they try to run a nine to five or they try to be everything to everybody.
And that business is going to take everything out of you for the first two years. So just plan on it. So the only way you’re going to be able to win. Yeah, it’s interesting that you say it to, to that level. Um, you know, I’ve, I’ve, I’ve been self employed for 13 years and I can’t imagine a better person than my wife to, to be more understanding of the circumstances.
And you definitely need somebody there that is open to, to run it and, you know, playing the game with you and being by your side and understanding why you’re grinding it out. Absolutely. And, you know, unfortunately for me, the, the person that I was married to, she had no, none of that. She didn’t have any of that understanding.
And guess what? It didn’t stop me. And I told, I flat out, told her, I said, listen, my business comes first and you come second. And if you’re not, if you’re not okay with that, we’re going to have problems. And the long story short of is we got divorced and that’s okay. Uh, my business comes first and anybody who’s with me has to understand that.
And if you’re, if you’re really, really no kidding, serious about becoming successful and I mean, really, really no kidding, serious about successful, you have to sacrifice and do what it takes. And those around you have to understand if not, they got to get out of your way. Yeah. And, and despite I’m sure some listeners will agree and some will disagree, but I do have to give you credit for.
Uh, you know, whether they agree or disagree with that mentality, you gotta get some credit for. Being blunt about it. I mean, at least you’re not dragging anybody through it on necessarily, and they’re not, they don’t know what they’re getting into. Um, you know, if they join you as a partner in a relationship, but at least you were, you know, full disclosure.
Here’s, here’s how Chad’s rolling. And you’re either you’re either with it or not. Well, that’s for sure, but you know what? It happens to not be my opinion. It’s a fact, anybody who’s ever been massively successful and that’s, and that’s something else that maybe your audience needs to hear, you need to understand.
Within yourself first, what level of success you want to reach? And, and just to kind of follow up with what you just said, dammit. I mean, if somebody wants to go out and make 70 or $80,000 a year and uh, you know, make a good living on their own time, I’m certain that, uh, that extremism wouldn’t have to come into play, but if you want to go out there and you want to be a, a super high performer and you want to bring in $10 million a year to your company, Then it comes first, second, and third, and most people aren’t geared for it.
I think if you ask, if you asked me, I would say less than 2% of people are geared for that kind of mentality. So I agree with you. Uh, but so that kind of massive success, isn’t it really desirable? I believe it’s attainable for people, but it has to start with a desire first. And so if you want to hit massive success, like I have a, that’s what it takes.
Is there any point that you’ve had some self reflection? I just had this conversation just two, two days ago. Exactly what we’re talking about now, I’m with another good friend of mine. Who’s a, he’s also a successful entrepreneur. And we were talking about how, at some points you can be once you’ve reached a certain level of success as an entrepreneur, it’s at least for him and I, and this discussion, we find small bits of admiration with the people that are just.
Just happy, go lucky and kind of oblivious to the world. And, and there’s a little, a little bit of that obliviousness to be admired. Where do you ever have days where you say, man, I wish I could just not be a high performer and just, just. In this moment in time, do nothing you ever catch up? I love that question.
Let me tell you again. I love that question and here’s an, here’s why man, ignorance is bliss and those who can sit on their ass and eat paid potato chips and play video games. And they’re okay with barely making it and they don’t, they don’t take the risks. And they’re, they don’t have that grit and that determination, that fight within to go and, and divide and conquer and make things happen, you know?
Sometimes I do, but you know, I love my dog. I do, but he’s just, he’s just a dog, you know? And I, and I know, and I know what he is and I, and I, and I love him and he’s never going to go, uh, run a corporation. So we need people like that. Don’t we, but, but I, but I don’t want to be that way. Um, I believe that, uh, people comfort zone is killing them
Yeah, I believe that you were put on earth to do something. I believe that you have 168 hours a week to use just like everybody else. And let’s talk about Steve jobs and bill Gates and Henry Ford and Thomas Edison. Let’s talk about, um, You know, let let’s talk about Jeff Bezos. Let’s talk about the super high performer.
Let’s talk about Donald Trump. These guys are not, you know, gifted in any other way. Other than that, they figured out 168 hours a week. That’s what they figured out and they don’t want to sit on their ass and I’m not going to sit on my ass. And so if I’m up, I’m working and frankly. I’d love somebody to tell me what else I’m supposed to be doing at 40, almost 41 years old.
