Host: Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs. And on this podcast I talk to the people who do it. My guest today is due diligence consultant, Elliot Holland. Due diligence is frankly one of the least fun parts of buying a small business, but I assure you, Elliot makes it interesting. We touch on a lot of topics related to the actual deal making involved in acquiring a small business. And in preparation for this conversation, Elliot prepared a list of things he wishes he knew when he got started. So you'll hear me tee him up to go through those and you're going to learn a lot. And I also think you're going to going to enjoy Elliot's approach to this, the messy and opaque world of buying small businesses. Here he is, Elliot Holland of Guardian Due Diligence. Elliot Holland, thank you for joining me today on Acquiring Minds.

Guest: It's good to be here, Will. Thanks for having me.

Host: Elliot, you are a buyer advocate in the form of a due diligence expert. You founded and run Guardian Due Diligence, your own firm, which provides due diligence services to acquisition entrepreneurs, people who are looking at buying a business. So you have looked at probably thousands of deals and have extracted some pearls of wisdom along the way on what makes a good business, how to approach the buying process, and everything in between. So we're gonna get into some of those pearls, but before we do, why don't you give us two minutes on yourself and how does one end up founding a due diligence company?

Guest: Great question. So I'm a reformed engineer, reform strategy consultant, Harvard mba. Around the Harvard time I got into private equity investing, I worked at two different private equity firms. And I realized that in private equity, the name of the game is owning equity. So I convinced a mentor of mine who was doing independent deals to partner with me. I started Ellsworth Partners with a business partner and we did small and medium deals. We bought a automotive parts business, a tow truck business, and a clinical trials business. When he effectively retired, I rolled out on my own and did acquisition, entrepreneur, independent sponsor. I think the line between those two is pretty thin. I was looking at deals a bit smaller. So a half million to $2 million in EBPA under Spartan Capital. Through that whole process as a sort of independent business buyer, I saw that there weren't many good or really even. There weren't any dedicated solutions for small and medium business acquisitions. And so I founded Guardian Due Diligence to be the diligence firm and really service firm that I wish I had when I was buying companies. And essentially what we try to bring to market is sort of deal focused due diligence. And so managing CPAs and CFAs as a deal person, I think provides a very unique service offering in a marketplace that is sort of growing and changing every single day.

[3:28] Host: And historically, when you like the gap you saw in the market to fill was what people would do before Guardian is they would basically just have their accountant look at a deal or their lawyer look at a deal and that might be fine, but the accountant and the lawyer, they don't necessarily look at deals all, all day long. So they can provide some guidance, but maybe not the depth or the expertise that somebody who's dedicated to this does.

Guest: Absolutely. And then moreover, if we just isolate the accountants because that's typically sort of the biggest comparable for the work that I do. Accountants come up in audit. Audit is give me all the exceptions that aren't sort of 100% gap accounting. And so even when they move to the transaction side of the house, now they're doing hundred million dollar deals where the goal is still to find all the things that aren't perfect. In small and medium sized deals, everything is imperfect. So when you get an accountant involved that's trying to identify the longest list of things that are imperfect and you have a seller who's probably a person who's 100% dedicated to sales and does not like spending even five minutes on the phone with an accountant. Now you've put pressure into your deal by the advisor you chose and paid. And so the biggest issue and challenge for me that I saw was that even when I got great people at doing the work, they would put pressure on the seller or they would make me think that good deals were bad and bad deals were good because they were looking at exceptions relative to sort of gap accounting standards. And I thought that a deal related person that understood is the juice worth the squeeze? Is the business worth what you're paying for? It provided a very useful and valuable point of view that is differentiated because you can't really see it anywhere else.

Host: Great. And before we I want to just go one more question on Guardian and kind of what a dedicated due diligence firm does. Before we launch into some of these topics that we've talked about, the equality of earnings speaks for itself. You're having the earnings of the company you're considering acquiring, you're having the quality of those earnings evaluated because a million dollars, there's good million dollar revenue bad Million dollar revenue and in between. So of course we see QOE a lot, we hear it talked about. But tell people who are really new to this, like what is a little bit more on the process of doing a QoE, what the deliverable is. And I am right in saying that a core part of due diligence is the QoE, is that right?

