How Buying a Business Can Help You Reach FI with Tim Delaney (ep. 254)

Speaker 0:21

Welcome to the Mindful Fire Podcast, a show about crafting a life you love and making work optional using the tools of mindfulness, envisioning, and financial independence. I'm your host, Adam Coelho, and I'm so glad you're here. Each episode of the Mindful Fire Podcast explores these three tools through teachings, guided meditations, and inspiring interviews with people actually living them to craft a life they love. Let's jump into today's episode

Adam Coelho 1:04

Tim, welcome to the Mindful Fire Podcast. I'm thrilled to have you here.

Tim Delaney 1:08

Thanks for having me, Adam. I'm excited to be here.

Adam Coelho 1:10

Yes, I'm looking forward to this. You and I know each other through, our Front Road Dads community, in which we aspire to be family men with businesses, and not businessmen with families. And you and I are in what we call a band. So we meet monthly, and we've been supporting each other to be better businessmen, better fathers, better husbands, and all of that. So it's a pleasure to have you here on the podcast to share what you've learned about all of that.

Tim Delaney 1:35

Thanks. I appreciate you having me. I look forward to getting into that and everything else we're gonna cover today.

Adam Coelho 1:40

So Tim, let's get right into it. W- on this podcast, The Mindful Fire Podcast, we explore a lot of different ways to build financial independence. Investing in index funds, the simple path to wealth, even things like real estate, and you have a different approach. And so I wanna start with the question that kinda attacks that head-on. Why do you think that buying and running businesses is the optimal path to building financial independence?

Tim Delaney 2:06

Great question, Adam, and a good way to start out. I think it's optimal because, A, it is underrated. a lot of people don't even know it, it exists as an option. And so there are opportunities out there to buy existing cash flowing successful businesses that are decades old for very little capital invested, and financing from banks, the government, and the sellers themselves, which can really make it an easy entry point and get people out of a job that they hate or a job that they feel like might not be there forever. and transition them into something that they enjoy doing while they're building wealth and while they're building a path to financial freedom.

Adam Coelho 2:49

I love it, and there's a lot there. And so I think one of the things that we're noticing, if we look around, is that those jobs that seem secure are no longer secure. And, even the best job you could have over the last five years, say, software engineering, is completely under attack because AI can do engineering better than engineers. Yeah. And how are you seeing this in people that you talk to that are considering this as a path to building financial independence? How are they thinking about this change in the job market?

Tim Delaney 3:16

Yeah. I think more and more people, if they're paying attention, are realizing that, first of all, their corporate employer is never gonna be truly loyal to them. they can talk about the importance of employees all they want, but at the end of the day, most employees for most large companies are just numbers. and when the ti- push comes to shove, they will get rid of those numbers if they need to make their bottom line look better. And then to your point on the software engineers especially, like you never know what shifts are gonna happen in society and in job markets. And it's a, something like even a few years ago, the government was spending all this money on- Pushing people without, with low education or having trouble finding jobs into coding. Go get... Go, go learn how to code and you'll be set for life. And now we're quickly realizing that those jobs are being replaced by computers, as you mentioned. so the people I talk to realize that this is a threat, and that they're not happy. I have a woman in my mastermind who, works a corporate job. She took a promotion to, mid-level management, and she's regretting it. she would rather go back, to be a lower level with a slightly lower pay, but more freedom and less headaches. And, at certain point you feel like, "Okay, now I need to push harder and do more and give this company more of my life in order to try to make the next jump." And what do you get with that next jump? You get more work to do and more responsibility and, yeah, maybe some more pay for, for most people. But if you don't get that promotion, you're stuck in this middle. And I think more and more people are realizing they don't want that. and there's other paths including working for yourself and, fire in general, whether it's saving or real estate or side hustles. But buying a business gets you out of that situation quickly because you can replace your paycheck or, at least most of it right away, and then build it up over time as you pay down debt and as you grow the business that you buy.

Adam Coelho 5:09

Yeah. We're certainly seeing more and more the illusion is gone that these jobs are safe and we're gonna be in them forever. And, certainly I've experienced, you just continue to progress, but as you do, the workload goes up a lot faster than the income. And you're limited in terms of how much you can earn. That's what has always attracted me to entrepreneurship, which is the, the ability to control your own destiny. And so one of the things that a lot of people do once they have that realization is they start a side hustle. And how does buying a business differ from the various paths of building financial independence, The path I'm talking about now is, have a W2 job where you do what you need to do to be successful there, but you're not racing for that more work for a little bit more pay. You realize, actually, if I build something on the side, I can accelerate my income faster potentially. Not always the case, but, So let's explore that one first, then we can look at that, the other pieces. and I will say here, it, it doesn't need to be one versus the other, right? I would say that you probably wanna have a diversified strategy to building financial independence. But let's look at this first scenario. someone wants to earn more money. Maybe they have an entrepreneurial itch. Side hustling seems like a great option, so let's look at that. how does buying a business compare to staying in a job and building a side hustle?

Tim Delaney 6:27

I think a side hustle is a great option for a lot of people. I think with every different path to financial independence, different people are gonna fit in those different paths better. and so with the side hustles in specifically, I think the side hustle is a right option for somebody that really does enjoy their job, just wants a, opportunity to make a little bit more money. Maybe they have a very high demand, high value skill set that they can go out and do a little consulting on the side. so instead of giving those extra hours to their employer, they're giving them to themselves and making that a little extra money. And then maybe they're coupling that with stock investing and throwing all that extra income into index funds instead of letting lifestyle creep get in their way. or maybe they're buying a house or two. so maybe they're combining that side hustle with other avenues. But when I look at people with side hustles and I see people that wanna get out of their job, or they're worried their job's gonna go away, side hustle i- is good for that. It's good, it's good backup income if your job does go away. But if you wanna re- fully replace your income with a side hustle, the hours that you start putting in after your 9:00 to 5:00 start getting more and more as you grow. Because- in order to fully replace that job, you're gonna be need to do a lot. And at some points, for certain people I've seen, it becomes so taxing and such a struggle that they get sick of it. They don't wanna do it anymore 'cause it, it feels like such a burden. They've given up, a life with friends, maybe their family's getting frustrated, whatever the case may be. And so I personally think that the people that can f- that fully replace their income with a side hustle are few and far between. there... It does happen. You can hit the right thing and, and/or you take a, a risk early on where you're n- haven't fully replaced your income yet and make the jump because you see it on the horizon. But compared to buying a business, when you take a little bit of savings that you have, you go out, you put it down against a business, you get a loan for the difference In, if you underwrite the numbers correctly, and you look at the projections, and you look at what the history of the business, you ha- you have the history of the business to go on, and you can accurately project what you'll be able to pay yourself going forward. So you can say, "If I was making $100,000 a year in my job, when I buy this business, I'm gonna take, 50, 100, $200,000 out of my savings," whatever that number is, and with, even with the debt service that I'm gonna be paying on that business, I'm still gonna be able to pay myself a paycheck really close to $100,000 a year." And if I work hard enough, every little extra work that I put in or every effort that I put in, I can start increasing that salary pretty quickly." and I see the direct benefits of that extra work as opposed to the employer where you don't get that dollar for dollar trade when you... Every extra dollar you make for the company, you might get a couple cents of that if you're lucky.

