Lisa Forrest_Finding Your Voice in the Business Acquisiton Space_Beyond 8 figures podcast cover

Finding Your Voice in the Business Acquisition Space with Lisa Forrest, Live Oak Bank

February 8, 2023

Unlike start-ups, the failure rate of acquired businesses is minimal. As Lisa Forrest explains in this episode, we are currently in the perfect environment for acquisition entrepreneurs to thrive! Tune in today to hear about the factors that are coalescing to create a solid foundation for acquisition success and what it will take to make your mark in the business acquisition space from someone who really knows!

About Lisa Forrest:
Lisa Forrest is a Co-Director of Sponsor Finance/Searchfund Lending at Live Oak Bank. She has over 30 years of experience in the banking industry, in both SBA and Conventional lending products focused on the unique needs of lower middle market businesses. She is widely regarded as one of the industry’s “go-to” resources nationally for her expertise in M&A deal structuring for the Searchfund ecosystem. Lisa is also an avid golfer, outdoor enthusiast, and dog lover.

What is Business Acquistion?

Business acquisition is the process by which one company buys the assets, ownership share, or controlling interest of another company.

Several ways businesses can acquire other businesses include:

Stock acquisition: The acquiring business takes over ownership of the target company by purchasing the majority or all of its outstanding shares.

Asset acquisition: Rather than buying the target firm as a whole, the acquiring company buys particular assets or business units from it.

Merger: Acquisition in the form of a merger occurs when two businesses decide to join and become one new organization. The choice is mutual, and the merger typically benefits the owners of both companies.

Management buyout (MBO): In an MBO, the company’s current management team buys a majority stake in the enterprise, frequently with the help of external funding.

Acquisitions of businesses are complex transactions that need negotiation, due diligence, legal analysis, and integration planning. They can significantly impact on the companies involved, their employees, the shareholders, and the whole business environment.

Episode highlights:

  • The “silver tsunami” (the term that is used to refer to the mass retirement of the baby boomer generation) is upon us, which means that it’s time for acquisition entrepreneurs to step up to the plate. If you’ve been considering this path, take this as your sign to go for it! (08:50)
  • To make your mark as an acquisition entrepreneur, develop your own voice and point of view in the space, and learn how to do your own cash flow. These are very powerful tools that decrease your dependence on outside parties. (10:52)
  • Every economic phase has its own unique qualities. During this current phase, cash flow is king. So, make sure you’re not overpaying or overleveraging. (26:49)
  • The failure rates of starting a business from scratch are huge. In comparison, very few acquired businesses fail. So, if you want to increase your chances of success, acquisition entrepreneurship (particularly via the SBA route if you are based in the US) might be a better option! (29:24)
  • Just get started! If you’re interested in acquisition entrepreneurship, stop thinking about it and take the leap. One of the best ways to start is to connect with someone experienced in the space (like Lisa if you live in North America). (41:20)

Lisa’s best advice for entrepreneurs:

“Cash flow is king.” (27:37) 

Connect with Lisa:

Follow Beyond 8 Figures:


[00:01:24] A.J. Lawrence: And I’ve had, over the past year during my own search for a company, I’ve had multiple deep conversations with Lisa. Some very, very serious and some just on really weird, esoteric pieces of things I didn’t understand and she was so helpful in just helping me understand things that may not have anything to do with what I ever do with an acquisition. So, Lisa has been such an amazing resource.

[00:01:49] And today we’re gonna focus a lot on the value of Acquisition Entrepreneurship, and then using SBA loans to acquire these companies. So today is really talking with an expert in the space, not an entrepreneurial journey, even though Lisa has this great background. But I’ll let her talk a little bit about it.

[00:02:09] The couple things that I think are gonna be really important, and I know have resonated with me, is she’s gonna talk about really focusing on your own voice and your own story as an acquisition entrepreneur. So you know, developing your "why" of what a company needs to be for you to acquire, what’s the value there.

[00:02:31] She’s also gonna talk about the importance of looking at this kind of silver wave that’s happening – all the baby boomers retiring and looking to sell their own businesses. There’s a lot of talk about how great of transfer of ownership this can become, and Lisa’s gonna talk about the value of looking into the various businesses that are happening and acquiring them to continue generating value. So really kind of cool.

[00:02:59] And then also, one thing that a lot of people talk about in this space, but I cannot say how important this is, is one of the things that I find very important and why so many people find Acquisition Entrepreneurship and Lisa’s gonna go into greater detail is when you start a company, the failure rates are pretty high. Ninety perccent barely get off the ground, or not in business a few years later.

[00:03:22] Getting to a million is another big cliff. Getting to 5 million is another cliff. You know, again and again, failure rates for starting up a company are pretty significant. In the acquisition entrepreneurship space, in acquiring a company, those failure rates are almost the opposite and a lot of it is the specifics.

[00:03:41] You know, there is just by jumping through the hoops that the SBA puts out for the type of businesses that they will, cash flow positive, debt coverage ratios, all stuff, Lisa will go into greater detail. Believe me, it’s taken me a long time to kinda become familiar with these terms, even if I’m not an expert, just become familiar.

