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. Today I talked to Neil Saxon. Neil and his wife acquired a mental health group practice. You see businesses like this or other health related practices for sale quite often. So I was eager to hear what it's really like to buy one. Neil explains it all. I learned a ton from him. He also shares a couple techniques learned along their journey that took them from incremental growth to more of a hockey stick. For the first six years they grinded it out and then year seven revenues really shot up. So listen for that. Here he is, Neil Saxon. Neil Saxon, thank you for joining me today on Acquiring Minds.

Guest: Thanks for having me.

Host: Will Neal, you and your wife in 2012 acquired a mental health group practice. It was small practice at the time, about 10 or 12 clinicians, but over the subsequent eight years you grew the practice really quite a bit. And it wasn't without some serious challenges which we will get into. But ultimately I think you would agree it was quite a success. So we are going to hear that whole story today. Why don't you kick us off, Neil, with two or three minutes, minutes just on you and your background and what it was that led you to want to go out and buy a business.

Guest: Sure. Thanks, Will. So I guess to start, I'll tell you where I'm at now and then we'll sort of walk backwards. So as of today, I've been a retired person for about a year and I consider myself an investor. So I spend all day analyzing my investments. Everything from stock market rental, real estate, portfolio of syndication, real estate as well. And then just starting to get into angel investing. So that's all the fun, glamorous stuff you get to do when you have money. But it was certainly not always like that. There was a lot of before going back. I was out of high school, I joined the military and I ended up staying in the military for about 10 years and I was an officer in the Navy and my wife was as well. We actually got married in college or out after college, sorry. And we both joined the military and we had like that leadership background. And when we got out, it was time obviously joined the world. Let's see where we're at. It was 2007. We were just on the brink of the financial collapse. I was interviewing at banks of all places. So that was interesting. I ended up not selecting a bank and I went medical device sales. I Worked for a company people may have heard of called Johnson and Johnson. Did that for about six years. But really the whole time I was like a secret kind of closeted entrepreneur. Like, I really wanted to get out and do something. The timing just didn't quite work out. So took the corporate job, did that for a while, and eventually got the nerve up in 2012, and we saw this listing for sale, which we can get into, and I went into acquisition, business buying, and we bought the practice.

[3:26] Host: So when you say you saw this business for sale, I assume you were looking for businesses for sale. So what had gotten you interested in doing that? And separately, if you were interested in buying a business and becoming an entrepreneur that way, had you decided against building something from scratch?

Guest: I had not decided really against anything. It was. A lot of. It had to do with funding and kind of what I could take on at the moment. So when I first came out of the military, you know, I did a brief stint, you know, before I took those interviews of, you know, let's look at franchises like franchising. That's how everybody gets rich. That's what I thought at the time, you know, and did a couple of those discovery days. You do. And somehow I just kept getting, like, into food. I don't know why, but I just kept going to, like, these restaurants. It just seemed easy to understand. And I quickly realized that was not me. I mean, it was. That looked rough, just spoilage, dealing with all that. So, you know, put it off. But still had had those inklings of wanting to do it. So in the time I was working at Johnson and Johnson, you know, I was always. I wouldn't say always, kind of that last 18 months, I heard about a site called Biz Buy Sell. Right. And I know it gets a lot of flack these days, but I got to tell you, I love buying things that are for sale. It's just a lot easier. You know, I've read some books and it's talking about sending out flyers and, you know, basically all this cold calling. I had none of those skills. I was. Oops. I was. I was ready to look for something that was for sale. And I came across. When we were on Thanksgiving dinner, I came across a mental health practice. Now the whole time, my wife is a psychologist. She had nothing to do with this wanting to go into business at the time, but I happened to find something. Mental health practice. We had just been talking about her job and how for the amount of education she's got, we didn't feel like it was enough income. So I woke her up from her nap, let her know, Thanksgiving turkey's wearing off. I said, hey, we got this business for sale. And kind of gave me the nod. Okay, sure. I sent off.

Host: She was still drowsy from the turkey.

Guest: I guess she had no idea what I was talking about. And I filled out the NDA. The broker got back to me pretty quick, which I learned is actually rare. But I had a unique experience. Like this person was on it even on Thanksgiving holiday. And so, you know, that's obviously the end of November. And by Christmas, we were closing. We were coming in on closing, like a January close. And we were business owners.

[6:03] Host: And was this something that you guys were going to dive into full time or was this something you're going to be able to have on the side? And also what was the listing price? Give us some of the parameters of this business.

Guest: Sure. I guess that's important because people need to realize what's possible. For me, I was searching up to 150,000 because I didn't know how this was going to go down. This business was for sale for 100,000 at the time. And so we liked what we saw. It was 100,000. The clinician, it was a clinician that owned it, was running it and she was claiming to make about 120,000. So the idea is, all right, well, we'll go in. It's sort of like a buying the job at worst case scenario. We always knew we'd figure it out, we'd grow it, but it was a worst case scenario. You'll go kind of have this job, you'll make 120 grand. All right, sweet, let's go for it. Made our offer. And of course we suddenly had a competitive offer and we went back and forth sort of like on real estate. And we ended up paying more. We didn't have more money, but we made this offer I thought was unique at the time. We said, we'll pay you 120, but we need seller financing. Even though the other people's offer, they told us it was like 105. But I just thought, let's go above and Beyond. Let's make one, let's go 120, but let's get this financing. So we did, and we ended up having to put 50 grand into the business through cash, just from what I had saved, bonus checks, getting ready for this. And then we did the other 70 left over through seller financing and we paid that over three years.

