Business Acquisitions

Transcript

Unknown Speaker  0:01   The purpose of wealth talk is to educate, inform and hopefully entertain you on the subject of building your wealth. Wealth builders recommends you should always take independent financial tax or legal advice before making any decisions around your finances.

Christian Rodwell  0:19  
Welcome to Episode 60 of wealth talk. My name is Christian Rodwell, the membership director for wealth builders and I'm joined today by our founder Mr. Kevin Whelan. Kevin.

Unknown Speaker  0:27  
Hi, Chris, how you doing today?

Christian Rodwell  0:29  
Excellent. Very well. Thank you. And looking forward to today's guest who is a returning guest Actually, it's guy Bartlett from the Fidelis group and guy, for those listeners will remember, talk to us about the process of selling a business back in Episode 46. But we're looking at the different side of things more the acquisition side of the process today.

Unknown Speaker  0:51  
Yes, buying business or getting on the acquisition trail sounds complicated, but it's really not it's just the same as buying Any asset, you just have to know how you have to know when, and you have to know what to do. And we know how to do that. And it doesn't seem that long ago does it February when he was on. But look what a different world businesses are in now. What about this COVID? And how devastating it's been for some businesses, Chris?

Christian Rodwell  1:20  
Indeed, yeah. Now a lot has has happened since we last spoke to guy and guy has really been putting a lot of time and research into just the bigger picture. So he'll be talking today about, you know, what are some of the stimulus that the government's might be putting in place, but also how you can be very well positioned, and especially those people who may have a suspension, Kevin, so perhaps we can touch on that after we've heard from guy

Unknown Speaker  1:47  
Oh, absolutely. But just a little hint for those who are seasoned listeners of the podcast, Chris, is although guy talks very elegantly and ethically about business who Listen for the general wealth lessons, see if you can spot them. Chris and I will discuss them at the end.

Christian Rodwell  2:06  
Guy. Welcome back to wealth talk.

Unknown Speaker  2:08  
Hi, Chris. Good to see you. Thanks for having me back.

Christian Rodwell  2:10  
Now, you're very welcome. So we spoke not that long ago. And that time we were talking about selling a business. And today we're revisiting, but more looking at the acquisition side of things, and specifically, really how the market has changed over the last couple of months with the global pandemics. So just for those who maybe didn't catch you first time guy, would you mind just give them a little brief background to yourself?

Unknown Speaker  2:33  
Yeah, sure. So after a very brief career, the regular army switched into industry spent probably 20 years 15 years something like that as an employee classic kind of climbing the greasy pole and then had the opportunity to join the business. Versus the employee then as a director, shareholder grew that company from scratch to seven figures, major clients, that seems reasonable Ice and and, and so on Man City Football Club at one point had the classic shareholder Fallout and part of that was because I've got fascinated in growth of a business through acquisition. Most companies kind of do that and then kind of plateau for a variety of reasons, which we touched on last time and my fascination was how can we grow and acquisition seemed to me a logical way to see a business continue to grow exponentially, really. So I started to buy companies in in the mid 2000s and subsequently set up the business Buyers Club, which was a coaching is a coaching business helping people understand how to do this if they've got the same desire and then helped to found the Fidelis group in 2017, which is with my two partners, Terry and Shawn, we actively acquire companies and we apply something called the Fidelis business system which is a whole in depth process to take good solid balance sheet strong company, but but then grow that as an operating company alongside our continuous acquisition process, really. So I guess that's a bit of a potted history as to how I got to where I am now. And I think I'm, what do they call it? I after 30 years, I'm an overnight success, something like that anyway, so

Christian Rodwell  4:21  
and so for any of our listeners guy who interested in the whole concept of buying businesses and obviously, you know, creating a recurring income stream from from this, you know, who who is this kind of suitable for who should who should be thinking about it? And, you know, what does it involve?

