Jeremy Harbour
Hey, good morning. I see we’ve got a few people logged in already. We’ll get started in a couple of minutes. If you have any questions, there’s a little Q&A tab at the bottom. You can just click on and type your questions in there. There’s also a chat panel if you see the little speech bubble thing. You can type a comment in there. It’d be interesting to see where you’re from. So if you want to just say hi and where you’re from in the chat panel, that’d be an always interesting to see.
Jeremy Harbour
I’m in Singapore. The sun is rising into my face right now. I don’t know if anyone can see the beautiful Marina Bay. It’s a little bit… because the sun’s in the way, you probably can’t see it, but that’s the Marina Bay Sands, which is quite an iconic place in Singapore and you can see, I’m right in the middle of the central business district here, but as you probably tell, by my facial hair on my face, it’s first thing in the morning here. That’s why I’m sitting out here on the terrace, because otherwise, you would also have a four year old and a two year old jumping around in the stream. So just to get me my full attention, we’re sitting outside here.
Jeremy Harbour
Wow, yeah. We’ve got the whole… pretty much the whole of the US coming in here. Oh and Canada. And UK. Hi Brian. Jeez, what time is it in the UK? Guess it must be about midnight. 1:00 am, in the UK. That’s commitment. Coming on a webinar at 1:00 am. I thought it was a challenge coming on at 8:00 am, but there we go. So I’m looking pretty lame now.
Jeremy Harbour
Right, it is 8:01, so I’m going to call it in a moment and get started. I’ll just look at the latest list of the email questions because obviously, you can type questions live. It is a live webinar. But I will run through the ones that we have here first. So I guess most of you are joining because you already have some kind of connection to me or connection to the Harbour Club, so you kind of probably know what we’re about. I guess it’s interesting to kind of understand the genesis of the Harbour Club a little bit.
Jeremy Harbour
Basically, my background was always entrepreneurial. I started businesses from scratch. I kind of grew them in the traditional way, you know, using sales and marketing. Trying different campaigns. Some would be successful, and some wouldn’t be. The ones that were successful would be successful for awhile. Then you have to kind of reinvent everything to make sure that you’re kind of staying on top and able to do stuff.
Jeremy Harbour
Many many years ago, 23 years ago now I think it is, I bought a competitor. So I had a telecoms company. We bought a competitor down the road. I didn’t have any money at the time, and I was able to close that deal without using any money up front. More by luck than judgment I must say at that point in my career. But basically, it was an epiphany. It was a light switch that got switched on inside me because it kind of said that everything I’d held true about how you grow and develop a business had been challenged in that one transaction. I kind of felt like I didn’t have to run the marathon, I could run the last 10 yards and I’d still get the medal, which is probably a phrase you’ve heard me say before.
Jeremy Harbour
That took me on this journey. Basically, immediately, I went empire building. I built a big group of companies very quickly. The empire building phase was all about me growing my income. So I always wanted to increase how much money I was drawing out per month. I just got more and more overwhelmed with the kind of operations and the management of the businesses. Then I sold a business in 2006 and I also lost one of the companies in 2006 that got itself into trouble and I ended up closing it down. And that really was the big epiphany for me. It was kind of like… The one that I closed down was actually the one I decided I was going to be keeping.
Jeremy Harbour
It was… a strong business. It generated 200000 pounds of net cash in a quarter of the year. I felt like it had great contracts with… Well, in particular, one big contract with a very large blue chip client and I really felt that that was going to be the keeper. The one that I sold was the one that was kind of plateauing a little bit. The big lesson I got there, I guess… several lessons. One of them is the right time to sell the business is now. So all the reasons I had for not selling that business were the reasons I had for selling it. So I didn’t sell it because it had a three year contract with the world’s largest insurance company. I should have sold it because it had a three year contract with the world’s largest insurance company. So those things were acutely brought to bear when the business gets into trouble.
Jeremy Harbour
The one that I sold created this capital event. Now it wasn’t a massive capital event. In fact, we spent most of it on a boat almost immediately, which everyone told me not to do. But the advantage of having that capital event was really the education it gave me in wealth and wealth management. I hadn’t realized before that point that actually, I don’t think you really make money running businesses. I think you make money when you sell them. And instead of focusing… I think I’d always focused on the, “I’m going to make this thing really huge and sell it for some astronomical amount of money.” I think that’s kind of the traditional… It’s almost like the traditional retirement model. Which is you work until you’re almost dead and then you can retire and do whatever you want.
Jeremy Harbour
We know that that doesn’t work. I think it was Tim Ferriss who talked about this idea of having mini-retirements, almost sabbaticals within your career, to go and do all the things that you want to go and do. And I guess I’m looking at the same way of looking at wealth. So have these mini capital events throughout your life. They create genuine passive income. I’m not talking… Passive income’s a bit of a dirty word because it’s used to promote all sorts of weird internet marketing products. But true passive income, income follows assets. Owning real assets generates real passive income. And that I guess was the big education for me. Having access to real passive income. Money that literally comes in without you doing anything. That’s what really gives you the financial freedom. Actually, it’s the one thing that businesses don’t have. When you sell a company, you get capital, but you also get all your time back. With money and time, you really have all of the tools that almost no other entrepreneur has. And that can make you hugely powerful.
