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Manage to Exit is a PMI Acquisitions Team podcast sharing practical playbooks for buying, building, and preparing your property management businesses for successful exits.
You know,
finding the right businesses.
It's not about public listings,
like we said.
there for people that don't know
what type of business
they want to buy,
you already know
what type of business
you're looking to buy, right?
You're looking for a property
management company,
You might know how to run
a property management business,
but if you've never bought
a business,
This is a big investment.
you might be taking out
a loan, personally guaranteeing
a few million dollars.
And if you fail,
you lose your house.
you aren't the expert at it,
don't try to do it by yourself.
Hey, welcome, everyone,
to the Managed Exit podcast.
You got myself, Aaron
Mcelhenny, and we've got Hunter
Goodall here today.
And we are going to go over the
top questions that you all have
about property management
business acquisitions.
So let's get after it.
All right, let's go.
Okay. What is a business worth?
It really is going to boil down
to cash flow, right.
Even our cash flow or SD,
whatever that is depending
on the business.
We need to figure out what that
business is making per year
for the owner of that business.
And it is going to be
some multiple of
of that cash flow number,
that EBITDA number,
that seller's discretionary
earnings number, SD.
Every business
is a little bit different.
So we like to dive
in, understand
what it's making per year,
and then also compare it
to closed transactions
that we have done.
We've done over
450 transactions.
So we have a
a really good indication of what
the value of your business is,
what multiple
you should be earning for the,
the sale of your business.
Yeah,
I think that's that's mostly it.
You know,
people don't don't confuse the
idea of a multiple on revenue,
right? The banks aren't
going to consider that.
It's it's multiple of cash flow
because the cash flow
is the ability to pay the note.
Right.
So yeah, whatever that cash
flow number is,
that's the starting point
for how you figure out
what that business is worth.
This is a great question.
And I think people ask this one
all the time.
Someone just called me yesterday
asking like, hey,
what a property manager.
What's the multiple
for a property
management business? And,
it's it's funny, everybody in
property management always
wants to jump to the door count.
Is it is it a price per door?
Is it a multiple on the doors?
It's like no, that's just that's
just one of the variables
that go into the multiple.
But the standard multiple
it could range.
You know three x
is usually a good benchmark.
But that's not the
you know, the go to number.
It's like what you said
just a second ago.
You got to figure out what
that cash flow number is.
But there's a lot of variables
that go into it.
Beyond that, the cash
flow number
just kind of like paints
the picture
for what
that operation looks like.
But then you got to
look at all these variables
and including your own
the buyers risk portfolio.
Like what are they willing to
put into that.
And that's why
it could be anywhere.
Usually we're seeing anywhere
from 2 to 3 and a half times
cash flow on these property
management businesses.
That's a big range.
But it's because there's
a lot of variables
that go into it beyond just
the financials of the business.
Sure.
So that's why,
I mean, going into a valuation,
you know, you're that person
conducting the valuation, like,
something our team would do.
They really need
to have a good understanding
of the quality of the portfolio,
that of the business, that
of the employees that are there.
The owners, you know, role
in the business, how much time
they're spending in it.
All of those are going to impact
the the multiple.
So, yeah, every deal
like I mentioned before
is a little bit different.
And that's why it's critical,
when going through a valuation,
not just to go
and do a quick Google on, hey,
what is a business worth and,
and use some number
that could have been pulled
from another industry, another
business size or business class.
You know, more recently
someone was mentioning A5X
multiple
that they had seen
on another business
that was in another industry
that was in a
completely different ballpark
as far as revenue goes to.
So you need to compare your
business to other businesses
that are of your size and,
you know,
obviously
diving into it with the team
that has a database not just of
closed transactions,
but even, market specific data.
Right?
The multiple may vary by market,
right?
Top tier markets
with great rents versus low,
you know, sub tier type markets.
There's a lot of variable
in there.
Like I mentioned, the quality
of the portfolio, the location
of the business, the org chart,
the the team that's in place.
All of these things
will absolutely impact value.
And those multiples being used.
we have a, a model that we've
built a valuation to own.
And it's.
PMI acquisitions.com
is where you can go in and
and you know
fill in some data from your own.
You know panels
your own revenues
and cash flows on your business
for the last three years.
That is really meant to give
a good starting point, right?
Aaron just went through
a lot of different variables,
a lot of things that we look at.
But the financials, we always
start with the financials
to get that starting point.
Like I said earlier, that
that financial
the financials of the business
just paint the picture of how
strong of an operation there is.
Right. That gives us
our starting point.
Then we can jump into all these
other variables
the transferability,
the infrastructure risks,
can they be mitigated?
The market competition,
all these factors
that go into that multiple.
But, we start
with the financials to
to tell the story of how
strong of an operation this is.
And then let's go from there
to figure out
what kind of multiple
do we feel comfortable with.
So that's why
there's a range
on these multiples.
And some buyers
might be comfortable
with the higher multiple.
Some might be hey they can only
have a lower multiple.
But yeah, the use that that
website PMI acquisitions.com.
And you can
you can check out the
free valuation tool
to get that starting point of,
hey based on the financials
it should be in this range.
Let's dive in deeper right.
there's a few different things
that I think you should really
look at, to increase the value.
We had a call with someone,
and one of the Carolinas
today who's looking at exiting
the next two years or so.
They went through evaluation,
didn't get a number
that they wanted,
and now have a bigger target
to say, hey, I want to aim for,
you know, this, this new target,
this bigger exit.
And, you know, ultimately,
it resulted in him,
you know, figuring out that,
hey, he's going to have to,
know, grow this business.
He's going to have to continue
to remove himself
personally from the operation.
That's a big piece,
that we work
with a lot of sellers on where
they're an owner operator,
and much of the business relies
on their involvement,
and they're working
full time, full time, plus.
And, so I would suggest that
remove yourself,
you know, from the operations
as much as you can get the right
team, the right systems,
the right vendors, the right
partners, and say in the
in the business
to help kind of minimize,
you know, your involvement
so that ultimately
that's going to help transition
you out of the business sooner.
Right?
It's still increasing,
the value of your business.
And, and now multiple
because you are, you know,
taking maybe a semi absentee
type element to the business.
But there's a lot of things
we could talk about
as far as increasing the value.
Maybe
you have a couple ideas. Hunter.
I have some thoughts. Yeah.
So step one I would say clean up
the financials.
Messy, unorganized
financials are a clear
indication
of how the rest of
the operation is run.
And if the business is littered
with personal expenses.
And we got to go
and do a bunch of add backs
as we're
making adjustments on this,
that's not as clean
as we would like to see.
We get excited when it's like
there are minimal add backs,
adjustments that need to be made
to this business, right?
You know, the quick
get the boat off the books,
all your personal expenses,
get them off right.
Because then you have cleaner
financials
and that paints a good picture
for the rest of the operation.
It it really makes the business
stand out of like,
oh look, this is a clean,
organized operation.
But to Aaron's point,
get yourself out.
Like go
take a two week vacation.
And if you can't do that,
why like put some standard
operating procedures in place,
document everything
and then go take two weeks off.
If you can't do that,
your business is not going
to have as high of a multiple.
We just did a deal
where the owners frequently like
six times a year, take 2 or 3
week vacations with no internet.
That's a business
that we can get excited about
because the business
is not dependent on the owner.
It still runs at full capacity.
When the owner was was gone
right.
