Today’s guest is an evangelist for what he calls “acquisition entrepreneurship.” Why start a business when you can skip the startup headache and buy one?
He’s ready to help you become the entrepreneur that everyone admires and respects. Please welcome Philip Arthurs.
- 01.38.79 Background
- 09.11.16 SBA Deal
- 15.36.16 Growth in EBITDA
- 19.02.38 Business Miner Website
- 20.01.32 Damon’s SEO Book Website
Learn more about this guest:
Podcast Episode Transcripts:
Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Today’s guest is an evangelist for what he calls acquisition entrepreneurship. Why start a business when you can skip the startup headache and by one, he’s ready to help you become the entrepreneur that everyone admires and respects. Please welcome Phillip Arthur’s you’re ready to grow your business.
And I love helping entrepreneurs find success. So let’s do this. I’m Daymond Burton, Forbes contributor, author of the search engine optimization book, outrank and president of SEO. Now. I’ve been featured on Forbes, entrepreneur and hundreds of websites and podcasts for helping big businesses grow bigger and make more money by showing up higher on search engines, including shark tank, featured businesses, NBA teams, and Inc 5,000 companies.
I’m bringing my successful network to you firstname.lastname@example.org. Whether success to you means financial freedom, freedom of time or freedom of us all we’re in this together. Welcome to the learning from others podcast.
Ready to show up higher on search engines for words that you can monetize, but without paying for ads, download your free copy of my SEO book outrank. If you visit www.freeseobook.com today, Philip Arthur’s welcome learning from others, sir. I’m doing well, thank you so much for having me today, Damon, you know, um, for audio listeners, they’re missing out on your beautiful face.
You got the light going on and you got the full set up. So we’re going to have to convince our listeners otherwise. Why are they, are they listening to you, Phillip? Why are they, why are we listening to you? What are we going to learn from you today? Yeah, absolutely. So, um, I like to call myself the evangelist for the better way of becoming an entrepreneur.
So I am a CPA and, uh, I’ve worked in all kinds of different industries and I’ve helped a lot of other companies buy and sell businesses, uh, include including one of the companies. I was CFO. Uh, most, most recently, um, and, uh, I am actually working towards coaching others on how to buy a small businesses cause right.
Cause there’s never been a better time. Damon than right now to buy a small business. And there’s a lot of reasons for that. And I can go into those if you’d like, but, uh, right now is the modern day gold rush. So people don’t want to miss out on this. They want to become an entrepreneur. I say, skip the whole startup mess and find a cashflowing thrive.
Business to buy, but what if you like pain? What if you want to get beat up? You know, that’s actually why I was interested in talking to you because, um, you know, I, I don’t, I don’t usually bring on like investors, but I love the entrepreneurial world and I thought it was cool that, you know, we’ve talked to other people that talk about buying businesses, but I thought it was cool how you presented it as far as it just, like you said, you know, skip the headache in the beginning and just jump right into something cashflowing.
But, um, before we dig into that, What do you suck at? So I have a problem of saying no, uh, and, and that also lends me to shiny object syndrome. So I’m always. Doing new things and it, I think it drives my wife a little crazy, so I really don’t get much rest. So you don’t say no enough as right? I don’t say no enough.
Yeah. And, uh, so I’m, I’m constantly staying busy and, uh, what’s your latest victim? What’s what’s made you a victim lately of shiny object syndrome. Well, I think that’s part of the reason why I got into buying business because I get bored easily. So I just wanted to work on that and move on to the next thing.
But you need some consistency to it though. That’s right. Right. So why, why is today the modern day gold rush? Why is now more opportunistic? More exciting, more whatever. What is it? Why, why, why is the gold rush going on right now? Well, 10 to 11,000 baby boomers retire in this country every day. Um, and uh, I read a statistic while back.
40, roughly 40% of small businesses are owned by baby boomers and that majority of those businesses are profitable. So there’s a lot of baby boomers out there that are ready to retire and they want to sell their business. And because they’re wanting to retire and they want to sell their business, they’re more flexible.