[6:07] Guest: Yeah, absolutely. It's the, it's the foundation of due diligence, particularly for small and medium businesses. So a qoe is a 30 page plus or minus report. It is essentially everything you need to know about a private business before you make an investment in it. The specific things that are covered are revenue and how sustainable it is, cost and how are they trending adjustments that the owner is running through the business that you might not pay on an ongoing basis. And so we call those EBITDA adjustments and all that culminates into an adjusted EBITDA for the period that you're looking at. And typically people pay a multiple of adjusted EBITDA to buy a business. So now what the quality of earnings does is it looks at revenue sustainability, cost adjustments, adjusted ebitda, working capital, sales per customer and other things that a client may be sort of particularly interested in. So it's really a full assessment of a private business. And why do you need assessment? Elliot? I'm getting QuickBooks Financials. I see these bank statements in here. Anyone who spent any time in small business financials knows they are wonky by definition. So the bank statements will not match the financials one to one. The financials will not match the taxes one to one. You have sellers who have, you know, bookkeepers who may also be their wife or someone without any sort of finance background. Maybe somebody straight out of high school managing their books. And then, oh Elliot, they have an accountant who did the taxes. The accountant just took the QuickBooks and put it in a system and printed print. And so you need to actually have a financially savvy person put all these district sort of data pieces together into a package to help you understand the business. And that's the quality of rent.

Host: And a 30 page document sounds like it would be extremely valuable but at the same time also daunting as a buyer. Does it come with a top line, green light, yellow light, red light? Overall, here's my takeaway. Do this deal, don't do this deal.

Guest: Maybe I should add one will. It doesn't currently and I say that not flippantly, I'm actually always looking to improve. So our process makes sure that we understand the key Issues that are bothering the buyer from the beginning. So we're addressing those in the report. So it's not like somebody gives me a data set, we go in like a cave for 30 days, come back out with like a shiny report. We're talking three or four times a week about the key issues. So by the time we actually deliver the final report, the red light, green light, yellow light has already been discussed 10 times because it changes with different data pieces. And also, one of the things that we do differently than accounting firms is we recognize that adjusted EBITDA is just the first step in understanding diligence. Diligence is the business worth what the buyer is paying for it. Most of our discussion is focused more on if the business is worth what the buyer is paying for it. Relative to, here's the ebitda, go figure it out, dude.

[9:26] Host: And if I use a diligence firm, so getting into the books of my target of the business I'm considering acquiring. So is that something that the acquisition entrepreneur, him or herself typically does? And, and if I, you. If, but if I work with Elliot, like I just won't do that because that's based part of a big part of what your work piece is like. I'm just. So for acquisition entrepreneurs out there, should they expect that they're going to be the ones going into the books? Are they going to outsource that? Or that's. That really is the question of whether or not they work at work with a diligence firm.

Guest: So the way I explain that is the first pass is always done by the acquisition entrepreneur. So they're going to get a confidential information memorandum on the business. They're going to get the sort of data room, whatever's available, and they're going to look and make sure like, you know, is it plus or minus good or bad? Right. And then sort of one of the big questions I get is sort of for people who have some financial background, right? They worked in finance at a Fortune 500 company. Well, I can do this myself. And 20% of my clients are like former investment bankers, former CFOs, former financial studs. And the reality is during a full due diligence process, so from day one to day 90 is typically how long you have, an acquisition entrepreneur is wearing at least 10 hats, right? They're trying to get to know the seller and build trust. They're trying to get to know the head salesperson because that person's delivering the revenue. They're trying to talk to a lender and get their debt Lined up. They're trying to talk to equity and make sure that's in line. If they have a family, they're trying to talk to their wife and their kids about, does this make sense? I may have to move. They're also looking at how do I grow the business? And so on and on and on. And so oftentimes it's not so much that the person that we work with can't do some portion of the work, it's that when you're already wearing 10 to 15 hats and you can outsource one hat to somebody who knows exactly what you need, you're already going to be overwhelmed. And typically people are making an investment that's 10x their second largest investment. This isn't the time to be spread thin. So do acquisition entrepreneurs look at the data? Sure. Should they trust themselves to go through the full diligence process? No.

