Ep 384: $600K Ecom Deal Acquisition + Why Most Buyers Can’t Get a SBA Loan to Buy An Online Business with Jared Johnson

The first question I asked him was kind of like, Well, what do you use for your inventory management? And he said, I don't have one. And I said, Okay, well, what do you do? How do you know what you have?

He said, Well, it's all in my head. I'm like, Okay. You've got a couple hundred thousand dollars in inventory, and you literally know where it is. And he goes, Yeah. And I said, Okay, size 10 men's shoe, blah, blah, blah. It's in the bathroom on like a shelving unit. I kind of went, Okay, this business has potential.

Jaryd Krause, host of the Buying Online Business Podcast. And today I'm speaking with Jared W. Johnson. He is the biggest individual SBA producer in the United States, having closed over 800 million in SBA loans across his 15-year career, with the majority being MA and business acquisition deals. As a VP and senior business development officer at First Internet Bank, he's a two-time Coleman Publishing SBA and BDO of the Year.

He's also a business owner himself. Having personally acquired and exited a manufacturing company, he hosts the Before You Buy or Sell business podcast as well. And in this podcast episode, we talk about the acquisition that he made and how he came across the business. We talk about how much he bought it for, what the multiple was, what the SDE was, the deal structure, and who he bought it from.

We also talk about it being an e-commerce brand and having a physical location in California and him living in Texas and how he made the migration of the business over to Texas with a 3PL in a linear path that actually helped the business and the people that were already still in the business, as in operations.

We also talk about deals. What are the two to three biggest things that cause a deal to fail or people not to be able to get finance? We talk about what the things are that people who haven't bought a business before or an online business. How do they need to present themselves, and how do they need to be prepared to be able to look attractive in the eyes of a lender to be able to get a loan to acquire a business?

And these are not just tangible but intangible things. We also talk about how the SBA and lenders do value assets that are not physical assets like email lists, marketing channels, and things like that. Now there's so much value in this podcast episode. Obviously, if you're watching this video and this podcast, listening to it, you want to buy a business.

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Jared, welcome to Pod. Thanks for your time.

Yeah. Absolutely.

Very on brand today. Tell us about your hats and your brand.

Thanks for having me on, man. I'm really excited.

Absolutely.

Sure, yeah. So you know, obviously I'm Jared Johnson. I live in Fort Worth, Texas. You know, kind of I guess just became known as the SBA lender that wears cowboy hats. I guess I'll give you real quick background on it.

So my wife kept pushing me to, like, she's like, Why don't you wear a hat, like, you know, when you're doing at work or at a conference or something, and I'm like, No, no, you know, 'cause I usually will wear a hat when I'm when I'm not at work. And then I was going to a concert on like a random Thursday or something. I went to an event, and I was like, All right.

I'll just wear the hat. And like everybody was like, You gotta do that all the time. And so it just turned into that. And then, you know, now it's funny though, it's like I'll jump on Zoom with somebody and they're like, I've never seen you without a hat on. So that's how it goes. But it's fun. It's nice to be comfortable and, you know, not have to wear a suit or whatever.

Yeah, exactly.

Yeah, it's so cool. It's so cool to be more you, and people trust you more because you're being you; you're not trying to be somebody different. Talking about being you and your partner, you guys bought an e-commerce brand.

I didn't know this. This little bonus side story to add to the pod. Congrats on that. How did this come about? Like why did you even think about buying an e-commerce brand?

Yeah, my so my wife had been kind of I wouldn't say bored, but she was trying to kind of figure out where she sort of fit in and in the space, like working and all that. Our we have twins. They had, you know, started kindergarten, and she had a little bit more free time and wanted a business.

I was looking at a listing from a business broker, was trying to give them my opinion on the value, and it was a volleyball retail store. My wife played volleyball and has a passion for volleyball.

You could see some pretty good potential within the business, and I said, you know, maybe I'll take a crack at this; let's see what we can do. And we ended up being able to kind of work through everything and get it to the point where we were able to buy it. I believe next month, I think it'll be four years that we've had it. So it's been a little while.

