Tersh talks with Elliot Holland from the Guardian Due Diligence!
"So at what point do we bring you into the conversation? Is it like, hey, I'm looking at buying this company, they've given me an NDA or a non-disclosure agreement and I've signed it, here are the numbers? Does this make sense or is it after we've already put it in the offer? Because sometimes, like especially first-time people that are buying...maybe it's like your competitor down the street is going out of business or talking about retiring and you want to acquire them and you've never done this process before. When do we bring you in?" -Tersh
Elliott has been a part of tons of HVAC and service business acquisitions, and he knows our industry better than most. This fact alone could be enough for most people to reach out to him for his services, but there is so much more to the story!
When we are looking to acquire another small business, we oftentimes take the word of the seller, more than we should, as the truth.
Sometimes we use the bank's underwriter to tell us that the numbers do not match up correctly, but who could tell us what the business number's really mean? Elliott Holland of Guardian Due Diligence is just that person!
Elliott, founder of Guardian Due Diligence is a business buying expert. He has a Harvard MBA, spent 10 years buying companies for himself and others, and now prevents his clients from losing millions buying bad businesses. He’s the guy to hire to guard your money. https://guardianduediligence.com/ will go into the background of the business that you are looking to purchase so that you will not be left with crazy surprises or a bad taste in your mouth when it comes to business acquisitions.
In today's episode, Tersh and Elliot talk about 5 reasons service business owners fail when it comes to purchasing other businesses. They both speak from personal experiences, and Tersh shares, for the first time on the podcast, his regrets of purchasing IceBound in 2018.
Our Deep Dive~
- The seller has hundreds or thousands of reasons to lie.
- The numbers don't lie.
- There are places these numbers can be hidden, and we share a few of those places...
- ...you'll have to listen to the rest of the episode for these juicy details!
"I tell people all the time you should not be betting against the seller. Somebody who's been in the business for 10 or 20 years absolutely knows it better than you."
- Reach out to Elliott Holland and his team https://guardianduediligence.com
- Schedule a time to talk with Elliott and his team on a Friday zoom call on his website.
- Learn more about Tersh by visiting https://serviceemperor.com
- Connect with Tersh on social media @tershblissett
- Have you ever wondered HOW to target your perfect client?!? It's EMOTION...EMOTION is what sells, and this link is how you learn your client's emotion for free... visit https://admanity.com/SBM/ to get this free share that I (Tersh) stand behind 100%!
"If you know how people will emotionally react, you have an advantage more valuable than all of humanity's innovations."
Thank you for listening to another episode of the Service Business Mastery Podcast!
Learn more about Tersh at https://ServiceBusinessMastery.com
Tersh Blissett: [00:00:00] Hello, everyone, out there in the podcast world. Hope you have a great day. You're listening to or watching the Service Business Mastery Podcast. I'm your host, Tersh Blissett. Today we have Elliot Holon on the show excuse me, was right there. And he is the founder of Guardian Due Diligence. And this is a really cool topic because we talk acquisition and we've had like Patrick Lang on the show. We've had several people who have talked about acquisitions on the show before, but Elliott kind of like the godsend that I've been looking for, honestly, because I have tons of questions before we actually acquire a business that I'm relying on, people like Patrick or, you know, your business broker to kind of answer those questions and sometimes.
Tersh Blissett: [00:01:15] Patrick's an honest guy, so he's definitely not one of these people, but there are definitely brokers out there that just want to get the business sold. So they're going to tell you what they want to hear. And Elliott's the kind of guy that comes in and does the due diligence behind the other business that you're purchasing. And so I honestly didn't even know a guy like Elliot existed. And before we got started recording, he said that's not uncommon, but I'm super excited to pick his brain here for the next 20 or 30 minutes. And I hope you learn something here from the show. But with that being said, welcome to the show, Elliott.
Elliott Holland: [00:01:47] So glad to be here. You know, it's interesting you folks on actually. I see I think I mentioned I've been three HVAC deals in the past 12 months, so very interested in this conversation. And then with the deal particularly, I think this is going to be an amazing chat.
