How to Buy Yourself a 6-Figure Income Stream

Buying a business may sound out of your element. Stocks are one thing, and real estate is another, but what about buying businesses? Isn’t business buying something reserved for large companies, wealthy entrepreneurs, or seriously experienced store owners? Funnily enough, the business of buying businesses may be one of the most overlooked, yet most profitable ways to make more money, work less, and retire richer. Don’t believe us? Just listen to Tim Delaney.

Tim did not take the standard wealth-building route. He was making just over $2,000 per year while working in the Peace Corps after college. From there, he was hired on by other non-profits when the opportunity to buy a business fell into his lap. It didn’t require a ton of money, but it did require some sweat equity and a fair amount of time. While he didn’t end up taking the first opportunity that came his way, he did end up buying a business shortly after. And if you like hops-laden libations as much as Mindy and Scott, you’ll love hearing about Tim’s business.

Tim invested in a local liquor store that had almost zero technological improvements. No point of sale system, no running inventory, and a cash register that was appropriate for the 1950s, not the 2010s. Tim saw an opportunity, and with the right upgrades, he was able to turn this into a full-fledged business with multiple employees, hundreds of thousands in profit, and the best part of all, a 10-hour per week work schedule for Tim. Today you’ll hear exactly how Tim did it, how much money it took, and how you can repeat the process.

Mindy:
Welcome to the BiggerPockets Money Podcast show number 325, where we interviewed Tim Delaney and talk about buying a small business with low money down and turning it into an amazing cash flowing asset through hard work.

Tim:
With this particular business, it didn’t work out. I didn’t buy that business, but it kind of opened my eyes to the idea of the banks are willing to give me money and the seller might be willing to finance a little bit of that transaction and I can actually buy myself a paycheck day one, as opposed to gambling and starting a business from scratch and never really knowing when I was going to make enough money to actually pay myself. So that prospect of buying a business became much more front and center and much more interesting and I more actively started pursuing businesses to purchase.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen, and with me as always is my amazing cash flowing investment through hard work co-host Scott Trench.

Scott:
And with me as always is my intoxicated with the numbers co-host Mindy Jensen.

Mindy:
I like that. Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe that financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, going to make big time investments and assets like real estate or start your own business or buy an existing business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, we are talking to Tim Delaney today. He is a small business owner and an absolutely, wonderful saying too, is better than everybody in every single way. I’m just kidding. Not really. He volunteered for the Peace Corps. And then he moved to Ethiopia to help a German company, help the Ethiopian country industrialize their economy. And then he pivoted to help small businesses learn how to grow using social media. And then he wanted to start his own business so he started looking for businesses. He’s just like this give, give, give kind of guy. And then he found this business that he wanted to buy. He decided… He ran the numbers. That’s very, very important. He ran the numbers and he has an amazing, very lucrative business that he works… What did he say? 10 hours a week in now?

Scott:
Uh-hmm.

Mindy:
Now. After nine short years. Overnight success in nine short years. And is really living the life that he wants to live through one of the four levers that we suggest pulling. Save, invest, start your own business, or… What’s the other one?

Scott:
Create.

Mindy:
Create. Well, that’s this one. Start your own business.

Scott:
Yeah. Spend less, earn more, invest and create.

Mindy:
Yes. Okay. There we go. Earn more. That’s what I forgot. But he’s earning more, he’s spending less and he is creating this business which he did not create from scratch but is growing it exponentially and crushing it.

Scott:
Yeah. This is a great story. What I think you’re going to really like about Tim’s story is how repeatable it is. This is not a guy who had a huge head start financially in a lot of ways. This is somebody who bought a liquor store and put everything he had into it and was able to turn that into a success. And the reason for that is hard work and intelligence, yes, but also really good strategy. This is the asset class, I mentioned this later in the show as well, that I think Americans today have the best chance of becoming wealthy in. There are 12 million baby boomer owned businesses right now that are expected to come up for sale in the next decade or so. 12 million businesses of this type. Small businesses that generate 50,000, 100,000, $200,000 in cash flow or not operating profits. You can buy these businesses for one, two times cash flow. Maybe even less in some cases. Plus inventory, right?

Scott:
And then these are businesses in many cases that don’t have any systems implemented, that are not using technology. They don’t even have websites or basic online presence like social media. There’s a huge opportunity here for, I think, the young or ambitious entrepreneur who wants to get out of the corporate 9:00 to 5:00 to buy this business. And guess what? You’re going to take a small pay cut at first. You’re going to do a lot of hours at first. But if you are diligent and thoughtful and buy the right business and put the right systems in, you can expand profits, make the business exponentially more valuable and create a passive stream of income that can open up other options downstream.

Scott:
So I really am excited about this asset class. I think it’s something that we want to explore more here on BiggerPockets Money. If you have a story about buying a small business and improving it over the years, we would love to hear from you. Please apply at biggerpockets.com/guest. I’m so excited to introduce Tim here today.

Mindy:
Tim Delaney, welcome to the BiggerPockets Money Podcast. You have such an amazing story. I am so excited to jump into this with both feet. But before we get into your current money story, let’s hear a little bit about where you started.

Tim:
Thank you so much, Mindy. I’m really excited to be here and share my story. I’ve been a long time listener and glad to be here. My money story begins when I was small. I grew up in a small family businesses. My parents owned a couple different businesses. Some were successful, some not so much. And through that, I always learned to be pretty frugal. I saved all the time. From allowances to first jobs, I was just constantly saving. I think my father taught me early on save at least half of your paycheck every single time. So that’s what I was doing from a very young age. I got my first real jobs when I was barely old enough to work in New York state. I think I was 15. I started working at the local coffee shop, donut shop at the time. I think now they’re called a coffee shop. Back then it was donuts. And I’m just constantly saving.

Tim:
I worked as much as I could through high school. I tried to save. I was also very interested in business and the economy, the stock market. My grandmother lived with us for a brief time and she had always been a stock market follower. So she taught me how to read the stock pages in the newspaper, because I’m dating myself a little bit with that when they would publish the stock prices once a day and that’s when most people would get updated on what the shares were going for on that day. So I just kind of learned how to follow share prices, how the stock market worked from her at a very young age. I think I was like 11, 12. So I always had a pretty good understanding of money and the economy and how businesses operated.

Tim:
But then I guess around the time of college, I went off to college, I started spending all of that savings that I had saved up for college. I started accumulating some student loans. That was my arrangement with my parents was that I had to take as much loans as I could in order to fund the school that I wanted to go to. So I started accumulating those loans. But at the same time, I guess I’m a little bit different than some students in the sense that I had been educated about credit cards and their dangers. I had a credit card, but I was always taught you only spend what you can pay off every single month. I took that. I still follow that principal today, which helped me a lot. So the only debt that I graduated from college with was that student loan debt. I think it was around $22,000 at the time. I think we’re in year 2002.

Tim:
So at that point right after I graduated, I had an opportunity. I kept getting emails about consolidating my student loans and I didn’t really pay attention to them at first, and then finally read them and understood what that meant and I was able to lock in a ridiculously low interest rate. Looking back on it, I think I was below 3%, so it was consolidated, lock-in. And then I really kind of never had to… They were always there looming, but it wasn’t as pressing because it was such a low interest rate.