Unknown Speaker  4:39  
Well, there's two ways to look at it. So, if, if you are an employee, and junior seniors really matter, and the light bulb was come on and you thought, you know what, I don't want to be a wage slave for the rest of my life. And some people can own very, very good money from being an employee without question. But if you look closely at the tax regime and a great a great exposure of the system, if you like is Robert Kiyosaki. So anyone that wants to get into this I would suggest start by reading Robert Kiyosaki stuff or watching some of his his free to our videos because he explains it a lot. A lot of detail that the the system of employment and taxation on that applies to employees. And it was listening to Robert and reading his book, Rich Dad Poor Dad the cashflow quadrant that for me, was quite a seminal moment and got me to think differently around that whole business of shifting from an employee to a business owner. But when I started to do that, I was still very much a I owned a job. So I although I own shares in a company effectively, I just owned a job so I had gone from working for a tough boss to working for a lunatic boss, which was myself and You know, worked incredibly hard. And the transition was that that changed from wanting to grow a business because it's what I did. And that's what most business owners do they, they still own their job, they love the thing that they do. And they're the mechanic in the business, they're not seeing their business as an asset as a revenue generating process. And so that changed for me was about Okay, how do I take my business and make it sustainable, repeatable? If you come across Brad sugars, founder of action coach, he uses really nice definition, which is a commercial, profitable enterprise that works without me. So it's like how do you elevate yourself with a management team underneath you to run that business so that you can go off and do things that you want to do whilst that business continues to grow and be successful and generate cash for you. So it's a true asset in the same way we think of property might invest in a portfolio property. This idea of passive income property obviously has to still get managed. But if you do that, right, then you've got a revenue stream coming from an asset class, which people think of in terms of bricks and mortar. And there's no real reason why you shouldn't think of business in the same way that the trick, of course, is. If you get involved in acquiring a business, you got to be fairly ruthless and very clear and have a system so that you don't get dragged into that business. That's the challenge. So to answer your question directly, anyone can do it. But I always try to counsel people to understand why they're doing it in the first place. If it's purely about making money, generally speaking, you know, you could achieve that aim just being a successful employee to be fair, but you won't have ultimate control over your future. So at the lower end of the spectrum, I've helped people to basically buy a business so that they're starting to be in control of their, their own destiny. So an example was a guy called Paul who was having to work on building sites he had, you know, just just misfortune in other areas of his life was, was struggling but, but he could see the way forward. And he ended up buying a gate and security company doing about, I think it was doing about 700,000 turnover and making some money. So he transformed his life from struggling and working on building sites to owning a business. But he but he consciously wanted to step into that business to work in the business. He had that skill set in sales and marketing. So he could see that he could contribute to that business. And once he got stability, and he got revenue for himself, and he got himself in a good place, got a new car, got a home, etc. Then he could start to think about the next acquisition. So that's a, that's a totally viable good start point. But it's a conscious decision of Fidelis where the different end of the spectrum so we're looking for businesses that are generally quite a bit bigger

Unknown Speaker  8:57  
and and with an existing money Team so we're not buying a job. It's not like we've got to go into that business and work in it. We want to work on that management team and the existing business and change the systems and improve the business and grow the business that way. So, we work on the company, not not in the company. And that's really the difference. And that's a, we've got a process now that we've been refining and refining, and it's an ongoing process, which is about constant improvement. It's an old Japanese term called Kaizen, which is that sort of constant concept of continuous iterative improvement. So I'd say that's the other end of the spectrum really. And you know that that is the advice to give to anybody who thinks right, I want to take control of my destiny. And I like the business of business. I think you've got to be captivated and excited by the idea of business itself as a as a thing. I always was as a kid, but never imagined I'd be doing what I do now for the beer career soldier. So very different scenario. Really. And I think that's the start point. Well, once you've, you've had that honest debate with yourself or your partner or partners, then then you can start to make a conscious decision as to what it is that you want to go and acquire. And as I, as I wrote in my book, it's the most fun you can have with the clothes on.

Christian Rodwell  10:17  
And I know you've been doing a lot of research over the last couple of months guy, certainly since the COVID pandemic kicked in, and the landscape, of course, is changing. Many are saying, you know, things just won't be the same again. So I'd love to hear your thoughts on on some of that. And, you know, the kind of what the next six to 12 months or even beyond that might look for business owners and for that industry.

