E235: How to Buy and Manage Multiple Businesses with Little MoneyMarch 28, 2019 in Ecom-Crew-Podcast
When Shakil Prasla graduated with an MBA and had no idea what to do next, he decided to venture into the world of ecommerce.
He bought his first business for $52,000 and made the money back in 6 months. Fast forward to today – he has bought a total of 12 businesses under Pro Click Ventures, with his latest purchase being worth $3 million.
In this episode you’ll learn:
- How to get financing when buying ecommerce businesses
- How to earn a seller’s trust and get seller financing
- What to look for when buying a business
- The importance of being like a detective when doing due diligence
- How to hire a CEO to manage the day to day activities of the business
- The best way to handle the transition from the old owner
- How to handle cash flow while servicing the debt financing and paying the CEO
- Incentives to get the CEO to stay
- Tips for buying ecommerce businesses
Shakil is still buying more businesses and looking for CEOs to manage them. If you want to reach out to him, you can email him at [email protected]
Thanks for listening to this episode! Until the next one, happy selling.
Full Audio Transcript
Intro: This is Mike and welcome to episode number 235 of the EcomCrew Podcast. You can go to EcomCrew.com/235 to get to the show notes for this episode, or leave any comments you might have for us. I think you guys are going to really enjoy this episode. I know I enjoyed recording this conversation with Shakil. This guy is the superstar of e-commerce and buying businesses and trying to leverage them to do what’s called valuation arbitrage and a bunch of other stuff. Really smart guy, really nice guy, I’ve enjoyed being in his company the couple times I’ve been able to meet him, and looking forward to being able hang out with them in the future.
It’s always great to hang out with other really smart entrepreneurs, you can learn a lot from them. And I think you guys can learn a lot from this conversation about how Shakil is purchasing companies, rolling them up into a larger master company, trying to buy them in the typical 3x multiple that you see businesses going for these days, and then hopefully selling them at a much higher multiple to a private equity in the future. Even if you aren’t interested in buying businesses or selling your business or these types of things, I do think you’ll find the conversation interesting, because if you’re listening to this podcast, you probably have or are interested in creating an e-commerce business.
And this stuff is important to be thinking about at all times, not just at the moment that you’re looking to buy or sell your business. So, I hope you guys enjoy this episode with Shakil. Before we jump into today’s episode, I do want to mention just one more time, the EcomCrew mastermind. It’s coming up really soon folks. If you’re going to be in Asia, in Guangzhou for the Canton Fair or in Hong Kong for the Global Sources Summit or the Global Sources show, come check out our mastermind. It’s a full day, April the 26th in Hong Kong, on the Hong Kong Island side. I think you guys, if you’re going to be there, we’ll have a great time.
Last year was the first time we did anything like this; we’re going to do it again this year. We sold out last year and we’re really close to selling out this year. We’re trying to do a last push here to sell the last couple of tickets available. It’s a great opportunity to meet other like-minded entrepreneurs, talk about things that are working well in your business, and get advice from people all across the board from different spectrums on things that you’re struggling with.
And we typically use the format of you share one thing that is working really well for you, and then we have a question that you can ask to Dave and I and the entire group to get advice on. It’s really valuable. And if you take away just one nugget from something like this, it’s worth your time, but most likely will take away a handful of nuggets. And the price of the tickets are super cheap. And if you’re an EcomCrew Premium member, it’s even cheaper. So, go over to EcomCrew.com/mastermind to check that out. And we even include lunch and a couple of drinks afterwards. I think you guys will have a great day. All right, on with today’s show.
Mike: Hey Shakil, welcome to the EcomCrew Podcast man.
Shakil: Hey Mike, glad to be here. Thanks for having me.
Mike: Absolutely. So a little backstory here, Shakil is a member of the Ecommerce Fuel community. We actually met for the first time at Rhodium Weekend where we were both speaking. And ever since I’ve been wanting to get you on the podcast, but someone else just reminded me after coming back from ECF, you should get Shakil on the podcast, he is an interesting dude. I’m like, I couldn’t agree more. So, it’s great to finally get you here.
