E143: Robert Nance of Small Biz Acquisitions on the Benefits of their Partnership Program

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. Today I'm here with Robert Nance of Small Biz Acquisitions. Thank you for being on the show today. 

[00:00:07] Robert Nance: Thanks for having me. 

[00:00:09] Ronald Skelton: You and I've talked a few times. You've been on the show once before on episode 93 for everybody out there who, wants to, kind of see the previous show and kind of get the, the, who you are, we'll go a little bit over that. 

[00:00:21] But I think we're going to jump right where we left off because there's so much information to cover and, there's so many different things we can talk about. Don't want to waste too much time on like going all over your origin story again and everything.

[00:00:33] Let's start with small business acquisitions. Let's just start right there. What is it? And, let's just kind of focus on kind of what is it and then we'll get into why you created it. 

[00:00:44] Robert Nance: Okay. Well, what it is, is it's turned into a partnership program, that I partner with individuals who are looking or wanting to buy their first small business in the US.

[00:00:55] And we truly form a partnership. We talk, we figure out who you are, what you're looking for, what you're trying to do. And, we move forward from there. It's very, very customized based on our individual partnership. And, that's pretty much it. It's a very customized partnership between you and I, and we go from typically solopreneurs.

[00:01:18] And management, mid management that have been at least five years experience who want to buy their first business. And that's what we do. 

[00:01:26] Ronald Skelton: And you've been in business for a while. We didn't do your origin story, but I know it. And some of the people have listened to episode 93, they know it. But you've acquired businesses before you have a fund.

[00:01:36] I mean, and all rights, you're already successful. You don't need more money. You don't need more things to do. You're a very successful man. What led you to want to create something like this? What was the need in the marketplace? You thought, we really should get out and do something here and solve this problem.

[00:01:51] Robert Nance: Well, first of all, I love doing it. I've always loved doing it. And I've been, I bought my first small business in July of 1999. I had millions of dollars in real estate at the time. I was a real estate investor, developer, and I just ran across a piece of property with a business and kind of turned it around.

[00:02:10] And that's what turned my mind, turned me on to small business acquisitions, but I just love doing it. I've loved doing it all. It's something I'm really good at. What brought me back into it was that people were asking, how do I buy a business? How do I buy a small business? This program that I've created started actually in January when we talked. It was not even, it's been formalized since then, but it was just an idea. A market that hadn't been tested.

[00:02:41] I don't think I had any partner, maybe one partner or two partners when you and I talked. I got 12 in the first 45 days of the quarter. I had to cut all the advertising out, just focus on the, build the infrastructure back in. And build a real business. And that's what we've been doing. Literally starting Facebook ads, right before we got on the phone, I'm talking to my Facebook ads guy. My back office support, and putting everything in, in place. There was such a big demand, a lot larger than I thought it was.

[00:03:08] When we started, we had no websites. We had nothing. 

[00:03:11] Ronald Skelton: You gave me a URL at the first show and said, don't put that in there yet. Let me, tell me before you publish, 'cause I'm trying to finish the website. 

[00:03:18] Robert Nance: If you look the, first one in January, you actually put my private equity firm because I didn't, there was nothing.

[00:03:23] There was nothing and we've come a long way since we, since you and I spoke last and we've got some success stories now and, large in back office infrastructure in place. 

[00:03:33] Did I answer your question? 

[00:03:35] Ronald Skelton: I think you did. I think you did. I know this is something different. I've taken a few of the guys courses out there.

[00:03:40] They're usually in small groups. Sometimes 20, 30, 40 people in the room. There's no individualized attention like what you're offering here. Let's dive into what you're creating and why it's unique. Why is this a unique partnership? And why are you calling it a partnership instead of a course? 

[00:03:54] Robert Nance: Okay, good, good. I've identified six highly unique aspects or attributes that we bring to the table. There is nothing like this in the country. No one like me doing this in the country. It is all one on one. We speak once or twice a week. You have 24 hour access to me via WhatsApp. We pledge, our statement, this is a big boy game. If you don't have a million dollars in financials or at least fifty to sixty thousand in cash in your account, you really shouldn't be in this space.

[00:04:26] Now, most people don't have a million dollars. We can help with that. But if you don't have thirty to fifty thousand in cash, you really need to continue to do what you're doing. And I don't want to disparage anybody or, I won't partner with you unless you've got twenty to thirty thousand in cash. Put it that way.

[00:04:43] I can't have my partners not be able to buy a plane ticket. To go places. This is a real partnership. And, that it has to be an equitable situation. A partnership has to be equitable. And so the six unique aspects that I bring to the table is that, you're going to learn from me directly. One on one. Over between a 30, between a 90 to 120 day timeframe.

[00:05:08] That's really what it takes to build the infrastructure. Go ahead. 

[00:05:12] Ronald Skelton: I was going to say, I see a lot of these guys are saying they're pitching these courses like zero down and stuff. And that doesn't mean zero down. Zero down even if you negotiate a zero down acquisition, which is rare, doesn't mean zero down out of your pocket. Because most deals are still done face to face, right?

[00:05:26] You might be able to do a few zoom calls and stuff, but if I'm sitting here in California, which I am, and I decided to buy a business in Texas, before we end up closing, if I haven't seen that guy's face, shaked his hand and walked his facility, we're probably not going to close. In this day and time, most of the people you're going to buy businesses, from they're 65 and older. 

[00:05:43] And they're still used to not being on zoom and want to see you and shake your hand and make sure you don't have a limp fish handshake. That mindset is still there. It's a little, some people call it old school, but it is what it is.

[00:05:54] Robert Nance: We target the baby boomers for retirement. It's old school. I know who these guys are. I know, I don't want to waste my time with a partner that I know can't fulfill the, the obligation of the acquisition. Even if it's just getting in front of someone and selling themselves, because I do a lot of honor finance, that's what we do. We don't use SBA, we don't do anything like that. I could go into that, what I do with my partners, but we could go into that later if you wanted to, the reasons I do that. I know right off when I talk to, when I speak with someone, if they're going to be able to sell themselves to the seller, I can do the rest.

[00:06:23] These are my operational partners. These are people that I'm looking to operate these businesses. If they can't sell themselves, if they have no background, if they have no management experience, if they have no business experience, I'm just not interested. Some people say, well that's direct.

