We Thought the Deal Was Done Until the Real Work Showed Up

In this episode, we pull back the curtain on what actually makes a service business valuable—from strategic pricing and employee care to operational systems and SBA financing. This isn't theory. It's what we're learning firsthand while taking over a local plumbing company.

We get into the trenches—talking about the hidden leverage of SOPs, why price transparency matters more than ever, and how backend operations determine whether your business can scale or stall.

We also unpack real-world SBA changes, deal structures, and why goodwill might be the most misunderstood piece of small business valuations.

Whether you’re planning to buy a business, currently running one, or just thinking like an owner—this episode will challenge you to stop chasing revenue and start building real enterprise value.

📌 Key Topics:
 ✅ The three levers that drive business value (and which one is most overlooked)
 ✅ Why raising prices can actually retain great employees
✅ How perceived quality wins customers—even without changing your product
✅ What FF&E, inventory, and goodwill really mean in a valuation
✅ The latest SBA financing rules and how they impact your deal structure
✅ Why most businesses aren't ready for marketing (and what to fix first)
✅ The hard truth about buying vs. operating—and why finding the deal is just step one

The biggest wins come from the boring, behind-the-scenes work—if you're willing to build it right.

🎬 Chapters:

00:00 Bridging the Gap in Business Understanding  
01:05 The Journey to Business Acquisition  
08:30 Investing in Education for Business Success  
14:56 The Importance of Due Diligence  
17:20 Navigating the Underwriting Process  
26:04 Understanding Negotiation Dynamics  
30:45 Managing Employee Relations During Transition  
36:03 Bridging the Gap in Underwriting  
37:06 The Journey to Business Ownership  
39:20 Understanding Business vs. Real Estate Underwriting  
44:01 Investing in Education: The Value of Courses  
50:27 The Importance of Community and Support  
52:28 Risk Mitigation in Business Acquisition  
53:24 Navigating the Due Diligence Process  
01:01:40 Negotiating with Sellers: Finding Common Ground  
01:07:13 Employee Retention and Transitioning Ownership

Transcript

if we turned up the lever on marketing right now and the phone started ringing off the hook, we wouldn't be able to hand it on the back end. And I think that's something that people don't realize is they think that just, if if I have more leads and I would get more business and, but if you don't have the, the, the framework or the foundation established to handle that stuff, there is a such thing as having too much work.

So in commercial real estate and in business, there's two ways to improve the value of a company and that's through increasing income or decreasing the expenses. So when you were underwriting or going through due diligence, what ways did you see that you could do one of those two things? So I would say business, there's a third way, which we'll get to, but I feel like their expenses were

fairly lean, especially once you take out the owner stuff. ⁓

I like everything, I can meet debt service based on what they were currently making. Like I said, that was a big one for me. But for having 12 people, 10 plumbers, I felt that they were undervalued for, their revenue was low. So I think there's a lot of upside for the revenue there. I'll give a prime example.

When I started two weeks ago, they were doing $1,300 for a hot water heater. That afternoon came home and I called like four or five plumbing companies. The cheapest one was $1,800. So they were $500 less than the cheapest company I could find. It's like a 40 % increase. Yeah. And that's just for hot water heaters.

And without any disrespect to the seller, the value right there is just looking at the market at what everyone else is doing. And because he was very involved in the business, he might not have had the time to go out and see what the competitors were He he started off one man of truck plumbing company and he kind of grew it, but

He didn't.

I don't know how to say this without sounding harsh, guess, but.

he's kind of worried about some of the plumbers leaving to go elsewhere while they can get paid more. But then he's not charging more so that he can pay them more. it's like, when you're looking at the customer only, and you're not looking at the business as a stakeholder, if you will, I think it becomes hurtful to the employees.

So when taking care of employees, you said that being able to charge more in order to take care of the employees was your first priority. Yeah, I can't say it's my first priority, but that's kind of my, I'm not going to be the customer facing person. So how can I take care of employees so they can take care of the customers? It's kind of my philosophy. And Jason, he's done a great like,

So I met with each one of them one-on-one, you know, 15, 20 minute conversation. And that was one of the takeaways I got was he does, he takes good care of us. So he does have like a 401k type of stuff. It's not 401k, but basically equivalent for small business. They have healthcare. You know, all those little things that you might not think of in a 10 employee, 12 employee company. So there was things like that.

Most of the people have been there over 10 years. So it was a lot of them have at least. it's.

how to keep them there, keep them happy. And if I can raise prices and give them a little bit of that raise, now we don't have to worry about them going to another company. And I'm not saying we have to charge the most, because like I said, we were at 1300. Some of the people were at 22, 2300 for hot water heaters.