So that's a good stress test of
can you leave?
Can you take two weeks off?
And will this business
still keep going without you?
That's
how you can increase the value.
If you can't,
then do an assessment
to figure out why
you can't take two weeks off.
Right.
And I think the first step to
that is documenting
all the standard operating
procedures of every role
and seeing where the gaps are
and, how you can fire yourself
as much as possible.
It's counterintuitive
because it's going to cost
you more and payroll
to fire yourself and hire
somebody to take over
different responsibilities.
But overall, that makes
your business more valuable.
That gives your business
a higher multiple
when you want to,
when you want to exit.
I love that idea of the
the stress test.
It's definitely going to help
identify some of those pieces.
Ultimately, it's giving up,
you know, some responsibilities
to the other people
or like I mentioned,
team members or other.
But ultimately
that's going to happen
when you sell this business.
And if you can kind of
put that pressure on it now and
kind of, build
more of a reliance on the team
than yourself,
it's only going to help you
more, too.
So not only will it
increase the value,
but it's going to help
with the transition
of the business post
close as well.
So buyers will see that
and see the value in that too.
So. I'll give you an example
of two similar deals
that that we're looking at
right now.
One, that their cash flows
are pretty close to the same,
but one of them was because
the owner does everything.
They have really high margins
because the owner is doing
everything is in the weeds
versus
another one
where the business hires.
They have a lot of people there,
but their cash flow
is about the same.
But one of these
has a much higher multiple,
and they're selling
for about double
what the other one
is selling for.
And it's because, you know,
they invested
and putting people in place
to do a lot of the tasks.
It's not as dependent
on the owner
less risk, right, versus
the one that is dependent
on that owner.
And that owner is doing
everything.
It's higher risk.
What happens when that owner is
gone is are they
the special sauce?
There's so much uncertainty
because that owner
can't even take a vacation,
can't even step away for a week,
you know.
So it's like it's like, yeah,
this business is is the cash
flow is about the same.
They're not taking home
as much as they could
if they were doing more,
but they're exiting for way
higher
because they've built up
the infrastructure around them.
you know, if you've got clean
financials and,
you know,
I've done some prep to,
to, you know,
have the disclosures ready.
I think, you know, a
3 to 6 month window is fair.
That's going to allow
for any kind of bank
financing
that might be required.
You know, ideally, you're
not immediately rushed
and have to sell tomorrow.
It's like, hey,
you've got some time to prep,
and I think we'll have.
So another question upcoming
about finding the right buyer.
This will definitely
lead into that.
But let's say
you found the right buyer
and they're qualified to buy a
3 to 6 month window
is pretty fair.
Yeah, I'd say just
what we talked about earlier is,
clean up your financials,
get them organized,
get the boat off the books,
get all
of your personal expenses
out of there.
Stop. Plan.
Like, if you're looking to sell,
you want two,
maybe three years of runway.
Get the boat off the books,
sell it, like, pay the taxes.
You know, like you're not trying
to reduce your taxable income
when you're trying
to sell your business.
Yeah, let me rephrase that.
You're not trying to
to minimize taxes.
Just suck it up
and pay the taxes
when you're when you're trying
to get your business ready
to sell like
you want it
to at least a two year runway
of having clean financials,
showing a net income,
because that will make
your business a lot cleaner.
You'll have a couple years
of history of showing clean
financials and profitability.
So that would be step one.
Step two would be take
a two week vacation.
And if you can't document
your SOPs and figure out
who needs to be doing what
so that you can take a two week
vacation.
Oh yeah.
I mean, this is, a big
a big point to hit on here.
I mean, we do have,
nondisclosure agreements
in place between buyers
and sellers at all points.
Even if our team's going
through valuation,
we still have an NDA in place.
But confidentiality
is everything.
The last thing
we really want to happen through
the process is for our team,
or for clients to figure out
what might be happening here
in the background.
Especially when it's just going
through a discovery type
period. Right?
It may not even be, you know,
this is all the work
before an ela y or, or initial
letter of intent is even signed.
This is just initial diligence
where confidentiality
must be upheld.
It's it's critical.
It also goes both ways.
Right?
A lot of sellers think, hey,
well this buyer is going
to be learning
a lot about my business.
Well hey you're going to be
learning
a lot about the buyers
business to you.
And that indeed
is there for a reason.
And it's it's critical.
It's strict, strict
for a reason.
And and it really is
kind of the, the,
the backbone of trust
between buyer and seller.
Both of them have the intent
to do a deal together.
And, you know, find the win win.
But but yeah, confidentiality
is everything.
Protect your clients, protect
your team.
Do everything you can do
to make sure that your
I mean, you must maintain
that confidentiality.
So absolutely critical.
But like you said, it's
also on both sides of the table.
Like sellers are always worried
that the buyer
is going to slip up
and say something.
The buyer is just as motivated
to keep that confidentiality.
They do not want the employees
finding out too soon that
they're talking about possibly
doing this acquisition, because
then all of a sudden you got
the buyer has to worry about,
well, it's the team.
They're all freaking out
thinking that this
business might be sold.
They're going to go job
hunt like nobody wants that.
So it's,
you know, it's
mutually beneficial
on both sides of the table
that buyer and seller maintain
that strict confidentiality
and keep it that way
as long as possible.
Oh, my gosh, that is loaded
right there.
I mean, you know,
I would say the typical process
there is, you know,
there may be some key
individuals on a team
that could be part of it,
but ideally not until I purchase
agreement is signed.
That's not to say
that money is transferred
in changed hands yet,
but we need to have
a solid agreement in place
before
any kind of disclosures are made
to, team
members on either side.
And clients.
It's usually not until closing
that that,
that kind of open openness
is there for team
members and clients, but,
but yeah, I mean, Hunter,
you and I have dealt with this
quite a lot. And, you know,
I'm sure you have some opinions
on this too.
I think yeah.
You don't want the employees.
Neither party want the employees
finding out too soon.
When they find out too soon,
they start to panic.
They start to search
for other jobs,
and next thing you know,
they all quit, right?
When closing happens.
And there goes a lot of the
value of the business, right?
So usually we say, hey,
Mike, the last week before
closing, maybe two weeks before
closing, that's when the buyer
should be introduced.
The seller should introduce
the buyer to the team.
definitely not before that,
except when there are critical
key people that the seller is
confident are crucial
and will likely stay for the new
the new buyer.
We have done that in a
in a few scenarios
where, you know,
the buyer comes in
and it's like,
hey, out of these 15 employees,
you should probably be talking
with these two
because
they're going to be critical.
So let's let's start
those conversations early.
And that way
they don't feel blindsided.
They feel like excited that
they're part of the process.
Like don't
let any of the other staff know,
but you two are in on this.
But it's because we got to
we got to strategize.
We got to interview them
and talk through,
you know, how
this is going to be
and how they should
how we should handle
this operation moving forward.
So I say
hold off on on
introducing team and clients
as long as possible.
But with that, I mean,
there are some deals where
a lot of the contracts
they're they're not assignable
without prior written consent.
So it's like you probably
you have to put a rush order
in like that.
Last week before
closing of getting new contracts
signed by the, the client
saying, hey, by the way,
we've got this new buyer,
they're taking
over these contracts
next week, and,
we need you to sign
this consent.
You know, there's
there's language around it
of getting that consent, but,
yeah, you want to hold off
as long as possible
before letting others in on the,
transaction.
Yeah.