[00:06:36] I say, well I don't sell courses. I'll partner with you and I don't make money until we buy companies. And that's me. 

[00:06:41] Ronald Skelton: Let's do a deep dive on that. What are the qualities that you look for in a student or partner? You guys call them partner, in a partner. And how do you tailor your training to that?

[00:06:50] Cause everybody, I'll tell you right now, I ran through the ranks, right? I'm prior military. I came out of the military. I worked in the corporate world. Ended up in management in the corporate world. Ended up as a senior director running over 187 people. And I didn't have a P and L responsibility until I, was at that level. 

[00:07:09] Because I worked in tech startups, right? Even though I had 187 employees, I wasn't responsible for the profit or loss of any division of that company. Is that one of the criteria that somebody has to be able to understand how to look at a balance sheet and understand stuff?

[00:07:22] What is it you're looking for in a partner? What level of experience and management? 

[00:07:26] Robert Nance: Let me go back a little bit further. I went off course a bit and let me tell you what we bring to the table. And then, I want them to understand what we bring to the table first and what we're looking for.

[00:07:36] I think that's very important. Again, we bring me, my skill set, I've been buying for 24 years since 1999. And, it's one on one, it's live. That's another story. We're trying to create some interactive course with me and Bob. That's going to be next year, if any way possible. We're trying to figure out the best way.

[00:07:52] But right now it's all one on one. You have 24 hour access to me. You ask me questions. We pledge a million dollars in your financial statement. So you can be viewed as a legitimate buyer. We supply the down payment for the acquisition. We pay all the due diligence costs and we give you 60 percent of the deal.

[00:08:08] Plus we have all of our back office support system, CEO, CFO, director of sales that come with the deal. We own 40 percent of this deal, so we're going to support you and have you run it. Now, what you've got to bring to the table is, there's going to be a financial investment. I can't bring all my time, this is my time. 

[00:08:26] We're going to be talking for the next six months to a year. That's really, in reality, that's what it's going to take. 90 days through the course. Our individual, it's just you and I. There's no course, it's you and I. Then after that we start, you go into a partnership mode with me.

[00:08:41] I've got about six people in that partnership mode who don't book every week and to talk to me, but they have access to my calendar directly, so I know when they book on my calendar, it's with a new broker, or we're talking to a, to an owner with the broker. Usually we'll talk to brokers at this point with those guys.

[00:08:59] In the beginning I talked to all of 'em. We do everything together one on one. But at this point for those guys that are out of the course that are in a partnership now, they book on my calendar typically for owners. When I talked to the owners, when I start negotiating the deal and I follow them. We follow each other, we share documents, we speak, we talk all the time. But they have access to book on my calendar at any point.

[00:09:21] That's available. But what I look for in a partner, I just look for someone who has experience. A target market, US based 35 to 55, who has business solopreneurship, or solopreneurs or mid management. And those are the, that's my target market. We're giving you everything, but we can't be on the ground operating this business for all of our partners.

[00:09:48] You've got to have the ability to, you have to have experience in operations. It's the last thing my guys want is to get calls from you, to get low level calls. Okay. When you should know that, if that makes sense. There're certain questions you just have to know, I can't teach it. You have to have done the deal.

[00:10:08] You have to have been there. You have to have operated. You don't have to have run a, ran a business, but you need to have operational experience, at least five. 

[00:10:16] Ronald Skelton: You don't want to call, somebody call you and say, Hey, I need to hire somebody. How'd I go about hiring somebody?

[00:10:20] Robert Nance: Plus they want, they want it for free. Those typically go hand in hand. Hey, I want to outsource this. I don't want to run the business. And I want this for free. I don't want to invest in myself. And that's really kind of asking, so you're asking me to invest in you, and you're not willing to invest in you.

[00:10:34] And we're not partnership, we're not partners. We're not meant to be. 

[00:10:37] Ronald Skelton: You're looking for operators. People that are going to be on the ground, at the location, being the, whatever title they give 'em. Self CEO slash, owner slash, I don't know what to call it, general manager, whatever title they give themselves.

[00:10:51] They're running the day to day operations responsible for profit and loss. Responsible for growth of the company with your mentorship and guidance. 

[00:10:58] Robert Nance: Yes. However, we only target companies who have key employees in place. And when I say key employees, we look for people who can step up, who could, we can promote to the day to day operations.

[00:11:11] Yeah. These people need to come in. My partners need to go in. Implement new process procedures to make sure that the people we hire, have the capability of running. And we do that in the due diligence process, but we need to make sure. And typically everyone we buy have these people. It's just that the owners or the sellers are not wanting to cause any, they're not making any waves.

[00:11:31] Once you get that mindset of selling, you're not making any changes. You're just selling. And that's what these older guys are doing. All these sellers are the same. All these employees are the same. I know them intricately. I know what they want. They want to run a business. They have the ability to, but the sellers are keeping them down.

[00:11:49] And that's what we look for. I have created a scale called the Absenteeism Scale. And it's, a typical scale from zero to ten. Ten being a guy sitting at home on his couch receiving a check, maybe talking to his brokers.

[00:12:03] Maybe talking to his manager once a week, maybe twice a month. And, he has very little motivation to do any type of real or financing. We actually target companies at a two or three where this poor old seller has been working in this company for 30 years, 20 years, has key employees in place, just doesn't have the skill set to, to put the processes and procedures in place.

[00:12:26] He's got a million dollars sitting there and that's his baby. And he just hanging on for your life because it's, the company's ready to grow. And that's what we target. Real quickly, and we target, and that absenteeism scale is directly, it correlates directly to the multiple that you pay for a business.

[00:12:44] That individual that's sitting at home talking once or twice a month to his, maybe more, once or twice a week, once or twice a month, to his managers, that's an investor. That's a multiple of 6, 7, 8 in the industries we look at. The guy who goes in every day with a sack lunch and doesn't leave his, doesn't leave his desk, that's a multiple of 2.

[00:13:03] So we create value just by implementing. Putting in place absentee owners. And that's who my partners are. We create that absenteeism to where they can go and buy. They're not buying a job. They're buying a business that's highly capable, in a six to eight month period of becoming very high.

[00:13:24] Ronald Skelton: So you're wanting to buy companies where, yeah, there may be an owner operator in place, but your goal is to take these partners where they're not pulling 60, 80 hour weeks. They're actually running a successful company because of policies, procedures, and the right team without physically having to technically be there on location 40, 50, 60 hours a week.