Tim:
After college, I took a year, worked part-time while I was waiting to go into the Peace Corps. So then I deferred my student debt, and so the interest kept accumulating. But again, it wasn’t horrible because of the low rate. I joined the Peace Corps about a year after college at volunteer basis. So accumulating absolutely $0 in country where I was stationed. And the Peace Corps is very generous. At least at the time they were putting $200 a month into a savings account that I could access when I left service. Most volunteers stay for 24 months. I stayed for 36 so I could earn that extra year of $200 a month in savings that I was really looking forward to tapping into when I get out.

Tim:
So, yeah, when I finished Peace Corps, I still had the student loan debt. I think I actually even had to start paying on that while I was still in the Peace Corps because my two or three years of deferment eligibility were up. So I continued paying that. I had this very small amount from the Peace Corps. I went to Ethiopia to take a job with a nonprofit out of Boston who I had done a brief internship with right out of college. I learned kind of, I guess it was like one of the first things I did where I learned to just kind of take a chance and take a risk and go for it. I was communicating with my old boss at the time and he said, “Just come on over here. We’ll find a job for you when you get here.” And with the little savings I had in my bank account, the idea of just jumping on a plane to go to Ethiopia without a locked in job or a contract was a little daunting, but I took it anyway.

Tim:
So while I was in Ethiopia, I continued to save. I took that job. I worked that job for about a year. And then I transitioned to a German company and I actually started getting paid a more nominal amount, plus a little cost of living allowance. And that’s where I was able to really accelerate my savings. I never bothered… I contemplated paying down my student loans because I could but the interest rate was just too low, it didn’t seem to make sense. So those couple years with the German company is where I really accelerated my savings. I lived very frugally. My wife and I, my wife had joined me in Ethiopia. We lived as frugally as we could. We really enjoyed our time. We didn’t make massive sacrifices, but we lived very frugally, very comfortably within our means so that we could continue to save and stockpile some funds for future endeavors.

Scott:
Awesome. So what was your position kind of at the end of this journey towards the end of your time In Ethiopia?

Tim:
I had probably saved up probably around 60,000 to 70,000 US. That was in a bank account in Europe, some in stocks in Europe, because I was getting paid in euros at the time and I kept it in euros as long as I could. So that was the cash position. I still had quite a bit of student loans. I don’t don’t remember exactly how much, but I was just making the minimum payments throughout on those. Other than that, I didn’t really have any other assets, any other debt at all. That was kind of it.

Scott:
Awesome. When did your stay in Ethiopia end and you came back to the states?

Tim:
We moved back to the states in 2010. I maintained my job with the German company for about another year and a half or so, working remotely from Buffalo, helping them out on a consultancy basis. Yeah, so we continued working for them for about a year and a half.

Scott:
Awesome. Okay. So it’s 2011 and a half. You’ve got 60,000, $75,000-ish in total net worth. It sounds like that’s your time at the German company coming into an end. What happens next?

Tim:
So in that interim period after my first moved home, I was intent on starting a business. I kind of played around with a little importing business with some things from Ethiopia, some iPad sleeves and some other leather goods. None of that was really panning out to the level that I wanted to. And that savings was depleting because I was spending it on possible business ventures. Cost of living here was much higher for us than it had been in Ethiopia. So that savings was dwindling a little bit. And then somewhere in that time period when I was playing around with starting businesses, an opportunity to buy a business fell into my lap. I had thought about buying a business, but I never really seriously considered it because I felt like if somebody was selling their business, it was at its max value and therefore it wouldn’t have very much benefit to me.

Tim:
But with this particular business, it didn’t work out. I didn’t buy that business, but it kind of opened my eyes to the idea of the banks are willing to give me money and the seller might be willing to finance a little bit of that transaction and I can actually buy myself a paycheck day one, as opposed to gambling and starting a business from scratch and never really knowing when I was going to make enough money to actually pay myself. So that prospect of buying a business became much more front and center and much more interesting and I more actively started pursuing businesses to purchase. That is where I transitioned into looking for consulting opportunities for local businesses that needed help with social media. In 2010, ’11, ’12, Facebook was still relatively new especially in the business realm. I had been active on it personally for a while and felt like I could add some value to businesses in teaching them what to do, how to do it, and trying to build their businesses that way.

Tim:
I also had an ulterior motive of hoping to come across a business that was looking to get out and maybe meeting the right person and being able to transition.

Scott:
Awesome. So this is an intentional process to buy a business that you begin in late 2011-ish. And you begin experimenting with things. You’re doing research. You are actively consulting for small businesses from a marketing standpoint, it sounds like. How long has that time period last and what ends up happening?

Tim:
So that was a little over a year. The whole time I was still engaging with business brokers. I was still looking online at Craigslist, bizbuysell.com. I was having regular coffees and lunches with accountants and lawyers that I’m networking with, asking them for leads, telling them what I was trying to do in the effort of trying to find that right business that I could ultimately buy and grow. And that happened around the end of 2012 is when my wine and liquor store came up and I put it under contract.

Mindy:
I have a really quick question. You were looking to buy a business in 2011. That seems counter to what everybody else is doing in the room because weren’t people going out of business then?

Tim:
I guess so. I lived in Ethiopia during the height of the financial meltdown of 2007, ’08, ’09, ’10. For me, it wasn’t as… We didn’t feel the effects as much, partially because I was getting paid by a quasi-governmental company. We were never in danger of losing our funding. They had a multi-year contract with the Ethiopian government. And so I think when I came back in 2010, I knew that there had been a stock market meltdown. I knew that there had been a crisis. I knew that small businesses were suffering to some extent, but it never felt as real to me. I guess, maybe because I didn’t have the assets that lost massive value and I wasn’t actively in it at the time. I mean, and then on the other hand, I guess I’d like to say that I was running in when everybody else was running out.1 But honestly, I don’t think that was the case for me. It was just more of it never felt as bad as it did to other people at that time.

Mindy:
That was the quote that was running in my mind, was be fearful when others are greedy and be greedy when others are fearful. And I was like, “Oh, he’s doing this. So just take the win. I was talking about purpose. I was living Warren Buffet’s life.”

Tim:
Yeah. I wish I could say that was really it. I mean, maybe partially, but maybe subconsciously. But it was more of just I knew that there were still businesses. They were still operating. As bad as it got, there were still other businesses that were successful and still going forward. And to that point, there were some business owners that were tired, that were feeling the effects and were ready to get out. That was when I started hearing that baby boomers were ready to start selling and they were going to be retiring and getting rid of their small businesses and droves. I’m still hearing that today, but…

Mindy:
That’s a really good point. And were you looking specifically for physical businesses or were you looking for online businesses or were you open to whatever?

Tim:
So because of my knowledge of social media and e-commerce to some extent, I was looking ideally for a physical business that had not moved online yet. That was kind of my criteria. I was not industry specific. And in fact, I, at first, just ignored a couple wine and liquor stores that had been sent my way because I knew that selling wine and liquor online would be a huge challenge and I was looking for something that would be a little bit easier transition into the online space.

Scott:
What piqued your interest about this specific liquor store?

Tim:
So when this specific liquor store came across my desk, I guess I just had time to actually look at the numbers. When I did and I saw the location of it, it was a location that I knew from a friend in high school whose parents had moved out to this particular town. I knew that there were more and more people moving out there. It’s a suburb of the Buffalo area. It is traditionally a farming town where there’s lots of land and low taxes. And so people had been moving out there, buying big pieces of land, putting up very expensive houses. But there was also a very good base of loyal customers. The kind of that I still have to this day that are very loyal, supporting small business.

