55 Acquisitions, 18 Different Industries E: 23 Arturo Henriquez Top M&A Entrepreneurs

Or the clo Welcome to the top M&A's Entrepreneurs podcast. My name, my name is John Stotter. I have a guest today, Arturo Henriquez. And the reason I brought him on is, I, I was on Amazon and I got this book called Buy Yourself an Entrepreneurship. It is an excellent book, get it. I'm gonna read just a little bit about uh who Henriquez is, uh, Arturo. Uh, he's been involved in over 130 business purchases business deals. He's bought restaurants, tequila company, consumer goods company, technology company, bars, nightclubs, pest control, fast food restaurants, real estate brokerages, and on and on and on, like, and he's raised money from fans and families, from VCs, some investment banks like Merrill Lynch, uh CVC Latin America, Citibank, he's done it all. He's been involved in over 55 companies purchases. Uh, personally, so welcome to the show. Thanks, John, thank you. Happy to be here. Excited. Hey, I gotta tell you, uh, I ordered this book from Amazon, it comes fast. I'm in the, uh, your program, so, and I read it really fast. I gotta tell you I love this um from the very start of this, you talk about how like to outreach to people. I mean this is nitty gritty stuff like. Like the letter, sending out a letter and you give the letter. And I gotta tell you, I'll talk about this, how to get it open, you recommend buying black or dark envelopes, so they think it's a personal letter. I mean, that's great. Yeah, yeah. It's tactics. It's, it's tactics, right? So, what, what, what I try to do, and I mean, this is what I, I've done in the past, right? So everything that's in the book and in the program, I've done personally, and I I continue to do today. And it's, it, it really is all about getting to the decision-maker, establishing rapport so that then you can start talking about buying a business. Yeah. How many do you send out a week or a month? Uh, well, honestly, right now, I'm, I, I've got such a deal pipeline, John, um, that I, I, I, I don't need to send things out, you know, as many emails or envelopes or social media posts, because I have so many tentacles out there. People know who I am. They know I'm serious, they know I'm actively looking to buy and sell businesses. However, when I was, uh, doing this, probably at the earlier stages, I would send out maybe 50, 50 envelopes a week, um, and out of those, this is important, out of those 50 envelopes, I'd researched probably 50% of those companies, right? So these are companies that I am targeting and what I mean research is I will go and, and get information on that company to make sure I'm not wasting my time because it's, it's hard enough to get in front of someone. Um, to later then realize that that was never a good business for you to begin with. So I try to do a little bit of the homework up front. So, um, so there's more than just the sending the envelope or getting the address, right? I would send about also probably about 50 emails a week as well. There's a rhyme and a reason to that. Uh, you don't want to become spam, you don't want Google to, uh, um, uh, or any email, uh, provider to, uh, you know, to to, to, to think you're spam. Yeah, right, so there's a, a number of emails you should only be sending out in a given time frame. Now, that's probably changed, and I'm, I'm not a Google guy, I'm not an email guo or like that. Uh, but, um, and then social media posts, I do those all the time. I still do those. um. I do the more specific, meaning, um, if I'm looking, uh, so I'm actively looking for full service companies right now. So I'll see a routes, like a FedEx route, but a pool route. Um, it's just a simple business model, recurring revenue, um, easy to scale, low, low fixed overhead. Um, I just bought one about a year ago and And I, I, I really like the business model. But anyways, in the social media posts and the outreach, which I talked about in the book is all these are strategies on how to find businesses, right? Um, uh, and so I, now I put specific industries that I'm looking. For when all the other ones are not, um, not giving me that much, uh, uh, return, I guess, right? Uh, yeah. How did you come across, I, you know, look, I, I used to pay a pool route guy and it's reoccurring revenue, right? You sign up and you just send in 50, 90, 150 bucks a month to clean your pool and do everything else. I mean, how did you come across that? And I, like, to me, it was just a one guy operation, so buying his business would probably be, you know, he's got a P&L on his napkin, so it wasn't really anything. How did you find pool companies that's sizable enough to make sense for yourself? Right. Well, I mean, it's, it's, I wasn't looking for it. Um, it's like everything else. I'm, um, I, I talk a lot in my book and in my programs that you really need to know your deal specification. It's very, very important. This is, this is what you want to buy and why you wanna buy it, right? Do I want to buy a scalable business or not? Do I want to buy a restaurant or in that type of industry or not? Uh, do I want, uh, a million dollar company or a $100,000 company or not? Do I want to be owner operator or absentee or hybrid of thereof or not, right? So all of, all of this is your deal specification. Because I am industry agnostic now because I've bought, you know, over 55 businesses across 18 different industries. I'm industry agnostic. So I'll look at oil and gas deals. I'll look at pool routes, I'll look at FedEx routes, I'll look at meat distribution companies. I'll look at whole services companies, and the pool route one just happened to come my way, vis a vis my pipeline. Now, now that I bought it. Um, and I bought it for the reasons that have been validated, which it's a simple business, one, easy, easy business model. 