Just another quick
comment on that.
I mean, it's it's
really something that needs
to be agreed to by both parties.
I've seen it where a seller,
you know, at their discretion,
decided to inform team members,
and it negatively impacted
the deal.
They notified them too early.
It wasn't the buyers.
it wasn't to their advantage.
It wasn't their idea at all
to, to do that.
So I would just say any decision
around client and employee,
communications,
whether that's before clothes
or post clothes,
all of that communication
needs to be agreed to.
but by both sides. Right.
You'll know.
The seller will know
which clients
are going to need
extra attention,
which employees may need extra
attention.
but yeah, I would say typical
process is not, you know,
no communication of the,
of the sale until post clause.
We talked about business brokers
all the time, and I'm
not going to be negative.
When I talk
about business brokers,
because I think there are a lot
of good
business brokers out there.
I would just say
it really depends
on the seller's position.
Right.
Are they heavy
into their network?
Do they already know
other potential buyers?
Can they already provide
clean financials
or in just in my experience,
a lot of business brokers,
you know, that I've worked with
have guided sellers
through valuation through,
you know, preparing
their business to sell.
And they're going to take ten,
12% sometimes more.
And so, I mean,
I think to a sellers advantage,
there are so many resources
that are available to them now,
including free resources,
not just our team,
but there's others too, that
they can get valuation from.
And I don't think you need
a business broker
to sell your business.
In today's day
and age, just do it.
In our space, I see 98% of them
transact without a broker, and
I see all of them getting fair
value on their business.
And that might
just be my opinion.
I think they can be used.
I think there's a space
for them.
Someone that doesn't want to,
you know, facilitate, a seller
that doesn't want to talk to 10
or 20 different buyers
and just wants a broker
to do that.
And if they're willing
to pay the 10 to 12%, go for it.
But I don't think it's
necessary in our space.
I'm a little torn on this.
Depending on which which route,
which seat I'm sitting in,
if I'm.
If I'm selling a business, my
my thoughts are
stay in your lane.
Unless you're an expert at it
staying online.
Because don't try to Google
what your business is worth and
and then try to sell it
off of that right.
So either
you could either talk to brokers
or get a valuation
I think I think the brokers
could really do a lot to help
sell that business.
They could probably do a better
job of selling your business.
And then you could in most cases
because this
this is what they do website.
On the buy side,
I prefer not buying businesses
through brokers
because I know what to
we know what to target
so we can just go straight
to him and bypass that.
Kind of the benefit
of working with PMI if
if you sell a business to PMI,
we waive that fee.
You know, we're not going to
charge a 1,012% transaction fee,
but you're still going
to get the same deal
that you would have
if you had a broker involved.
So that's kind of the benefit of
of selling to one of our PMI
franchises is,
you can save on that 10 or 12%,
but if you're not selling
to one of our PMI franchises,
don't know, do
you know how to sell a business?
Like if you do, great,
go for it.
If you can get get experts
to help you like
I think I don't know, I'm
I'm torn.
Aaron's looking at me like,
how dare you No, I.
I'm thinking if
if you're not the expert
at selling a business, hire
an expert to help you
sell your business.
Know you actually made me
think more about it, too,
because I was thinking
about someone
that, you know,
maybe they've gone
through an acquisition
themselves like this person
I spoke to earlier today
who has actually done
two acquisitions themselves.
And so I guess
the experience of the seller
is the big factor here, right?
Are they familiar
with the transaction process?
Do they understand
business valuation.
And I see
why the resource is there.
And like I said,
if that's something that
someone wants to hand off
to a professional, I totally
I totally understand it.
But I do think that there's
a lot of property management
specific business owners
that are very involved,
not just in, you know, industry
networks, but they have access
to a lot of different valuation
tools, and resources there.
So I think you could do it
yourself
if you're confident
in your ability
to do that and you're up on,
you know,
if you're paying attention
to the resources
that are out there
providing this, great.
But, but I'll tell you,
you do like it,
could definitely simplify
the process.
You can still earn
a great dollar
by selling it yourself.
There's plenty of guidance
around this.
I also kind of say
there's probably a, like,
level of sophistication
of the business, too.
I'd say a lot of the deals
that we look at
that are kind of sub $3 million,
you know, you know,
I could imagine
someone looking at that
5 to 10 mil or plus space.
There's there's some
added sophistication to that,
that not just a business broker,
but you're turning
your CPA are all going to be
working together in that way.
So, probably depends
on the sophistication
of the business
that the seller is working with.
And,
and yeah, I wouldn't force feed
a business broker in there,
but I think, I think if you're
if you're capable
and you're confident enough,
then you can find a way
to sell your business
and forget all about that
10 to 12%, broker fee Yeah.
So there's a few different
buyer profiles
if you think about it.
Everybody dreams of selling
to institutional buyers,
private equity companies.
You got to have a really strong
business for private equity
to be interested. Right.
I read a book called
Maximize Your Multiple
and in that they were like,
yeah, the reality
is, institutional money
doesn't care until there's 10
million in revenue, right?
So and in that case,
get a broker.
So the private equity buyers,
they pay big
money, but it's hard to hit.
It's hard
to get their attention. Right.
And you have to have a really
strong operation for them.
The next is on the low end.
You've got the entrepreneurs.
You know, there's right now
there's a lot of kids
coming out of college
who want to buy businesses.
There's a lot of,
push on social media for,
you know, executives
at their companies.
Leave your job,
go buy a business.
But they have no experience
buying a business.
They don't have an operation
that they can fold this into
and get some synergies from.
So they're going to be limited
on what they can offer.
So they're going to be on the
lower end of, of that valuation.
And then the middle ground is
sell to one of your competitors.
Right. Sell.
If you've got a property
management business,
you're like,
I don't know who to sell to talk
to the other property management
companies in your market
because
they can give you probably
they can give you a better price
than the entrepreneur
through acquisition people.
And they're going to do
a really good job
of taking care of that operation
as opposed to, you know,
kind of a property or private
equity model is typically buy
a business and slash
as much cost as possible.
A lot of times
that includes headcount, right.
But your
your competitor down the street,
they typically want to buy
the business for the contracts
and the people like they
they want that business
and they can
blend that in and be like, hey,
I don't need two leases,
I don't need two
marketing budgets,
but I do need your payroll.
I need all your people there.
So it's it's ideally
that's your best strategic
buyer is somebody who's already
operating in that space
and could just absorb
your business.
They're going to be able
to give you the best price,
and it's going to be the best,
smoothest transition.
Yeah, I'd
say a lot of the times,
you know, sellers are aware
of who the really good
operators are in their market.
These may be personal contacts
that they already have.
They might be groups
that are down the street
that they've never talked to.
Case in point, the deal
we just closed two weeks ago.
Large transaction, over 700
doors, multimillion
dollar business.
Their offices
were like a seven minute ride,
car ride from each other.
They did not know each other
existed.
They probably driven past
each other.
They probably go
to the same Starbucks.
There are great operators around
you that are potential buyers.
And, so if you're not involved
in your network already
and kind of prepping like, hey,
who are the buyers
that I need to be talking with,
maybe building relationships
with before they even,
you know, formally, you know,
offer their business to someone?
This is all part of this,
you know, idea
that you can prepare to exit.
You don't need,
you know, potentially
you don't need a business broker
to help funnel those buyer
leads to you right there.
Those buyer candidates are out
there.
