In this episode, Aaron Fragnito and Josh Wilson discuss how an investor or entrepreneur can purchase an existing company to build wealth and cash flow. Ever wondered how to finance a business purchase or how businesses are valued? This podcast explains how an individual can select the best business for them to purchase and how to go about finding the right business for sale. Josh and Aaron break down the steps for someone to determine the right fit for their goals and how to make it happen.
Josh is the CEO and Managing Broker of Kingdom Syndicate, a Florida-based commercial real estate & business brokerage focused on the buy-side of deals. To create deal flow, we invest in and run a series of podcast and multimedia outlets for our investors and partners.
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Peoples Capital Group has been helping passive investors build wealth in NJ real estate for the last 10 years. Visit www.PeoplesCapitalGroup.com to learn more how Peoples Capital Group helps qualified investors build wealth and passive cash flow. Self Directed IRA’s and Solo 401K’s are accepted.
Josh: People when they’re building a business, they go, “This is my baby.” Their identity’s wrapped up into it, their life is, blood, sweat, and tears, and how many times did you almost not make payroll or didn’t make payroll, and you had to sell off a car to make payroll, or whatever? People are very emotionally attached to their business, especially if it has a mission driven to it. The idea of selling a baby, holy moly, it really causes a lot of anxiety for a lot of people, but there are some really good motivations to selling a business or getting an investor, or getting a partner. There are some really great benefits too.
Aaron: All right, ladies and gentlemen, welcome back to the Passive Cash Flow podcast. I’m your host, Aaron Fragnito. We have a special guest today, Josh Wilson. How are we doing today, Josh?
Josh: Hey, man, good. Thanks for having me on. Hello, everybody.
Aaron: Absolutely. Thanks for joining us here. We’re glad to have you here on the Passive Cash Flow podcast. I want to bring you on here. You do business down in Florida there, you are wheeling and dealing down to Florida, buying real estate, buying businesses, helping people buy businesses. What exactly do you do down there, my friend?
Josh: Yes, my wife asks me pretty much every day, “What is it that you do?” You might be an entrepreneur if your wife has no clue what you do.
Aaron.: Sounds about right, yes.
Josh: We have a brokerage called Kingdom Syndicate. It’s a real estate brokerage, business brokerage, and we pretty much focus top of funnel for deals and capital and resources for our investors and our partners. That’s our focus. That’s our bread and butter.
Aaron: Okay. Give me an example then of maybe a business that, I have some capital I want to invest in the business. I always like owning like a car wash or something like a laundromat. Those look like really good businesses. People pay a lot to use them. They seem to always have a line. Can you find me one of those?
Josh: Yes. Typically, as a syndicator, in your world of real estate syndication, a group of people get together to do a deal of some sort. That’s what a syndication is. We have syndications on two fronts. One, we have our syndication where people will reach out, and they go, “Hey, I’m looking for a car wash, or I’m looking for some passive income.” An investor reached out to me the other day, and he’s like, “I got about 300K, what should I do with it?”
In our syndicate, the name of my company is called Kingdom Syndicate, what we typically do is we help find the right people to give them options. You’re looking for a car wash, I’ve got guys and gals that will go and they’ll buy or franchise a group of buildings and maybe convert some of their shopping plazas into these businesses.
What I typically do is I get a little bit of information, I get to know the person, see if I want to work with them, if they want to work with me. It’s not everybody works together well, and then I just make introductions. I’m not the smartest cookie, but I know people. Being a good syndicator is, I’ll introduce them to a friend or a colleague, and then if there’s a deal on the table, then we figure out what the deal looks like. Yes, we’ll make some introductions and find a person who does what you want.
Aaron: Okay. Now, can you structure the acquisition of a business just like you structure the acquisition of real estate, get debt on it, put down a down payment? How does that work?
Josh: Yes. We’ve got, for people who are looking for a business to acquire, one, they might be sitting on some reserves, and they’re in their business and they’re going, “Let’s make a strategic acquisition to grow our business.” Maybe we have a little bit of money here, or maybe you might need help setting up an SBA lender. Like, “Hey, let’s see if we could get a low-interest rate, and we’ll get one of our SBA partners to help fund the deal,” or maybe there’s some private equity play in it where we help find some capital.
They’re like, “I have a construction business and we do roofing and siding and gutters. Maybe we need this one component and we don’t have that. Maybe we want to acquire it rather than go through the startup process of building it because we see that could be a good thing.” Yes, we can help structure the deal and find funding for it, or maybe you had the money, and we just go on a hunt for you. Can I do a shameless plug to my podcast too?
Aaron: Sure, absolutely.
