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Want to buy a small business using smart deal structures like earnouts, seller financing, and low-risk offers? In this episode of Jackquisitions, host Jack Carr sits down with Chris Barr, a first-time buyer navigating the ups and downs of business acquisitions—from walking away from bad fits to crafting a $900K cash-plus-earnout offer for a pressure washing company.
Learn how Chris is sourcing off-market deals, avoiding shady broker tactics, and building a personal brand that attracts sellers. You’ll get a behind-the-scenes look at how new acquirers can finance service businesses, evaluate seller terms, and structure deals that actually close. If you're buying a business or scaling through acquisition, this episode is packed with actionable insight.
⚡ What you’ll learn
- Why Chris walked away from an art-framing shop that didn’t fit his criteria
- How a pool-route deal fell through—and the red flags you should watch for with brokers
- The numbers behind a $900 K cash-at-close + earnout offer for a thriving pressure-washing business
- Proven frameworks for earnouts, seller notes, and revenue-share agreements that reduce risk and align incentives
- Tips for building a credible personal brand (see his Quick Staffers journey) to source off-market deals
- Step-by-step due-diligence tactics, valuation shortcuts, and negotiation language you can use today
- When to pivot, when to persist, and how to decide if a deal really moves the needle
Whether you’re a first-time buyer, an operator expanding a portfolio, or a service-business owner curious about exits, this conversation is packed with actionable M&A strategy, deal structuring hacks, and outreach scripts that close.
👤 Hosted by:
👤Episode Guest
💼 Shoutout to Quick Staffers LLC
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💼 Special Thanks to First Internet Bank!
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Connect with Alan Peterson from First Internet Bank here to get started!216 Transcript
Jack Carr: [00:00:00] Welcome back to the Chris Bar Saga. So far we've learned who Chris is, learned what kind of businesses he's looking to buy. We've learned some strategies and some ways to get him closer to that dream. And on this episode, he gets some really exciting news and stick around and find out what that is.
Welcome back to Jack Acquisitions. Today we have Chris Barback. Woo. What's up everybody? What's going on? Chris? How you doing, man?
Chris Barr: It has been wild, man. Um, such a dynamic couple of weeks, but I mean, all good things. Um, yeah, love, love to see the traction, but how about you, man? How things been going?
Jack Carr: We've been, been busy.
So busy. So if you're hearing this, we are about to launch the Jack Acquisitions pod. So that's been busy owned and operated. We're still recording for that. Quick staffers is ramping up, we're placing some amazing talent, and then it's starting to get in summer. So [00:01:00] we've, we've sold more in like two days.
Then we sell sold last year in like whole months. So really ramping, which has been wild. Um, feels good, feels great, but it's a lot. So just busy. Heard, heard that man. Just answer the phone. I. It's one of those phrases that's always easier said than done. I know it was hard for me and my business 'cause the phone always rings while you're out in the field trying to get something done.
Or it's 8:00 PM and you're trying to get your kids to bed. Well, I have the solution for you. I'm extremely excited today to announce Quick Staffers, your go-to solution for building a high performing cost-effective customer service team. We are placing CSRs who have been. Pre-trained on proven home service, SOPs and scripts, the same ones that Wilson and I use in our business.
For a limited time, we're offering $500 off your initial placement costs for the first 10 signups. See link in the description below or head over to quick staffers.com for more information. Sweet. So last we talked, um, [00:02:00] you were, I think you just ran, uh, or you were about to run. A, uh, kind of a trial run walkthrough with the print shop business, I believe.
Yeah,
Chris Barr: it was an art framing business. Um, okay. So yeah, did a walkthrough. Again, there was a lot of back and forth the, um, sellers, you know, very particular about who they want to entertain as buyer at first told us no, we were able to get 'em back and. The table. Um, and then when actually, you know, met with the owner and, and walked through the place and it looks like a, a solid well-run business.
Yeah. I'm sure it's a solid investment for someone out there, but, um, just, and it's my Midwestern nature. We just, I don't anything bad to say about anybody. It's not, it's not personal. It just, it just, the synergy wasn't there and the, and the vibe just wasn't, didn't feel like a fit and it felt like. Again, knowing that she was pretty specific of who she wanted as a buyer, I didn't want to go through the process, you know, feeling like I was twisting somebody's arm the whole time.
It was just not [00:03:00] that kind of, you know, working relationship that I wanted. Um, so ended up actually walking away from that one did not even get, end up getting an LOI in, just didn't feel like it fit. So it was weird to get that close on something that I liked and I pushed so hard to get and then ended up turning the other direction.
It was, it was a bit weird, but felt like the right decision.
Jack Carr: Yeah, no, that, that's, that is all, you know, I, I always say you don't have to like your seller. Um, but not liking your seller definitely is a red flag. Yeah. Right. Because it's not part of, you know, the process to like and be best friends with this person, but specifically on this deal, there was a tie in to, like, you had to work for them for a certain amount of months.
So that would be absolutely miserable. But on top of that, if you don't like your seller, in my opinion. Um, neither does other people as well as like the culture they built in their business has, has to function around the seller or the owner of the [00:04:00] business's life, right. And who they are as a person. And so that reverberates through the company any way you look at it.
So if it wasn't a good fit between you two, it probably wasn't a fit, um, for the business in the long term anyway.
Chris Barr: And
Jack Carr: I'm
Chris Barr: in no way disagreeing with you. I. I'm not here to offer opinions on the kind of relationships that they have with their clientele, with their employees. Yeah. It could all be a very harmonious relationship, uh, and just not a fit for me.
