A guest who bought a multi-million dollar business with no cash down walks through the deal structure — a 25% seller’s note combined with a 75% bank note — and how he found a bank willing to treat the seller’s note as equity. He covers the hustle behind sourcing deals, why keeping deal terms simple is critical when working with owner-operators, and why this path is open to anyone willing to put in the work.
Speakers: Shaan Puri (host), Sam Parr (host), Guest (small business buyer)
Spreading the Gospel of Small Business Acquisition [00:00:00]
Guest: Anyone who wants to buy — and I really mean anyone who wants to buy and operate a small business — can do so. It is not a matter of can or can’t. It’s a matter of will or won’t. That’s a fact.
Guest: Because this is an industry where you can choose any type of business you want, any size business you want. You could be a cleaner looking to buy another really small cleaning business from a guy or gal that’s looking to retire. You can buy a dog walking company. There is truly no limit here.
Guest: And that’s what I love about it, because to me it’s one of the few areas left of the American dream where you can go out and just put in a ton of effort and elbow grease and make something of your life — actually make good money without killing yourself and not having to work three jobs.
Structuring the Deal: The Seller’s Note [00:01:30]
Guest: A seller’s note, to me, was a substitute for getting equity. And I didn’t want to get any investors involved. So the next step was, okay, are you willing to do a seller’s note? I phrased it a different way to make sure he understood it, but he actually did, and he was willing to do that. And so then I said, okay, let’s talk.
Shaan: Just to define what a seller’s note is — define that for anybody who doesn’t know.
Guest: Absolutely. I’ll use an example. Let’s say you’re buying a house for a million dollars. Rather than giving the seller a million dollars up front, let’s say you have a 25% seller’s note — you would give that seller at close $750,000, and then they would get paid the remaining $250,000 over time, at whatever interest rate you decide on and whatever time horizon.
Shaan: Yeah, the seller becomes the bank. They’re sort of financing you to be able to purchase the rest of the business.
Guest: Exactly. And it was also great because the argument there — because some sellers didn’t want to do it — is, well, you’re telling me how great your business is, you’re telling me that it’s simple enough for me to operate. If those things are true, why would you have an issue doing a seller’s note? Right? This thing is stable, right?
Shaan: Exactly. My friend — I helped my friend just buy a business, actually kind of similar to yours, recently. And he did a good thing, which was in the seller’s note he said, look, here’s the purchase price, here’s the seller’s note, but if revenue were to drop way below where it is today — because I find some skeletons in the closet or this turns out to have been built on quicksand — then we’re going to forgive the rest of that seller’s note. And he was able to structure it accordingly. So it’s a good mechanism for any buyer. Did you do that, or did you just do a seller’s note as is?
Guest: I did it as is. There’s something called an earnout, which is similar to what you’re saying, and it’s based on the performance of the business — you choose whether it’s on revenue or profits. For me, I tried to keep this extremely simple, because the devil really is in the details here.
Guest: These sellers — a lot of them don’t even have high school degrees, but they’re very good at business. They’ve been very successful. So I’m trying to do a deal where the terms are extremely straightforward. And when you start doing terms like that, the seller freaks out — because then it’s, wait, I may not get this money, I don’t even know you. All of a sudden he’s skeptical of you. So I’m not a big fan of those.
Why Simplicity and Ignorance Are Actually Assets [00:05:30]
Shaan: Yeah. That was your other point of view — you said industry expertise is overrated. I liked that point. Why?
Guest: Because you’re really just looking for this rare, beautiful business that’s stable and profitable. And you shouldn’t use industry filters for that necessarily. Don’t walk in with a thesis up front thinking you’re this genius with all the answers. Be open-minded at the start.
Shaan: And the second part was you were like, I try not to use any jargon. Even though you went to business school, you weren’t saying EBITDA — you’d say, how much money are you making? You weren’t trying to get super fancy in the structure, because if you don’t understand it, they’re not going to understand it.
Guest: Yes. And that’s the biggest mistake too, because people think, well, I don’t have a Harvard MBA, I don’t know any of this. I honestly think ignorance truly is bliss here. Because the less you know, in a way, the better — you can keep things extremely simple for the seller, and I think that breeds trust.
Buying With Zero Cash Down [00:07:30]
Shaan: So you buy this business — how much cash did you put in to buy it?