What else am I supposed to be doing? And, and furthermore, how long can you do that? Well, some people would say, well, you should be spending time with your family. I got to tell you, I can only look at my woman so much. I can always sit around and look at my kids so much. I gotta do something and let’s face it.
We are in the time and age, unfortunately. What does everybody really doing? They’re looking at their phone. Yeah. That’s what they’re doing. If people had to say no now days, what do you do? Well, we know that we work. Let’s just say 40 hours, but really out of that 40 hours, how much are we really working?
Are we working 10 hours? I would say that’s probably right. I’m talking about real brass tax, working your ass off working probably 10 hours a week. What are we doing? The other 160, you know, the other, you know, we got 168 hours a week. Most of the time, if they’re answering, honestly looking at my phone, that’s what I do.
Of the reasons a lot of people don’t even realize. I totally agree, but I think that where you like, where you say they have to be honest, I think that’s what separates the high performers is their ability to acknowledge the circumstances. I don’t think a lot of other people would even cross their mind to go, yeah, I’m on my phone that much.
Even though they know they are, right? Yeah. I mean, people are on their phone 60 hours a week, pretending like they’re working at their job 40 hours a week when they’re not. And, um, you know, here’s the other thing. Retirement is bullshit. Okay. So, you know, the people that are trying to sell you on retirement of one day sitting around and not doing shit and, uh, and just sitting on this wad of money.
Well, it just so happens. That’s what people are already doing. They have whatever, $5,000 or 20,000 in the bank, or a hundred thousand in the bank, and they’re already sitting on their ass, you know, looking at their phone. They’re addicted to social media. There are addicted to Facebook. How many likes they can get
You know, they’re, they’re taking pictures of what they ate for breakfast. Like everybody gives a damn and posting it on Facebook. We’re, we’re already suffering from many retirement crisis and, and we’re, we’re here to work and, and just, you know, so you understand our audience understands I have plenty of money.
Uh, I work because I’m supposed to work. And like I said, I need somebody to tell me what I’m supposed to be doing at 40, 41 years old. If I’ve got 168 hours a week, and let’s just say, I’m going to work out five hours of those, you know, so now I’m down to a hundred and, uh, whatever that is 163 hours a week, what am I supposed to do with the rest of them?
And I think if you’re, I think if you’re a mover and a shaker, your answer is work, get something done, do your life’s work, improve your life and improve the lives of us, others. That’s my opinion. Anyway, and I think any high performer would tell you that. Yeah. All right. So let’s bring it back up to speed.
So you have, you’re doing mortgages, you grew the company you made it big in the end. Is this also the same story where you had mentioned you lost it at some point, because I’m assuming 2008 came rolling up around the same story I did. And remember what I said, I was in the mortgage industry and I grew the largest mortgage brokerage, uh, in Kansas city.
And 120 brokers is what I had. It was an enormous operation and we were doing tons of mortgages. And I got to a point where, uh, I was lending my own money, $5 million of my own money. I was lending out. So if you came to me and, and if you had a good, you know, good enough credit and. You know, we, we could underwrite you to fit my portfolio.
We would underwrite you under that $5 million portfolio. And I was, I made such a huge mistake because in 2007 people were approaching me to buy me. And I was so rude about it. I, I didn’t even hear what they had to say. I was like, get the hell out of my office. Hmm, because my mentality was, why would I sell this?
I mean, I’m making so much money. I can’t even count it. Why would I sell this? And boy, did I get the answer? Okay. Because, because here’s the thing come 2000 and Nate, I mean, I went from doing so well to being dead ass flat on my ass, broke. And the reason is because that, at that time I had, I had signed five leases and, um, everything that I had was on a lease because it made sense of cashflow at that way.
I mean, all my copiers, printers, computers, furniture, everything I wasn’t in the buying, you know, I didn’t want to buy all that shit. I, I wanted to just call somebody and say, yeah, put it on, lease, bring it to us. And that way they serviced it and they’re responsible for it. Well, Oh, eight came. And it was like, they shut the faucet off.
It was just over because I was in the mortgage business. We were. We were doing the subprime loans and some people get confused and they’re like, well, it was your fault. You were selling those loans. No, it isn’t. I mean, if a bank says they’re going to lend 97% on a property, then we’re gonna, that that’s the, that’s the product we have to provide to the market because that’s, what’s available in the market.