Cool. Awesome. Congrats. Are you able to, or are you open to, I should say, sharing details, numbers, things like that?

Yeah, I'll do my best to remember it. My wife pretty much runs it now. You know, I try to give her the tools and try to explain, like, this is what I look for in things and the financials and stuff like that. But outside of that, she's the one really running day to day. So yeah, I'll do my best to answer as much as I can.

The ops queen. So when so you've how did this business come across? Was it somebody else that was looking at the deal and they weren't able to finance it themselves or something?

No, it was the actual business broker. I had known him for a long time. The business was located in San Diego, California. And he kind of explained, you know, the business to me, said, you know, this is what I'm thinking about as far as listing it.

So a lot of times I will look through the numbers, make sure it's something that I can build to finance. And I kind of came back and said, you know, I might want to actually look at this for myself, for my wife, and then kind of went from there. Just gonna mention that a lot of and I think it's I I wanna come into the story more about the business.

A lot of businesses, a lot of brokers do that is they look they they go and speak to finance brokers to see if, you know, people can lend to this with SBA or non-SBA. And what's quite relevant now, as we see a lot, is there are a lot of businesses being listed for sale that are pre-qualified by the SBA.

But I just want to mention, and I'd love to get your take on this as well is that it doesn't mean everybody can finance that deal. And there are caveats to it because there are so many businesses we look at was like, I don't know, if my clients can't finance it, there aren't many clients who can finance it.

Like, where are these, you know, I guess pre-qualifications coming from? And I guess it's just, I don't know. What do you have to share with that? Because it's frustrating when somebody's looking at something and is like, yeah, we can finance, and we get down to the line we're like, hang on, like we've got to do with this structure and it doesn't fit for the for the seller because they're hoping for something else in the LOI.

Yeah, and I think it is challenging. I think it's a good idea to at least have a lender take a look at a listing and see if they're, you know, completely out of left field. Most of the time, what I do is kind of look at the tax returns and financials, give my opinion on the valuation based on kind of what I've been seeing recently in the market.

And then a lot of times I'll come back and say, you know, either, hey, this is not gonna work. There are times where I say you're undervaluing this and you need to bump it up. But outside of that, it's normally, yeah, this should work.

But it's really gonna be dependent on the buyer, right? Because that's the hard thing. If you're not buying a house and you're looking at debt-to-income and saying, Yeah, you could afford a house. I don't care what color it is, what neighborhood it's in, you know, how the seller had painted it properly or not, right?

All the things that kind of go into a business, they are all gonna change depending on the buyer. And then of course, it's also gonna change, you know, based on, you know, how time goes on and how the business is doing during that time period. So it is challenging.

I think there are options where it at least makes sense to get your eyes on it, but I don't really think that they should be advertising it as like pre-approved or pre-qualified. I should say something like, you know, an SBA lender is taking a look at it; you know, they at least didn't say no. So yeah, I don't know how you really classify that.

Yeah. Yeah, SBA lending is an optional sort of thing. Yeah. Cool. Yeah, I'd like I thanks for sharing that. So that was a bit of a side quest back to the back to the deal. You saw this, you looked at the numbers, you're like, hang on, this is interesting. Where did that go from there? With the conversation with your friend.

Yeah. So I talked to the broker, and I said, Hey, can I talk to the seller? And he was older. I'm I want to say he was like late sixties, maybe early seventies. And he had grown up in the business. His dad had it. I think they had over fifty years. And they had been a multiple-sports type store and then kind of funneled down to volleyball, and it did a lot of the transactions for team sports.

So, you know, full schools, clubs, most of the orders are, you know, pretty large orders, you know, hundreds of balls at a time, shoes, all that kind of stuff. I had developed a really good reputation, a good relationship with all the schools. One of the first questions I asked him was kind of like, Well, what do you use for your inventory management? And he said, I don't have one.

And I said, Okay, well, what do you do? Like, how do you know what you have? He's like, Well, it's all in my head. I'm like, Okay, you've got a couple hundred thousand dollars in inventory, and you literally know where it is.