Two terms, you know, buying on terms. Um, so you may not have to have all the cash down. Um, you might find somebody that would be willing to a hundred percent finance the business for five to 10 years, you know, give them an annuity, a cashflow. So, um, you know, that’s, that’s the big reason, you know, the, the, the, the baby boomers are retiring and there’s going to be a ton of really good businesses around.
No I have, because we’re recording this right now. Our COVID is still kind of at its peak. Has that accelerated people wanting to sell? Like, as, as I imagine some people that’s just the extra straw, the camel’s back and they’re just like, oh, I’m out. You know? And what have you seen any influence in that way?
A little bit. Um, I think it was more around the economic uncertainty. Did anything, but yeah, I have seen a little bit, uh, increased they’re talking to a broker the other day and said that, uh, that is some something that’s cause for concern for, you know, the baby, baby boomers, you know, they they’ve gone through a lot with their businesses and yeah, this is just another, another straw on the camel’s back, so to speak.
Yeah. But, but for the buyers that I would imagine is an opportunity though, because the sellers are wanting to get. So they’re probably likely to be more flexible on either the terms or the sell price. Um, how does, excuse me. No. You talked about different options, cash down, seller financing, like how to most businesses get sold.
What are the, what term is more common than others? I don’t know if you could say it was one is more common than others. What I do know is for, you know, small businesses, typically in the a, I kind of classified small businesses under 10 mil. I think 10 million in revenue and below, but, and when you get to the five to 10, that’s more like a medium size, I guess, business.
But, but you know, in that, in that range, um, you can, people use SBA finance, uh, small business administration financing, where they can get, they can buy a business with only 1,000. Cash out of their own pocket. So you have that you have where people go out and raise the money from, from family, uh, private lenders, just go out to a bank and just do it.
Conventional loan on the business. It really just depends from business to business because some businesses have more liquid assets. Uh, some have hardly any assets. It’s it just really depends on the situation. What are typical? You know, I actually have a friend that’s considering buying a business or starting his own and, um, or they get nervous and scared.
And I imagine a lot of other entrepreneurs do is the terms of, you know, the cashflow. How do I come up with down payment? Or what are my monthly payments going to be? So can you make that unscary for us? Oh yeah, absolutely. If you’ve got to look at it this way, Damon, once you buy the business, That business is going to be paying for itself.
If that makes sense, can I, you’re going to step into a business and you want to step into one. You got to buy it, right. Okay. So you got to have, make sure you have enough seller’s discretionary income or earnings as DEA. Sometimes what you’ll, what you’ll hear it called, uh, enough to cover your debt service.
So the business is paying the debt service and then have enough leftover for a good salary. To me, there’s a scenario out there where you could pay, if you had a ho you know, I don’t know that I was looking at one the other day. It was like $80,000 or $150,000 salary. So I think. I think it shouldn’t be a scary to people.
And I know it is especially, you know, never gone through it before. Of course, it’s, you know, it can be scary, but you’re also looking at buying a business. That’s going to give you a cashflow and you’re going to make a salary in the business, creating a startup. You have to go out and build a business. You have to be everything, right.
It’s, it’s so much harder. And here’s the thing. Uh, when it comes to startups, you know, ultimately 90% or so fail the statistics. I heard somebody say the other day, like 90 something percent of, of business acquisitions ultimately succeed. So, so the odds are definitely in your favor for buying a business.
You can buy a business, that’s doing a million and a half in revenue, right? Let’s say you, the purchase price is a million dollars. You need 10%. If you’re going to do an SBA deal. So you need a hundred thousand dollars to buy the business and you can get that money. You raise it from maybe family. So now you’ve got a hundred thousand dollars invested from other people’s money.
Use the SBA for the other 90% and you can get into the business and you can improve the business right out the gate. And once you start improving it, you can refinance the debt down the road, pay off your family and have extra cash. To invest back into the business and what I’ve noticed in some of these baby or most of these baby boomer businesses is they’re not like your business, you do SEO work, right?