Adam Coelho 9:27

Yeah, that's a good point. That's one thing that I've always, I found challenging i- in the corporate setting. It's like you work way... Y- you could work as hard as you want, and your salary is the same. Yeah. Maybe you get promoted, and you get 10% more. Yeah. But the amount of effort that takes to get there is immense. And on the side hustle side, I think one thing that you're speaking to is that it takes time to build a side hustle, both the time you put into it and the time it takes to actually build that momentum and that progress. And I'll speak for myself. I've... I was doing side hustles all along, and, th- that took a lot of time, and now I'm full-time doing this, and- It takes time to build a business. And so what y- it sounds like you're saying is you can just go and buy a business that's already working, that's already producing cashflow and revenue and profit, and you can buy that business, and we'll talk about how you go about actually finding that business and, valuing it and buying it and all of that. but you can buy one that's already working and use that either on the side or full time, to replace your income, and now you're in that. And yeah, anything to add there?

Tim Delaney 10:35

Yeah, I just wanna touch on that too, 'cause, some people might have a passion for a side hustle. they might have an idea- they might have something that they really wanna do. and I hear this a lot from people, is Tim, I really wanna do this." and I had a woman on my podcast recently, business buying for financial independence, named Tiara, who really wanted to do charcuterie boards. That was her side hustle. she was building charcuterie boards. And so maybe there's not a charcuterie board building business out there for sale right now. But what we talked about was, is there a deli or is there a cheese shop, or something of that nature for sale near you that you can buy and then add the charcuterie board business onto? Now you've got-

Adam Coelho 11:15

They already have

Tim Delaney 11:16

customers you already got customers- Yeah and you get economies of scale. You're buying that, that business that already is buying and has vendors for cheese and meats and all that kind of stuff. Now you can get your product at an even lower cost. and it, benefits you, and you're building that business. one of the things- I talk about a lot is when you buy a business, you should always have a plan to grow it to some extent. Yeah. And so there you go. There's your growth patter- path right there. So it's... just because you th- you have a unique idea or you have something that you know you wanna do, doesn't mean that there's not a business out there that you can't buy and add onto.

Adam Coelho 11:51

Yeah, just 'cause it does one thing now doesn't mean you can't evolve it-

Tim Delaney 11:55

Yeah

Adam Coelho 11:55

in the future. Yeah, and I think it makes a ton of sense to have a plan to grow it- because, that is the reason you would buy a business, right? You would buy- Yeah a business at a price that you think is fair, that you can see the projection to grow it. Yes yeah, and I have a friend, Dirk, who's been on the podcast a while back. He's Iron Man athlete and serial entrepreneur, side hustler. he worked at me, with me at Google, and he's bought several businesses. And the idea is you buy them, you optimize, if it's an ad business, which is where we met doing that. You buy it 'cause you can optimize it and know you can make it make more money quickly.

Tim Delaney 12:29

Exactly.

Adam Coelho 12:29

So this is, this is very interesting at a, at a theoretical level, and I'm with you there. I've seen this happen. but, I know you have done this and you help other people do it, so I'm really curious, about your story and how this, this idea of bus- building businesses has supported you in building financial independence and kinda living the life that you wanna live.

Tim Delaney 12:49

Yeah. So I will go back to Ethiopia, which is where I was working in 2007 to 2010. I was working on some programs with the Ethiopian and German governments on developing the private sector of Ethiopia and doing a lot of value add, products. So instead of exporting raw leather, which Ethiopia exports, exported a ton of, setting up factories and businesses that were creating finished products, out of leather that have more value so when they sell them, there's more money coming into the economy- good for people, more jobs. in 2010, I, my wife and I decided to move back to Buffalo, New York, which is where I was from. And I always had an itch to be my own boss. And so while I was still working for my employer, I started a side hustle of my own. I started talking to some of these leather manufacturers and craft- craftsmen. And at the time, there was this new product from Apple on the market called the iPad, and those first versions of the iPad had no covers, they were expensive. they're still expensive, but they were really expensive back then. And people were putting them in these cheap neoprene cases, that I'm sure had, the people at Apple, shaking their heads a little bit with their sleekly designed device. So I, worked with some people and made a handmade genuine leather, sleeve for the iPads. goat suede interior, nice cow leather on the outside. Looked great, fairly inexpensive. Ordered all of those over to the US, and then Apple, changed the dimensions on the next version of the iPad. apparently they didn't think it was necessary to call me and let me know that. How rude it was a little frustrating. But, so I had a lesson in business there, that you need to pay attention to where things are going, not just where they are today. they also had the smart covers on them then, and so it was just a different thing. And I spent a lot of money and time trying to get that going, from scratch. And anybody that's started a business from scratch knows that, and that's why the, the statistics on business failure in the first couple years are so high because it's just, it's hard. Really hard. And around that time, an opportunity to buy a business came up. somebody... It was a specialty, retail store, like a coffee roaster, and I had worked in the coffee industry in Ethiopia as well, so they knew that might be of interest to me. so this, this retail store came up for sale, and I had never really thought about the idea of buying a business before, 'cause I just figured A, it's probably way too expensive. B, if somebody's selling a business it must be old and tired and have no opportunity for growth. but when I started looking at this business and looking at the numbers and it was like, oh man, and the bank is gonna give me a loan for, 90% of the purchase price? and I can pay myself right from the beginning? It just, all these things started clicking in my head. That particular store didn't work out. I didn't buy that store, but it sent me down a path of looking for a business to buy. and a year and a half later or so, I ended up buying a wine and liquor store just outside of Buffalo, New York, that, you know, for relatively low down payment, I put about $35,000 down on it. I got loans from the bank and from the seller for the difference, and it cash flowed right from the beginning. I was able to give myself a small paycheck, and then an incrementally larger paycheck every month thereafter as I grew sales and improved the business, over time.