[00:04:00] But the SBA has requirements, so a bank like Live Oak, when they follow the criteria and the SBA will back them, they’ve already pushed you towards a type of business that’s gonna have a lower risk of failure. It may not be as successful, that’s a whole different story, but just the risk of it failing is significantly lower. Especially, you know, once you have the SBA funds.

[00:04:26] So there is this kind of risk adjustment that is really interesting to pay attention to, and Lisa’s gonna go into this. All I can say is this conversation with Lisa is really such a great primer in the value. I think you can find Lisa’s conversations on Twitter and different places.

[00:04:45] She’s always doing webinars. And Live Oak, they have regular open offices and they break down different components. But it’s, at the end of the day, if you are serious about looking at the Acquisition Entrepreneurship space specifically in the US, and you’re looking at SBA-fundable companies, and it is pretty broad, as long as you’re doing that, you should really reach out to Lisa. I have gotten so much value from just the conversations, and I am really hoping that our conversation’s continue for a long time because she’s helped me so much in my own search. All right, everyone, enough about this. Let’s go talk with Lisa because she really is amazing.

[00:05:27] Hello Lisa. How are you today? Thank you so much for coming on the show.

[00:05:31] Lisa Forrest: Yeah, I’m doing great today. Thanks for having me. Really appreciate it.

[00:05:34] A.J. Lawrence: I’m really excited to finally get you on the show because you and I have chatted quite a few times now as I’ve been exploring, you know, from sort of putting my toe into now getting more serious about my own acquisition efforts and trying to find my forever company, my forever puppy.

[00:05:51] But your advice has always been so really helpful in kind of guiding me away from a few things that would’ve been a little difficult in hindsight, but I kinda thought were really cool from first viewing .

[00:06:05] Lisa Forrest: Although I’m not crushing dreams here A.J., I’m not trying to crush dreams. I’m just trying to give you some things to think about.

[00:06:11] A.J. Lawrence: But like what I was kind of talking to the audience and I would like to maybe, you’ve been working in the SBA space for quite a while. You have this body of knowledge that is just so incredible and while that’s impressive alone, it seems very much like you and your partner Heather came to Live Oak, I wanna say five years ago, give or take.

[00:06:37] Lisa Forrest: Yep. We’re starting our 6th year now.

[00:06:39] A.J. Lawrence: And like while Live Oak always had a good product and was always there, you guys have kind of turned on the rockets for it. It’s now the largest player significantly in the SBA. I mean, you guys have, you know, it’s sort of like you guys were playing for the Oakland A’s and you know, all of a sudden you come to the Yankees and five World Series later, you guys took it to the next level.

[00:07:02] Why so much this, you know, I would almost at this point, passion for the SBA space?

[00:07:09] Lisa Forrest: Thank you. Hey, and Mariners, shout out. Mariners are in the playoff finally for like 21 years. So we’re excited.

[00:07:16] A.J. Lawrence: Sorry to put the Yankees into that. Apologies.

[00:07:18] Lisa Forrest: Oh no. Hey, you know, you gotta go with the Yankees, but I’m just saying we’re part of the conversation for, you know, two decades later here. So thanks for that.

[00:07:26] And you know, Heather and I definitely had a strategy around business acquisition, around financing and funding and mentoring and educating the next generation of entrepreneur. We literally brought a whole strategy around that from the buyer perspective to Live Oak.

[00:07:42] I’d love for Heather and I to take a sole credit for catapulting Live Oak. Live Oak was already on an amazing trajectory at the time, you know, starting six years ago when Heather and I were looking to strategically back entrepreneur buyers. We recognized that Live Oak would be an amazing platform to do that. It’s a very strategic company.

[00:08:06] If you know anything about Live Oak, we’ve got 30+ verticals. Of which my sponsor finance search fund vertical, that I co-direct with Heather, we’re our own vertical at Live Oak. The way that Live Oak has given us our platform to embrace the buy side aspect and really find the buyers in the market that wanna be the next generation of entrepreneur and Live Oak gave us a lot of resources and a lot of voice around doing that. That has been an amazing partnership with Live Oak. I mean, Live Oak was already on the nation’s number one directory anyway. But we just certainly fit right in with that.

[00:08:46] And if I could kind of continue with that, I mean, we’re just well suited and we’ve got the silver tsunami that’s been discussed for decades now.

[00:08:54] A.J. Lawrence: Yeah. All the people retiring, the baby boomers.

[00:08:57] Lisa Forrest: Yep, absolutely. They’ve got to exit. That’s their retirement, it’s built up in their company. You’ve got 70, 80 year old entrepreneurs that need to exit, and the whole entire idea of entrepreneurship, acquisition entrepreneurs, it’s just really well-suited and well-fitted at this time. And still, the nation’s employees are employed.

[00:09:20] The majority buy small business owners, so there’s just this confluence of things that have to happen. I think Heather and I were well on our way to recognizing this phenomenon and then wanting to create a strategy and be with a strategic partner around that. And then that’s where Live Oak and us just really, really dovetailed really, really nicely.