Unknown Speaker  10:43  
I think it's gonna affect different industries in different ways our existing acquisition portfolios, focused in the construction industry. So we work in house building and other areas of construction and, to some extent, utility services. So we've done an exercise It's probably three key components. So the first one is to look very closely at our balance sheet, our profit and loss and our and our cash flow forecast. Because in a situation like this, it's an old Maxim, but cash is king. So very, very detailed forecasts out over the next 20 weeks to try to assess what the impact is going to be on cash at Bank. If we run out of cash, then we run out of options, basically. So we've been looking at things like sea bills, you know, we weren't gonna borrow money before. Now we've got to contemplate if we borrow that money.

Unknown Speaker  11:34  
We've got to pay it back at some stage, what's that going to look like? But the CBO scheme, you know, is quite favourable in terms of delays to repayment and interest rates and so on. So that's an active consideration, and also the bank balance back loans. furlough for us didn't work. We love the partnership model. So we tend to move our people into a partnership with john lewis. And but we fell foul on the fact that government regards workers such as that Self Employed so we can claim fellow. So again, we've had to find ways to financially support our people. That's been quite a challenge really. But touchwood we're working our way through that as well. I think the second point then is, what is the industry that you're in as touched on the market we're in now, Curiously, the government now seems to be pushing really hard for construction to go back. And but we've been busy looking at things like how we work, how we socially distance in the context of our industries, and what impact that has on production and for every business, everybody should be thinking about that. Because as you said, Chris, it's not going to be like it was before. So you got to think about realistically what level of production Can you achieve whilst keeping people safe? And we do have to be sensible about that. We do have to be mindful of safety, health and safety, carry a duty of care for our people as well. And then there's the macro picture. So what's going to happen to the economy so we saw a massive contraction And the last quarter reported by the Bank of England, which I found bizarre, and it was almost like the last item on the news. And, you know, as sad as it is, you know, some some old people died in a care home. Oh, by the way, the economy contracted by 14%. It's like, hang on a minute. If we grow by half a percent to 1%, we're celebrating in the streets. And here we have reporting a contraction is kind of the last thing on the news. So do you think the media diet is heavily skewed to drama rather than the drama that's coming? So the question we've been asking ourselves as if the last quarters contraction was 14%? What's the impact over a year? So we've made some planning assumptions that perhaps 20% will be the impact overall, which means this one of our businesses doing you know 5 million is going to see a significant drop in sales over the next 12 months. And then that informs our planning our investment decisions How do we recruit? Who do we keep on on the team? We're going to, we're going to lose people. It's as simple as that. How do we ring fence the clients? How do we make sure we've got the best paying customers? And how do we keep our margins open? Already? We've seen one client openly write to us and say, we want to take a haircut on your margins. Well, how does that help us to stay in business to be part of their supply chain? And you know, and that's the kind of thing that's going to happen. So we've written back to say, you got a really strong balance sheet, you can afford this. If you start cutting into the margins of your supply chain, there won't be one there when you need it. So that sort of stuff is going on. I think the third thing is looking at the global economy. And so we are part of this global village. And you know, what's going on at a global economic, monetary and fiscal level? And we're all flippin busy right now. We're flat out trying to figure out what's going on. But I think if you're in business, or you're investing then you've got to educate yourself. There's so much good stuff on YouTube. And I don't mean the fluffy things from Piers Morgan. I mean, really good commentators and know their stuff. And my advice is try and avoid, you know, sound bites from Warren Buffett is not relevant look to people who understand, you know, markets. Raul pal, for example. I didn't know about him until Trevor, my colleague pointed him out to me. So if anyone's interested in what we consider to be really good quality advice and guidance, let me know. And I'll happily share that, you know, for the listeners and the watchers. But education is really important. And you can do that, you know, an hour a day. But that will help massively because instead of thinking, Oh, my God, you know, what am I going to do? education and knowledge is power. Once you once you have that knowledge and understanding takes away some of the fear factor. Yeah, it's not going to be nice. It's going to be tough, but it's a lot easier. When when you're not in that place of, I don't know what's going to happen.