So we’re writing these loans to a hundred percent sometimes greater than that. And, and the big short happened. And immediately or B paper, uh, loans went away completely. So everything that we were selling, we basically, we suddenly had no products. I mean, imagine all of a sudden you have nothing to provide anymore.
That’s where we were. And then everything went to FHA and VA. And unless you were FHA VA already, you really couldn’t make that turn. And we were like the Titanic. I mean, you’ve got 120 employees. You can’t, you can’t just turn around. That big of a company to adapt to something as cataclysmic as, as 2008, the big short.
So, yeah, we were totally out of business and, ah, okay. How long of a period of time of period? It didn’t tell you how to shut down. Um, we, we limped for, we limped for about six months and then I had to shut it down and, uh, I was homeless. In 2008, I was, I was so broke. I had to give it all up because I had all that debt over me.
I mean, I, I don’t even remember what my overhead was, but I think it was somewhere around $130,000 a month before I even paid anybody. Wow. And that’s what I was tied to, you know, $130,000. I had to get rid of everything I could, and I had to go live with friends. That’s what I had to do. So I went from $10 million a year coming in.
Well, that was my max. Usually it was that, that was a, that was a Oh five. That was a big year. But, uh, you know, anywhere from five to nine with a, with a big 10, $10 million a year, um, to dead ass broke, I mean, borrowing money, not big money, but going to borrow a thousand bucks from our friend and a place to stay.
That’s where I was. It was, it was, it was, it was shocking to the, to the system. It was shocking to the mind it was spiritually. A reckoning is what it was. Uh, but I got, but I made, I made it through and I just opened up another business. Cause that’s what an entrepreneur does. An entrepreneur doesn’t give up, you know, I mean, you keep swaying and you keep swaying and until the fight is won.
Yeah. Is where if you could clarify two things. So for our listeners that might not understand where you said more than a hundred percent debt, could you help them understand that why you would pay out more than the value of a property? And then the second part of that question is, were you personally liable for that debt
Well, uh, the, the question you asked, I don’t understand basically what I had as leases. I had leases for all my employees. We housed in now. I don’t now I don’t have a home 20 employees, and now I have all these office spaces that are leased out and I have five years obligation to them. When, when you said, when you were lending out, sometimes you would lend out a hundred.
Oh, Oh, Oh yeah. That’s more than a hundred percent. Well, you asked they had 103% programs. They had, um, they had no money down programs, you know, that was, that was before Oh eight. I mean, there’s products, products aren’t around anymore. Sure. But, but that’s, but they were around back then. Yeah. And so, yeah, so we were, we were.
Also the appraisals, the appraisals were overinflated too. So when you were listening, you were doing a $300,000 mortgage while the appraisal shouldn’t have been written so high to begin with. And so by the time the real value was said, we probably wrote a $300,000 mortgage on the house. So it was worth $260,000 because that part of the process, it wasn’t heavily, heavily regulated.
Like it is now. Yeah. All right. So you start a new business. You, you, you go through those, those pains and you’re on, on your, on your next leg. Uh, where did you start with the next business? What’d you do? Man, you know, I w I went from a suit and tie, uh, bringing in millions of dollars to absolutely, uh, broke.
I mean, I didn’t, I didn’t file bankruptcy because I’m not going to file bankruptcy unless it it’s a, it’s a financial windfall for me. Uh, so I just took it on the chin and, and, and paid the debt down as I could, as I, as it went. And I ended up moving in with a, with a girlfriend. And, uh, she was complaining about how the deck looked like, hell, you know, we’d go out on the deck and the deck looked terrible.
So she wants me to stay in this deck and make it look all pretty. And I don’t know the slightest thing, what I’m about to go do. Why? All right. So I go up to home Depot and get the products you’re supposed to use and do it. And it looked like absolute shit. Whenever I was done. Okay. And so I start looking around and I see that everybody is about in the same boat, the fences and the decks were, were not looking good.
And so I, I started the business because I learned how to do it. Right. And I got the right products and the right procedures, the right, the right, um, the right way to do, to do it, to maximize the, the beauty of a deck and a fence. So I started a small company doing that. And it was paying me about, uh, you know, first year I was making $150,000 doing it.
And second year I got to $200,000. I had a couple of vans, they were wrapped. We had a website, we had a marketing going out and while it wasn’t the big money that I used to be making, it was pretty good money in a really bad economy at the time at that time. Oh, eight or nine, um, You know, it just, it just was hard to make money.