Guest: You don’t need to put any cash down, and I didn’t have to because of the seller’s note. I did a 25% seller’s note and a 75% bank note. The idea there was, when shopping around for a bank to do the deal — and it took me 20-plus banks to figure this out — it was all about how they viewed the seller’s note. Banks that viewed that seller’s note as equity, I could work with. The ones that didn’t — not so much. Because if they viewed it as equity, it’s like, well, there’s 25% equity, we’ll loan you the other 75%.
Shaan: Exactly. And how did you get them to think that it was equity? Because it’s kind of not equity, honestly.
Guest: I wish I could have some really savvy answer here, but to be frank — and I’m not trying to say this about all banks — but most bankers have no idea what they’re doing or what they’re talking about. Truly. I had to learn this the hard way. They think they can finance a deal, they have no idea how to finance the deal, they have no idea what the details of these structures look like. So a lot of it, I’m sorry to say, is just ignorance on their part and their board’s part.
Shaan: Right. Here’s the purchase price, here’s how much we need from the bank — and then they’re like, okay, the rest is… covered.
Guest: And they didn’t call it equity — they knew it was debt, they called it debt. But the way they reviewed it, when they’re looking at their ratios, these banks have all these internal rules they use to evaluate the debt ratio. And one big thing is this: the bank had priority over everyone else. So the bank was going to be paid before this seller’s note. And the business had many, many years of a track record of profitability.
Shaan: Yes. That’s so important — they’re really banking on that business’s track record. And then a little bit on you. The question is, okay, it’s done well for 20 years, what could you do to make it not do so well?
The Hustle: Interns, Craigslist, and Fake IDs [00:10:30]
Shaan: So you buy this thing. You told me the only asset you had at the time — no money, no experience — you only owned your car, a RAV4. That was literally all you had to your name. And you were able to buy a multi-million dollar business just by hustle and a kind of numbers game.
Shaan: We didn’t even talk about some of the hustle behind this. Some of the hustle was scraping the database. Some of it was getting people off Craigslist to be interns to sift through the database. Then it was, well, those interns need a place to work — so you got fake IDs to get them into the library. Is that right? Tell the fake ID story.
Guest: Absolutely. We hustled for those IDs too — that was hard work. What we did was, we looked at alumni… we’d look at the intern and find which alum looked like that intern and ask them for their student ID. Hours of that. Truly hours. We shot messages to hundreds and hundreds of people.
Shaan: And so you’ve got these interns, and then you realize, hey, we need to just be blasting this kind of fake-it-till-you-make-it email where it looks like we’ve specifically researched each seller, so they’ll sort of self-select.
Sam: You end up doing this deal where you don’t put any money down because you were able to shop 40 banks or something like that to get the financing for it.
Don’t Count Yourself Out [00:13:30]
Shaan: A lot of this story is about not counting yourself out. Because somewhere along the way, a lot of people would have counted themselves out. I don’t know how to do this. This is uncertain. I don’t have the money, I don’t have the experience, I don’t have the time. They would find a way to count themselves out. You didn’t do that. You figured out a way to get it done.
Shaan: All the rules are sort of imaginary — you can work around them. And the last thing is, it’s just a numbers game. It’s like dating. You’re going to need to look at a lot of businesses, get a bunch of interns to find the good ones, talk to a bunch of banks to find the one that will do the deal. Is that accurate?
Guest: Yes. If there are two things I’m very passionate about in this world, it’s obviously my family, but also this concept of spreading the good news — which is that anyone who wants to buy, and I really mean anyone who wants to buy and operate a small business, can do so. It is not a matter of can or can’t. It’s a matter of will or won’t.
Guest: Because this is an industry where you can choose any type of business you want, any size business you want. You could be a cleaner looking to buy another really small cleaning business from a guy or gal that’s looking to retire. You can buy a dog walking company. There is truly no limit. Because to me, it’s one of the few areas left of the American dream where you can go out and put in a ton of effort and actually make good money without killing yourself — without having to work three jobs.
Growing the Business After Acquisition [00:16:00]
Shaan: So since you took over the business — you don’t have to share exact numbers — but let’s just say if the business was making $100 before, in the years since you’ve bought it, how much have you grown it? And what did you actually do to grow it? Because the guy had been operating for 15, 16, 17 years. You come in as a beginner, but you’ve been able to grow it. What new insights, techniques, or operational things did you put in place to create that value?
Guest: Great questions. When I first bought the business, the first couple years — things may have been on the decline a little bit. I may have made quite a few mistakes. So it wasn’t looking too promising.
Shaan: You’re not getting invited on podcasts for that story at that time. “Sarah, you bought a business and you are driving it straight into the ground — how does it feel? Tell us more. What’s your secret?”