Unknown Speaker  16:04  
And you've got some, some focus on on where to go next. So I think those are the three things, you know, hardcore day to day cash, how am I going to manage cash? What's my revenue? Where are we going? Secondly, what's happening to clients and their ecosystem in the marketplace and the UK economy, the government almost certainly is going to have to support the UK housing market. And one of my predictions is that we'll see the return of self certified mortgages, they've got to loosen the mortgage strings that the FCA placed, you know, over the last few years because there just won't be liquidity in mortgages and, and hat and selling houses is critical for a number of factors. Like if you think about consumption, where a consumptive economy, the government need people to go and buy stuff, you know, sofas and decorating and curtains and kitchens and all of the stuff that we put into our houses, that's consumption and then Need consumption. But the flip side, of course is everyone's going to be going all better batten down the hatches and best not buy that kitchen. So that the irony is the thing that the government need us to do to rebuild the economy. Logically, most people will go, I'll just sit on my cash or sit on my hands. So becomes this really difficult. So pay attention to what stimulus like extending furlough, the government, they're going to throw into the, into the mix, essentially. And it's just about picking, you know, those those things and the time to move really. So. And the third, as I said, is global macros. Look what the Fed is doing. They start talking about the balance sheet of the central bank. So the fed the Bank of England, Bank of Japan, and so on, and just kind of understand the global context really, and, and I've been doing that because I want to educate myself and I want to understand the bigger picture, and ultimately how that trickles down to us. So is that

Christian Rodwell  17:58  
helpful? It is Yeah, and Undoubtedly there's going to be many distressed business owners. It's been a very tough time. It's certainly we're not out of the woods yet. What are some of the opportunities that potentially might be out there? Moving forward sky and how can someone be in a position to obviously know how to look out for days?

Unknown Speaker  18:20  
You hit the nail on the head, Chris. So it's distressed business owners, not distressed businesses. There will always be distressed businesses. Already in our sector, we've seen quite a big scaffolding company go in the Midlands just recently. The truth is they were probably struggling anyway. And as as in the old phrase, today is a good day to bury bad news, you know Coronavirus will be used as a catalyst and excuse whatever you want to call it for businesses failing. I'm not a proponent of distress purchase. I don't like turn around or rescue. It's not It's not something I'm a fan of really