Shakil: I appreciate it, to thank you.
Mike: Yeah, of course. So, we were just kind of doing little pre interview here about things we could talk about. And it was it was quick, because you came up with three things that I think are awesome topics that I actually want to just spit ball back and forth with you, which were managing multiple companies, something that we have done poorly. So, I’m curious how you’ve done it better than we have. How to hire a CEO because I think what you do is you put people in place when you buy these companies, and how to finance these purchases. So, those are kind of the three overarching things we’re going to talk about today. But before we get into those three things, maybe just take a minute to introduce yourself and how you got involved in e-commerce and all that good stuff.
Shakil: Yeah, so let me start by where my journey began. So in 2012, I had just graduated with my MBA from Austin and I did not know what to do next. So, I went online, I googled top jobs to have. And I was just researching and I came across I guess a description where it said; own your own e-commerce business. So I thought this was kind of cool. And then I started going down this rabbit hole of how to create an e-commerce website, what to import. I went to Odesk, which is Upwork now at the time and started hiring folks. And I didn’t have a product.
So, I went to Canton Fair, which is the world’s largest trade show in China. And I went by myself for two weeks, walked all the booths, started looking at products. I honestly did not know what I was doing. I just knew that I had that I wanted to start importing products. So I started off small. I started importing cufflinks and tie clips and watches, just men’s accessories, built up my website. Again, I had no background in SEO or marketing or anything, I was just really just teaching myself how to do this with very limited money. And so the shock clock on me were my funds were going to run out, I probably need to go find a real job, so just sort of self-taught myself.
And it took about a year to really make things profitable on my website. And everything I learned in those 12 months was good, but I sort of wanted to try something new. So, I was at a crossroad of do I want to be a consultant to teach people how to create websites? Or do I want to get into franchising? Or do I want to just buy a website? And so, I started looking at brokers and I came across a Quite Light Brokerage add. I went to their website, signed up for their listings. Two months later, I came across a listing I really liked. It was a company that was just selling on their website, no Google Ads, no Amazon, so I figured this is pretty cool. Let me buy this company. And I did.
And all I really did was just turn on my Google Ads, sold on Amazon and I made my money back in six months. And so, at that point I was like, this is kind of cool. Let me keep finding new opportunities. And so fast forward to today, we’ve acquired 12 companies. I have a parent company called Proclickventures.com, which shows all of our brands. Now, my first purchase was $52,000, our last purchase was over $3 million. And so that is the journey where I came from and it’s just creating something and now I’ve just been buying and along the ways I’ve sort of strategized on how to run multiple things at once.
Mike: Yeah, that’s an amazing story. And so, you started in 2012. What year did you go to the Canton Fair, was that 2012 as well? Was that a little bit further from that?
Shakil: That was 2013. I believe I went — yeah, I went to the spring one in April 2013.
Mike: Got you. And then, so a year later, you kind of had things taken off. That was 2014. So what year did you buy that first company?
Mike: 2014, so in the last five years, you’ve acquired 12 companies. And the last one like you said was for 3 million plus. What’s your like total revenue now as a conglomerate?
Shakil: It’s over 25 million now with all the companies.
Mike: Awesome. And so I mean, I think the three things we’re going to talk about, I think the natural segue here is to talk about how to finance all this because obviously, you’ve used other people’s money to get to where you are. So, let’s talk about that first. I mean, how did these building blocks come to be? Because obviously, it wasn’t — you couldn’t just go out and buy a $3 million business on day one. So you’ve had to do quite a bit to get to that point. So let’s talk about that journey real quick.
Shakil: Yeah, yeah. So, when I first started buying businesses, I was like for the first one, when I bought it, I made my money back in six months. So the second one, I did a cash offer for that. But at a certain point, once you start getting bigger, you don’t have that much money saved, because you’re buying inventory and just overhead and stuff. So at a certain point, I wanted to keep going larger, but I didn’t have any much funds. So I started looking at other types of way for financing. So, during the years, I’ve tried several different financing, any possible way to get money I’ve literally tried. I think the most popular one right now is the SBA loan financing, which is pretty much any bank will give to you.
