Entrepreneur who recounted on My First Million how he bought a $3.4M business for $200K and roughly doubled it within 18 months.
The bag business was doing ~$11M revenue and $800K profit when Dan bought it. In his first full year he grew it to $13.8M revenue and $1.7M profit, more than doubling owner profit.
“On the 13, we did like $1.7 million profit last year.”
Dan Sertner financed his $3.4M packaging-company purchase with an SBA loan, putting just $200K down: $150K from savings and a $50K loan from his wife's 401(k), with their house on the line.
“So we did it through an SBA loan and we ended up putting $200,000 down. I say we, 'cause I say me and my wife because we put our house on the line. Like we went, we went all in on this business. We spent $150,000 from our savings and then my wife took a loan off her 401 for the other $50,000.”
Of Dan's $3.4M deal, $1.8M came from the bank, $200K from him, and $1.4M from the seller as a forgivable note paid over 5 years. If the business underperforms in any year, that portion of the debt is forgiven.
“So $1.8 came from the bank, $200,000 came from me, and then the other $1.4 came from the seller, which effectively we said, hey, like, you know, we're not going to pay this upfront over the next 5 years, assuming the business continues to do well. You know, we'll pay the second part of the business, or sorry, second part of the debt. So it's a forgivable seller note, which means effectively if the business doesn't do what it's supposed to do, that debt's forgiven on any given year.”
Steal thisNegotiate a forgivable seller note so half the purchase price disappears if the business misses its numbers.
Dan's rule: buy from an older owner ready to retire to Florida and play golf, not a young founder. A boomer selling a 15-year-old business has a clean reason to exit; a 26-year-old selling raises the question of what's wrong.
“I want to buy from a guy that wants to move to Florida and play golf. Like, that to me is like, this business has been great to me and now I'm done. I've made my money. I'm ready to go. Like, that's the type of business I want.”
Steal thisTarget retiring boomer owners with no successor; their exit reason is age, not a hidden flaw.
Five bidders competed; the seller wanted $3.5-3.6M and settled at $3.4M. The biggest risk was that a single client made up over 50% of revenue, which is why the forgivable seller note was the most fought-over term.
“Uh, so the biggest kind of, uh, red flag in the business, uh, was that one client was over 50% of their revenue. So my biggest fear, rightfully so, was, you know, everything's great today, they've been a client for 15 years, you know, what happens if next year they leave? All of a sudden it's a very different business.”
Beyond accountants and lawyers, Dan got most comfortable by shadowing the retiring owner several hours a week, walking through packaging and his day-to-day. It turned the CIM on paper into a real understanding of how to run and grow the business.
“And one of the things that I did, um, I think that I'm happiest that I did because it got me the most comfortable outside of, you know, paying for accountants and lawyers to scour things was, um, I shadowed the guy.”
Steal thisBefore closing, spend weekly hours shadowing the owner to learn the operation and de-risk the deal.
Dan is bullish on laser tag, bowling alleys, and arcades: high startup cost but wildly profitable, low ongoing labor (staff with teenagers), and they hold customers hostage on food and arcade spend. As a parent he's a repeat customer and sees room to operate them better.
“I am very into what I'm calling fun-to-run businesses. So I actually looked at a few of these towards the end. I think I found Fleet when I, when I saw some of these like laser tag, bowling alleys, like kind of these family entertainment businesses. And I have kind of two hypotheses around them. One is like, I think I saw like one or two P&L. Again, do your own research. Don't just blindly accept that this is a good space. The one or two I saw, like wildly profitable, very low cost.”
Steal thisBuy a family-entertainment venue with one teenage manager and captive food/arcade spend.
Dan wants the most taboo, unwanted businesses (funeral homes, non-emergency medical transport vans on government contracts). Private equity scoops the easy deals, so 'hair' that scares everyone off (like cremation) is exactly why a deal is available and cheap.
“I would love to buy a funeral home, like something that's just like, oh man, like you work in that. It's like, how do you, I mean, all of the deal, like if you want to find a deal that's kind of like you know, punching above your weight, if you will, like there's going to be some hair on the deal, like at the lower end of the market.”
Steal thisHunt for taboo, unwanted businesses where the off-putting 'hair' keeps competition and price low.