[00:09:39] A.J. Lawrence: I mean, one of the things I’ve been really impressed, and I think I was joking with you last week when I was talking about a specific deal with you on the phone, is you guys have kinda become a default template for how to look at least from this side of how likely something is to get financial backing. Because I’ve been past your, I think it was the fifth one I got in a packet in a folder of like SBA eligibility and it was like, it was your spreadsheet.

[00:10:06] Like, oh, here look filled out. You guys have created the template of how people evaluate the likelihood of getting the thing. So maybe talk a little bit, I know you run the Wednesday and Thursday program. Talk about this program you have to help people who are looking and let’s kinda talk about how entrepreneurs who are like our audience, already sort of in that million dollar range. Where do they go within that learning opportunity that you guys provide and then how maybe some of the value they can get out of those loans and other types of support.

[00:10:43] Lisa Forrest: Great. Well, I appreciate this being a little bit of a platform for Live Oak. I don’t mean it to necessarily be a commercial for Live Oak. We’ve certainly, Heather and I have thought, how do we provide resources? How do we mentor, how do we educate, how do we put tools in the hands of entrepreneur acquirers so that they could do a lot of the lifting themselves?

[00:11:08] So that’s not, How do they think about acquisitions themselves? How do they maybe build out their own skillset around how to look at deals? How do they form their own voice and how do they create their own point of view? Because we want our acquisition entrepreneurs to have their own point of view and their own voice, and so we created some resources around that. And then, Oh, by the way, let’s have a really good, efficient, effective discussion.

[00:11:34] So what we do is we have cash flow templates that we provide our entrepreneur acquirers. We’ll actually give you a cash flow model so that you can do your own fiddling and your own "what if". It’s a great way to kind of back into debt service coverages and making sure you’re asking for all the right information from your sell side brokers, being able to actually think about and complete your own cash flow.

[00:12:02] That is so powerful. Now, you’re not waiting on other people’s opinions. You’re not waiting for people to tell you, well, what is the debt service coverage? You know what it is yourself, and then we can have a conversation around it.

[00:12:16] And we do a lot of teaching and mentoring around how to do cash flow. Even our entrepreneurs that might come out of business school, it’s not like business schools are teaching the students actually how to do a cash flow from a debt service and a lending perspective. So we come in and we try to augment some of that.

[00:12:33] A.J. Lawrence: I mean look I have an MBA and I joke it was kinda like it was just an excuse not to grow up for a few years. But yeah, my knowledge of financial statements pretty strong. But operationally, cash flow and other, that’s something that was very much glossed over. The testing was very much financial.

[00:12:56] Lisa Forrest: Yeah. And so we’re just getting a practical, how do you practically apply this now in this context? Not that what is taught in business school isn’t great, cause it’s fantastic. I mean, majority of our clients are business school grads and we love ’em. We love these folks. We love the curriculum. It’s great. I love the fact that we’re talking about entrepreneurship at the college level. It’s amazing.

[00:13:16] So what we do is we just try to give some DIY tools for a practical application of it, and then we also do executive summary templates. We have M&A questionnaires, just kind of Heather’s and my 30+ years of doing deals and kind of the stuff that gets missed or the spilled milk. Like, let’s try to talk about that stuff up front.

[00:13:33] We’re just trying to give as many resources as possible. Our landing page on our website has blogs and interviews and M&A questionnaires and FAQs. We’re just trying to give as much stuff out there in the ether so people can take as much as they can, do it on their own, but then work with us and partner with us as well.

[00:13:50] And I think a lot of the searchers love it. The whole passion thing you mentioned before, I mean, this is what I’ve been doing. I’ve been financing the next generation of entrepreneur for 36 years, and I love it. It’s amazing. And this SBA program, I do conventional lending also, but this SBA program really does do something amazing. It’s a really, really good tool to help our entrepreneur acquirers.

[00:14:13] A.J. Lawrence: No. And I think, you know, not trying to do a Live Oak commercial, but I have been very impressed in Tim with the size, and this could be because of the size. You and Heather and the rest of the team have put together these resources and consistently, as I’ve been learning about the process, other third parties, QofE providers like Elliott Holland, the DueDilio guys, you have the Gridley’s out there with the SMB Twitter world, you’re referenced obviously for the ability to provide the loans, but repeatedly you’re referenced for the ability to understand the viability of these small business acquisitions through these you know, your educational process, these templates, the cash flow.

[00:15:06] We were joking ahead of time, sellers are still keeping, as interest rates are changing and the environment’s getting a little wonky, they’re still trying to keep their, you know, right at the top of what they know, you can still get an SBA app. Because they know that cash and strategic buyers are still preferred, but they need the SBA buyers to kind of still keep the prices honest.

[00:15:28] And with things changing, with the interest rates rising, it’s a lot of modeling of like, Ooh, that’s going to be hurt. So I’ve been using your spreadsheets a lot and just this advice. I think there’s this misconception from existing businesses, you were kind of saying ahead of time that you hear from a lot of entrepreneurs who have ongoing businesses and then all of a sudden are like, well, what’s next?