You know, it just really was you couldn’t just go start something, uh, and come run out of the gate. You know, jobs, weren’t plenty full besides that. I wouldn’t go seek another job. But, uh, so I, I built that company and I sold it, you know, uh, that’s what I did. I built it and I sold it and then I built another company and I sold it and I built another company and sold it.
And, and then, you know, I was helping people along the way there. You know, part time on the side, and then it was softly mention to me, Hey Chad, you’re so good at this. Why don’t you help other people do it? And I was like, full time. How would I do that? And that’s where the idea was born. And I started doing it.
It started marketing for what it is that I do. And it turns out that. My whole life experience. All my life work, it added up to a perfect storm where I have this wealth of knowledge and I can help people that are self employed, sell their business. And so that’s how it evolved to that. Yeah, this is a great opportunity to get in to talking about what you do day to day.
Now, now, one thing that you’ve said a couple of times about selling a business was that your revenue was, you know, hundreds of thousands. And, and what’s interesting. What I think might be interesting to our listeners is. A lot of entrepreneurs, especially aspiring new entrepreneurs. They think that they have to exit for tens of millions of dollars.
And that’s not the case. Can you kind of speak a little bit to the, the value of getting out of a business when it makes sense to exit a business? That’s doing hundreds of thousands, man. That’s such a wonderful question. And here’s the answer? Um, People get too emotionally invested to their business and don’t quote me exactly.
But Warren buffet says, don’t get emotionally involved with your investments. And that’s all that these, these businesses are, but people gain their identity now through their business and they can’t let it go. Ironically people aren’t that way with their cars. And they’re not that way with their houses.
People understand if you bought a house today and you lived in it for 10 years, you should be able to, you know, good market be able to almost a double your money on that real estate or, or gain a significant amount of equity. Yeah. And in a decade, um, people don’t look at their business like that. So let’s just say you’re doing $300,000 in revenue
And let’s say you’re capturing, you know, a third of that and profit. So let’s just say you’ve got a hundred thousand dollars in profit. Not a lot of money. You’re, you’re making six figures barely, but more importantly, you like the lifestyle. It gives you to answer your question. Damon, what you do is you come to me, you come to a guy like me, an expert business broker.
And I take that a hundred thousand dollars that you’re earning. I take that business that you’re making a hundred thousand dollars with and I sell that business for roughly $300,000. Now here’s the trick to really understand. If you now have $300,000 in dry powder, liquid money, it only takes two, 10% to buy a business.
So do the math, do the math real quick. Let’s just say you wanted to buy a million dollar business, which should pay you around a third of that. So it should pay you around $330,000 a year. All you need is a hundred thousand dollars and a guy like me can get it done for you. So if you’re making a hundred thousand dollars in your business, that doesn’t mean that you have a hundred thousand dollars sitting in the bank
It means you’re living off of a hundred thousand dollars a year, right? So if you sell your business for 300 and come back to me and say, Hey, get me in a better business. Well, I can catapult you or, or give you a quantum leap to own a million dollar business. That’s spitting off $330,000 in cashflow a year.
That is why. You want to sell your business, even if it’s not to your $5 million number or your $10 million number, even if you can sell your business for a quarter million or 400,000 or so 600,000, that’s a huge windfall. And then what I tell people is take six months off, decide exactly what you want to do.
Uh, contact me an expert business broker that can help you get into something that’s bigger and better and, and pays you a lot more and gives you as much lifestyle, if not better lifestyle than what you previously had. So in many ways you’re snowballing the sweat equity into something bigger and better.
It’s like the paperclip trade up game, where the guy took a paper clip and traded it up on up and up and up until he left with the car. Yes, exactly. And why, and why wouldn’t it be that way? Right. I imagine a lot of the listeners will, will be saying, okay, well, why would you know, I have my business. I know why I would sell, but why would the guy that has a bigger and better business sell something profitable to me for only 10% down?
Well, he’s not the bank. The bank is going to finance the rest of it. So let’s just say you want to buy a million dollar business. You need 10% down and a good business broker like myself knows the right banks to go to, to get the rest financed. So the salary he gets is he gets his payout and so he’s not hiding anything.
And it’s, it’s a financing play. Yes, absolutely. And right now money’s cheap, you know, I mean to go to go buy a business, you’re going to pay somewhere around 8%, eight and a quarter percent. So if you could go, if you could take your business and you’re making a hundred thousand dollars with right now, yeah.