They're probably already
in your network.
And if not, they're ones
that you can start having,
you know, a relationship
with now.
And essentially filtering
through. Right.
There might be 3
or 4 different groups
that could be buyers,
and you could get to know
each one of them
and figure out who is the best,
the best buyer candidate
that you want to work with.
Now let's let's throw another
plug in there real quick
for for working with PMI.
Not only will we waive
any kind of broker fee
and we'll we're a free resource
for our franchisees.
If you work through us
we can identify hey the
we have like three really good
operators in this area
who already know
property management.
You're not going to have
to hold their hand
and train them on how to run
a property management company.
We've already identified
these ones would be great fits,
but I'm going to let
you guys meet each one of them
and determine
who do you feel best
about selling your business to.
So it's it's
kind of a, a great situation.
We've got franchise partners
all across the country.
So, know, it's
it's rare
that we come across a business
that we're like,
oh, I don't have a Yeah.
Yeah.
It's just kind of interesting
timing
to like, know, more recently,
there was opportunity,
I'll just say,
on the Pacific coast,
without giving it away, but,
but, yeah, we had three buyers
for the one seller
and the seller at their
at their option, they decided
to interview all three of them,
and there were two that
kind of stood out initially.
And then,
you know, they went through
a financing element and one,
you know, was a clear stand out.
And so they selected,
you know, that that buyer.
But, there
definitely was kind
of a courting period between it.
Right. It's not to say,
hey, this person is qualified
to purchase it.
It's hey,
is that a good fit? Right.
Is this buyer,
you know, a cultural fit
for the team
that I have in place?
Like,
we can definitely shortcut that.
You know, we've got obviously
a network of buyers
and we can align with the right
buyer for the business.
And it's sometimes more than
just is it the right market?
It's hey, is that a good fit
for the buyer and
seller or is it a win win?
But yeah, like
I said, it doesn't have to be
a rush process.
Finding the right
buyer is critical.
You know, start on that now.
Right?
Even if you're going to exit
in two years,
you really should start
whittling that down.
If you're trying to, you know,
get the most value
for your business.
That means selling it
to the right buyer
who sees the vision
for it, understands the,
the the upside for them
long term.
And, like I said,
it's it's a process
that doesn't need to happen
overnight.
You can build relationships
with the right buyer candidates
and, and get a fair dollar
at the end of the day.
model is, is we like to
you know,
part of our discovery
is we'll have a conversation
with the seller and be like,
and what are your motivations?
What are the things that
you care about? What's next?
And it's not like
we're doing this to try to like
get some negotiation edge
or something like that.
It's we want to know what's
what's your next thing.
How can we factor that into
how we structure our offer?
Because like,
we want to build the offer
around
both sides of the table of like,
hey, what's
what's really going
to make this awesome
for you as well as for us?
And so we our motto is
we give an A, B option, option
A, hey, we're going to come in.
Here's the full cash at close
option And option B is well,
rather than paying the bank,
we'd love to pay you
if you if you want to be the
bank, here's a different option.
And here's how
we can structure it around,
you know, your goals and your
your objectives
of what you want to do next
and how we can factor that in to
make sure that this, you know,
is really sweet.
If you will finance this for us,
we can sweeten the deal
even more so rather than than,
you know, going through the SBA
process and, and,
you know, cost of capital.
And it's like
if you work with us,
if you if you have finances,
we can find creative ways
to make it even sweeter for you.
Yeah.
I would just say
I mean, for the,
the seller to be upfront
about what commitments
they need, right?
They may have a new project
they're getting into.
They might have some commitments
to the family.
Right. Like I've
this is an early reference.
But there was someone
that,
was exiting their business
and they had
promised their spouse
they were going to pay off
a property and also,
buy a boat.
So kind of a funny thing,
but they had some, some minimums
that they needed cash
it closed for,
and they were open about that.
And we were able to get them to
that target.
I would also just say
sometimes they have an exit goal
that, is maybe larger
than the true business value.
And so,
you know, it's interesting,
but we can get pretty creative
on how to hit those targets.
Right? Maybe there's
other metrics we can include.
Maybe there's some targets
we can set for the business,
other growth, you know,
kind of rewards or bonuses.
You know, sometimes let's say
you're halfway through a year
and they project the year
end out to be a certain dollar.
And so if we hit that
dollar in year one,
you know,
another amount could be due.
So I mean,
we like to work backwards
from your, from the goal.
Right.
If they've got a goal of X
the seller has a goal of X.
We try to figure out
a way to hit it.
And if we can't, we'll be super
upfront on Y. And
you know, any other constraints
around bank financing?
The one comment
I'll leave in to that is,
you know, in this scenario that
the bank doesn't get excited
about
lending on the deal
based on the the seller's needs.
Right.
Let's say it's
$1 million business and the bank
says, hey, it's we won't fund
anything over 700 on it.
That's their opportunity
to to sell or finance the deal.
You know,
our buyer is either going
to pay the bank interest
or the seller,
and we'll be super upfront
and transparent,
you know, about that process.
So like I said it for us,
we want them to get a win.
Right.
The seller deserves a solid win.
You know, they worked
hard for their business.
They should get paid for it.
But the cash flow scenario
is typically based
on what
the bank's going to finance.
And if they're not willing to
finance it at that seller's
needs, then, hey,
let that be the seller's
opportunity
to make more than what
the bank would earn on it.
Right? So, you remember I want
to do that. We worked out where,
I think it was out here
in Arizona where the seller,
we were like, hey,
you're selling your business.
You're still pretty young. Like,
what's next?
And they're like,
oh, I've got this idea
for this e-commerce business
that I want to do.
And I was like, great,
talk to us about what
your cost of living looks like
and what kind of seed capital
you need.
And we tried structuring and,
seller
note on this around like here's
some some money down.
Plus we're going to cover
your living expenses
while you get your e-commerce
business ramping for the next,
you know, how many years.
And so we were really building
our offer around like sweet.
We would love to support you
in your your next venture.
And here's how we think
this will help lift
some of that burden
off your plate.
At the end of the day,
they're like, oh,
I'll just take the cash offer.
But at least it's like
we're very collaborative
in that process.
But a caveat here, if you're
trying to sell your business,
I think the best scenario
for doing seller financing is if
you're selling to somebody
who's already
operating a property management,
it takes a lot of trust
to do an acquisition.
Like both parties
really have to trust each other.
But if you're going to sell
a finance that,
that means the seller is sharing
in the risk of this,
this transaction here. Right.
And that's also part of why
the buyer is like,
yeah, I'll pay more
if you're sharing in the risk,
because now
we're both incentivized
to make sure
that this is a success.
But if, the buyer already knows
how to operate
a property management business,
it's a little bit
less risky for the seller
because they already know
what they're doing.
They've been doing this
for years.
They're already successful
at it.
Chances of them tanking
this business are a lot lower
than somebody
who's never run a property
management business, right?
So if you're going to sell
a finance,
you should probably be seller
financing.
Somebody who already knows
how to operate this business.
Totally.
I couldn't agree more. Yeah.
I mean, seller financing it
for someone that's in the space,
that's proven in the model
like that.
That makes a lot of sense to me.
And I would say even if we
reference the data behind our
our seller financed deals,
you know, I'd say
the majority of those are going
towards an experienced buyer,
an experienced operator
in the industry and,
you know, seller financing
on, you know, a deal
that's smaller, let's say
the buyer's business is larger
than the,
the, the seller's business.