Host: Excellent. Let's dive into the things that you wish. You know when you started.

Guest: Sure.

Host: So number one was write the darn loi. Write the darn letter of intent. What did you mean by that?

[12:03] Guest: When I started and even I've seen and talked to clients, there's this trepidation around the legality of the business acquisition process. So you get this formal confidential information memorandum. You had to sign this legal letter, NDA, you're putting together these million dollar valuations where most things you've invested in are in the hundreds of thousands. And now you have to write this loi. And there's all this pressure around it. Did I get the valuation right? Did I get the structure right? Will the seller accept it? And it leads to incredible hesitation that I think kills more acquisition entrepreneurs than almost anything else. To get good at this, you sort of have to have reps. There's no real way to teach this outside of having the reps. And so why I say write the darn loi? It's the only way you learn. People try to over optimize on pre loi learning. And what I would tell the people is like 90% of what you need to do is post letter of intent. So put evaluation on that letter, put a structure together, send it. Nothing's perfect, but you got to send the loi to start.

Host: You just said like the two kind of pieces of meat in the loi, the valuation in the structure of the deal. Is that accurate? Is it Basically. Is that a distillation of what an LOI is?

Guest: Yeah. It's sad to say, but even like an eight page letter of intent, it's price structure and Then some conditions like exclusivity and anticipated closing date, but really it's four bullet points. Right, which is the other reason why you write the darn loi. Like, even if you don't understand some of the other stuff that's in the tempted language, put a price in, put a structure, send it.

Host: Speaking of template, so are there kind of industry standards or does everybody have their own template? And is a template something that somebody can reach out to you? Do you have a go to?

Guest: Yes, I do have a go to so people can reach out to me. The Stanford search fund packet has one in there. And then it's almost like that sounds like your favorite notebook. Like everybody sort of has something that they got from some lawyer, some friend, some website. And so I see all these letters of intent. You know, some are better than others, honestly. But there's plenty of templates out there. If you need one, come seek me out.

Host: Great. Okay, so getting the reps in, that's perfect. Segue to your second what you wish you had known. Success is a function of the number of deals you do. I think that one speaks for itself, but let's hear it. Yeah.

Guest: One of my favorite books is you can't teach a kid to ride a bike at a seminar. And it's the same for you can't teach a dude to do a deal in an office. And so you have to have reps. In fact, I encourage people to think of each failed attempt not as, oh, my gosh, that failed, but one less fail en route to your success. Like, just think, I'm going to have four failed LOIs or seven failed LOIs before I get my deal done. So when that one fails, I know the emotion is going to be terrible and you're nervous and all the rest, but after you go to sleep, take a shower in the morning. That's just one less failure you have en route to success. But there's just so many things you learn post letter of intent. I mean, I almost think the pre letter of intent time is almost like not even practice. It's almost like drawing up a play on a clipboard. Like you. You are really academic. So to get good, you need reps. You want to get reps quickly, so try to get reps any way you can.

[15:44] Host: The first information packet is plus or minus 40%. What does this mean?

Guest: Yes, and I'm laughing because I really have a fun time with this. I love what I do. I love my clients as well. So when you start off, okay, so in corporate America or even in business school, or undergraduate. When you get a packet of information, it's pretty much 100% correct, particularly when somebody's like, brand name is stamped on it and there's like numbers with decimal places, meaning somebody really used like a calculator or Excel. So when people are sort of used to 100% accuracy and then they get this confidential information memorandum on a business, a lot of people are still in the zone of 100% accuracy. So a lot of things in the confidential information memorandum are a not knowable. So like top company in this industry that's not knowable by a business broker. So a lot of that stuff is just kind of facetious. And then from experience, I'll tell you those documents are plus or minus 40%. And that's scary to hear when you first start. And maybe in your math it's plus or minus 30. But if you talk to anybody that's been looking at deals for like a year plus, they'll tell you Elliot is spot on. And so what does that mean? It means for every dollar that you see, you got to think it could be $0.60 or $1.40. And so don't kick out deals just because the number isn't exactly what you want. Because if it's in that range, you might still want to go to the next step. The other thing is, when you're considering your deal breakers pre loi, you also need to think about the range that you're dealing with. And also don't have a heart attack when you see it.