Yeah. Ask me where something is. And I said, okay, a size ten men's shoe, blah, blah, blah. It's in the bathroom on like a shelving unit. I kind of went, Okay, this business has potential. It needs to be, you know, sort of cleaned up and brought into today's world.

But, you know, if you can get it at a reasonable price, you could probably, you know, spend the time and energy on it. And that was kind of where we started. I worked through the numbers, you know, kind of did my best to figure out like a structure and valuation that worked.

I wanna say it probably ended up we probably ended up around like a two and a half times multiple of like, you know, seller's discretionary earnings or EBITDA. Some of it was really challenging to figure out.

The books were not that great. And as I sort of like peeled back the onion while we were working on it, he started to really notice a lot of inefficiencies and a lot of things that didn't work for him. He was running the company; it was working. He was making money, but there were definitely things that I realized right away I could change. And so it sort of became, I'm gonna fix this and clean it up and go from there.

And then, you know, obviously my wife will have a project and have stuff to work on. But, you know, I tend to be kind of more of the fixer type personality, which works really well when I'm doing the lending side 'cause I can figure out how to get a deal done and how to do all that kind of stuff.

Doesn't always work well when you have to actually go in and fix everything. So like, you know, it works, but it's a lot of work.

Cool. That's cool. Yeah. It is interesting when you look at most deals that you peel back the layers, and you realize, okay, there's this I didn't understand, there's this I didn't understand. And yes, it can be not a great thing, but it's also an opportunity for growth, and for tightening things up and fixing things, as you say.

That's the way I like to look at it. Sometimes things are more of a problem than you want to fix or you're willing to take on for sure. And so you just need to assess that based on where the person's at, I guess. Or, you know, for you guys, obviously it was something you guys realized, like, this is a good opportunity still. So you so you moved ahead. How much? So it was a two and a half multiple. That's a great multiple. What price range were we looking at, or what was the SD?

I wanna say we ended up around, I think it was like six hundred for the price, somewhere around there. And then it included the inventory, which I think was supposed to be like one eighty-five or two hundred thousand or something.

Ended up we ended up having some kind of issues and stuff with the inventory and the structure, and you know, so we did, I think we did a ten percent seller note; I don't remember the specific terms. I wanna say it was like seven years at five percent or something like that, and then just put ten or fifteen percent down and then did an SBA loan.

Cool.

So let's run with ten, ten, eighty. So eighty percent loan. Ten, ten, ten note and then ten deposit. So sixty K deposit, sixty K note, and what's that? Seven, six, six eighty or something like six sixty loan.

Yes, I think.

No, I think it was six hundred was the price. So yeah, I think we were four eighty, five five hundred, something like that, yeah.

Cool, awesome. And did the business have a sorry, how long was a note for? No.

So you can say that, yeah. And did the business- so the business have you said it was in California? Did it have a is that where the warehouss, or was there a storefront as well? And how did you guys evolve this into your wife not living in California?

The question I want my audience to listen to is like, yes, you can buy e-commerce brands that have a warehouse or something like that, but you don't have to be in it, or there's a transition plan as well. And it doesn't have to happen within the first six months, right?

Yeah, I'm just curious what you know- there's no right or wrong way to do it, how you guys do that.

Yeah, for sure. And so what I did was you know, I went and met with him, kinda went through the business, tried to learn a more kind of a little funny side story. He said, you know, you might want to look at keeping the employee that we have.

I said, okay, you know, whatever, I'll do that. Then when I was there, went and talked to her and said, Hey, how's it? You know, how long have you been working here? How's it going? This and that, and she's like, I've been here for twenty years, and I'm like, Wait, what? Like, twenty years?

She goes, yeah. And I said, What, what do you do? She's like, I manage all the team relationships. She's like, I'm a volleyball coach, and I know all the owners of the clubs and the coaches, and they all order from me.

And I'm like, You said I might want to keep her? Like, what? Okay, so we're definitely keeping her, and then kind of just went through how he does things. He puts things together. So it was pretty interesting. He was definitely more of like a completely hands-on, old school type.