Right?
They've got a proven,
you know, operation in that,
in that market.
So so yeah, that's a big trust
builder piece.
And I would say
finding the right buyer
kind of leads into that too.
Right.
It's someone that
that you'd be confident enough
in to potentially sell
or finance.
Even if that's not the
ending terms of your deal.
Yeah, it's an opportunity.
And there's there's definitely
some risk on both sides of that.
And it's good just to know
what your options are.
So looking at kind of like an A
and B structure
like Hunter mentioned
like see what the difference is.
See what all cash it closes.
Consider kind of the tax
implications of that too.
We've worked with some sellers
even one right now
that says hey
I cannot close on this in 25.
I've got to wait till at least,
January to to close on this
just for tax purposes.
And so, you know, it's
that diligence process is,
is critical.
Understand
the tax implications of a sale.
And you may want to structure
a seller finance option,
you know, to your own advantage,
not just for a higher
multiple, but,
for other tax purposes, too.
All depends on really
the sellers involved
in, in the business.
And, you know, I would say
the size of the business
to you, right?
The obligations that
they have to help transition
this business to the buyer.
You know, I would say typically
that could be anywhere from,
you know, 2 to 6 months,
you know, the sweet spot
in there's
probably around three month
window to help with transition.
You know,
if the seller is fairly removed
from their business already,
you know, that transition period
might be smaller.
But for an owner operator
that is, you know, deep
in the operation
of their business,
you know,
they really need to think
about that three month window.
That doesn't mean
three months of full time,
you know, clocking in every day.
It's really more of, hey,
the first
month, full time in person
and maybe the the following
two months could be available
by email or phone call.
I'd say that's pretty common
with,
with the deals that we've done.
I'd say it also comes back
to those three
different buyer profiles, right.
Like if you're selling
to an entrepreneur
who is has not operated
this kind of business
before, well,
they're going to need
a lot of hand-holding.
They're probably going to need
six months, maybe more.
Right.
If you're selling to one of your
your competitors
down the street, somebody
who already knows how to operate
a property management,
a lot less hand-holding.
It's more so all they need you
to do is hand off relationships.
So it's like we typically do
like three months at the most,
but it's really taper.
It's like, hey,
for the first few weeks,
yeah, you're going to sit down
with us full time.
But that's
because you're going to show us
how you've been operating
compared
to how I've been operating.
And then it's really just
hanging off the relationship.
So it's it's really tapered,
you know.
But if you're selling
to a private equity group,
remember they they typically
if you can get their attention
and they want to buy
your business,
they can typically offer
a much higher price tag.
But a lot of times that comes
with strings
attached in the form of
but you're going
to keep working here
as an employee of the business
that you created
for the next two, three,
five years.
Right?
So it it all depends on who
that buyer profile is.
And so, that time frame of what
you should expect for
transition depends
on who you're selling to.
Yeah, that's a great point.
I think we saw, some feedback
from a seller the other day,
and they had received some offer
from someone else
that was slightly higher
than the valuation that we had
put on it.
And, you know,
I think behind all of that,
a buyer that's willing to pay
that for that business
probably is going to keep
that seller in it for at least
a year, like Hunter mentioned.
And a lot of those payouts,
when they get into those higher
multiples, there's
definitely more of a post close
revenue kind of contingency
or performance metric that's
tied to that compensation.
So it might be $1 million payout
when it's all said and done.
If this revenue
target is on trend,
if the percentage points up
every month, if that target
has been hit annually,
there's other language there.
So it really does depend.
But, you know, if a seller
is willing to stay in
their business for a year or two
with another owner in place,
the feedback
I've usually received is,
why wouldn't I just stay
and own it for another two years
and grow it?
So, so yeah, there's a lot
to consider there for sure.
But you know, like I said,
you know, a three
month is probably the maximum
that I would typically suggest.
Anything beyond that,
you know, it's pretty rare
just within the transactions
that, that our team sees.
You know, I think there's
got to be a plan in place
for your team and clients
well, before closing.
And so when we go through our
extensively long due diligence
checklist that Hunter has,
been the mastermind behind,
there is a piece in there
that's going to relate to this.
And so, when it comes to.
Clients and, you know,
employees typically are buyers.
And when we're looking at it,
we need the team, right?
Like, we want good team members
that are in place.
You know, we want quality
clients that are great to work
with.
Our goal isn't to ever,
you know, for our buyers,
we don't want them to stir up
any dust.
We just want to make sure
that they're
continuing
a very high level of service
that they've been receiving
from the seller.
And, you know,
we kind of have an internal,
you know, question around this.
It's like, hey,
if we're going to get into this,
Joe, we need to be confident
that we can provide
equal or better service
and, you know, so
client and employee
retention,
is everything for us.
Sometimes the seller might
give us an indication that, hey,
there's a team member that's
not a good fit for the business.
Now, they might choose to make
a change before they even close.
But but ultimately, we love
the team that's in place.
We want them to
just keep doing their job.
We want to make sure
the clients are taken care of
and that no one's
really noticing a huge shift.
You know,
we're going to continue
that high level service.
And, you know,
I'd say it's a rare transaction
for us that we we don't have
the team coming over.
We typically
always want the team.
So we lean pretty heavily
into that.
Even in valuation
when we walk through,
the sellers org chart and,
you know, identifying,
you know,
maybe there's some areas
we need to add team members
to versus actually
remove or replace. Right. So.
I mean, we deal
with really both sides of that
within our network.
You know, so, you know, I think
my own bias would suggest that.
Okay, how much time do you have?
Right.
Like, in my opinion, I don't
I wouldn't want to spend three,
five plus years building
something purely organically.
I think there's a healthy blend
of acquisition that stimulates
organic growth.
So when a lot of people
talk to me,
they always assume
that I'm only talking
about acquisition growth.
But I realize
that my organic growth
is actually really heavily
based on my acquisition growth.
Can I get into a business
within the next 12 months
and help stimulate
organic growth,
you know, through acquisition?
I think so,
and that's
what I've seen proved out,
you know, over the years
that I've been doing this.
But, I think you can do both.
It really
depends on the operator.
You know, we've got some people
that just come in
and they want to have a very,
you know, I'd say, you know,
like curated portfolio of,
of management contracts.
They're very specific
on what they take
that they, you know,
they're not concerned about,
you know, scaling as quickly
as some of us are
with acquisition.
But I'd absolutely lead
towards acquisition growth,
not just because I see it
every day, but, also
just because
I've understood the industry
and this may be true
of other small businesses,
but I think if you want to
get into the space,
you should absolutely start
with an acquisition.
That's just,
you know, my opinion.
This one's fun
because my bachelor's degree
was in entrepreneurship.
And you want to know something
that I learned 90 something
percent or 95% of businesses
of startups fail, right?
Most of them are gone
within three years.
And then the rest kind
of trickle out after five years.
But there is a theory
that I can't remember
the name of this theory.
And it goes that if a business
has been around for ten years,
if a business hits that ten year
mark, chances are
it will keep going
for another ten years, right?
So I'm definitely a big fan of,
like,
the idea of starting a business
from scratch seems risky to me.
You know, the failure rate
is just so high.
Chances like the the odds
are stacked against you.
But if you buy a business
that's already been around
for ten years, as are,
it will continue onward.
Why not start with that business
and grow from there?
Right?
