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Episode 122
How To Buy A Competitor Without Any Debt

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Transcript - Read Along Here ๐Ÿ‘‰๐Ÿผ

Podcast Transcription - Apple Are Entering The Hearing Care Market

Hello and welcome along to another episode of the Business of Hearing podcast. Today, I'm going to share step by step how you can buy one of your competitors without any form of debt or a manufacturer loan. Let's jump in.

Welcome to the Business of Hearing podcast with me, Oli Luke, the podcast for entrepreneurial private practice hearing care clinic leaders, the ones who set benchmarks of excellence, build wildly successful businesses, grow their impact and navigate the choppy waters to spearhead the future of private practice hearing care. Thank you so much for joining us. Pour yourself a cup of tea and let's get stuck into this week's episode.

All right, so welcome along once again, it remains a pleasure, a privilege and an honor to have your ears, your attention with me today and I promise to repay it and repay every single minute the best I can because I've got a fair  amount to get through and I'm going to try and  be as concise as possible because this is a chunky subject and this is all focused on how you can buy one of your competitors, if not multiple competitors,  without having to run to the manufacturer for a loan, a unit agreement, etcetera, without having to leverage debt which  is incredibly expensive at the moment without having to speak  to your bank manager, essentially, how can you do this  without having to borrow or leverage money? Now, you can look at multiple companies, right? Facebook is a prime example like Facebook. If I ask you, how have Facebook grown so dramatically? Like, there's some obvious answers, right? They were kind of first to the market. Their timing was perfect. They had a good product but what many people don't acknowledge is the 98 acquisitions they've made along the way, whether it's the acquisition of Instagram whether it's the acquisition of WhatsApp. Similar with Google, right? Google have made 260 acquisitions as part of their journey. Their roll up to create what they have today, like these big businesses have typically been made through acquisition and if you look at many of the biggest practices in our industry, typically they've grown through acquisition. They've not grown organically and there's lessons in that but let's just take this down to a local level like right now, there is an opportunity for you to acquire one, if not more, of your competitors. The question is, how do you do it and why should you do it? Let's start with why and then we'll get to the how. The reason why acquiring competitors is a pretty beautiful way to grow is simply because it allows you to grow, right? Rather than going, okay, I want $600,000 of extra revenue is my goal this year. How am I going to do that through okay, can I work my database better? Can I change my pricing? Can I bring new patients through the door? How about you just go and buy a clinic that has $600,000 of revenue, strap it onto your clinic, bolt it on and all of a sudden boom, you've had that instantaneous growth. Same with margin, same with profitability like the ability to go and grow through acquisition is so, so strong and even in our industry right now, could you acquire staff of a competitor by buying the competitor like there's so many unique ways you could go if you can play this game of how do I just go and buy the competitors where I believe there's opportunity to grow, opportunity to roll into my infrastructure, etcetera like buying businesses is seen as this big kind of guru entrepreneurial thing and only done by the likes of Facebook and Google. Yeah, in fact, any business can go and acquire, even you could start from a standing start. You could go and acquire a clinic today, potentially with no money down, as I'll come to in a moment but even if you've just started a practice, even if 10, 20, 30, 40 years into a practice, if you're looking for growth and you're looking for it in a bit of a unique way or you're looking for accelerated growth then acquisition really is something I would be giving serious attention and thought too so let's talk about how and we are in a very unique position right now and I've referenced this before in terms of the transition of wealth that is happening right now because we've got 10,000 people retiring every day. Baby boomers and I'm speaking US numbers here, baby boomers are reaching the age of 65 at a huge, huge rate, right? We know people born between 1946 and 1964, they've pretty much turned everything into gold that they've touched. Whether it was the music industry in the sixties, whether it was the used car market in the seventies, whether it was the housing market in the eighties, whether it was the home renovation market in the nineties and consumer electronics in the nineties, whether it was and they're now looking for more risky investments so they, I suppose a combination of the HMO market and a lot of property being acquired by that generation or more risky investments that resulted in a .com bubble like, everything they've touched has typically had a big, big mark and they're at an age now where they need to transition that wealth. They're going to be retiring. They're going to need to pass on their wealth to their sons, their daughters, their grandsons, their granddaughters but there is one thing that 19%, one 9% of that generation hold that is a little more difficult to transfer and pass on and that is the businesses that they own because  this generation holds 70% of the disposable income in the country  and two thirds of all property wealth like, they hold a huge amount of the wealth of not just the US but the world and they're at an age where they need to kind of get out. Now, we are in an interesting predicament right now with this ready to retire, 65, 70-year-old type of business owner that the market just doesn't add up. There's far too many businesses and not enough business buyers, which means that the supply and the demand shift is in an interesting spot unlike anything we've seen before and this is where it creates opportunities for you because what I want you to do right now is I want you to think and it may need a Google search. It may need you just to really dive deep into your memory on this one but who are the businesses within your community, within your location, within your vicinity, where the owner is 60, 65 ,70, 75, 80 etcetera. Essentially where the owner is at a point where they should retire or at least approach in a time in their life where they'll soon be considering retirement. Now, I'm hoping there's at least one that stands out and it may not be the most impressive practice in the area. It may be one that is as maybe as tired as the business owner but there'll be one practice that has that setup. They may have a team, they may be a solo provider. There's so many unknowns in this, of course but if you can think of a competitor where there's an aging owner, then this is where I think we need to start.  Because here's what I would do in your shoes. I would reach out to them, write to them, call them, message them, and hopefully they'll know you and I'd invite them out for a coffee, invite them for a conversation, and it may even just be a phone call.  But in that conversation, I'd be asking them how the business is. I'd be learning a little bit about them, where they're at, what their challenges and frustrations are. I'd be being a very good listener and then I almost poised the question of you know, if they know somebody that is looking to exit their business in the near future and looking for a safe pair of hands that can ensure their patients are properly taken care of, then could they let you know, like, even poise it that way, that it's not, are you selling your business?  It's if you know somebody that may be in this position, that is the exact position you're in, and they want a safe pair of hands. I think that's really, really important terminology, then let you know and I think if you plant that seed, whether with this, whether with individual or multiple practice owners, then one of them is going to come to a point, and it may be straight away, it may be in the near future, where they reach out and they're like, yeah, I am looking to exit the near future. This is a prime opportunity for you and let me walk you through the process of where you'd go from there because that sounds like the easy bit, right? The steps are as follows.