Adam Coelho 15:59

Very interesting. And how has that impacted your lifestyle?

Tim Delaney 16:03

the first couple years it was, it impacted it by taking all of my time at the store, just to be, upfront. There's- you'll hear, if you've heard of other people talking about buying businesses, you've probably heard the phrase, Don't buy a job, buy a business." I- first of all, there was no content out there about buying businesses back in 2012, '13 when I bought the store. Or I didn't know of any. but I also intentionally went in buying myself a job. I knew I was gonna work. Although I knew I wasn't gonna work it every day for the rest of my life. So every decision I made early on was centered around, okay, when I hire someone to replace me for this, what's that gonna look like? How do I need to set things up in a way that I can eventually get out of this and still run it remotely? that generic advice of buy a business, not a job, I personally don't think applies to everybody. like we talked about, if you're trying to escape a job, if you're trying to cover yourself 'cause you know your job's going away, there's nothing wrong with buying yourself a job, if you have a plan to get yourself out of it in the future. And that's where, after a few years, I started hiring more staff, to the point where five-ish years ago, I hired a full-time general manager. and then I kept slowly cutting my hours, where I'm down to the point now where I go in a couple hours a week and I do everything else remotely, which isn't a lot more. It's, maybe another hour or two. and so es- essentially, if I didn't have other ambitions and other things going on, I could say that I, quote-unquote, fired, a- and, financially independent, retired early. But I like to keep going. I like to keep myself busy. and so I've used that time to start other endeavors and invest in real estate and, spend time with my family.

Adam Coelho 17:40

Yeah. And so it sounds like you have the broader life and portfolio, and so how does the liquor store business fit in with your real estate and your investments? Like, how does that picture all come together for you?

Tim Delaney 17:54

Yeah. I, and I think this might be a good spot to talk about real estate as a path to fire as well, that- Yeah that some people talk about. and I think in more recent years, that path is much more difficult with the interest rates the way they're, the way they are, and real estate as expensive as it is. because one of the, one of the paths that I used to hear people talk a lot about was buy cash flowing real estate, and then you can retire. you need to replace, $10,000 a month in real estate or in, in a job. You go out and buy cash flowing real estate that generates $10,000 a month. And- you used to be able to do that, I won't say easily, but more straightforward, like in a path that you could see with certain methods of real estate investing I think that path is so much more challenging now. It is... I have bought real estate over the last five years, as a wealth-building tool for the long run. In theory, it was supposed to cash flow as well, but real estate is so variable month to month, year to year. Hot water tanks break, furnaces need to be replaced, roofs start leaking, other things go wrong, tenants stop paying for months at a time, that cash flow is never a reliable option. However, if you have cash flow from, let's say, a existing business, you can weather those storms while your debt is being paid down on that real estate, and it's appreciating in the background. And so it's a great longer term wealth-building tool that I use, in conjunction with the cash flowing business to build my overall portfolio and set myself up for the future as well.

Adam Coelho 19:31

Got it. Got it. Yeah, that makes sense. So real estate, it is a good path, but it's becoming harder, and it's not as predictable as, a, cash flowing business. You don't have the history of all the things that have gone wrong when you buy a, a house or whatever. the business you can see the revenue and the projections and all of that. So let's get practical. somebody hears this, they're like, "Yeah, you know what? That sounds like a good idea." How does somebody go about finding a business to buy? What type of businesses should they be looking for? Let's start

Tim Delaney 20:00

there. Yeah. Yeah. So I would say the first thing that you're gonna wanna do is k- in the name of your podcast, be mindful about what you're thinking, what your goals are, what your strategy is going to be. Is this a right fit for you? and I do have a tool on my website called the buyer's profile that helps people figure that out, where they are in that journey, whether or not they're f- just first hearing about buying a business right now, or whether they've been thinking about it for a while. and they can find that at powerofbiz.com/mindfulfire. so once you've established, okay, where am I in this journey? am I on the right path? Do I... Is this gonna be a right fit for me? I suggest that you really spend some time digging into what kind of lifestyle it is you want. I had a, another gentleman in my, mastermind recently that was very close to submitting an offer on a pair of donut shops. And the numbers were getting closer to where he was gonna be comfortable with it. And then he kinda had this realization that he's not a morning person. He doesn't like getting up early in the mornings. He doesn't function, he, he likes his other morning routines. And so we decided in the mastermind that maybe the donut shop wasn't the right fit for his lifestyle. And then we pivoted, and he started looking for frozen yogurt shops, because still that limited hour service, but on the hours that fit his lifestyle that he wanted more. so I really recommend that people kinda think about that. you don't have to necessarily say, This is the type of business I want and this is what I'm going after," but just think in general of like what things might fit your lifestyle. You can spend some time with AI on that too, sharing what your ideal day looks like, what kind of things you enjoy doing, what you relate well to. And you might discover businesses or industries that you had never even thought about, 'cause there's a lot of stuff behind the scenes that is not- the coffee shop or donut shop or restaurant. personally, I would stay away from restaurants, but if you have a lot of experience in them, they can be a great fit. so identifying kind of in general what type of business might be good for you. And then there's a website called bizbuysell.com where a lot of things get listed. not everything. Business brokers operate a lot differently than real estate brokers in the sense of they keep things close to the vest. They don't publicly share everything. And so it can be challenging sometimes to find deals, but when you start browsing these websites, this BizBuySell, you see what's out there. You get to start getting some ideas in your head of, things that you really don't like, which is usually how I tell people to start whittling it down of you know what, like me, if you don't like restaurants, cross them off. Just stop. Don't even waste your time looking at them. you don't like something el- you don't like the liquor industry, cross them off, like whatever. It's, find the things that you don't like and start whittling it down that way. and once you find something, it's a matter of approaching the seller and/or the business broker in the right way. I can stop there for a second and see if you had any questions up to that point.