Tim:
At one point before I bought the liquor store in my research about the town, there had been a Rite Aid that had tried to move into the town and the town would not allow it because they already had a locally owned pharmacy. They weren’t going to allow a Rite Aid to move in. So it’s that kind of town, that great core customer base that love small business. And then I knew that there were more and more people moving out there every single year and they continued to move out there.

Scott:
What were the sellers like and their motivations for selling?

Tim:
They were fantastic people. They had owned the store for about 20 years. And again, with buying a business, you get the history of the business with it and that stability that comes with it. The business had been there for about close to 50 years at that point. The sellers that I purchased it from owned it for 20 years. They purchased it from another family that had owned it for almost 20 years who had purchased it from the founders that had owned it for a few years. So the sellers were just looking to retire. The gentleman had retired from a telecommunications company with a nice pension. The wife had been running this liquor store for 20 years and they were just ready to spend more time with their grandkids and travel more.

Scott:
Awesome. So what were the numbers that attracted you? What piqued your interest once you got into the spreadsheets?

Tim:
I guess the biggest thing was that it was profitable enough to pay myself a wage, a small salary day one. And the economics of the town and the products that they were selling, I knew that I would be able to increase the quality and the price points and bring in some different stuff that would ultimately drive sales up quite a bit. But that initial thing was I knew I’d be able to pay myself day one and I knew that there was a huge potential for growth.

Scott:
How did that work between… Was it a pay cut to go and run the business versus your previous job? Or was it about the same? How did that pencil out for you?

Tim:
It was a pay cut from working for the German company, but it was about on par with what I had been making doing the consulting gigs. That was never a super lucrative venture for myself because I never really wanted it to be a long term thing. I didn’t like the idea of getting into consulting long term where I just would be constantly trading my time for money. I knew that I didn’t want to tie myself into that forever.

Scott:
What were some of the big opportunities you saw in the business in this underwriting stage? What were some of the opportunities to build it that attracted you?

Tim:
So product selection number one, but then also technology. The sellers were using an old fashioned cash register. Every single bottle in the store had an old fashioned price tag on it. You know, 9.99. So if somebody bring it up to the counter and you’d hit 9.99, taxable wine. 9.99, taxable liquor. And so the idea of bringing in a point of sales system right away and then also introducing social media. They had no website, they had no social media. I knew that as challenging as selling wine would be online, I knew that I would be able to do it to some level. So I knew that we would be able to expand that way as well.

Scott:
Going to the first one, aside from cutting out work, what are the advantages of installing a point of sale system like that? What business outputs that impact the P&L happen?

Tim:
Number one, tracking inventory. So in a business where you have thousands of bottles or thousands of products in a store at any given time, being able to know exactly how many of those bottles or how many of each product you have is super vital to making purchasing decisions to being able to track what’s selling, what’s not selling, how fast they’re selling, what your gross margins are on various products and various segments of products. Yeah, I mean, those are the biggest things right there.

Mindy:
Information is king.

Scott:
Yeah. Obvious advantage is to being able to drive your business forward few months, few years down the road.

Tim:
Exactly. Yep. So day one, besides tracking the bottles, it doesn’t give you a lot. But now nine years into it, I can still go back and see what products were trending when and you can look up seasonality of different products and sell more. Tequila sales start going up in May. Red wine sales start going up in September. And so we know to adjust our inventory levels based on those things as well.

Mindy:
So a few moments ago you said “I had time to look at the numbers” when Scott asked what made this one so intriguing to you. I just want to highlight that for a moment. If you don’t have time to look at the numbers on a business, don’t buy the business. You have to have time to really digest these numbers. And yes, this was 2011 and we are in 2022 now. Or 2012, and we’re in 2022 now. Still, if you don’t have time to look at the numbers and really understand what you’re getting yourself into, then you don’t have a business that you want to be able to purchase. And that also includes anything, like any kind of investment. If you can’t digest those numbers, if you don’t understand what you’re getting into, stop and take a minute.

Mindy:
In the spring we had this super high real estate market where people were like, “I’m just getting in with both feet.” And I’m like, “Ooh, that’s such a bad idea unless you know what you’re doing already.” But I want to look at the numbers that you were looking at at the time because you didn’t… I mean, you bought a really, really nice business for not a huge amount of money out of your pocket.

Tim:
Yes. Yeah. I agree 100%. It’s important to look at the numbers. And it’s important to look at the numbers repeatedly. I think Brandon Turner says it all the time, just analyze property. In the real estate world, analyze as many properties as you can and you’d start building that muscle for how to do it. And with this one, when I looked at the numbers, I would have just ignored it because it was a wine and liquor store, but I decided to look at the numbers and I was really impressed with the numbers so I dug further.

Scott:
Let’s go… What were the numbers? And how’d you purchase it?

Tim:
Yeah. So they were doing about $600,000 a year in sales for the previous couple years prior to me purchasing it. Gross margins in wine and liquor stores are about 25%, maybe a little bit higher if you’re doing really well and finding good deals and a little bit lower if not. They were on the lower end of what should be expected. So I knew that there was room to improve the margins a little bit.

Tim:
I think that goes back to the point of sales question too, Scott. I think the way that… If you’re not tracking every day what you’re paying for your products and what you’re selling them for, you can kind of get lost in the shuffle. And that’s something we routinely review nowadays just in case we miss something. The sellers were taking a salary of about $100,000 a year. And so, in profit they weren’t showing a ton of actual bottom line profit, but I knew that between the investments that I wanted to make and technology and purchasing more inventory, there would still be enough leftover to pay myself at the end of the year as long as the sales continued to be where they were. But I had aspirations of improving those sales right from day one anyway.

Scott:
Awesome. What did you purchase the business? What does a business like that sell for and how’d you finance it?

Tim:
Yeah. So the purchase price for the business, which was just basically the assets, the inventory, the shelving and equipment, and the goodwill of the sellers was $200,000. So the goodwill is basically everything intangible about the business. Sorry. Correction, the inventory was not included in that $200,000. That was on top of the $200,000. So most of what I’m purchasing for that $200,000 is just the name, the shelving which is really not worth much on the secondary market, and the kind of the goodwill of the sellers. And then the inventory was anticipated to be around $150,000 when I purchased it. Again, because they didn’t have a point of sale system and an inventory tracking system, they didn’t know exactly how much inventory they had. So it was agreed that we would count it right before closing and that would be the final number. So it was $200,000 plus the inventory of what was supposed to be about $150,000.

Tim:
I applied for bank financing. My offer to them was the 200,000 plus the 150,000 for inventory. So 350,000 total. I applied for bank financing of around $250,000. I asked the sellers to hold a note of about $50,000. And then I was going to put in the other $50,000 myself. That was the original plan. The bank actually came back to me pretty quickly with an approval of the loan, but they wanted to give me more money than I asked for because they wanted to make sure that I had enough working capital to cover expenses and to make some improvements, make some investments in the business.

Scott:
What bank did you go to for this?

Tim:
This was through a regional bank called M&T Bank. They are very well versed in SBA financing. If you’re going to be buying a business, I would highly recommend finding a bank that has experience with the SBA, the small business administration, because the SBA essentially helps the bank guarantee the loan. So the banks feel there’s certain parameters that they have to follow and boxes that they have to check with a buyer and with the business, but essentially the SBA will back or guarantee a certain amount of the loan for the bank so they can feel a little bit more comfortable making a “risky” investment.