Josh: Like you, we have a podcast called The Deal Scout, and what we do is we go on the hunt for deals. We talk with dealmakers like yourself, and we do that. Yes, that’s a part of the process is, what are you looking for? Here are some options, here are some introductions, and then we find out a way to make the deal work.
Aaron: That’s cool. Yes, absolutely. I know it’s a fun business to be in, it sounds like. There’s a lot of moving pieces to a business. Some people can value a business a lot more than others. It’s incredible really when businesses are acquiring other businesses. All of a sudden, the value really goes up to the right buyer. The same thing for commercial real estate and different types of real estate as well, supply and demand. That’s exciting, that’s exciting. Do you see that the cost of businesses are growing at the rate that real estate cost is growing as well?
Josh: It depends. If you talk about any kind of deal, it’s always going to go, well, it depends on the situation. Different companies have different multiples or valuations built-in just like different real estate projects have different cap rates. A highly scalable software company, enterprise software, may have a different capitalization rate or multiple versus one of our companies in our portfolio is a commercial landscaping company that’s very geographically driven. It could scale in our area and maybe franchise one-day different levels of value multiples.
Aaron: Sure, absolutely. That’s interesting, yes. Ideally, when there’s more about volatility in a market or variables, then you’re able to get better deals. Back to a better buyers’ market of real estate in 2012, 2014, in 2011 when the market was right at the bottom, looking back, we all say, “Boy, if I knew then what I knew now.” I’m sure businesses were around the same place as well, I’m sure you can get a few for a song and a dance, heck, just take it over. Those are the buyer’s times, but now as a seller’s market, businesses are at a seller’s time is the good time for someone to sell their business, maybe retire or move on to another one?
Josh: Let’s look at what’s going on politically. I won’t get into too much politics, but there’s legislation moving forward that may increase capital gains tax and certain taxes that under current administration, if you were to sell your business today, a lot of baby boomers are selling their businesses, it’s called the seller tsunami, but we can talk about that later. You sell your business today versus six months down the road, the money that you keep today may be a lot better than down the road if certain legislation pass.
When is the best time to sell your business? I would say you’ve got to know your own self, how much time do you have left? How’s your health? How’s your family? How’s your own finances? What’s going on in the marketplace? What’s going political? You’re not going to time a market, but you can time your own personal motivations on what’s going on. Did I even answer your question?
Aaron: I think so, for the most part. The thing about selling your business too, I remember years ago, I had an investor that actually wanted to buy part of People’s Capital Group. Now, it didn’t work out, and looking back, thank God because I was giving it away. Really, it’s amazing how much your business goes under a microscope when you are looking at selling it, and what it forced me to do as a business owner was to be like, “Oh my, I didn’t realize all these little things then.”
Especially years ago, building my business up from the start, how many things were missing with the books and the bookkeeping and accounting and filing and all those little things. When you go under audit, it’s really a good test to you as an entrepreneur and a business owner and your staff and the people you’ve hired to run those details of your business. I bet you run into pretty sloppy situations of business owners. Can you tell us some great stories from taking a business that’s completely disorganized and a complete disaster to finding a buyer for it somehow?
Josh: Yes, I’ve been that disaster. I’ve had some of my investors say, “You’re a hot mess.” When you’re going through this process, you’re building this business, and let’s say you’re putting off a bunch of cash flow, and you’re doing well. I grew up on a construction site swinging hammers. In the process of building, we were good at construction, we were good at building. Then we got into some investments, and then we were able to build multi-family, and we’re building– I built a bunch of spec house and such like that, you learn and you grow, but if you look at our books, you look at that contractor’s books, and it’s a shoebox full of receipts.
As a business, if you’re looking to buy a business, what is the person actually buying from you? Are they buying just hammers, nails in a shoebox full of receipts, or are they buying a future opportunity for themselves and their family and their partners? Tons of situations where you’re looking at a business, and it feels intimidating because you’re being exposed, the good, the bad, and the ugly when someone’s looking at your books. There’s a few things you never want to talk to someone about. It’s like, what’s your political beliefs? How much is in your wallet? When you’re getting into business acquisition selling your business, it’s a very humbling situation in some cases because all your books are on the table, and you’re being drilled with questions.
We’ve seen people that just we start asking them about their financials and such, there’s NDAs and there’s confidentiality. When you start asking questions, and you see people get like, “Oh, this is uncomfortable.” To go through a good transaction and to have a great acquisition partner, because it’s a partnership because there’s still time that you’ve got to spend with the person that’s buying it, you’ve got to start showing the books, you’ve got to open the kimono.
Aaron: Your business is personal. I hate to say, at the end of the day, the amount of time you put into building a business and the sacrifices you make. I just had a newborn baby, my wife and I, about 25 days ago or so–
Josh: Hey, congratulations.
