Acquiring a Small Business in Bend, Oregon: Dan Drake's Journey

Finding the Right Business in the Right Location

Dan Drake and his wife had their hearts set on moving to Bend, Oregon - a smaller community they had fallen in love with over years of visits from Seattle. When Dan decided to pursue acquiring a business, Bend was the natural place to focus his search.

"Bend is where we live now, it's fairly close [to Seattle], it's about a 35 minute flight but a 6-hour drive," Dan explained. "It's not something that's commutable per se, but it's something that my wife and I have been visiting for seven years now."

He was drawn to Bend's outdoor culture, supportive small business network, and growth potential as one of the fastest growing metros of its size in the US. With a growing family, it felt like the right time and place to make the leap into business ownership.

The Search Process

Dan's background was in finance and accounting, having worked in financial planning and analysis roles at companies ranging from Fortune 250 corporations to tech startups. He had always been more interested in the strategic and value creation aspects of finance rather than pure accounting.

"I've always really tried to find extracurricular activities in deal support, strategy, all the things where you're closer to operations but there's a financial motive behind it and then you're creating value out of something," he said.

This interest, combined with some experience investing in real estate, gave Dan the confidence to explore entrepreneurship through acquisition. He discovered the concept of ETA (Entrepreneurship Through Acquisition) through podcasts and books, which resonated with his skillset and goals.

When setting criteria for his search, Dan focused on three main factors:

1. Location: Bend, Oregon area
2. Industry: Industrial or construction supply chain
3. Size: Purchase price up to $2 million, ideally around $300,000 in seller's discretionary earnings (SDE)

He knew the location constraint would limit deal flow, but was willing to search for up to two years to find the right opportunity in Bend.

The Opportunity: Industrial Applied Electric

Dan eventually came across a listing for a business that caught his attention, despite having lower financials than he initially targeted:

"It was marketed as Industrial Supply for mining, logging and construction... located in the middle of Bend," he recalled. "I was like oh, that's a good location. Okay, great, let's go check it out."

The business, Industrial Applied Electric, had been operating for nearly 50 years. It specialized in supplying electrical components and other maintenance supplies for heavy machinery and construction equipment.

While the financials were lower than Dan's initial criteria - around $140,000 in SDE versus his $300,000 target - he decided to explore further given the prime location and industry fit.

Creative Deal Structuring

Upon visiting the business and speaking with the broker, Dan learned a key piece of information that changed the equation - the owner also owned the real estate the business operated from and was paying himself $90,000 annually in rent.

This opened up the possibility of acquiring both the business and real estate together, which would effectively boost the SDE to around $230,000 when factoring in the rent.

Dan got creative with his offer, proposing to buy both the business and real estate. He worked with an SBA lender to model out different scenarios. By bundling in the real estate, they could potentially get a 25-year amortization at a lower interest rate versus a 10-year term for just the business.

"Because of the purchase price of this building... it actually made what the monthly debt service would be in just sheer dollars with real estate at a real estate price or without real estate without the real estate price, they made it basically the same," Dan explained.

This structure would allow Dan to count the $90,000 in rent as additional cash flow to the owner while keeping his monthly debt payments similar. It also provided more security by owning the underlying real estate.

Negotiation and Due Diligence

Dan submitted a letter of intent (LOI) to purchase both the business and real estate for just under $2 million, to be financed through an SBA loan.

To his surprise, the sellers came back with a counteroffer that was even more attractive. They proposed seller financing over a 25-year term with a 5-year balloon payment, at a 5% interest rate. This was a lower rate than the SBA loan, and would result in lower monthly payments for Dan despite a slightly higher purchase price.

"Even with that higher price, my monthly outflow was still lower," Dan noted. His SBA lender advised him to take the deal, as it was more favorable than what they could offer.

During due diligence, Dan discovered the business had seen declining sales over the past couple years. To address this, he negotiated a creative payment structure that started with lower monthly payments in the early years, ramping up over time:

"Originally the loan's monthly debt service was going to be $11,000. With this new proposal, year one starts at $6,600 a month and then year five ends at $15,000 a month. So what I really was doing was betting on myself and then asking for more runway near term."

This structure gave Dan more flexibility to navigate any near-term challenges while still providing the sellers their desired total payout over time.

Closing the Deal and Early Learnings

Dan successfully closed on the acquisition of Industrial Applied Electric in 2023, purchasing both the business and real estate. He moved his family to Bend just days before our interview.

In his first couple months of ownership, Dan has focused on meeting with customers and learning the business. He's been encouraged to hear consistent feedback about the company's unique value proposition:

"Most of our customers, without me asking, will say 'Your critical offerings for electrical components and uptime - nobody else in the region has it, period. It does not exist.' So that's something that validates our value proposition."

This niche in supplying hard-to-find electrical components for heavy machinery gives the business a solid foundation. Dan sees it as a "secret sauce" they can build upon.

Future Plans and Growth Strategy

Looking ahead, Dan has both near-term and long-term objectives for growing the business:

Near-term priorities:

1. Implement inventory management and point-of-sale systems
2. Digitize inventory and offerings
3. Enable online ordering for existing customers
4. Modernize payment methods beyond checks

Longer-term strategy:

1. Grow with existing customers by expanding product offerings
2. Acquire new customers in the region
3. Potentially add another sales rep
4. Target doubling 2023 sales within 5 years

"The market's big enough that if we do, we could grow with our customers successfully. There's enough meat there that I think we could definitely make this business 20-30% bigger," Dan projected. "But if we go expand into new customers regionally, I think that's how you start thinking about okay, in five years double our sales."

He plans to stay focused on serving the Central Oregon region rather than pursuing broad e-commerce expansion, at least in the near term. Any online sales will likely be to liquidate excess inventory initially.

Reflections on the ETA Journey

For Dan, acquiring and running this business has been an incredibly rewarding experience so far:

"This is the most engaging, fun thing I've ever done to make a living. Two and a half months in, this is - I could go on and on about all the things I've loved about it. It's a lot of fun. It's not necessarily easy, but it's a lot of fun."

He credits the many ETA podcasts and resources he consumed with giving him the confidence to pursue this path. Dan emphasized how helpful it was to hear stories from people of diverse backgrounds successfully acquiring businesses.

"This is the kind of thing I think you'll read about or hear about, but will sometimes feel like it's reserved - oh, it's got to be like an investment banker or a big MBA or big executive, etc. And hearing all your guests, and I really enjoyed how the formats of the episodes were so much crafted around okay, what's this person's personality, experience, and they're all different."

Now settled in Bend with his growing family, Dan is excited to become part of the community and help serve those building Central Oregon through his business. He's found the engaging, strategic work he was seeking, while achieving the lifestyle and location he and his wife dreamed of.

For aspiring entrepreneurs considering a similar path, Dan's story illustrates how being open-minded about deal structures, getting creative in negotiations, and focusing on the right opportunity can help overcome initial constraints around business size or financials. By aligning the business opportunity with his personal goals and values, he's positioned himself for long-term success and fulfillment as a small business owner.

Article created from: https://www.youtube.com/watch?v=-eFQ5sLV_oo