Scott:
Awesome. And so it sounds like they were very comfortable with this type of project. And the seller financing, is that a common tool used in this type of purchase?

Tim:
I believe so. It’s something that I was highly recommended to ask for and to do. The banks and the SBA actually really like to see that on top. It helps them get the approval for the loan faster because they know that if the seller’s holding a portion of the note, that the seller knows that it’s not just a complete bomb of a business. If they want to get paid out, they’ve got to make sure that the business continues to run. And that means being around to answer questions if something comes up down the line. I think officially we had like a two week consulting period tied into the contract. But in reality, unfortunately though, the woman passed away a couple years ago, but her husband still comes into the store and I could still, in theory, ask him questions if I needed help with something. So they have that vested interest in making sure the business carries on and succeeds because they get paid only if the business continues and succeeds.

Mindy:
If you could go back and rewrite the contract, would you continue with just a two week consulting period? Or would you make that a little longer? That seems short to me, but I’ve also never bought a business.

Tim:
I think it really depends on the type of business. I was comfortable with that because I also knew that the sellers… Or I was fairly certain that the sellers were going to let me start coming around prior to closing the deal. So I did learn a lot leading up to that. It might have been a two week hands on and then a couple months where they had to be available for questions or if I had things that needed addressing. But yeah, I think depending on the type of business, I would recommend a longer period. If it’s something that is really complicated and hard to wrap your head around, then you’re free to ask for however much you want. Some people don’t want the old owners to stick around because they might be set in their ways and they might not like what you’re doing with their baby and their business. So it may or may not be beneficial always to keep them around.

Mindy:
That’s a really good point. Okay. Well, let’s talk about the slight changes that you made to this company as soon as you bought it.

Tim:
Yeah. So, as I mentioned earlier, the point of sale system was the first and biggest thing. And again, being able to get in there a little bit early, I went through in the weeks leading up to the sale and scanned in every single SKU in the store so that the barcodes were all in my system, ready to go day one. I got spreadsheets from the distributors. So the sellers just wrote everything. They wrote their orders down in a marble notebook every day, every week of what they were going to. So I was able to contact the distributors and get spreadsheets printouts of what had been ordered over the last few months. So I had product titles and I had cost of goods amounts that I could put into my system. And then I could read the sale prices on the shelf and put the customer facing sale prices in the system.

Tim:
So that day one, we were scheduled to close on a Monday morning in May. Sunday, we met at the store probably about 8:00 AM, Sunday morning. I had like six or seven friends that came with me. The seller had six or seven people that they knew and trusted. Everybody paired off, partnered off. And we went through and counted. I had printed off my spreadsheets of all the products that I thought were in the store at the time. And so everybody went through and had different sheets and counted every single bottle in the store. I spent the rest of Sunday night inputting all of those quantity numbers into a final spreadsheet and into my point of sale system so that we could get a final cost of all the inventory that the sellers then double checked themselves.

Tim:
And the final cost of the inventory actually ended up only being a little over 100,000 instead of 150,000, which is a little thing to be aware of, I guess if you’re ever to buy a business, to plan for different contingencies on whether the inventory is going to might end up higher or lower at closing if there’s not a good system in place where they can give you an accurate projection. Because in retrospect, if the inventory number had been significantly higher, we might have had problems at the closing table with where the additional money was coming from to buy it. But because it was lower, it was beneficial to me. I was able to put some extra money in the bank account to have some additional working capital. So that point of sales system was the biggest and first thing that we did.

Tim:
Number two was setting up the website, social media accounts, which I had started getting set up before closing. And so we started rolling with those right away. And when I say we, I mean me. It was all me at first. And so just regular posting every day, multiple times a day. Introducing people to new products, teaching them about the differences between products, terminology, all those kinds of good things. And then eventually I got into payroll software and hourly employee time tracking software and building out standard operating procedures. I have a library of screen recordings of how I do different tasks so that my managers and assistant managers, if they forget how they were taught something, they can go in and look at those videos and see the screen share of how it was done, which is I think those types of things are super helpful for any business owner.

Scott:
Let’s zoom in on the first year. So you did $600,000 in sale prior to closing, prior to you buying the business, and about 150,000 in gross margin. Now, did the business come with real estate or was there a lease attached with the business?

Tim:
There was a lease. Actually, there wasn’t a lease. I had to sign a new lease in order to get my liquor license. They had been in the same location for the entire life of the business, which about 50 years at the time. The landlord had purchased the building I think in 1970-ish. And then he built out an additional plaza next to it. But it was a lease. Yeah, we were leased. And I signed a five year lease to start out with.

Scott:
Okay. So 150,000 in gross profit minus the cost of the lease and then any employees you pay. So what does that come out to like? 80,000 in profit potentially?

Tim:
Yes, but it wasn’t that much the first year, because it went right back into additional inventory, the website, the point of sales service, the iPads and some of the technology kind of ate into that the first year. So it was considerably lower the first couple years.

Scott:
Awesome. And what’s your life like this during these first couple of years? How much are you working and how much are you able to generate in net profit or wages from the business for yourself?

Tim:
I started out paying myself about $500 a month the first few months. And then I started increasing that to $500 a week when I felt a little bit more comfortable. My wife and I were living very frugally. We had a, let’s see, she would’ve been about 18 months at the time, our new baby. So we were living as frugally as we could with a newborn child. We were renting an apartment at the time. We had kind of, as you may have mentioned earlier, we kind of put everything we had into this business. Working for a German company, and prior to that being a volunteer, I had never had a 401(k) or an IRA or any type of formal retirement plan. So everything I had was semi-liquid after tax stock portfolio.

Tim:
So we liquidated everything, put it all into it. So we were watching our pennies very closely the first couple years. I was working 50 plus hours a week. Most of that was by myself in the store. I only had a couple part-time employees to start out. I could have hired more right off the bat, but we probably would’ve only been eating ramen, which wouldn’t have gone over so well with the baby. So yeah, it was a pretty tight first couple years, I would say.

Scott:
When did things start improving for the business or when it began growing?

Tim:
It did start growing right away. I had a goal of 10% sales growth every year. We mostly hit that every single year since then. Fell a little short a couple times. So it was growing. I was just choosing to reinvest a lot of that money into growing the inventory and constantly then starting to hire more people that I could lean on a little bit more so that I could free up more of my time to think bigger work on the business instead of in the business. Even though there was on paper what looked like a pretty decent bottom line coming into the business every year, a lot of that money I just kept rolling right back into the business as a means of growing and looking at the longer term bigger picture.

Scott:
Does more inventory mean more sales in your business?

Tim:
Not direct correlation. Just because you have the inventory doesn’t mean you’re going to sell more but-

Scott:
More selection?

Tim:
It’s hard to… Yes. So bigger selection, adding more products is very important. Especially nowadays it’s a constant. We see now more than I’ve ever seen in my nine years in the business, people are grabbing something different every time they come in the store. They want to try new, new, new, new. And the big brands are rolling out new products constantly so it’s a balancing act of trying to bring in as much new stuff as we can without getting stuck with too much of the old stuff. And that’s everyday challenge.

Scott:
When did you feel like you had a business that could produce a really comfortable amount of income to give you a good quality of life and more free time? Where is an inflection point in this journey?