So I'm not necessarily putting it on them, but at the same time, I do not disagree with you at all. So, yeah, it just seemed like a, a good idea to go in a different direction. And it was also pretty outside of the sectors that I've been looking at up to this. Yeah. So, um,
Jack Carr: yeah. Okay. So you, you killed that deal, which is all part of the process, right?
You killed the deal. Then you have some, some big news. You, you went after that that, uh, that deal that came off the market now is back on the market. What? Tell, talk about that in between.
Chris Barr: Yeah. So we [00:05:00] got wind of. This, uh, pool, uh, it was more of a route business than the former other pool business that was more mm-hmm.
Soup to nuts, full service. Um, this one was more just kind of, you know, route cleaning, but it was founded by this billionaire, so I've been code naming it for DA purposes, this Scrooge McDuck, um, pool, you know, pool company, and. We really didn't have. And that was kind of the thing is I realized as we were getting, as we were skipping LOI, which you and I went back and forth about, um, that I really didn't have a ton of info on this business.
Not nearly as much as I'd like to go to LOI let alone their assistance to bypass LOI and go right to a PA. Yeah. That being said, let's talk
Jack Carr: about that though. Yeah. Let's stop right there. So we had a, we had some pretty long and decent discussions about skipping LOI and going straight to a PA. Yep. Um.
Brokers, lawyers, I'm sure the industry is, is mostly fine with it. Um, but. Yeah, I mean, tell me your, your [00:06:00] viewpoint on that. 'cause I know you had some a, a decent feeling in a certain direction.
Chris Barr: Yeah. You know, listen, I get it. You know, and I totally, totally understand the perspective of don't do it. It's, it's, you know, bad to go.
Um, and there's parts of me that again, do not disagree with that. Um, that being said, it's difficult 'cause I know the real estate transaction. Perspective so Well, and I mean, again, there's tons of nuances and differences here. Mm-hmm. But we've gone through a transaction before and we, uh, many times and we know what that flow looks like.
And the fact that we do have an out, we have 30 days of due diligence to pull the plug. We're not the type to fall asleep at the wheel and, and not be tracking our dates for those types of things. And you know, if you look at a lot of these. Lois for business acquisitions, so much is contingent. I mean, everything is subject to change based on what you find in due diligence that you're really submitting an LOI to [00:07:00] kind of hash out these main deal points and the narrative, even though we didn't have a ton of info behind this deal, that numbers were good enough and the narrative behind it made us confident enough, and it was listed for 500 K, which was the bottom end of our price range.
So we said we'll get in a offer. Uh, a hundred k over asking price for 600. Um, since they had a buyer plate out on 'em before, couldn't get the escrow money, they wanted to go directly to a PA. We talked about it, understand the hesitation there, but we said we've already, we've iron out the, the purchase price.
Now that's kinda the biggest thing for Lois. We've already submitted that. So
Jack Carr: yeah, you've already put yourself in a position where you, you are in the leg down paying more than asking. So there really is no renegotiation there. But for our listeners, I want to, so what, what happened with Chris is he.
Normally or traditionally in the field, right? You, you do the, you get the CIM you, you fill out an NDA, you get the CIM. You go through the CIM, it has basic financials. You [00:08:00] meet with the the seller. You talk with the seller. You decide, Hey, is this a good business, bad business? You ask 'em questions, they come back with answers.
You ask 'em more questions, they come back with answers. Then. You have the general basic on financials, you maybe even get some of their tax returns, like the, and then the next step is you go into LOI, you go into LOI, that's where you start breaking open their books. They give you access to their QuickBooks or to their, your accountant can go look into their books and, and do a quality of earnings and, and see, hey, is this business?
Yeah, you made. Say they made a half a million dollars this year, but was a half a million dollars from one job. Was that job really even a plumbing route job? So there's like a lot of, uh, quality of earnings really just is it quality, um, revenue that's coming in versus, Hey, this guy's paying me under the table over here and this guy's doing this weird thing over there so it can get, you know, especially with the, um.[00:09:00]
With issues and like how, how you're evaluating the business. If you're evaluating it off of a multiple, like every dollar's worth three to $4, right? Mm-hmm. At, at a three or four x. Yeah. So it can be, uh, in the seller's best interest to kind of. Get a little weird with money. I'm not saying that they're bad people just saying, Hey, you know, they might have counted something or forgot about something else that maybe shouldn't have been in there.
Yeah. Long story short, after you finish that, you go into the a PA like, Hey, I'm ready to buy. You either RET traded after LOI, you say, Hey, the I, I believe it's worth this. Here's what we're gonna, you know, or, Hey, we're not changing anything. Your books are great. They're super clean. Here's the offer, which is the A PA, which is, that stands for the access asset purchase agreement.
And so you go to a lawyer. You talk to a lawyer, the lawyer helps you build the a PA costs some money, and then you submit it and then boom, you're off to the races, they accept it, and then you start with banks. Um. So what this seller specifically wanted to do is they wanted to skip the whole LOI phase and go straight to a [00:10:00] PA, which in itself is not inherently bad, right?
They've already figured out price point. He hasn't looked at the books yet, but Right. They're asking over asking price. So as long as the books come out, somewhat clean and due diligence, like there's no retrade available where Chris and I had a long discussion over a course of a couple days was. Yes.
There's nothing wrong with going straight to a PA, especially in in his specific situation. That being said, it's not something that I generally recommend, and I don't generally recommend this from a 32,000 foot framework level because it puts you the buyer in a poor seat to renegotiate So. You're spending money up front, you're putting down earnest money, so now you have money tied in.