2, recurring and predictable revenue. Right, 3 scalability. Right, so those 3 reasons are the reasons why I bought it. Have they proven to be true? Yes, absolutely. Yeah, so how is it, help me out on the scalability and just like you're talking to the audience, uh, cause my guy that I hired was just a mom and pop, like, yeah, and he kept leaving the freaking door open the dog, get out, like, dude, you're fired. I mean, you did that twice. Correct, correct. So, I'd say 90%, 90 95% of these pool, pool operators are mom and pop. So they have, they, they, they, it's their job, right? So they, they own a job. Um, uh, they own this business but that's how. You know, that's the, that's how they get paid is based off of the, the profit. Um, they're not necessarily businessmen that look to scale. They don't know how to scale. They don't know how to hire. They don't know how to get financing to scale, right? You, you, you get more businesses, you get more, uh, clients, you get more residences, more pools, you need to get another truck. How do I buy another truck? How do I hire someone? How do I train them whilst. Still, you know, managing and operating my business. So all of these things are very normal for the small business owner operator type, um, um, and so that's why it's a very fragmented business. I bought a business or a route that was already established. It was not an owner operator that had more than one route. I don't wanna give too much away, but it had multiple routes, so it had an infrastructure already. It had multiple vehicles. And so now I've got a uh uh an ability to put processes in place, which is key to scaling, key to scaling, making sure I have the right people, which is key to running any business, and scaling. Um, I, I'll manage the growth. They've got, the people have to manage the company. The day to day operations. So if you don't have the right people in place, then the growth and the scalability is gonna, you know, go by the wayside. So, I, it was, it was scaled enough, and now we're scaling it so where we can double it, um, hopefully in a year. Yeah, that's just, uh, hey, there's a new house, here's a new address, do the same thing you did at that last address. You know, the weird thing about the pool stuff is you'll start with the COVID stuff. Our, uh, chlorine went from like $20 a case to it doubled. In a very short period of time. Yeah, there's a, there's a, there's a, there's a big shortage right now in the industry for industry-specific reasons. So, um, you know, it happens in, in the industry sometimes and it's happening in the pool industry. Chemicals are, are scarce right now, you know, tablets, chlorine, uh, acid, whatnot. Um, it'll pass, it'll pass. So we're all gonna go through lower margins for a couple of months or a period of time. It'll pass. So what's your plan with this? I mean, keep it for a period of time, you grow it, and then flip it, or does it go in a portfolio? Yeah, well, I, I'm very clear on why I entered the business, right? I'm very clear on, um, I want to buy this business because I wanna, I wanna, there's, there's a lot of room for efficiency, for instance, right? So I'm able to put in those efficiencies. I want to buy this business because I can scale it. Right, and then sell it at a higher cash flow, which will garner a higher multiple, right? So I'm very clear on that time frame. I'm not too clear on it because I don't know much about the business, you know, and I don't know much about what that implication of that scaling or efficiency does. Now, I'll give you, I'll give you a great example. Um, uh, in 2008, we bought a bar, I bought it with a partner. Um, and first thing anyone would say is, why a bar? It's a nightclub, you know, that's, that's the idiosyncrasies of that business. It's late night, it's alcohol, it's, you know, it's rowdy behavior. It's, you know, unless you want to be in that, most people don't, and I certainly don't, right? But I realized that the bar was, you know, it's been operating for 9 years, stable clientele. I could buy the real estate, and it was absentee. But there was room for efficiencies, right? When you buy a bar or a restaurant or a retail store, it's very difficult, if not impossible to scale because you're confined by physical, physical space, right? Or, or production, right? If you look at a restaurant. You, your, your dining room is your, is your clientele, right? You can only sell, you, you can only fill the dining room so much, right? But you're also constrained by your your kitchen uh capacity, which would be your, your factory. Right? So you, you're constrained on both ends. At a bar, you're constrained by the physical capacity, but you're also constrained by the bar, which is your production facility, right? Um, so I knew it's not a scalable venture, but there was, there was efficiencies to be had, right? So that's why I bought it, right? I, I, we implemented those efficiencies and one of the best returns of my investments under 7 months, all my money back. On the business purchase from a financial standpoint, a home run, I mean, uh, major home run, and I kept it for 13 years. God. Why did I keep it for 13 years? Because I had no reason to sell it. It was steady, predictable cash flow. So I didn't have a time frame. I could have flipped it 3 years into it, 5 years, 7. We, we actually sold it. Complete serendipity. The month before the COVID pandemic started, March of 2020. Yeah, I'd say you got lucky on that one. We got lucky. We got lucky, but uh we still would have made it through the, you know, the, the pandemic. I have other businesses that suffered, and we, we made it through, uh, we suffered like all small business owners that, you know, we all suffered. But, uh, so getting back to your question, I'm, I'm either making it more efficient or I'm either scaling it cause that's really what you could do with small businesses. Then what happens? When do I flip it if you want, you know, use that word flip it, or how long do I keep it? I don't know that so like I'm in the business. Yeah. Did you ever get any of those calls late at night? Somebody bought too much alcohol, got in an accident, now they're doing in a bar or fights or anything like that? No, no, no, no, I mean, it happened, it happened, but we had, you know, we, we had good management in place and a good process in place, uh, so the people And the process is managed the problem. So in the case of a bar, the problems would be fighting, rowdiness, drunkenness. So in the case of the pool business, complaints, uh, lack of raw materials, the people and the processes should address any, any