Tersh Blissett: [00:02:02] Yeah. So for those of you who are new to the podcast or maybe haven't followed along for a while back in 2018, I, I quote-unquote I'm using air quotes here, purchased a business and basically, I purchased as bad debt. And because the numbers that were originally allotted were presented that he was generating closer to three-quarters of a million. When we drove down deep into the numbers, it was more like two hundred twenty-five thousand. And based on the bad debt that we ended up doing and I were just talking to that, whenever I tell people, you know, we purchased the bad debt, we didn't go by multiples of eBay or anything. And he was like, actually, if you run the numbers, you were doing that. And I love some of the things that you mentioned even after that, but with that being said, give us a little background about you. What makes you an expert and why someone should hire someone like you when they already have a business broker?
Tersh Blissett: [00:03:04] Because business brokers, they're not like a real estate broker. I mean, real estate, a realtor necessarily. But we can kind of compare that because that's what we know. And very often, you know, the realtors, they don't have to have a ton, ton of training like super know your numbers and be able to inspect a building or anything like that. So it's kind of like that with a business broker in that fashion. So tell us just your background and what makes you an expert in everything.
Elliott Holland: [00:03:40] Yeah, absolutely. So, I think, like the best NBA coaches are former players. Yeah, so for me, I spent the past 10 years and six of the 10 in the seat of you of buying businesses. So I did it for private equity firms on Wall Street. I did it for myself with a business partner. I did it for myself with no business partner. And through those six years, you know, I saw almost a thousand deals consummated for seeing a lot of things. And then for the past four years, I ran Guardian Due Diligence, where we advise others and that companies for investors are looking to make purchases. So all in all, 10 years in this industry and I think for most people who have spent 10 years in something specific, they understand the mastery that comes from seeing so much stuff. So the reason I'm an expert is the player-coach kind of component and.
Elliott Holland: [00:04:41] Just quickly, what we do, because you made a great point and I go through this quickly, when people sell businesses, they typically sell them for a multiple of cash flow in this part of the market, two to five times cash flow or hybridized typically about, right, and what ends up happening is each dollar of eBid or cash flow to the sellers are able to convince a buyer that's there, that isn't they don't get a dollar for dollar benefit. They get two to five times that benefit. So if I convince you one hundred thousand dollars of cash flows in this business and it's not, you don't pay me a hundred thousand dollars as the seller, you pay me 200 to 500000. Nice. So it creates an environment where the seller in these situations has probably the highest motivation ever to air quotes, tell stories. And so my business is to vet the numbers, vet the financials, vet the operation to find all those stories that are being told so that buyers don't get into situations where they buy bad businesses.
Elliott Holland: [00:05:45] And so when it's happening, oftentimes, to your point, there are business brokers that are in this marketplace, but typically the business brokers work for the seller. Yeah, and they get paid a portion of the deal. So think about the motivation of a person that works for the guy who has the incentive to tell a story, who gets paid a portion of the story being told. Does that person work for the buyer?
Tersh Blissett: [00:06:09] Right, right. Right, right. And I've even had so we had a business presented to me and I felt like the numbers were inflated. And so I went to my buddy, who's a business broker, and said, hey, I want you to be on my behalf and look at these numbers and tell me if this is legit or not. And he's like, I'll try. But this isn't normal. I'm like, What do you mean it's not normal? I want my own realtor, and they have their real you know, that's the mindset that I'm thinking. Yes, and this the other guy's like, I don't think I'm going to split this with you like to to my guy. And and I was like, how am I protected in this scenario? This seems like I get screwed so fast.
Elliott Holland: [00:06:59] You did my pitch for me and that's exactly what I've experienced. So I can say, like, there's nobody protecting the buyers and even the people who have seemingly the expertise you just so if I'm sitting in that Brocker’s seat, what he probably was trying to tell you but didn't want to tell you, I don't know how to check the numbers, I just got stuff, dude. Yeah. Yeah. So can I. You know.