Aaron: Brand new dad, thank you, for the first time here. It’s a very exciting time in my life. Hey, we’re certainly juggling a lot of things right now. Like many people in this world, I’m figuring that balance out of family and work and being an attentive father, but also being an attentive entrepreneur and business owner and making that balance. Business is so personal because it creates the– [chuckles] If I’m not making the money, then we’ve got a problem. You’ve got to be understanding of that when you’re going to sell, you’re almost selling someone’s last 40 years, sometimes their life, and it can be heart-wrenching, I’m sure.
Josh: People use this terminology. Now, I have a few kids, congratulations on your first. People, when they’re building a business, they go, “This is my baby.” Their identity is wrapped up into it, their life is, blood, sweat, and tears. How many times did you almost not make payroll or didn’t make payroll, and you had to sell off a car to make a payroll, or whatever?
People are very emotionally attached to their business, especially if it has a mission driven to it. The idea of selling a baby, holy moly, it really causes a lot of anxiety for a lot of people. There’s some really good motivations to selling a business or getting an investor or getting a partner, there’s some really great benefits too.
Aaron: Okay. That’s great stuff. All right, let’s transfer over to what’s my business worth? How do we value– Let’s talk about the money honey. How do we value real, not real estate, I’m so used to real estate. How do we value businesses? Let’s take a business that makes $500,000 a year. Let’s say it’s a real estate investment company out in North Jersey.
Between acquisition fees and other types of income and the performance of real estate, it makes $500,000 a year in net profits. Let’s forget about all the holdings we have, the other 17, 20 million in buildings, that’s kind of different funds and things like that. What’s a company worth that makes $500,000 a year in revenue, would you say, net profit?
Josh: Great question. It depends on who the buyer is, and it depends on what systems processes. Is this business that does real estate investing, does it have a bunch of assets that it’s going to come with it? Do they have an acquisition machine that kind of runs? Do they have operators? Do they set up syndications really well? I don’t know. Give me some more info, this is fun.
Aaron: That’s the thing about valuing a business like mine because there’s so many moving pieces. We have a management company that manages the assets. We have about 45 assets themselves that stand on their own LLCs with different partners things like that. The People’s Capital Group itself is a business that makes income as well. I’ve always wondered as far as what the company is worth. It’s interesting when you sell a business, you have to understand if you’re stepping out of it, what is that value loss as well.
Really, everyone’s goal is to build a business where you’re not the guy doing the podcast. I love doing what I do, but that’s really the goal of a business owner because if I stopped one day, maybe, whatever the situation is, People’s Capital, it is me, it is a business. You have to recognize what’s a sellable business and what isn’t, if I go on Shark Tank or something. Really, when you go to start a business, you want to look at, “Well, what’s my goal? Am I looking to build millions of dollars of real estate holdings and through that, develop a company, or am I looking to develop a tech company or something like that, or just some type of widget we’re selling, you could easily move that out of the way?”
Josh: What a great point you just made there, Aaron. As you’re building a business, you’re like, “What do I want to build?” Let’s just say with your real estate investment company, what kind of business do I want to build? Am I building something to one day have an exit? Because that could be different than I’m building a lifestyle business that pumps off passive income, and I’m just looking to grow that more and more to take the passive income and invest in other asset classes. It depends on the kind of business that you’re building. It depends on what kind of exit, liquidity event, or what kind of return you’re looking to get.
In that case that you just shared with me, one of my friends, Ryan Smith, what he talks about, and he does mobile home parks and self-storage and stuff, so shout out to him, one of the things that he talks about is the $24 dollar. The assets that you guys are producing and spinning off, the dollar, the cash flow is actually capitalized, and it’s actually worth more than what it is. You can leverage that, you can sell that, you can expand that. There’s some really cool things. Business is fun, especially when you got business and real estate and different moving pieces.
Aaron: Absolutely. It is. There’s so many options, especially in America, it’s so easy to start an LLC and get something started, file with the SEC as well. Once you understand how to do all these things, it’s really not that complicated. It’s about relationships, of course, and finding the right deal and putting together the right investors the end of the day. There’s so many so many options that we see. What is a good business to be in right now that you see a lot of growth in? Let’s say, I’m looking to get started, I have some capital, I have some time and some skillsets, and I want to invest in a marketplace. Where would I invest?
Josh: I think things that are doing pretty well, at least for the meantime and I think foreseeable future, I think service-based businesses are great. I think especially recession-proof things are things that I’m paying attention to. There’s certain businesses that I stay away from like vice businesses or things that are purely entertainment that either don’t align to my belief systems or economic cycles. I like service-based businesses, kind of boring businesses like painting, and roofing, construction. I know that industry pretty well, I’ve built a few, and I’ve also had a lot of failures in there. I know the pitfalls that the owners can make.