problems. You have good management, good, good people with good skill sets, and more importantly, amazing work ethic, then that's what they're there for, right? To solve those problems, to address them. So while they existed, John, I, I, I, as the owner did not have to uh address them first, right? And do you, you know, you look at a restaurant and say, hey, this is the management, but you really don't know the people in there just yet until they perform for a while. So, you know, they're, you make that judgment call and say, well, look, it's for me to add revenue, for me to do what I want to do, I need to find somebody else. Yeah, and that's a great question because it all goes back against your, your why, right? So we've had chefs that have come into this business to my programs, and they're dead set on buying a restaurant. And we, we, we, we challenge them on their lives and their deal criteria. And most of them want to scale a business. And, and we go back to look, you can't really scale a restaurant because of the physical, what we just discussed, right? And they, they end up changing and, and going to another industry. So these are chefs that have skill sets and a passion, but scaling is a priority over this. That's again, that's the importance of understanding your deal criteria, right? Um, one of my deal criteria is that I need to have strong management in place. I'm not an owner operator. I've got, I, at any one time, I have 4 to 6 businesses that I own. I can't be an owner operator. It's impossible. So I, I have to have good people in place. Will I change them? Yes, maybe. Now, it all depends on the on the, on the business, right? Um, uh, but that's something that I look for as an, an important criteria when I'm looking at deals at the very beginning. Is there people in place? Do they have longevity? Do they have the skill sets that I need to run this business once the seller is out, who's the current owner, and we're in? And do, and, and maybe I'll change them, but at least in the beginning, as I get to know them, as I get to know the industry, and more importantly, as I get to know the business, um, I, I can make those judgment calls, but the business continues as before I buy it, because the people are already there, right? Yeah, how do you master the ability to work above the business? When you have so many different uh types of businesses you worked in, they have different KPIs and metrics, like, like a software business versus a restaurant business. I mean they're two different like ring the bells to get more money thing. Yeah, how do you that's, that's, that's a great question, um, and it really comes down. To the three P's, right? People processes the product. You must be a big fan of uh Marcus Lamona because that's, yeah, I know, I know he talks about it a lot. I, I used to watch his program, but it's true. I mean, everybody talks about this, right? So if you have, we know that the product or service is already good because you're looking at a cash flowing, a profitable business to begin with. So the market has already accepted that product and service. So you can kind of check that. Can you make it better? Absolutely. But it's already been accepted, right? So the product is product or service, that's one of the pieces is always good if you're buying a profit business, right? So then it comes down to people and processes. I'm very good at processes and I'm very good at people. I just, I, I, after so many years doing this, and before I was an entrepreneur, You know, you, you gotta be good at these things to make it, uh, um, you know, to be successful, right? At, at being an entrepreneur. Uh, let me, let me ask you that real quick. Do you, when you buy a restaurant, do you just jump in and go, hey, what are the metrics for the restaurant business? Like, do I go watch Bar Rescue, you know, like 1000 times. And I, I know, I, I learned on it. So whenever I buy a business, normally during the first call it 1 to 3 months, I'm in the business. I'm gonna be going to that business on a daily basis or almost every day um for many hours cause I need to understand the, the pulse of that business. What, what, what makes that business tick. Right? I have to because the only way to manage or supervise remotely as an absentee or semi-absentee owner is to understand the pulse of the business, right? So if I buy a restaurant, I need to know that on a Wednesday between 12 and 1, we normally get maybe $3000 in sales, which equates to about 100 tickets. So if I look at the app, And I see that we were at 2000. I'm gonna call the manager and say, what's going on. So I'll have, I, I'll have that already that I guess KPI already ingrained into my mind, right? That there's something there. I'll also see the labor, and I know from owning 7 restaurants and bars that above a certain percentage point of the day's sales, your labor is too high, I'll call the manager. Get rid of some of these people cause they're out of. When I start seeing those KPIs, but I need to already understand those KPIs, right? And during the 1st 3 months, that's when I learned the intricacies of the business. That's, that's how I've been in 18 different industries. Think about that. I've gone into 18 different industries without ever being in that industry before. I think it's like, sound like a Marcus Lamonos cause that's all he does is looking for people process and uh uh products. Yeah, and completely unrelated candy to. Uh, you know, gift to whatever. Yeah, but he goes, he goes, he goes to, what I do is he goes to the, the, the, the foundations of any business, making sure that that's, those are running great. What he does though is he takes the stress businesses and implements his knowledge to turn them around. I've done that before. What I've realized what it, it's just not worth your time. Because you may be able to turn them around but not get as much profitability for the immense amount of effort and resources it takes to turn it around. So, let's just buy a good operating profitable business from the get-go. Yeah, yeah, I know, I tried that turnaround stuff. It is emotionally draining. Yeah, and, and, and uh, so there's a lot of risk, there's a lot of investment and resources