This week Acquisition Entrepreneur, Daniel Lee, talks to us about the journey he took through buying a business. His knowledge is incredibly valuable regarding connecting with a business broker, evaluating financials, getting introductions, and so much more! This is a two part episode that you’re won’t want to miss!
Welcome to Business Talk Sister Gawk! I’m Bekkah and I’m Ruthie! And today’s episode title is, “How to Buy an Established Business and with us today we have Daniel Lee. He started his journey in Corporate America. Decided to do something different! He has two little kids that have lots of energy and keeps him on his toes and actually if you’ve been listening to the Resourceful Agent podcast he was on that podcast recently. And also I think he sounds like Tom Hanks but I’ll let you decide if you think that’s true about him. Thanks so much for being here with us today!
Daniel: Nice intro! I don’t think I’ve ever been introduced as you know such a wide span of topics! “Sounds like Tom Hanks.”
Ruthie: She was so excited after she talked to you she was like, “Man! His cadence sounds just like Tom Hanks!” and I was like, “Okay!”
Daniel: I wish I had some quotes! I wish I had some lines for you know, some Tom Hanks lines that I could rehearse. I need to have that prepared.
Ruthie: Wilson!
Daniel: Wilson! That’s probably saying you know you need to – he says it’s so angry.
Ruthie: Oh yeah. That’s fair.
Daniel: Yeah, you really have to get in the character.
Ruthie: Yeah, but maybe you don’t wanna.
Bekkah: You know you can maybe send us a video clip of that and then we’ll share that on our Facebook page.
Ruthie: Yeah, well thank you, Daniel, so much for being here! We’re excited to get to talk with you. Okay. so we’ve introduced you. Now tell us a little bit about your story. What do you do?
Daniel: Well. I think my story starts out like many folks start out and work hard, go to college, get a good degree, find a good job with a good company, work your way up. I did a stopover to get my MBA. I found myself with a finance degree and eventually started working for an insurance company. It really piqued my interest and just kind of curiosity working in a claims department.
I handled claims for a little while and then worked my way into managing and leading a team. Then into the department. Moved companies once and the stint that I just left, I led a region for a major insurance company focusing on their small business insurance product. It was really interesting. My role was to lead a team of sales professionals who would call on independent agents and we would go and sit and talk to those agents.
Well, they are small businesses of themselves from a couple of employees and a small office to very large, large companies. Just talking to the agents I got a lot of exposure to small business and then we were talking about and trying to write more small business accounts. A really interesting and broad exposure to that.
I spent 15 years in various capacities but all of the work that I spent was majority in leadership, building teams, and really delivering a product through people. People were the service. How you executed it in claims or you know in insurance we talk about it’s an invisible product until you need it. Just after I turned 40 last year and I think that just had my curiosity peaked about what else is out there?
I began a search to purchase a small business and completed that search and so that’s kind of my story and so now I play general manager in my day job and the owner of a small window, indoor, residential, replacement company here in Kansas City!
Why Did You Decide to Buy a Small Business?
Ruthie: Wow, okay! That’s a bit of a transition, you said that you wanted to acquire a small business. What was your why behind that. You went from insurance to this but why?
Daniel: Yeah great question so I toyed around with an insurance agency because that’s what I knew and I ran – you know I did a lot of the financials asking what would it take and all all that type of stuff and I eventually turned away from looking for an insurance agency because I thought there could be significant value taking what I had learned from either an insurance operations small business from an agency and applying it to a different industry.
How I went about searching and deciding and I get this question all the time “how did you decide on you know buying a window and door company? You just must really love windows and doors. You must be so passionate about that,” and the answer was not necessarily. It was more along the lines of “what am I passionate about?” so I spent – I’d get up at 5:30 and I would spend time. I read this book it’s something about being – “The Road Less Stupid”. There’s a very catchy title by Cunningham is the last name and so he talked a lot about just thinking and about just sitting in silence and thinking.
Sort of meditative but from a business perspective and so I did that for probably months. I came to the conclusion that I wanted to be involved in something that I wanted to be involved. It’s going to be work but it was a destination to some future. In that future what really wanted was freedom. Freedom over my time. That comes with some financial freedom, but that really wasn’t the the driving motivation.
I wanted to do the work that I wanted to do and in Corporate America, I had the opportunity to do that quite a lot and certainly there are hurdles to that because you’re working for another company but so I just started to think in those early morning sessions about where did I want to go and what’s the best way to get me there. I found that business ownership was the way to get me there.
More of – business ownership was my vehicle to some future versus the goal being business ownership. Throughout the years I had several leadership assessments, 360 feedback from employees, when I do interviews or when I am being interviewed I just take notes and notes and notes and just write about things and so I catalog those over the years my strengths assessments, my leadership style, feedback from my direct reports, and all that type of stuff and just kind of found, “Alright. What do I do well? What have I done well?” and I identified I had done well working with people.