[00:13:46] Robert Nance: Well, the first three to six months, you're going to have to be there. We're going to have to be there and you represent us. That's the operator I'm looking. You have to know what operations look like. So we put process, we help you put process procedures in place. We put sales divisions in place, whatever's necessary, but you're, my partners are the feet on the ground doing this.

[00:14:03] Then once we do that, you manage it. You've got managers in place. You're able to manage it. Absentee, depending on what we can put in place. How strong the employees that we promote within are. Sometimes we have to hire from outside, but typically promoting from within is our best course of action.

[00:14:22] Ronald Skelton: If you're looking to promote from within, what is the number of employees, like the typical business size? I know it depends on the industry, but typical business side needs 10 plus employees, 15 plus employees. What are you looking for so that there's a decent talent pool in there that you can select from and hire from within?

[00:14:39] Robert Nance: It got typically 15 to 20 percent of the employees. At wholesale distribution companies who have the capacity or the capabilities of managing. Who typically have been there since inception with the start the business with the owners. The owners, and these employees are ready. They're ready to manage, they know how to manage, they see that the mistakes the owners are making. I can't say 100 percent of the time, but I want to say 100 percent of the time that I bought these businesses, they had the key employees in place that stepped up and could do the job, better. 

[00:15:10] Because the mindset is different. They want to prove themselves. The owners, Hey, I'm in charge. I know I'm the best. I'm this, in reality they're not. I think we had this conversation last time. They're just not. We look for these low tech, brick and mortar businesses that these owners have been working for 20, 30 years.

[00:15:33] Of course, they're going to think they're the best. But there's so many more value ads that we bring to the table. And honestly, the key employees have so many ideas that they create value just by listening to them and promoting them. 

[00:15:49] Ronald Skelton: Yeah. One of the things I've, after all the interviews and all the people I've talked to selling their business and stuff. One of the things I've learned is, a lot of people say don't make any changes for the first 30 to 60 days when you own a business, just observe.

[00:16:02] I don't think that's right. I think the thing to do is to talk to every single employee and said, if you could change two things, what would it be? And then take your list of what you did, when you did your SWOT on the company, your strength, weakness, opportunities, and threats. Align with things, that needed to be changed with things that everybody in the company.

[00:16:17] The majority of the company shows it and then you show that you're making a positive impact. They're getting what they want and you don't have to wait. Like I get a lot of the gurus and the people that come on here and the advisors and people with Harvard and Stanford MBAs will tell you when you buy a company, just observe for the first 60 days, don't change anything.

[00:16:32] And I don't think you have to wait that long to make an action. I think that, I'm asking you as your opinion on this, I think that there's an opportunity to talk to the employees, see what they know needs to be changed and see if that aligns with things that you've already detected and start making movements from day one to...

[00:16:49] Robert Nance: Well that, that in itself is change. Because now you have a new owner who's listening as opposed to the past. And the reason I'm saying this is that, there's a couple of schools of thought. Mine, is that my biggest concern, all processes and procedures in these small businesses are in the head of the owner.

[00:17:11] None are written. Zero. Zero. Not at this level. My biggest issue with making changes, big changes, I'm going to eventually piss this guy off. Because, and he's not going to believe in my changes. We're going to argue. I've got to extract that information from his head and put it on paper before that straw that broke that camel's back, has been put on that camel's back.

[00:17:35] I'm not sure if that even makes sense. But I think the point, eventually, we're going to have a dispute because the owner, even though he says, Hey, I'm good to change. It needs to be changed. Really? He's saying, Oh shit, I didn't make this change. Why did not make this change? Or he's got, maybe this change isn't going to work.

[00:17:54] Maybe I'm not going to get paid because he's carrying 50, 60%. That's just, you know, It's an art. It's an art. And that's why we have to be involved. And it can't be just shoving these changes down. There's no way I'd wait 60 days. I'm implementing changes pretty quick. But there's an art to it and they eventually, you gonna piss them off.

[00:18:14] This is their baby. No, this isn't going to work. I tried this well. And it's an art. There's an art to that. But you can't say, no, wait 60 days, wait 30 days, wait two days. It's an art. It's just an art. 

[00:18:27] Ronald Skelton: You always hear people, we've already tried that. It's a little bit, we should try that again, right. 

[00:18:31] Robert Nance: The fact of the matter is that those core processes and procedures are in his head. And you've got to put those down on paper before, you're right. Oh, we've already tried that. Okay. I get it. No problem. Or, kick rocks. I already know how to, and that we know what's going to work.

[00:18:45] And you're exactly right. That's an art. There's just art, you've got to figure out, what's the best way to start implementing changes. 

[00:18:52] Ronald Skelton: Okay. Let's go back to the partnership stuff. What are the benefits for the partners? Like what did, what do they get out of this?

[00:18:59] There's multiple avenues to buy a business. You could go, if you have 50, 60, $100,000, you can go get an SBA loan and now you have a debt funded acquisition. What's the benefit from working with a company like you or a person like you and a company like what you have, your team behind you. As opposed to just go on the traditional route of, I'm going to go take a big loan and buy something.

[00:19:23] Robert Nance: Well, let's just address that. That's the worst idea of all time. Even with people who, even me. It would be less of a problem maybe. A first time buyer who we target, we target first time buyers. We teach first time buyers how to buy companies in the US, with who have certain skill sets. It would be like, what's a subject that you know nothing about, that if you went into it by yourself and put up $50, 000 and if you didn't succeed you would lose it. Just imagine that. Any of the listeners just imagine that because that's what you're doing. An SBA loan is gonna collateralize your house, it's gonna collateralize your car.

[00:20:02] It's gonna collateralize your firstborn. You're gonna lose everything if you don't succeed in this business. Because they're going to say, I don't care. You should have done your due diligence. You don't even know the first thing about due diligence. I know a lot about due diligence. And I never do SBAs.

[00:20:18] That's the whole reason I do owner financing. Owner financing in my contract, in the LOI, it says if you have not disclosed a liability, let's say we're paying $10,000 a month. If you've not disclosed a liability to the company and it comes up, we're paying that liability. And we're subtracting it from your payment.

[00:20:36] So let's say there's a $30,000 payment. Seller's not getting paid for three months. Now he may argue, we may have to negotiate something. But that liability is getting paid. Immediately. Now what's going to happen if you have an SBA loan and that liability pops up? You're going to pay the liability and you're going to pay the loan each month.