Host: Oh, great. So you only put 50 down and then the rest. So that's whatever that is, like 60% seller financing. Great. And so the idea was that you, worst case scenario, you were buying a job or you guys were going to, you guys were going to get in and start working in the business from day one or only if you absolutely had to and you're going to keep your day jobs.

Guest: No, she was definitely, I mean, I think from the get go, obviously she's going to go hardcore, try to run this and grow. Was sort of the fallback was all right. Well, it makes, you know, it makes 120 grand. That's still better than what you're currently being paid. For me, unknown. I still had this job. It wasn't enough to support me leaving. At the time, it was a six figure job, but it was depending on how it go, you could make 150 in a year. You can make 225 a year just based on how commissions were. So I wasn't quite ready to leave that. But definitely jumping in with all of my energy. I mean, being a married couple, we discuss it at night. It's on the weekends. For anybody that's thinking about going into entrepreneurship, I wouldn't say you have to love it. It's not always a love thing, but you definitely have to be into it enough to want to discuss it. So it's going to be on your plate a lot. Yeah. So that's where we were. We thought we'd buy the job. You're making 120, it's going to be great. Everything's going to be exactly what the seller said.

[9:03] Host: Yeah. So what'd you find?

Guest: Well, we did that first meeting. We were anxious. We did the typical new business owner parade where you tell everybody you're not going to change anything. They're all amazing. It's running great. We're going to keep it going. And we did that. We did that speech. And really quick, really quickly, we learned that this business doesn't make 120,000. This business doesn't make sense. A dollar like this is bad. It was bad. It was really bad. Payrolls were coming up and you're having to fund it. At that time, I think payrolls were maybe like 15,000 every two weeks. And you fast forward three months into this. It's like every single payroll, I'm depositing two grand, 2,200, 1400 just down to the wire, trying to make it out

Host: of your own pocket.

Guest: You mean out of her own pocket. Out of my pocket, yeah. And it was. I'll say one thing, if you get into a business like this. That's sort of. I'll call it on the ropes. It's nice to have the superpower of being able to do one of the tasks. So my wife is a clinician. Yeah, she could just turn the notch. She can go see patients, she knows how to grind. She can work 10 hours a day. So, you know, we didn't have any kids at the time. That's what we did. She did the grind to make up the difference. You could do it if you're a great salesperson, depending on the industry, what the job is. But you gotta be able to do something more than just accounting and strategy. Something that's revenue generating is. It really saved us.

Host: And Neil, what had the business misrepresented or kind of mischaracterized to claim 120 in profit and really not be profiting at all?

Guest: I think you're an echo in my head, because that's what I was saying to myself. Every month we're like, we're asking that exact same question and you just could not figure it out. And over time, we learned. I mean, there were some things going on. There were some people not reporting all their revenue. There was stuff that needed to change. We needed a culture change, and we needed it fast.

Host: Okay.

Guest: Mainly it was the margins were just off. So typically, you know, you get into this, this world and it could be similar with the chiropractors or dentists, you know, but in our world, it was. It's like a split at the time of 1099. So it's like a 60, 40 split. It's a 70, 30 split. You know, depends where you go. When we were there, it was, you know, we took it over at 70, 30, meaning the clinician takes 70, the business takes 30. But then there was another clinician that had a sweetheart deal that was getting 80, and there was another one that was getting 90. And these turned out to be the highest producing clinicians. So we had our highest producing revenue at our lowest margin. So once that math, and that was unavailable to us during due diligence, going back, if I looked at it now, I would have looked at quality of earnings. I would have. I would have nailed it. I would have figured it out. I've gone through this enough times. At the time, I didn't, you know, we sort of leaped in. It's amazing to look back and think, oh, wow, we did like 20 days of due diligence. Yeah, we were really confident, so. Which is crazy now, but, you know, it is, I guess, sort of that analysis paralysis very Glad we did it over time. Not so much in the moment.

[12:50] Host: And did you confront the seller when it looked like they were off by $120,000 in profit?

Guest: So I would start the emails in preparation for this podcast. I went back and searched my emails with the broker, and there's this one, and I'm going to the broker. It's like, month six, and I'm saying, I can't get ahold of this person. They're off the reservation. This person is not responding to emails or not responding to phone calls the whole time. I'm still saying please and thank you. When I send my. My check, you know, this $8,000 every quarter, whatever it was. And it's just, like, baffling me. Why is this person not getting back? But I. I didn't want to create a lot of friction because I just. I kind of need. We needed her help, just eventually was not available. So I started getting, you know, a little angry, and my phone call was to my lawyer to say, which I didn't really have a lawyer at that point. It's like, you got to find somebody, right? So I found somebody. And your new lawyer? Yeah, my new lawyer. This is my guy. Get ready. He's actually really good. I still use him, but we. You know, he just. This guy's, like, very blunt. He listened to my whole story. He's constantly cutting me off. And then he's just like, all right, what do you want to do? You want to. You want to go after? You want to go after and make her take the business back? And I was like, no, no, I don't want to do that. I'm like, well, what do you want to do? And I said, well, I don't want to do that, but I just want to get something. He's like, either you go all the way, take her to court, try to get your money back, and give her this business back, or we have nothing to talk about. Oh, okay. And, I mean, in the end, you know, to us, it was everything we had. It's all. It was, like, almost all of our net worth. I mean, we had a house and stuff, but we were all in. You know, it doesn't sound like a lot of money, but we were all in. So for me to go and sue and just like in the dream, it's like, nah, man, we're not quitters. Like, we're gonna. We're gonna keep going. We're figuring this out.