at the beginning, but you're never, you're not necessarily getting that. The additional reward for it. Unless somebody gave you the business, and even if that's a question. But, but even then, there's no guarantee one, you're gonna be able to turn around and define turn around, is it not losing money? Is it making money, but what is that? 2% net profit, 10%, 20% of that, you know, it's, that's night and day. Um, so it's, it's, it's just a lot harder and I There's so many businesses out there, good, solid, you know, strong, profitable business out there to buy that. I don't need to be messing with, you know, turnarounds. Yeah. Any of these industries that you worked in, would you say, oh man, I'm not touching that industry again. It's just whatever it is. People or process, yeah, no, uh, I mean, there, there isn't one industry that I've gone into and said I'm never gonna be in this industry. That's never happened. Um, some industries are harder than others. Some industries have. But, but it's, it's kind of a trade-off, right? Like, like the restaurant industry, it has a lot of turnover, right? And so, if you have the right management and the process in place to address that risk or that, that, you know, that, that I, you know, that intricacy of that industry, then it shouldn't be a headache. It's just part of the industry, right? Um, so, in the poolside, it's, it's, you don't know what you don't know. In other words, um, Clients usually don't change pool companies unless unless you really screw up, right? And so you gotta screw up 4 or 5 times before you leave the door open and your dog gets out. Yes, right. And so when I, when I see that you, you, uh, a client usually doesn't call you to tell you things are good. They just forget about their pool because it's being addressed. You're doing your job. They don't worry about it, so they're not calling you. The only time they call you is because there's a problem. Either their equipment doesn't work or, or you did, you didn't do a good job in on the cleaning side, right? Um, so from an owner standpoint, I don't see those 5 strikes, so to speak. Until, until uh you lose a client, right? So how do I, as an owner now, again, it's the intricacy of this industry. How do I as an owner start getting alerted at the red flags or making sure the managers are addressing them in time so that we don't get to the 4 or 5th 1 where they're like, all right, that's it, too many strikes, right? And so that's, that, that's all about training and people and processes. Yeah, how do you, I gotta tell you the, you're probably lucky you got out of COVID cause bringing on finding people to work with. I had a buddy that got out of college and we went to college together, and he got out, and he went to a training program for a restaurant, one of those choice fresh restaurants. He said, man, I get like daily people walk up and we turn off his bag, hey man, I can't show up. I gotta go to a concert. It's a turnover. He just hated that. Yeah, it's uh it's, it's been, it's been a challenge. It's uh, I mean, I don't think, I don't think, you know, with, with the stimulus checks and the unemployment benefits that have been out there over the past year and, and change, um. It has definitely been hard for small business to find good personnel. I mean, it has been. That's just, it doesn't matter whether you're in the restaurant industry, or the pool industry, or the uh fabrication industry, or the trucking industry. It, it's hard to compete because small business, by definition, they, they, they employ um people that get paid usually less, right? Small businesses don't pay $250,000 salaries. They pay $15 an hour, right? And those are the people that, that. You know, said, you know, I'd rather stay home because unemployment is, is, is as good or just as good without me doing anything, right? So it's definitely been a challenge, but I, I see it waning away, month after month, there's more, there's more personnel on the floor. Yeah. Now you said you own 5 or 6 businesses at a time. Do you Is that like kind of your cap, your capacity, and, and if you go, hey, I'm down the floor, I need to go to find a business, or is it, or like doesn't matter. It's targets of opportunity. Yeah, there's, there's no formula. That, that's just, I, as I look back, that, that's just the way things have panned out. I mean, there's been times where I've had 2. There's been times where I had 72 of them were in the process of being sold, but they haven't sold, so we're still. They're, they're still my businesses, right? So, that's just the way it's been, John, that there's absolutely no, nothing, nothing to look into that. It's just, uh, by chance. So I, I've been with one or two businesses, and I've been with 5 or 6, on average, it's been 4 to 6 at any one time. Yeah. Do you, do you look at a business like, and you say, well, look, I, I could buy it at this multiple. But even if I do put people product and process in place, it's still only gonna sell at, you know, you know, 1.2 or 5, whatever it is, it just doesn't go up that much even though you put all the stuff in place, but it has great cash flow. Yeah, yeah, yeah. So, so, so when I, when I implement. You know, the people in the process primarily, and, and we, we do, we do, when, where possible, we do, we do, of course, improve the product or the service, right? So we do address the three P's, but if I'm able to address those three P's, I should have some sort of financial result. So meaning I should have efficiencies. And if I have efficiencies, that means I'm gonna have a better cash flow. And if I have better cash flow, even I, even if I sell it the same multiple that I bought it at, I'm selling it at a higher price that I bought it. And in the meantime, I'm getting an annuity, a cash flow, right? So I'm preserving my capital, getting an annuity, getting a return on it. And then selling it and getting at least my capital or more. If I scale the business, then it's a, it's a, it's a double punch, meaning I scale it, cash flow is now gonna go up because I'm scaling the revenue. So I'm gonna scale the cash flow. Cash flow meaning free cash flow to the owner or profitability. Um, and if I scale it higher, right, let's