Time's Up...

Apr 20, 2022

First, I’d like to thank everyone for supporting my writing over the past 2-3 years.

Back in September 2020, I wrote a brief post covering my background. Life as an accountant, then going to work at a fund on the buyside, and then the transition to business ownership. I left that September 2020 post noting 3 acquisitions in late 2019 and a current make up of e-commerce and accounting businesses.

Things have changed yet again 18 months later in good yet unexpected ways…

Where I’m headed with this is announcing my indefinite departure to regular writing.

I will continue with occasional posts but the regularly scheduled commitments will be harder to adhere to. Paid subscribers will see a reimbursement and no future charges, access will remain for all past posts.

Digging deeper into the “why” for a moment…

Back in 2019, my business partner and I acquired a smallish apparel retailer, All American Clothing. We sell blue jeans, tees, and other apparel made and sourced in the USA.

AAC was a $1.9m (sales) business in 2019, in 2020 we were at $4m, and in 2021 it was $5m. In the first quarter of 2022, we decided to double down on the USA Made space and did a small capital raise to acquire a business selling flannel shirts and pants adding another $7.5m in sales. Now we’re a $12-13m business with 5 retail stores, manufacturing, fulfillment, and a large team.

This doesn’t even include our other businesses! A collection of décor brands selling vases, dried décor, and artificial flowers. And a supplier of Montessori education supplies and products.

When we first set out to build this company, we didn’t have the “startup” allure to try and scale something for a massive exit. At the same time, we have a reasonable opportunity to roll up quality American made product lines with a decent organic growth plan. So I’m putting my full weight into this business until further notice.

For some even deeper background…

I’ve seen a lot of conversation on Twitter around being a business owner, buying a small business, etc. A lot of this talk seems very promotional. I don’t know the backgrounds of the “celebrity” SMB profiles on Twitter but my advice is that 9/10 folks should just avoid trying to get into the small business game.

It all sounds great at the tweet-level-view but reality is trying to figure out how to keep the damn thing moving and whether you’re actually making money while doing it. Critical mass is such a real concept and gets lost on people looking to buy a business at 3x cash flow (myself included).

My business partner and I took $57,000 each from our savings and $109,000 from the sale of a trucking company we sold (which we had previously bought for $70,000 in cash from savings) + SBA debt to start our company. We made the decision that we needed to buy a large enough business (or 2-3) to support our salaries, pay our debt service, and retain some earnings. I took a huge pay cut when leaving my W-2 job to work in the business and 3 years later I still don’t make the same wage + benefits. Our initial loan balances were more than $1.2m from the SBA and we had 3 mortgages on our home to make this happen.

Then there’s this notion of a passive or autopilot business. This concept is laughable to me. Someone needs to care meaningfully about the business to keep it moving. I find myself constantly thinking about our company; days, nights, weekends, always. The human element makes autopilot ownership damn-near impossible. Even if you have contractors or VAs running a business for you, someone will need to oversee them.

Maybe I’m too much of a cynic after a few years of doing this… My takeaways at this point:

Get a partner, don’t go into business alone. Too much work to do and tough decisions to make by yourself. You’ll have to work a little harder to feed a few more mouths too.
Bring 2-5x more cash than you think you need. The pitfalls are everywhere, big expenditures pop up out of nowhere, and your key account never pays right when you need them to.
Take a conservative hack at what you think you’ll make. Do your math but haircut everything and all over the place. You’re not being conservative enough.
Plan to be heavily involved. It’s hard to find people that are thinking a few steps ahead and you need to know all the intricate details in order to do so.

This is a great time to share one of my favorite Corner of Berkshire and Fairfax posts:

1) You can buy businesses cheap: 2-5x owners cash
2) You can get unreal leverage (6-12 month payback on owners cash), with personal guarantees (be careful, this steals sleep)
3) Determining owners' FCF is hairy. I've literally spent a month of 7 day weeks, 10 hour days digging through bank statements and credit card statements, talking to finance partners & equipment appraisers to nail down my 90% confidence FCF figure. It's possible, but doing the work is IMPERATIVE. Even so, cut 30% from your best work and exercise some good professional skepticism with respect to seller representations
4) There is real opportunity to buy stable businesses cheap, but you'll need to put 6-12 months into learning every little detail. It's not easy and on day zero everyone knows more than you.
5) Although many small businesses are under-managed, don't underestimate the power of momentum (in other words, sellers have done things for a reason. It could be laziness, but often it's a real hairball problem
6) Don't fire people day 0. I've seen this go sideways. Aim first then shoot.
7) Access to capital / banking relationships is a competitive advantage. Knowing how to manage a capital structure is not a common skill.

To wrap it up — I plan to continue writing, just in a more irregular format.

I hope to share more stories on owning and operating a company too. In the meantime, you can check out our products here:

Value Don't Lie

Time's Up...