Host: I just want her to call me back. I just want the seller to call me back. That's what I want.

Guest: I just tried to say, hey, what's going on? You said, this person brought in this and like, where's it at? So anyway, we looked and like I said, this is, you know, it's been a long time, but I'll say around month five, month six, you know, I talked to my wife. She's. She's the professional. She's in the industry. What do we have here that's valuable? And what we have that's valuable is the contracts with the insurance companies. So when you're in this space, you can either go cash, right? You can have a bunch of clinicians that go out and market. They get on Yelp and they maybe some flyers or however they acquire their customer. And then they take cash. And then you have another side where they take insurance. And the way it works in medicine, if you ever try to go to your doctor or your dentist, like, there's always a wait. They can very rarely get you in the next day. This is maybe a month out, maybe three weeks. Right. So what we had was those insurance contracts would allow. Which allowed you to sort of turn the dial on demand. So that was your demand dial.

[16:01] Host: So the insurance companies just. You were in. Like when I go looking for a healthcare provider on my insurance company's website, you know, I look at my local zip code, I find somebody with good reviews and I call them up. And so you're kind of being marketed to the end consumer of the insurance companies. And so they're just finding you that way. So you don't really have to do any proactive marketing.

Guest: No. And we did some marketing. We learned over time it's much more efficient just to go where the need is. You know, partner with Blue Cross, Blue Shield, Kaiser, whoever it is, and just figure out what neighborhoods they need you in and just hire and supply them that way. Yeah. So that's what we had. That was. That was the power here. And I say the power because, you know, I'm sure someone can read a book and they can go out and a single clinician, they can get a contract. That's not hard. But to get a group contract is actually fairly difficult in this market because it's so saturated. We're talking Los Angeles. So that was the value. It was taking that and then figuring it out and expanding it. So we knew what we had to do. But those were big words. That's big talk. In the meantime, I need $2,000 so I can go deposit it and make payroll. So that's where we were.

Host: And so Neil, you're feeling like you've got some value in the business, and you're feeling like if you can grow it, it can become profitable. But you're still at a point, even with this value, these insurance contracts and relationships, it's still not very profitable or profitable at all. So you're banking on being able to grow it to make it profitable.

Guest: Well, we had a margin problem, so we were not profitable on our own. But you had this driver of the bus, being my wife, that could see clinicians, so she was able to keep it, you know, sort of keep it breathing, keep it alive that way. But we had a margin problem. So the issue was, well, let's grow, let's grow, let's grow. Well, wait a minute. Growing is not going to help it. Just going to. Instead of $2,000 payroll, we're going to need $3,000. So we have to fix the margins. And what does that mean in this world? It means we have to change the pay. That's our leverage. We had one location, so you had rent and fixed expenses there. You know, you're not going to save your way to greatness. There's only so many things you can turn off. So you need to kind of grow to greatness. But you don't just want to grow if the margins aren't right. So you got to fix, you know, I call this the base. You got to fix that first. But we had just gone in and given a speech how we're not going to change anything. So it's like, oh, man, what do you do? Well, you had to make the hard decision. That's what we're going to have to do is make a change. So we had spreadsheets going on, and, well, what if we go? You know, remember, they're generally, everyone's at 70, so a few higher, but everyone's at 70%. So we said, okay, what if we go to 68? What if we go to 65? And ultimately we said, we have to rip the band aid off. We have to go to 60. Like, this is where it needs to be. Or this is just, you know, we're just going to half halfway, you know, execute the plan here. If we only go to 65.

[19:10] Host: Yeah.

Guest: So we had that mandatory meeting, it was on a Saturday, called everybody in, and it was tough. It was tough. But we, you know, we went in, we gathered everybody, and within, you know, 10 seconds, we told them, we said, we've got some. Some possibly disturbing news for you, but then we're going to tell you, you know, where we're going to go from here. So as of right now, the paper industry currently on is no longer available. You know, I mean, it was like that direct. We had to do it. You saw the faces drop. I mean it was all the emotions, the chatter was going on and then.

Host: And Neil, just some of these people are going from 70 to 60, but some people are like that. One or two high, high volume therapist or clinician are going from 80% to 60. So they're seeing.

Guest: So we knew we were probably, you know, we just going to lose them. We're probably going to lose some people.

Host: Yeah.

Guest: And ultimately we did, we lost, you know, it was a full cultural flush out. I mean, I want to say like 90% left. And amazingly the ones that stayed are like, they're still there today. It's great. It's great. Eight years later. So it's back to that. You know, I don't, I don't want to put it all on them. Like, if you were to find them today, they might really have some disagreements, like, whoa, I was just working there. What do you mean? But, you know, anybody who gets their pay cut by a new owner is just going to feel like it's not fair. It's just human nature. So it was the right thing. Let them go. We're not angry about it. We get it, Go somewhere else, thrive, do your thing. Hopefully it works out. So we didn't hold any regrets. It's just a decision we had to make. So we did it. And you know, you immediately saw the change. Immediately saw the change. You could immediately make payroll. So that was. So that worked out.

Host: So you lose some of the people, but you understand, no harm, no foul or no hard feelings, I should say. And now you fix your margin problem and you're at what, like eight clinicians left? Seven or eight clinicians. And this is six or seven months into your ownership.