[00:15:57] What type of people come to you? You know, come and start learning and start talking to you. If they have a business already, what’s usually the kind of the situation?

[00:16:06] Lisa Forrest: Yeah, and I would say, on any given day, Heather’s and mine are about probably a third of our pipeline. Kind of a third of our active projects we’re working are probably our existing CEOs, our existing portfolio now acquiring a second or a third company.

[00:16:24] Then we were joking. This is the conversation we have a lot where they get through transition, they buy deal number one, opportunity number one, they’ve transitioned it, they’re getting along great with the employees and it’s grown and they’re at a level where it feels really good and they’re not having to necessarily have their finger on it 24/7.

[00:16:43] Well, with these entrepreneurs and entrepreneur acquirers, it’s an amazing personality. What happens is they get bored. It’s like, okay, now what’s next? Either they’re bored because they don’t have enough to do, they’ve really transitioned it and they really can take on more they want to, that they’ve gotten sort of good at the first acquisition. It’s what they thought it was gonna be, or maybe it wasn’t what they thought it was gonna be, but it’s turned out okay and now they wanna do more.

[00:17:10] So sometimes there’s just a boredom factor and then sometimes there’s also and/or. In order for me to achieve my exit strategy, now my EBITDA multiple needs to grow. One, it’s good for me, it’s good for my employees. I’m providing a service and a real good benefit to the community. Now I wanna grow not only for the employees to have more room to move and to grow themselves, but I wanna increase that EBITDA so ultimately for me, I can have a better exit opportunity. And acquiring growth by acquisition is a great way to do it, and we love helping.

[00:17:47] A.J. Lawrence: Now, I mean you’ve talked about this sort of the kind of enjoying and supporting sort of the repeat entrepreneurs. I think one of things that I find really interesting and starting to seem more is just that with the SBA, yes, there’s this 5 million cap, but it’s 5 million in total. So I think there are some entrepreneurs who are starting to realize, oh, if I pay down my debt on my existing business then all of a sudden it’s like I can go and get, again, more money. So maybe I pay off 2 million of my debt, I can go get 2 million.

[00:18:27] Is it more sort of like inbound, like, oh hey, you know, it was such a great process early on, I would love to come back. Or do you outreach? Do you talk to people who have done it? Like ones that you think are going to be sort of on this repeat process? Are there tracks that you guys do or is it just sort of keeping them on your own CRM thing? Kinda keeping the relationship warm in case they go that direction.

[00:18:54] Lisa Forrest: I think that Heather and I sort of always assume that our particular type of acquirer is already interested in the second and third and fourth acquisitions. I think that’s just the clients that gravitate toward us and and we to them.

[00:19:09] But these are conversations we’re having upfront. When we’re looking at the first acquisition, we are already asking them, are you thinking, uh, is this an industry where you wanna roll up? Is this gonna be sort of one and done for you? What’s your plan?

[00:19:23] We ask everyone what their growth plans are so that we’re creating this relationship. We’re gonna be extending this relationship. And given that about a third of our clients, it takes them six months to start their search, sign an LOI and close at six months. Another third takes up to a year. And then there’s another third that takes over a year to find a company.

[00:19:47] So we’re creating relationships. These aren’t just deals for us. They are long-term relationships, and we have a really good appreciation and understanding for our clients growth plans. And a lot of them already are talking about growth by acquisition. A lot of our clients are choosing a certain industry because it is fragmented.

[00:20:07] They know that they can acquire additional locations and you don’t spend six, nine months with someone and not have an ongoing relationship with them. So we’re keeping in touch with our clients long after the first acquisition.

[00:20:21] A.J. Lawrence: No, I like that. Because just from my own sort of planning, it is very much like, oh. My thesis is generally around professional services and sort of growth providers and there are those few big players and then just a large amount of smaller players. So you know, the hope is to develop that. I think if an entrepreneur is starting to think this way, what’s the best way for them first to kind of get involved? Is it through the weekly classes? What’s the best way?

[00:20:55] Lisa Forrest: Yeah. And I’d say the sooner the better. Even if people are just even thinking about it, they haven’t quite decided if the acquisition path is gonna be right for them, I’d say reach out. Send me an email, introduce yourself, and then I’ll send links to the office hours. That’s the best way to do it. It’s every Wednesday at 8 o’clock. Every Thursday at 8 o’clock Pacific Standard. We go over everything SBA and we’re gonna share our point of view for SBA.

[00:21:22] We have certain cash flow hurdles that we think work best. We have certain industries we like better than others. So it’s all about a fit. There are lots of really amazing SBA lenders out there as well. I mean, it is such a great program and it’s all about fit.

[00:21:39] So I would say attend the Wednesday, we’re gonna talk pre-LOI process. Thursday, we’re gonna give you our cash flow model and our executive summary templates for talking with us about deals pre-LOI. But giving you tools in order to understand and analyze deals first yourself, we do that on Thursday and let’s just get started. Let’s explore it.