Unknown Speaker  19:00  
The reasons are complex, you step into it into a difficult position when you when you look at a company like that upset staff, upset clients, upset suppliers, and unless you got deep pockets and you really know what you're doing, it's not an area I advocate really. So going back to your point, there will be lots of business owners, particularly because of demographics and the baby boomers, we've got a lot of people in their 60s and 70s still trying to run companies who will will really struggle with energy and motivation and the fear factor. And it's not about exploitation, it's about saying, okay, I can help you to exit your business. But the big opportunity is in the structure of deals, that's going to change now. So what I mean by that is, we were buying companies before where we would typically pay between 50 and 65% of the enterprise value. So let's say the business was priced at 4 million quid, we'd pay somewhere between 50 and 65%. of that on on the day of completion. So that's that first Transfer of money to the business owner. And then the rest would be over what's called defer consideration. So a period of time agreed between us and the seller to pay down the rest of that cash all very tax efficient. But But helps to ring fence the deal for us as the buyer, and secures the future. For the for the seller as well. I believe that that's really a thing of the past. Now, the percentage that's going to get paid on day one is going to be less because of the risk factors depends on the balance sheet depends what is genuinely leverageable amounts of money. But more crucially, what people are going to say is, so in simple terms, if you value the business of 4 million quid it was typically a multiple of profit, essentially. And that's just a sentiment, it's between buyer and seller. I think it's worth a three multiple of four months or six, whatever that that's the process of negotiation. The difference now is that nobody can predict what future revenues Going to be. So whereas you take historic performance and say, Well, this business traditionally does 5 million quid a year makes a 15% net profit. We can see that pattern over the last five years. Okay, it's worth a multiple of x. That's that's gone out the window, because nobody can forecast now what's happening with Coronavirus, what the market conditions are going to be like? I just described how we're planning for, you know, 20% cut in revenues across the board, just to be realistic. So if that's the case, How can any one seller or buyer predict what those are those revenues are going to be it's just impossible. It's crystal ball gazing. So I believe that deals now we're making offers today based on earn outs. So we align the the payment shedule for the business, not necessarily the price. We still use some of the basic metrics around price. But we'll align the the selling process the buying process to future performance. So you might have heard the term burnout earlier It's kind of pegged to future performance. So both parties will agree what they think best guess sales are going to be and what they think margins might be. And essentially, it's a share of that margin. So if we're going to make half a million quid, a million quid in profit, that's what we predict. You, Mr. Seller get 50%. And we, as the buyer, keep 50%, to continue to invest in the business. And I think that's the only realistic way that sellers can exit from their companies. But there will be lots of motivated sellers who will go, now that's fair enough, I get that. If I was you, I do the same. And the key to that is, as always, as I've always taught is building rapport with sellers, finding those people that need your help to exit and build a win win relationship with those sellers. It's not about exploitation. I believe in karma. If you go around exploiting people who are distressed and maybe Ill or fed up or whatever, it will come back and bite you on the backside. So be fair. insensible but the big, huge opportunity now for people to buy into good, strong companies would forecast for revenues, you know, businesses in sectors that are, you know, going to have to continue to supply call and bug roll companies. Everybody uses ball roll every day. Yeah. So find those businesses that are going to continue to supply services that no matter what happens to a recession, people will still need. So for example, cleaning companies, drainage companies, and utility services, all the stuff that human beings have to consume, retail going to be a nightmare. consumer facing businesses going to be incredibly tough, because people are just going to pull in and pull in and not spend so I'd hate to be invested in retail right now. Right now. We already knew that the pub sector and hospitality and restaurants were really struggling if you look at the major restaurant chains that went bust last year and college years went right at the start of Coronavirus wasn't because the Coronavirus is because it's incredibly tough to make, you know, restaurants succeed, even in the good times. So now it's going to be a nightmare. I'd hate to be a landlord, a publican, so it's that it's that sort of thought process really, that I recommend to people to, to consider.

Unknown Speaker  24:23  
And that's where the future for reliable, repeatable income streams is going to come from really.

Christian Rodwell  24:30  
At the heart of the of wealth builders is the Seven Pillars and we talked about diversification across multiple pillars, and that can de risk you certainly in times like this, it's become even more apparent that if you're building your wealth in just one way, then it can come crashing down. So, you know, one of the pillars is pensions, and you've touched on pensions, but you know, we we have SAS pensions as well, many of our listeners will have money there and you have any comments as to you know, using money investing in businesses and how those pillars can work together.