$300,000 in your pocket and just spend $100,000 to go buy a million dollar business. You’ve still got $200,000 sitting in your bank, but now you’re making $333,000 a year. Well, it only makes sense. Yeah. What, um, can you kind of speak to the ways that multiples come into play and what type of businesses get more higher or lower multiples?
That’s a wonderful question. You, you asked the best questions. I hope I’m answering them as good as you’re asking them. Um, uh, typically. About business is going to be sold for three X cashflow. Now people get stuck on EBITDA. EBITDA is really not the number you’re after. And for you, listeners EBITDA means earnings before interest taxes, depreciation, and amortization.
That’s just one number. If you ask me, that’s like, um, you know, That’s like miles per gallon on the car or MSRP on the car. It’s just a number. What you really want to know is what does that business do for you? Uh, and that’s, that’s the term we use for that as cashflow or seller’s discretionary earnings.
So let’s just say you did $300,000 in top line revenue. And by the time that you do your taxes, uh, you pay taxes on $80,000. And the reason you paid taxes on $80,000 is because your accountant wrote off your automobile business, excuse of home meals, entertainment, 401k, IRA, health insurance, key, man insurance, you know, cell phone bills, you know, maybe a plane ticket, maybe some fuel things that, that, you know, uncle Sam still allows us self-employed to write things off that are justifiable business expenses that still benefit the owner.
So we add a lot of those back to come up with a number called seller’s discretionary earnings or cashflow. Typically a business is going to sell for three times that number, but that number can go down or up depending on how attractive the business is. So let me, let me give you an example. Let’s just say he had a lawn and landscaping business that was being sold and it was a hundred thousand dollars in cashflow.
We’re not going to get three X for that. The reason is, is there’s too many of them. There’s too many lawn landscaping companies out there. It doesn’t have big enough earnings. It’s only making a hundred thousand dollars and that particular type of labor there’s, there’s a shortage of labor. Those who want to get out there and work on the hot sun.
So it drops that value down. You’re probably going to get 2.2, five X on that. Whereas on the other hand, let’s just say you are making a hundred thousand dollars from a laptop. You had no constraints, you worked on your own schedule and you could work anywhere in the world that business could sell for 4.5 X, as long as you had the right buyer.
Another way to explain this, as most businesses are going to sell for three X, but if you get above $500,000 in earnings, That business can sell for up to say four X. Well, let’s say you were making can $500,000 a year at that business, and we think it’s four X, but now we add the added, uh, sexiness of we’re making that $500,000 a year.
And you’re on a laptop anywhere in the world, working from a phone and a laptop. Well, that could go up to 4.5 X. So it just depends on how sexy or attractive the businesses as to what it will go for. And business brokers really know what that value is and can give you a solid answer whenever you go to, if you were to contact me, to ask me what your business is worth, I go through all that math with you
I give you what your cashflow or your seller’s discretionary earnings are. And from there, I tell you the value of your business based on your industry and based on what I find.
Now, when you walk through, um, helping a seller, exit their business, I want to give you an example. I briefly touched on before we started, started the call. So years ago I had a VC company approach me and say, Hey, we were buying this other marketing agency. They don’t do SEO though. So we’d like to lump it together with your agency and combine them.
And when I went and talked to those VC guys, I learned a lot. I ended up declining, um, the engagement because it just, something felt dirty about it. But what was interesting there, there was a lot of things that were interesting, but the one thing I want to ask you about is. When they got to making an offer, they said, well, here’s how the payout will be.
It’ll be a third cash. Third stock. Third note. Now comparing that to a seller, a buyer paying 10% down and then the bank financing the other 90%. Um, that’s the 10 and 90 versus a third, third, third. Um, is there one scenario, more common than the other is splitting it in thirds fairly common or is.
Splitting it into thirds is a never as a never happened scenario. That’s, that’s never gonna happen. Not with a good broker behind you say, to answer your question in order, in order to sell your business properly, you need to use a business broker. And here’s why they are a wall of iron. They’re an iron gate to make sure you don’t get taken advantage of the mess the first reason.
But let me say it a different way. There are a million ways to steal a business and there’s a million people out there trying to do it. And if they think that you have something they want to come in and offer something, that’s just, agregious really in their favor. And unless you’re just desperate or you’re just flat out sick of it, you wouldn’t take.