Elliott Holland: [00:07:27] Can I, you know, (sniff sniff) Yeah, but can I get into the numbers in a way that is material for the deal? No. And then also I can't tell you that because it undermines my whole sort of credibility as a professional to an extent. And then the other thing is like in real estate, the two brokers split the transaction. Well, the sell-side broker, the one working for the seller, was the one who sold the business. He's not splitting with anyone. Yeah, you have to pay your buy-side broker, which gets people into a bit of a tizzy. But then it's sort of like, well, how quickly do you want to throw 60 or 100, a quarter-million dollars down the tubes? Exactly. So it can be. Because there is no buy-side reality that gets paid in traditional transactions, the buyer must decide whether they know enough to vet the numbers, whether they just are willing to take a chance without the numbers being vetted or whether they pay for an expert like me and guardian due diligence to vet and depending on the size of the deal and how confident you are in the numbers. You make a bet and you know where 10, 15 thousand dollars to get our project done. So the question around, you're putting up 60 years of work, 10, you're putting up 100 is the where you know, you got to kind of decide.
Tersh Blissett: [00:08:45] Well, I think what I did was Brandon, he'll actually be on the show in a couple of weeks. Maybe it might even be next week. But he is a realtor, not a realtor. I'm sorry. He's a banker with live oak and he's done a lot of business, business acquisition, money changing hands, and stuff. And so I kind of put it in his ballpark, too. And I was like, hey, do these numbers make sense to even get a loan and that kind of thing? And so that's kind of how I had to rely on because I don't have anybody, you know, I didn't have your number on speed dial at that time. So, I really didn't know what the best route was to take. I end up not pulling the trigger because I still just had this gut feeling that something wasn't exactly on the up and up, but. That was three years ago, two years ago maybe, and I think that business actually might still be for sale, too. So it's it is wild how much insecurity comes along with that. And then, like in the Facebook groups, like the Facebook groups, there are guys that are just like every time you turn around, they're like, yeah, we purchased another one. We're acquiring another one. We're requiring one in this town. I'm like, what in the hell is this happening? Like, I'm trying to get my head wrapped around one acquisition and you're talking about doing three in a month or something crazy, you know, and it all depends.
Elliott Holland: [00:10:11] So when I was buying companies, I was a financial buyer who understood how to vet the numbers myself. So then I'm a buyer and diligence provider and one that I'm wearing both hats. Am I visor? See, I'm helping in augmenting people who don't have the diligence and financial lessons to help them. And so a person is not financial and a guy like me can do three deals in a month because we can make three deals. And it's not that big of a deal. If you get through one or two deals with me, you may be able to vet your own deal after that to a larger extent. And so oftentimes I sort of work myself out of a job, but I'm OK with that. There's plenty of buyers in the market. And then here's the other thing. People say a bunch of stuff on Facebook. That's not true.
Tersh Blissett: [00:10:57] Yeah, good point. Good point.
Elliott Holland: [00:11:00] I'm in a lot of those same groups on other business buying context and business selling contacts, and some of the stuff I see is just like people's Porche truck that they just bought. And they're selling you on a class. Oh yeah. Yeah. No, no title. Just I promise you it's mine. Yeah, right. Right.
Tersh Blissett: [00:11:19] They just rented it for a couple of hours. Take a picture with no dude. That's, that's awesome man. So at what point do we bring you into the conversation. Is it like, hey, I'm looking at buying this company. They've given me an NDA or a non-disclosure agreement and I've signed it. Here are the numbers. Does this make sense or is it after we've already put it in the offer? Because sometimes, like especially first-time people that are buying it, maybe it's like your competitor down the street is going out of business or talking about retiring and you want to acquire them and you've never done this process before. When do we bring you in?
Elliott Holland: [00:12:00] So two different times. The time that most people choose is when they are about to submit a letter of intent or an offer on the business. So when things get real and you've gotten past the non-disclosure, you've looked at the business, you talk to your friends, you figure it out, they have the capital. Now you're going to put a letter to say, I'm going to pay a million bucks for this business. I won't pay it to you this way. That's typically when people get us involved and we focus on those engagements primarily on purely just vetting the numbers of the business. Yeah, but I think. What I recommend people do is get us involved earlier and so for people who are just starting off particularly or this may be one of their first 20 deals they're looking at. Look at the NDA, send it over, get the book on the business, give us a shout. We have weekly office hours from 12 to one on Fridays East Coast time, where you can ask questions about your deals so he can even get that advice for free.