Unknown Speaker  25:04  
Yeah, absolutely. And if you think about pensions in the broadest sense, I think pensions have been looking into the history of pensions, and they were invented around about the end of the Second World War, because prior to that, pensions didn't really exist. And it was a concept that was, comes back to consumption. So the American government were keen to get Americans consuming again, to drive the economy after the war. And so the concept of pensions was created so that whereas the pre war generation, you know, saved for their retirement, put away money so that when they retired, they had enough money to live on, and people didn't live very long after retirement anyway, so. So that was the system but the American government needed people to buy cars and kitchens and all the things that I talked about before. So they said, Hey, if you start putting money into a pension by the time you retire, that's where your cash will come from. we'll invest it we're clever club clubs and we'll make it grow for you. So in the meantime, you can now go and invest, you can go and buy cars and kitchens and houses and so on. And that's how the consumer economy was driven in the second half of the last century. The problem with that, of course, is it's a dare I say, it's almost like an elaborate Ponzi scheme because of demographics. Because of the change in in western demographics, more and more old people looking to be supported by less and less young people coming into the working, working market. If you look at the trends of demography, if you look at the the change in age in, in the UK, in America, in Western society, you've got this declining birth rate, which has been continuing for some time. So there's less young people to drive the economy, effectively to feed state pensions, all of which are effectively underfunded. There's nothing there that the state pension relies on cash coming in from the taxpayer. And we all know what's going to happen to taxes as a result of Coronavirus. And it's a similar story in investment Then the index investment sector of pension, so people extended life. And so as more and more people start to draw down on those pensions, so the ability of the pension funds to get returns in traditional ways, whether that's the equity markets and so on where they often they are invested, or in the property sector, it's going to get harder and harder for those large pension funds to get the returns and you're going to see pension funds going into deficit. You're going to see pension funds failing, there's going to be a mad scramble, either to avoid paying out or or looking for government bailout. And I think that's one of the reasons why SAS pensions have started to happen because people have looked at the projections of their so called invested pension and gone Oh, that's rubbish. I'll take control of my pension, which is in many ways the right thing to do so people gone right, I've now got my pop. But of course there's no there's no expert pension manager managing that park. It's then you go Here's your money. Cheers. How often you go. And not unreasonably the beginnings of that we're, we're in prophecy or prophecy development and returns have been okay? But sometimes not all the partners invested. So you've got cash languishing, going backwards because there's still a degree of inflation however low and a bit of head scratching is like, well, I've learnt I've put some into property, what else can I do? So one of the things that we've been doing is to say, Well, okay, here's a is a completely undervalued asset class, which is the shares in owner managed companies, and there are thousands of them. You know, we've done the research looking at the UK data in the in the UK alone. We've done some fresh data and we think, whereas we thought we were in the region of about 60,000. We trim that back to about only 33,000 companies at any one time owned by baby boomers boomers, is 60 to 75, perhaps a little bit less than some cases who have to accept their claims. Sooner or later Now, if you're that company owner, you've only really got two choices you either sell the business now it could be done to family it could be to management or to a third party

Unknown Speaker  29:14  
or or you close it, you know that's it. There is no it is a binary option sell clothes. I suppose the third one is that they could die but let's not go there given Coronavirus right now, so, you know, it's a cold hard reality. So most kids don't want to buy their parents company. They're not interested. management teams are used to being employees and don't want to be an entrepreneur or take on the risk. So the only realistic exit is is a trade sale. A lot of business owners don't want to sell to a competitor because they know that the competitor will just asset strip the company and they care about the legacy of their company massively so they're looking for, you know, good relationships with honest buyers of their business. As their baby that they've spent, you know, 1520 3040 years building up, to look after it for them and take it to the next level. And that's our whole approach to, if you look at our website, you'll see that that's the whole ethics, the values driven approach that we have to buy in companies. But from an investment point of view, if you're a SAS pension holder, there's a massive market opportunity to get into that, and you'll get the same alpha returns that you might get saved from a property option. By option I mean, you know, perhaps, what are the what do they call them, the peer to peer lenders, you know, these kind of syndicated opportunities or just a straightforward investment to a developer for example, or portfolio purchase or whatever. The difference I would urge people to think about though is in property it's a property can only give a finite return and there's a strong case to argue that prophecy might well get spanked in the upcoming recession anyway, so values might be dropping rather than growing but Let's assume that that property is is okay. For a moment, property still only can grow with a very finite amount. So the value of property is dictated largely by equity values. And they, they haven't grown much in the last 10 years in truth, or the quality of the tenant if it's commercial property and the tenure, or the quality of the residential customer. So there are limits to what you can do with property, you can you can tart it up, make it a bit better, but after that, there's not much you can do the market dictates to growth value. But in business, it's infinite. And if you get a business and you grow that business, they can grow and grow and grow. First company we acquired was doing 3.2 million. After two years. It's at 5 million pre Coronavirus. So, you can't do that with property. But you can grow businesses if you get the processes right. So the opportunity both for cash flow Revenue and equity value is considerable. And so I really recommend SAS pension trustees to start to think about that emerging asset classes is very underutilised very under identified almost because the businesses that we look at are between typically kind of 2 million to 20 million revenue and there's lots of them. But private equity funds tend not to go down to that level because they they're chasing the big returns for their investors for their funds. They've got to make, you know, a lot of money and the time that they'd spend to buy a 5 million pound company just wouldn't give them the return that they need. So there's not a lot of people fishing in that pond, but there's a big need in that pond to to exit. So now is an amazing time to look at those businesses and find the business to business companies that can ride the ride. Session strong balance sheet, good client relationships 2030 year old established companies that can be taken and grown. So that's that's my strong advice. And we've been really busy working on how that can be developed with some of our partners as well, including Kevin and some of the other guys in the network. So I'm really, really excited about the opportunity that that is represented by this.