Adam Coelho 22:51

yeah, so that's interesting. So I think definitely makes sense to start with- What kind of lifestyle do you want, right? You know I'm a big fan of envisioning. I have my envisioning exercise I call the FI Life Jumpstart, which people can get at mindfulfire.org/start. That's where you start to think bigger about what's possible for your life, and what do you want it to look and feel like. And so I think that's a great place to start because, like you said, the numbers might be great on a donut shop, but if you hate getting up early, you're not gonna wanna get up at 4:00 AM and make donuts.

Tim Delaney 23:18

Yep. Yep.

Adam Coelho 23:19

Exactly. Or even higher. be... You have to be involved. Like you said, you're not gonna buy it and just h- be hands-off most likely, so you don't wanna design for that.

Tim Delaney 23:27

especially at first it's not even a matter of, this had staff in place that, in theory- was doing the cooking and doing the morning routine. He could have set his schedule up where he wasn't there early in the mornings, but when you first buy a business, you should be available at least. And so the fact that his phone could start ringing at 3:00, 4:00, 5:00 in the morning- it just, that's not the right fit, especially early on. could he have bought it, suffered through it for a few years, and then transitioned out of that morning stuff? Maybe, but-

Adam Coelho 23:55

Yeah

Tim Delaney 23:55

it's not always possible.

Adam Coelho 23:57

Yeah, and if you're gonna do so- if you're gonna make a decision, you probably should consider that at f- the beginning.

Tim Delaney 24:03

Yes.

Adam Coelho 24:04

I've come across a lot of content from people on LinkedIn, people like Cody Sanchez, who talks about similar ideas, buying boring businesses. She's all about buying boring businesses, laundromats and HVAC companies and plumbing companies. what are your thoughts on those type of companies, and, what kind of deals are you he- helping people explore? I think- Yeah the examples are really useful.

Tim Delaney 24:26

Yeah. So I- I'm all about that. boring businesses are great. Wine and liquor store is boring. It's really, there's nothing fancy about it. laundromats, great. I've found any laundromat I've looked at in the last few years is very overpriced. I think there's a lot of people chasing those right now that, partially because a laundromat is a business that you might be able to keep your job and keep operating- with the right people. HVAC and plumbing, those home service businesses, electrical, are very interesting right now, and a lot of people are talking about them. I am not opposed to them. I think there's a lot of opportunity there for the right people. I think people need to be very aware back to who you are and what your lifestyle's gonna look like, and what you're capable of, in those businesses. Because for some of them, they depend on a license, and if you are not capable of getting that license within a few years, you're reliant forever on somebody else with that license. you're also, depending on where you came from and what you're used to and how you're used to operating, sometimes people coming from a high-level executive job jumping into a plumbing business has a hard time identifying with and connecting with the employees, and I know of people that have really struggled with that transition in that type of business. not saying it's impossible, just saying you need to be aware of that. Those, those businesses as well are being highly pursued by private equity right now. and so there's some competition. you can come in on the lower end of the scale. So like businesses, the smaller the business, the less demand there's gonna be, especially from big players. The bigger the business, the more demand there's gonna be from bigger players, and private equity and family offices are overpaying for some of those businesses because they have the cash and capital, and they're willing to put it in for the long run. So those are great opportunities. I have people looking at, boat rental businesses down in Florida right now that are, little niche things that, are, a little different. capital heavy on that one, on the boat rentals. I have people looking at, senior services types, type businesses, whether assisted living or, transitionary services consulting type things or- in-home care, in-home like transitionary stuff, like helping people consult and retrofit their homes for- aging in place kind of things. and that's, that elderly care came out of conversations in the mastermind about, being, like identifying that's something that is a huge interest to her. an elder care piece. So- starting to look at businesses around that became her priority for the time being. a- and there's no, but there's really no end to the types of businesses out there. Like I've had people on my podcast that, the guy, the first time I talked to him, he bought a parking lot sweeping company. I had never heard of a parking lot sweep com- sweeping company. That's a

Adam Coelho 27:17

company? That's a

Tim Delaney 27:18

business? never even thought about it. Sweeping

Adam Coelho 27:19

parking lots?

Tim Delaney 27:20

Sweeping parking lots. But-

Adam Coelho 27:21

I guess somebody's gotta do it

Tim Delaney 27:22

ex- that's exactly what it was. And now that I've interviewed him, I have seen these parking lots being swept near me, and it makes- complete sense. just like the street sweepers that your town or municipality runs- somebody's gotta clean the parking lots, too. So- restoration businesses, flood after flooding- window washing businesses, manufacturing, all different kinds of manufacturing from s- little small niche, like making certain parts, to making bigger things. road widening machines that, again, there's, they make 20 to 25 or 30 a year. that's it. That's, but these, these massive machines that widen roads. so there's really no end- All kinds of things to the types of businesses out there. It's just a matter of having conversations, looking at listings, exploring, with people. A- and a lot of times I tell people to start going to Chamber of Commerce meetings. But most chambers allow citizen members of some sorts, or they just allow you to show up at the networking for whatever reason. Go and meet people, talk to them. Tell them you're interested in getting into business. You don't have to be interested in their business, and you don't have to- Right open every conversation with, "Are you selling your business?" But just saying, "Hey, I'm interested in buying a business. do you know... Who should I talk to? Who might be selling in the future? What should I know? what's your business like?" Maybe I'm... "What can you tell me about your industry, your type of business? What should I look for if I ever end up, exploring an opportunity in your industry?" Most business owners, I'm sure you're the same way, Adam, I love talking about business. With, my business, somebody else's business, whatever.

Adam Coelho 28:50

Yeah, interesting. Somebody,

Tim Delaney 28:50

energetic and it shows interest in business, I'll give them, I'll give them time, and I'm happy to have that conversation.