I always enjoyed having a close-knit team. My direct reports were always close-knit. We would do things like – we do things afterwards not so “friends” but just a very tight-knit team. I wanted to be around people that I enjoyed and shared a similar passion. I had always delivered results through people. Never this awesome product or the product was the collection of people working together to achieve an outcome. That’s what my success was and my StrengthsFinder, a Gallup survey, says that what I do well is strategy and strategy being defined as I take a whole bunch of data whether it be physical data or data coming at me through my senses and I can quickly analyze and develop alternative solutions.
I wanted the ability to steer my own ship and if I want to go a different direction, I could do it and I didn’t feel constrained. When I really found out what type of car that I wanted to build. I wanted to get into this, and I’m using the analogy of a car, I wanted to get into this car and it was the type of business that I wanted to get in. That’s kind of how I started.
How to Know What Business You Want to Buy: Build a Target Statement
I developed this target statement of “I wanted a service-based company with I think I had four to six hundred thousand in seller discretionary earnings that had an established sales process and in need of operational efficiency.” My two roles in Corporate America was a manager of a department of claims and I defined that’s more customer service operation and I did sales for three years. I wanted a company that had – I felt stronger in operation – so I wanted a company that had an established sales routine and where I could come in and add value and there was a role for me to play to improving operational efficiency.
Why You Should Purchase a Business Rather Than Start One
I chose to buy a business versus start a business for just a couple of facts. First of all there’s stats like 1 in 10 startups succeed or last 5 years but there’s incredible statistics on businesses that are established for 10 to 15 years having a tremendous success rate. Businesses that earn revenue of over a million dollars have a very high success rate. Well, those businesses ironically are started and owned by the Baby Boomer Generation.
The Baby Boomer generation is retiring at or turning 65 at the tune of 10,000 people a day. So there was an opportunity for the folks in the country that own the businesses are at an age in which they’re transitioning out. I had learned from my insurance experience that many of either the businesses or the insurance agencies did not have great succession plans. I really thought there was an opportunity to one find an established business that had a perpetual stream of income and somebody was ready to move out.
Ruthie: Okay!
Daniel: That’s how I got there! I mean I could keep going and going and going but I just feel like there should be a producer in my ear saying, “Wind it up! Wind it up!”
Ruthie: Well, we’ll do two episodes and then people can get all the information from you, but as you were talking you said that you had strategic as one of your StrengthFinders and it just made me – I grabbed my little book and was looking at the of the description here and as you were talking I was like, “Yep, yep this is all him!”
One of the things that it said is that “the strategic theme enables you to sort through the clutter and find the best route” and that your theme at work is you’re “always asking what if and then you select and then you strike.”
Danel: And then I go! Yes, the flip side of that you know, use your strength too much – you bring a hammer when you need a screwdriver is I have difficulty – I’m impatient when others don’t see the order through the chaos as fast as I do. That’s something I constantly work on especially in a leadership position.
I’d find myself sitting in a conference room with a bunch of other folks that were on the team and as the leader if I demonstrated that impatience it shut everybody down, but what really made us great is we had everybody’s strengths so that was just something – while it is my strengths it was something that I always tried to be very cognizant of. I can’t say I was amazing at it but whether or not I was able to produce it or not I was very aware of my impatience of that. Which is just – anybody’s weakness is their strengths overplayed.
What Is The Process for Purchasing a Business?
Ruthie: Okay, so let’s get into the how a little bit more here how did you prepare to purchase the business that you ended up buying?
Daniel: Well, it was a 18-month process. I started on March 23rd, 2019 with a friend of mine. He and I were just meeting and talking. We just declared, “Today we’re declaring today ‘we’re done day.’” We just put a marker in the sand and said, “Alright, within three years we’re going to purchase and buy a business.” Then the next step I started to do is I shared it with some close friends.
I went on a golf trip with some college friends and I shared that with them and putting that out there publicly was the first time I’d ever done that. That just created some accountability and then I just started reading about topics that I did not normally read about about running a business. I read a lot of leadership all that type of stuff. I’ve got a lot of titles that have had a tremendous influence on me.
I started reading things about marketing. Believe it or not I got my old accounting textbook out from my MBA and I read it like a big nerd that I was, but I was going through all these topics of business ownership. Then I think it was December 2020 – no. December of 2019, I read a book called “Buy Then Build” by this author named Walker Deibel and he’s advocating exactly what I was thinking, but he had gone through it.
I really used that from that point as a playbook and it really refined my search. One of the biggest pieces – two pieces of advice that he said, “Go to a business broker.” A business broker is a for those of people who don’t know business broker is just a real estate agent for businesses. You don’t see them advertised out there as much but the businesses that the business brokers have – if you use the home analogy – it has been cleaned up.
Their books are clean, they have it ready for sale, they’ve prepared them for what the value of the business is. That was one really great piece of advice and so I developed this one page sheet. It had my photo on it had my target statement I shared earlier, had a little snapshot of my net worth, had a little snapshot of the team: lawyer, accountant, etc. People that I’m working with and who I am professionally.