So that’s something that a lot of the baby boomers haven’t really paid a whole lot of attention to right. Driving traffic to their website. Um, they they’ve just been old fashioned word of mouth and, and has gotten them into a good spot obviously, but could get them to an even better spot. And with the baby boomers, they’re, you know, they’re older, they want to retire.
They’re just, they just, they need new life to these businesses. And, uh, so th there’s so many more, really good advantages to just buying a business. And I just really want to spread the word to people because ultimately I think the statistics right now are somewhere around 80% or so. That are businesses that try to sell.
Don’t ultimately close. They just shut down. I’m gonna ask you what, why don’t they don’t close? Um, that’s because they didn’t find a buyer for the right terms or what happens there. A lot of reasons for that. Yeah. It could be that they didn’t find a buyer. Maybe they didn’t think they could sell the business.
They didn’t try it. Yeah. They, they may not have known, I’ve got a sellable business. Somebody might’ve just said, ah, you don’t have a sellable business and they just took their word for it. I think one of the biggest reasons for why I wouldn’t buy businesses, if the owner of that business was so instrumental.
In keeping that business afloat. Yeah. Like they’re too ingrained into the day to day that it would be impossible for me to come in and replicate that person. Yeah. And that’s, that’s not the case for everything. And it’s, some people want to be really heavily involved in the business. So I own multiple businesses and, and, uh, and have a group of guys where we actually actively look at deal flow so we can buy our own businesses together.
And, uh, you know, We can’t. Be involved in the day-to-day as much. Those are the two biggest reasons. I think it’s just, they don’t know they can sell it. And Dave, they just, they don’t really have much of a sellable business, uh, you know, cause they’re so involved. Yeah. Now you talked about improving the business and you started to touch on it a little bit.
Like when you compared, you know, um, baby boomers, not being familiar with digital marketing. Um, so it sounds like a lot of them are just stuck in their ways, which I would agree with. I’m really surprised a lot of times. The bigger, the, especially if it’s a blue collar industry. So a lot of times when we have a new client in the SEO space, in the blue collar industry, they have, it’s fascinating to see how much success they’ve accomplished with out, even touching.
Anything in the digital space. Um, so you could literally take something that’s profitable and you know, it’s going to vary, but it’s not unrealistic to increase revenue by 50%, a hundred percent just by adding more fuel to the fire in a different capacity. Th that that’s very true. And so there’s a lot of value add opportunities in, in these, in these type deals.
Yeah. Now on these SBA terms, what’s like, what is, uh, a sample term length? So our listeners, they go, okay, I can come up with 10%. I can either. Pull equity out of my home. I can get some funding from my family, but then, but then what’s the term on the monthly payments? Like how far out of a term do they usually have to fund these for typically it’s going to be around five and a half percent interest for about 10 years.
Yeah. So totally doable. I had, um, I had actually a good friend the other day. He, he has a. Business, he’s looking to buy. So it’s a 2 million, they do $2 million a year in revenue, $600,000 or 200 to $2 million in annual revenue. And it’s for sell for 600 grand. So I don’t know what the profit is. Um, but I imagine it, but the way he approaches it, when he messaged me is, Hey, it’s, it’s already profitable.
I just. I just need the money, you know, so it’s absolutely how you can just get straight in and buy these things are one thing. Why don’t you talk a little bit about, maybe you’re already an existing entrepreneur and how you can buy another business to compliment yours? So one example would be I’m in the SEO space.
Maybe I go buy a social media agency. So can you talk a little bit about, um, expanding an existing operation by equity through acquisition? Yeah, absolutely. Actually. That’s what I’m looking to do right now. Yeah. You know my own business. So me and some of the guys that, that, uh, partnered with, uh, we all are in real estate at some form or fashion.
Um, some of us do multifamily properties, some of do single family, some flip houses and, uh, things of that nature. So of course we’re looking for business, uh, businesses where we can leverage our current contacts. Grow revenue of existing businesses. For instance, if we go and buy a plumbing business, well, we immediately have a ton of contacts, multifamily contacts, and other real estate investors that we can actually.