It's not locked up, right? You could yeah, cancel out. You hit it back. You've put some really good clauses in there. It says, Hey, I got 30 days of due diligence to decide. Some, I've seen it where buyers have forgotten and gone over that 30 days and still don't want the deal, and then have to back out and lose their money [00:11:00] anyway.
Not we're gonna, we're going to ignore that little fact there. But what I will say is it puts you in a position where you're spending money upfront. To work with a lawyer and to get the deal ironed out, but you haven't actually seen the financials in depth. And so it puts you in, in kind of a worse spot, uh, non-optimal spot for a.
Having these talks with the, the seller. And so that, that's my belief in the framework is you want to come into this, as Chris said, extremely loose on what you, don't get me wrong, you want a solid LOI, you want to have a solid idea of where the price is gonna come in. You don't wanna really retr, I'm not saying that, but what I'm saying is you don't wanna start off in a.
In a bad position where this seller is at an advantage because you've had to put all this upfront money and lock yourself into a deal that maybe you find some skeletons. So that's all my point is, is when you go straight to a PA, you're in a disadvantage [00:12:00] disadvantageous position from the gate versus when you go into an LOI, it's very loose and that's why his seller didn't like it, because it's putting him in a kind of a negative or in a.
The seller wanted him to be in an a PA so that it's he, he viewed him as a real buyer. Yeah. Um, so it's this balancing act that you have to do. It's not my personal favorite way to start off a relationship with a seller. I would like it to be a 50 50. Nobody's at a disa advantageous split. It's just, Hey, we're gonna go into this, figure this out.
We're gonna do the due diligence. We're gonna understand your business more. And if it is weird, we are going to retrade and I don't have any capital up front that I've locked into this deal.
Chris Barr: Yeah.
Jack Carr: So,
Chris Barr: and it's, it's beauty is in the eye of the beholder and it's kind of one of these things where, again, retrade probably wasn't gonna happen 'cause we kind of already locked in our purchase price.
Really. Just exactly that. The numbers are what we think they're, we still have our outs. And the real key I've found is LOI, straight to a PA, regardless, we're. When you're going through that [00:13:00] CIM process that you reviewed, you're working off such limited information. Mm-hmm. You really don't know much until you get the due diligence and get access to all of their books, get access to all their financials and their numbers.
So it was really just kind of, alright, what's gonna get us there? And we gotta spend a couple attorney dollars, even if they go out the window, which then, which they did, um, you know, really wasn't the end. Yeah. It wasn't the end of the
Jack Carr: world. See? Um, so but that's for you, right? Yes. So, like your, your situation is specific that to you in that you.
That was a worth it as a risk for you to waste that. Yeah, I know for me personally, I wouldn't have done that. I would've said, Hey, I'm not gonna do it. It just 'cause I don't, I don't want to pay. Yeah. I mean, an A PA can cost a really good a PA that you do correctly could cost. I know 5,000 bucks more. Yeah.
This,
Chris Barr: this was, this was much skin skin than that. Uh, it was, it was pretty bare bones. Simple. A PA. So
Jack Carr: again, especially like, yeah, if you're working with the SBA and stuff, they have a bunch of requirements that has to, I know you're not specifically, but you know, that's another big, if you're working with the SBA, like there's a lot of.
Kind of [00:14:00] terminology and, and paperwork that they need. Yeah. And so, yeah, long story short, I mean, it didn't work out though. No. Somebody else came and stole it out from under you in, in the interim.
Chris Barr: That was, and that was the weird part. And I'm, I'm chalking it up and I, I shouldn't even say I'm chalking it up.
I'm pretty confident that it was fairly cheat broker activities. 'cause what happened is. We got an LOI in for a hundred k, K over. They said, let's go straight to a PA. We said, fine. I get the A PA on Easter Sunday. We turn them comments around by like Tuesday at 9:00 AM So like very reasonable timeframe.
Jack Carr: 48 hours. Yeah.
Chris Barr: Yeah. And so then I'm pressing my broker like, what's the word on this thing? He finally gets in touch with the broker, I think Thursday. And it's like, oh, sorry. Another buyer came along and they ended up taking that offer. And so see you. I'm like. We came in a hundred K over Got you. Comments turned around like that.
That doesn't add up. And what we're assuming is that the buyer, the broker, found his own buyer and so he was gonna get [00:15:00] dealt, allegedly.
Jack Carr: Yeah. Allegedly. Jack acquisitions and and myself do not believe any of this. Allegedly, my assumption
Chris Barr: based on what I'm hearing is that the not a buyer and. Bail on his fiduciary duty of his client and, you know, wants to double up on commission.
So that's kind of what I'm assuming from the facts. I know allegedly, you know, but, so, you know, this one obviously was in our hands out of our hands, back in our hands, out of our hands. I'm fine with it. The end of the wind. And we ended up finding, you know, a great, um, replacement in the pipeline that I'm.
Very, very excited
Jack Carr: about. So, so let's, let's talk about that one from the beginning because I, I have some huge comments on this, but where did you get this last deal? What is it? And, and I'm calling it the last deal, but like, where, where did, where did this come from and how are you, I know, I gotta
Chris Barr: be careful.
I don't wanna fall in love too fast. Right. But I'm also kind of unit it that way even though I shouldn't. But, um, it, the sourcing story was really fun. So I took the advice from this podcast. Um, I went and hired. Um, some, [00:16:00] you know, freelance contractor on Upwork and said, you know, here are my parameters. Go find me every painting and pressure washing business in this geographic area.