First thing is understanding the valuation of that business. Now, there's multiple ways to value a business. You will need at least three years of accounts for the business, ideally audited. I know that's a little more challenging in some parts of the world than others, but if you can get audited accounts, just so you get a very strong understanding of, of the numbers of that business, because there's a key metric that you want to calculate, and that is EBITDA so EBITDA is earnings before interest, taxes, depreciation and amortization and I may have butchered amortization. I always struggle with that word but essentially, that amortization is almost the process of writing off so if it's a property, whether it's a car, it's like writing off the initial cost of an asset so you get that you can. Multiple ways to calculate those numbers. There's online tools in order to do that but essentially you're looking to really pull what is the profit of that business once you've taken away everything else like what is the raw, bottom line profit of that business? And you want to work that number out over the past three years, and you want to average it out now, it may be $100,000, it may be $2 million, right? Hypothetically, just playing silly round numbers but then what you want to do is you want to apply a multiple to it so the multiple in this industry varies, right? I've seen two and a half up to six and it usually depends on quality of the business and this is a good little conversation if you're ever looking to sell your business but number one, how easy is it to take over? Like, is there a team and infrastructure in place? Are you just buying a database like that's number one.

Number two is, are there any kind of assets in the business that have a strong value towards them?

Number three, what is the quality of the business? Reputation, equipment, etcetera so like looking through those kind of things and then make a decision from there and in my eyes, if it's not really got a good team in place, they haven't really got a great reputation and really what you're buying is a patient database or old, outdated equipment, and not too much else, then I'd be looking like two, two and a half kind of multiple. If it's a great business with a good team in place, it'll be easy to take over. You can almost step in the next day then I'd be looking at five, six, seven types of multiples but let's use the game before. Let's say they're doing about $200,000 worth of EBITDA.  They're not in the strongest position. Let's say you're going to apply a free multiple and you're going to value the business at $600,000 like that is the valuation for the business. Next step after that, if you're happy with those numbers and everything stacks up, is deal structure. Now, deal structure is how are you going to buy this business? And this comes back to the subject of this episode, right? Which is all around how to buy without a manufacturer, loan and debt. Now, the unique thing about this market is they're in an interesting predicament because they need to retire. Their business is the asset that the majority of their wealth is tied into. They don't have a lot of other offers on the table.  You've originated this deal yourself. They've not listed the business for sale. They may have received some mailers from manufacturer owned chains, but if they're on this size, then it's probably not in the market for a big group like that to acquire so you have a bit of more flexibility and autonomy around deal structure than you would have 10, 15, 20 years ago because right now the supply and demand shift has happened, which means that this retiring business owner who wants to sell their practice doesn't really have that many options. They can continue to work or they can work with somebody like you who's going to be one of the only options available to them which gives you a little more power to structure the deal in a certain more advantageous way for you and potentially the seller as well and there's three potential ways that you to could buy a business like this. The first one would be an earn out so this basically includes a base payment at the close of the deal and then additional payments made based on performance, usually so you agree, let's say it was 600,000. You say, okay, I'm going to put 100,000 today and I'm going to pay you the 500,000 over the next three to five years.  Based on these metrics being hit like that would be one way to go.