I said 1300, it should have been 1400 because of the tariffs. So the cost of hot water heater had gone up about a hundred bucks recently. So we did adjust the 1400, but I had nothing to do with anything that I did. It just had to do with the cost of materials has increased. So now we're evaluating just pricing as a whole. Well, and I think it's important to say in business, I mean the three,

The three-way arrangement is speed, quality and price, right? And so if you're going to raise your prices, then you have to either be faster or bring a higher quality. And so if everyone's using the same quality materials, the only thing you can do is be faster. so I would say it's today's day and age. A good prime example, we just got up. had a, the storms last summer and all the fences, a lot of fences around here got destroyed.

So ours was, we had one broken area on it. So it was still standing, not a big deal. So we waited until this year to get it fixed. So we go and go to this company, showed up, give us a quote, reasonable quote. But one thing that they did that Valerie absolutely loved was they had texts, they had email, they had all this other stuff that cost them, they had the initial investment in it. I'm sure they pay a fee monthly.

for the software, but they set it up and she's like, ⁓ so awesome. They did this and they did that. They didn't really do anything. It's all in the backend, but they spent the time to set it up. And so it's that. which of those pillars do you think it adds to quality? But it doesn't really change the quality of the product, but quality, the perceived quality, perceived quality is, is. And so how do we, how do we raise that? So like one things.

going with is a software called house call pro. So they'll send out things like that. The plumber just hits a button and it says all my way. And I sends them a text message to say any of the plumbers on his way. pulls from the GPS of the, uh, of the plumber's phone or whatever, the tablet or whatever they're using and says, uses Google maps. And it says, okay, we're 15 minutes away. Plumber will be there in 15 minutes. It tells them all that stuff. And it just,

And that one implementation increases the quality, which justifies the pricing. Yeah. I think that's what I was going to get at. You were saying, ⁓ you know, the two levers, expenses and, in business, there's also standardized procedures. if you're doing $5 million with no standardized procedures and I'm doing $5 million with, ⁓ SOPs, my business,

is gonna demand a higher value than your business because ⁓ someone could come in and hire an operator and not have to be hands-on and not have to pay the extra fees associated with the operator. And so that's kind of another lever that I would say. mean, you could factor that into quality if you want, but it's all.

Yeah, absolutely. All part of the levers. I completely agree with that. And so we've talked a little bit about why you chose a service based business. You looked at the properties you have and it was your biggest expense. Is there any reason in particular that you think that plumbing was the first pain point that you wanted to, or I don't want say pain point, but the- It wasn't. So there was no competitive advantage. It was just the opportunity. It was opportunity. Yeah. I think that's important.

And thing is, I didn't know this until I got into it, but plumbing and HVAC is the same industry. So it's called NAICS, national something. I don't even know what stands for, but it's basically a code of how companies are, it goes for insurance, national for taxes and stuff like that. It's how they group businesses, but plumbing and HVAC is the same company, electrical separate.

So that's why a lot of times you'll see plumbing and HVAC companies together because they're easy to group together. You don't have to like, could just bring on a master plum or master HVAC guy and start each back work today versus electrical. Technically we got to get other insurance and all that stuff. So, so, mean, improving processes, competitive pricing, um, is there marketing value add, um, different, you know, what, what stuff in the back office are you doing?

to expand the business and where do you see the expansion going? So there was no back office. I say there was no back office. There's a office manager who she was a stay at home mom for X number of years. She came in, picked up a lot of stuff. She had never done QuickBooks before. She's kind acting as the office manager, the CSR, the...

housekeeper, know, she's got all these roles and ⁓ but she hadn't really been trained on any of them. Doing a great job, but how can we bring value to her, bring in more people to help her? ⁓ There's no marketing right now, so.

The thing is I would say the company's not even in position to market. Meaning

if we turned up the lever on marketing right now and the phone started ringing off the hook, we wouldn't be able to hand it on the back end. And I think that's something that people don't realize is they think that just, if if I have more leads and I would get more business and, but if you don't have the, the, the framework or the foundation established to handle that stuff, there is a such thing as having too much work.

So, so right now,

we're just trying to the foundation. I say lay the foundation is there. ⁓ we're looking to hire about three people, all, ⁓ like apprentices, lower, lower level people, ⁓ and build that up and trying to firm everything up and then start laying the blocks and building, building the pyramid from there. And so is that the expansion goal is just kind of a horizontal expansion and continue to get more employees, better marketing.

more jobs, be able to handle more business. So yeah, how do we turn pricing up to an acceptable level based on the value? The thing is one man on a truck plumbing company, one man in a truck HVAC, one man in a truck electrical will always be cheaper than a larger business. have really no overhead.