Host: 40% off, I assume when you say plus or minus 40%, I assume that it's usually whatever.

Guest: Minus.

Host: Yeah, minus 40%, whichever direction favors the seller, especially if they're represented by a broker. If it's a broker deal, like anything, the broker works for the seller. And if they err in either direction, they're going to err and kind of exaggerating or putting, putting a positive spin on the business they're trying to sell for their client. So is that right? I mean, should I look at like, if I'm looking at Biz Buy Sell, for example, should I kind of all of the cash flow and earnings. That's a data point typically on almost all of the listings on that site. Should I just like round down 30% or like lop off 30%? 40%?

[18:16] Guest: No, you asked a great question. So I would say 90 to 95% are minus 0 to 40%. Right. So for every dollar, expect 60 to 100 cents. Right. But I'll tell you, for a lot of people it ends up being plus 40%. How does that show up? So anyone who's dealt with a business broker knows oftentimes they're a real estate broker that sold a single business and now they're a business broker. Most of those guys could not find EBITDA on the income statement and couldn't calculate it. And then other brokers are amazing and facilitate amazing deals. The reason I say that is because you can't assume sort of an amateur is going to present the right data if you're an expert. Right. You wouldn't expect a person who like is like two months into law school to be able to write your purchase agreement. But we think of brokers as sort of, they have these brand names, they're typically older people. So we think that they've been doing this forever. They've just been doing stuff. Right. So what does that mean? I've seen deals where you're talking to the seller, you have the packet and all of a sudden they totally forgot about a side business that they run across the street. And it wasn't in the numbers that the broker had. They never thought to say anything because it's some weird thing that they have a relationship with some neighbor. And now you have another $400,000 of SDE sellers discretionary earnings that you didn't know about. Or someone will say, hey, you know, I think next year's projection will be a million dollars of revenue and $200,000 of profit. And you, because of your knowledge of maybe an industry or an area, know that something is exploding in that area and that projection is totally off. And you could probably expect 40% more given population growth, industry growth, but the broker hasn't considered that. And so is it mostly the minus 40? Absolutely. Well, but if you're patient enough, you're also going to see some where the actual EBITDA is understated or sometimes the broker doesn't do the add backs because they have better things to do. So now you look at a packet that's just tax returns. A lot of people just send tax returns with the COVID page. So now it says $200,000 of net income, but you have to back out. Depreciation, amortization, but also all the owner's personal expenses. That's another time where the earnings are understated.

Host: Elliot, this is making me think, so if I'm interested in the deal that I see on Biz Buy Sell, I get the sim. So the question is, when do I engage you? Because obviously there's a cost to engaging you. And so I can't just every deal that kind of smells. Smells interesting. I can't send you to have your due diligence on. That would be prohibitive. So how do I think about that?

[21:20] Guest: Yeah. So ideally, sort of when you start writing up your letter of intent, you should be in touch. That's kind of the day when it makes sense to get to know me, to reach out. Because if you write a letter of intent, you send it, the seller signs it in a week. Now you're in due diligence, and guardians should be starting the process. If you're not talking to me when you're writing the loi, you wait till you get it signed. Now, we're just now talking. You're already a week or two into diligence when we can start. That's if we're not busy. And now we haven't had a chance to get all the background information that may be important to start the process correctly. So right when you're writing the loi is the main and best time.

Host: And Elliot, how do you price your services? So just to give people a sense?

Guest: Sure. So for deals under $2.5 million, we price at $15,000 for quality of earnings. For deals over $2.5 million, we priced it at $20,000. And one of the reasons why we have our prices on our website and they're very clear is again, this is the service business. I wish I had. When I was on the buy side, I used to get so frustrated calling two or three accounting firms, and I couldn't even get an answer. You get a rate card, the unknown number of hours, and you're like, I need to know what to budget. So we have fixed fees, and then all of our quality earnings processes are four weeks. We streamline them and we nail them in four weeks. So that helps people sort of prepare.

Host: Yeah, that's great clarity. Cool. Okay, so next item that you wish you knew goes. You have no idea until post LOI.