I just make sure that they’re SBA, a partner, or they’re approved to give those SBA loans just because the process of getting SBA loan takes a very long time. So the cool thing about SBA loans is you could buy a business with only 10% down. So, if you buy a million dollar business, you only have to have $100,000 down. 80% of that would come through a bank, and usually the other 10% comes with seller financing. So, I’m going to try doing quick math in my head. But usually, if you buy any e-commerce website, on average, they’ll go for about 3x net profit, anything doing under around under a million dollars in revenue, right?
So, if you buy something for a million bucks, that should be netting you $333,000, right? So that’s a 33% return on your money. And if you could borrow at prime plus two and a half, that’s 7.5. So you’re borrowing at seven and a half percent, you’re making 33%. The math definitely checks out there. So SBAs are a great way to get loans. The only thing that you would need to do is make sure that the company you’re buying has at least two years of tax returns. And there’s a few other requirements but that’s generally the first one is making sure that they have a two year tax returns.
Mike: Got you. And then the 10% seller financing, how does that work? How do you typically get that on the seller, what do you ask for there?
Shakil: Yeah, so the seller is pretty much trusting you, they’re acting like a bank to give you money. And so we generally on our asking price, we will tell them that we’ll need partially seller financing. And the way to really win the seller is what we like to do is we come up with an LOI, Letter of Intent along with a background on who we are, Pro Click Ventures, we’ve bought this many companies, your sort of a high level balance sheet. We want to make sure that we’re paying you guys on time. So, it’s just different ways to really win the seller, whether it is through building their trust, showing them that you can make the payments or just building empathy is a great way.
But if the seller is motivated to sell, more than likely they will provide seller financing. However, on the other hand, if there’s a lot of buyers out there, it’s very less likely that you will get seller financing. Most probably the seller will go with the cash deal. So those are just a couple of things to keep in mind. It just varies deal by deal. But yeah, seller financing is another popular one we use. We do earn outs or holdbacks, which is you hold back a portion of the asking price based off performance. I’ve also kept the seller on as a equity partner, because the seller has a huge amount of knowledge from starting the company to where it goes today. So, I love to just leverage their knowledge and just keep them on and let them ride on the upside of things as well.
Mike: Yeah, makes a lot of sense.
Shakil: So yeah, I mean, those are some popular ways we do get financing.
Mike: The 12 companies you’ve purchased so far, I mean, have they all been a success or has there been a couple like black eyes along the way?
Shakil: Yeah, honestly, we’ve had a couple that did fail. And those were early on, when we did not do a good enough due diligence. I think that’s another key thing is whenever anyone’s acquiring a business, you have to make sure that you do good due diligence. I like to say that I’m playing a detective and just trying to make sure that the financials, the operations, the traffic, the technical side of things, all are verified from what the prospect has showed. But yeah, twice, we’ve had companies go downhill because we didn’t do a good job verifying where the traffic was coming from, a lot of black hat SEO and the financials were commingled with another company, which they didn’t explicitly tell us. So yeah, you learn and you get better at things.
Mike: Yeah, everything’s a learning experience, but it definitely sounds like you’re on the right path. And I mean, if you’re financing with 10%, down, you can have a pretty good growth trajectory and continue to do this. So I think that year over a year, you can continue to buy more and more. So it’s going to come into the next thing, which is how to manage multiple companies like this. And I guess the second part, which is how to hire a CEO to run each one. So I mean, are you hiring an individual CEO for each one of these companies that you buy or do you have one of them that manages two to five, or what’s kind of your outlook for that?
Shakil: Yeah, so any of our companies that are doing under $250,000 in net profit, we’ve had one CEO manage multiple companies, but anything above that quarter million dollars net profit, we have a dedicated CEO in place, or a general manager. Generally, the people we hire are people that have had some type of project management background or digital marketing background. They have some kind of track record of showing that they have scaled campaigns, scaled companies. And so, those are the people we hire. And the incentives that we use is sort of a little different from other what other people do, we have a base salary, and we keep things very competitive, we give good benefits. We also do an anniversary bonus.