[00:20:53] Now, I don't have a problem cashing these guys out after six, eight, twelve months, because you know the skeletons. The bottom line is you just don't know where the skeletons are hidden in these privately held companies. None of the financials are correct. And that's what I hear people with this fraud, there's this.

[00:21:10] That tells me they don't know how to structure a contract. Which you shouldn't. You've never bought a company before. So the benefit is you have me. You have my contracts. You have me one on one on a daily basis. Talking to these sellers and explaining to you why this does or doesn't work.

[00:21:27] You have, in our consolidated financial statement, we're giving you a million dollars pledged towards this to work. So you can actually become a legitimate buyer. I give you the down payment. And remember I'm doing this because you've, we've been together for 90 days, for 120 days.

[00:21:43] And I know now that you know what you're doing. I know now that you know. I know because we spent the last 90 to 120 days together, and their benefit is that they're learning a skill set. It's a lifetime skill set. They know from now on how to move by businesses. A lot of times with no money down. It doesn't mean you can't, you don't have to have any money to do this. 

[00:22:03] I had over $15 million in real estate and my first deal was no money down. It cost me money to do the deal. And then we will pay all the due diligence. That's a benefit. And well, you get 60 percent of the deal. And you have zero risk. That's the big thing.

[00:22:18] There's zero risk here. There's risk of time, there's risk of, maybe a couple of thousand dollars it's gonna cost you to, there's opportunity cost, of course. But there's no risk like an SBA loan.

[00:22:30] Ronald Skelton: I've, resisted even considering the SBA loan, just because, the majority of my retirement income, whatever you need to call it, it's tied up in real estate. If I take an SBA loan, every single property I have is pledged as collateral against whatever I buy. All right. I don't want to risk something that's solid done and working for something that is new. 

[00:22:53] It could wipe it, I could buy a business big enough to wipe out my entire real estate portfolio if you don't watch it. Right? (Yeah.) Especially when these banks go to start selling stuff off and they sell everything at a discount because they don't care. They just want it sold fast because they want to cover their, when they go to foreclose on you. If you don't, if you don't... 

[00:23:07] Robert Nance: A business is nothing like real estate. A business, whenever the first wipes, when the first forecloses, there's no second. There is no third. In real estate, there could be. I've had a third on a piece of real estate before. That was legitimately a third lien. I'm the one that gave it.

[00:23:23] But real estate it's gone. I mean, businesses it's gone. There's no business left. There's no income. They wipe you out. And that's what the sba will do. 

[00:23:32] Ronald Skelton: Yeah. What I was saying on that though is when they, when it comes time to it if you default on the SBA loan, they're not like, here's a good example. I know a buddy right now who has 11 million dollars worth of real estate and he's buying a 5 million dollar business. He bought a 5 million acquisition through SBA loan, and he, they listed every piece of real estate he had. All $11 million worth of assets, and it's all going up.

[00:23:55] That's his equity in that, those assets right now. I said, you do realize if you default on that business, it's all gone. No, they only have to sell this business property and this property. Like, no, they're going to put everything up for auction, sell it for pennies on the dollar to pay it, and you're probably still going to owe 'em a check.

[00:24:08] You collateralize all of it as one package and the bank's not gonna, and if you ever watched a bank sell bank owned property, everything starts at an auction process as 60 percent of the drive by appraisal by the county assessor. And that's what your property is going to be done. The opening bid will be 60 percent of whatever the county tax man thinks that property is when he drives by at 70 miles an hour.

[00:24:28] That's how it works. I used to run a foreclosure business. I bought houses out of foreclosure. That was my previous business. And he's like, No, that's not how it works. we bought and sold hundreds of homes that way. And we did commercial real estate. We watched commercial real estate that way.

[00:24:42] I know how the process work. It's governed by, in most states by law, right? So they can't change the process. A lot of people don't understand what they're committing to when they actually sign an SBA loan.

[00:24:50] Robert Nance: No. Yeah, I've wrapped SBAs, it's dangerous.

[00:24:54] I only do that when people come to me and say, I love this business and I don't have the money. I say, okay, I'll explain the process. I get everybody's attorneys involved. We can, you can wrap it, but there's a do won't sell clause, like they're like nobody's business. And like, you're getting into real legal issues.

[00:25:15] Because everything is liened. All the receivable, all the accounts payable. You've got to be very specific. You can't wrap it like you can a regular, real estate loan. You've got to do it to where there's no change of ownership until such time you have the cash to buy the SBA out. Real tricky, real tricky.

[00:25:32] I don't like dealing with them and I only do that whenever I'm helping someone out of a jam, but we don't do that. We don't buy anything with SBA loans. Unless we pay them off at closing, which it's got to be, it's got to be a low amount. 

[00:25:44] Ronald Skelton: Right. Let's talk about, can you tell me some success stories? And examples where somebody's worked with you, you bought a company and it didn't worked out?

[00:25:53] Robert Nance: Well, that's one of them. I was just thinking about. She brought me a deal. This was before I was partnering. And this was one of the ones who made me decide, let me stop. Let me restructure this because there's a lot of money I'm leaving on the table.

[00:26:05] And they weren't going to get the deal done. Attorneys, CPAs, everyone was involved. And I explained to them that you're going to jail if you do this deal, the way somebody's going to jail, because you're selling assets that the SBA has, has collateralized. You can't sell these assets. And so we did a partial wrap and the ownership didn't change, but the contract to purchase the business, I think was three, maybe six months later.

[00:26:32] And I think she's one of your listeners, but I'm not going to name her because I think, I think she's one of your listeners. And successful. They waited three months. I don't know exactly the timeframe. We restructured the whole deal and three months later, we did a second closing. It was a dual closing.

[00:26:49] The first one wasn't a transfer of title. But they had to close within a certain amount of time once the down payment was saved in the account or the money to pay off the SBA. And we closed it. 

[00:27:00] Ronald Skelton: Yeah, I'd like to see the, I've never pulled up the, a copy of the SBA loan agreement because I'd like to look at it.

[00:27:06] There's a concept we use inside of the real estate, residential real estate that some people teach as a beginner strategy, and I think it's a really bad idea to do that. But it is a strategy and it works. It's called subject to buying a house or a property subject to the existing mortgage.