That option, but they, they play the numbers game and they present these things, uh, enough to where they do get their hooks on businesses without really ever having to come out with hard money or any kind of hard terms, hard underwriting, um, you know, putting up assets are really being covered, committed to it.
And then what they want to do is they want to own, you. Uh, so you’ll work for them basically. So all they did is acquire your company and you, and they it’s just been a, uh, uh, an exchange of ownership and all the money that you’re going to get paid out is going to be based on your performance anyway. And that, that just doesn’t happen.
And with me, um, I don’t let it happen. Uh, I can’t let it happen. And so that’s why you’d want to go to a business broker to get it sold properly. And as long as you’re showing your revenue on your books, as long as you’re showing your cashflow, we can get a solid for you where you don’t have to get into one of those situations where they’re trying to offer you goofy terms, basically trying to steal your business from you and then use you to, uh, to, for your own earn-out if that answers your question.
Yeah. And that’s why I backed out of it. And I hadn’t had, um, The experience at that. I hadn’t had that previous yeah. Type of engagement before, but so I didn’t have anything to compare it against, but everything you just outlined is exactly what I felt like was going on because when I looked at the third cash note stock, I thought, okay, third cash.
That’s not that much. And then the third note, they can probably default on it. And then the third stock, I think they’re just going to put it in some sort of shelf corporation and run it into the ground. And so it just didn’t make any sense at all to pursue that, um, those negotiations. Yeah, it wouldn’t for me.
And what I would, what I would have rebuttaled with is, Hey guys, I really love what I do. But if you want to, if you want to buy me out, we at least got to start it over, be present. And, uh, I’m going to contact a business broker to help me get this thing done. Yeah, that’s what I would do, because if you don’t have somebody controlling or policing, the transaction, things can go South and, you know, terms can change last minute.
You think you’ve got to deal in play. And then the day before close, they call you and say, Hey, uh, we weren’t really serious about that with all you come down on your terms, uh, before close, we’re not interested and they can waste months and months of your time. So it’s better to hire somebody who does this for a living rather than trying to go it alone.
I imagine that you, um, you are profession to me, reminds me of the value in an accountant because a lot of people say that, um, You know, they don’t feel like they should pay for an accountant, but what they don’t realize is if you hire the right accountant, they’re going to save you more than the fees that you pay them.
And I imagine it’s the same situation with you. Absolutely. Most of the time, most of the time, not all, but most of the time, whenever I do a transaction, people walk away going, man, he got me more than what I thought the business was worse way paid for himself. Right. Uh, sometimes you feel my fee, sometimes you do, but, but.
It wouldn’t have happened without me there. So, I mean, there’s a cost of doing business. Um, but let me tell out your audience, something else. Everyone is entitled to profit. You included everybody. That’s listening to this, this podcast, you are entitled to profit. Uh, you should always be earning what you should be earning the equivalent of the value that you provide and a free as a four letter word.
And so I don’t work for free and I don’t, I don’t really even like working for people that are, do things for free, you know? I mean, I, I love it. Whenever somebody says, this is my fee. I’m damn good outlets. I’ll do it. I’m damn good at it. Let’s do business. I love, I like that guy. Yeah. You know, I don’t want somebody who barely knows how to charge, but then acts like a professional.
So, you know, charge what you’re worth and be proud of your fee and then work your ass off for whoever you’re working for and provide good results. That’s my advice. So what’s it like to work with you when you come in? Where do you start with the business? The first thing that I do is to, is to devote defense and what your business is worth.
Say, people get stuck in this quagmire of do I want to sell my business and they’ll stay there for six months, eight months, 10 months, a year, two years, they’ll sit there. Like, do I want to sell my business? Well, what’s the first thing you need to figure out. I don’t care if it’s your car, your house. I don’t care if it’s your, your, your, your.
You know, you’re selling a used couch. You need to figure out how much is it worth. So you can never make a decision to sell your business or not. Whether if you haven’t figured out what it’s worth. So the first thing I do is help somebody sell their help, help somebody define what their businesses were before they go sell their business.
And so I look at their tax returns, usually two years, sometimes three years that the previous two years, if not three years tax returns, I go through them. And then I add certain things back, you know, I add anything that was an expense that was owner benefit. And that’s how I come up with a cashflow number.