Elliott Holland: [00:12:59] Help us help you think through deals because my knowledge tells me that people spend like 90 percent of their daily evaluation time looking at terrible deals. Yeah, and you don't get that time back. So for someone to be able to tell you, hey, this looks baloney in two weeks, might save you two months of going around town asking others, and that two months can be spent on other deals. So you still get the benefit of it. I mean, I'm talking to a guy right now that's looking at buying a business out of Tampa and the seller is a salesperson. Right. So he sells stuff online and he's really good at selling and he talks really quickly and things sort of make sense a little bit, but not at all. And I'm basically telling them this week that the deals baloney. And that's probably going to save him six months of his life. So I encourage people to get us involved sooner in the process. And we have sort of mechanisms through our weekly office hours and make it pretty easy to engage.
Tersh Blissett: [00:14:02] So what are those real quick, because I'll ask you again when we wrap up, but I'd like to get right now to yeah, 12:00 p.m. to 1:00 p.m. Eastern.
Elliott Holland: [00:14:10] Every Friday, we spend an hour answering sort of client-submitted or just interested parties submitted questions. So this Friday, I've got four or five questions from folks who have come by my website Gardein due diligence. They've submitted a question. I've sent them a Zoom link. We're going to hop on the phone and we'll just talk through their questions, talk through how to think about it, talk through the different negotiations, talk through what to be thinking about. And it gives people a chance to understand the benefit of having an expert on your side, because like you Tersh like. You may have recognized you needed an expert, but when it came time to pay, you might have said how much is it worth? Right. What I find is that people before the courts don't quite get it. But once we get into the deep level of detail in the calls and also when I highlight it, so you're going to pay four times what the story is to this guy. I don't know how to read it. You know you tell me how much I how much you willing to spend on a million-dollar personal guarantee on a lifeboat deck where they're going to come to take your house and ruin your life right and back? You tell me how much that's where exactly.
Tersh Blissett: [00:15:25] Yeah, no, I agree with that. So what happens if they've already put in an offer, say we put in an offer for a million bucks, and then you go through the numbers and you're like, hey, look, you shouldn't be paying more than four hundred thousand for this business or something like that. Like how do you how does that conversation happen?
Elliott Holland: [00:15:46] So first we would call you and say, hey, look, the typical multiples for businesses in this industry are three times. So you went into this and they told you that the EBITDA was three hundred thirty-three thousand bucks. You offered a million. It made sense based on what you saw the EBITDA is really, you know, one hundred and seventy thousand bucks. So this thing's worth 500000 bucks. So here's the data to back it up. Help me understand, if you heard something that I didn't see, that may address this at all. Mm-hmm. And then the benefit of working with us versus other groups is will actually help you negotiate the price reduction. So maybe we'll say, hey, you should get us on the phone with the seller. Yeah. Let's just first off talk through the numbers and level set on. This is really one hundred and seventy thousand dollars worth of cash flow and not 333, because once we get there, then you start to get off the phone and say, OK, now what do we do about it? And that becomes a negotiation. And then there are oftentimes many different ways to adjust. So you can just adjust the purchase price down outright. You can say, hey, I'll pay you a half million. And if the business performs at a certain level, I pay you the other half out of the cash flows of the business after I buy it. Or if you think it's worth a million, about half of it. And then I'm only taking on half the risk. And if the business gets to the size that you say it's going to be, then we'll pay you out for it. If not, that half purchase becomes a full purchase. So I asked them if they're going to.
Tersh Blissett: [00:17:20] Yeah. Yeah. So they, they leverage, they're like, OK, are you calling B.S.. Like if you, if you're going to stand behind it like all right, put your money where your mouth is.