I gave them some other criteria to hit to make sure I wasn't, you know, swinging at either the top, top end or the bottom of the barrel. Um, their work was. But it was good enough, uh, to really kind of get me off and running with some cold calls. Like I think three days in, I called up this pressure washing business and he kind of like sussed me on.
At first he's like, are you broker? Like, what's your deal? Um, once we established some report, he said, he's like, well, we're actually listed for sale, which is why I was asking. Um, okay. I was like, no way. And he's like, well, um, we were just tied up for like five, six months of due diligence and our buyer just bailed.
Retrade is a way from Sunday. So you know, we're about to list it back on the market, but not for another week or so. So I'm like, perfect. I get first crack at this thing. Um, and actually it's funny, the listing broker was one of the first brokers I reached out to in my [00:17:00] search process, fellow Marine Vet. I have a good relationship with the listing broker as well, really just by chance, although now I'm thinking about it, I don't know why he didn't.
Hit me up.
Jack Carr: See, that's what I said though, like from the beginning is the brokers have so many people in their queue. If you don't stand out like a, you know, like a red big sore thumb, they're, they're not going to remember you. Which is weird because they might, or, but like, yeah, it's just, it's a lot, right?
They have a lot of people lit
Chris Barr: at my own skirt here. But like, I thought that he would've remember me because he had such, like a nice, warm relationship. I would check in with them, like, you know, at least every other week. So I, I thought I was a standout, but apparently not. But what, regardless, you know, we got in front of the deal early, which was great.
Um, couldn't have had a more warm and enjoyable intro and, and start a relationship with these sellers that are like tatted New Jersey guys. Just kinda like my, my sort of folk, um, are really, really down to earth. Um, fun to speak with. Family oriented business as well. So sat down, spoke with 'em, um, and, uh, they [00:18:00] were, they were even gracious enough to keep it off the market until we were able to get a chance to sit down and meet, which.
Again, um, yeah, it just felt like the, the rapport established there was fantastic. So, um, just got their LOI in today at noon. Um, so it's been, we've been running a comb through, you know, the one, the four years of, you know, cash flow statements that we have.
Jack Carr: But, so what's the timeline that took you, like, what was the process?
Did you, you, you. Reached out to them, got ahold of 'em. Mm-hmm. Did, uh, in person, did you do a second in person or just a single in person or single in
Chris Barr: person? I reached out to 'em probably on a, I think like a Tuesday-ish or a Wednesday. Um, sat down with them that Friday. Um, knowing that the. Uh, the listing was gonna go back on the market sometime late the following week, so I know I, I knew I had like one week to, to analyze things.
Um, and there it's, it's attractive. There's a lot of things I really do like about it, [00:19:00] but mm-hmm. There's a lot, not a lot. There's some volatility in the SD and then some of the add-backs and some of the, some of the way that they're categorizing, you know, COGS, expenses and all that. It was a little bit whack.
Um, so, you know, it definitely took. Saw a lot more diligence in weeding through and, and getting confident about what exactly I'm looking about here.
Jack Carr: Yeah. Um,
Chris Barr: and then engaged my account, engaged a valuations expert in his office. So had some boots in the ground and was very in touch with the seller. I was like, listen, I do not wanna get beat to the punch on another deal.
Um, but they were very, very open and honest saying, Hey, listen, it just went back on the market a couple days ago. No one's sniffing around yet. You've got a few days. We will absolutely keep, you know, in contact with you should we get another offer so you have a chance to counter. So, um, again, I, the, the relationship established went a long, long ways.
Jack Carr: That's huge. And then it, what, what also that I hear is huge is you have a team already pre-prepared behind you. Yeah. Right? Like, th that's huge in itself that, [00:20:00] um, you know, you had somebody to go to for. Some easy due diligence. You have somebody already to go to for some legal work. And so I think that's an important thing that, that we kind of gloss over is this has been a really fast process for you, but you've also built a team in the background.
Mm-hmm. Um, that has been able to really support, um, you know, you going, getting that week long period and figuring it out and going to there because, hey, we, I know this valuation expert. Boom. Done. Like now we have a valuation. I know where I can offer in at. Um, so that, that's huge as well. So I think a big shout out to you to actually like being somebody who is ready to go and who has everybody in place to actually be real.
And I think that's something that, you know, goes a long way. And so let's let, let's talk some light numbers 'cause I know like you probably don't wanna talk to. Exacts. Yeah, but you said there's some, some wonkiness in there. Um, can you go ballpark on, [00:21:00] so it's pressure washing and painting. What's, what's the side even just, just, just pressure washing.
Yep. Oh my goodness. And what's the gross and, um, purchase price?
Chris Barr: Yeah. So purchase price, they're asking like 1.5 ish. Um mm-hmm. Which is right at the top of my. Um, and, but I, since like episode one, I, I mentioned power washing. I've always, I've felt really confident. That's what I'm pumped about, man. Yeah.
Especially down here in South Florida, you can do it year round. There's really no lu periods. Um. I got some notes from someone in your network about pressure washing, and I understood a lot of the, the grievances, you know, and the, the hangups surrounding that, that sector. But there's gonna be hangups in any sector, and it's kind of how you, how you manage it.
And my whole thing was I wanted something that was commercial business to business oriented. And they specialize in commercial and governmental properties as well as multifamilies. Uh, they, they are doing a, some rolling, or actually I'll twist it. [00:22:00] I gotta hold myself on that one. But they're, bottom line is they work with people and they recommend not seeking out residential, and they won't necessarily avoid it and they won't say no to it.
But, uh, the fact that that's not their focus was a huge, huge plus for me. So it, it checked a lot of boxes to make it worth taking a run at, even though it's on the higher end of
Jack Carr: my, of my, I I just love that it came in the, like, I remember day one conversation one, it was like, I asked you, what is your dream business?