Adam Coelho 28:56

Yeah. So s- for the newcomer, what should somebody who's new to this look for in their first deal?

Tim Delaney 29:03

first of all, you wanna find something that's profitable. there, there are cases to be made for buying unprofitable businesses, and there are people and companies out there that are experts in turnaround situations. If it's your first deal, you don't want a turnaround. Don't-

Adam Coelho 29:18

Oh, you want

Tim Delaney 29:18

something- Don't tell... Yeah that's

Adam Coelho 29:19

actually making money.

Tim Delaney 29:20

It's already making money. You think you can make it m- make more money. you don't wanna see that dying restaurant and say, Oh," I watched, Robert Irvine or whoever those other, Bar Rescue, Kitchen Rescue, like, all those shows, "I can turn this thing around. I'm just gonna do this little this, little of that, cut the menu, and boom, I'm gonna be-"

Adam Coelho 29:40

Just- super successful" scream in their face- Yeah for a half hour- and it'll be just fine. Exactly. I used to love Bar Rescue. Yeah. I used to love that show.

Tim Delaney 29:47

Yeah. And that's, y- so don't trick yourself into thinking that you're gonna be the one that saves a, a, a business that has been slowly declining for decades. find the one that's profitable a- and has been doing well that the owners are getting out for legitimate reasons, such as re- just old age, health-

Adam Coelho 30:07

Retirement, yeah

Tim Delaney 30:07

retire- they're just tired and bored. 20- 20 years running a business is a lot, and you'll find people that have been in theirs even longer, and they get tired. and there's... And they leave opportunity on the table because they're making enough money for themselves. They don't want to make more. But fresh blood can easily grab those opportunities and- raise it up. You don't wanna pay for those opportunities, though. Don't get caught in that trap. There's a lot of people that will- price their business as though they've already taken advantage of these things. They'll say- you can do this, and you can do that, and you'll make, you'll be making so much-" "more money." Cool.

Adam Coelho 30:42

But

Tim Delaney 30:42

you haven't done it. Go do that, and then I'll pay for it.

Adam Coelho 30:44

Or- Yeah, I'm buying this at this price because I'm going to do that work- Yes and make that happen.

Tim Delaney 30:50

Exactly.

Adam Coelho 30:51

Yeah.

Tim Delaney 30:51

Exactly.

Adam Coelho 30:52

Yeah. and how are these businesses priced? Is it, a multiple of revenue or profit? how- Yeah somebody's looking at a deal, like I'm looking at biz buy sell right now, and there's a power washing business that's $125,000. It's cash flowing- $53, or no, $53,000, not $53 Yeah And like-

Tim Delaney 31:11

Yep

Adam Coelho 31:11

what is that?

Tim Delaney 31:12

Yeah About two and a half times cash flow, which is a pretty standard range. Most businesses are priced off a multiple of cash flow, or another term that's used commonly in these smaller businesses is seller discretionary earnings. another term you'll hear is EBITDA, earnings before interest, tax, depreciation, and amortization. Typically, the larger deals, when you start getting into the million dollars-ish of cash flow, that w- is, you're starting to look specifically at EBITDA. The seller discretionary earnings often takes into consideration the seller's salary, so the owner's salary that they're paying themselves. Plus all of the, the things that go into the bus- that the business is paying for that are really subsidizing the owner's life that are not necessary for the business. A- and these can be legal things tax-wise, or they can be n- not so Uncle Sam-friendly things. Or a gray

Adam Coelho 32:10

area situation you

Tim Delaney 32:11

know. Yeah. So that's- Every seller's... Yeah

Adam Coelho 32:11

s- this, what did you call it? Seller's what?

Tim Delaney 32:13

Seller Discretionary Earnings,

Adam Coelho 32:16

SDE. And so that's taking that out, or that's included when you're saying that?

Tim Delaney 32:20

So that's... So usually that cash flow number that you just said on that power washing business, that is what is included in that $53,000. So-

Adam Coelho 32:29

I see

Tim Delaney 32:29

if you looked at the tax returns or the P&L, the profit and loss statement, from that business for last year, you might see a bottom line net income of $20,000. And you're gonna say, wait a minute. You said $53,000 of cash flow." That other 33 could be the owner's salary. So maybe the owner's paying himself a $20,000 salary. So now we're up to 40,000. And then maybe he's paying for his gas for his car. Or maybe he's just paying for his vehicle in whole. Maybe he's paying for his cell phone bill or for his family's cell phone bill. so there's a few hundred dollars a month that... Or maybe he's, maybe he takes a trip every year to the power washing convention in Las Vegas, where he likes to go every year. y- but you, the new owner, don't have to go to that power washing convention. the other f- the other way to look at that too, and what some people do, is, maybe you do need to go to an industry trade show, and maybe for, a certain type of business there is a lot of travel costs 'cause you have to go to these trade shows. Fair enough, but maybe the seller likes to fly first class and likes to say, stay in a suite at the Wynn. whereas you can fly economy and stay at the Econo Lodge off the strip if you want. so they might add some of that expense into the seller discretionary earnings. So that 53- So it looks

Adam Coelho 33:47

more- Yeah it looks like it's cash flowing more than it really is.

Tim Delaney 33:50

Yes, exactly. and it, and some of these things are legit, some of them are not legit. And so as a buyer, you need to go through, and usually what the broker or the seller will present you is the profit and loss statement And then at the bottom, they will take all of those expenses that they, or, side by side, they'll take the expenses that they feel are seller discretionary and add those back on to the net profit at the end. And then it's up to you to look through and say, all right, you're calling that travel discretionary. I think it might be necessary, so we're leaving that in." the cellphone. If it's just one cellphone, the business needs a phone number, so that's an expense. That's a necessary business expense. if he's got 10 kids and it's a family plan- okay, fair enough. We can add some of that back on. travel. like I said, travel can be discretionary or not discretionary. janitorial items. some business owners really push what they include as a business expense, and then want you to pay for it in the asking price. And As a buyer, you wanna be very careful and try to eliminate as many of those seller discretionary things that they're trying to add back on because you might actually need a lot of those things. and y- luckily for you, if you're using a bank to get the loan, the bank is gonna add a lot of those things back in for you, too. They're gonna say, yeah, no. This, if it was on the tax returns, we're not calling it cash flow." That's- that was up to the seller. They put it on their tax returns, it's a business expense. We're not gonna hear this wishy-washy, "Oh, you don't need this." It was on the tax returns, therefore you told the government that it was legit, therefore it's legit. I, s- hopefully, I know that's a, it can be a complicated thing the first time you're hearing it, so I hope I, I didn't over-confuse the subject there for people.