say I buy a business, I'll give you an example. Let's say I buy a business stood about a million dollars in revenue and $150,000 in free cash flow. And I scale it to 3 million. Then the cash flow is gonna go up maybe by $4000 to $500,000. Well, the first, when I bought it at $150,000 I'm probably gonna buy that business at a 2 to 3 times uh multiple. But a $500,000 free cash flow company is gonna sell between a 4 to 6 times multiple. So now I'm selling a business that I've been able to scale with more cash flow at a higher multiple. That's where you make real wealth. Yeah. Do you have a deal team that comes in and kind of takes over the business and go, hey, we need to do this, this and this, like to work on each one of those people processed products. I, I, I do, but it's not as organized as a lot of people might think. Right? Because, because it's small business at the end of the day, right, John? So you don't wanna, I don't wanna have this big holding company that's sucking up expenses like that you owe $10,000 a month or $50,000. You don't, you don't want that. So a small business by definition should be self-sufficient and make money. And if again, if you have good management in place, then I just have 6 managers or 5 managers or 4 managers reporting to me. So I don't need someone up here. Now, I do have a deal team when I'm doing the due diligence and when I'm doing things like that, I do. Um, I have had, and I do have um administrative assistants that help me, but that's just for my comfort as opposed to Operations. Yeah. So let me, let me ask you about how you're, now, we already talked about the how to find the business and, you know, like a lot of people I have in my mastermind was like, how do I find a business? Well, you just gotta get out there and create massive action to get that deal flow going and very specifically about who you're going for. Uh, but a lot of people get stuck at the funding the business, and I know there's the SBA. But, you know, one of the books, one of the chapters you talked about is the, uh, you know, the equity and the asset. You really lined out what the difference between buying the assets of the business and shaving off the liabilities and the equity. But can you tell me a little bit more about why that was such focus of, you know, 2 to 3 chapters? I loved it because I'm looking at business where it's public, but it's not really trading, it's an OTC market business and uh It's got 2.7 $2.8 million in cash now, and that's like, get the business to buy the business, you know, I don't have to do it, yeah. Well, so, so a lot of people, so just, just to your, to your audience, I buy a lot of businesses without putting any of my own money down, right, um, meaning I, I don't come out of pocket. I don't have to use my capital whether, whether I have it or not. My students haven't had to use their capital whether they have it or not. Um, and so there's various ways, creative and strategic ways to fund the purchase of a business without coming out of pocket, right? Um, one of those is to buy it, to buy the, the actual entity, so it'd be an equity purchase now. The asset purchase is the most commonly used, right? So it's value the business you're still buying the business. This, the legal purchase is, is an asset purchase as opposed to you buying the shares of a company. The reason why you, you would do that is because of all the contingent liabilities that are out there, right? That, that you, that are impossible to uncover in a due diligence because these are not audited financial statements, they're not reviewed financial statements. They're some of them are on paper napkins, right, for all you know, and there's a lot of personal and, and uh non-business. expenses and entanglement with the personal part, right, so it's not, it's not as profession, right? And so there, there could be a lot of contingent liabilities. So when you buy, when you buy a visa vis the asset, create a new company, and then you buy all of the assets, all the clients, all the cash flow, all the goodwill, um, and you, you know, you transfer everything to the new LLC. And so if there, if one of those contingent liabilities were to pop up, let's say a disgruntled employee. Sued the company. Well, they can't sue you. You were, you, they, you never employed them. The old legal entity employed them, so they would sue the old, the, the sellers, the old owners, right? So that would be an example of getting away from a continuing liability. Um, however, when you're trying to put together the, the, the puzzle of doing 100%. Finance deal, one way of doing it is to assume existing liabilities. And the only way to assume existing liabilities with financial institutions is to keep that, keep those loans where they are. And there would be existing legal entity of the seller that, that you're buying it from. And so it's instead of you going to a bank and explaining on the deal to get new financing, you can just go to the existing bank that's already financed. You know, part something about the business, you know, whether it was equipment purchase or whether they have a line of credit or whatever it is, and say, I'll just, I'll just assume it. They already know the business. They don't have to start a new file, you know, you, you gotta, you still gotta sell it to them, but they're already getting amortized, they're already getting paid. They're, they're happy. There, so they, so 90% of the 90% of the, of the convincing a bank to finance you is already done for you. Yeah, yeah. And assuming that loan, but again, the only way to do that is to keep it with the existing LLC incorporated or legal entity. Um, so that's that, in that those cases, you would buy it as an equity purchase as opposed to an asset purchase. But then you'd have to write very, very strong, you know, representations and warranties in their legal documentation. Yeah, yeah, but that would also, would that also take like say if the businesses for 5 million and the liability is 2.5, you just say, well. I'm cutting, cutting the valuation of the business by 2.5 because I'm assuming the liability. No, no, no. So here's what happens. That, that's a, it's a great question. So let's say you're buying