[21:11] Guest: Well, they all left, but they didn't leave immediately. Right. So this is another thing. I think we think as, you know, entrepreneurs, we're so scared of all the employees leaving and when you acquire a business, especially if you make a change. But the reality is these people need their paycheck. Most of them are not independently wealthy. They can't make a change immediately. We did lose one or two pretty quickly, like within a month, but the rest took. I mean, some of them, they stayed over a year. They eventually funneled out, but they had their own process they had to come to. Wasn't just like that day they left. So it did take a while. And we threw olive branch for us. It wasn't just, hey, we're gonna lower this so that we can make money and all get richer. That was not the talk. It's like, we want to grow. We want to create more opportunities for people, and we want to have a better facility. So one of the things we did, I mean, immediately, like, within the next few weeks, is it's a small thing, but it was a gesture. It's. You know, we gutted the waiting room, and we had interior designer, we redecorated, we painted new blinds just to show them, like, going forward, this is going to be a different organization. It's going to be high quality.

Host: Neal. So are we past the point where you guys think about reselling the business? We talked about your lawyer saying, do you want to give the business back or force her to take it back? To sell her, to take it back. But you had also told me that there were moments where you were eyeing Craigslist and just, should we just put this thing on Craigslist, Sell it.

Guest: Sell it to the world? So I'll have to go back a little bit on that. That was around the pay. The pay change, which was incredibly. You know, here we are six months after ownership. You know, our family, you know, just. Cause the way they romanticize about it, everybody thinks like, oh, they're rich now and they've got all this money. And, you know, meanwhile, we're like, we're like, failing here. Like, this is hard. And at one point, yeah, we're out back and we had this, like, detached garage. Cause we had family over. So it was like, we have to. We have to go talk. We need to go discuss this. And it was around payroll and things. It's just like, we can't do this again. And. And, yeah, then it came like, what if we just. Let's just put on Craigslist. Let's just put on Craigslist. 50 grand, be done with it. And that was that. I think that was part of that healing process of getting to where, nope, we're going to move forward, and we're going to go. And, you know, that moment, I don't know if that was the exact moment, but me and my wife have for years learned from that event, especially working together as entrepreneurs. If one of us gets low, the other one has to stay up. We can't go into that mindset together, and then it's going to flip. The other one's going to go down, and then the other one has to stay up. You just have to bring each other back up. It's sort of that, you know, like you're running a race and somebody starts walking and then, oh, I'll walk with you. No, no, I'm going to help you. We're going to push you. We're going to keep going. So we did that. No planning to do it, but we just did. And that was that. I call it the Craigslist moment. That's. No, we're not going to sell it. We're going to go in there, we're going to make the change. We're just going to do it.

[24:18] Host: That's cool.

Guest: That was, I think, where you heard about me, because I put that on a tweet and. Yeah, but it's cool.

Host: It's like when you face kind of giving up, for lack of a better term phrase, and you choose not to give up, something shifts in your mind where you're like, not only if I'm not giving up, I'm going to give this 110%. I'm going to make this work. And it's like you came out of that flirtation with giving up way, way more committed to the business.

Guest: Yeah, absolutely. And we still didn't have all the answers done, but we knew we're going to find them. And this is one step we're going to take. It's going to be the pay. It's not going to solve everything. Going to do this now, and then we're going to check again, and then we're going to check again, and then, you know, that brought us to where, you know, we've sort of plugged the hole. So we're sustaining. Still. Not thriving, but sustaining. So now we get into, you know, what I'll call chapter two, which is growth mode. And for us, again, big step. We had a six. We had a six office facility. So we're going to go grow. And that first location we did, we expanded by four rooms. So now we went, like, clear across town. Four rooms? Yeah. We're big. We're hardcore. Right? And we did it. We scaled very quickly. I mean, like two months, everybody's full. It's like, wow, okay, that was good. Revenues are going up. You know, it's. That kind of revenue is vanity profits or sanity. The profits still weren't high. They were just like, just making it. Just barely making it. But that's when I got into my. My mode of, you know, forecasting. I'm looking at the budget out the next 12 months, and I can see, like, this thing is so close. Like, we're Going to get there. We're going to get there. We're 1.2 million. 1.4 million are so close. And then finally we grew it to 2 million. $2 million in annual revenue. And that was.

Host: What year are we in now, Neal? You start in 2012. What year is it that you get to 2 million?

Guest: Yeah, so we're at 2 million. Year six. That's long.

Host: Okay, and what was revenue when you acquired it? I know what the plan profits was, but what were revenues?

Guest: Yeah, day once when we acquired it was based on 615,000 in revenue.

Host: Okay, okay. Yeah.

Guest: And then, and then that went down. We were in the low fives. And that was our only loss as far as revenue. It was that first year where we went down 50. And then since then, as we go to the end of the story here, we grew 20 plus percent every single year. Some years as high as 56%.

Host: And this was when you were including those years where you were just growing by incrementally with the additional four unit office, then the small offices, were you also seeing that really good growth or was that big growth only unlocked once you, you did the thing with the buyer's agent.

