Ep 565 He 10X'd His Money in 3 Years With a Painting Franchise

Colin Morgan (0:01)

Hi there, and welcome back to another edition of Built to Sell Radio, podcast designed to help you punch above your weight in a negotiation to sell your company. I'm the executive producer Colin Morgan. Now, a lot of companies that sell for great numbers aren't really in the business they appear to be in. Take Zac Smith. He was an engineer who bought a CertaPro Painters franchise with three employees and under a million dollars in revenue, putting down about 10% of the purchase price in cash. Three years later, he sold that same business for 1.5 million, all cash at closing. Compare the cash Zac put into the deal with what he got out, and he roughly 10x'ed his money.

It wasn't the painting that made the difference. Zac figured out he could charge more than his low cost competitors without losing jobs, and he pushed his gross margins from 42% to 50%.

He also shifted half his revenue to customers who kept sending him work without him spending more on marketing. John asked Zac how he did it, and what happened when a problem surfaced in due diligence that could have sunk the deal. Without further ado, here is Zac Smith. Enjoy.

John Warrillow (1:15)

Zac Smith, welcome to Built to Sell Radio.

Zac Smith (1:16)

Hey, John. Thanks for having me. I'm excited to be on.

John Warrillow (1:19)

Yeah, no, it's great to have you on. Now, you bought a CertaPro painting franchise, as I was saying to you, before we hit record, I don't think we've ever done a franchise. So, I'm really excited about this conversation. And I'd love to start with the decision to buy a franchise. Like, did you think about starting something on your own, and what made you decide to buy a franchise in the first place?

Zac Smith (1:44)

Yeah, John. So, I'll go a little bit back. So, I was a corporate engineer. I got my degree in mechanical engineering, and kind of went through the whole corporate grind, jumping jobs, starting to work my way up. And after about four years, I just really, I was looking ahead and felt like, I really just want something more for me, my family.

I think wealth was a part of it, but it was more than that, right? It was flexibility, lifestyle, kind of creating my own thing. So I, you know, as most engineers are somewhat risk-averse, and so I looked for probably a year, just franchising, buying a individual, private business, starting something.

And I just, I would, I would run the numbers, I'd have all my spreadsheets, and I was just, I was, I think I was struggling to take the leap. To quit that, that safety. Eventually, I realized I have to do it. Now, there's, there's never going to be a perfect time. I kind of felt like the deeper I got into my career, almost the harder it would be. And so I came across this, this painting franchise for sale in North Carolina. And I got to know CertaPro Painters and the culture. And I felt like this was a business model I could, I could easily wrap my head around. I felt good about the growth potential and kind of what I could bring to the table. And ultimately, I just, I decided to go for it. And yeah, that's what's from there.

John Warrillow (3:38)

Okay, so you bought an existing CertaPro franchise. It's not like you bought a Greenfield, it had revenue already?

Zac Smith (3:44)

That's right. It had revenue. It was smaller, but it was technically established. It was under a million, but it was established.

And so it wasn't technically, like you say, a Greenfield. It wasn't a start from scratch territory.

John Warrillow (4:05)

That's helpful. And how did you value it? Like, were you on a multiple of profit? Like, what did you end up paying on a multiple of SDE or profit? Or like, how did you value it?

Zac Smith (4:14)

It was based on the multiple of SDE. It was right around three times.

The business wasn't doing a ton of revenue. I'm sorry, I don't remember the exact amount, but they were fairly profitable. I mean, I think they were running 25 percent profit margins. And I ended up paying about three times for it.

John Warrillow (4:36)

So somewhere in the kind of high hundreds of thousands? Yep. Okay. And so how did you structure the acquisition?

Did you get the acquirer to roll some equity or agree to take some of their payment over time? Like, how did you structure the acquisition?

Zac Smith (4:55)

I had a small seller note.

I think it might have been 10 percent of the overall price. I put in 10 percent and the rest, I got an SBA loan.