It's probably their personal vehicle that they're driving around. ⁓ Insurance is next to nothing because it's just them. They don't have marketing. It's kind of word of mouth. They're the ones answering the phone. They have 20 jobs that they're doing and they don't realize that they're doing 20 jobs. So they're only charging for the one job that they feel like they're doing.

it's cheaper, but they're probably not as responsive. ⁓ Their services are probably limited. So time, time is a big one. So they can only do one job at a time. Which is why when people go into business, they try and think of how they can service everyone. But that person has a specific client that is, they're prioritizing the price.

over the speed and sometimes the quality. So if someone can get quality service at a good price, then they're going to sacrifice the speed. They might not be as responsible. It might be four days before they can respond to an emergency. Whereas a bigger company can for the right price respond faster with a higher quality of service. So I think that's, that's where those three pillars all come into play. Yeah. And it's the same thing. I call a plumbing company at midnight on a

on Christmas Eve and see how much it costs. Like, but that has to do with the value that they're bringing at that time. Right. And so I just think it's important to, uh, value, you know, put everything synergistically into that value when you're doing your price book. So, well, and so when it comes to valuing a company, um, obviously the real estate had its own value add that to the business. Um, what about, uh, FF and E and other assets of the,

company owns? and I have a second question after that. So yeah, I, one thing I didn't know this until I, joined Cody's program, but which FF and he is for furnishings, fixtures and equipment. Yeah. ⁓ but you don't evaluate that separately. So say you have, so we have an excavator, we got like a little small backhoe thing and then like a real small

track like low one miss like sizes table for getting inside digging inside. We got obviously all the tools, all the inventory, stuff like that.

All that goes into the value of the business. So the eight vehicles, those are all the hard assets that make up the business. Those aren't separate from the business. you mean it's so when in real estate and take the NOI divided by the cap rate, you can come pretty darn close to what the value of the property is in business. You take the EBITDA and RSD. Yeah. Which can you differentiate the two? Really just goes by the value of the company.

I over 10 million, go over EBITDA and then under it's normally SD. And then so how are those numbers calculated? How is SD calculated versus EBITDA? They're pretty similar. It just has to do with the...

Typically what they say is once you reach over a certain point, the business is more, it has an operator, it's more. ⁓

more self-sufficient versus like you're paying an operator salary versus the owner having being part of the operations. Well, and so I was under the impression that you would, it would just be a higher multiple for being a better oil machine. It is. And it's, it's higher multiple. And then also just how they, they're basically the same thing. Like the, numbers aren't that different between SD and it's just what it's called. Okay.

Well, so if you have a one to $5 million business, it might be at a three and a half multiple, right? Of the EBITDA, which is NOI in real estate terms. So if you have a $10 million business, it might be at a four to six EBITDA, right? Which is a multiple. So if you have a 200,000 EBITDA at a three and a half X multiple, it's a $750,000 business.

but if you have a million EBITDA at a Forex multiple, then that's a $4 million business, right? So where are you saying that the FF &E factors in? it in addition to the multiple? Right. It's all lumped in. So I always thought of it as separate. There's a thing called goodwill. So say we'll use your million dollars. So say you have

the company's worth a million dollars, but you have half a million dollars worth of tangible goods. The FF &E plus inventory. products, could be equipment. could be, you know, like for example, water heaters that you have inventory of stuff like that. Well, be, that would be under inventory. So FF &E and inventory are separate. Okay. So FF &E is the trucks, the tools, equipment used for the business. The computers, the racks, the

you know, the, the, the inventory's housed on, um, the stuff in the, in the truck. So that's the FF &E and then the inventory is just the hot water heaters, the pipe, the stuff like that. But that all, cause if you don't have that, you don't have a business. that's why it's all, if you have a million dollar business, you got a hundred thousand dollars worth of inventory, $400,000 worth of goods, FF &E then

half million dollars of the one million dollar business is goodwill. And goodwill is the intrinsic value intrinsic value of the thing brings. And so when you're finding that intrinsic value, obviously we can just take the past three years, historicals, give it a multiple and then determine the value of the business. And then you subtract out the FFNE and that goodwill, you just have to determine. So I guess in your underwriting, how are you determining if that goodwill is

overinflated or undervalued.

Really, it's going to come down to.

A lot of it has to do with what is your growth year over year? your growth gone? have you, you're at 3 % growth and all of a sudden you take a 10 % hit. Like your goodwill is going to go, you're going to have less goodwill. that's why business is so much harder. So if you go to a bank, a bank will probably only loan you about 50, 60%. And that's mostly because- With the SBA.