Tim:
I don’t know if it’s… Well, two different things. So I think it could have produced a decent quality of life for me in year three maybe, somewhere between two and four if I had chosen just to stagnate the business and not reinvest constantly in inventory and new technology and trying out new things. I tried launching a mobile app a few years ago that didn’t really take off, that we invested quite a bit in it.

Tim:
So I think early on I could have set a life where maybe I was working 40 hours a week, 40 to 50 hours a week and making a decent living, but just knowing that I wasn’t going to get a ton of vacation time and I was going to spend most of my days at the store. But I didn’t want that. I wanted to build a business that ultimately wouldn’t need me there every single day. So I pushed that further than it needed to be. I would say the real inflection point where I’ve been able to kind of step back and not be in the day to day and still bring home a decent dividend and paycheck was in the last two to three years.

Scott:
Awesome. What changed or what [inaudible 00:43:56] about that outcome?

Tim:
Partially, sales and margins and profit were where they could be to sustain me and my life and pay enough employees and management and people that have the responsibility to do good things at the store. And part of it was, I now have three children, a 10 year old and two 6 year olds that I enjoy spending time with more. My commute to the store is it’s about 40 minute commute to the store for me. So an hour and 20 minutes a day was something that was starting to get a little bit tiresome for me so I wanted to make a commitment to go less days so that I am not burning up that time during the week.

Mindy:
Do you have any plans to open up a second location?

Tim:
That’s probably one of the most frequent questions I get, and the answer is no. It’s two part. Number one, in New York state, an owner can only own one liquor store. We are a non-chain state. So in theory, my wife could open a store and she could run and manage her own [inaudible 00:45:09].

Mindy:
I was going to ask that.

Tim:
So that is a possibility. I’ve been approached by other people that wanted to do joint ventures-ish and let me run it from behind the scenes. I also don’t like the idea of putting all my eggs in this basket either with being in such a highly industry and one change of the law could change my profitability quite drastically overnight. So the big thing in New York state is that the grocery stores cannot sell wine right now, but they make a constant push to be able to sell wine. We make better margins on wine than we do on liquor. So if the grocery stores are allowed to sell wine, our margins would go down. And for as many people that say, “Oh, we would still shop here. We would still shop here,” I know that everybody has good intentions in their heart. I would love to buy all my meat from a butcher shop and all my flowers from a florist and all my bread from a baker, but how many of us really do that in reality nowadays? It’s just so much easier to grab all of those things at the grocery store.

Scott:
That makes perfect sense to me. But financially, what changed there? And how did your business run in perhaps the last year or the year before? What does it look like after nine years of growth and what you’ve done to it?

Tim:
So I hired a really good manager, somebody that has been working for me for quite a long time now. He actually started as a one day a week part-time person. And then 2018, I believe I was hiring an assistant manager. So he applied for that job and started working full-time for me. And then over the last year, at the beginning of this year, end of last year, he’s transitioned into a full-time general manager. So he takes on much more responsibility for me. He’s doing the scheduling. He’s in charge of the staff. He’s in charge of all of the ordering, charge of scheduling, tastings. Most of the day to day, I still handle the bookkeeping and the actual payroll and some of the marketing tasks as well.

Tim:
I’ve also kind of given more responsibility to some other employees. I have an amazing employee that’s taken on a lot of the social media posting and responding to comments, engaging with people. I have other employees that have really stepped up in helping my manager with inventory management, making sure that we have the space. One of our biggest challenge is always finding enough space in our store to put in the inventory we want to carry. So I have another amazing employee that’s kind of really taken that under her wing and being responsible for the inventory. So it’s really delegating and being able to trust some of these amazing people that have helped give me some of the freedom back.

Scott:
Awesome.

Mindy:
How many hours a week are you working right now?

Tim:
My goal for this year was to be at the store 10 hours or less per week. And for the most part, I’ve hit that this year. There’s been a few weeks, there’s certain times where I step in more in certain times where I’ve been able to do a little bit less. So I’d say I’m pretty on course with my goal this year.

Mindy:
And what about next year?

Tim:
Probably the same. My biggest thing is whether or not I want to hand off bookkeeping partially because it’s something I know that I could hire somebody to do pretty easily, but it’s something that I really enjoy doing and it’s something that allows me to keep my finger on the pulse of knowing exactly what’s going on on a regular basis.

Scott:
What does the business look like today in terms of size? It sounds like it’s probably thrown a lot and increased in value. Do you have any thoughts around that?

Tim:
Yeah, so I would say that we’ve at least 4Xed in total value from the time I’ve purchased it. And then if you add in inventory, it would be substantially more. We carry about three and a half times more inventory than I did when I bought it and we’re turning it over much faster than we ever used to. So that’s a fine line in any inventory heavy businesses, making sure that you can turn that inventory on a regular basis. I was given the advice when I got into this by another liquor store owner that said 90 day turns. So you want to sell your inventory every 90 days. All of it should turn over every 90 days. So four turns a year. And we’re hitting that, plus a little bit more right now over the last couple years. So I’m happy with that. So yeah, the equity wise for the little I invested in it, cash, has gone up exponentially.

Mindy:
Do you have any plans or opportunity to expand this location? Like, if you’re in a strip mall and then the directly next door unit goes vacant, can you expand that way? Do you have the ability to do that? I don’t know how liquor licenses work.

Tim:
In theory, yes, we could. My focus over the last couple years has been growing online so where we can just pack and ship and not have to build out the retail front anymore. I am in a strip mall. I actually was able to purchase that strip mall in 2019.

Scott:
What?

Mindy:
Wait.

Scott:
Yeah. Yeah.

Mindy:
We didn’t talk about that. Did I miss that part of the story?

Tim:
I guess so. I consider that part of my real estate journey, so I kind of don’t bring it up in the liquor store. But I guess to that point, I guess one of those reasons that I didn’t transition sooner into a more passive role is because I was constantly looking to reinvest my money. So I had an opportunity in late 2018. The owner of the Plaza was looking to retire. He had always told me, “I had been…” Again, this is one of those things where you just ask, you constantly put it out there what you want.

Tim:
I had kind of been asking him or bothering him every few months for the time that I had owned the liquor store that if he ever wanted to sell the plaza, I’d be interested if he ever wanted to sell. And in mid to late 2018, I happened to be talking to him and I said it again and he’s like, “Oh yeah.” He said, “Somebody was just offering me money for the plaza. I was thinking about taking it.” I was like, “John, I’ve been telling you for years I want to buy the plaza.” He’s like, “Oh, I didn’t think you were serious.”

Mindy:
People have said that to me too.

Tim:
Yeah. That’s amazing. And that’s just to that point of really just constantly hammering the point to everybody around you of what you’re looking to do really pays off. So I did purchase the plaza. I have an amazing tenant in the unit next to my liquor store that will be there for a while. It’s a weird plaza. I think I mentioned earlier my former landlord bought the liquor store building and then he built out the plaza next to it, but he left about a four foot gap in between my store and the next unit. So he kind of built a new building. So if I did ever want to knock down the wall, I would have to knock down two walls and try to connect them. It would be a much bigger project than just knocking a hole in one wall unfortunately. So it’s a possibility. It’s not highly likely right now, but I wouldn’t ever rule it out in the distant future.