a $5 million business, that's the purchase price, as you said, and they have $2.5 million and let's just call it one bank loan, right? So in an asset purchase, you're gonna come to the closing table with $5 million. Right? And simultaneously, now, the, the seller has to sell you everything free and clear of any liabilities. Right? So simultaneously that, that lender, excuse me, that seller is gonna use the proceeds and pay off that $2.5 million dollar loan, right? So the seller is gonna net $2.5 million. The business is still worth $5 million. But he's got, he or she's gotta pay the $2.5 million. That's the difference between enterprise value and equity, right? So if you, so that's an asset. Right, let me, let me, yeah, so if I, if you, but if you said, hey, I'm gonna, I'm gonna purchase the assets and assume your liabilities, I'm gonna go to the bank and renegotiate it as me as the principal, but I'm only gonna buy it for 2.5 because I'm assuming your liabilities. So you're still buying it for 50, you're still buying it for, but the business, the business is, um, uh, you assume $2.5 million of, of loan. Take, think about it from, let's, let's go back to the asset, right? So $5 million purchase, you've gotta come up with $5 million right? But you're gonna have to go to talk to banks and or investors or do other creative things that I talked about in the book and come up with $5 million right? A bank may lend you $2.5 million but you've gotta go through the whole business plan with them. You gotta walk them through the deal. You've gotta, to them, they've never seen this business, right? And, and hopefully you'll convince them and they'll lend you money. Well, in an equity deal, if the business already has $2.5 million you don't have to do all that because they already know the business. They're already banking, they're a client of the bank. All you have to do is convince them that you're, you're gonna be a good owner, right? And so you've already financed 50% of the purchase with the help of the seller. Makes sense. You don't, you don't, you don't start from scratch. You, you, you've already got 50% of the finance. Now we gotta go find the other 50%, and that's a lot easier. Yeah. You know, you add in credit card financing, you add in equipment financing, you add in owner, owner financing, and suddenly you have a 100% no money down deal. Yeah. How much are you involved in raising capital aside from doing no money down stuff with banks, uh, like just having a fund or it's always a big conversation I have with people I master and I go, hey, I gotta start a fund, you know, I, I need money to be able to buy businesses here. Yeah. Um, well, I don't, I mean, I've, I've been approached, I, I, uh, hundreds of times to raise capital, right? But, but if, if, if I don't see any benefit for me, why am I gonna raise capital for a third party? I've already done that when I worked in Wall Street and KPMG and I've raised a lot of money for my businesses, uh, but I wouldn't do it for somebody else because it's, it's not worth my time, right? Um, So, uh, to put together a fund, remember, when you, when you raise money, There's, there's, you gotta get into now we gotta get into the intricacies of a fund and how they, how they make money, um, and when they can, when lenders or, or investors commit money to a fund, well, that money costs money. Right, and if you don't have active deals, You still have to, it's still costing you money to have those funds, whether they're deposited in a bank account or committed. There's no, there's no point in that. I can raise money for a business purchase all day long, so I don't need to have a fund um for my, for my deals. Interesting. Yeah, so when you have a deal and your deal flow, you have a network of investors and say, hey, look, I'm gonna need, you know, $500,000 to put as a down payment, and here's the business. Is that what that look like? Yeah. Yeah, I mean, so, uh, yes, I have a strong Rolodex. Fortunately, I've made people money, a lot of money, um, and, and yes, I've, I've, I, I, I call, you know, my friends, family, and fools, right? Uh, because they're not fools anymore because they made a lot of money. So, uh, no, I, I have accredited investors. I have angel investors. I have VCs, and more importantly, I have lending institutions. That's, you know, the majority of the money we raised to buy a small business comes from debt, not equity. Equity is the most expensive type of financing. So if I can get a bank, I'm always gonna get a bank. I can get a financial institution, I'm always gonna get a financial institution. What kind of debt to cash flow ratio do you look for in a company, uh, to cover it, to, to cover, uh, financing? Yeah, there's no, there's no black and white. We have a formula. Um, if you came into the program, we give you this financial spreadsheet where it's kind of plug and play, where you have the cash flow, you bring, you put in The debt that you're raising. And you make sure that after you service that debt, there's still a, an acceptable Uh, rate of return in terms of cash flow for you, right? And only you can make that decision whether that's good or not. So, but there is no debt to cash flow ratio because every deal is very different. I, I put something together for a friend and I sent it off. It was kind of timely because the business he had Target already put an LOI on had two bad quarters, so. Uh, he had approved for SBA and they said no, we're out, like, cause it just because they had a 50% decrease and then lost money in the last. Yeah, well, I mean, that's, so when my, when in my program, I have students that come in and they, you know, they got the starry eyes, because now they're, they want, they want to become instant millionaires, right? And these are people that have never owned a business, um, and are buying a business for the first time, they have very little capital. Um, and now they want to buy a multi-million dollar business. And this is what I tell them because what, what I, what, what we, what we do is we do what's called a leveraged buyout. It's been done for 40, 50 years, right? The 80s was the, the height of the LBOs with Michael Milken and Ivan Boston and Ron Perlman and Ted