So, to me, starting a business
seems much,
much riskier than buying
a business, even though it
it doesn't feel that way
when you're the one taking out
$1 million
loan to buy that business
because you're like,
man, that's a lot of debt,
but you're buying a business
that's already proven itself
and already has revenues
and cash flows coming in.
It's already got to
someone already
did the heavy lift
to get it to that point.
And my, my mindset is start
there because like,
there are some people who are
built to start a business
out of out of the clouds
and they can get it to
to this point, that's
as far as they can take it.
And there are special breed
like not a lot of people.
Everybody wants to be
an entrepreneur.
Not a lot of people
have the ability to do that.
Start with zero
and get it to here.
But a lot of people like that's
as far as they can get it.
And then there's a lot of people
that are like, well,
I could buy it from here
and take it to here, right.
And so my view is starting
a business is is a lot riskier.
And you really have to be
a special breed
to be able to start a business
and get it
to that point of sustainability.
So why not buy a business
that already made it to
that point
already has infrastructure
and systems.
Someone already did
the heavy lifting to get it
there,
start there, grow from that.
And then also, you know,
conversely, people are like,
well, I've built my business
and I got it to here,
should I buy a business
or should I put that money
into a marketing campaign?
And my mindset again is, well,
your marketing campaign
is still just a theory
that if you dump
all this money into marketing,
that it will work.
Or you could put that money
into buying another business
that is already proven
to be working.
Right.
So I'm definitely biased,
but I'm definitely
a fan of buyer business
and build from there.
Totally.
I don't know how to you and I
are absolutely aligned
on, you know, we both read,
you know, Walker Daybell's
five and build.
If anyone has them,
they should add
that to, add that to your book
list.
But, yeah, I mean,
starting with some framework.
It's not to say that
the business
you buy is absolutely perfect,
but it absolutely gives you
the framework to improve on
and build on
and opportunity
and immediate market share.
Right.
There's some markets
that I wouldn't consider
organic growth in.
First,
I know some organic growth
can be easier in some markets.
But acquisition growth
you can take advantage of that
in any market.
So I think that's
where your opportunity is.
And and that mean that maybe me
leaning more towards
my experience in the property
management industry.
But I think it's true of most,
industries too,
you know, buying first
and then building,
you know, and in my experience,
you know, has a higher
success rate.
Are we giving away
secret sauce here?
I mean, there's no secret sauce.
That's the truth.
You know,
finding the right businesses.
It's not about public listings,
like we said.
You know, public
listings are for those.
And we probably said it before
on other episodes here.
I mean, there for people
that don't know
what type of business
they want to buy,
you already know
what type of business
you're looking to buy, right?
You're looking for a property
management company,
like talking with sellers
directly,
not going through the public
listings.
That's
kind of typically channeling you
through a business broker.
Just go talk to the owner.
Talk to the business owner.
This is true of any industry.
You know, go talk to the people
around these businesses.
That's how you find them.
There's no secret sauce.
There's no, you know, magic.
You know, it's a app
that does this for you.
It's text messages, it's phone
calls, it's meeting in person.
It's having lunches,
having coffee.
It's networking.
Don't complicate it.
We see people trying to
complicated all the time, and,
we just tell them,
let's go meet in person.
That's how relationships form.
That's how you find sellers.
And, that's what
that's that's
what's been working with for us.
For you know, for years now.
It's all in person.
It's all local.
Yeah, think
think about the customer.
How the customers find them.
Okay. Go through that customer
journey.
Be be a customer. Go find.
How do you find another property
management company okay.
Well now go contact them.
Go talk to them. Right.
We always
say like people are like,
what property
management business should I,
should I buy,
how do I find them?
And we're like,
well how many other property
management cell phone numbers
do you have?
All right. You don't have any.
Well how are you going
to get something like go,
go knock on doors, go walk in
and introduce yourself
like go to networking events
because
business acquisitions
takes a ton of trust
on both sides of the table.
The best deals are going to come
from those
that you already have
relationships with.
So have it start
building a relationship
with your competitors. Go.
Go talk to the other property
management companies.
Get their
the owner cell phone number, buy
them much,
talk to them, talk shop
and eventually that's you know,
that's more than likely
where your deal is
going to come from.
Yeah, it can take time,
but I think just,
you know, I have some fair
expectations as a buyer, right?
A seller,
a potential seller
maybe isn't going
to share financials
with you at the first meeting.
Maybe they don't have
a price tag.
You know,
they've never
maybe they've never gone
through this process before.
You gotta kind of build
that relationship first.
Ultimately,
sellers are always going
to give a lot of information.
They might answer some questions
that you didn't even know
you had right?
Just like Hunter mentioned.
Talk about their business.
If you're already
in the industry. Right.
It's it's really easy
to just compare notes like, hey,
what are you going through?
Hey, are you seeing vacancies
at the certain rate right now?
Any local, you know, legislature
that's going on in the space,
like you're already
in this space.
Talk to them
about what you're going through
and what your business
looks like.
They're going to share a lot
about their business,
but don't expect to get price
tags and financials
and rent rolls and contracts
on, on the first date.
It's just not going to happen.
you know,
financials are really
just something that can be
looked at easily and upfront.
And if they're not clean,
you know, if they're not
organized,
that's an immediate red flag.
It's probably an indication
of other things in the business.
You know, just
I'm also trying to think
about the contracts, right.
You know,
we've got all their contracts.
If there's
not assignment issues,
if they have limitations as to,
you know, flat rated fees,
like a flat rate
fee business versus a
a percentage fee business.
The org chart, I mean,
I start with Google reviews.
I mean, I'm
looking at their presence.
I'm trying to understand,
you know, how
they operate in this space.
So it's not to say that
there can't be some,
some bad, reviews on there
from, from a tenant issue
that maybe that tenant
wasn't being realistic to.
But if they've got bad Google
reviews,
like, that's the one thing
I actually encourage,
you know, sellers to work on
when they're trying
to increase their value to like,
you're not soliciting
your clients
and tenants for good reviews.
So if they've got bad reviews,
that means they're
they're not proactively
going after good ones either.
So, yeah, 100.
You probably
have some other ideas too.
I know I hit a couple of them.
Yeah.
The first red flag is
is contract to sign ability
because that makes the deal
tougher, right.
That adds complexity
if the contracts
are not assignable.
When looking at financials,
property management
businesses are typically
pretty stable, right.
There should not be
a lot of volatility in these.
And so it's
if there is volatility like the
revenues are everywhere
or the revenues are declining.
Why like what
the heck is happening?
It's okay
if the cash flow is declining
because that could be explained
away with like, well,
we hired headcount
because we're growing.
Look at our revenue growth.
But if if revenue and cash flow
are declining, what the heck
are you losing contracts
also high margins, right?
When we start looking at the
like if the businesses over
35% profit margin,
that's telling me
I think the owner is doing a lot
in this business, right?
They're they're handling
a lot of the roles.
So, that's that's
another red flag.
If if the owner is doing a lot,
you know, that
that key man syndrome
that you've probably heard
people talk about.
So I think those are
the first red flags that we're
also that we're looking at.
But another one is
is client spread.
Right.
If you've got a portfolio
of 500 doors
that you're managing well, what
if one owner owns 100 of those?
Right.
That's a big
risk element of like, well,
is that owner only here
because they're golf buddies
with the
with the business owner.
Like what happens what happens
if I buy this business.
Is that how likely is that
person going to stay.