So every year that you stay on with us, we give you a bonus, a guaranteed bonus on that. And the reason why we do this is because we’re spending so much time training this CEO to run the company and automate things, we don’t want them to be leaving either. And a third incentive is we do performance incentives. So we let them — they’re part of a profit pool, where they could also collect an extra bonus based off the growth of the company, as long as the margin stay the same. So they get the upside of that as long as they stay with us, they get a bonus. And then they get a very competitive base salary as well.
Mike: Got you. And do you have like all these CEOs working out of one place or do you find them all over the country and the world?
Shakil: Yeah, so generally, our end goal is to have everyone working from our Houston office and then selling the whole portfolio to a private equity firm. But right now, we have an office in Austin, Euston and Virginia. And that’s because that’s where the companies were located before. That’s where their staff was, or their servers were. And so we’ve kept it there, in those three cities.
Mike: Got you. So the idea would be eventually maybe to coax all those CEOs to move to one place as a part of some incentive to do that.
Shakil: Yeah, exactly. I mean, in our Euston office, we have a lot of shared resources with our SEO and digital marketing and graphic designers and customer service, so we definitely want to leverage that and build economies of scale.
Mike: Yeah, makes a lot of sense. That’s how we’ve had our stuff set up. I mean, it makes it great when you’re running everything together at such a point in time that you ever want to sell one part of it, it makes it really difficult. But it sounds like your goal is like you said is to sell this as one thing to a private equity.
Shakil: Yep, exactly.
Mike: So what’s your like long term trajectory and timeline for that? I mean, what’s — its 2019, you’re obviously still acquiring stuff? What do you think your timeline is for like the last business you’ll acquire and how long you’ll run everything without making acquisitions before you try to sell it?
Shakil: Yeah, we’ve created internal timeline where we’d like to sell in next 24 to 30 months, so two, two and a half years. And the only way we could actually get to that level is make it seem like all the companies work together. Right now, everything is kind of in silos, but we do have shared resources. So the next 24 to 30 months, we want to make sure that all the companies are functioning together, all the resources are being shared and that way, we could also scale our companies. One of the main things I think private equity firms are looking at is also the income side of things. So we’re trying to get to 5 million EBITDA in the next two years, and hopefully that will attract sort of the lower market private equity firms to at least take a look at us.
Mike: And I mean, the good thing about private equity is the multiples way hires, you’re buying it at three X, what kind of multiple Do you anticipate getting from private equity?
Shakil: The minimum five and we’re aiming for seven to 10x. So you’re spot on, on what our strategy has been and that’s to buy websites out of 3x multiple, and just get a bunch of them together, make it seem like it’s one big company. And then kind of that in Amazon I have what is the retail arbitrage. I’m doing a multiple arbitrage with our model.
Mike: Yeah, makes perfect sense. So I mean, the thing that would stress me out along the way here is that the things that could go wrong, obviously you have a lot of debt along the way that you’re accumulating, how do you compartmentalize that? I mean, obviously it’s good business. I mean, it’s certainly good business decisions, but I’m a debt averse person. So like any of the debt that we’ve had in our businesses always been like on my mind just constantly keeping me up at night because you’re servicing debt payments. And at any time an Amazon account could get shut down, or you could get sued or the economy crashes or some weird terror thing sneaks in there. So how do you deal with that and what do you think your risk exposure is on that side?
Shakil: I would lie if I told you that I never think about that. Our monthly payments are over easily over six figures a month. So that part definitely stresses me out. And then I have a newborn as well.
Mike: Yeah, supper cute by the way, we will give you the cutest baby award at ECF this year.
Shakil: Thank you. Yeah. So, just having a family and stuff, you start looking at things differently. When I started this, I was single, I had nothing to worry about it and now there’s a family. So my risk tolerance has kind of gotten a little more conservative. But I do know that here’s my two year, two and a half year goal. And honestly with e-commerce being such a great investment compared to the different vehicles out there, I’m going all in. And so my stress is there, my worry is there, but I think the one thing I think good at is I don’t micromanage things that much.