Christian Rodwell  33:25  
It's been fascinating speaking with you guys, if anything, before we go that you'd like to cover either for existing business owners and how they might manage the time ahead, or for someone who's looking to acquire in the next, you know, one to two years.

Unknown Speaker  33:41  
My best advice for existing business owners cash, just focus on cash, get as much money into the bank as you can in reserve, see bills, bounce backs, whatever it takes. Look after your customers. Be good to them and make sure you collect your cash on time and just sit on us. much cash as you need as you can get hold off because that's what everyone's going to need in terms of investment, start thinking away from property, find other asset classes that are not going to be affected by by the pandemic and the effects of the pandemic. And I'm happy you know, over the course of the next few months, hopefully more information will emerge around how to acquire shares in these in this underutilised asset class. But But think broadly and understand what's happening in the world economy and you should be in a good place to come through this

Christian Rodwell  34:32  
guy. Thanks so much for sharing with us again on wealth talk today.

Unknown Speaker  34:35  
pleasure. Thanks, Chris.

Christian Rodwell  34:37  
I think what guy says there highlights that for anyone interested in adding business acquisition to their portfolio of strategies for building wealth, now could be a great time for doing so.

Unknown Speaker  34:50  
It does. What's interesting to me about business I love business, as you know, Chris, is that the guy makes the point very well is in any other asset. You've got mathematical models, essentially, that will determine the degree to which an asset can grow. You know, the stock market is governed by mathematics, you've got property portfolios, and generally, those who invest in property, there's a mathematic to the market. The thing about business is there's no homogenous market. You know, business can be infinite. In terms of its return, if you can spot what really makes a business of extraordinary value. And I think he hints at some of those. And I don't mind covering some of those as well. If If you want me to touch on them,

Christian Rodwell  35:41  
yeah, well, absolutely. I mean, one thing we've talked about many times on wealth talk is the ability to generate that recurring income stream inside your business,

Unknown Speaker  35:49  
while a business that's valued is almost always valued

Unknown Speaker  35:54  
mathematically by accountants and other trained professionals to be some measure Have a mathematical formula, generally speaking, between your multiple of profit. So the profit and the multiple, really, the degree to which you can see a business though with a high degree of recurring income, and then you can show that business owner How to remove the dependency of that business on the owner, you can dramatically affect the multiple. And of course, by creating recurring income, you can affect profitability. So if you can work on both of those and compound both of those, and that's a skill. And it's not always a skill that the original business owner might have, Chris, and as I think he puts it, you know, you can have distress in businesses, or distressed owners, but you don't have distressed businesses, the businesses can be a good shape, but the business owner, himself or herself, have become weary. So instead of walking away from their business as wealthy people They want to walk away, and very weird really, indeed. So by helping them get a bigger and a better value for a good business that you can see, it means learning how to spot recurring income in business, and how to spot a business that can be systematically turned around from depending on the owner to not depending on the owner at all. And those are the two biggest variables to me that have the biggest degree of impact on the ultimate value of a business.

Christian Rodwell  37:30  
Yeah, and guy mentioned as well with of course, the current conditions around Coronavirus that, it's going to get a lot harder to predict that future recurring income now because for a lot of markets, that's kind of unknown quantity now. So obviously, models need to change and guy was saying that they'll now be looking a bit more at future revenue and earn out as a way of being able to, you know, acquire more businesses as they move forwards.