You said pressure washing B2B. And like we're sitting here with a pressure washing B2B company. That seems to be a good fit. Yeah. So they came in at 1.5. What, what was their top line revenue and then what did you end up offering them? I don't wanna talk about get too in the weeds in net. Yeah. But like,
Chris Barr: um, so their revenue over like a four year average is like right around like 1.7 million.
Jack Carr: Which is amazing for a pressure washing company. That's, that's very good.
Chris Barr: They're, they're doing some serious numbers. Um, and gross [00:23:00] margins are like very, very steady. Eddie, no more than like a 5% swing in either direction, kind of right where they should be. Um, ESD was a little up and down again due to some very bizarre.
Expenses that are very, very controllable. Like there was nothing at like, yeah. Yeah. It, it's all kind of, we've stuck a bunch of red flags of like, all right, this needs to get hashed out in due diligence. Like, what the heck's going on here? But it all seems things that are very, very controllable. Like nothing that's gonna not, it's not material cost or thing that's gonna run away for me.
Jack Carr: So, so with that being said, right, the way that you mitigate. Um, risk in these acquisition deals is there's two ways to, to mitigate risk due diligence. Mm-hmm. And price. Yep. So what are you doing? Like, that's the framework, right? Yeah. Because if, uh, on the extremes, right, this, if somebody, if they sold this to you for $1 as an asset sale mm-hmm.
Right? The price is so low that the risk doesn't matter. It doesn't matter That. They've been, you know, their books are nat like ugly. It doesn't matter [00:24:00] that the owner's an asshole. Like it doesn't matter if they sell it for you to cheap enough. Oh, I'm taking a swing here.
Chris Barr: This is, this is, this is a big book for me.
Yeah,
Jack Carr: yeah. But on, on the other end. Right. Due diligence of like actually going through their books really in depth and paying for good QOV and making sure that they're being honest. So how are you looking at this as you start moving into, hopefully they sign the LOI. Mm-hmm. Um, but like, what's the purchase price and, and.
That's why I'm bringing up Yeah. You know, this whole thing where, where, how are you viewing, um, that are you getting creative?
Chris Barr: Yeah, I absolutely, we've gotten very creative. I'm excited to tell you a bit more about that and, and one quick note on due diligence, 'cause we can simply breeze by it. Yeah. We've got a very, very thorough list and a very, very good accountant.
And we're basically telling him, this is not quite forensic accounting, but about as close as you can get to that as we possibly can. So again, we've got is had,
Jack Carr: is he experienced with QOE though?
Chris Barr: Yes, he is. And he's with a, it's, I can, that's not bound by any, it's Kemper, CPA. They're a top 100 accounting firm in the [00:25:00] nation.
Like yeah, they've, they've got enough resources there where I feel very, very confident in them kind of handling the due diligence process. So we, and that's just something we are very anal about in general. Um, so yeah, all numbers will be gone through with a, in, in contracts, et cetera, et cetera. So we're very.
We're very granular on dd, so getting to risk mitigation, that's, we're all pretty in alignment there. Um, as far as purchase price goes, yeah, you know, I, and there multiple was right around like just shy of a three and it, from my research, a pressure washing biz trades around like 1.5 to three x. Um, they've got a lot going for it, so I can't.
Reasonably say it's below a two, but due to some of these accounting practices that we saw, I don't know if it's really on the high end of the spectrum either. So we came down to, we're gonna try to end up at a target purchase price of 1.2. Um, and then I [00:26:00] am doing, you know, I, I, I'm hoping there's post-production where I can go and take out some of these numbers if I'm getting myself in trouble, but.
We're, we're offering, can I say how much we're offering at close? Yes. There's,
Jack Carr: there's nothing, there's nothing that should be in an NDA that, that would say what you're offering. Yeah. Always.
Chris Barr: You know, I have confidentiality clause in 'em. Um, so I, yeah. I'm not violating. I think
Jack Carr: we're good on that one, but yeah.
Like what, how did, how does that 1.2 coming out at 'cause Right. The creativity aspects is what I always love. Yeah. That's the fun part. Um, so
Chris Barr: we're doing 900 K at close and I know that you. Had a, and then we're doing the rest of it at an earnout. And I know that we had a talk about earnouts and I gave you my idea for an out earn out and said, yeah, good f and luck, dude.
Um, and so did you say Yes, uh, that's what we submitted. Yeah. And so, but the thing is, it's not necessarily just about. Um, 'cause what Jack and I were to the audience. Well, yeah, I mean, well we were just, yeah. We can get into the structure of that. We're, [00:27:00] we're asking that.
Jack Carr: Yeah. Let's just start with what you offered first.
Yeah. So you left 25% as a seller finance note of some sort. Yeah. And you're, you're structuring it as an earn out. Yep. Um, which for everyone listening who doesn't know, that means that certain goals need to be met, uh, to get the last per last, um, evaluation. Um. What I, what I told Chris is always, always, always recommend a seller note because on the fir, on the first side of it, right, it, if you need the seller to do something, it incentivizes them.
So in this case, an an earnout, a traditional earnout, we'll talk about your special earnout. Here is usually a private equity firm comes in, buys a company, wants to keep the owner on, says, Hey, owner, if you hit. If you grow the company 20% in the next three years, we'll give you, you know, the last bit of this purchase price, we'll give you the last 300,000.
So that's the earnout structure in super simple terms. Um, it's great. Once again, it's incentivizing the owner to stay on and to continue working hard. [00:28:00] Um, and that's generally the structure of an earnout. But you also should do seller financing because for indemnity and, um. Other kind of legal reasons.