Elliott Holland: [00:17:30] Yeah. Because I tell people all the time you should not be betting against the seller. Somebody who's been in the business for 10 or 20 years absolutely knows it better than you. They know it better than me. And so if they're not willing to bet on the outcome, you shouldn't be betting on the outcome, right?
Tersh Blissett: [00:17:47] Yeah, they've seen the trends. They've been in the industry that long. They've seen the ebbs and flows of it. Not if it's a business that's five years or 10 years old. Maybe you haven't seen all the ebbs and flows necessarily. But definitely, if they've been in that long, they've seen it the fall cycles. I mean, even in this current cycle that we're going through like it's the trends were a lot longer than they had been in the past. And but they're coming. I mean, you can see them, you know, over the past year or so. But with that being said, what's the kind of red flags that you look for? Like what's one thing that you're like people try and stick this in to make it seem like there's more cash flow than there isn't.
Elliott Holland: [00:18:29] And there actually is in this part of the market. The biggest ones are the sellers, always absentee. OK, I have an office in the house that the business is in, but I promise that he never spends the day or a minute at the time it runs without me.
Tersh Blissett: [00:18:47] Yeah. Yeah. So I'd love to see all your policies and procedures if you're able to make it run completely without. Yeah.
Elliott Holland: [00:18:53] And then why would you have a business colocated with your living quarters that is absentee. Right. If it really ran without you you'd probably move the location. You'd also probably have a lieutenant in there that had a title that was better than service manager, you know. But but but but I digress. The thing there is that what people do is they have had back. So they say, hey, look, on the taxes we reported, you know, ten thousand dollars of profit. But really, I'm an absentee owner. I pull 150000 dollars out of this business. So stick that back in there. Right. And then you got to evaluate is the guy absentee? And I promise you, they'll die on that vine telling you because they get three times that in valuation. I can actually determine whether they are absentee or not pretty quickly.
Tersh Blissett: [00:19:42] So how about if they give their service manager the title of the controller or something like that? Have you seen that before?
Elliott Holland: [00:19:52] They title inflated titles, but also controllers that can't count to ten. A lot of times controllers are dating the owner. So then how much can you trust the numbers? And then also you're in the precarious situation of asking questions to a person that lays next to the seller. So be careful, buddy, and even think about things that you because your number one relationship is with the seller, even if you don't believe what they're saying. And so blowing them up. Through there, yeah, you're saying yeah, yeah, and blow up your deal before you have a chance to negotiate. So consider that the other thing about comptrollers is that they're not going to tell you. They don't know. So you have to figure it out. The other thing that happens, you'll assume oftentimes that people assume rather, oh, well, they get their taxes done by our CPA. So the CPA checks them right for 100 bucks a year to CPA, check the million-dollar business receipts, invoices.
Elliott Holland: [00:20:53] Yeah, those people on their reports, they'll say it, but nobody reads the page. Long Disclosure's. It basically says we didn't check a gosh darn thing. You took everything the seller gave us to be the truth. You cannot rely on this. This is just a representative that we got in. You have no financial or legal recourse against us for anything presented on page three through X. Yeah, enjoy. Yeah. Have fun with these numbers. That's another one. I think the third one, just to be brief, is. People can say anything in their finances through cookbooks, I've been in cookbooks, yeah, I can tell you all kinds of stories and cookbooks. Taxes are typical to minimize taxes, right? Nobody wants to overpay Uncle Sam. Those are typically understated in terms of they typically say less profit than the business actually has. The bank statements don't tell lies. You can't go into a bank and say, hey, I'm going to give you 100 bucks, but I want you to say on my bank statement that I have 200 bucks. Huh? So, people, I think, miss the fact that the bank statements are arguably the best documents, understand the true cash flows in and out of the business.
Tersh Blissett: [00:22:01] And if they did, are they required to disclose all bank statements are all bank accounts because we have multiple bank accounts. But if you only looked at one of them, you might see either good or bad numbers.