No, I'm just talking about without the SBA. They'll only lend about 50, 60%. Most, some of them only go 40. So say 40 to 60 % of what the businesses value that. That's because a lot of it has to do with Goodwill. So Goodwill can disappear tomorrow. Banks want the hard, tangible assets. They want the trucks, they want the buildings, they want that stuff.

Another thing that goes into the purchase price is accounts receivable and accounts payable. So if you have $150,000 worth of accounts receivable and $50,000 worth of accounts payable, so that $100,000 delta goes into the valuation as well. So the bank will take that in consideration. As an asset. As an asset. Right. So, cause it is an asset cause it's, you know, money coming in. yeah, there's a lot, but banks don't typically lend and that's where the SBA comes into play.

So on that, if you have a reoccurring revenue model, like a subscription-based business, it's very easy. I think it's much easier to come to evaluation because it's just based on the historicals, the LTV, the lifetime value of customers. You can factor all that stuff in. But in a service-based business, a lot of it is sporadic, right? So if you have one year where you're doing, ⁓

200,000 EBITDA and then the next year is 350 and then the year after that it's 150. Are you going to average the three years or are going to take the individual growth to factor your goodwill? I would probably walk away if it was. Right. So, and that's kind of what I'm getting at is that the fluctuation fluctuations in business are normal, but there's a variance there. Like if you have too big of a fluctuation, then something's not right. so coming to that goodwill number, um, I, and that, and that's something that,

Like the one of the businesses that I have an L Y out on, I'm buying it pretty darn close. There's only like 5,000 in goodwill and the revenue more than supports the valuation we're putting on the business. even though it's not reoccurring revenue, it's I have years of historicals that I can show. My downside is really protected because I'm buying it for the, ⁓ the value of the assets with the depreciation taken into account. So,

I don't, if I needed to liquidate, could just sell the assets and pay off the company. Like it's not a huge risk, but the bigger you're getting in revenue models, the more of a Delta there is between the FF &E and the purchase price, right? So you have to believe that your operations not only can support the goodwill, but also the debt service, right? Because a lot of times the goodwill alone doesn't

meet the debt service requirements, right? Yeah. And so I just watched a podcast recently. there's Alex Hermos. He was on ice coffee hour and they were talking about, so he owns, I don't know, say a hundred companies. He owns a electrical plumbing, HMI companies as well. He doesn't tie his name to any of them. And they were asking him about that. And he said, because when he was selling gym launch,

They tried to devalue the company based on his Instagram followers and said, you have, your goodwill is tied to your Instagram and your name. And he's like, I have a hundred thousand, whatever he had at the time, a hundred thousand Instagram followers and I'm making $4 million. Like the two don't compute to one another. anyhow, but that was an issue for him was key man risk.

And so that is something to watch out for. If you're buying a company and the owner is the face of that company and you're replacing them, then they're the key man. so like the company I bought, McIntosh Plumbing, Jason McIntosh whose name is on the company, obviously he's a key part of it and he's a partner. So it's not as ⁓ big of an issue.

But if you were to buy a hundred percent of that, buy a hundred percent of it. And then like, you're not Jason, you know, so you have to factor all that stuff out and that directly answers your question. But yeah, no, I that's important. But just understanding that, I mean, when, when we're looking at real estate, the NOI might be a million dollars and at a six, six cap, that's, you know, a $6 million property. But if you,

factor in your borrowing, there's negative cashflow there at an 80 % loan to value. So the way that you get there is portion seller financing, adjust your purchase price. There's other things you can do. In business, it's more about the operations that you're doing to continue to meet your debt service. And I know for portion of this, did ⁓ retain ownership for the seller. There is a portion of seller financing. ⁓

So I want to go more into the SBA side of it. I know the SBA made a lot of recent changes that would have probably impacted your deal. So how do you see that going in the future for- So I got extremely lucky and I wish I should have gone with Brady before. Brady is the guy that, the lender that helped me through the bank. But when Trump came into office, they changed some of the SBA rules.

And had I not locked in this deal prior to the change of administration, it would have cost me significantly more than ⁓ what it was. I don't know why. don't, yeah, I mean, I'm not going to go into the politics of it, but I don't understand. All I know is what the bank told me. Like I was extremely lucky in locking it in when I did.