Once I’ve decided the cashflow number or the seller’s discretionary earnings number, then what I’m going to do is research their business and. Do a little bit of market research on those, on that industry and figure out exactly what it’s worth in today’s market. And this is what I’m very proud of with what I do
I’ve never been more than 3% off of what the business is worth. Whenever the business valuation comes in, I’ve never been more than 3% off. Wow. So a good, a good opinion, uh, from, from a guy like me on what your business is worth. Um, I’m pretty proud of that and never be at 3% off, you know, I’m pretty accurate on what your business is worth
And by the way, I do that for free. So if your listeners are considering selling their business, they have to figure out what it’s worth first. And I do all that for free. Yeah. What, what’s the, what’s something that really stands out as being unique, either something you discovered while working with a seller or, or just the most unique business you’ve worked with on selling?
Hmm. The most unique, um, gosh, I don’t really know. I mean, I, I think all businesses are unique, but, um, I say, say I sold a, a beer manufacturing company, and I think that was the most unique and interesting business that I’ve sold. I, I sold a pretty large, uh, beer factory and just watching how they did it.
And. Just the process and how fast they made it and all the machinery that went along with it and the money that they’re making and, and, uh, and, and how they started off this beer, making dream out of a garage and built it to a huge company. I would say that’s probably the. Most interesting business that I’ve ever sold.
I, uh, I have a lot of good memories around it, you know, going and tasting their beer and walking through their plant and just being mesmerized by what they had accomplished in such short amount of time. And then, and, and there, there you go. That answers your first question. I mean, they, yeah, they could have held on.
To go make, you know, 15 million a year, but they sold early to a company that had already made it. And, uh, it was a good exit for them and they remained employed after the sale. So, uh, Yeah. It was a pretty neat, pretty neat sale that I went through. Yeah. Well, Chad, as we kinda get closer to wrapping up, um, you know, I’ll ask you some more personal questions.
Obviously. You’ve been very transparent about, you know, business world does your life and, and the grind is, is your hobby, but is there anything beyond that, that you’d identify yourself with beyond the hustle? You know, you do anything. That isn’t entirely entrepreneurially related. Yeah, man. I’d like to sit here and lie to you, but that’s not my style.
I mean, I worked my ass off nonstop. I love to snowboard. I’m an expert snowboarder. I like to hell board get dropped out of helicopters. Um, I like to, uh, I like to travel. I love to travel. Uh, I’m a, I’m a pilot, so I love to fly planes. Um, I have a boat and, uh, and I love to, I love to boat. I mean, I, I guess you could say I’m kind of a Renaissance, man.
I mean, I, I train martial arts, uh, uh, It was called. I was a collegiate wrestler trained MMA fighter, right. Or pilots, a boat captain, you know, avid snowboarder. I’m a cyclist. I’m a motorcyclist. But again, how long can we do all that shit? I’m going to, I’m going to go fly a plane for a couple hours. I’m going to get out of that plane and it’s back to work.
I’m going to go snowboard for a day or two or three. But when I get down off the mountain, I’m getting on my computer and I’m, and I’m maybe I’m on a podcast. Maybe that’s what I’m doing. Uh, so I mean, really primarily I work my ass off and then, um, I go try to enjoy myself, whether it be travel, doing something that I enjoy, and then it’s right back to the grind.
Uh, that’s how I live. Yeah. Yeah. Well, I admire your dedication to what you’re passionate about. Um, I want to give you the opportunity to, uh, put out your contact information to our listeners, how to get ahold of you or find out more. Yeah, please go to Petersonacquisitions.com and, uh, by the way, Damon, anybody who listens to your podcasts can, uh, here in about a week.
Uh, can download a free book. It’s called swinging doors. It’s a book that I wrote. Uh, it’s a guide to selling your business and in about a week, there’ll be an opportunity for your listeners to go on there and download a book. And you, you and I will work out those details, but go to Petersonacquisitions.com, um, and contact us through the website.
If you have something really pressing, you’d like to talk to me about, I do take phone calls. That’s always with me. I work around the clock. My direct cell phone number is 913-207-5895. I’m also an avid texter. So if you want to text me something, you can do that. Um, so yeah, that’s how they can get ahold of my Petersonacquisitions.com or (913) 207-5895.
Texts me there as well. You can also contact email@example.com. Very cool. Chad, last thing I’d like to ask our guests is how do you want to be remembered? At the end of my life. Yeah. A good man that worked hard and did the right thing. There you go. Chad Peterson, Peterson acquisitions.com Peterson with an O Peterson.
Thanks a lot. Hey, thank you.