The second would be seller financing. Now this really is the approach you'd want to be going for and would be your utopia because this is where the seller basically extends credit to you as the buyer so you essentially pay the $600,000 over time so how would that work? Well, you say, okay, mister or misses seller, here's what we're going to do.  I'm going to allow you to retire and I'm going to take over the business and what I'm going to do is pay you $600,000 over the next three years so let's just work this out so that would be, I'm going to pay you $200,000 per year, hypothetically. Now, what does that mean? That means you make no profit from this practice unless you grow it. Okay, well, that's pretty acceptable but all of a sudden then they have a structure where you take over the business and they're essentially paid $16,666 per month which isn't a bad deal, right? They retire, they leave, they get paid 16 grand a month for the next three years. They get paid their $600,000 out over three years and if you ever default on the payment, if you ever fail the payment, they get the business back like the risk is minimized for them but you're put in a position where they get paid out over a course of time. Now, of course, you could say, let's do eight and a half over six years, and maybe you bump that up slightly and give them a slightly bigger valuation as a result.  But hopefully you can see, like there is deals to be done in this way if the seller is motivated enough. Now you can apply a little score if you wanted to understand how motivated that seller is and you could call it a mud score. Motivation, urgency, distress like three ways you could rate that business so you know kind of what their mud score is, how motivated they are to sell, how urgent the sale is or how distressed the business is but hopefully that makes sense like that is the way that you could potentially go here.

The third one is an LBO which is a leveraged buyout so this is essentially where you borrow money against the assets of the business to buy the business. A little more complicated but essentially, if they've got a location, if they've got a building, if they've got assets in the building, you could leverage finance off that but seller financing is where I'd be looking to go here and it may be that you do a slight down payment to make it easy for them but this could be a real ideal way for you to explore how you can acquire these businesses without much money down like this may feel like it's exclusive to small businesses, these types of deals. Are you familiar with the football club, soccer club, Manchester United? They got bought out, I think, in 2010, 2011. I may have got those dates wrong through a leveraged buyout so the Glazer family who are a US family purchased Manchester United and it was through an LBO and that club's valued at, I can't remember, like 10, 15 billion right now so these can work in multiple ways but I  would be considering right now, if you can think of that competitor who is looking to retire at  an age soon where they'll be retiring or they're  ready to retire now, having these conversations ensuring they know this is a safe pair of hands, because  you've got a proven track record of running a successful private practice in the area and approach them to gain evaluation of their business and approach seller financing as a potential route for acquisition. I think that could be a really interesting way to go. Worst case scenario, the business doesn't get purchased and you learn a little more about the process right? And get your feet wet but I believe this is a very, very solid approach for growth if you want to play this game or are interested in playing this game but right now, as I look at the market, look at where we're at right now, the supply and demand   shift, the transition of wealth that is happening, there's a big, big opportunity for acquisition in our industry and naturally we see groups like WS, audiology and Amplifon leveraging that as much as possible but the types of practice they're typically after are not   the types of practice I've just explained with the aging owner, where you're really acquiring their database, reputation, maybe one or two members of staff, this is where there's a  big opportunity for private practice to grow their impact as  a result of this without having to run to a  manufacturer for any form of debt but structuring deals creatively so I hope that's helpful. This has been a bit of a learning curve for me. Acquisition has been something I've had my eye on for the past 24 or so months.  Maybe I'm lying there. Maybe last 18 months? Yeah, one to two years probably more steering towards 18 months to 24 months but it's a part of business I've never really understood. I feel most other parts of business I've got awareness of, I understand the acronyms, etcetera, mergers and acquisitions and buying businesses was just this alien world to me, which is why I've thrown myself into expensive programs to really understand this stuff but hopefully I can pass some of this knowledge onto you to help you to benefit and share some of the opportunities that are available and some   of the structures to potentially pursue them so I appreciate your ears once again. Thank you for listening and I'll be back again next week with yet another episode. Speak to you soon.