It's the first place you pull from if the seller doesn't do what he says he is supposed to do, right? So if you have in the closet that all vehicles will be working day one, and then you get there and three of the vehicles are down, you can't really, it's very difficult to go to a seller and say, Hey, three of these vehicles are down.
It's gonna cost me 20 20,000 to get back up. I need a check for 20,000. So it's gonna go kick rocks. See me in court. You're closed. But what is much easier to do is say, Hey, we are going to deduct 20,000 from the seller note. So now you don't owe me 300. You owe. I owe you. 2, 2 80 in that example. So that it's a great tool and, and it's also like a protection mechanism, um, to make sure that the seller's going to do what they say they're going to do.
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I love it. And I yelled that this is, I dunno
Chris Barr: how wacky it is. 'cause again, we're totally new to this deal structure. Um, but, and I, once you explain why it's wacky, I, I agree with you. I love it. What we're doing essentially reflects a seller note, but the thing you also get with [00:30:00] the seller note is they're gonna have their own interest rate attached to it.
So. Um, you know, I didn't, I didn't like that I'm already paying interest to the bank for this thing. I didn't wanna pay more interest. So I, you know, my whole thing was, we talked about this a little bit last time. Simple man, simple needs, you know, my income needs are not, I can, I'm a cockroach. I'm used to living in bushes and shit.
Like I, I can live on very, very little. So I said, listen, I'll cap my income off this and there is a healthy margin on top of it, but I said I'll cap my income at a few hundred k. And you, so
Jack Carr: for everyone listening, a few hundred K generally isn't cockroach level living, but I'm gonna, I'm just gonna let that pass by.
Chris Barr: And then for me, I went into this process expecting, I was like, if I can just make. Because I was in sales where there was the classic low base and they said commissions, but deals wouldn't come. And so I'm like used to living on like less than a hundred. So I'm like, if I can just get to two, I feel like I'm, I got more money than Davey Crockett.
So this thing absolutely had buffer, um, for a few [00:31:00] hundred grand and then some on top. So I said, listen, I'll cap my income at a very, very safe level and. Which again is way more than I feel like I could ever spend in a year, but I'll cap my income here. Any overages and according to the numbers I'm seeing, there should be plenty of overages.
Any overages go to you, the seller, until we hit this eventual 1.2 purchase price and to kind of sweet, because you point now you're like, yeah. As,
Jack Carr: as what? As like a percentage of revenue or as it just like over comes off the bottom line. Anything comes off the bottom line?
Chris Barr: My income is capped at, you know, at a few hundred k.
Any. Overages in discretionary earnings go right to you as the seller, uh, for a span of three years until you hit your eventual purchase price capped at 1.2. Um, and you pointed out they're not going to like that because any overages a you could shuffle 'em around in a lot of different ways to hide that, or not even being shady about it.
You could just reinvest into equipment, into [00:32:00] advertising and all these things for growth. And so to mitigate that, I said, Hey, listen. We'll do quarterly reviews of our books. Again, we use a top 10 CPA from all the cutting for to avoid taxes that you guys have done. Our accountant won't do that. Like we, we just don't do things that way.
So you'll get, you know, quarterly reviews of the books and we'll put a. 10% variance cap on expenses. Basically, we just wanna run it the way that you guys have, so, okay. So you're
Jack Carr: gonna run it exactly the way that they're gonna run it. Yep. 10% cap. Cap on your salary. And then what you're saying is that anything from a net cash flow earning at the end of the year in the bank, you are just going to redirect that to their account until they reach that last 300,000 it sounds like.
Chris Barr: Yep.
Jack Carr: Yep. Sweet.
Chris Barr: Yeah. So, yeah, wild.
Jack Carr: Because my wild whole
Chris Barr: thing. Yeah. 'cause my whole thing is like, man, I'm, I don't, I'm not trying to burn you. I just don't want to get my buns whacked. If I pay close to a mill [00:33:00] upfront at close for this thing, and all of a sudden it's not earning like I. I like, I'm trying to avoid that and I wanna get you to your, but honestly, and they can make the final,
Jack Carr: what's, what's, did you put a timeframe on that as well?
Chris Barr: Yeah, I said three years. If they wanna push it back Okay. And make it five, I'm honestly fine with that. Or if they wanted to up the purchase price, I'm fine with that. The total purchase price, I'm fine with that too. 'cause if I can cover my nut and make a few hundred grand, which is again, more than I ever expected to make, um, you know, and then they just gotta take the overages to make them happy.
And if that makes both of us happy and makes me feel safe and gets them to their purchase price. Makes sense to me, you know? Um, so anyways, that's what we're
Jack Carr: not my favorite structure, and I'm gonna tell you why. It's okay. I mean, it is, it works for you, like you said. Yeah. At the end of the day, and, and I will reiterate this a thousand times, it's everybody has different life goals.
And so you're building and buying, you're buying and building a business, or you're growing your business based on your life goals and. There's definitely ways that you can optimize for [00:34:00] other things, but to say that you are wrong in a, the way you're doing it is never what I will do. Um. You can. No, it's not.
Because like if, that's, if your goal, seriously, if your goal is, Hey, I wanna make $200,000 a year, run this business, start putting away, you know, equity, paying off the equity of this business through my debt service, and that's all I want for five years. Like, I don't want to grow this thing. I don't want to, um, do anything else.