Adam Coelho 35:35

Yeah, no, it's certainly in the weeds, in terms of what that means. But it's good to know, because if you're looking at a business, it, I look there, it says $53,000 cash flow. It's like maybe that's true, maybe that's not, and there are ways that, that they've constructed that number that might take some of these things into account, and I would never have thought of that. Yeah. And so if I'm looking at a business and I wanna explore buying it- Yeah like what does that process look like I'm asking for the profit and loss statement. What else am I asking for?

Tim Delaney 36:03

Yeah. I'll jump into that in a second. I wanna say one more thing about that cash flow. It's important to remember when you're looking at this, so especially if you're looking at it from the perspective of you're looking to replace your current income. And let's say your job, let's say you're making 50 grand a year in your job, and you look at that power washing company and you say, Awesome. I can buy this and I'll make $53,000 a year." And, let's pretend for a second that is completely accurate. It's usually not, but let's pretend it's completely accurate that is what you'll make in your first year. If you're buying this business with a loan, you will not make that $53,000 in the first year. So it's important to remember that 53,000 cash flow is before your debt service. So if you borrowed $100,000 and you put down $25,000, you're gonna have a substantial debt payment that will eat up most of that 53, $3,000 in cash flow. So you won't actually fully replace your paycheck. so just keep that in mind. But now let's say that you're interested in this business. you wanna learn a little bit more about it. It's intriguing to you. InBizBuySell, right there on the right-hand side, you're gonna see a form that you can easily click, fill in your name, your email address, maybe a short little message- and say, "Request more information." Never do that. Don't do that. brokers, especially for good listings, are going to get dozens if not hundreds of those requests- from people all around the country, and a lot of them, they won't even really read fully. What you're gonna wanna do is look at who the listing broker is or the listing person's name- and drop that name into Google with, ideally, usually I drop the city name in, wherever the business is- or the term business broker. d- it depends on how common that name is. if it's Steve Smith, you're gonna need some more descriptors in there to make sure you find the right Steve Smith. But if they've been a business broker for more than a minute, you're probably gonna be able to find them on Google and find their company, or who they work for, find their website, and then find their direct email address or f- and/or phone number. ideally both. Send them an email, give them a phone call. Introduce yourself, and what you're gonna be wanna do, want to be doing right from the start is selling yourself. I know this sounds, it sounds counterintuitive to a lot of people of they're trying to sell me something." It's yes and no. You need to prove to them that you're a viable buyer so that they give you the time of day. They get a lot of tire kickers, Oh, yeah. I'm sure and they're trying to weed those out as quickly as possible. So you need to prove to them why you're viable. "Hey, Mr. Broker. Saw this listing for the power washing company. Back when I was a kid, I used to cut lawns, and I always admired people that had power washers. really intriguing. I have... I'm the, currently in my job I do this. I have X amount of money in the bank ready to go on a business acquisition. I have a great relationship with XYZ Bank," and if you actually do with a individual's name at the bank, if you can drop that, great. The more you can sell yourself right from the get-go, the more likely they are to respond and give you the time of day. Usually that follows up with a short conversation, them getting to know you. Some brokers will immediately send you a nondisclosure agreement, which essentially is a legal document saying that you won't tell anybody else what the actual name of this business is or where it is or what it does, that you're gonna keep it to yourself and to your professional advisors. So that can be your banker and your lawyer and your accountant. once you sign that, they will give you, usually, sometimes you have to ask for it, but all the profit and loss statements, the balance sheet, and s- then sometimes what they refer to as the CIM, the, confidential information memorandum. I always forget what it stands for. the CIM, I think it's confidential information memorandum. Some brokers will put together a very nice packet of what the business is, what the market is, what it's made, how long it's been around, what the seller's story is, all that kind of stuff. some don't, some do. it really, it varies by broker

Adam Coelho 40:03

Got it. And so you then kinda take that information back to your own advisors, analyze it, make su- kinda get a sense for how it looks in terms of- Yep of that, and then you kinda figure out, like, all right, what would I do with this business? What are the plans I'd have to grow it, et cetera.

Tim Delaney 40:13

You got it. So trust but verify. you get those initial documents. You kinda have to trust what they say. you start trying to verify some things that you can. You decide whether or not you wanna move forward. Sometimes then you set up a meeting with the seller, get to know the seller. I... In the first meeting with the seller, I try to avoid, grilling them on the financials. I really... I look at it as relationship building. Every business transaction is, i- is a test of a relationship. It is... It's not a very simple process, and you are going to need the buy-in from the seller. The seller's gonna need to get along with you. If you don't get along from the first meeting, which you will have trouble getting along if you walk in with a million detailed financial questions of, Why'd you spend money on this? What's this dollar and 14 cents for? What's this for?" "What's this for?" They're just... they're not gonna appreciate you and, for the most part. Get to know them. just ask them questions about their history in the business and- you'll learn a little bit more. You'll relax their guard. They might open up and share information that they wouldn't have otherwise. and they might like you better. So if you submit an offer and it's not the best offer, they might take it anyway 'cause y- you've built this relationship.

Adam Coelho 41:22

Yeah, the... And this is ultimately, they have... In a lot of cases, they've built this business as their life's work, and they- Yep want it to go to someone who's gonna take care of it.

Tim Delaney 41:31

Yes. It's their child, The, for... In a lot of business owners' minds and lives, whether or not they think it or not, a lot of them have put more effort and energy into growing their business than they have their children. So- it's a, it's important to them.

Adam Coelho 41:45

Yeah, that's a good lesson to keep in mind as well So it sounds like, you, you get this information, you figure out, "Yep, I'm building a relationship with the seller. This feels like a good fit." Now what? Now, how do you actually go about buying the business?