Turner and all these guys. The leveraged buyer, that's, so if you, if you don't want to put any money down, then you're gonna have a lot of debt, so your business is going to be leveraged. By definition, that's what a leveraged buyout is, right? So when I tell these guys that have starry eyes and suddenly want to become multi-millionaires, I ask them, I say, look, if you bought a $5 million dollar business and you brought in $5 million worth of debt, And that business for whatever reason went under, COVID, uh, bad management, um, Hurricane Harvey, whatever, you know, whatever happened, you know, a regulation that destroyed that industry, you know, oil plummeted. What, whatever it was the catalyst. Can your lifestyle and your life sustain a $5 million blow? Can it, because if not, then you can't buy that business because that's the downside of taking on that debt. You're gonna be partially guar uh guaranteeing that debt. So, I know you're starry-eyed, but you've gotta understand the consequences. If after I tell you this, and you understand the consequences, and you still wanna go forward with you the all power to you, right? I'm not, I don't want to dissuade you, I just wanna open up your eyes. And so, there, there, there is that risk of You know, that debt, you know, crumbling. Do you, when students come through your uh program and, you know, let's say they don't have the greatest of credit ratios and they can't really borrow much based upon their personal guarantees or something, do you get involved and they say, hey, it's a good deal, we just need to raise more money to be able to close the deal. Well, here's the thing, the, the financial institutions are looking at the, at the cash flow, at the business as the As they're analyzing the credit, you're just an extra, extra layer of insurance policy, right? So set another way, they're not gonna, they're not gonna lend to a bad business if you have amazing credit. Right? So they're only gonna lend to a good business. Now, your credit is just an insurance policy, right? So it's not that difficult to buy or to get approved with not stellar credit. That's, that's a myth out there, because again, the, the unlike buying a home where the home is the collateral. And your credit is important because the home can't pay for the credit, doesn't produce income. Right, so it can only pay for it if you if you're right. In the case of a business, they're looking for the business cash flow to pay to amortize and service the debt. So, so long as the business is making money. That it's making money before they have to foreclose, it is producing income. It is servicing debt. Any of your students like just taking off like oh my God, this is an eye opener to a new dimension so it's like 10 businesses or something like that I've, I've had a couple um and again I've had John, I've had students from all walks of life. I've had bar. And, waiters, plumbers, current business owners, millionaires, retirees, internationals, nationals, um 20 year olds, seventy-year-olds, uh, men, women, um, I've had, I've had Everything that's come through, and yes, I've had students that get it, it clicks, and they're smart, they're disciplined. And, and, and they reinvest the money that they're making on one business and the second one and the third one. I, I, I had one student that in a period of 3 years in the 5th period of 2 years bought 5 businesses. In different countries. What? Yeah. You know, I'm like I haven't done that, you know, uh, uh, so, so all power to them, yeah. Yeah. Hey, you, you talked about buying a football or soccer company, uh, or uh tournaments or something like that. Did you, what was that story on that? Yeah, it was, it was more transaction based, so it was putting uh together, um, uh, so in the soccer world, you know, I don't know if you're a soccer fan, job, but, uh, they, they have these, um, These, uh, these times during the year which are called FIFA dates, right, where all the clubs, the leagues stop and everyone goes back to their national teams, right? So all the Spanish players go back to Spain, all the United Americans go back to the United States, all the Mexicans go back to Mexico, etc. etc. and they play for the national team, right? So during, during that time. The clubs, so the, the, all the clubs that play in the MLS here in the United States, or in the Liga in Spain or in, uh, in the English Premier in England. Well those clubs, what do they do? You know, all the, all the players that do not go to the, their national selections, well, they have friendly matches. Right? So they, they established, so this company puts together friendly matches between rivals, um, or, or teams from other leagues like a team in the Argentinian league playing a team in the Mexican league, right? Which you will never see or almost never see. And, and that's what they did, and it's just, you know, there was a good game and you had good, you know, turnout, you, you have a very positive, uh, financial return. Yeah, I, I think a lot of this comes back to your ability to read people, like getting into business with somebody or buying their business is being able to read them. I mean, what, what do you attribute your skill of being able to say, hey, I know that guy, I'm looking into his eyes and I can read him, he says he's unethical, even though You know, I'm just making a wild blanket statement, but saying, hey, he's unethical or he's not gonna show up on time, but what do you attribute that to? No, just, I'm Johnny it's experience, right? Um, I've been, I've been working and I've been an entrepreneur for 25+ years. I've, for my own businesses, businesses that I've bought, I've had over, you know, thousands of employees now, but I've also managed a lot of employees when I was in the corporate world. So, After being through so many industries and so many layers and so many different hacks, you know, you just get a knack of understanding people, you know, uh, um, and I'll tell you something, buying a business, and this, this is important for your audience to understand is the techniques, the tactics, you know, the valuations, the, the financial structure, the multiples, the legal documentation, the due diligence. That's about 20, 