I just want that Then, then this is a great lifestyle business for you. What I will say is. If you ever want to grow, and there's reasons to grow, right? There's reasons to grow outside of like, Hey, I just want to make money. The reasons to grow are a, yeah, you do just wanna make money. The other reason to grow, which is the one that I'm actually worried about for you personally, is because it happened to me, right?
This is my story, and that's why I'm sharing is. You can grow out of the debt [00:35:00] burden, right? So when I started mm-hmm. And we were 700,000, like the debt burden of making $10,000 a month was like, oh my God, how the, how the heck do we hit 10,000? You go then as we, you know, crest 5 million. I don't think about it.
Like, it's not something that I ever think about because the debt, like it's something that we have to pay every month. Yeah. But that 10,000 is such a small or portion of our total revenue or total expenses that it's not even a big deal anymore. Mm-hmm. So that's the only part I worry about this for, for people listening and want to copy is like, make sure if you decide you don't want to grow, that's okay, but just watch the debt burden on the business because that, yeah.
Is not something you'll be able to grow out of. And so what I said to Chris, I was in the beginning, so that's the only part that worries me. But otherwise I, I'm like, this deal is crazy if it goes through. Because what I was telling him was, I said, there's, there's no risk mitigation for the seller. Right?
You could dump. Originally, it didn't have all these caveats on [00:36:00] it of the 10% on just where I got those ideas from. Expenses, yeah. And cap on on your salary. Because he originally came to me and said, Hey Jack, like I just wanna do it to shovel everything off the top that we don't spend to them. Got it. And I said, that's great, but if you try to grow the business, you could take that 400,000 or.
You could dump it back into growth, you could dump it into marketing, you could dump it into new vehicles. You could dump it into wherever you want, and the seller would just get zero every year. 0, 0, 0. You could raise. Your salary. Yeah. You could raise it up to, you know, 400,000 if that's the number, and you could scrape off that 400,000 so that you're paying them zero.
So they either have to really trust you as a person to not do that, or you have to put caveats in like you did. Mm-hmm. A 10% variance. It sounds like it's a, a fair amount. It actually does still give you some room for growth too. Yeah. It's like, hey, we, we can bump marketing 10%. Um, if you are already spending, you know, the max on marketing, like that'll give you plenty of room to, to build and grow.
Mm-hmm. Um, [00:37:00] but I mean, it does still hurt things like, it hurts things like vehicle purchases and, and really adding new head count.
Chris Barr: And it's also with, uh, with prior approval, you know, if we need to go down and say, Hey, listen, like we're gonna, you know, we're gonna spend more than 10% of a variance on some new equipment.
You know, I, again, again, I'm not going on like a handshake deal here, but we can build in. Some contingencies to, to account for things like that. And back to the whole point about growth, again, I'm not saying I'm anti-growth. And again, I gotta be careful about certain aspects of the deal that are very growth oriented that I, I don't want to, you know, make a booboo and expose.
But, um, you know, let's, let's talk about growth for a second. 'cause again, I'm not anti-growth. And what's our timeline? You know, we're coming out of the gate on three years and this said, would I be fine with more than that? Sure. But it, we're looking at, uh, that earnout structure taking place over a three year cap.
And honestly, as someone who's new to owning their own business in the first three years, I. I, you know, and again, not that I'm anti-growth, but my [00:38:00] focus is not on that out of the gate. My focus is on establishing myself as an operator, understanding the business, really, really getting my arms around it.
And then at the end of those three years, yeah, then I am, I feel like I'm comfortable, I'm in the saddle, and then I can really, really prioritize growth. So, um, yeah, it's
Jack Carr: definitely not a lifetime. Three years isn't terrible. Yeah. But in, like you are talking to someone who has owned a business for three years and grew it from.
It can be done. Obviously 500 x the food is in the man like you, you've done it. So zero employees to now like 24 employees. So like that. That's my point is I think you'll wrap your fingers around this business, you know, a lot faster than you think you will six months, rolls around a year, rolls around and you'll be like, okay, I kind of get this.
Yeah. And you hire a good manager, like, okay, he gets this and I get this. Now we're putting some fire behind it, you
Chris Barr: know, and if I gotta spend 24 months kind of sitting there, you know, at the gate kind of itching to go, um. You know, a lab, it's not the worst thing in the world. Have a whole season just kind of pulling away.
If I gotta, if I gotta do that for two years in [00:39:00] exchange for giving myself some serious risk mitigation, done deal, you know, that, that to me is, is very, very worth it because I'm getting a much, much more tolerable purchase price that I can finance through the bank. I am on the hook for less. I, you know, again, they still get to their purchase price.
It's just with bottom line earnings, that's just kind of surplus. Um, and I'm able to lock it in at a price at closing. Um, that's much, much more palatable to me. So if that's my trade off, then I'm, again, I, I come talk to me in three years. I could be a, singing a very different tune, but a, as of right now, it seems like a very worthwhile trade off.
So that's kind of what our logic was that got us there. So.
Jack Carr: So here's my other question, which is what I, I've already, I've already fed to you is why not revenue share agreement? So hear me out. I mean, if they, if they say no to this, you know, you can always go back to the table and redraw, but. Um, [00:40:00] why not revenue share agreement?
So I just did the math on 1.7 million. If you were to do a 5% rev share agreement, right, which it seems like you have available. Mm-hmm. That is $85,000 a year for five years would be 4.25. So they have an upside. I actually wouldn't give 'em that much upside. I would do four years or something. So. Then so they have some upside, you have some protection.
You could actually, honestly pay that off in less than four years, right? If you, if you grow the business. But it at least gives you the, it takes away any kind of handcuffs that you have on you. Right. I just don't like handcuffs in the sense that, uh, you know, I, I've said this before. I believe that people get into ETA for two reasons.