[00:22:00] A.J. Lawrence: Well, about 90% of the audience at is USA-based, so I apologize to my Canadians and UK and then a very, very long tail of other countries. But I know you say that you talk about this so often, but maybe just quickly, cuz I know my audience maybe isn’t as much of focus on acquisition but they probably are starting to hear more about it. What is that value of the SBA? Why is this so valuable? Cause definitely, there are types of companies that can only literally be bought with an SBA loan. If you’re looking for financing.

[00:22:38] Lisa Forrest: Right. And US-based lending program, of course. And if you’ve gotta be 51% of the ownership, has to be US citizen or permanent resident, 51% of the ownership.

[00:22:48] So the reason it’s so compelling is that in the lower middle market, and let’s assume this is sort of a million and a half of EBITDA below. And I’m gonna say enterprise value, purchase price kind of up to $10 million because we also have a Live Oak Junior conventional piece I can put behind the Live Oak SBA.

[00:23:06] A.J. Lawrence: Yeah, that’s what’s cool. Yeah.

[00:23:08] Lisa Forrest: So I’m gonna say SBA actually can almost go up to enterprise values of sort of 10 million because of that. And this is what we go over on that Wednesday call, we kind of stripped this down and just talk kind of SBA 101. But it allows you to afford a lower middle market company in a way that you couldn’t without this finance, because it’s a 10-year term on the SBA loan.

[00:23:28] So in lower middle market, this is the way that sellers are able to exit in the most kind of reasonable way without them having to put large amounts of seller note. And that’s when I started doing this with SBA. Generally, that’s how deals were financed ages ago. It was all with seller note.

[00:23:47] In the SBA program as the SBA loan sizes, now you can go up to a $5 million loan under SBA. When those loan sizes increased, it really opened up the doors for this lower middle market, privately held business exit process. You get a 10-year amortization and it’s cash flow-based. It is not supposed to be collateral-based. That’s where every lender can have their different opinion on it.

[00:24:12] A.J. Lawrence: Yes.

[00:24:12] Lisa Forrest: But we are a true cash flow lender, like a lot of SBA lenders are cash flow lender. In the SBA guarantee, they literally guarantee a portion of our loan that we’re making to you. It’s all our money that’s being lent. But in theory, if something bad happens, they’re gonna come in and guarantee a portion of it.

[00:24:29] So what it does is it compels a lender to make an under collateralized loan, and we are gonna focus very heavily on our cash flow analysis because we are not counting on that SBA guarantee. We do not wanna get in a situation where that’s our fallback. We want the cash flow to be adequate with enough margin and enough room to pay us back.. But that’s the value of the SBA program.

[00:24:53] A.J. Lawrence: And this kind of gets to then the value. And going back to the audience, we’ve had discussions around sort of Acquisition Entrepreneurship and why, but there’s this conversation generally out there that in looking at some of the studies coming out of Harvard, and I think Booth does a really big study on acquisition or search funded at least, that the failure, you know, we all are familiar with starting a business, the failure rates are huge. And then hitting a million dollars, there’s another big failure rate. And then every time you have a big jump, there’s a big failure. So like businesses that survive from start are few and far between.

[00:25:34] Businesses that already exist though and are acquired, if I remember, it’s something like less than 20% is the ongoing failure rate, at least from historical search fund type of data. So with the combination of the SBA protection, it does seem like a- yes, it’s still a high risk loan, but it is a more calculated risk moving forward, especially if you are an entrepreneur looking to expand. You know, kinda going there.

[00:26:02] Given that there seems to be a little bit, well, all over the place two weeks ago, I think everyone I’ve talked to in the past week, along with the interest rates, two weeks rise on, and then what’s going on with Ukraine and our friends in Russia. There’s a concern that we’re looking at recession.

[00:26:22] And what have you seen in this space about how a recession impacts acquisitions? Do you see more of them going under? What sort of have your experience of maybe going through 2008, cause I knew large amounts of agencies, clients disappeared. We had to change our business model back then and were able to grow because we did. But like it wasn’t a fun time. What have you seen?

[00:26:50] Lisa Forrest: Well, I think every cycle has its own unique qualities to it. I think we’re in a different situation now compared to where we were in 2008, where just huge swaths of people got sort of left behind in 2008, but for a very different reason of where we’re at today.

[00:27:07] I would say in our portfolio, our searchers performed very well through Covid. We had some industries that just weren’t good industries like Tradeshow booths.

[00:27:20] A.J. Lawrence: Tourists.

[00:27:20] Lisa Forrest: Did not survive very well during covid. But for the most part, with the idea of search fund model or search funds where you’re looking at kind of cyclical proof businesses, at least during Covid, our companies did very, very well and our businesses did well.

[00:27:35] And during this cycle now, I think cash flow is gonna be king and making sure you’re not overpaying for a company and you’re not overleveraging it. I mean, each little kind of dip, ebb, and flow that we have is gonna require and need something different. It’ll be interesting to see if the sellers are going to participate in balancing out where we’re at right now.

[00:28:01] And if the sale prices are gonna stick where they’re at, and capital’s more expensive, and you’re coming in with the same amount of equity that you were six months ago then that is tighter cash flow. You know, something has to give. So, you know, A.J., I don’t know how to answer your question right now. We’re in the middle of it. Our lending standard has not changed.