[00:27:21] And I think it's an advanced strategy, not that I wish people quit teaching newbies how to do it. But, it's very legitimate. If you do it right, you set it up right. And I'm curious if you got to read the language in the do on sale language inside of, the SBA loans and stuff to see how they trigger or whatever.

[00:27:36] I'm curious if you can actually buy a business subject to an SBA loan?

[00:27:41] Robert Nance: I wouldn't do that. And even what they're doing is they're wrapping that deal and they're just foregoing this, they're not taking into account the due on sale clause. There are due on sale clauses in those deals, but they're not giving them any importance. 

[00:27:57] Ronald Skelton: Yeah, well, the problem with that is, it's still a foreclosure process. So if they call the note due, you still have X number of days before they run their legal due diligence and call the note.

[00:28:06] I mean, Like they, what would happen on do on sale is you got a $5 million outstanding loan. And then say, you still owe 3 million on it. They see that the asset transferred, or they know there's a new owner and they basically send you a cease and desist order, and say, they're calling the due on sale clause.

[00:28:21] Now they're going to have to go, they still have to in most states. They still have to go through a legal proceedings in order to foreclose one property or anything else. And they're going to go off the original owner because that's what's leveraged. That's what all the, original owner is going to be responsible for all that debt coverage.

[00:28:37] And then to be honest, you've got until like that court hearing to, to write them a check for that and pay that loan off. Cause once you pay it off, there's nothing they could do. 

[00:28:46] Robert Nance: There's actually a division in the private equity firm that's looking into that right now, but to be a lender. So they're working through that.

[00:28:54] We've talked about doing that for the last two months and looking into that, I'm not heading that. I'm not into that anymore. I'm just into the acquisitions, but I do like the idea. I just don't understand it completely yet. 

[00:29:05] Ronald Skelton: If you look at it, why would, like those SBA loans aren't very long, right?

[00:29:09] So why would somebody have bought something with a loan, utilizing that loan and then wanting to sell it? Now I can see there's business expansion loans too. SBA actually does more than just purchase loans. So somebody might have an extent, they might have SBA loans on their books for expansion and not had been originally acquired by one, but they're going to have the same, they're government loans. 

[00:29:31] And if you ever, ever looked at a government loans, they got more clauses in them than most, restrictions and clauses. Good example, for instance, is the, the USDA loans inside of, residential houses have a occupancy thing. They can do occupancy checks on a USDA loan when you buy a house.

[00:29:45] And if you're not there, we actually had one of our clients that we had when we were buying foreclosures. She moved to Texas, let her dad move in the house. The bank with the USDA loan knocked on the door one day and said, we'd like to see, speak to so and so. She wasn't there. And her dad's like, that's my daughter.

[00:29:58] She moved to Texas and they foreclosed on her house. Because she had to sell, she had like a 15 year mortgage or a 30 year mortgage. She had so many years of occupancy to get the special rates and discounts she had to have. So those, those government loans have teeth. 

[00:30:10] Robert Nance: Well, that kind of proves my point of why I only do exactly what I know.

[00:30:17] There's not many things in this world I know how to do. Buying company is not, is one of the things that I know how to do. Very, very well. I am, we're hard money lenders. We'll do hard money lending all day long because I'm from the real estate world. And subject two is one of those issues, one of those pieces that we're looking at.

[00:30:33] Not in the commercial side, but in the residential. We really have to do our due diligence before I step in. Proof of stepping into something new venture, especially, now that we're, we're buying businesses and back in investing in businesses, which we love.

[00:30:46] Ronald Skelton: There's some overlap inside of, business acquisition and real estate and some of the terminologies or some of the strategies work across, and I'm still trying to, I brought up the topic because I know you have a lot more experience than I did and I was curious.

[00:30:58] I know you have a real estate background too. And I was curious of what your thought on it. So, I'll pause the idea and dig deeper too, just because there's just a lot to discover there. 

[00:31:05] Robert Nance: Next time we can talk about next time I'll go.

[00:31:08] Cause the subject too is something I just ran across. And I know probably who you're talking to. One of the biggest players. These guys like us, they have the money. If anything ever happens, they've got the money. They've got the hard money lenders. We've got hard money lenders. And we are hard money lenders.

[00:31:20] We have the money to come in and pay it off. But you can't get into these worlds with no, these are big boy sports. As I tell some of the guys who call me with no money. These are big boy sports. You're going to get in trouble if you come into this world with no money. 

[00:31:32] Ronald Skelton: Yeah, you need to and, 

[00:31:34] Robert Nance: Unless you have a partner like me.

[00:31:36] Ronald Skelton: Yeah, you got a partner, a financial backer like you guys, right. 

[00:31:39] We tried to acquire a fairly large company. One of the first ones we actually went through and because they had outstanding debt, they had a little bit of a, about four million dollars in outstanding debt. They were doing, between 15 and 25 million dollars a year in revenue on a decent profit margin and big concrete plant. We basically offered them a really low down.

[00:31:57] We're going to assume all their debt, take over their debt and, make their monthly payments and everything, and then run the company. Do like a, we were doing like a 65, 35. We're going to take 65 percent of the company. And the debt structure is what stopped us. Basically because of the way those loans were written they had to go to the primary bank. 

[00:32:14] And one of them was the IRS and say, Hey, we're going to sell the company. These guys are going to take responsibility. Here's a letter of intent for them that they'll go through the qualifications with you to take over the responsibility of that debt. And they just said, we're not transferring that to nobody.

[00:32:27] Especially both the bank and the IRS said, we're not transferring that reliability to anybody. You can't sell this asset. 

[00:32:33] Robert Nance: Yeah. Typically that's the case. They're not, SBA is never going to transfer the debt. You've got to pay it off. 

[00:32:37] Ronald Skelton: These were private banks, but yeah. 

[00:32:39] Robert Nance: They were private. SBA is twice as stringent as those private banks. SBA, they've been doing this a while. They know what they're doing. I would never do anything to hinder any type of SBA type loan. Other ones I would think about, but yeah, they're never going to let anybody out. You've got to figure out a way pay. That 4 million is just too much to pay on a company that's only doing 15.

[00:33:01] Ronald Skelton: Yeah. Well, even that the profit margin was really low compared to, I mean, it would have taken us, years and years and years and years and years to cover the 4 million. So it wasn't worth it that. That's what we kind of had it's like, well, call us when you structure that debt differently or we can do something different.