One is they don't like being told what to do. Uh, and two, they're born into it. Their parents did it, their uncles did it. So I, I don't like being told what to do. So like, handcuffs would drive me nuts and be like, I can't do that because I have a cap. Um, so, but like a rev share, like if you win, they win.
And so it's also aligned incentive. So they want to help you grow, right? [00:41:00] Because if you win, then they win, they get a revenue share, they get to their goal quicker. Yeah. So always, always an option. Um, and at, you know, 85 a year, the SD could easily eat that You're gonna. Probably shuffle that off anyway.
Yeah. And if you get like a massive down year where like you just get absolutely stomped on, you know, that drops, like the burden for you is less, um, just because your revenue's less.
Chris Barr: Yeah. And my kind of thinking there was, I just felt a little bit more exposed having to come off the top line rather than the bottom line.
Um, because you know, for example, I'm creating a bit of a ridiculous scenario here, but chemical costs for pressure, cleaning, whatever, whatever, tariffs. Let's say that everything takes a massive, massive expense hike. Okay, well my revenue might have shot up or something
Jack Carr: like that. Well, good thing. I'm telling you right now.
Well, that's, that's because that, that's where I think that you're, you're mis viewing this is, it's not an expense item. So Rev share doesn't, you shouldn't be looking at the, the expense section to [00:42:00] look at rev share, share agreements. You look at the gross section. Yeah, I, I, I'm aware. So I think
Chris Barr: I, yeah, like gross
Jack Carr: margin.
Yeah. I is where you look to might to make sure health of the business.
Chris Barr: Yeah. I might be miscommunicating. And so when it comes off of the top line, when it comes off of my revenue. Yeah, that's great, you know? But now I am beheld into paying them a number off of my revenue, off of my top line when I have no idea what's gonna happen with expenses that's out of my control moving forward.
For example, if I owe them a portion of my top line, if it performed at. X according to the agreement, and now I owe them a portion of my top line. Well, shit doesn't, chemical costs due to tariffs, labor costs, whatever. Took a massive, massive hike on my expense end. And now I'm having trouble covering my expense end because I had to give away part of my top line to them via this agreement.
And that felt left me feeling exposed. Sorry, I have cleaners now coming in. Um, [00:43:00] really frustrating. Um, sorry about that. Um. But, uh, yeah, so that was why revshare kind of turned me off a little bit was because it left me, it felt,
Jack Carr: yes, there, there's potential for bigger downside, but there's also like, that's all mitigatable, right.
So I, I see what you're saying. Yeah. Um, I. That being said, I mean, it, it's your choice, right? Handcuffs versus for for less downside risk for three years done versus, Hey, I have as much growth potential as I want, but I have zero handcuffs because at the end of the day, right, it, it's a, it's a it gross margin game.
'cause realistically, right, expenses go up. You don't just eat expenses, you raise your price to match. The rate of your expense increase, just like we see technically, right? If it's chemical, it would be a cogs. Um, just like labor. Your labor goes up, cogs. Sure. Yeah. And so to keep that gross margin the same, you would raise your prices to mitigate for the [00:44:00] increase in cogs?
Yeah. And that, that would make it so that, um, it actually doesn't matter because. Even if, even if price goes up or if, if cost of goods goes up, price should go up. The only downside is like if you, your team is not. Great at selling at the new price. Exactly. Then you have potential for less revenue. Yeah, we have a new price
Chris Barr: now I'm ch now I'm fundamentally changing aspects of the business which have been successful for a long time.
So I think that, I love how you kind of broke it down to bare bones of like, alright, you can either have handcuffs and protect yourself against more downside. Or you could incur a bit of mitigatable downside for unlimited growth potential. I'm like, I'll take option one all day twice on Sunday. Well, I mean, you know, and that's even, that's just the way we operate.
Again, we're, you know, I said, I, you know, again, Marine Corps boxing, juujitsu surfing, I got a lot of risk tolerance on my physical body, but my deal making risk tolerance is very, very low. Like I, we are, we are very risk [00:45:00] averse in that perspective. So if that comes along with some handcuffs. And again, if it's for a time window of three years and the handcuffs to me feel tolerable and negligible, fine with it, you know, I would much rather do that and feel some protection against the downside, um, you know, than have a sexy growth opportunity.
Jack Carr: Sweet. So that's
Chris Barr: just me.
Jack Carr: Clip that. 'cause we will come back to this whole conversation later, I'm sure. Yes, yes. We'll, um, I love it. No, this is, it's, it's, you know, the, the coolest part about ETA is that there's a thousand ways to skin this cat. Um, and realistically the creative portion is up to you. The seller, you can come up with any kind of weird and wacky things you want, and the seller can say yes or no, and they can kick you outta the office, or they can say yes.
And so I don't think this is wacky anymore, as it was when we were just like, Hey, zero, uh, like no, like they have to just trust me. I'm like, they're not gonna just trust you, buddy. Uh, but that being said, you know, I think that you, you've. Generated into [00:46:00] something that's, um, manageable. Yeah. So I'm excited to see, and so we'll hear from you on next week's podcast about which way this went.
And I'm sure there's probably gonna be one or two iterations of notes and then we'll get to like final details, which will be cool. Yep. Sweet. Well. Thank you all for listening. If you like what you heard, leave us a five star review so that, ah, my mom feels that I'm doing something fun and cool with my life and to give Chris confidence to make some awesome deals and go ahead and share, like, whatever.
Come visit us@ownedandoperated.com for some more information. Appreciate that everyone. One.
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