The First Acquisition - Lee’s Air

When I bought Lee’s Air, formerly Lee’s Accu-tech Service Inc., it was my first acquisition of an HVAC company.  Truth be told, I hadn’t acquired much of anything before that.  Everything I had done up until then had been side hustles.  I really appreciate those old side hustles though so that I could learn the basics of selling, providing a service, collecting money and handling customer concerns. 

The terms of the Lee’s deal are a little confidential because the previous owner, Bryan Lee, had gone through some experiences that he has asked me not to share.  Here is what I can say, Bryan offered the company to me for a lot more than I thought it was worth.  In addition, he wanted me to execute it as a stock deal which meant that I had to assume the liability of all the debts on the business.  

I was 27 or 28 years old at the time.  I had operated the company as a general manager for only about 6 months and I barely knew how to find my way to the permit office, let alone run a business.  What made this deal possible though was that Bryan was willing to carry the note.  This means that I would owe a note (debt) to Bryan and he allowed me to make payments to him.  I felt that the amount was higher than I was comfortable with but on the other hand, what was the worst that could happen?  I could go bankrupt…  What were they going to do, repossess everything I owned?  The stained couch that I bought on Craigslist?  With almost no risk and all upside potential, I took the deal.  

When making a deal, sometimes owners will want to owner-finance it or even take a portion in cash up front and a portion in owner financing.  This actually benefits them in a lot of ways.  If they take the cash up front, their tax rate may be higher.  Depending on how you structure it, such as paying them as a consulting agreement over time, it spreads their income over multiple years, it can keep their tax bracket lower.  Consult your tax professional on this.  You can even sign the contract that allows them to keep the company as collateral until it is all paid off so that they feel secure so that if you don’t pay, then they get to take the company back.   There are many ways to handle this.

We grew slowly.  We went from 1.6 million to 1.82 to 1.85 to 2.7 to 3 million over the first four years.  I could do that in a year or less if I had to now but I didn’t know what I didn’t know back then.  I was terrified of failure.  I hear about people starting out and thinking that they are way behind because they aren’t growing fast enough or they barely have enough money to make payroll.  In my early days, I was driving a tractor in the middle of the night on a grape vineyard for 10 dollars an hour to make ends meet.  I had hives, shingles, ulcers, and every other stress related illness you can think of.  It wasn’t pretty at all but it made me what I am today.  That first acquisition is always the hardest but it also turns you into a stronger, harder entrepreneur. 

Every bit of experience you get allows you to learn a little bit more that allows you make the next jump even faster.  The worst thing that people do is that they never start and instead, they spend their time in analysis paralysis trying to analyze every possible outcome and try to make the perfect decision. You just have to make the leap and start. Mark Cuban once said that perfection is the enemy of profitability.  You don’t need the perfect answer or product.  You just need one that is good enough.