From Real Estate to Business Buying: One Entrepreneur's Journey

Mike Keith recently sat down to discuss his journey from real estate investing to acquiring and growing small businesses. Here are the key highlights from his story:

Background and Early Career

Mike grew up near St. Louis, Missouri and studied accounting and business administration in college. After graduating, he spent three years in Bogota, Colombia before returning to St. Louis. He worked in various industries including insurance, mortgages, and roofing manufacturing.

Transition to Real Estate Investing

Mike started flipping houses and acquiring rental properties as a side business while working his corporate job. He had some success, but also experienced a major loss on one flip that cost him $80,000-$100,000. This setback made him reconsider his path in real estate.

Introduction to Business Buying

A friend who worked as a business broker introduced Mike to the concept of acquiring existing small businesses. Mike was intrigued by the potential to generate more cash flow compared to real estate, with a similar level of investment.

He looked at a few opportunities, including a janitorial business, before finding the right fit.

Acquiring a Garage Door Business

In early 2020, Mike and two partners acquired a small garage door installation and service business called State Line for $250,000. The business was generating about $250,000 in annual profit on $2.5 million in revenue.

Key details of the acquisition:

• Purchased for 1x annual profit
• Used SBA loan with 15% down payment
• Mike invested $125,000 personally for 1/3 ownership
• Brought on experienced operator (Jesse) and gave him 5% equity

Early Challenges

The first couple years were extremely challenging:

• Previous owners used outdated systems and processes
• Rapid growth led to major cash flow issues
• Nearly ran out of money multiple times
• Had to inject more personal funds
• Worked long hours while keeping day job

Turning Things Around

Mike and his team were able to overcome the early struggles:

• Implemented new systems and processes
• Hired key team members including a director of operations
• Improved bidding and pricing
• Secured line of credit
• Paid off SBA loan in 2-3 years

Current State of the Business

The garage door business has grown significantly:

• Revenue increased from $2.5M to $7-9M annually
• Net profit margins around 9%
• Mike now only works about 5 hours per week
• Professional management team runs day-to-day operations

Acquiring Pool Businesses

In May 2023, Mike and a new partner acquired two pool businesses:

• Pool King Recreation - $5M revenue
• Florida Pool & Spa - $1.4M revenue

Key details:

• Paid cash initially, then refinanced with conventional loan
• Mike has 49% ownership
• Currently very involved in operations
• Looking at potential roll-up opportunities

Lessons Learned

Mike shared several key lessons from his experience:

• Understanding cash flow is critical
• Secure line of credit early
• Don't overlook small businesses with growth potential
• Implementing systems and processes is crucial
• Having skin in the game helps retain key employees
• Experience and grit are valuable when things get tough

Future Plans

Mike plans to continue growing his current businesses while looking for new acquisition opportunities. His goal is to build a portfolio of profitable small businesses that can largely run without his day-to-day involvement.

He's open to doing roll-ups in the pool industry and is regularly approached by other business owners looking to sell. Mike aims to take on more majority ownership stakes in future deals.

Advice for Aspiring Entrepreneurs

Mike's advice for others looking to acquire businesses:

• Don't over-analyze - sometimes you just need to take action
• No deal is perfect - be willing to work through challenges
• View early deals as paying "tuition" to learn
• Leverage your unique skills and experience
• Be open to learning from those with more formal training

Overall, Mike's story demonstrates how someone without a traditional business background can successfully acquire and grow small businesses through hard work, perseverance and a willingness to learn. While the journey hasn't been easy, he's built a portfolio of profitable companies and gained invaluable experience along the way.

Article created from: https://www.youtube.com/watch?v=mLBp8ilMVg8