[00:33:15] Robert Nance: They could, but it's, it's difficult. Those numbers are up now. So that's a very difficult situation. 

[00:33:21] Ronald Skelton: Let's go back into like, let's go back to your program. We talked about like the partnership benefits. We talked about, we know that it's a, 90 days to six months to really get educated and your search starts at day one, I bet. They can start bringing deals to you pretty soon.

[00:33:35] Robert Nance: No, that's some of the, some people think that. But I'll break everybody down to zero and I'll teach them what deals to bring because I, we only look, I teach them what to look for. That's the problem with some people, especially whenever they tell me, I've got a deal. So listen. And I'll structure a deal.

[00:33:52] Sometimes I'll, I'll do something.I'll charge him the same amount. Very normal, nothing, almost. It's nominal. And I'll say, if this deal doesn't work, we'll go into the partnership program. No additional, no, I don't have a problem doing that. But I don't want you, if you brought me the wrong deal at first, there's a reason for it.

[00:34:11] Let's figure out why there's a reason. Let me teach you what deals we're looking for and how to look for them, so you don't keep bringing me the wrong deals. 'Cause that's the key. We're more of a whole, we look at about 10 to 15 deals at a time. You have a pipeline I built, I share with them and they put companies in the pipeline.

[00:34:25] And the first two to three weeks is just going through the companies that you're putting into the pipeline that we talk about. You think you're, they're right deals. And we, and I explained to you why it's not. While they're not the right type deals.

[00:34:38] Ronald Skelton: Is there industries you like and don't like? Like are there other industries like I, we want xyz. This is kind of the profile, these type of industries. And we'll follow up with that question.

[00:34:46] Are there industries you won't touch? So let's start with the, can you give us the high level without having like? We don't have enough time to give the full lesson here, but we have enough time to give me the high level, 

[00:34:56] Robert Nance: Brick and mortar, wholesale distribution.

[00:34:58] Ronald Skelton: So brick and mortar, wholesale distribution. Just like warehousing? They're taking stuff in at one price is selling at another? 

[00:35:04] Robert Nance: Take it in at a wholesale. Yeah. When we buy truckloads and we sit it out in hot shots. That's the ultimate business. Where there's two forklifts, a manager in a warehouse, maybe two, three girls in the front, or it could be guys these days, but typically they're, these are old businesses. And that's on the basic level. There's going to be 10, 15, 20 employees in there, a lot of forklifts, because we're doing, we're looking at three to five, maybe depending on your skillset. Can you run an 8 million company in sales? And that's what we look for.

[00:35:33] We don't like a lot of value add. We don't want to, if we're selling to a Home Depot or Lowe's, and we're getting white paint in, and they've got a standing order for 10, 000 gallons of pink paint at this number, we'll pop the lids, add that pink and put it over. But nothing custom. It's just, we want as few people running, touching as few products as possible. That's our ultimate business model that we want to buy. 

[00:35:59] Ronald Skelton: It's interesting. I know like in every city has these two.

[00:36:02] He passed away recently. I tried to get him, he had three businesses and the one he wanted to sell me, I didn't want, but I wanted his primary business. Which him and his dad run. So he didn't want to sell me, but he did an electrical distribution. Which every electric, even home depot and Lowe's in town got certain, he had the licenses for all of that area of Oklahoma. 

[00:36:21] And certain products had only come through him through these major distributions. And he had a giant warehouse. And when Home Depot needed X number of switches, they got it from his warehouse. When, like a lock supply was one of those things where it was a plumbing supply, they needed electrical components, they got them from him. 

[00:36:37] So everybody kind of had to go through him to get these. He had like, all the top brands, he bought their distribution for that stay. So if you needed electrical in that state, it went through his warehouse and he, he stored it and shipped it to all the locations.

[00:36:50] Is that something similar? I know. And there's one in Tulsa locks, one that's plumbing. So if you need plumbing supplies, pretty much all the plumbers get everything from lock and there's one for heat and air stuff. 

[00:36:59] Robert Nance: We should B2B. B2B, we don't do B2C. I'm exploring some government, governmental contract type industries that are B2C. Actually from one of my partners that came on board.

[00:37:11] She's in this field, medical. Also medical, I like to also medical distribution. Because nobody wants COVID to come back. But COVID, those can be shut up. I like to learn. So if a partner comes in, like, for instance, her last week was her first week and what she's doing now is testing.

[00:37:27] She's testing the two different industries. And tomorrow we talk again and we're going to analyze, I'm going to analyze the deals with her. Why do you find these deals? Just tell me what your thought process is. Because typically people come in that want to buy a company, they just don't really know what they want or they don't know why they want it.

[00:37:43] The industry is something they may be familiar with or something they're interested in going into, but I dive deeper. I'll look at the financials. I'm an investor. If I can buy a company at a 2 multiple, a multiple of 2, that's a 50 percent return. A 4 is a 25 percent return. And the higher these multiples go, the less return it is.

[00:38:00] Luckily, it's basic because I can do that. But I'm looking for a multiple of 2. And that's what I'm buying at. 1. 8, 2. 5. That's a big return. 

[00:38:11] Ronald Skelton: One of the, coolest companies I got to look at, and I don't know. Funny thing was, if somebody calls me up and says, Hey, I have a friend, he's thinking about retiring and you need to talk to him.

[00:38:19] Like, okay, what has he got? He said, it's a medical distribution company, but he only, he has all the contracts for all the ambulatory. So all the fire, all the ambulance companies, all the rescue type of, almost a pararescue. All the rescue companies, emergency medical rescue, that type of stuff.

[00:38:33] Four strangers, all their kits, they come, he does the distribution for them. Whatever they need in their ambulance, he sells. So I get him on the phone, he's in a retired fire chief for the area. And she goes, I don't know what she'd ever tell you that I'd never sell this business.

[00:38:45] That was his conversation. But he did tell me about it and how it worked and it was very profitable. He had a decent size warehouse. I want to say it was not huge, like 15, 000 square foot, pallet racks and he stored everything you'd ever need in an ambulance.

[00:38:56] And, everything short of the medicals. Like, you couldn't get, the drugs from him, like he wasn't a medical rep for those. But all the devices, all the gauze, all the, defibrillator that, the one they use in the ambulance, the two or three different model, that's what he kept.