Unknown Speaker  37:55  
Yeah, which is which is really good for the acquirer, it's less good for the seller. Generally speaking, because an urn out meaning you agree a sale price, but the sale price is dependent upon reaching either certain milestones or certain timeframes. So which is a good way to share in the profit with a business owner because in many cases the increase in profit that you can make by bringing your skill to it pays for the sale of the business. So in other words, you don't actually need to buy the business, you create more revenue from the selling of it, you see what I'm saying? So it's different it's a fundamentally different way. It's not unlike rent to rent and property you know, you don't own the business. You You essentially rented from the business owner until such time is you then agree a sale and then you both share in the sale value, very interesting way to do business.

Christian Rodwell  38:54  
And I know you know why you love business so much. We talk about ROI and guy mentioned that In property, there tends to be a limit on the ROI you can get on a good deal. Whereas with business, there really isn't. Is there?

Unknown Speaker  39:08  
Yeah, I mentioned that just a minute ago. So you're absolutely right. The other thing you mentioned, of course, right now, and I think it's true, when you have black swan events, like COVID, is the importance of being ready for those opportunities, Chris, and that readiness is twofold really ready in terms of having the time to spot those opportunities. And we certainly have more time now than we've had before. And then secondly, is having cash, you know, at least some cash and more business. opportunities will reveal themselves and property opportunities come to that for those who have got themselves in a place of good liquidity. And I think that's a very valuable lesson I think he termed it is cash is king, which we've heard that phrase before, but probably never truer than in today's environment.

Christian Rodwell  39:58  
And for anyone listening Kevin may B is not familiar with SAS as a type of pension? How can I help someone who perhaps is interested in looking to buy shares into businesses and acquire businesses?

Unknown Speaker  40:10  
Well, you know, a SAS small self administered scheme, not a very sexy title, we know. But essentially, it's business owners taking control of their own pension so that it reflects what they're interested in, not a reflection simply of the stock market. So if you want to almost turn your pension into a business, and that business is the business of property, you could do that. If you want the business to be the business of acquiring shares and other businesses, you could do that. If you even want to turn your pension into a source of funding for your own business, you could do that. And can you imagine how many affected business owners today Chris would have been better off had they had a control over their pension funds and being able to lend their own pension to their business to keep it going. So in many cases, situations, SAS is a wonderfully powerful thing for any business owner to have or any wealth builder to have come to that. And being a trustee means you have to learn somebody skills, the skills or property, the skills of diversification, the skills of business. So it's a great tool, because it helps you not just have the funds to do it, but also gives you a pathway to get the right skill, the right connections. And of course, we've got a huge community of people who are doing that through a great group, Chris, that, you know, I support and I'm the director of called SAS, Alliance, SAS alliance.org. For anybody interested in just following the size, the scope and the friendliness of that community, definitely worth a look.

Christian Rodwell  41:46  
So buying a business is something that obviously you need to understand and I think anyone who's interested and we could certainly point them in the direction of guy and guide does some great work, not just around purchasing businesses himself, but also work with other people who would like to learn that skill?

Unknown Speaker  42:02  
Absolutely. And then going I will work together to, to bring to our own membership, Chris some of those skills so they're taught, and they're passed on, and therefore they can be executed. So guy's willing to share his IP with us, and we're looking forward to that opportunity.

Christian Rodwell  42:17  
Hmm. And perhaps we can give a little teaser as to our guest next week as well. And someone also talking about business and a very smart woman indeed,

Unknown Speaker  42:28  
yeah, sweater sweater jewellery, a difficult name to spell, but you'll get it. But she's sharp as a tack. I mean, she's just incisive in her ability. And I'd say look out for that one because she's got some news to share.

Christian Rodwell  42:43  
Great stuff. Thanks for listening today. Kevin, good to catch up with you. catch you on the next episode of wealth talk. Look forward to a Chris until

Unknown Speaker  42:51  
then. See ya.

Unknown Speaker  42:56  
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