Tim Delaney 41:59

Yep. Yeah, so you decide what the fair price is. might be what they're asking for, might be less, might be more. and you put together an l- what they call an LOI, a letter of intent, usually. Sometimes you go straight to a sales contract, but most people submit an LOI, which is a, kind of a non-binding agreement between the buyer and the seller that, all right, they're not gonna entertain any more offers or requests for information right now. They're gonna give you a, a due diligence period of whatever it is in the LOI, 30, 60, 90 days. you're gonna start... Y- you're... Once they accept that LOI... And I try to get as many of the big items out of the way, so the price, the financing structure, whether you're asking for a seller loan, as many of the big items out of the way in that LOI so they don't block the deal later on. cause then once that LOI is agreed to, you're gonna have that due diligence period, and this is where you really need to go deep. You need to be calling as many people as you can that you're allowed to. so if you're allowed to talk to customers, great. If you're allowed to talk to vendors, great. Go do it. Call people in the same industry in other cities and states. Tell them what you're doing. Ask them for help. lean on your accountant, your lawyer. If you don't have those things yet, it's not a big deal. Go find them. ask friends, family, Hey, who do you know that does this?" go find those people. Have them look at things. This is where a mastermind or a peer group can play a huge role, and this is why I set up my own mastermind for people looking to buy businesses. Bring them the deal. Have them poke holes in it. During due diligence, you're also applying for bank financing, if that's the route you're going. So you're talking to bankers. They're also gonna poke holes in it. They're also gonna help you do your due diligence, 'cause they wanna know that where they're lending the money is gonna be solid. Don't rely on them for everything. If you show up to them with a shoebox full of stuff, and no thoughts of your own, they're not gonna take you seriously and not gonna give you a loan. But they will help you. they'll notice things as well. make sure you're getting your finances aligned. Make sure you're setting up your transition plan, making sure you're setting up your marketing plan, a- and then you're moving towards closing. a- and there's a lot more that goes into this whole process, but I think for today, we focused on the beginning parts, which is probably where most of the audience is at, 'cause this might be the first time they're even hearing this concept. but we can always go deeper into it, or you can find me on my podcast to, to learn more. But you really wanna go deep into that due diligence, get the financing lined up. You're gonna get a closing date. you close on the business, and then you're done. Just kidding. You're not done. Now you're starting. Now you're starting. then the real work, then the real work starts. And I had somebody on my podcast that talked about how exhausted he was the day of closing, that he didn't even feel like going to the business. but you need to, and that's, now you need to take all that stuff you've learned and studied and planned, and go put it into place. And make sure you're showing up. You don't wanna do anything radical in the first six to nine months. don't walk in there day one and tell all the employees that the name's different, and they need to show up at 8:00 and not 9:00, and this is changing, and that's changing. Nobody wants that. Employees are gonna be scared. Your customers are gonna be scared. Your vendors are gonna be scared. Don't rock the boat immediately. make the changes slowly. Make sure you spend time talking to the, to everybody, customers, sta- like staff, vendors. Learn the ins and outs before you try to execute any of your plans. Like i- it's... I can't stress that enough. Like you- Yeah really need to make sure you understand things. Now, there are exceptions to that. when I bought the wine and liquor store, they had no electronic point-of-sale system. It was an old-fashioned cash register. I put in a point of sale day one, 'cause I wanted to be able to track my inventory, track my margins, do all that. That was a big shock to the two part-time employees that I maintained, but it was worth it in my opinion. I didn't make any other changes for months. eventually I changed the name of the store. I just added the word wine, and even that was a big deal. it used to be Elma Liquor, now it's Elma Wine and Liquor. But that was a big deal to a lot of people. "Oh, you're changing the name?" yeah, just really for SEO purposes. Want the word wine- in the title. so don't make any drastic changes and just slowly learn the business. Make sure you're spending time learning, at the beginning.

Adam Coelho 46:08

Very good. Yeah, that makes so much sense. you're buying this business because it's working. Yes. Don't go and blow up what's working before you even know how it works.

Tim Delaney 46:18

Yep.

Adam Coelho 46:18

Yeah, so one thing before we get to the Mindful Fire final four, I'd love to just have you talk a little bit about seller financing. I've heard about that a lot. I know my parents have done it. My parents owned assisted living facilities, and they sold several of them through seller financing.

Tim Delaney 46:33

Yep.

Adam Coelho 46:34

so maybe just talk a little bit about how that works and if it's preferable to a bank loan, how it... I guess how it compares to a bank loan.

Tim Delaney 46:41

Yeah. Sure. So seller financing is essentially when the seller becomes the bank. So i- they're loaning you the money to buy their business. So if you're buying the business f- and it can be any varying amount. So when I bought my wine and liquor store, the contract price was $350,000. I was coming in with 35,000, 10%. The sellers originally were supposed to do a 10% note, so another 35, but I think the bank asked them to bump it up to 50, if I recall correctly. And then the bank lent me the rest. Sometimes I've had guests on my show that have bought their business with 100% seller financing. They didn't even bring a dollar to the closing table themselves. So it can range anywhere in there. so the seller becomes the bank. They lend you the money, now you're making them a monthly payment, for that business over five, seven, 10 years, whatever it is, whatever term you, that you guys mutually decide on with interest. So just when you buy a, a house with a 30-year loan and you're making that payment every month for 30 years, at the beginning it's gonna be a lot more interest, a little less principle, and then as you pay it, it inverts and you're paying down the principle faster. Most business loans are in that five to 10 range. there's not many- Percent 30-year business loans. Years? Five to, five to 10 years. Five to 10 years. Yes. interest rates vary quite wildly depending on when you buy, and right now interest rates on businesses are up there. I got a quote the other day just under 9% for a business that I'm looking at. but seller financing can be cheaper. Sellers don't have to, they're not beholden to shareholders like a bank is. They're not trying to make money on a spread of what they're, giving to their customers in savings accounts. So seller financing, you guys decide on the term, you guys decide on the rate. and one of the huge advantages for a seller to do seller financing is that the, when they sell the business, there are gonna be taxes, capital gains taxes for them If they're doing a seller financing note, the portion of the principal that they are holding, they're not paying capital gains on that right away. They pay it in subsequent years as the principal gets paid down. And so it spreads out their capital gains a little bit, and it allows them to make a little bit more money in the interest that they're collecting- on the sale. So the advantages to the buyers for seller financing is that you usually can get a lower interest rate. the advantage to the seller is that they can spread out their capital gains. The downside for a buyer is if you're not using a bank, there's a little bit less eyes on your deal to find holes and find problems- with it. having the bank involved can help with that a little bit. The bank can also be a huge pain sometimes, asking for documents and wanting this and wanting that, and delaying things, and costing more money. But, Yeah they do help with that due diligence piece as well.