[00:39:08] And it was just like, I said, what do you, do you supply the medical supply community around here? Like you, all these little, offices you see on the strip malls, like if they've got the wheelchair accessory like nope, just ambulances. Just rescue type of stuff. And he was doing seven figures, decent seven figures. I don't know what she ever told him i'm retired, I don't have anything else to do. If I sold you this I wouldn't know what to do with my time. Now he had in the end because he's the old fire chief right, for the whole town. So everybody knew him for a long time.

[00:39:35] He was fire chief for 10, 15, 20 years before he retired. 

[00:39:39] Robert Nance: I like those type of businesses. 

[00:39:40] Ronald Skelton: So yeah, they're interesting. There's a lot of things out there. When I get in this space, one of the things I love about it is I'm a little ADHD, right? So there's always something new.

[00:39:47] It's like, I didn't even know there was like a, like, a company that distributes. I figured those guys all order their stuff from a magazine or something. But no, if they need something, they need it today. He goes a lot of stuff, his like, you see a hot shot, a lot of stuff. That ambulance calls the heart defibrillator broke, he needs to get one there in an hour. Or that ambulance can't deploy. Right. 

[00:40:04] Robert Nance: That's why they can't buy from the people we buy from. We're buying from these big manufacturers and about a lot of the time, but they may need warranty products and you've got to have the options there to send them out.

[00:40:15] That's the value add. And that's why I like these businesses. I just like the business. It's a good model. I can build it quick. we can do different types of integration. I don't want to talk about that really because I focus on first time buyers, but there's a lot of things we can do after the, after the first acquisition.

[00:40:28] And that's the industry I like. 

[00:40:30] Ronald Skelton: And then, for those of you, I always like to, I watch using special, specific terms that nobody else knows but us. For those of you who don't know what a hotshot is, it's just a courier. Somebody can deliver something on the spot on the fly. It's common where I'm from, because there's actually oil and gas companies that are all hotshot companies.

[00:40:46] So if something breaks on an oil rig, there's companies that all hotshot stuff to them immediately. I know what the phrase is just cause I'm around it. I grew up around, like I know two friends that actually owned hotshot companies. They basically, they had various types of trucks, like everything from UPS looking vans to semis, that you could call them within, call them in five minutes later, they had somebody heading your way to pick up something to take it somewhere. Now they charge great rates for it, right?

[00:41:09] Robert Nance: That's a hotel distribution company, a B2B. Wholesale distribution company who, part of their model is that they have to have those little cars or trucks that, in a restaurant or Lowe's or anybody who they didn't get there, maybe they didn't get it all they order. Maybe they forgot to order everything.

[00:41:24] And you got to ship it out there. You got to be ready to ship it out there. 

[00:41:26] Ronald Skelton: Yeah. It can be all within, within the day, same day, right. So let's talk about, let's go back to the program. We keep circling back around here. I take it that there's a cost to the program. I mean, your time's worth money, right?

[00:41:38] Robert Nance: It's not necessarily about the money. I think since we've talked, that free isn't always valued. I make my money when I close. I'll tell you what I charge. I charge $35,000 and 40 percent of the deal, but I defer up to 30, 000 to closing. So you never come out of pocket more than $5, 000.

[00:42:02] Now, that's the current cost. That, that deferment is going to go down and the cost is going up. But the companies that we buy have hundreds and hundreds of thousands of assets, and you get your 5, 000 back at closing. I just want you to have skin in the game. I just told you what I bring. I bring those six aspects that no other person that I know even considered bringing.

[00:42:24] the down payment, the pledge to your financials, the due diligence cost. You get 60 percent of the deal. You have access to me and we do this one on one and you have a skill set after the fact that's going to, that you have, you're able to buy companies by yourself for the rest of your life. So that's what I bring to the table.

[00:42:40] And typically I just ask, what, what do you think that's worth? I mean, literally. What is that worth? If you don't have $5,000 and you don't have, and you don't have faith in yourself, because I know I can buy companies. I mean, I don't even have to even attempt or pretend to prove that if you don't have faith in yourself. If you're not going to follow through, I'm not going to be the one here to. Yes, it's $5, 000, maybe 7, 500, maybe 10, 000, but it's nothing compared to what we're bringing to the table.

[00:43:10] Ronald Skelton: So let me recap. So right now I see the entry, is the entrance criteria is five years plus experience. they go through some interview with you to qualify as a partner. They've got $5,000 down and they can show you that they've got between 20 and $60,000 in, some form of cash liquid assets that they can put in on a deal or, travel and cover expenses if they need to, to get to places.

[00:43:36] Is that kind of encapsulate, I know there's a lot more nuance to picking the right partners, but is that kind of? 

[00:43:41] Robert Nance: I don't mind you scraping by with, I know that whenever we close a deal, you're going to have $5,000 in your pocket because you're getting that money back. I know you have enough money to travel and you don't have to use my credit cards.

[00:43:52] And yes, I've got one or two right now who are just hungry people that 5, 000 was a lot of money to them. And that's good. I'd like 5, 000 to be a lot of money to you, but at the same time, if you've got 30, 000, 5, 000 is a lot of money to you. Because I know I'm not wasting my time with these guys.

[00:44:11] And I just don't want to waste my time. Again, I don't make money until we buy a company. I can't buy a company if you don't do the work I teach you to do and tell you to do. So there's got to be a cost. And even when someone comes in and says, can we defer? I don't even, I just tell them what you're asking is just unfair.

[00:44:27] You're not a tight partner. If you don't have any self respect after I tell you everything that I'm bringing to the table and faith in yourself, why am I going to invest in you? I can't see a reason to invest in someone who's not going to invest in himself. With as much as I'm this is a literally a no brainer if you truly believe in yourself. 

[00:44:46] Ronald Skelton: Yep. And you've got industry experience.

[00:44:49] You've got everything, a lot of people that just, even people that come out of, I've interviewed so many people and had so many people in hangouts and stuff like that. There's this thing, I call it the imposter syndrome. There might be a better term for it, but i've had people who like I just sold a, one of the guys was like, I just sold a $2 million company and I don't know what to do when it comes to buying my next one. 

[00:45:10] They have this, they don't think they're qualified or whatever. Just having you behind them and knowing that, like, I've got somebody that's done this a dozen times, two dozen times, who has a fund behind it. Who has experts behind him.