[27:12] Guest: Yeah, so we did unlock the unlocked growth came after the 2 million. So it was the first two, took us six years. Small offices, save up for the down payment, save up for the furniture, you know, do some of the painting and the legwork ourselves, just that grind. And then that was a 2 million. But it still wasn't enough. It still wasn't like we need to take a risk here. And you know, I was a little more cautious at the time. Let's get a small unit. Four units is enough. And you know, my wife was a little more. She wanted to push it. No, let's get eight units. Let's. Let's get seven units. So then our next location, we went seven units. And so we thought we were big then. Right. And same thing, we grew it really fast. She grew it probably within six months. She had everybody full. And now we're growing. So we go from 2 to whatever was next. Actually, 2.8 million is what we eventually hit. And then we really started unlocking the growth. And I'll give you the recipe that we did. I saw a commercial one day and it was for a, it was a tenant only brokerage, so they represented people going into office spaces and negotiating leases. It was called Hughes Marino. So I called these folks up, we did a meeting, and it was very similar to what the commercial said. There were huge firm all throughout the United States. And they were on the side of us, of the tenants. So we decided, all right, let's give them a shot. And right away these guys performed. They're getting us. We did a location. The first one, it was a $400,000 build out, 10 months of free rent. And all of this on the landlord. And we just thought, this is amazing. How is this possible? Like we've been negotiating ourselves. Meaning one month and one time, I got three months, I thought I was hardcore negotiator. And now.

Host: So what were they doing? Yeah, Was there a secret to it or were they just better negotiators? Because that's all they did all day long.

Guest: I think it's also notifying or looking at who owns the building. I mean, going deeper, right. So we were looking, we were trapped in this world of small buildings. So it's kind of a mom and pop owner. So you had a guy that maybe owned the building 15 years. You're going in, he's not trying to do anything. He's not trying to spend $100,000 on a build out. He's just, he'll give you a decent amount for the, for the lease and it's on you. But when you get into these bigger class A buildings, you know, these eight plus story buildings, downtown buildings, these are owned by large real estate syndication investors. So they're coming in, they're essentially, they're doing a value add where they lease up the entire building, improve it, and then they've got a five year timeline, then they're going to flip it, they're going to sell it. So for them to spend, because I had to do this research, I was the same way. Why would they do this? So for them, that's why they would spend the 400 grand, they're okay with it because they're going to make it up with the increased noi and then they're going to be able to sell their building for a lot more in the end, sure enough.

[30:25] Host: So they're just incentivized to fill the building as quickly as possible because they really unlock their value when they can flip a full building, a fully rented building.

Guest: Yeah. And in fact, not only that, they knew by giving us this build out, they were going to get above their current market rent. So I say if it was like, I don't remember the numbers, but if it was 225 a square foot per month, suddenly we come in, we're doing this immaculate build out and they can push the rent, they can go to 75, because that's the new market rate. So that was beneficial to them because the way commercial leases work, there's an escalator on it. So if you sign a six, seven year lease, I mean, it's a lot higher towards the end. And this was a big step. I skipped this part. But we went from leases that were 4,000, 5,000, 6,000, and this one was suddenly 20,000, 20,000amonth. So getting 10 months of free rent was pretty exceptional. And then there's another component to that we can hit, which is whenever you get a 6,000, okay, great, it's free, free rent. But now it's 6,000 square feet. That's a lot of furniture. That's a lot of computers. Yes, it is. So we found this little magic thing called the equipment lease. So there's companies out there, Balboa, I mean, there's a ton of infused type in equipment lease for business and they will come in and basically fund your purchase of. For us, it was the furniture and it was the computer. So we were no longer buying cheap furniture. My wife was going to West Elm. I mean, this was, this is a lot. This is like an $80,000 furniture expense, which sounds crazy even as I say it today, but I mean, these are therapists offices. You know, they're like little living rooms. Yeah, there's no, there's now 15 of these in a space.

Host: And then they're not little living rooms that you have to make catalog worthy.

Guest: Oh, we gotta have the lamp. Like, do we have to have another lamp? Like they have lights? No, they had to have the layup. So. So we did, we did that with the equipment leases. And that was a big move. I mean, that's.

Host: And how does the equipment lease work? Neal, just real quick.

Guest: Yeah. So you. So the simplest is we go to Apple. We're business part Apple. So they, you negotiate what you're going to buy. Let's call it $70,000 of computers because you're buying 20 MacBooks or whatever that is. And then. But we don't pay for it. We sort of like send all that off to the equipment lease company that we've already pre negotiated this. And they wire the money to Apple. So they wire the money, Apple, Apple hands us the stuff or delivers us the stuff, and then we start getting a monthly bill. So it's like 800amonth. Eight hundred a month. Eight hundred A month. And it's, you know, you could do four years, five years, whatever it is. We like to match. Computers, we did less, but furniture, we like to match it to the lease term. So there's a seven year lease. Do a seven year operating lease and they tack on the interest rate, 6, 7, 8%, which this is allowing you to get into business. So it's almost like the interest rate is irrelevant even if it was 12%. If I can cash flow way above that without spending that money on capex, I'm going to use the financing. So between the equipment leases and the tenant or the landlord assistance, then we realized we have unlocked a secret here. Yeah, we can expand faster at the same time. Right. So then we did a second 15 unit place, then a third 15 unit place and now, now we're at, I wrote it down. So now we went from the 2 million. So again, six years, 2 million, suddenly we hit 2.8, 4.4.

[34:22] Host: The next year was 2.8. The year after that was 4.4. Three years after the 2 million is 6 point.

Guest: Yes, 6, 6 ish. And that's when we, that's when we exited.