So, yes, I could grow this company by this much, or yes, there’s this opportunity, but I like to focus on the top two, three goals per company, and just kick ass in that sort of field. So that is I think one of my good points is I don’t really like to micromanage things. I just look at a few things going for each company and will execute and implement on those strategies only.
Mike: Makes a lot of sense. And you got the CEO there to worry about the details.
Shakil: Yeah, and it is hard with the CEO. I’m buying a company, then I’m carrying debt, and now relying on a CEO to make sure that my investment does well. So that aspect does get a little tricky sometimes. You have to make sure that the person you’re hiring is actually good. And just doing a three round interview doesn’t cut it. One thing I forgot to mention is we do keep each of our CEOs on an initial contract basis to make sure that they work out for us and then give them the full time employment as well.
Mike: Got you, so how long is the contract part for? Is it like three, six months or something like that?
Shakil: Yeah, we keep it for three months. And during that three month period is also where we keep the old seller on a consulting basis. So we transfer all that knowledge to the CEO, who then runs the company. And that’s why we have that kind of bonuses for those one year, two year, three year just for staying with us.
Mike: Got you. So like you’re under LOI, you’re out there looking for the proper the right CEO, you’re telling the seller, hey, look, I need you to stay on for 90 days after the sale, do you compensate the seller for that or just a part of the LOI.
Shakil: It’s part of negotiations generally. By default, they stay on for 30 days, and then it’s usually some type of consulting agreement, but we do push for the 90 days. If we’re not able to get them for 90 days, then we’ll get 30 days for free and then the 30 to 90, we’ll just pay them an hourly rate. And it definitely is worth when you have the seller’s knowledge and the amount of stuff that they know
Mike: Yeah absolutely. I mean, it’s interesting because there’s all these things in the business, you just take for granted, like you don’t think that they’re important or whatever, because you’re learning them or experiencing them one day at a time. When you got to do what a data dump or a mind damp to someone else, it becomes like really overwhelming and you realize how many little things are involved in your business. It’s almost like trying to explain the game of baseball. It’s like baseball is super simple on the surface, but then you start getting into to all the little exceptions of it’s a strike when it’s a foul, but except when it’s a third, the third strike, then it doesn’t count, you’re out. But if it’s a back [ph], you jump the ball on the third strike, then you got like third. There’s all these little idiosyncrasies that you have to explain. And that’s the part that really makes the difference.
Shakil: Yeah, I absolutely agree. I’ve had been through so many countless deals where if the seller is not willing to help me out take over the business, then they just kind of hard to even going forward with the transaction. It’s either they’re hiding stuff or whatever it is. But those details definitely count in making sure that the business runs successfully.
Mike: Yeah, so you’re overlapping, you got the CEO who’s starting day one of the other transition the day that the transaction closes, and then you have that 90 day, handoff period. What happens when — because I’m sure this has happened, like when there’s — you made a real hire on the CEO, now you’ve like lost your window of time with the company that you bought, the old owner is like I’m out of here, and you’re kind of on your own? Is that is that situation happen and if it has, what have you done with that?
Shakil: Oh, yeah, that’s definitely happened. And so, now you’re stuck with the seller gone, the CEO now working out, here is your business. So the only thing we can do is I have to step in and I have two other partners, we step into the business, we have to take our hats off from being a board of directors and become the CEO or run the things until we find a substitute.
During this whole transition period with the CEO, one of us will shadow and make sure that we also learn it that way. We’re able to come up with growth goals alongside with the CEO as well for the first the next 12 months. But yeah, we just have to step in until we figure out a replacement. And that is when it gets stressful because not only now you’re running a business, you’re overlooking 11 other businesses. So that aspect does get stressful, but it’s sort of a part of our game.
Mike: I mean that’s what happens when you’re in a business. I mean, I kind of knew those answers coming in but just curious if you had some super-secret way of handling it. I wasn’t thinking about — yeah, it’s the buck stops with you at the end of the day.