You know, owner, where so he would get an order would come in- either someone would call or email and want to put together kind of an order. He would either write it up or put it together with them, or he would have the employee do it. Also have a, you know, online e-commerce presence as well.

So you might have an order through the website. He would take the order, and then he would print it out. He would then go manually type the order into desktop QuickBooks, then print that out, staple it together, write some notes on it that only he understood with, like, kind of shorthand.

And then if he wasn't drop shipping it and it was in stock, he would go find it. He kept like every box he ever saw in his whole life. And so he would find it and then tape the boxes back together, throw the product in there, and then he would also check UPS, USPS, like FedEx for the lowest price.

Yeah. Yeah. And then print out the label, go do it. So it wasn't a very efficient process. I'll give it to him, though. It was definitely cost-effective. He did own the building, which originally was a retail store. It still was a retail store, but when I went and looked at the revenue, it was something like two percent of the revenue, or maybe even less, actually was in the retail store. And so it didn't make sense to have the retail store. So then what I did was get a revenue breakdown.

Per kind of region or state. And what I noticed was a big majority of the revenue was in Texas and Florida, where, you know, California, Texas, and Florida are probably the biggest volleyball states.

So I said, okay, if I move the company to Texas, where I'm at, I will be central to the country, and I'll be able to ship at a, you know, lower price. And so we made that decision and did that. And then we actually ended up hiring a third-party logistics company to handle all of the, you know, logistics part of the business.

Which ended up making a little more sense for us because we didn't have to have an employee on site all the time.

Absolutely.

Pull or receive items.

Yeah.

So did you have the person who was there for 20 years that was managing inventory and orders? Did you bring her to Texas and train staff, or how, like, did you just learn so much from her and then take all of that and give it to your three PL in Texas? Like, how did that what did that look like?

Yeah, the three PL- actually, I knew them because I had worked on some financing for them, and I knew they were hard workers and did a good job. They totally got it, understood it.

They've got, I don't remember, like close to a million square feet probably. So they know what they're doing. We just had to kind of integrate with their system and get the inventory counted and kind of and then, you know, of course, go update Nike and Under Armour and everybody on where to ship everything.

The employee, so I went to her, and I said, Hey, we want to keep you know, I like what we can do? Do you wanna stick around? And she was just like, Yeah, I do. I said, Okay, well, you can work remotely.

I'll get you a laptop. And so she was thrilled. She did not like going into the office. The old owner was also, I would say he was just tired. Yeah. And so he wasn't the Yeah. So she didn't have like the greatest work environment. So she was happy to be able to travel and work from home and do all that on her laptop.

And then it was kind of nice also for her and my wife got, you know, on the same page and were able to kinda work through the business, understand it. So it was nice having somebody that'd been there for twenty years that knew how to do probably eighty, ninety percent of what we did at the business.

Absolutely. I once bought a suit company where we did tailor-made suits for people, and they got made in Thailand, and one of the operations- well, it wasn't really op he was just like a virtual assistant. He basically taught me everything about the business over two years.

One or two years later, he became the main operations guy. He just I just added him into everything and he just took over tasks and it was so brilliant to just tap in like there's I think people don't realize how value how much value there is inside people's head, the knowledge they have just about being in the business environment and understanding how the business works and then being able to use that to grow the business and give them incentive or make their conditions better like you did.

With this woman, give her a laptop she can work from home. She doesn't have to go to the office,e and you know, deal with a boss who's just been doing this 50 years and doesn't like it. Like, you can make their conditions better.

They also give them a little bit of incentive. It's such a fast way to grow the business because they know what doesn't work; they know what can work. And that's very valuable IP.

Yeah. Yeah, no, and I kinda pulled her aside. So then the other funny thing was so I went to close and then count the inventory before we shipped it to the three PL and that was kind of a fun week of counting inventory because we just I couldn't get him to like sit down and focus and there was stuff everywhere and so it was hard to like organize it and figure it out and I think he was having a little bit of a hard time like letting go of the business, which is totally understandable, but it wasn't the easiest situation.