Host: That's when you exited. So Neil, you're so just so we understand the basic structure of the business, it was essentially, you know, the clinicians and a margin on top of the clinicians. So paying the clinicians obviously, and then the rent and then the furnishing, the build out and the furnishing of the locations, those are kind of the big chunks of the business. And for those first six years growing to 2 million, you would, there was kind of, you weren't doing any real financing of the build out and the furnishing and all the rent that you were going to pay. You needed to be able to cash flow that rent immediately or have enough in reserves to be able to pay for a new location. Even though the therapist, the clinicians didn't have enough, you know, weren't full yet, but you needed to pay for it. And so once you kind of flip that and you could finance all of that, that was just a dramatic change because you could basically open a new location and be cash flowing. I mean you just needed to fill the clinicians a little bit like some smaller percentage of what you needed to do before. And you were cash flowing. That new location, you were cash flow positive.

Guest: Absolutely. So you give, you give up a little bit of, you know, maybe a point or so in the fixed cost. But you didn't have, you know, I didn't have 300,000 to spend on furniture, computers, I didn't have it. So the financing enabled it. So if I was super liquid, maybe the thing is like, oh no, It's a better move. Always pay cash and do it yourself. Okay, great. But the financing is what really propelled it. I mean, this is what. This is what any company on Wall street does. They're using that debt to accelerate growth. And when you kind of unlock that as a small business owner, it can be very powerful. I mean, this isn't just in our space. If you own an H VAC company or plumbing, it's a big endeavor. Hey, how are we going to get four vans and all these tools? Well, I would encourage you to take a look at the financing options, because you could do it for a lot less than you think. And now you're up and running, you got four trucks, four techs, and you're go.

[36:38] Host: And the other side of the equation, Neil, of course, is demand, which we touched on. Those insurance contracts were a good source of demand, but it sounds like the demand was just off the charts. Like you turn on a new location. And I think you said at some point, within six months, your wife had filled everybody's calendar. Filled everybody's. I don't know what the book of business or whatever, the calendar, I guess. Okay, I don't know what the word is in this space. Filled everybody's calendar. So there was just. That was never an issue. You just had. You could basically get as much business as you guys could support.

Guest: Yeah, in the beginning, it was an issue when we thought we had to market and we had to send out a flyer and hire a marketer to go door to door. And those things were helpful. And I would still say, yeah, do that, do that outreach. But to do it faster is to find out where the insurance companies have need. So, you know, we were able to call one of our providers that had a lot of need. Again, this is Los Angeles mental health. Demand is very strong. So we call. Where do you guys need us? Oh, we really need something in the north part of la. Oh, really? Like Pasadena, you know, so you just sort of keep that relationship open. And then we're looking at leases, and then you call them one more time. It's a little bit of trust. You call them one more time. Hey, what about. What about this street? Is this. You think this will be good? And they said, yeah, good, we can fill you right away. Boom. Sign a lease, let's go. So there was nothing official like a guarantee that anyone was going to send us this business. But we sort of learned that was our recipe. I'm sure there's many others, but for us, that worked. And it is unique that to have A business where the demand lever. You can just turn it, because that's not. I realize you can't do that everywhere. You can't just. Home improvement. Oh, let's just go. It doesn't always work, but we found it was working, so we wanted to exploit that as much as possible. And there's a lot of people getting help now through our company, and we're proud of that. And mental health demand is strong now. I mean, there's big pushes. You see commercials, commercial sports. So we're improving as far as that goes.

Host: Neil, you just touched on the fact that you exited, so we're going to hear about that in a second. But before we do, could you have continued. If you hadn't exited and you taken the offer to sell, could you have continued to grow at this new, really, really accelerated rate?

[39:08] Guest: Yeah, we could have. So this is why it was tough, you know, and once we got. I don't know how they figured out, but once we got to about 4 million in revenue, we started getting the calls. You started getting calls from the search funds? From the private equity?

Host: From search funds, from individual search funders?

Guest: Oh, yeah, yeah. Family buyers. Family. Family funds, I guess.

Host: Yeah.

Guest: Family offices. Yeah. CEO ready to go. None of that was really appealing. And. But we learned, like, the parameters. We got to learn this language of what the business owners are looking for. You know, they start talking about how Strong they need EBITDA, we're looking for 700,000, and we're looking for 4 million in revenue. So you start to get the windows. And even when we start taking these calls, we were nowhere near that. So, you know, we're on a phone call and somebody's like, well, our minimum is 750. And we're like, oh, yeah, yeah, 750. Yeah, no problem. But it was good. It was educational. I encourage anybody that's growing a business. When you get those calls, take them. Just take the calls. You might be on the other end one day, and it might change your life when you finally learn what they need.

Host: Neil, before you keep going with the story, what were your margins of the overall net margin of the business when you were at 600 and then 1.4 and 7 and all the way up.

Guest: So it was roughly, depending on the year, between 8 and 12%, let's say net.

Host: Okay.

Guest: Which I've done some consulting around the country, and you can definitely get higher. You know, you're not paying 20,000 in rent in Idaho. So that was, you know, rent was. Rent's a thing for me because it Was like it was about 8% of, you know, if you measure it to revenue, it was about 8% of the cost. So always knew, like, let's keep it eight or below. One facility could be nine, one could be seven. But yeah, so the margins were depending on the year, 8 to 12%. So you can sort of do the math on that. It started getting pretty good and rapidly good too. I mean it was, you know, suddenly you went from not making much money to now it's 20,000amonth like in your bank account and you're writing a check and then it's 40, then it's 50, then it's 60, then it's 70. So it was getting fun as far as that goes. We felt proud, like we're really building something here that's in demand. So yeah, so that's the part where we started taking the calls. We got an offer, we didn't like it. Very backward looking. This is what searchers want to do. They want to look at the last three years. Well, I just told you the story. The last three years are not remarkable. It's the next man, it's the future. So I want you to see the future. You want to look past. We got to get somewhere in between. So we ended up discussing talking again to another firm a year later. And we agreed on that. Let's look forward, let's not look back. Let's pay me on a forward multiple, not a backward multiple. And that made all the difference. We definitely sold too early, I'll tell you that.