Because if they leave
that's 20% of the portfolio.
That's a huge hit.
So, that's another red flag
you want.
You want diverse clients
spread like an average of,
know, 2 or 3 properties
per owner.
You don't want, you know,
10% of the clients
to own 40% of the revenue.
No, that's a great one.
I was thinking about,
we were dealing
with the valuation on a company
that, like, was primarily
servicing one client.
I don't know if you remember
that one. Hunter.
But but, yeah,
that's a big piece, right?
There's got to be a fair
spread in there.
One other red flag that you.
And obviously when when,
when when
you are in, our diligence,
you know, looking at
trust accounts and reconcile
trust accounts
and how they're handling
maintenance,
like there's some industry
norms, right.
That should be upheld.
And we can pretty easily
tell when someone's in touch
with the industry and not,
you know,
someone that's
been managing for 20 years
and never updated, management
agreements.
So, agreements absolutely.
That assign ability
that Hunter mentioned
and I would definitely lean
into that.
That's another great thing
that sellers can work on,
improving on and modifying,
whether that's through addendum
or new agreements, if they do
have non assignable agreements,
and if they are thinking
about selling in the next 6
to 12 months,
then they should be working
right now to make sure
those agreements are assignable.
It's going to be more valuable
for them.
It's going to be a smoother
transition process.
And but yeah, that's a short
list of red flags.
there's a lot of ways to put
these deals together, right?
There's really a hundred
different ways to structure it.
You know, I think bank financing
now more than ever,
there's
been great lenders out there
that we work with
that are excited
to lend on property management
businesses.
You know, I'll, I'll name drop
Live Oak Bank in here right now.
They've got a great team,
with Jordan and Graham and,
and the others on their team
that have a property
management specific
team in house vertical within
the bank that only handles
property management,
business transactions.
So there are banks that are
excited about these deals
that, you know,
like I said, that in combination
with other purchase options,
including seller
financing, including,
you know, profit share revenue,
shares, earn outs.
There's, like I said,
a lot of ways to do it.
I think you had some good points
in there.
Live out there.
Great to work with.
They've got a team
specially dedicated to working
on property management,
acquisitions
and lending for those,
there's so many different ways
to to finance a deal.
One thing
that I'm going to point out,
like there's so many online
gurus out there, like
preaching that you can buy
a business with zero down.
And I'm like, if you can,
if you can do that, like you're
an absolute rock star.
But in my mind, the seller
deserves something at closing.
You know what I mean?
So don't go in expecting that.
You can buy a business with $0.
You could buy a business with
zero of your own dollars, right?
That doesn't mean, like,
you could go find an investor
and be like, hey,
I'm buying this business
and I need X amount
for a down payment on this,
and I'll give you some equity
for it. Right?
That's that's one way.
There's so many ways
you can get creative with it.
But I would say your
your banner
your that's a negotiation term.
Your best alternative
to a negotiated outcome.
Or a negotiated agreement
is I fall back on an SBA loan.
Right.
We can get creative
with how we want to do
any kind of seller
financing here, whether,
hey, I've got some money and
I've got this family and friends
that have some money,
and then we're going to go get,
you know, a bank loan,
a conventional loan
for like 200 grand or something.
And we're going
to put this all together.
And then the seller's
going to finance, there's like,
there's so many different ways
you can do this.
But your best alternative
to negotiate an agreement,
your fallback is an SBA loan
okay.
You can get an SBA loan and
they're going to pay for 90%.
They're going to finance
90% of this acquisition,
meaning you have to find 10%
down to put on this.
And so,
you know,
whatever kind of business
you're looking at,
if you're like, hey,
I only have ten grand
to put on a down
on a business acquisition,
you probably want to go find
some more capital,
whether that's from you
or uncle Jerry or whatever.
Like I like to tell people like,
can you put together
if you needed to,
could you put together $100,000,
whether from your own money,
I hillock or friends or family
or you have some, some investors
that you're aware of, like,
could you get 100 grand that
you could put on a down payment
for an SBA loan? Right.
Because that's your best
alternative to negotiate
an agreement is getting an SBA
loan.
They'll finance
90% of that deal.
Or can we figure out some sort
of creative financing
where the seller
is financing this deal for you?
Right. Yeah.
The only thing
I'd probably add to that
is, you know, we've worked
with some buyers on
a number of transactions,
you know,
I mean, one up to ten deals.
Another one that's done.
Three fingers crossed.
A fourth one in Colorado.
And I, you know, I would say,
you know,
getting into the space,
if it's your first deal
and a seller, maybe.
Is it as apt to finance?
Maybe you need to go SBA
for deal number one.
It's not to say
you need to go SBA for
or go with an SBA back
loan for every deal.
But if you're a new buyer
in this space,
that's really a great card
to play when a seller, you know,
is maybe trying to get some more
confidence in you as a buyer,
you know, and, wants to get
a larger check at close.
So, SBA is a good option
for the right deal.
It's also just a good, idea
to qualify
each opportunity against a bank
loan to understand,
you know, how they view
the business versus, hey,
maybe your risk tolerance is
different than the banks, and
maybe the sellers is as well,
and they're willing
to finance it.
But,
but yeah, I, I think every deal
you should look at bank
financing
and maybe it's even more
than, you know, 1 or 2 banks,
maybe it's 2 or 3 banks and,
you know, shop that around
a little bit and understand
what your options are.
And realize
you may not need
to use it on this deal,
but you might do a second
or third transaction
where those banking
relationships are going to come,
you know, into play.
to be clear,
the SBA has a cap of $5 million
so they can finance anything up
to $5 million.
And so that's why it's like
if you're buying
a small business
up to 5 million,
that's your best alternative
to a negotiated deal, right?
That there's you're bad
enough for financing.
And if you're a first time
business buyer and you're
trying to buy something above
5 million for your first deal
that maybe start with
with an SBA range deal first.
So you understand
what's going on
before you're like, hey,
I'm going to go buy
a $10 million business,
even though
I've never done this before.
All right.
So that's why it's like
the SBA is a great product,
especially for existing
operators, existing business
owners,
to go and buy other business
and expand their business
through acquisition.
Awesome, awesome tool
that you have at your disposal.
I love it.
Especially like the expansion
loan element to that is key.
So yeah, you should
definitely be talking with,
you know, a number of banks
and just educate yourself
through the process. Right.
One bank
might be a better fit for you
for one deal than another one.
So, yeah, like I said, 100, 100,
maybe a million ways
to put those deals together
for sure.
The general rule
maybe not rule, but from what
we encourage is your first deal
should be in your backyard.
Get familiar with the process.
Financing transition.
Don't buy a business
that's a five hour flight away
for your first deal.
You can do that one later,
but your first deal needs to be,
you know, I would say ideally
within a 45 minute drive,
at the most,
if it's in your backyard,
if it's down the street,
even better.
Yeah. 45 minute drive.
That's
we tell people all the time,
if you can't drive there
in 45 minutes
for your first one,
it's too far.
The reason being like,
let's let's be real and honest.
Business acquisitions.
It's a great investment
asset class, but it doesn't.
It's not risk free like there
are definitely a lot of risks.
And I'll say
every business acquisition
will come with fires.
Something will come up.
You will have to put on your
volunteer firefighter helmet
and just get to it. Right.
And so if if that business,
if you if you live in Colorado
and you're buying
a business in Florida,
like man,
if something happens, an issue
comes up,
a fire arises in that business,
what are you going to do
about it? Right?