When I’m coming in or if I’m doing a co-investment with someone, I can bring some insights that are– Maybe I can bring some of my friends who have money, I can bring some wisdom because I’ve done door to door knocking and building some roofing companies, I can help work to increase my own value. I would say for someone who’s looking to invest, find something you like that you have a natural affinity to because you wake up and you’re like, “This is exciting for me,” and something that you could bring something other than just money. That’s kind of dumb money. I know that if you’re looking for passive income that’s awesome, find something that you could add value to too to increase your passive income opportunity.
Aaron: Absolutely. Absolutely. Boy oh boy, you’ve got the wheels turning as an entrepreneur here. I love it. There’s so much opportunity out there. It sounds like a company like yours can help people decide exactly what to do perhaps with their next step or get some guidance at least on perhaps franchising. Do you ever suggest franchising for the right investor? Is that a good option? You’re buying into franchise, right?
Josh: Absolutely. That’s such a great question. Now, I’m not an expert in every single aspect of business, I’m just not. I’ve made a lot of mistakes, a thousand mistakes, ten thousand mistakes, but I do have the benefit of knowing a lot of people. That’s just God’s favor on my life is I just know people. I know a guy, I know a gal.
Now, with franchising, it could be a really great situation where someone’s, they’ve worked their whole life, they’ve got some money, they’re about to have a retirement event. They like business, but the idea of starting something up where there’s a heavy risk because they’re like, “This is my nest egg. I don’t want to highly risk it. I want something that I thrive.” Especially maybe a former military or former corporate, I thrive in an area of systems, processes, the risk has been mitigated. If I show up and I do these things, then I can see the predictable return and the predictable growth.
A laundromat or maybe some type of franchise where it’s like a restaurant or this or that you’re like, “I enjoy this, I enjoy showing up. I like the structure,” that could really work for a franchise buyer. We’ve got guys on our network that help with– and I say guys, guys and gals that help with franchises, M&A work, acquisition work. It’s got to fit the person. If you buy something that doesn’t fit you, you’re not going to pay attention to it.
Aaron: Personally, as a person who’s done a startup, I see the value in the right franchise. I really do. Especially if it’s a recognized name, which then you get into a whole startup cost there. Boy oh boy. As a millennial, too, I’m very franchise-loyal. I hate to say it, but something like McDonald’s, I’m always going to trust. I don’t necessarily think I should eat there all the time, but if I’m really hungry on a road trip or something, I never question going to a McDonald’s. I’ve pretty much always been satisfied, so satisfied customer here. There’s nothing like a brand name. What does it cost to open a McDonald’s? I’m just curious. Is it $5 million just to get the arches going?
Josh: To be honest, I have no clue. I have no clue. A lot. You have to have a lot of capital. McDonald’s is in the real estate business, too, right? They’re not just you have to have the financial to back you to make sure it worked, but it has to have real estate. It’s a great machine, it pumps out money in any market. I just don’t know enough about that, man.
Aaron: Sure. No problem. I love that movie, The Founder. You’re not in the hamburger business, you’re in the real estate business. That’s a great movie. Absolutely. All right, Josh. How can our listeners get in touch with you to learn more about what you do there?
Josh: I would say LinkedIn is a really great place. If you do a search for The Deal Scout, that’s our podcast show. That’s our top-of-funnel for finding deals. It’s a great place to learn about different types of deals. I share the stories behind the dealmakers, and we kind of go on hunts for deals. We talk about deals gone wild. That’s a good place. LinkedIn, The Deal Scout.
My brokerage is called Kingdom Syndicate. We put people and deals together. That’s what we do. That’s what we’re called to do. That’s a good place. Here’s my cell, 352-274-4500. Shoot me a text, say “Hey, heard you on Aaron’s show and want to do a deal with you and Aaron.” We’ll figure out a way to have fun, make some money, and get to know each other.
Aaron: That’s awesome. Absolutely. God bless you. That’s a great way to do it. I love how transparent you are, putting the information out there. Please contact Josh Wilson here. Of course, I’m Aaron Fragnito with the Passive Cash Flow podcast, People’s Capital Group. We’re proud to sponsor this podcast. We’ll come out with a new episode every two weeks going forward. You can check us out at peoplescapitalgroup.com. Of course, go on LinkedIn, find The Deal Scout, Josh Wilson here, and, of course, People’s Capital Group is on LinkedIn as well. You can invest in real estate, you can invest in businesses, the world is your oyster. Amen.