Guest: Yes. Which goes along with the plus or minus 40%. So. And also it goes with, number one, write the darn LOI. Because until you get a signed letter of intent and get a full set of diligence information, you just don't know. You have no idea. And it's not like the beginning. So just throw the beginning away. I should just be writing, Lois, without even looking at the deals. I wouldn't go that far. But what I would say is when you start looking at three page summaries of businesses, 10 page summaries of businesses, that have been around 30 years. Just know you, you don't know squat. When you get into diligence, you get the bank statements, the customer list, the account receivable, the list of employees. Now you have enough data to like understand the business. But you're going to find out things post loi that were represented, in summary, pre loi, but you never could have understood them accurately before. Now you have the full data set. And so again, you got to sort of understand the post loi. It's like a different land. It's like crossing over into a new country or something.

[24:10] Host: These businesses in the range we're talking about are all super messy as you opened by saying, and even once you get one under loi and you're doing your due diligence and you're working with Guardian or not, but you have access to all the data the seller will provide. But still the data is only going to be as good as the seller or their broker is organized or as good as the records they've kept over time. And I imagine there's a huge variation there. Is there some hard and fast rule or a rule of thumb around how much murkiness you're willing to accept in a deal? Because there's probably going to always be some stuff that you just can't know, even if you know. And not to say that the seller's intentionally trying to obfuscate something, but they're just not organized. Or is this just really case by case? You just. Every deal is different.

Guest: So I'm going to answer this a bit backwards, Will, but I won't take a long time. One of the best questions people have asked me is when is diligence over? And diligence is over when you're ready to pay a million dollars plus for the business. Like until then you're still in diligence. Right. And so is there an amount of murkiness that's too much for me? Oh, absolutely. There was a post on Facebook, somebody asked and I said, if I'm worried about the seller line, I'm done. It's just too much seller centric trust that has to be built.

Host: Yeah.

Guest: If I think the seller maliciously tried to mislead me, which is similar but different. The lie is just like operational. And the numbers, you know, I did $5 million of revenue and you look at the stuff and it's three, I'm out. But I think the real answer on a universal basis is like, think about like chili or like gumbo, you know, and like somebody like from Louisiana likes Their gumbo a bit different than like, you know, Mississippi, and somebody on the west coast just is happy to have gumbo and they'll take anything. The messiness around these deals and when you'll walk away is kind of like when somebody walk away from the gumbo table because the gumbo sucks. It's really a function of who you are, what you're comfortable with, how comfortable you feel with the seller and where you are in your risk tolerance in life. And so I think I encourage everybody because you're going to fall in love with the deal. The first couple of ones, you're just going to. I think you almost need to write on your wall your walk away criteria. Just like explicitly, here's the things that if I encounter, I'm out of here. And just stay true to that.

Host: And is that sort of the similar thing of like your deal criteria or slightly different? Because I hear from a lot of people that have done this a little bit, it's like you really got to have some criteria because it's so easy to be enticed by something that looks good. But if it's outside of your sweet spot, don't waste the time, don't get distracted. You've already made the decision. And so organizing yourself in advance, disciplining yourself in advance, will prevent these distractions later.

[27:19] Guest: Excellent point. So I think they're related, but they're a bit different. I use a dang analogy. You know, like, you might like people, you might like tall people, athletic build that went to a top 25 college, whatever your thing is. Right. And you should definitely focus on dating those people. But your deal breakers might be they live their life on social media or they don't have a good family relationship, they have a bunch of tension, or maybe they're dealing with too much trauma and it's just too hard to unpack. And so it's almost like your first filter is your criteria and your second filter are your deal breakers, the things you just can't deal with. And because you don't know these things up front, like, nobody puts their deal breakers in their marketing packet, you kind of have to do multiple screens. But. But hopefully that analogy kind of sets it up appropriately.

Host: That's great. You touched on the honesty and the seller. And that brings us to your next point. The seller has no reason to trust you yet. So we as buyers think a lot about trusting the seller, but it goes both ways. So elaborate on that.