You just you're you're
causing more,
more risk for yourself
and more problems for yourself.
You're making it harder
if you're buying outside
of your market.
There are so many businesses
for sale.
All over the place.
In fact, 100% of businesses
are for sale
for the right price,
in the right terms, right?
But there are so many companies
in your market start there.
Like there are
so many businesses,
so just start with your market
first.
Get get your feet wet
with your first acquisition.
And then if you decide, hey,
this was awesome and I'm totally
for buying in another market,
go for it. Be my guest.
But for your first deal,
I definitely recommend
buy where you're at, right?
If you want to go buy a business
in another state,
you better be prepared to move
to that other state
and go live there.
Like be where you buy.
Totally.
I think we have
that conversation
with buyers pretty regularly.
And we always have to put
a lot of pressure on that.
Like,
we've seen both sides of that.
But, you know, ultimately
get familiar with the process,
whether it's down the street.
Let's prove the model right.
Prove that you can buy, own,
operate a business
down the street,
and then then be more up
into some of those opportunities
that are there.
They may even be
in the neighboring market,
or they might be states away.
Either way, do the first deal
down the street.
I mean, we deal, with businesses
of both independent,
PM companies and
and also franchise models,
of course, with PMI.
But, you know, there's
a lot of pieces to the franchise
that a lot of people outside of
it don't understand,
for example, the resources
that they get purely
just from our team,
which is a small
portion of the 100 plus team
we have on the corporate side,
you know, we have,
this acquisition resource
that's available
to franchise partners, people
within the franchise network.
We don't third party
out our services.
We're not business brokers,
so we don't charge any
of those fees.
And so I, I'm still amazed
at what the corporate side
does provide on the acquisition
front
and everything
that's available to them.
I would also just say we talked
about Live Oak Bank
and other lenders,
the lenders that we work with,
they like working with our PMI
franchise partners
because there is a team
behind them
and their local team.
There is this national team,
this PMI corporate team
that provides
an amazing amount of resources
and not just help
with diligence, but negotiations
and transition and software and
all these other moving pieces.
It absolutely takes the team
to do these deals.
So I think there's a lot of
benefits to the franchise model.
I don't know of other franchises
that do what we do in our space.
I know there's other brands out
in the PPM
side in the franchise world,
but I don't know
of any other groups
that do acquisitions
on the scale
that we do not meant to be.
Mostly just, reflection.
I guess. But.
Yeah.
I think one of the reasons
we talked
about buyer profiles earlier,
and you know, you have the this
crowd of enthusiastic people
who want to get into
entrepreneurship and being,
you know, buy a business
even though
they've never done it before.
And,
I think that's the highest risk
profile with buyers is people
who have never operated
this business before.
The benefit of working
with PMI again, my humble plug
and go with PMI is,
when our franchisees
buy businesses, they either have
years of experience themselves
or they have an entire franchise
network behind them
with years of experience.
So that's why
it's like
there are other people out there
who are buying businesses
on their own,
not part of a franchise.
They fail all the time. Right?
We have yet to have a franchise
buy a business that defaults
because they're not alone,
right?
It's it's not Jimmy by himself
buying this business.
It's Jimmy.
It's like the
those old Verizon commercials
where the guys like,
can you hear me now?
And then behind him,
there's like a
whole army of people
like like good.
You know,
that's kind of what it's like.
That's.
That's why people would buy
into Pmi's franchise of, hey,
I'm going to be backed by
this, this resource.
So it's
it's kind of a benefit.
It's like, what do you want?
Do you want extra support
through a franchise
or do you want to go it alone?
One of them is
riskier than the other one path.
Right.
I think that's why people choose
to, to go through PMI
is because the benefits of, of
not just the acquisition team,
but it's like we have
whole departments
that are dedicated to
to making sure
that they are successful
with operating their business.
So, Yeah, there's a lot
to unpack there for sure.
I just,
I think
just on the diligence
side of things,
like people really need
to understand
the industry, understand
what resources they have
with whatever business it is.
You know,
so even if that's
the existing team
that that's there,
I would say the success
of our transactions, it's
not just because
we have a great local buyer, but
even on the corporate resource
side, like
our acquisitions are successful
because we have all of these
other team members to help,
you know, solidify that
and ensure that it's going to be
a smooth transition, ensure
that we're following
the best practices.
And so
so yeah, I say on the diligence
side, learn a lot
about all of the resources
in it,
whether it's a franchise
business that you're buying
or not, understand
the team, understand
the resources, understand
the expenses to that as well.
And that's something
I get questions on a lot
regarding franchises,
you know, and and any type
of royalty type elements.
Those are expenses that
are there within the business.
And if the business is operating
smoothly and profitably
and there's,
you know, some obligation
to your franchise brand,
this is in property management.
And within the real estate
world, right?
There's plenty of franchises
in the real estate space.
You know,
you think of all the Keller
Williams, the Caldwells,
the wine cards.
There's a list of them.
And I'd say it's probably,
only adding to the value
of these businesses
now when they are in a network
like ours,
because we have plenty of buyers
that are looking specifically
for PMI franchise resales.
So so there's a lot of value
in the brand in the network.
And yeah, biased opinion.
But I think there's there's
great businesses out there
that are within franchises
and outside of franchises.
I think that's absolutely true.
Single biggest mistake to avoid.
I would say going into the deal
by yourself, like
you don't want to just do it
alone.
We've seen people try to do
that.
We've seen people fail at that
and then come to us
wanting to sell their business
to a PMI office.
You know, just don't do it
alone, you
know, have people in your corner
use the right team,
attorney, CPAs, if you've got,
you know, franchise, you know,
acquisition resources like us.
Of course you can do that.
But just don't do it solo.
You need a separate a second set
of eyes on everything.
And that might be a spouse, but
it should also be someone else.
So get a couple sets of eyes
on every deal that is,
that's my advice.
You might know how to run
a property management business,
but if you've never bought
a business, this is.
This is a big investment.
You know,
you might be taking out a loan,
personally guaranteeing
a few million dollars.
And if you fail,
you lose your house.
You know, like don't
if you aren't
the expert at it,
don't try to do it by yourself.
Get the right team of experts to
help you through this process.
That's that's the best advice
that I can give.
Like, that's the biggest mistake
that people make.
The people
who are filing bankruptcy
because they bought a business
and failed
are the ones who tried to do it
themselves.
There are people
who can be successful at it.
They can buy a business,
they can figure it out
some of their way through
and they'll be okay.
But is that a risk
you want to take right?
Would you rather just hire
the right who's that can help
you make sure that
you eliminate mitigate
as much risk as you can.
So if you're not the expert,
get a team.
Get people
that that know
what they're doing
that can help you
through the process.
That's
that's the best piece of advice.
Yeah.
I just want to thank everyone
for joining, this episode.
I think that
there's a lot of value
we can provide to this network.
I hope, that listeners
and viewers are engaging with it
and can appreciate,
that there's a lot of hard work,
but it's really fun for us.
And so, you know, we talk about
this all the day, all day long
and our slack channels
and our zoom meetings.
And I'm just excited
that we can, share
more of that with,
with the outside network, but,
but yeah, that's it.
I just want to sign off
from there and look forward to,
seeing everyone on the next,
Manage Stacks podcast.
So I appreciate
it. Thanks, everyone.