Scott:
Okay. Well, let’s zoom out here because we got a lot to cover now and we are actually almost an hour. Okay. So we have a business that you bought for… You put everything into it in 2011, 2012 and had a successful outcome here. You’re able to generate a good amount of income. Certainly not a crazy amount of income. Probably not anywhere close to six figures for the first couple of years. Rounding out six figures I’d guess in the later years. And now it’s in that ballpark passively or semi passively today. Is that a good way to frame it?

Tim:
That’s a very good assessment. And I guess full disclosure, I put about everything I had at the time in 2013, it was about $35,000. So that was everything I’ve put into it. I was supposed to have a little bit more at closing, but luckily because of the bank financing and the seller financing, I didn’t actually need it. So I was working on ways to get that prior to closing.

Scott:
Now, I want to point out that you could have probably gone and got a job that would’ve paid more immediately in those first 3, 4, 5 years.

Tim:
Correct.

Scott:
But you wouldn’t have been building asset that’s worth close to a million dollars today during that same period of time and you’re probably generating more income passively today than you would’ve otherwise. You had to work harder and for less money for a few years and take some risks. But now you’ve got this situation. And that’s before we get into your other investing activities. So let’s zoom back to 2012. Can you give us your investing journey up until this point as well? Well, in parallel to the building of the business here.

Tim:
So investing parallel to when I purchased the business was basically nothing. So when I took everything out of my stocks, I took everything out of my savings accounts, I put it all towards this business. And then every dollar… I mean, I guess in reality I was reinvesting in the business all those years. So instead of pulling that money out and giving myself a 401(k) or a self-directed IRA, whatever, I was just taking every profit. I was paying down the principle of the loans, so there was substantial debt payment for the first five, six years. And then I refinanced that at one point, and so extended it out a little bit longer. I just finished off paying the primary loan in 2020.

Scott:
Was that a cash out refinance?

Tim:
Yes. So what I did, I would say probably in 2015 I think I saw the interest rates potentially starting to go up. And with an SBA backed small business loan purchase, it generally is a variable rate. And so I knew that I didn’t want to be in a variable rate forever. And so I think around 2015 I talked to my bankers, and because I had this couple year history now, they were able to get me a locked-in rate. I took out enough money to pay off the seller’s portion of the loan as well, because they were actually at a higher rate than I had been paying the bank. So I paid off their… And I negotiated with them and got them to take a little bit less money because they were going to get the rest of their money faster. So they knocked a couple thousand dollars off of what I owed them.

Tim:
So it was a cash out refinance, but that cash went right into paying off that seller note. So then I was down to more one consolidated loan. Actually, it wasn’t consolidated. For some reason, they kept my original loan. They locked-in the rate. The bank gave me a second loan even though I wanted it all consolidated. But they gave me a second loan. So the first loan got paid off last year. And that second loan I have, I think, about six or seven more months of payments left on.

Scott:
Awesome. Okay. As those years are passing, you’re accumulating cash to some extent because I assume so in order to purchase the strip mall that you purchased there. How does that come to be? And what other investments are you making in those years, the last 5, 6, 7 years?

Tim:
I think actually in early 2018, I got introduced to BiggerPockets. I really hadn’t been accumulating much cash prior to that. Really, everything went into my cost of living personally and back into the business. In 2015, my wife and I bought our primary residents. We bought the house that I grew up in actually from my mother who was looking to downsize. With the bank, she was able to gift us the down payment. So basically raise the purchase price of the house, gifted us the down payment. And then the bank covered the other 80% of the purchase price on the mortgage. So that was a very fortunate situation for us to buy our primary residence.

Tim:
And then in late 2017, I got the real estate bug. Growing up, I just always had an inclination of wouldn’t it be nice to own a lot of real estate, but it was always something I thought you needed a lot of money to get into. And so in early 2018, I got introduced to BiggerPockets. I started listening to the podcast. I started making a couple offers on some BRRRR opportunities on doubles and singles. Nothing was happening in that front. And then that’s when my landlord said he was willing to sell. I was actually able to purchase the plaza with 100% financing. So I didn’t need cash to purchase it. He was willing to hold a note for 90%. And I found another private lender that lend me the other 10%. And because it wasn’t with the bank, he didn’t seem to care that it wasn’t actually my money that going into the down payment. So it was 100% finance. So I didn’t need cash to invest in it.

Tim:
It’s really only in the last couple years that I’ve been starting to accumulate cash and making some more real estate investments. I’ve also been maxing out, my wife and I, our HSA. Last year was the first year we ever did a Roth IRA because we just never had the cash to do it prior. My accountant would always suggest doing a self-employment IRA, but I always chose to use the cash to kind of reinvest in the business and have it available. And then these last couple years, start having it available for more real estate purchases.

Scott:
Awesome. So what’s your portfolio look like today? You’ve got the strip mall in various stages of being paid off with the seller financing loan. You’ve got the business. It seems like it’s thriving. And you’ve got a couple of other rental properties.

Tim:
Yes, we have… The plaza I owned by myself and then I partnered up with somebody that I had been doing business with for a few years who was a general contractor. Together, the two of us own… We had eight units. Until a few weeks ago we just closed on a 28 unit portfolio, which is seven quadplexes. And that we were planning to BRRRR all of those in over the next 12 to 18 months.

Scott:
Wow. So the last three years have been huge for you. They’ve really been a transformational in terms of your overall financial position and your business.

Tim:
Correct. Yep. I think a lot of it comes down to being able to… I built the business to the level where I have the employees that I can afford to pay well to do what they do and give me the more time, just even mental time to focus and think about other projects.

Scott:
Awesome. So what’s next for you?

Tim:
That’s a good question.

Mindy:
Isn’t this enough?

Tim:
I’ve always liked teaching people. I’ve never wanted to be a teacher. Actually, when I got assigned to the Peace Corps, I told them I would go anywhere in the world and volunteered, do anything they wanted in the world except for being a teacher. And they put me in a school and told me I was going to be a teacher. Never liked it, but I like talking and teaching other people. I’ve been toying around with the idea of trying to help other people that are interested in small business, like get their small business off the ground through coaching or through helping. I’m also always looking for other small business opportunities. If the right opportunity came across my plate, I would gladly purchase it and do this whole process again.

Scott:
You know, I’ll discuss this in the intro as well, but there’s 12 million estimated baby boomer owned businesses that are going to be for sale in like the next 10 years, I think it is. That date is like a couple years old next decade or so. And so there’s nobody to buy a lot of these businesses out there. They’re just going to fold or they’re going to keep getting the price hammered down or whatever. This is an opportunity for businesses that have been owned, family owned for many years that have not embraced technology, to your point, that have lots of different creative problems that involve family members who are employees and those types of things. And that knocks the sale price down, right? I mean, you bought a business for $200,000 that generates 150,000 in gross margin, right? That’s one and a half times cash flow. That’d be like buying a $200,000 property that produces $150,000 in cash flow or NOI, right?

Scott:
I mean, you do the math on the cap rate from a real estate perspective. If you’re willing to do the work here, there are chances. Now you can’t sell the business for a 7% cap rate in a few years with that, but this is an opportunity for entrepreneurs. And if you’re thinking, “Hey, I can either earn 50,000, 60,000 $75,000 a year at my job, or I can earn slightly less but be building an asset that can give me a lot of options five to six years down the road,” this is a great potential alternative for folks to consider.