[00:28:22] We’re not gonna dip our debt service coverage requirements just because deals now don’t fit.

[00:28:27] A.J. Lawrence: Yeah.

[00:28:27] Lisa Forrest: Other lenders might, and I’m not saying these aren’t adequate deals and these aren’t good deals to be interested in. One banker’s, one lender’s opinion is that we’re gonna keep our standards the same. And if this is tracking to how things worked in the past, in the lower middle market in SBA land, sellers probably should be adjusting their prices a little bit.

[00:28:49] A.J. Lawrence: Yeah. I mean, that would be wonderful.

[00:28:52] Lisa Forrest: We’re gonna see. We’re not gonna change our standard around it.

[00:28:54] A.J. Lawrence: Well, yeah, I mean, well, let’s come back to that. I was meaning more of like just the overall like SBA-backed companies in previous recessions. Just in a more macro general sense, how have they tended to play out from your experience compared to maybe what you were seeing in the broader economy. So not how things were changing in the approach, but like, how generally do SBA-backed from the ones you’ve seen.

[00:29:24] Lisa Forrest: Well, compared to startups, business acquisitions do better. The thing though, is SBA doesn’t keep good stats. So when we get asked this question, well, to break down SBA default rates, SBA doesn’t compare and contrast between loan size. They don’t compare and contrast between startup versus expansion versus business acquisitions. So I can only talk about the deals I personally am doing.

[00:29:46] SBA- during recessions, businesses fail. Businesses do better when the economy is stronger. I mean, I don’t have a more concrete answer for you. I would say just from me personally with my business, I have never focused on startup cuz it’s really hard. Startup is really, really hard.

[00:30:06] I’ve always focused on business acquisition and at least for my clients, when you have debt service coverages that are going to allow for some margin compression or some hiccups or some uh-ohs, those companies tend to do better. And I know I’m not answering your question, so maybe offline A.J. What I can do is I can try to answer that question for you and then try to give you some stats where you can share with your audience.

[00:30:29] A.J. Lawrence: Here, I’ll take it a little bit. Maybe one of the things that is useful to look at and think about from other entrepreneurs, we talk a lot like just doing the right things for the right reasons. And the debt coverage ratio, and the cash flow and the ability that you guys require, you all require, in a sense requires a level of discipline.

[00:30:54] And I know there’s different com, you know, the structure of afterwards is different than a traditional, conventional loan. But I do think that, like I see a lot of entrepreneurs, and I know I’ve been, who really are playing Icarus with their business.

[00:31:12] You know, they grow as fast as they can. The focus is on revenue growth, et cetera. But when you look at the SBA product, those loan covenants require that there is that cash flow, there is that like attention that almost discipline to be able to pay off the things and not just be able to pay off but pay off and at least start with, you know, some part there.

[00:31:41] So do you think this creates additional discipline in the entrepreneurs? Or do you think the entrepreneurs coming in already have that discipline from sort of a operational sort of structure?

[00:31:54] Lisa Forrest: Well, I would say that because of the niche that I serve, I think a lot of my clients are already coming with that discipline. That’s how they’re seeking this out. And there’s so much education out there around Acquisition Entrepreneurship, and a lot of our clients are already coming to us with that sort of initiative in mind. But I would say that’s one thing that I like around our approach. It is a very disciplined approach.

[00:32:19] I am not thinking about the SBA guarantee when I analyze my deals. I’m not thinking about that as being Oh, if something doesn’t work out, oh, you’ve got the SBA guarantee. If something doesn’t work out, lives are shattered. I mean, there are lives that get destroyed when deals don’t work out.

[00:32:34] And so our fallback is not the SBA guarantee. We’re trying to keep a discipline approach going into it. So that that is really just an extreme fallback. But one of your words you said was covenants. In SBA loans, there aren’t actually any covenant.

[00:32:48] A.J. Lawrence: Yeah.

[00:32:49] Lisa Forrest: So you’re paying us as agreed, and that’s the bottom line. If you’re paying us as agreed, then that’s the stipulation. Then we’re not coming in and saying, oh, you’ve gotta tighten this up.

[00:32:59] Now in our conventional loans, there are lots of conversation around metrics. And we are definitely holding you to metrics and standards as you pay. In SBA, because there aren’t any covenants, that’s why at least Heather’s and my approach is we’re trying to put a lot of discipline around getting the loan and the acquisition done in the first place.

[00:33:21] We want good trends. And again, this is everything we talk about on our Wednesday, we’re gonna share our point of view with you, and we’re trying to instill the discipline in there with our process. And luckily for us, I mean, this is the niche we go after. A lot of our SMB acquirers already are coming just a sponge to the discipline, and we definitely are approaching it that way.

[00:33:42] A.J. Lawrence: You’ve been in this for a while and maybe just to kind of go in but it seems like what I saw, you know, my entry, I had acqui-hire a few small companies when I had my agency before I sold it. I knew sort of more conventional exits to holding, you know, since advertising world, the large advertising holding companies. But sort of the SMB acquisition space, I really knew nothing of.