And I kind of pulled her aside and said, Hey, like, I just want to talk to you for a minute. Like, you know, we we really want to use your experience and we, you know, we want to keep you around.

And I said, you know, I could kind of tell she was a little sort of frustrated with how he was being. And I said, you need to understand something about me. I'm very laid back. I said, I don't need money from this business. I'm not greedy.

I'm not gonna take advantage of you. I'm like, if you work hard, I will take care of you. And she was just like, looked at me and was like, Okay. And she's had such a great time ever since then.

She's always like, You did everything you said you were gonna do. Like, you know, I'll work hard. And it's like it's not hard to treat people right, you know, it's like it's just part of it. When you've got someone invaluable that's got relationships and understands where all the bodies are in the business, and everything, and also has a good attitude is really nice. As you gotta you gotta treat them.

Absolutely. And I do think that business is like there's so many there's so much podcasts and YouTube channels and books and entrepreneurs sharing business advice these days on how to be a good entrepreneur and how to like help other people win in the company and stuff like that.

I think business back in this guy's day, fifty years ago, is more of a dog-eat-dog sort of attitude as well. And I could be generalizing 'cause I don't actually know, and I wasn't in business thirty, forty years ago, but I feel like business owners are starting to get better and realize that we can we can we can win through collaboration versus, like, I need to make sure, you know, I'm yeah.

Different, I guess it was a different mentality. And maybe, maybe you agree with that, maybe you don't, but it's cool. It's so cool to help people that have been in a business for twenty years make their working conditions better and still like be in love with the business. It's really cool. I'm so happy for you guys.

Yes. Yeah, no, you're, and you're a hundred percent right. I mean, at the end of the day, like, the way you kinda gotta look at it is if they're invaluable, you have to treat them that way, right? If I've always just kind of taken it as like, you work hard, I'll work hard for you. Like, you know, you get what you put into things.

So if you're not putting in hard work with your employees, you're not investing in them, you can't expect them to work hard for you. But on the flip side, if they're not pulling their weight, you can't accept your you know, you can't expect your employer to take care of you either.

Absolutely. Yeah. Thank you for sharing that story. It's so valuable for people thinking about how to buy a business that is like an e-commerce brand, but it's got a physical location and make the transition. That's just one way that you've done it.

There are so many other ways that it can be done with three PL, without three PL, you know, self-shipping for a little bit until you learn it and then hand it off to three PL. Like there's so many different ways. With coming to SBA, this is what you know, your main thing, right? You've written or closed over eight hundred million SBA loans.

What are the two biggest or two to three biggest things that or reasons why SBA applications get rejected, would you say? Online business acquisitions.

Yeah, would say a lot of times it's just the kind of lack of understanding of the business. We'll get people; they may bring me a fantastic listing. Business looks great; they've got consistent numbers, all that kind of stuff. And they're just not the right fit for it. They don't understand it.

They don't have the liquidity, you know; they don't have experience. E-commerce, I feel like the sort of narrative around it has gotten better. If for a minute there was a lot of, like, " so easy, you know, it's like this sexy business model of like I can operate it from, you know, while I travel around the world and and with my laptop and stuff.

And some of that could be true, but I do feel that enough people realized that if you don't invest in it, you don't work hard in it, you can lose it really quickly. It's also very volatile, right?

I mean, you're heavily tied to SEO, to you know, your inventory management, to your vendors that are providing inventory; like, there's so many things that can go wrong. And if you're not paying attention to it, you could have a hard time with it.

So if I see a buyer that doesn't really demonstrate those qualities and I don't think that they understand what goes into the business or they're not going to put enough effort into it, that would probably be one of the biggest things.

Outside of that, it's like, you know, maybe the seller's business is going down in revenue, or they've got one product that you could easily just tank the business if it's gone. We see that quite a bit as well. And then we see a lot of buyers that also don't have the liquidity for the down payment or cash reserves.

And in the industry where you're heavily relying typically on inventory or even drop shipping, and then also where you kind of rank on Google or AdSpend, it can go sideways pretty quickly, and it may take some time to rebound.