How to Find & Work With a Business Broker
When I sat in front of a business broker – think of it as a resume but what’s important to a business broker? Closing a sale. W business broker might close one-two sales a year but yet work on a lot of them. I wanted to convey to them that I was serious. I was capable, I knew what I wanted, I was financially able to do it, and they should see me as a viable candidate. I would sit down, I called all the business brokers in town, essentially.
Probably not all of them but many of them and took a meeting. I shared my document with them and said, “Here’s what I’m looking for. What type of listings do you have?” The process is if you want to list your business you’re going to take it to the business broker. They’re going to spiff it up, but then they’re going to go first to their close clients. I think in real estate they call it a “pocket listing”.
Then after that they’re going to send it out to maybe their email address and they might post it on some online sites. Going through that process and looking at businesses, when you look at a business this is just their financials, a write-up, some little bit of the store you can go look at them online. You have to sign a non-disclosure agreement and I got a sense of what was out there. I would run financials and I start kicking the tires on this opportunity that opportunity looking at as many as I can and found my way into the business that I ended up purchasing.
Bekkah: You mentioned so many things! First of all I also just learned about you that you kept your accounting textbook for over 15 years because that’s how long you’re working in insurance! But my question is while you’re doing this process and you had kind of shown your resume is that typical to bring to a business broker or was that just something you thought up on your own?
Daniel: I don’t know if it’s typical. As far as I know, I created the one pager – that template that I created. It’s based upon what’s important to the business broker. The business broker represents the other side of the transaction. I was trying to understand that the business broker probably does a lot of transactions a year that don’t actually go through. I wanted to demonstrate – so I wrote this down in my journal this is the takeaways.
When I walked out of that room I want the business broker to say, “That guy’s got his stuff together. He knows exactly what he wants. He has the experience to do it and he can close the sale.” I put my credit score on there. I put you know assets minus liabilities and you could see my net worth. I used an SBA loan to purchase it so I’ve got good credit. You see I can put a down payment. I could secure – good terms with my credit score. So the business broker is thinking this.
Now that’s the same thing as you want with a resume but the resume talks about your professional qualifications and what the business broker would care about is more than your professional qualifications. I bet there’s a lot of folks that – just like any real estate agent – a lot of tire kickers, fewer buyers.
Business Brokers Are Often The Gatekeepers to The Right Business
I think the piece of paper that I put together might have been uniquely mine but the idea was just simply trying to tap into what this role is concerned about. They’re going to be my gatekeeper to the business owner. Well, then now the business owner sees this thing just like, “Oh, hey!” and this is a small you know it’s kind of like marrying – I think of it like a parent having a child and marrying off their kid. I’m gonna give this to somebody else to take care of!
I wanted them to see this and be impressed or, at the end of the day when I actually got to the owner I wanted to create the sense the owner wants me to have this business. That’s kind of where it all started from.
Ruthie: Okay so you had this resume that you gave for people to vet you and you said earlier that you kind of just like went to all the brokers in town but how did you kind of decide which brokers that you wanted to work with? How did you vet them?
Daniel: Yes, so Google search! Simple as that. That means one of my methods. The probably more effective method was I started networking with – to prepare, I went to a lawyer, “Hey! Can you draw – are you familiar with these transactions?” “Yes,” a business lawyer and, “Who do you know that does these? Do you know business brokers?” “Yes,” so they gave me this name. I sat down with an SBA lender prior to doing any of this to understand what would it take to secure an SBA loan? Showed him my one pager.
Ask For Introductions to Smooth The Business Buying Process
I think I called it my buyer profile, is what I called it. My buyer profile and had the SBA lender, “Hey! Could you take a look at this? Would you – I mean would you lend to me?” There’s no such thing as a pre-approval like you would think about with a house but had him give me some information that, “Yeah, you look like a good candidate!” “Okay, great. What do I need to do to prepare? Who do you know?” and he referred me to somebody else.
Then I need a CPA to help me do some due diligence on the business. I went and got some referrals for a CPA and I asked that person. At the end of every conversation, I would ask, “Who else should I speak with?” Now a business broker is not going to refer me to another business broker, but essentially that’s how it happened.
If you just come in as a random Google searcher I think they’re going to be a bit skeptical, but oftentimes I would ask my connection to give me an introduction to somebody. It’s a little easier maybe to go to a lawyer. There are a lot of lawyers and talk about the transaction, “Would you be willing and capable? How much would you charge for this?” Hey! Who do you know about this?” So that’s really how I think the most successful part of getting to the business broker would be.
Bekkah: “Oh my goodness! We’ve gone through so many things so far and I feel like you’re so good at answering questions we wish we would have also asked and clarifying those things so thank you! If you guys are enjoying this you need to tune in next week because we’re going to be doing the second part of this with Daniel. Just really quickly how are ways that people can connect with you?
Daniel: Well, a couple of ways. I think if you want to check out what our company does our company website is windura.com w-i-n-d-u-r-a.com. We are also out there on social on Facebook and Instagram. If you want to connect with me directly probably the best way to do that is find me Daniel G. Lee on LinkedIn.
Join us next week as we continue this conversation with Daniel! If you enjoyed this episode, subscribe to us on Apple Podcasts!