Tim:
Absolutely. That’s what I tell people all the time. I mean, I get called brave a lot for like jumping in and buying a business. I kind of embrace that a little bit and tell other people to be brave, take that chance. But it’s also, I think it’s almost more risky to sit in a big corporate job for your whole life. I was just talking to somebody yesterday at a get together who’s about to getting ready to lay off a whole department of people because their revenue is down so much. Those are the types of people that I just think they took that job because they felt like they were going to be secure and that was the secure thing to do and the safe thing to do, but they have no control over when that company is going to say, “Yeah, you know what? We don’t need you anymore.” To go out and take your own destiny and your own hands and do something that you can be creative with, have fun and grow on your own is the way to go, in my opinion.

Scott:
I think a lot of people will agree with you.

Mindy:
Yeah. Well, what I’m hearing you say is that you have grown this company, and then now you’ve passed it off the day to day to other people. Should something happen in your life, you could take back those hours and generate more income for yourself. You could start taking money out of the business instead of reinvesting it in the business. You have a lot more options for this. But at the same time, I’m also reading news stories that say, “It’s so hard to hire people. It’s so hard to find people.” And I’m seeing news stories that are saying, “Well, actually, you’re just not paying people enough.” So how do you find that balance of paying people enough that they want to come to work every day and at the same time not giving people so much money that you’re like, “Well, I could just do this myself and make this kind of money.”? How do you incentivize people to come and how do you find really good people? Because I mean, when you find somebody, they should be worth their weighting gold, but you can’t do that because then you-

Tim:
It’s very tough. I don’t know how my employees will feel when they hear this and what they think of whether they’re paid enough or not. I feel like I do a very good job of attracting amazing people. My staff, every single one of them is awesome in their own way. I’ve had a couple bad eggs over the years, but for the most part I’ve had just really solid people. One of the things that I try to do personally in my business is flexibility to the extent that I can. We are a brick and mortar business with set opening hours. So we do need bodies there at set times. But with my different employees, I try to be as flexible as possible to their needs. I have a couple moms with kids that work for me that their summer hours have to change a little bit because now the kids are home all day every day.

Tim:
And so we try to adjust our schedules. We try to make due with what we have without over-hiring either because it is a… I could just go out and hire more people and have overstaffed, but to your point, I don’t want to get in that situation either where I’m unnecessarily paying people to stand around and do nothing because there’s not enough to do. So that’s the number one challenge. I think it’s the number one challenge for every business. I’ve been in some business mastermind groups over the years, and it’s always no matter whether you’re the Fortune 100 company or the hiring your first employee company, employee management and retention is generally on the top of everybody’s mind.

Mindy:
Well, as an employee, not the one who’s hiring, I will say that when I feel respected and listened to by my boss, there is nothing that I will not do for them. And when I feel like they don’t care and my opinion doesn’t matter and my feelings don’t matter and they’re like, “Well, that’s the schedule. You’re going to have to work around it,” I will do nothing for them. So a little bit goes such a long way. “Oh, you can’t work at 9:00. You can work at 10. Great. I’ll never schedule you at 9:00.” Write that down. That’s so easy to not do. But when you’re like, “Well, you’re going to have to figure it out. You’re the employee.” Nope, there’s a thousand places that are hiring right now. I can just go get a different job. You’re the one that’s hosed. How long does it take to hire? So I get that it’s frustrating to be the employer, but I get that… Like, I’ve been an employee a lot and it’s so easy to make your employees happy.

Scott:
Well, I completely agree with all that, right? I mean, yeah, you need to make it a wonderful workplace to attract good people so that they want to stay and do their best, right? And that they’re encouraged to think about ways to improve the business in a general sense as well, not just do the minimum with that. It sounds like that’s what you’ve been able to attract, Tim, to your business.

Tim:
Yeah. I’ve tried my best. I mean, yeah, the respect thing goes a long way, in my opinion. I hope that I’m doing that every day. I’m sure I’ve fail once in a while. It’s human nature. But I think the bigger challenge for me and for any business owner is now that I’ve put another level of management in and I’m there less, it will be… Hopefully, I’ve led and coached up my manager enough that he can carry on that same level going forward.

Scott:
Let’s just wrap this up with one last question here. What do you think is the best advice for somebody who’s trying to navigate a similar process and wants to buy a business? They’re agnostic about whether it’s a liquor store or carpet cleaning or whatever, right? Any type of shop. What’s the best thing that they can do to get started to follow in your footsteps?

Tim:
I would say really just starting to pay attention to what’s around you, starting to engage with the small business owners that you come into contact with on a daily basis. If you need to take a glance at your credit card statements and highlight all the local businesses you hit. And if you don’t have any on there, just make it a point to start shopping more locally and interacting with the people that you come into contact with at those businesses.

Tim:
I would say get your finances in order as well. I mean, with SBA financing and seller financing, there are opportunities out there to get a business with 0% down. But I wouldn’t bank on that. I think you’re going to need to save some capital to go into a business, even if it’s just for having something to live off of if things don’t start out on a great footing. So get your finances in order, get your credit score up. Start living a little bit frugally. Save some money, put it aside to kind of get on that journey. And then talk to as many small business owners as you can. Like I said, be brave, be intentional and be zealous. Just go out there, take that chance. And then be very intentional about it and pursue it every day until you get what you want.

Scott:
I love it. I think it’s a huge opportunity area in this field in a general sense for those who are willing to put in the work. This is a great way to make couple million dollars over the next five, 10 years if you’re willing to put in the work. I think it’s going to involve sacrifice and a few first hard years. But at the end of the day if you do it right, you can buy a business that needs technology and automation, that kind of stuff. And when the business transforms from what you bought, which is an owner operated business into something that runs itself, that’s multiple expansion. You don’t sell that business for one times cash flow at the end of that stage. You sell it for three to four times cash flow most likely. So you’re not only increasing the profits, you’re increasing the value of the business that a buyer would be willing to pay by a significant magnitude.

Tim:
Exactly. It’s one of the things that I was planning to mention as well. When you are looking at a business to buy, pay attention to those things, like how much time does the current owner put into the business, him or herself? Is it something where they’re saying that they’re doing 40 hours a week, but they’re actually putting in 70 or 80? Not that you shouldn’t buy it, but you should be aware of it and know what your plan is going to be to deal with that. Yeah, there is some sacrifice. From my perspective, I could have taken that $35,000 and put it in index funds and let it ride for 10 years and I probably would’ve been all right, except for these last couple years, but it wouldn’t have generated anywhere near the amount of equity that the business has done.

Mindy:
I just want to highlight. You have to be willing to put in the work. This is not something that you are going… You’re not going to find a business that is worth buying that has the huge potential upside and then just sit there and do it the same way that it’s been done or not put in the work yourself and hire somebody to do it. There’s a lot of upside in a lot of these businesses because they haven’t kept up with the times, but you have to bring them up to current technological standards, current industry standards, current whatever standards. That’s going to take a lot of work. And if you’re not willing to do it, then you’re not going to see these gains. Tim spent a lot of time working in this business, and now he is reaping the rewards.

Scott:
That’s right.

Mindy:
What do we say, Scott? He’s an overnight success in nine short years.

Tim:
And it’s just like equivalent to real estate because I know a lot of the audience is into real estate as well. Mindy, you go out and buy houses that need a lot of work and then you fix them up and then they’re worth more money. If you went and bought the house that was all pretty and nice and had everything perfect and then you tried to sell it a few years down the line, you probably wouldn’t make as much money on that sale as you do the way you do it. So it’s that, yes, you have to put in the work. You can buy businesses that have management in place and that have all the technology and are ready to go. Those might be great investments as a passive investment for an accredited investor that’s just looking for another revenue stream that has already made a substantial bit of wealth. But if you want to grow your equity, you need to be able to put in the work.

