A Cautionary Tale of Buying Too Small

fter deciding he wanted to own a business, JD Klein acquired a Minuteman Press franchise in Redmond, Washington, in November 2013. He knew margins would be thin initially, but saw a path to wealth. In the meantime, he was counting on his wife’s real estate business to top up their income.

Things didn't go as planned.

There were too many buyers and not enough houses to sell to them, so JD’s wife’s income wasn’t as high as they’d anticipated. And as a newly self-employed person, he didn’t meet the requirements to borrow from banks and lenders.

Despite growing sales at the business from $175K to $350K in the first year, the couple was still struggling financially. By the end of that year, they had sold their home to make ends meet. JD found himself digging for change in his ashtray to pay for gas.

Considering himself all-in at this point, JD invested in the business, bringing in new equipment to broaden the range of print services. Revenue continued to increase substantially every year, and eventually reached more than $800K.

Things were turning around, but JD was exhausted and wanted out. He found a seller, and the deal was set to close in early 2020.

Enter COVID-19. The deal fell through, and JD assumed he’d be stuck with the business until retirement.

He pivoted again, going all-in on COVID-reopening signs and stickers. The business was doing well, and to JD’s surprise, the previous buyers had been watching what he was doing. They came back, ready to go through with the sale, and the deal closed in January 2021.

In this episode, JD explains how the business was the wrong size financially for what he needed, the mental and emotional toll from dealing with so much chaos, and why he can’t rule out another business acquisition in the future.

‍Check out:

‍✳️ About JD Klein

‍✳️ Top takeaways from the episode

✳️ Episode highlights with timestamps

✳️ Links & mentions

Acquisition Entrepreneur: JD Klein

‍💵 What he acquired: After years in corporate technology, JD Klein wanted to foster his entrepreneurial side, and acquired a Minuteman Press franchise in 2013. Almost immediately his plans went awry. Despite consistent challenges and setbacks, the business grew substantially every year. But after seven years, JD was tired and wanted to sell. After an initial setback due to COVID-19, the sale closed in January 2021.

‍💡 Key quote: “I look back at our projections, and they relied on a more optimistic family P&L than what actually happened. We said we could buy a small business if these other things are true. These other things were not true. They didn't happen.”

‍👋 Where to find him: LinkedIn | Twitter

Acquisition Tips From the Episode

‍Top takeaways from this conversation

‍📉 Low margins will require lots of revenue.

‍Although JD delivered revenue growth almost every year that he owned his Minuteman Press franchise, it wasn’t enough. There’s often much less room for error in small businesses. It doesn’t matter how much you’re able to grow: the margins are still going to be small.

While JD was able to get margins to 10-20%, much higher than the printing industry average, it wasn’t enough to support a family, especially in an expensive area like Seattle. JD’s initial projections had relied on a more optimistic family financial situation to make up for the insufficient cash coming from the business, but that didn’t come to fruition.

📒 Get a financial planner.

‍When acquiring the Minuteman Press franchise, JD didn’t hire a financial planner. That’s not a mistake he’ll make again. He was overly optimistic regarding his family’s finances, as well as the net from the business, and later on when they needed options, they didn’t have many.

JD had paid a third of the $100K cost of the business upfront, and the rest was a seller note amortized over two years. He’s not sure he would have qualified for an SBA loan because the amount was so small, but he didn’t even try.

When his family’s financial situation didn’t go as planned and they were struggling, JD learned that because he and his wife were both self-employed, it was next to impossible to get a loan. They were house rich and cash poor, and ultimately had to sell their house just a year after taking over the business.

🌱 Be opportunistic, even in a pandemic.

‍After COVID-19 emerged and the sale of the business went south, JD once again put all of his resources into pivoting the business. Before his PPP loan even came through, he’d approached a new designer, and was working on printing return-to-work products in April 2020 — before anyone was actually returning to work.

JD sent samples all over town, so local businesses would know he had stock ready to go. The business was able to make do selling reopening banners, floor dots, and laminated menus.

By the end of summer, revenue was only down 15% compared to 2019.

This strategy paid off twofold when the previous buyers came back ready to go through with the sale.