25% of the deal. That's actually easy. It's the psychology. The art of the deal is, as we come to know it. That's, that's where the You know, the real bread and butter is, right? Knowing how to read people, knowing the psychology, why does someone sell? You know, how do I position myself so that me knowing why they're selling. Makes me the better buyer, the better prospect. Yeah, yeah. How, how do you do that? And it's understanding, it's understanding the psychology, it's asking the right questions, it's positioning yourself, and that's got nothing to do with tactics. It's got everything, you know, uh, business tactics got everything to do with. Art and psychology, right? Yeah, you know, you actually talked about that in the book, like you have 3 to 5 pages based upon what happens in the first meeting, 2nd and 3rd. Yeah, and you're very descriptive about that too, because and it works like I, I had a meeting with a guy today, my first meeting, and we didn't talk about any numbers, anything else. I'm just trying to figure out why you've been thinking about selling, you know, what are you gonna do? What do you like to do? And then I Saw something in the back in the background and I could tell it was a Corvette thing, and I started asking about the Corvette stuff, and he opened up about up about that for 5 I'd like to go on Pacific Highway 101 riding with my wife, like, very cool. Do you have a 2020 Corvette or something, the new one? Yeah, we just bought the mid engine one. It was love it so fast, like, yeah. Yeah, so what you were doing is you were you're establishing a rapport and rapport leads to trust and trust leads to, hey, I could sell to this guy, right? And at the same time in parallel, you've already planted the seed in his mind. That he can sell, and so that retirement plan, that exit strategy is already playing in his mind and subconsciously the two are working for your benefit. And so it's like uh like if me doing this is helping him create, put all the puzzles together so we You can go riding in this Corvette on Pacific Highway 101. Correct. Correct. Correct. Absolutely. And that, that's the part that, you know, a lot of people say, Arturo, you know, this gotta be easy for you because you bought 55 plus businesses. I'm like, every time I go to a new seller, the last thing I tell them is that I, that I bought 55 businesses. That gets me nowhere. Yeah. I need to establish rapport, I need to be humble. I need to be, I need to listen to him. I need to ask or her, I need to ask the right questions. I have to get him to trust me. I have to establish that rapport, John, that you did with this gentleman. Me giving them all my accolades or what I've done, that doesn't establish support that might be OK, you're bragging, rank, what are you gonna do like someone that's gonna take advantage of me. Yeah, and just, uh, get rid of my people and cut prints costs, correct. So, so again, and that's understanding the psychology of, of the situation, right? Um, and I, I have to do that every single time and happy to do it. Because I do want a win-win scenario. I do want them, you know, the, the business owner, the seller, to feel good about the deal, cause I, they're gonna, they're gonna help me in the structure. And they're gonna ultimately most likely they're not gonna be a uh a creditor if I get owner finances. So it behooves me to have a great rapport with them any way you look at it, genuinely. Yeah, how often do you buy businesses out of town and you go visit them on the 2nd meeting or 3rd meeting? How, how often is that? Not, not much. Uh, I, uh, I've had a lot of students do that. And it works fine. I just haven't found the need to do that. Um, I've looked, um, and then it, I'm, you know, I'm comparing buying a business 2000 miles away, which I like, but then I also have a good deal here, you know, 20 minutes away. Why make it harder? I, I like that that just added risk to the business, you know. You know, all things, you know, all things, you know, kind of, you know, stable. This, this deal over here is gonna be harder to manage in this. Meaning that the, the, the long distance one is gonna be harder to manage in this one, and if they're pretty similar, I'm just adding, uh, an additional layer of risk unnecessarily. Now, if it's, if it's a better multiple, and it's a better cash flow and there's more to that deal, but it's always been, John, with my pipeline of deals that have come through, I always have good deals locally. And so I, I have defaulted locally by chance. But I, I have looked many times in In, in the New England area in New York, Connecticut, Massachusetts, I've looked in California, I've looked in Arizona. I've looked outside of the, uh, the Houston area where I live, um, in Dallas and San Antonio, and Austin, um, but I always come back in Florida. I've I've flown a couple of times to Florida, almost bought a business out there, a car, uh, transport business, um, but always fell back to a good deal here. Yeah. And so you don't mind capital intensive businesses's kind of like a car transport business or the oil business. Jesus, yeah. No, no, no, I, I, um, I haven't found an industry yet that I'm That I've that I've said this is not a good industry. Right? Um, I haven't bought a business in every industry, obviously. I bought business in 18 industries, but I've yet to find an industry that I don't like that I think it's too difficult or too complex, highly regulated or anything like that? Yeah, I'm, I'm sure there are. I just haven't, you know, haven't, I haven't seen it. I, I haven't discarded anything because the industry by nature has, um, It's, it's it's, it's difficult or complex. Well, Arturo, I gotta tell you, man, uh, an hour goes by. I, I, I love these conversations and I appreciate the time you spend with me. So I just want to tell my audience about this book. Uh, I reached out to Arturo, he said, what book? He's got a couple. And I asked him what book you should buy and he recommended this one and uh buy yourself a new entrepreneurship. And I, I'm a frequent a premier user on Amazon, especially in M&A books, so I loved it and uh I wanna thank you for spending time with me. Thank you, John. I appreciate it. All right. And then.