Sell to we, we can insert a new customer base. So, but yeah, if you, you don’t have to buy the exact same business, you can buy something that, where you can leverage your contacts, grow through acquisition, concrete company. I worked for, um, concrete. They actually just sold here two months ago. Is that the one who said you’re a CFO?
Yeah, so I was CFO there and we bought multiple businesses while we were there. Or while I was there, we used like a data driven. Analytics approach to, to, to buy in these businesses. So we actually bought other, other concrete companies, so we’d go out there and we’d evaluate them. And then we just kept building on.
And so our, our growth was, was really mad, passive over a short amount of time. Like our EBITDA was like 600% growth in EBITDA. Less than six years. Yeah, it was. And it was, it was a lot of work and, uh, we didn’t just, it wasn’t that we were just growing revenue. We also, our margins improved, you know, we, you get those economies of scale when you think bigger and bigger.
So you can take advantage of economies of scale when you start growing through acquisition. It’s not always the best strategy to grow through acquisition because I feel like sometimes companies just grow too for the sake of growing. But if you do it the right way, it can be very lucrative. Can you touch on what EBITDA is for some of the listeners real quick?
Sure. EBITDA, that’s your earnings before interest taxes, depreciation, and amortization, and to simplify what that means, it’s just a measure of the cash, your, your cash. That’s that’s being generated out of the business. It’s an average, what’s a common, um, sell calculation. So is it two times earnings, three times earnings?
Does it vary? I mean, obviously it varies, but is it more common to vary between different industries? There’s a lot of different ways to value businesses, right? Um, you’re alluding to valuing. As a multiple multiplier of your EBITDA. And you’re like I said, your software space, those tend to be a lot higher.
I’d say average for small businesses is anywhere between two and four times. Your, either your EBITDA or maybe your. So people call it adjusted EBITDA or even a seller’s discretionary earnings, which basically is your it’s a modified EBITDA num uh, calculation. You take your EBITDA and then you’re also factoring in your owner’s compensation.
And I don’t know if the ownership things. If they took vacations out of the business, you know, things like that. Uh, so they, they re they adjust that. So you can get a good picture of what that is. So right now, two to four times as a DBE is pretty common for small business. And well, why would a seller seller finance?
Now I want to elaborate on that a little bit more because. It makes sense. Like you mentioned the baby boomers, maybe they’re just getting tired and they don’t want to do it anymore. So that makes sense that they would just want to sell it, but why would they sell it where kind of like you positioned it as an annuity when they’re going to make that money anyway, is it just so they can make a handsome.
Uh, they get interest on the loan. They also, because it’s an annuity, you’re, they’re paying tax over a period of time and all at once, which could, there could be some tax savings there as well. Well, Phillip, you know, it’s super interesting. I like this concept of being able to, to either grow through acquisition or save the headache and the pain of a startup.
So I’m going to give you the last few months, tell our listeners how they can find out more about this whole content and this whole concept. And. Absolutely. Absolutely. So, uh, you know, we’re helping people become the entrepreneur that everyone in Myers and respects. Um, so if they want to learn more information about the business miner coaching program, they can reach out to me at www.thebusinessminer.com and that’s miner with an ER.
So www.thebusinessminer.com. You have a podcast by the same name, too, right? Absolutely. The businessminer podcast. Okay. And then what type of guests do you bring on your podcast? Experts. People who like, uh, brokers, advisors, attorneys, and then people who’ve actually bought businesses. Gotcha. Super cool.
All right. Philip Arthurs, everybody. Thanks for joining. Learning from others. Go check them out at www.thebusinessminer.com. Thank you for having me Damon Damon Burton here. And thank you so much for listening to the learning from others podcast. I sincerely hope that today’s guest helped you learn something since 2007, I’ve generated millions of dollars for businesses like yours.
Ready to show up higher on search engines for words that you can monetize, but without paying for ads, download your free copy of my new SEO book out. If you visit www.freeseobook.com today.