And there we have it but before you head off to skip to the next episode or eagerly await for next week's, I have three things for you. First of all, if you've enjoyed what you've heard today and want to learn more about our exclusive inner circle to discover how 60 plus clinics are setting benchmarks of excellence in private practice, benefitting from a mastermind of North America's most successful practice owners and having an industry leading marketing team driving gold standard implementation, then go to www.orange-gray.com. That's orange-gray. There's not only a video there detailing how you can win in the next two decades in private practice but it also shares a downloadable PDF with no ask for email address or anything like that, that will explain exactly what becoming a member looks like. Second of all, I strongly feel that private practice is in a very challenging spot right now, where we're the David fighting against Goliaths, made up of large groups, manufacturer owned chains, Costco's and whatever the next heavily funded Whizbang online direct response consumer model will be. I'm a strong believer in a rising tide lifts all boats and the more private practice can fight back at scale, the bigger impact will make so please consider a friend, a colleague, or even a Facebook group, a LinkedIn group, etc. where you can spread the word about this podcast and third and finally, it may be a little thing but a five-star review hitting subscribe will ensure you automatically download all future episodes and help the algorithm to grow the impact of this podcast and at the very least, it will certainly put a smile on my face when I go and look at the numbers so I look forward to talking to you again next week. Thank you for your ears and I'll speak to you soon.


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Competition is healthy…

But if we’re being honest with ourselves, life would be simpler and your business would be a LOT more profitable if you didn’t have to compete, Imagine a world where potential patients only knew YOU as THE Hearing Care Professional to go to.

Anything is possible! ๐Ÿ’ช๐Ÿผ

So…have you ever wondered how you can buy your competitor? ๐Ÿ’ต

Well, in today’s podcast, I’m going to dive into all the details on EXACTLY how you can approach and acquire one of your competitors right now, without having to leverage debt or step into a manufacturer unit agreement.

You’re probably saying “sounds too good to be true” right? ๐Ÿค”

Well, i guess there’s only one way for you to find out, hit play and I’ll let you in on all the secrets! ๐Ÿ˜‰

Have a question you would like to discuss on the podcast?

Shoot me an email to [email protected].

I look forward to hearing from you.

Are you eager to learn more?

You can find some amazing tips and tricks of our members in 2023, head over to ย www.23of23.com ๐Ÿ‘ˆ๐Ÿผ to find out more.

Want to learn more? ๐Ÿ‘€ โฌ‡๏ธ

If you want to learn more about the Inner Circle to discoverย how 60+ clinics are setting benchmarks of excellence in private practice, benefiting from a mastermind of North Americaโ€™s most successful practice owners, and having an industry-leading marketing team driving gold-standard implementation, then visit www.orange-gray.com.

Listen To More:

Free (No Opt-In) PDF Download:
23 of The Best (and Most Original) Ideas Implemented by Private Practice Hearing Care Clinics in 2023

Includes:

๐Ÿ“ˆ A clinic that has launched a premium monthly subscription program that includes community perks, benefits and annual upgrades (yes, ANNUAL upgrades) ... yet earns them industry-high margins!

๐Ÿ“น How one clinic has bought themselves 6+ hours back on the schedule each week by implementing a series of helpful patient videos (that is also winning them patients from competitors

๐Ÿ”Ž How two clinics have built industry-first programs to attract existing hearing aid wearers that are either unsatisfied with their existing provider, or new to the area (and turn this into a profit-center for their business)

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