Guest: Sure. So I've been in processes where I literally helped a client last year. We're in a process, two weeks post loi send a diligence list. We get two tax returns and like annual financials. And then a couple days later we get the full information pack. But we're going to start writing the asset purchase agreement. So we're pushing through the process and the sellers like, hey, don't worry about the asset purchase agreement. I already have one written up. I had my lawyer write one. Me and my two partners have looked through it. Don't worry about it. You can mark up ours. It'll save you guys a lot of money. So we're still begging for sort of material pieces of data. We're begging for material pieces of data and we're like, hey, we really want to start the purchase agreement. Get our lawyers going. No, we got this. You know, the agreements with my second partner, there was a piece that he wanted to, you know, figure out, blah, blah, blah. Let me get to the point. I tell my client, there's no purchase agreement, dude. The seller doesn't trust you and is not going to do anything legal until you come back from the quality of earnings and tell him when numbers are good, he thinks you're going to switch the numbers on him and trade the deal. And until the quality of earnings comes back, he's not even considering spending money on a lawyer. That is, he doesn't trust you. So in these processes, I think we put our website up, we went to these fancy schools, we have these fancy investors, and so the world should respect us. And you go talk to a person that spent 30 years in the business, put kids through college, paid mortgages, you know, had a very, very tough time paying payroll. You're just some young kid that may be able to put the money together. And what does that mean for your process? It means that there may be things that day one, the seller's not willing to give you or tell you that he's not really in a position to be 100%. Why? That after you've earned some trust and gotten through the process, they'll be more willing to give you. So, for instance, a popular one is customer list. A lot of sellers won't give you the customer list until you're like a week from closing. That's just a great example of they're not lying, they're not being a pain in the butt purposefully. They're just saying, hey, I gotta earn some trust to give you this coveted piece of data.

[30:53] Host: Do you find that sellers typically are a little bit evasive? Like, I guess they don't want to tell you to your face. I don't trust you yet. So you just kind of got to read between the lines that that's the dynamic at play.

Guest: Yeah. One of the most fun things about this game is understanding nuanced communication because there's certain things that people are not likely to communicate. Like maybe 10% of people will just tell you to your face. And I've been told to my face, I don't trust you, dude. You know, earn some trust and you know, we'll get there. But we're not there yet. I've had way more.

Host: Was that in your dating life or in your diligence life?

Guest: Both, actually. But I've been in situations where and I've sat with sellers who are trying to get something nuanced to this buyer who, still academic a bit, just getting started, hasn't negotiated million dollar deals for themselves yet. And so some of these messages are hard to deliver directly and so you have to read between the lines. It's almost like in the corporate setting where your boss might not tell you that you're about to get on a performance improvement plan. They'll just ask three times the number of questions they did on your last deliverable, three or four times in a row. And if you don't sort of pick up that something changed, then you're not going to go through that. You're not going to know what's happening in the truest way.

Host: Again, this question of trust and getting the seller to trust you, I imagine the more crowded the market gets and the more interested buyers there are. And if a seller is getting inbound interest from a bunch of buyers, then the higher their threshold for trust is probably going to become. So there was a Twitter thread in the last few days last week by Nick Haschka, who's been a guest on this podcast about things that he sees different, how this space of small business acquisition has evolved in the five years since he did his first deal. And one of the first things he says is it feels a lot more crowded, a lot more buyers. This idea of acquisition entrepreneurship is a lot more established. My podcast is an example of this. My podcast is new to this world and there are many other people who are also similarly new to the world. So you've been in the space for a while. Can you comment on his observation? Sure.

[33:30] Guest: That's probably how he sees it. I think this business, I think the acquisition entrepreneur landscape is blossoming and growing quickly. I think there are more people in the market, but I think if you talk about qualified buyers, I think the number has not changed substantially since like 10 years ago when I started. I think there's more tire kickers. I think there's more pompous people that put up a website that really don't have the demeanor and the humility to do this. I think there's people who would go through the process at a bank and talk about a million dollar loan with a personal guarantee, but wouldn't really do it. And I also think that seasoned buyers know the volume of buyers is going to fluctuate over time. And in any market you have to sort of understand where you differentiate it and where you most lethal. Where are you most able to get the attention of who you're talking to and is it more crowded? I'll give them that. But I think if you're a qualified person, I don't think the game has changed that much.