And if you don't have the cash to kind of weather that storm, it's not a good place to start. So those are usually some of the kind of major things that we'll see.

Yeah.

Cool.

Thanks for sharing that. I wanna ask on the part where you or the lender might not have as much faith in the buyer to acquire the business. What, based on their skill set, what do you how do you communicate- like, because I've got a bunch of high-level executive-type clients or people that are very good in the business that they work in, great employees and so skilled.

For somebody that is buying a business that hasn't owned a business, how do you communicate to the lenders that they they've got their they've got their stuff together, you know, and they're going to be able to run this business maybe even better than the the the owner, the original owner? Yeah, so you in the business plan.

yeah. So I mean a lot of times it's their experience, right? So like I can look at their I feel like a resume is not a great way to really see how someone is, but it does at least give you sort of a starting point or a map of, okay, we may be able to, you know, get there with them.

They've got some skill set and some experience that will fit in with this type of industry. But then from there, a lot of times it's just talking with them, asking the right questions. A lot of times, from doing this for so long, I can sort of have a conversation with someone in a couple minutes and be like, okay, they get it.

They're gonna be able to hold their own in these types of conversations, or they have at they have truly dealt with this industry and all that goes into it, or they've done something that is very comparable, and I have faith that they'll be able to figure it out.

So that's a lot of what we're looking for is just this kind of experience, and then, you know, can they do they look like they can kind of get the job done and fit in where they need to be?

Yeah. I guess when you speak to somebody that's looking to buy their first business, and they come to you to get finance, would I be wrong in assuming that if they understand, like if they put enough effort into understanding how the process works and how the business works, it's likely that they're going to be an applicable person to run it?

Is like if they put their effort into at least understanding it and they know what, like a little bit of what they want to do, they know what they're talking about, like at least understand the industry.

I mean, obviously there are caveats there as well, but is that what you're kinda looking for? Is it just sensing, like have they are they an organized person? Do they understand the process? Do they understand the business? Do they know how they want to go about this? Have they got a bit of a plan and the head screw?

Yeah, and I think it's also fair to see what the seller's been doing historically. So if you're looking at a very specific deal, you can try to see if those skills fit into what they've done, you know, what they actually need from the owner.

Outside of that, if they're just coming to me saying, Hey, this is my idea, this is what I want to do, I'm looking for a business, could I qualify? It really depends. I mean, a lot of times you're trying to understand, okay, what have you learned?

What do you already know? How much time have you spent on, like, you know, this topic or understanding this industry?

I mean, I think it's extremely important for business owners to like never stop learning, right? I mean, you really should be continually learning and educating yourself on different pieces of the business or different parts of, you know, what your customers want, what your competition's doing, what's going on in the industry, what's going on in the world, what's going on in economics. You need to continue to learn all those things. So if I get somebody that is, you know, really like kind of digging into the industry.

You know, spending enough time to educate myself and understand it, they should be able to hold the conversation and answer questions and kind of talk through how they're going to do things.

And I think that's really kind of baseline. And then from there, it's just looking at other things like have they been able to save money themselves? Are they personally leveraged? You know, who's in their network? You know, what have they done at other companies?

You know, do they have another source of income that's going to try to, you know, kind of help with not having to pull as much money out of the business, like a lot of those things kind of go into it and can sort of make up for some of the downside as well if they don't have a lot of the experience.

That's, I'm glad you shared that 'cause that is a big part of the puzzle or the equation is looking at somebody's finances. I always say to people that want to go and buy a business with finances, like first you need to fix the leaky bucket. Leaky bucket syndrome is where you just have money coming in, and it just leaks out, and you don't know where it's going.

You need to work out, you know, what your personal expenses are. Where is it going in cost, in you know, expenses that you don't even realize you're not even conscious of? They might be old subscriptions, or you're spending money on these things that are unnecessary entertainment.

And a lot like I think it was might have been like eight years ago when when I was doing one on one coaching with people about this is like I help usually help people save, you know, ten to forty thousand dollars a year in or five thousand to forty thousand dollars a year and just looking at what they're spending and tightening that up and getting rid of the things they weren't conscious of and maybe unnecessary edgy entertainment that wasn't healthy for them.