Mike: So another question I had here like, I mean, there was kind of like looking at the numbers, the math, you said if the business has more than $250,000 a year in net profit, let’s just say it is 250,000; you hire a CEO to manage that? How many other resources does that CEO get? Are they allowed to hire or is it just them running it like a solopreneur basically at that point?
Shakil: Yeah. So when you buy any type of even Amazon, or e-commerce or any type of business, the business is valued off the seller discretionary earnings. So if it’s making $250,000, and I pay the CEO 80 grand, my take home is now 170. So it’s not making sense. Or I guess the value of the business is going down, right. So I always keep an ROI on the CEO to make sure he makes this work. But I do give them the resources to really grow the company. So for the first six months, on that example, if it’s making 250,000 a year, that means it’s 20,000 a month, and the CEO is taking 7,000 of it. So I have $13,000 to play with.
And let’s say 5,000 of that is going towards debt financing. With that leftover eight or seven grand, I am testing out new campaigns, whether it’s through Facebook, or Amazon, or buying new inventory, or Google or email campaigns. In the first six months, we’re just making sure that we’re at least breaking even, and spending on whatever resources we need to grow the company whether if we need a new customer service person, or an expert or SEO or agency to run campaigns, we do have that wiggle room to play with. And that’s because I’m okay to not take home any money, because I do have cash flows from these other businesses. And so that allows me to just pretty much go all in that business and see what works for the first six months. And then months six to 12, we like to implement those things, automate those things, and let the CEO keep running with it.
Mike: Interesting. So it sounds like your approach, we didn’t cover this, it sounds like your approach is very different now than the first business you bought back in 2014. Back then you sound like you were trying to preserve the profitability of the business and effect grow the profitability, you made your money back in six months. It sounds like now you’re really mostly concerned with servicing the debt payment, making sure you’re not underwater from a cash flow perspective. But you’ll take whatever profit is in the business and reinvest it aggressively in profit preservation in the short term, or getting your money back in the short term isn’t really the goal anymore, it’s the longer term what can I get out of this thing and how am I going to basically add to my accumulated, incremental growth here of all the companies in this business?
Shakil: Exactly. I think my mindset is a lot different now than it was before. Before it was just, how do I make my money back as quickly as possible, and now it’s a little more about building that equity, building that value in the brand. Because I’m buying at 3x and I’m anticipating a much higher multiple in the future as well. So I’m okay to just invest my cash flows for future growth in the value.
Mike: Yeah, makes a lot of sense, so really smart. So one of the things you covered here was the debt financing, servicing the debt financing, I think people would be interested to know the structure of this. So let’s use that million dollar business, again, that million dollar purchase price, I should say of a business that you mentioned earlier. So it’s probably something that’s generating, $333,000 a year in net profit. There’s 10% down, we covered that, so you’re going to have to come up with 100k out of pocket. You’re asking the seller to finance 100k of it, which we’ll talk about in just a second here, but the other 80% is going to be an SBA loan. So, what are the terms on that and what are the monthly payments look like compared to the existing net profit? What percentage of the net profit per month is typically coming towards the debt servicing?
Shakil: Yeah, so let’s give an example just going on with that example. So if the business is making 333,000 a year, monthly it’s probably 28,000 a month. On an SBA loan, and these are the terms that they will give any internet asset, it’s 10 years. And it’s usually prime plus 2.5 or 2.75. So I think the prime is at 5% right now, so your interest rate would be seven and a half percent for 10 years on that 80%. And so, if you’re borrowing 800 grand for 10 years, I think the monthly payments on that should be around like 13 grand a month. I’m doing this all in my head.
Mike: Right. Sorry I put you on the spot here.
Shakil: So the business is making 28 grand, out of which 13 grand is going towards the debt payments, so you’re left with 15 grand. Now, just a quick math here remember and then out of that 15, I think like, let’s just say 1,500 of that goes towards seller financing. So now you’re left with 13 grand going into your pocket, right? So 13 times 12 is $156,000 a year, but you put down 100 grand, so you make your money back pretty much in that seven to eight month if you’re running the business, because you borrowed this money, you put down 100 grand, you’re making $156,000 after all debt payments.