Elliott Holland: [00:22:18] Yeah, no, not at all. So that's where due diligence comes in. So simple example. You could give me 30 different industries and I could tell you the average profit margin, like when before we started, you said HPLC, I was like about 10 percent. Martin, you're like, if you're lucky. Yeah, I know the margins on those businesses are five to 18, maybe 20 percent. Yeah, well, if I see one at 40 percent, I know there's a bank statement missing. Right. I know somebody else may not know. And so what you do is you reconcile the financial statements to the bank statements. The witness of happening is. Say you're looking at a company, right? They've got high profits, you're trying to figure it out and you're like, wait. I don't see any payments to to to train.
Tersh Blissett: [00:23:06] Yeah, right, right where you can hear equipment from. Right. Oh oops. I forgot about this bank statement over here. Yeah. You know, I was going to tell you about it, so you have to start.
Elliott Holland: [00:23:19] Where's your payroll. Yeah, I don't see payroll on here right away. Where's your rent. So when you sort of know-how the income statement should look, you can look for the big items and ask where they are. The other thing is it's. It's easy to tell a story on one set of financials, like on the taxes or the financials, it's really hard to tell them on the taxes, the financials and the bank statements. So what we do is we reconcile all three and then it's very seldom that we miss significant pieces of the financial picture.
Tersh Blissett: [00:23:52] Gotcha. Cool, man. So where is where can everybody reach out to learn more about you and even get signed up with your program or get you onboard with them.
Elliott Holland: [00:24:01] Yeah. GuardianDueDilligance.com Let's Due spelled D U E and just come onto the website. Like I said, we have weekly office hours from 12 to one p.m. Eastern Time every Friday. So the easiest way to engage is just to be on our website. You can ask to be added to the office, our zone call, and then you can submit a question. And that's probably the easiest way to engage. You can also book time with me on my website. So that's a possibility, too. OK, but I'm very responsive there. And either myself or one of my assistants will get back to you quickly.
Tersh Blissett: [00:24:37] Man, I really appreciate all this information and I'm glad that I'm glad we got connected because I had no idea that you even existed. And it's it is really cool knowing that there is somebody there that can be on our side whenever it comes to, you know, vetting a business for sure.
Elliott Holland: [00:24:57] I'd love to help people. You know, of course, I'm in business, but I also enjoy the work that I do. Yeah. So I very much love to help anyone that I can. So I'm looking forward to hearing from folks in your and your network and Tersh. Thanks for having me here on the podcast.
Tersh Blissett: [00:25:10] Yeah, absolutely, man. And anybody that has any questions, don't forget GuardianDueDilligance.com, reach out to Elliott, his team, learn more. If you are looking at purchasing a business, acquiring a business I plead with, you don't make the costly mistakes that even I've made in the past. And lots of people who have purchased businesses have made there are a lot of very intelligent business brokers out there. But whenever you like to take it for an example, there are really, really good new construction guys. There are really, really good service guys are really, really good indoor air quality guys and gals. So there they're just another tool in your tool bag, in your arsenal, and so I plead with you to definitely use usually I'm not calling you tool Elliott.
Elliott Holland: [00:26:00] Well, oh no. I am a tool as a business owner. So so so I'm raising my hand and me also. Just so you guys can make it simple, think about who the adviser is you're working for or listening to who pays them. Good point. That's who they're working for. No matter what they tell you. You want somebody working for you that you're paying that's watching your back. You don't want to go into a crazy crowd with security that the artist paid for. Do you want to go with your security guard?
Tersh Blissett: [00:26:31] That's exactly right, man. That's a good point. I appreciate you being on the show, man. I appreciate everybody that's listening to this episode or watching it. If you have any questions, don't forget to reach out to Elliott or reach out to me. Tersh at Service Emperor dot com is probably the easiest way to get in touch with me. I'm on all the social media too. So as at Tersh, Blissett everywhere, Facebook, Instagram, LinkedIn. But with that being said, I hope you have a wonderful day. Stay safe and happy acquisitions like just purchase up some businesses, buy them up after the acquisitions.
Tersh Blissett: [00:27:03] I like that. All right, guys, ya'll be good...take care.
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