And then, you know, you could quite clearly see that somebody, but that before they come to you. They've made a bit of a plan. It's far more attractive to see that somebody can do that in their personal life, and they can translate that over because they've learned that lesson into a business.

Right. Hundred percent. Yeah. I know my money goes to my horses, so that's usually where the the et leaks. But you know, it's there's there's so many yeah, there's so many positives with it though that, you know, you will allow it, right? But yeah, you're absolutely right.

So I have a really good friefriend whosee's Adam Markley. He's an investor in kind of smalsmall-medium sized business, also bought and sold, runs quite a few businesses, and he always points that out. He always says, I'll look at an individual's personal financial statement, and it will tell me how they're going to operate the business.

So have they been able to save money? Have they kept their personal expenses low? Or are they, you know, five car payments and, you know, a big mortgage, and, you know, they just can't save money to save their life because they're out traveling and and spending money on expensive trips and wine and all that kind of stuff. They're probably going to run the business the same way.

And it's absolutely right. And I look at that all the time. I love to see somebody that's had, you know, really good, you know, paying job and really good experience. And then they've been able to save, you know, an exceptional amount of money. And I look at it and go, they're not going to walk in there day one and go, I need a five hundred thousand dollar salary to keep my lifestyle up.

They're going to look at it and go, how can I reinvest in the company? How can I pay down this debt that I don't really want? And how, you know, can I just continue to grow the business and make sure that I've got enough liquidity. And that's normally what we see.

Yeah, I love that. I'm just thinking while you're talking, an analogy is that somebody that whonot really learn to drive- they learn to drive in a car, and over a year they just crash it so many times, maybe three times in a year, and then they go and try to buy a Ferrari.

Like that's very, very dangerous versus somebody that has lik,e had a license for a long period of time, they've learnt how to drive, and then they go buy a Ferrari and, it's obviously, you know, gonna be driven well and likely not crashed. You know, it's a bit.

Yeah. Well, I don't know, but should they even be buying a Frari in the first place, right? But yeah.

Hopefully, yeah. So I want to switch gears and, just like I don't know, I haven't I've never asked this to somebody that does finance and SBA loans, and I'm interested in how specific parts of a business get valued.

For example, how do lenders evaluate the intangible assets like domain authority, social media followings, email lists, like how do they how do they go about valuing these to see that okay, it's not just a bunch of revenue with no email list and no authority. Yeah.

Yeah, that's a great question. Yeah. I think it really ultimately depends on the size of the transaction. If you if you're looking at, you know, something south of probably a million dollars in EBA or discretionary earnings, you're more likely kind of checking a box there that it does exist. They do have email marketing, they've got a CRM, they've yeah, they've got customer data and information, but it doesn't necessarily play into like the overall value.

Now, of course, if one of those is greater or less than kind of what your expectations are. You may discount or be willing to pay more for the valuation, but you're not looking at the valuation from the very beginning with the business and saying, well, they've got, you know, a hundred thousand email addresses. It's automatically worth X, right? It's still looking at a multiple of EBITDA and then from there kind of checking how things look? Is it consistent revenue? Is it recurring revenue?

You know, like you know, do they have standard operating procedures, like all of those kind of things come into play that may adjust your kind of value or or whyou're willing to pay up or down on the scale, and then kind of decide if it's a good deal or a bad one.

I think once you get into a higher level, we're looking at more strategic buyers that are gonna look and say, I need this customer information. I know what I can do with it based on what I've done historically with my other business. I can kind of, you know, plug all of that into my machine that's already running that has been proven, that's been doing really well.

So to them it's it's itely worth it, and they're willing to pay more. And they may value it based on that information because once they take, you know, the revenue or they take the customer information or whatever it is they're looking at, and they plug it into that kind of their own system, they should know what kind of margin that is going to spit out.

So they're willing to pay based on kind of that multiple that they're seeing based on their historic revenue compared to an individual that's looking to buy a business that's doing three hundred thousand in Ebida, they're, you know, they're gonna more or less walk on the deal if it doesn't have customer information compared to buying it just based on the customer information.