So that math, I think makes sense for anyone that is willing to take on the debt. And if you’re not willing to run the business, if you just want to use it as a passive cash flow, then you have to find someone that is good enough to run the business. And your take home will just go down a little bit.
Mike: Yeah. So are the SBA loans personally guaranteed? I assume not just by the nature of the fact that they’re SBA loans. So if you do make a really bad debt here and the thing goes defunct, you’re not out anything more than the 100k you put in to begin with?
Shakil: Yeah, so you do — there’s no collateral, but you do have to personally guarantee the loan. So yeah, that’s I guess the downside of things is, yeah, if you do default, you are liable for that whole amount of money that you borrowed. So that is sort of the downside of things is the banks do want to keep your skin in the game. So you do have to keep a personal guarantee. A few other things that the SBA will require you to do is keep a life insurance as well. So if something happens to you, I do have to buy life insurance for the amount I borrowed.
So for my SBA loans, like in this example, I’d have to get a life insurance for 800, grand as well. There’s few other insurances too like if you get suspended off Amazon, that insurance would kick in, or if Google algorithms change, there’s some type of insurance that kicks in as well to help kind of provide that income for those few months.
Mike: Got you, interesting. And so I mean, in terms of the amount you can qualify with the SBA, are they looking — like let’s say it’s your first SBA loan, you’re just getting — people hear this podcast, like man I want to get involved with what Shakil is doing but I don’t have a lot of money, like I have $100,000 to my name and this is what I can invest. Is there – do you have to have equal amounts of assets to be able to do this, or they’re willing to kind of be in the red a little bit?
Shakil: So when I spoke to Stephen Spear, who was my lender at Bank United, they mainly look at the debt to income ratio of the business. So they want to make sure that the business, it has enough cash flows to pay the debt payments every month. I know that’s the biggest thing. But they do look on the personal side of things of me to make sure that I have a good credit score, that my income is there. So they do check those two things, but the biggest one is to make sure that the business you’re buying has the income to service that debt.
Mike: Got you. So that’s probably why you’ve been able to continue to accumulate more and more of them, because as long as each individual business at the time of getting the loan, has the right balance between debt to income, they’re going to be okay with it.
Shakil: Yeah, absolutely. I mean, especially if someone is buying like an Amazon business too, I mean, there’s a lot of — over half the businesses for sale right now are Amazon FBA based, and so there’s a lot of SBA banks out there that are willing to finance these type of deals. Again, they’re going to look at the two year tax returns. So even though your cash flows may be low and stuff, some of these banks like the one I just mentioned, look at so many deals where they understand either the cash flows, and they’ll do add backs to make sure that the valuation will come close to the purchase price as well.
Mike: Got you. Very cool man. Yeah, it’s a great story and I definitely wish you the — like all the walk. I want to do a follow up with you like six or 12 months from now and see where things are kind of going and heading. And you mentioned you’re based in Austin, I’ll be down there, I’d love to come meet you in person down there and talk about this more, because I think it’s fascinating. It’s interesting to me because I think that every business goes through cycles. So for me, I’m in this — we were in this like high growth phase for five years, and we did all the financing ourselves.
I mean, we just did everything in-house either with our own cash or with our own resources for other loans. And I’m in this phase now; I just want to start collecting some money and see some fruits of our labor. So we’re a few years ahead of you in that regard. It sounds like you’re going to be at that stage in 24 months. But the thing that I absolutely love about what you’re doing here, I think that each one of the businesses is a good investment individually when you think about the roll up and private equity factor of going from 3x to 7x, my god man it’s just, the online potential there is insane. And if you can continue on the structure, you’re looking at a nine figure exit.
Shakil: Yeah, that’s the goal. Everything sounds good on paper and stuff, but we’re going to definitely push for it and try to exit at the highest possible valuation for sure.
Mike: Yeah. Yeah, that’s awesome, man. Definitely cool stuff. So cool, anything else to add? We’re already over time. I apologize for keeping you, but anything else to add do you think that we didn’t cover?