[00:34:12] Cuz I was always told, oh, you’re too small to even worry about until you’re past 10 million, all this stuff. So I had whole different growth plans back in the day for my company. And my entry was sort of the Walker Deibel, buy then grow. I’m always getting it confused with build to grow or build to sell.

[00:34:34] Lisa Forrest: Buy then build.

[00:34:35] A.J. Lawrence: Yeah, buy then build. But definitely right before Covid and then definitely late 2020, it seems, with the rise of the Codie Sanchez’s and this SMB Twitter world, it has exploded. How has that experience been for you since you’ve been here? You’ve been preaching for a good amount of time. What have you seen really put the fire to this space other than sort of the gray, you know, the baby boomer effect?

[00:35:09] Lisa Forrest: Well, I don’t think it’s just one thing. I think it’s a lot of elements over time kind of conspiring to have this liftoff right now. One, just the macroeconomic environment. Baby boomers need to exit. That has created the environment right then and there, and it hasn’t waned. Even with our prices gonna come down a little bit, I don’t know. Whether they are or they aren’t, these entrepreneurs, operators, baby boomers, they have got to exit. That is still there. So that has created this whole entire environment.

[00:35:41] And on the acquisition side, one business schools actually teaching this as a curriculum and these are really great classes, such amazing professors, lots of ETA clubs, entrepreneurship through acquisition clubs, through the business schools. And that has just continued and everyone’s just gotten better at that.

[00:36:01] And then social media. You’ve got Twitter, SMB acquisition, and investor Twitter spaces, it’s amazing. And a lot of really good high level work is being done in those rooms.

[00:36:13] And then you’ve got searchfunder.com that came along five years ago that created a space for it and a platform. And just as lenders started getting more initiated and kind of smart about this space and that SBA could be a really good vehicle and avenue for this. And also investors. There are investors that are investing in this lower middle market space using SBA, understanding how to use it.

[00:36:38] And there are some lenders that that might have a different opinion about having investors in on SBA deals, but if you do it right, if everyone is doing it right and you’re keeping within the SBA guidelines and the rules, which we always are, having investors on deals can be really amazing and it’s just another element to why this is just such a great time and why ETA, Entrepreneurship Through Acquisition is really working.

[00:37:06] Just so many elements. I know there’s so many elements I haven’t mentioned in here, but those are the ones just coming to my mind on the podcast here.

[00:37:13] A.J. Lawrence: They all seem to be amplifying each other.

[00:37:16] And I joked like even six, seven months ago, it seemed like they all had their own sort of vocabulary and that seems to be a little less, you know. It was like there was this, the traditional search funders, which were family funds and all that, and they were talking PE firms coming down, slumming it, and then there was the micro folks and then the acquisition. But it’s interesting. I think now people are starting to use a more common vocabulary across things.

[00:37:46] Lisa Forrest: And A.J., one other thing I’d like to mention too is our military veterans. That’s something also I didn’t mention in sort of, that’s another element. Having entrepreneurship through acquisition, kinda #veteranETA.

[00:37:59] That’s also another amazing piece to this. And I’d say that Heather and I, on any kind of given day, at least a third of our business is military veteran. At least sometimes it’s higher than that, and there’s ebbs and flows on that obviously. But that’s also another really great way to kind of, I think, honor our veterans service to this country. By educating them and mentoring them that this is a real path.

[00:38:27] Small business CEO, small business ownership is a great path for them to continue their service. And our military veterans are just so good at being business leaders. And so that’s something also we’re really passionate about getting that message out as often as we can. And I think they’re also really driving this entrepreneurship acquisition kind of fever, if you will.

[00:38:53] A.J. Lawrence: I mean it’s funny because, I’ll keep it generalized, but I was looking at a deal that I know wasn’t good for me, but my sister, who is ex-Army. It was in sort of the CrossFit, weightlifting environment. And my sister’s in a competitive, not Olympic, like a power lifting group. It’s amazing just how tight knit that group is.

[00:39:19] And I was trying to push her for it and she was like, well, yeah, I dunno. And I’m like, look, you live this. You can always find the accountants, you know, the people on the numbers, you know, that passion. So on the military, I know there’s no real extra financial support. It’s more that there’s just sort of a general eagerness to support veterans coming into the ETA space. Is that correct?

[00:39:47] Lisa Forrest: Yeah. I wish the SBA had kind of more incentives. There’s a fee decrease now or a fee waiver for a smaller transaction and it’s gotta be under 350, if I’m understanding that correctly.

[00:39:58] And I think what it is, it’s the community itself. It’s this ETA ecosystem. It’s the search fund ecosystem that is just trying to be very supportive and mentoring and educating. So it’s really coming from the ecosystem itself, which is another reason why I just love being in this SMB search fund, self-funded search space because the community itself is very supportive.

[00:40:23] You’ve mentioned a couple times, I saw an opportunity, it wasn’t a good fit for me, so I mentioned it to somebody else. That’s how this is working, and especially in veteran ecosystems as well. It’s all about everyone trying to be there for one another.