[42:12] Host: Even though you were able to finagle some sort of forward looking multiple, just

Guest: as a philosophy, I mean, every, every rich guy sold too early. I mean that's sort of the thing. Like, yes, if we stuck there, we could have made more. And this was an internal struggle with my wife. She's put in all this work. I mean, she was the driver of this. And wait, we're going to do so much more. We're going to do so much more. And could we have gotten more? Absolutely. We could have gotten more. But there comes a point where we decided we need to take some risk off the table. It doesn't mean we're done. I mean, I'm 45 years old. We're going to bounce into something else. It's just like, let's pull these chips off now, sort of rest, dwell for a moment and then accelerate and do something else. So that's ultimately what we did. And she still works there. That's part of the deal. Typically when a private equity firm Buys you. So she still works there. She's going at it hardcore. And yeah, of course, she sees the growth. Like they did exactly what they're going to do. They're going to come and put private equity money and grow it even faster. So they're doing it.

Host: All the years your wife was working in the business, was she working just as a clinician alongside everybody else, or was she more a manager role? In a manager role?

Guest: Oh, yeah, Great question. So there became those moments in the beginning, like I said, that was sort of the superpower. You go out and earn. That saves a lot of basically losses. You plug the losses because you're seeing clinicians. But eventually we were getting so big that her seeing patients was no longer worth it from removing the focus on the business and growing it and onboarding new people. And you've got three people coming in this week and two people starting next week. She needed her focus there. So she's still, you know, she is not an entrepreneur at heart, she is a clinician at heart. So she still sees patients. But I would say, you know, I don't know the number, maybe eight or 10 a week. She's not seeing 30, 35 a week. So she focused on the business and then. Because she wanted to still saw patients. But, yeah, it was a lot of her sort of getting out of the way and letting other people see it.

Host: And, Neil, just how was running a bit. How is running a business with your wife?

Guest: I thought we were a great team. I mean, there's definitely no breaks from it, so it wasn't like it came home and it was off our heads. We discussed it a lot, but I think we both got energy from it. I can't ever remember a conversation in the entire eight years where we said, I don't want to talk about. We just didn't say that it didn't consume our lives. We obviously got to a place where we were comfortable, but it was good. We like to talk about the business, so we were into it. If I was running a plumbing business on the side, maybe she's not so into it, but this one, we were. If anything, she was a little bit more by herself in this than maybe I'm portraying because I'm out here on the outside. I'm focusing more on the CFO stuff, strategy, obviously. All our discussions at night, I know everything's going on in the company, but very few people knew who I was. Yeah, Especially as we went into this growth mode, it just wasn't important. They didn't need to see me So I was fine backing out of that. And in the meantime, I had my own thing that I was doing.

[45:45] Host: Neil, I'm not sure you said. Did you say when you stopped working your job and devoted full time to this?

Guest: No, I didn't. So I ended up, you know, she went full time right away for me because there wasn't enough money. We had to wait. But then eventually, sort of a was like another discussion. But then I started another business, a solar installation business, which I later sold quickly after about five years. Okay, so that was. We. I shouldn't minimize it because that was incredibly stressful having two businesses at once. For me, that one worked out great. I was able to exit that one a lot earlier. Nowhere near. It wasn't like this one, but it was enough to pay off all the debt and make me comfortable for a little while. But ultimately, it just wasn't the space I wanted to stay in, so. Wanted to help her and devote more time.

Host: We're just about a time, Neal, but I want to ask you two more questions. So we've talked around the exit, but can you give me any more color on this exit to the private equity company and what that structure was like? If you can share any numbers, any ranges, that'd be awesome.

Guest: Yeah, I can just give you a range. I'll say it's the all in. We're talking compensation plus stock. Right. This is pre IPO stuff. You know, low eight figures. I'll just sort of leave it at that. But it was nice.

Host: Low 8 figures from a business that you almost dumped on Craigslist a few years earlier.

Guest: Yes. Or eight years earlier. It sounds a lot better now. But, yeah, there was a lot of stressful moments, but ultimately, I'm proud to have done that. And that's sort of why I wanted to come on here today. I mean, you reached out to me. Sort of a weird thing. I don't have anything to sell. I don't have a newsletter. You know, you can follow me on Twitter. You know, you can see me rumbling on about Tesla and small business and that stuff. But ultimately, I just like, you know, I'm not shy about it to the sense I think it's. It can be inspirational. I definitely did not grow up with money and did not grow up with privilege, and neither did my wife. So I think it's helpful that people can hear these stories and see that they actually can go and achieve something with, you know, basically, the American dream.

Host: Yeah. Yeah. No, it's a very inspirational story, Neal. And do you think that what you guys did could be kind of, for lack of a better word, copied or like made a playbook out of what you guys did. Especially those two. The big two keys to unlocking growth. The furniture financing or equipment financing and then the rent financing essentially, or rent negotiation. And then could, you know, could somebody repeat what you've done? And even. Which by itself is already very impressive, but even in a less amount of time. Less amount of time.