Yeah, got ya. And that's how the banks look at it as well. Like that, for the most part. I mean, we're definitely gonna I think it's a little different because it's more we're looking at the repayment ability as well. So we're wanting to make sure they're going to repay the debt.

So we're making sure that the valuation kind of coincides with that and that the debt service coverage ratio works. There's more money coming in than what the debt is. And then from there it's checking, you know, doing some due diligence ourselves, making sure the buyer is doing due diligence to make sure that the customer list does exist. And the other, you know, the other parts of the puzzle are there to make sure they're going to be successful once they take over the business.

Absolutely. Yeah, part of evaluation when I'm looking at a deal is valuing how engaged the audience is. So the engagement rate on socials through all of the content it might be on YouTube video or it might be podcast or it might be even engagement levels within an email list and seeing what are the open rates, what are the click-through rates, how much email marketing are they running, what's their marketing strategy on socials, or podcast or video and how well is it done and then where are the gaps and that can help val you see value in like okay this you know the raw stat statistics on email marketing is that so many people don't use it and it adds so much more value to the business and you can work out okay if they're only emailing once a month or twice a month if we email them more but more value as well what you know what could we roughly calculate that as into extra revenue in the business per month. That's kind of how I look at it.

I guess the I don't know if the banks are as detailed in their approach, but if the banks need, I can present that growth plan within the within like the I guess,s the due diligence report on how we'd be looking at it with the email marketing channel and maybe the Instagram account or the podcast or whatever.

Yeah, no, I think it definitely helps, and, it's it's good to see again that you've got the background and the experience and you know what you're doing. So it gives you the ability to kind of present that that's what you're gonna do with it or what you're looking for. So it really goes back to your experience. And then from there we're just looking at historically, can you know, we show the repayment ability of the business. So it it soof is all falling into into at that point.

Yeah. Absolutely.

I don't know if this I haven't asked this question before to any lenders either- but is it any is there any value or any weight in that, because I'm not buying the deal for myself? I'm buying it for a client, but typically a client wants to engage with me for a year or more after to help them grow the business. Is there any weight put in that in having somebody experienced on your side towards a transi transaction that can be like the banks can see value in?

Yeah, absolutely. There are a lot of times where we'll sort of be on the fence and kind of go, Okay, you know, how much, you know, experience do they really have? What can we kind of rely on? This is going to be a tricky business for them to take over. And then they come to us and go, Hey, you know, where I'm lacking in experience, this is what I'm doing to kind of bridge that gap, whether it's bringing in a fractional CFO to help like sort out the books and numbers or the cash cycle of the business.

Hey, I've got a consultant here that's worked on, you know, thousands of these companies. They're gonna come in and help me clean things up and organize it, make it more efficient. If we're sort of on the fence and everything else looks good, and that's really kind of where we're lacking, and we're a little nervous, and they say, I've I've got Jared here; he knows what he's doing. We can go, okay, okay, okay. I think we're gonna be okay. We're we're you know, kind of ppushingus over that over that hump there to get it going.

Yeah.

And I guess you'd need to, like, at least do a little bit of research on on that person. See, they're not just brand new to the space or something. Yeah. Jared, thanks so much for coming on and sharing your acquisition and your experience in lending. It's it's very you you you, 've very you're very calm, you're very relaxed, and it gives me so much confidence in sending people to you to to chat about, Hey, can I get finance for an acquisition?

Yeah, thanks. Yeah, and thanks for having me on. I really appreciate it. Hopefully we'll continue to work together.

Yeah.

Absolutely. I'll put links. Where do you want me to send people to check out more about what you're up to?

Yeah, I mean, typically Jared W. Johnson dot com. It works. Yeah. Or LinkedIn. Yeah. You find me on there. I put the middle initial to make it a little easier to find me.

Yeah, absolutely. I'll put your link to both of those, LinkedIn and your website.

Awesome.

Thank you.

Thanks for coming on, Jared. See you guys. See you on the next one.