[00:40:37] A.J. Lawrence: If an entrepreneur is either looking to get in as a pure acquisition entrepreneur or if they have an existing business and all of a sudden are like, oh, okay, maybe I should go look to acquire something to bolt on, to add on, you know, all the different variables in that. How should they first start preparing before they even come to you? What’s kind of the effort you think is best for an entrepreneur to take before getting serious on, you know, getting into the financing side.

[00:41:10] Lisa Forrest: Well, there’s so much. There’s a lot of resources out there. There’s programs. But I’m just saying you don’t necessarily have to. If you’re interested, email me, join my office hours. Just get started. Right?

[00:41:20] A.J. Lawrence: Okay, I was gonna go there next. I was gonna go

[00:41:22] Lisa Forrest: So this whole thing of like, I’m fixing to get ready to think about to do it. Okay, sure. There’s a lot of reading material out there. You can get on Twitter, you can Google. Anything that’s out there. But I’m also saying, Hey, pick up the phone, email me, join my office hours. Let’s just get started.

[00:41:41] A.J. Lawrence: Send the damn LOI, yep.

[00:41:45] I mean, it’s funny. Alright, maybe I, you know, phrase it because I do think there is just jumping in. Recently, I know you were having a Twitter discussion with Elliott Holland, who does my QofE. And I was trying to outthink this possible deal and like all this things just send them. Just send the LOI, you’re not gonna know anything.

[00:42:07] So just get started. Just get started.

[00:42:10] Lisa Forrest: Yeah. Send me some bullet points. Let’s talk about it.

[00:42:12] A.J. Lawrence: Yeah, let’s get going.

[00:42:14] Lisa Forrest: But I was gonna say on Twitter in particular, and searchfunder.com are just two examples. Reach out to fellow entrepreneurs, reach out to fellow searchers, reach out to those folks that have already bought a company. That’s also another way.

[00:42:28] And as I said, the community is really sharing. It’s caring. It wants to help the next person do the thing that they just were able to do. So there’s lots of different avenues to educate yourself. It’s not just one thing. Connect. Definitely connect.

[00:42:43] A.J. Lawrence: Well, how should someone, where should they go and how should they get in touch with you?

[00:42:50] Lisa Forrest: Email me. Lisa.forrest with two Rs @liveoak.bank, lisa.forrest@liveoak.bank. I can send you links for office hours, you can share a little bit about your approach. And then I do a lot of connecting. A lot of what I do during the day is just connecting people to other people.

[00:43:07] A.J. Lawrence: No, I mean, I reached out on question, I can’t even remember how long ago. And compared to a lot of the other bankers you reached right out. I got responses from other bankers like, hey, if you have something, if you have a signed LOI, then we can talk. You reached right out and had a conversation with me. I mean, it’s evolved a bit, but you did. You followed right up. And I didn’t have LOI, so you know, definitely.

[00:43:36] Lisa Forrest: Nope. It’s that easy. It is that simple.

[00:43:41] A.J. Lawrence: Everyone, we’ll have them in the show notes and definitely the weekly sessions. I’ve seen the recordings of it, until recently. I was in the wrong time zone to actually do it in a way that I would, as my old body would be able to stay awake. But I am looking forward to doing it.

[00:43:57] Thank you for just how much you’ve been sharing out there. It’s been great. So we’ll have your Twitter, very active in LinkedIn also. We’ll put that all out for everyone to get in touch. And everyone, just be polite, but go reach out to Lisa directly.

[00:44:11] Lisa Forrest: We need these companies to continue on. I mean, this is like, this is legitimately something that needs to happen.

[00:44:19] A.J. Lawrence: Yep. I always love some of the stats. It’s like the percentage of small business usually also indicates the stableness of a country, you know, of a country’s sort of corruption and all the different status. So the more, not small small but like higher, more. I think it’s something like 3-10 people. The more businesses that have that of that level, the more stable a country is. From turnover of government to economy to all sorts of good stuff.

[00:44:50] Lisa Forrest: That’s such wide reaching considerations and impacts our small business owners do. Absolutely.

[00:44:56] A.J. Lawrence: Lisa, thank you so much for coming on today.

[00:44:58] Lisa Forrest: That’s great. Good to talk to you.

[00:44:59] A.J. Lawrence: I would love to have you back on cause I think we can go so much deeper, especially what’s going on in the economy. But thank you so much for today.

[00:45:06] Lisa Forrest: You bet. It was good talking with you. And let’s do something for you, too!

[00:45:10] A.J. Lawrence: I’m working. I have my LOIs out. Believe me, I’ll keep getting more out. We will get this soon.

[00:45:15] Lisa Forrest: Thanks A.J. Bye now.

[00:45:17] A.J. Lawrence: Bye-bye.

[00:45:21] This episode of Beyond 8 Figures is over, but your journey as an entrepreneur continues. So if we can help you with anything, please just let us know. And if you liked this episode, please share it with someone who might learn from it. Until next time, keep growing and find the joy in your journey. This is A.J., and I’ll be talking to you soon. Bye-bye.

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