Mindy:
Yeah, there’s turnkey real estate investing and turnkey business investing. There’s fix and flip business investing and fix and flip real estate investing. There’s buy and hold real estate investing and buy and hold business investing. It’s all the same thing. It’s just how much… And be honest with yourself. What is your level of interest? What is your level of experience? What is your level of desire to fix this business, increase this revenue? If you want something that’s going to kick off a lot of cash flow instantly, you probably don’t want to buy this business that needs some work. If you want to just, “Whatever. I don’t want to do anything,” then don’t buy this rehab business that you need.

Scott:
I’ll tell you what though. I think this is the biggest opportunity in America right now, is this business asset class. I think the opportunity for multiple expansion, buying for one times cash flow and selling for three to four over a five to seven year period with a good amount of sweat equity, there’s nothing else like it right now. I think that there’s a lot of… Like if I was starting over at 23 and went on this journey, I would be house hacking and then looking for a business like this to buy in some sort of avenue like this, a small local business that had been run for 30 years by a retiring couple or individual who wants to sell that and keep the business moving on with tons of opportunity to bring it into the 21st century from a process standpoint. That’s where money is to be made.

Scott:
And it’s too small of an asset class for the big boys on Wall Street to compete with. It’s too big of an asset class for many folks that don’t have good personal financial situations to pull down, because you do need to have $35,000 and be able to take out 100,000 or a few hundred thousand dollars in small business loans to finance. So I think it’s a perfect sweet spot for a lot of folks that are looking to achieve financial freedom over a five, seven year period, with work.

Tim:
Completely agree. Yep. The opportunities there, just saving up that nest egg a little bit. And then the financing’s there. The banks are willing to lend. Even now I was looking at a laundromat recently that in middle of April I was quoted a low 4% interest rate for an SBA backed loan. Because some of these loans are still coming directly from the government, they’re at much lower rates than the 30 year mortgages are right now.

Scott:
Better than a duplex.

Tim:
Exactly. So every opportunity is a little different. That was a unique situation. It might not be that way for every laundromat out there because that involved real estate as well. But the financing is still there. And seller financing, to your point earlier, Mindy, when you asked about 2011, “Was that a good time to buy a business?” I would argue that today with everybody talking about recession on the horizon and inflation going where it is, this is prime time to find those people that have been around for a while that have been running their business somewhat successfully, been taking enough home that they’re comfortable, but now the last couple years have been tumultuous and then we’re possibly going into a recession. They might be ready to get out and they might be willing to hold that note because they know it could be tricky for you to come up with enough cash to buy them out.

Mindy:
That’s a really great point. I want to give you a little bit of advice on laundromats. I have a friend who has a laundromat and he is very handy with fixing washing machines himself. And he said if he was not, it would not be a good investment for him. So if you don’t know how to fix washing machines and dryers… And dryers, they’re easy to fix if you know what you’re… Everything’s easy to fix if you know what you’re doing. That was stupid. But dryers are easy to fix. They’re not complicated machines. Washing machines are way more complicated. And if you don’t know what you’re doing, you’re going to be spending a lot of your cash on repair people. I mean, they break frequently because they’re being used all the time.

Tim:
Yeah. Good to know. Yeah, I, ultimately, did not go forward with that, but those were all brand new machines. So that was one of the reasons I liked it because they were under warranty for a little bit longer.

Scott:
You can just stock up on parts.

Tim:
Exactly. Yeah.

Mindy:
Well you can have all the parts you want. If you don’t know where they go, you just have a big pile of parts.

Tim:
I’ve tried to fix my own dryer with YouTube videos. It didn’t go well. The appliance guys still came. It seems simple when you watch the YouTube video.

Mindy:
Carl was able to fix our dryer.

Scott:
Not all of us can be Carl, Mindy, unfortunately.

Mindy:
Well, I’m sorry that you can’t be Carl because he’s pretty awesome.

Scott:
Well, Tim, this has been fantastic. Thank you so much for sharing your remarkable story here. What is the most remarkable thing about your story is how unremarkably it started from a financial perspective. You joined the Peace Corps, lived abroad, started your business with $35,000, really close to nothing besides that. Put everything into the business. I mean, this is something that a lot of people I think can repeat to a certain extent, is the success that you’ve had. All it takes to get to that overnight successes is those nine years of hard work in between. And then you have all these incredible life options. So thank you so much for sharing the story and for the powerful lesson that I think it will hopefully bring to a lot of listeners.

Tim:
Thank you for having me. I hope that it resonates with some of the listeners. And if anybody needs help, I’m happy to chat.

Scott:
All right, Tim. Before we head out, I think we’re going to skip some of the famous four today, but we want to hear two of the most important question, which are, where can people find out more about you and what is your favorite joke to tell at parties?

Tim:
So my favorite joke to tell at parties is something my 10 year old found in her daily dad jokes. It is, what do you get when you mix alcohol and literature? Tequila Mockingbird.

Scott:
Ah, that’s awesome. That’s a really spirited joke.

Tim:
She saved that for me because of my imagery. And people can find out more about me, I am on Instagram, Tim, @tdelaney. I have a website that I set up called the powerofbiz.com. If you go to powerofbiz.com/bpmoney, I actually put my Excel spreadsheet up there for people to download so that they can kind of a very basic how to analyze a business. If it helps anybody else, I’d be happy.

Scott:
Awesome. We’ll link all of those things at the show notes so you can find all those links and find Tim and all his stuff there. So do you have any tips for lead generation?

Tim:
No.

Scott:
Okay.

Tim:
I’m [inaudible 01:20:58].

Scott:
Well, Tim, thank you so much. Great to have you on the show today. We appreciate it. Best of luck with all the ventures that are going on right now.

Tim:
Thanks very much. I appreciate it. Glad to be here.

Mindy:
All right. That was Tim. That was an amazing story. Scott, that was a great find. I love his story. You found Tim and suggested we bring him on the show. And like you said in the intro, if you have a great story about buying a business or starting a business and growing it, we would love to highlight you on this show. Please apply at biggerpockets.com/guest and let us know right there in the application that you have a business that you want to talk about.

Scott:
Yes, we want more Tims on the show, right? The problem problem with some Tims is they’re like, “Oh my, story’s not that remarkable. I didn’t do any of that.” Yes it is. We want to hear about you buying a small business and growing it over a decade into something that enables you to have financial freedom and lots of optionality and a staff to run it for you, and that you’ve improved. That’s, I think, the best asset class in America today.

Mindy:
Yeah. Well, I think a lot of people feel like their story is boring. It’s not sexy. “I won the lottery” is sexy, but how did you do that? Was it through hard work? No, it was luck. Luck is not repeatable. But people can learn from your story that is boring. And I’m doing air quotes if you’re just listening and not watching on YouTube. But if it’s a boring story that means it’s most likely repeatable. I did this. And when it’s repeatable, people can take tips from you, learn more and take this into action and do it themselves. So that’s what we’re looking for. If your story is boring, we love you. We love boring.

Scott:
Repeatable.

Mindy:
Repeatable. Yeah. It’s not boring. It’s pronounced repeatable. And that’s what we want to share. All right, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 325 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying stay classy.

 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

2022-08-08 06:01:17

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