Shakil: No that’s it, I think whoever is looking to buy a business, have patience, that’s the biggest thing is look at multiple deals, look at multiple prospects. If you’re in the animal pet industry on Amazon, try to find the same vertical that’s on e-commerce. That way, you could combine those two together and possibly get a higher valuation. I mean, these are just different tactics. But definitely have patience as you go through the deal cycle. And I’m more than happy to help anyone out if they have any specific questions.
Mike: Awesome. That’s definitely nice for you to do. And also you’re looking to buy businesses as well. So what niches are you looking to buy, if anyone’s listening out there that might be a candidate for you to buy?
Shakil: So I need any — right now we like to use consumer product goods, anything that’s custom products as well that’s been around for at least three years, has at least a profit of $250,000 or more are the businesses that we like to buy.
Mike: Got you. And also in terms of — you’re looking to hire CEOs it sounds like pretty frequently. So if there’s anyone out there listening that has had enough of like doing their own thing, or they’re not quite because lot of people that we have listening are just getting started or want to get involved in this. If you aren’t quite at that stage or want to learn a whole bunch about e-commerce over the next couple of years before this role up sells, it’s another opportunity. So what’s the best way for people to get ahold of you if they’re interested in either one of those two things?
Shakil: So you can email me at Shakil, [email protected]roclickventures.com.
Mike: Perfect, [email protected] And can we end on — there’s a story that I know of from just kind of out there in this ecosphere. I’ve heard this story but I don’t know it specifically. It sounds like at some point you’ve actually got to meet Shaquille O’Neal. How did that happen?
Shakil: That’s a great story. That was at Rhodium Weekend back in October. So we were at a…
Mike: This last year?
Mike: Oh man, I could have met him too, I missed it.
Shakil: Yeah, there was a bunch of us getting together and someone comes up to me saying hey, you’re not the only Shakil here. And we look over the bar area and there’s Shaquille O’Neal just walked in and apparently he was trying to promote his new chicken restaurant in Las Vegas. So I go to the — and I’m really nervous because I’ve never met him before and I have the same name as him and everyone calls me Shaq because of him and I’ve idolized him growing up, memorizing all these stats and stuff. So when I saw him, I sort of froze and I went on the opposite side of where everyone was. And so, I’m on the other end where no one is and luckily Shaquille O’Neal walks that way and I guess he wanted to avoid the crowd.
And so he walks past me, shakes my hand and the only thing I could muster out is to say hey, my name is Shakil too. And so, he stopped and looked at me, he’s like, no, it’s not. I said, yes, it is. And I pull out my driver license to show him that my name is Shakil and he’s joking around saying you’re the first Shakil I met. And he takes a picture with me and then his [inaudible 00:41:38] makes me sign. I’m kind of concerned saying that they could use my images and stuff, and I said sure, but that was fun. That was definitely great.
Mike: Yeah. I don’t really get starstruck meeting people like that. But I’d love to meet him just to see how freaking huge he is in person because the guy is like a beast. I probably will look like a midget next door.
Shakil: He did this awkward hug to me where I’m used to people hugging me and then touching my chest. And this time I was like touching his like stomach area.
Mike: Right crazy. That’s cool, that’s a great story. I wish I was hanging out with you guys. That’s why it’s always good to go out to events and hang out with people. Next year I’m make sure I hang out with you. You seem to attract the superstars.
Shakil: Cool, Mike.
Mike: Awesome. And thanks so much for coming to do this.
Shakil: Yeah, take care Mike, talk to you soon. Bye-bye.
Mike: All right, that’s going to wrap it up for the 235th installment of the EcomCrew Podcast. I hope you guys enjoyed this interview as much as I did interviewing Shakil. Shakil if you’re listening to this, thanks again my man for doing this with me. I think what you’re doing is amazing. I wish you the best of luck with it. I think that you’re going to absolutely crush it. All right, until the next episode everyone, happy selling and we’ll talk to you soon.
Michael started his first business when he was 18 and is a serial entrepreneur. He got his start in the online world way back in 2004 as an affiliate marketer. From there he grew as an SEO expert and has transitioned into ecommerce, running several sites that bring in a total of 7-figures of revenue each year.