Host: Okay, your last point, thing that you wish you'd known is use calls to bother people and you'll get data.

Guest: Yes.

Host: Yeah, tell us about bothering people.

Guest: And half the deals we work on, we've done about 30 deals this year on half of them. We're three weeks into our process and we don't have anything more than tax returns. Right. And my client's asking the seller for data, we're asking the broker for data. We've sent a bunch of emails, we've sent lists, we've sent exception lists, we've sent. I hate to tell you, but the seller's not looking at your list and the broker works for the seller so they can't get the seller to look at your list. If you get frustrated and start sending nasty gram emails or start calling people and screaming, which I've seen people do, you just blow yourself up. It's almost back to that thing I was saying a second ago. Not everybody's qualified. The better way to handle that is to schedule a weekly call or schedule two calls in a week and just painfully walk through your due diligence list, every single item at a snail's pace. The seller has better things to do on that day. They will cut the call short and tell their accountant to give you all the data. I've seen that happen. So if you're able to use the call to inconvenience people, it's a great tool to get data in situations where you wouldn't be able to get it otherwise.

[36:07] Host: So you book a call and then you intentionally just slow down the call and make it a little bit painful for them so that they throw up their hands and say, just direct Their accountant to send you everything?

Guest: Yep. Because one of the things people don't understand is for their accountant to collect the data, the seller has to pay their accountant. And sellers typically don't like paying their accountant. So they're trying to figure out, can I get through this process without paying their accountant? And when they have to sit through three calls, going through spreadsheet lists with 50 items, all of a sudden they're excited to pay their account.

Host: It's funny hearing all this because you would just think the dynamic that you're painting is that it's the buyer who's so eager and the seller who's kind of hesitantly going through this, but it's the seller who's going to potentially have the payday. So I'm just. Why is this process like pulling teeth for them when they're looking at monetizing a 20 year career?

Guest: Yeah, a couple of reasons. So still, over 50% of deals on Biz, by Sell and other sites won't sell. People will submit letters of intent, people will go through due diligence, they won't close. And for people who have been doing this for about a year, you'll put an offer on a deal, you won't get accepted, they'll call you back two weeks later and they say something like, oh, the old buyer owed taxes, so we kicked them out, are you ready? Or hey, they couldn't get financing. No, that buyer walked away from the deal. So now if you're a seller and you're being educated by a broker or you just have enough friends that have sold companies to know that it's probably 50, 50 you actually sell now, in some places it's better. I think the online business is traded a bit better. So I'll give that caveat. You're thinking of guaranteed work, painful work. Very few sellers like data analysis, data capturing, you know, going in old files, finding taxes, and they're already making money. So do they get three to four times the money? Sure. But do they have to pay taxes on that? Yeah. So net, is it like two and two and some change? Sometimes. And then people are structuring seller notes. So really the seller's fighting for like two, two and a half times his earnings in a given year. When all said and done, taxes and seller hold back. And so the buyer wants to toss out, oh man, I'm paying him four times, this is his retirement, blah, blah, blah. For the seller, he's already independently rich and I don't know if anybody's dealt with independently rich people in smaller Settings, like in like five person companies or in business partnerships, it is almost impossible to move a rich, happy person. So it just, it takes a lot. And so I think that's why earlier I talked about it really takes humility to be in this game because although you are delivering the Brinks truck and that's one of my favorite sort of pictures to send people when they're slow.

[39:09] Host: Yeah, that's great. Yeah, it's a small, well, it's a relatively small brick strike.

Guest: I expand it when I send it an email, I make it huge. You know your preference. But when you think about this, you have to have the humility to recognize you're sort of earning the trust and the right to be the CEO or the owner of this business during diligence as much as the seller is earning the right to deserve that big payout. And so you're kind of crossing each other in the night in terms of trust building and outcome delivery. And you need humility to recognize that you're putting up your whole house, your whole life, everything, you know, and that's really scary. And people should shout from the mountaintops that you're the great. But this person that you're negotiating with has put kids through college, paid mortgages, you know, kept people in the community. So you're kind of equals. So you got to sort of have your patience.

