Sure. I, I mean, I would say throughout the deal, I, I look back now and I see several rookie mistakes. Right. I agreed to a sales price, not a multiple with accounts receivable. I don't think we talked about that.
Acquiring Minds
From Software to Concrete Cutting (and $1.4m of SDE)
Excerpts · 392 segments · ~1:38:00 long
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I bought their accounts receivable. So this business requires a lot of operating capital. Right. We're going out and paying labor and paying to the union and doing a lot of work and going through a lot of materials and fuel and things like that that I don't get paid for for 60 days, right.
75 days sometimes. So part of my deal with the bank was I wanted to buy the accounts receivable. You know, one of my rookie mistakes, I agreed to a sale price, not to a multiple plus your accounts receivable, which I should have structured. I should have said, I'll pay 3.5 on the multiple that we agree on and then I'll buy the accounts receivable.
On day of closing, I agreed to 6 million, thinking a million of it would be accounts receivable. It only ended up being 950,000. Right. I take the loss on that.
I paid. Talk about a rickety mistake. I paid 100% for the accounts receivable, which is idiotic. Right. It's taken me a year and a half to get to 98% received on all of that outstanding invoices.
I don't know if I'll ever get the last 2%. Right. I never should have paid 100% for the accounts receivable. I should have negotiated that differently.
So as I look at the deal, there's plenty of things for a first time buyer to understand differently. And I was just naive to it. Right. And missed it going through the process.
I have a, a mentor or a mentor group of friends that, that we work through this and I've gotten back to them saying, you know, yeah, we probably could have done this better. And they've said, yep, no, we, we missed that. Right. So, but I wasn't afraid to make a mistake in that process.
I knew the strong financials. Did I lose some money there? Absolutely. I did well. But I knew it was recoverable.
Right. None of it was so tenuous that if I, if I missed out on 50,000, the business would go belly up. But I know on the next deal it's, I'm going to be a little smarter just from what I Went through.
And so how should you have done it, Tom? What would the proper way of doing this look like?
Well, yeah, I would've sat with them and agreed. Here's the multiple I'm seeing, here's the add backs I'll give you credit for, and here's the ones I'm not going to. Right. So we're coming out to a $1.3 million earnings.
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