[48:31] Guest: So there's two issues there, the time and the equipment leases. So the time, absolutely. If we were to go do this today, I mean, we would basically skip to year six. We wouldn't take six years to figure it out. We've already. We figured out the code. So, yeah, I think we could do this a lot faster. There's no reason to wait the six years. As far as the equipment leasing, that's something I've recommended doing the consulting work I'll do occasionally. It's a way to just unlock growth. You can finance it right away instead of giving away your precious capital. I mean, even if you do have money, things happen. We're in a pandemic still, I believe, so anything can happen. Cash is nice to have in those times and the marginal rates you're going to pay on the interest, even if it's as high as 10%, is really going to be unnoticeable from the growth that you can get. So I would say really, any business that involves growth, not all businesses are growth, but the ones that involve physical expansion, equipment leases are key. And getting a strong broker that can negotiate these leases with these big bailouts, I think that's available throughout the country. It's not going to be advertised as available, but it is available. I mean, this is just a real estate deal. This happens all around the world.

Host: Yeah. And Neil, talk to me just quickly on just about the mental health or group practice, industry or space. Yeah. The specifics of it sounds like you weren't really in the business much. Your wife was doing that. But is there anything pros, cons that you can share there? I mean, you're helping people. So I imagine that would be one of the big pros of the business. Anything else come to mind?

Guest: Yeah, I mean, you've got people that come into this world, they're not coming into it necessarily to make money. They're coming in to help people. So that's the people you're attracting, which I think is why we found early on this business structure, the person who sold us, she wasn't malicious. And what she was doing, she basically Hired her friends. She hired her friends. She gave her best friends the best rates. And then it grew out of control and she could handle it. As far as what we're doing, yes, it's happening through the United States. There's like a boom in mental health. I would say certainly a boom in private equity getting involved. And you'll see this. It happens in different spaces, and it doesn't last forever. I remember about a decade ago, you saw private equity coming in, buying H vac and plumbing companies, and they're buying a lot of them. And suddenly now there's these big firms at 500 trucks rolling around, you know, in, like, Minnesota, which makes no sense when you hear it. And that sort of dried up. And now I think that is happening in mental health. I think the Runway is long because there's still a stigma where people will not get therapy. So we're not, like, to me, we're at the bottom of the S curve as far as how big the industry can be once there's normalization of it.

[51:30] Host: Yeah.

Guest: So, yeah, I feel strong on the outlook of mental health.

Host: And what about buying a business, Neal? So it sounds like you'd also started one from scratch. The solar installation company. You started that from scratch. So you've now done both. You've started from scratch and you've done business acquisition. Acquisition, entrepreneurship. Any thoughts on acquisition, entrepreneurship, or for you and your wife's next act, if you'll do one or the other?

Guest: Yeah, so for me, personally, I'm no longer into the starting thing. I mean, if it's like a small thing, maybe I'm going to start a consulting office, kind of keep it small if that's the focus. But for me, I would rather acquire. You can acquire, you know, sort of on second base. Even if you acquired a mediocre business, you've got the base. It doesn't have to be a home run. The home run is probably not going to be for sale. But you can get a decent business staffed with employees that has a location, a name and a market, a proven market. And then you can tweak it, you can improve it. It's just like starting school. You don't have all the skills, you haven't graduated, but you can get in there. It's already running. So, I mean, it's amazing in that way, versus starting and grinding and going through all that pain when it's just not necessary. It's sort of like saying, well, I just want to pay cash for everything. I don't want to finance the business. Is Like I'm just going to finance. There's a little more cost to it, but I get so far ahead. So I'm huge on that. And wrapping back to the beginning, I'm a big fan of buybiz Sell or just listed businesses. There may be a day where that no longer does it for me, but it's sort of like real estate. I like things that are for sale. It's just easier. Yes. I might not be getting the best deal. I don't know. I almost feel like I am because I frequently see businesses on BizMysell that are 1 to 3 to 4 times earnings. I mean, if someone cold calls me on my profitable business, you're not getting it for four times earnings. It's not going to happen ever, unless I want out. So take that for what it's worth. Something for sale. You've got a motivated buyer and a price to start from.

Host: Yeah, cool. Well, let's leave it there. Neil. This was a great. It's really a remarkable story, um, where you guys were so desperate in those first six to 12 months and then you were tempted to quit. You didn't. You pushed through year, grinded for about six years. At year six, you have a couple of epiphanies and then it's just. I hate, I hate the phrase. But then you kind of rocket shipped from there for the next few years. And then just real quick to say, I don't think you said this. You sold to this private equity company who then went public six months later, 12 months later, and you had stock as part of your deal. So you enjoyed the fruits of a public offering as well as traditional good.

[54:32] Guest: Etc. We call it the second bite of the apple. And that's the one you want.

Host: Well, cool. Congratulations, Neil. Thanks for sharing the story with everybody. How could people reach you if they have any questions or if they need some help, some. Some of your consulting advice?

Guest: Yeah, sure, Will. So, I mean, you can reach me on LinkedIn, just search Neil Saxon or on Twitter. Like I said, nothing to sell there the newsletters. But I'm at. Neil said what if you just want to go back and forth and shoot it and you know, always willing to help.

Host: Good deal. Thanks a lot, Neil.

Guest: All right, thanks for having me on, Will.