[00:45:22] If he doesn't enhance, have the answer, he can reach back to his experts and ask. That's a huge value add.

[00:45:28] Robert Nance: Just with the values, just with the two podcasts that you and I have done. Now that I've explained the cost. If they don't see that I'm a partner, I don't know, if they don't see the value when I go back and listen to the podcast that you did, the original videos, they don't get it from here, now that they know the cost and my mentality here, I'm very direct.

[00:45:48] you're getting your, in 6, 7, 8 months, don't think it's gonna be $5,000. Because, economics 101, Ecom 101, supply and demand. And we're just now bringing new partners back in after we had 11 in the first 45 days with nothing. So don't think it's gonna be 5, 000.

[00:46:04] It's all about supply and demand. So, but the cost is 35 right now, at the end. And you get 60 percent of the deal with nothing, with zero. 

[00:46:14] Ronald Skelton: Well, I know the first step to get started. Cause we talked about it and I have, I'm going to have put that links in the show notes, which is there's an application or a way to apply at www.smallbizacquisitions.com/exit. So we know it's from the show. But, what is that process? Other than them going to their filling out a form. They fill out that form or they reach out to you through that website and say, Hey, I want to be one of your partners. What's your next step? What should they expect?

[00:46:40] Robert Nance: I don't know if you saw me swiping, I'm on my phone. I've had two applications since we've been on the phone. The next step is you're contacting me. There's nobody, if you want to text, it says text Robert now, you're texting me directly. If you fill out the form, as you saw, I swiped twice. I've had two applications come across, I'll get with them when I get off.

[00:46:57] And we talk. We set up a call, we talk. And we figure it out. It's all pretty much, it's all standard. What I bring to the table, you've got to bring certain skill sets to the table as well. And be willing to invest in yourself. This is not a lot of money. If you're a legitimate buyer in this space, and you're right back to this guy that built a company, built that company, right?

[00:47:17] And sold it, but he never bought one. Building a company is a completely different skill set than buying a company. A completely different skill set. Those type guys are first time buyers. I still want to work with those guys. I don't have a, a problem if you bought one before, but I'd have to, in general, under the bell curve, the 80%, 85 percent, I want first time buyers, who have experience in managing.

[00:47:42] It just seems to be less complicated. But I don't invest in people. My firm doesn't invest in people who don't go through this program. So I just haven't set that up yet. If I've got to know that, what you're doing for me to put the down payment down. 

[00:48:01] Ronald Skelton: I get that. Absolutely. So what's the future goal of this? Where does this all lead to? I want to follow up that question with, the one thing I'm missing in my head, let's go circle back for a second. We're going to do the future goal of the small business acquisitions. But, let's go first and say, what's the long term goal for the partners?

[00:48:18] Are they growing these to be Holdcos, long term hold? Are they growing it to, grow and sell to private equity or some type of exit? A year, four years, five, 10 years down the road. What do you envision or is that different for every partner? 

[00:48:32] Robert Nance: Yeah, we went over this in the first one. You just remembered. It's different for every partner. Now I've got 40 percent of each deal. So mine was exit. Of course, exit, this is residual income, but I'm making this as easy as I can to get as many partners as I can. This is simple. This is not, if you're a legitimate guy who has the skillset, this is a no brainer. 

[00:48:50] I'm trying to make it as easy as possible to get as many great partners, because there's tons of businesses. I get anxious when I think about how many businesses that we're not getting because I don't have enough partners. So yes, it's an exit for me. It's an exit for everybody.

[00:49:02] Now, if they want to hang on to them, great. I don't have a problem. Owner financing the deal to them. Everybody's different though. But yeah, It's residual income with an exit. But I have the ability to wrap mine up and sell it, the 40 percent off. You're still in control. My partners are still in control.

[00:49:18] Again, I'm really good at structuring deals. This to where my partners are in control. Not me. I do have the ability to sell off my equity piece. But they're the same regulations. If I sell it off, they're the same regulations as I am. I don't have control of it, but my partners have control. And, hopefully make it money.

[00:49:35] Ronald Skelton: Okay. So what are the short term and long term goals of the small biz acquisitions? 

[00:49:39] Robert Nance: Well, the short term over the past since probably April, have been just putting infrastructure in place to handle the demand, and now we have it. When I build companies, when I build anything, I look at scalability and sustainability.

[00:49:56] This wasn't a business when we first talked, when you and I talked in January. It was just, I mean, I'd proven the model and I'd... I knew I could do it, but how much demand is there? What comes to find out is a lot of demand. A lot of people, as you know, you interview people all the time. You talk to people all the time.

[00:50:10] There's a lot of people that want to know how to buy businesses. And make sure that they're, I don't really throw anybody under the bus, but there's not many people doing this that really know how to buy businesses. And you probably know that as well. I don't want to throw any, I'm not trying to throw anybody under the bus, but you've got to really be able to discern a situation, and I had an applicant the other day, well how do I know?

[00:50:33] I said, go just watch these videos. If you don't think I know what I'm talking about, you don't partner. It's pretty simple. When you are able to discern and make judgments, that's who I'm looking for is partners. And buy the course. We talked about this in the first, It's just very difficult to learn how to buy a business through reading a course. 

[00:50:54] Ronald Skelton: Right. We're watching a few videos. I get that. So let's just jump right into, I think we're covered everything. I'm sitting here trying to think if we missed anything or, I think we've answered the questions fairly in depth. Let's do the favorite, the way I wrap up all the shows is like, what advice do you have for individuals who dream of going Into business? Like if they can remember one thing from the day, even if they're not ready to pull the trigger, what do you want them to walk away with?

[00:51:16] Like when they're considering buying a business or considering, trying to figure this out, what do you want them to remember? 

[00:51:22] Robert Nance: That we're here. Small business, business acquisitions is here to partner with a first time business buyer, who may not have the capital. Who probably doesn't have the knowledge. Who may not have the down payment.

[00:51:36] And that wants a partner to lead them through that process. That's what we're here for. If you're not ready, you're not ready, but we're here. The model's proven. We're building an infrastructure, spending a lot of money on the infrastructure, and we're here. This is our, what I think is going to be our biggest business within the next two years.

[00:51:55] Bigger than the private equity firm. 

[00:51:56] Ronald Skelton: Awesome. Well, I appreciate your time. I think we covered everything fairly well. We'll call that a show.