Host: Well, and I think that what you said at the top of that answer about the financial, the payday for them is probably not as big as you, the buyer think. I mean it's, it's, yeah, two or three multiple like as, as you said after you deduct taxes and there's going to be a seller note, it's not that much money to them compared to what they're earning on an annual basis. So we're all trained to see the giant exits and the sales from the tech world where the exit is this incredible life changing event. And in the small business services world, it's a nice pop at the end, but it's not selling Instagram to Facebook.

Guest: Exactly. And when it is selling Instagram to Facebook, typically they'll move faster in getting you data. Right. The same reason you want to be in the deal, the low multiple is the same reason why the seller is not super motivated to get you the data. So you also have to realize that the pain is commensurate with a good deal sometimes. So just manage through it.

Host: We've touched on Biz Buy Sell a few times. That site gets beat up a lot, doesn't have a Great reputation. But me and everybody I talk to is surfing that site all the time. So there's gotta be some utility to it. And a bunch of my guests found their businesses on Biz Buy sell. So what are your thoughts on that site?

Guest: It's like McDonald's, right? People complain about it, but everybody goes. So biz by sell is sort of like the starter site for looking at deals. And so I think everybody does a time on Biz Buy Sell and some people are still using it. A lot of things in the deal business will, if you wanted to, like, degrade them, you'd have more than enough data to do it. Right. But in the middle of these things that we don't like this by sale, a typical business broker not getting accurate data, that's where the opportunity is. Yeah, that's why we're here. And so if it was easy and simple, it'd be that thing that you got a paycheck for every two weeks. Right. This is harder, more nuanced. And so you got to kind of find the beauty in this imperfect system. And I think those who think about it that way have a leg up because they're not frustrated when they email a broker and the deal's been sold. Why is the listing man, he's got better things to do than remove the listing. You have to sort of use it. Now you do want to graduate from Biz by sell to some other places, but, you know, that's like the starter pack. I think that's how I call it.

[42:41] Host: That's great. That's well put. And where do people graduate to typically proprietary deal flow or what?

Guest: You know, all over the place. It's really. That's part of the secret sauce of this business is that you really have to dig in to get access to where the best deals are. Some of it's proprietary, some of it's. The brokers who are listing stuff on Biz by sale have better stuff that they're sending to their friends. Can you get it? Most times people don't even recognize that there's some brokers that would never list a business online because the industry's too small. Everybody would know. And so you have to sort of call them or see them. And a lot of deals are managed by sort of industry experts and that kind of thing. So you graduate to more in different places. But what's interesting is you start in biz by sale and you start by looking at 20 deals, submitting some information, and hopefully you're smart enough to communicate why you don't Like a deal, because that's likely the best way to get another deal to.

Host: To a broker who, like, has. Has regular access to deals.

Guest: Yeah, absolutely. I've interviewed brokers and, like, 80% of people never respond on why they don't like the deal. They just ghost. Mm. But that broker is sitting on five hotter deals than the one he posted online. So you missed the opportunity to get those by not being responsible.

Host: Well, Elliot, we're going to leave it there. We're at time, although we could keep going, so I'm sure I'll want to have you back on. But in the meantime, how can people get in touch with you? Tell us what's the URL of Guardian? Start there. And anything else that you want to tell people about how to get in touch with you.

Guest: Sure. So my website is Guardian due diligence dot com. Okay. On the website, you can see our services, our prices. You can submit a contact form to get to me. Also, my contact information is on the website. I'm also very active on LinkedIn. So Elliot Holland. Two L's and two T's on Elliot. And then for your guest, Will, I have a special offer. So if you go from. If you go to offerfromeliot.com we typically charge $2,000 to review company valuations and help people craft a letter of intent. But for your listeners, I will offer that for free. So if you go to Offer from Elliott, you can put your information in. And if you're in the zone of a letter of intent, we can help you with the letter of intent and the company valuation to make sure you get that right.

[45:19] Host: Offer from Elliott.com.

Guest: that's it.

Host: Cool. Well, Elliot, thanks. Thanks very much for doing this.

Guest: Yeah, thanks for having me, Will. This was great.