Adam Coelho 49:27

Got it. Yeah, that's interesting. and I think one of the things is sometimes, a seller can do seller financing for someone who can't get a loan from the bank. Yep. For whatever reason, right? Yep. Which could be a red flag, for sure. Yep. but, sometimes they wanna get out of the business and, they wanna have cash flow coming in over time. Yep. and, the capital gains thing, I never thought about that. That makes a ton of sense. Very cool

Tim Delaney 49:49

the other advantage for the buyer too is that you know the seller still has skin in the game. That- they're not just trying to dump something that- they don't believe in. If they're willing to hold even, just a small percentage, it shows both you as the buyer and the bank that there's something here. They're not scared of it. they think it has- They're not

Adam Coelho 50:05

throwing it over the fence to you.

Tim Delaney 50:06

Yep, exactly.

Adam Coelho 50:08

Yeah, that makes sense. Well- Yeah this is very interesting. It's s- certainly something we haven't explored on the podcast. we didn't get into this, but this is something that people could also consider for early retirement, right? If they wanna have something to do that brings them meaning and gets them connected to the community, this could be something interesting for them to do that provides meaning and cashflow and all of those things, as a early retirement activity. So that's something that we could certainly explore another time. But just- Sure wanted to throw that out there as, as this is not only a path to getting to financial independence and building it, but also something that you could do once you've already reached it if you are looking for a way to give back to your community, and be involved, Yep in something that provides structure and meaning and purpose as well.

Tim Delaney 50:53

Yeah. Couldn't agree more, especially right now. Communities need small businesses. They're so important to communities, between jobs and keeping the cash local, a- and supporting the nonprofit organizations in the community. So i- it's a great way to give back that instead of just hand- writing checks or volunteering your hours, it can be a very meaningful way to give back in a way that's still putting money into your pocket at the end of the day.

Adam Coelho 51:18

Yeah, definitely. All right, Tim, so let's switch gears into the Mindful Fire final four. You ready?

Tim Delaney 51:24

I think so.

Adam Coelho 51:25

All right, we'll see. the first question is all about envisioning. And so I'm curious, what is your big vision for the next five years? You've been, doing a lot of this stuff. You're building this mastermind. You're helping other people buy businesses. When you think big, five years from now, what does life look like?

Tim Delaney 51:41

I want to have helped hundreds of people buy a small business for themselves, for their families, for their communities. I think it's so important that these businesses get purchased by other small investors, and I think there's su- such a great path for so many people out there that I just envision helping hundreds of people do what I did.

Adam Coelho 52:01

Very cool. Yeah. I... it's very interesting to hear your passion for keeping small businesses in the community. a, a lot of these businesses, as you mentioned, are getting bought up by private equity firms who, let's be honest, don't care about anything except for the money, I really love how you have this passion for keeping small businesses in the community, and the power that you have by shopping local and being one of these businesses that is providing a service for the community. And you're deeply in the community when you have a place like this. so that's really cool. I love to hear that. The second question, Tim, is what piece of advice would you give to someone early on their path to financial independence?

Tim Delaney 52:40

It's not an overnight thing. Don't get frustrated because you don't see results day one, week one, month one, year one. be patient. it's gonna take time, but if you're making the right decisions and doing the right things, it will happen faster than you expect.

Adam Coelho 52:57

Very good. I love it. Question number three: What piece of advice would you give to someone getting started with meditation and/or mindfulness?

Tim Delaney 53:04

I'm not a big meditator, but on the mindfulness thing, just being aware of what's going on around you. I think there's, s- I think there's a, problem, especially in today's w- today's society with people being heads down in their phones, constantly scrolling. and I know this isn't necessarily on the bigger level of mindfulness, but just starting at a very small level of being mindful of what is around you at any given time, in any place that you're in. being more observant, paying attention. just being mindful on a small level, to start I think is important.

Adam Coelho 53:36

Yeah, absolutely. Awareness of what's going on in, around you, within you, all very important. And yeah, it's a skill of paying attention. I love that. And the final question, Tim, is how can people connect with you online, learn more about your podcast, your mastermind, all the things that you're doing? And I think you mentioned you created a resource for the audience, so remind us where they can go and find that and all the great things that you're working on.

Tim Delaney 54:00

Yeah. my podcast is called Business Buying for Financial Independence. it's wherever you listen to your podcasts, you can find it there. and then w- I'm on Instagram and Threads, Tim T. Delaney most places. and then my website where this resource is, the buyer's profile is powerofbiz, B-I-Z, com/mindfulfire

Adam Coelho 54:22

All right. we'll link all that up in the show notes so people can go find you and all that great stuff. And, yeah, hopefully they'll go and learn all the things about buying businesses on the path to financial independence. Thank you so much for being here, Tim. I really appreciate you bringing this new perspective to the audience.

Tim Delaney 54:38

Thanks for having me, Adam. And I would just also ask your audience to go leave Adam a five-star review on whatever platform you're listening to. Don't think enough people do that, and As, as a podcast host myself, I know I don't ask my audience enough. I don't think you ask your audience enough either. Sure. But you definitely deserve it. So get out there and leave Adam a five-star review on Mindful Fire.

Adam Coelho 54:56

That's the best idea you've had all day. No, I'm just

Tim Delaney 54:59

kidding.

Adam Coelho 54:59

No, that would be awesome. Yes, listen to Tim, everyone, and please do leave us a five-star review. It really does make all the difference because it tells the platforms that you're getting value from the show, and you wanna help other people find the show. So thank you for that, Tim. I appreciate it. And thanks again for being here.

Tim Delaney 55:13

Thanks for having me, Adam.