And part of that is, you know, historically small business transactions, it's normal to ask the seller to carry a hefty down seller financing note and ⁓ do holdbacks, know, retain employment, whatever you do. Now I think the seller can only seller finance up to five percent or half of the down payment, whatever you're bringing. So you still have to bring, if you have a 10 % down payment, you have to bring five. They can hold back five.

but now you can't make any interest payments on that for the life of the SBA loan. So you have a five year SBA loan that seller financing note is interest free for the first five years. And there's ways that you can stack it and say, you know, we'll, do a balloon with X, you know, there's, there's ways to do it, but it definitely changes the way that we're going into offers. Like the bigger company that I'm looking at right now.

my initial offer was going to be a lot heavier seller finance. And now that's not really an option if I'm going to go SBA finance. So have to change the structure a little bit. Yeah. It's a SBA changes quite a bit. Obviously it probably changes with administrations and then changes internal to the head. I was watching something just earlier today that they're looking again at changing stuff with an SBA. it's, I'm trying to lighten things up. I don't know.

I don't know. But it's important to be knowledgeable about those things because it changes how you make offers. What's even more important than that, it is so, it changes so much and it's so convoluted, guess be the best way to explain it. Even SBA lenders don't always understand or don't always know the rules. So it's important to shop it. And a lot of times a bank, so you'll go through a bank.

And they'll be like, we can't do that. SBA rules. Well, they'll just kind of be blaming the SBA, even though it's not necessarily true. Right. So you, need to go to different, just because mama tells you no, doesn't mean you don't go to papa, you know, in this situation, because I think I went through four or five banks before I had one bank that said yes. And then they backed out. And then the bank that I'm with now, ⁓ they,

not only did they want it or not only did they prove it, like they wanted them, like we, I felt wanted to go to their bank. Like they, they're like bidding over backwards. Hey, we've got this product. Hey, we've got this man granted at the end of the day, they just see an opportunity to make more money, but they put the legwork in. They're definitely putting the legwork on. Well, and I heard a, mean, these changes can be frustrating and

It will deter a lot of people from wanting to go through the process because of how difficult it's getting and, you know, it requires more equity, whatever it is. But I heard a quote the other day that actually probably was Alex Hermos, you know, sponsored by, but, ⁓ he said that the more difficult a thing is, the more excited he is about it because it means there's going to be less competition because less people are willing to go through that difficulty to see it through. And so with you, what you're saying,

is instead of just giving up after the first, you know, the first no, you kept going to more and more banks and until you got the answer, which is every single time that you had to talk to a new bank, one of your competitors would have given up already. And that was the biggest thing for me. So like there was a lot of prayers going into all this, a lot of, I'm not a crier, but a lot of tears, you know, if you will proverbial. Uh, and one thing that

Like if I had just, and I never said, like my prayers would never be like, make this deal happen. Or it was always like, let me do the work required to get this done. But if it's not meant to be, then slam the door. It's more or less how the prayers were going. And at a point, like it got hard. And I'm like, well, is this the proverbial door being slammed in my face?

And then I don't know where I heard it or if I just thought of it myself or whatever, but

If you want to be a CEO, you got to have CEO problems and all these were CEO problems. So to be the person that owned the business, I had to go through those troubles. so even though I didn't own the business yet, I had to deal with the problems of getting it to the close. And at times it was great when I got to go to Valorant and be like, I know you didn't expect to spend $30,000 right now, but

I got to run a check for $30,000. Like it's a hard conversation to have when you're not expecting to spend that. But you got money back in closing. So it wasn't 76 cents. It was $107. Yeah. I did. Yeah. I said that to you because at closing of the sixplex, I got a decent check back. And so I sit down as a joke. Yeah. That's funny. Well, so I mean, obviously

praying for your success and that all goes well. ⁓ I know it's going to be a big learning experience. Is there any other anxieties or something that you want to share that you're glad you saw it through? I'll say this. think people, I've seen in real estate business, people think finding a deal is the hard part, but that's really just the beginning. Finding a deal and standing through the due diligence.

get it to close. That's really step one.

There's probably 20 things in the first two weeks that I would be easier than it was. You know, implementing software. like, it's software. A lot harder than like, just switch flipping a Yeah. So like they were using QuickBooks desktop and I went to QuickBooks online because I wanted to be able to manage it more fluidly. I pulled over some data from like 2012, the same, like we owe this company a hundred dollars and this other company, like, like nothing pulled over perfectly.

And we're like, so where's this coming from? So now I got to get in there and manage all that. And that's a little stupid stuff. Getting the chart of accounts. Like I want more fidelity on where the money's coming in and going out. So getting all that, um, know, balance sheet, stuff like that. So all these little things that you don't think about, you're like, Oh, it'll be easy. It'll be easy. It's never easy. That's worth it. That's what they say. All right.

Well, keep rolling with the punches and keep fighting. Yeah. Hopefully it works out.