Jeremy Harbour
So basically, just in a quick nutshell, because I’ve had a reasonable degree of success buying companies and then at that point, I’d sold one, I had people approaching me and asking me to be a consultant or a non-exec or kind of work for them in some capacity to help them buy competitors or grow their business through acquisition. And I could never really figure out why I would want to do that. It seemed like why would I want a job? If I found a company that I could acquire for a dollar down, I would just buy it. Why would I do that as an employee?
Jeremy Harbour
Then one day, I bought a seminar business and that was really the genesis of the idea of the Harbour Club. So the Harbour Club initially was started as a business. Just hey let’s sell some training to some people that want me to be a consultant. And over the last decade, it’s morphed into something far greater than I could have expected. It’s basically become a global community of entrepreneurs who collaborate together, do joint ventures together. Create and do deals together. The content has become infinitely more rich because of the exposure. We’ve had thousands of different deals that we’ve done. I’ve probably advised on a couple of hundred of those deals. There’s another hundred plus that I’ve done myself. There really isn’t any other forum that has that many live cases or has that much experience. Every time you do something, there’s new lessons, new methodologies that we’re implementing and adding. So the community is just an awesome one.
Jeremy Harbour
So let me run through the questions on email, and then I’ll start to run through… There’s a really easy question here. So I’ll cover this one. Which is, “Where did the name Harbour Club come from?” So funnily enough, my surname is Harbour. So that’s where the Harbour bit came from. When I was sitting at this seminar where I was thinking about the idea, I actually had two working titles. So one was Harbour Club and one was Harboured Business School, which is a little bit cheesy. I thought I’m at a lot less risk of getting sued using the name Harbour Club. So yeah, we called it Harbour Club and it kind of stuck. What was interesting is that at the time, it really wasn’t a club. It was just a training course. And it must have been some inspiration from the universe to call it Harbour Club because it now really has turned into a community and a club and a group of people that collaborate quite closely together. So yeah it was a fortuitous name in that respect.
Jeremy Harbour
First question. “When you buy a company, should you buy the entity or the assets?” This is an interesting. So most legal advice… In fact, I think if you go to most lawyers, they’ll always say, “Hey look, buy the assets. Don’t buy the company because the company might have skeletons in its closet and you might be buying liabilities that you don’t know about.”
Jeremy Harbour
I have a slightly different view on this, which is that one of the most naughty things you can do… So we talk about the golden rules in the Harbour Club, which are the things that you have to do to stay out of trouble. One of the golden rules is you’re not allowed to dispose of assets under value. That’s a fairly simple rule. Your first fiduciary duty is to your creditors, to the people who are owed money by the company. Your first duty is not to shareholders as you might think, but actually to your creditors. And as such, if you dispose of the assets of a company for less than they’re worth, you can have the corporate veil pierced. What that means is that people can go behind the sanctity of limited liability and go after the directors personally.
Jeremy Harbour
So I actually believe that you should buy the company, because it’s very easy to prove the company is worth nothing. And then, if there are skeletons in the closets, we have some very efficient methods for getting rid of the closets. So how you can use insolvency to make sure that you have correctly moved title of those assets to a new entity, that it’s done in the right way, and that there’s no recourse in the future. The challenge is if you give somebody some money for their assets, they may or may not deal with that in the correct way. What tends to happen with small business owners, they have a loose understanding or a loose connection between what’s the company’s money and what’s their money. So what tends to happen is they steal the money, the company then goes into some kind of receivership or liquidation, and then the liquidator says, “Who’s got the assets?” And they point at you. So you’re then picking up the… Or certainly having an uncomfortable conversation with an insolvency practitioner. I sort of buck the trend of the traditional legal advice. And I would buy the entity, which is demonstrably worthless and then deal with the assets if you need to later on.
Jeremy Harbour
“When selling, who is the target buyer? How would you approach them for an exit strategy?” That’s a bit of a, “How long is a piece of string?” question because we talk about 12 different deal structures that you can use to acquire companies and all of those would have different potential buyers out the other end, depending on whether it’s a distressed recovery, whether it’s a glomeration target or a minority roll up target. But there are lots of different potential buyers.
Jeremy Harbour
Actually, there’s a pretty good source of potential exits through the Harbour Club. We have a community now that spans the whole globe of people looking at different things. Quite a lot of people are working on roll ups and groups within certain sectors. So quite often, if it’s a business that fits into one of those sectors, that can be an easy exit. We have a structure that people love called the BIBO structure where we don’t buy the whole company. We take a significant stake in the company. It’s actually a controlling interest, although it’s not a traditional majority. We take less than 51%, but we have control of the company through the contracts that we use.
Jeremy Harbour
And in that structure, nine times out of 10, you end up selling it back to the guy you bought it off. And normally in quite a short space of time, like within three to six months of acquiring the stake, you’re selling it back to the original owner and using a clever financing structure to do so. There’s many different buyers and many different ways of doing it, but being part of the Harbour Club gives you some really interesting options that perhaps aren’t available to everybody out there.
Jeremy Harbour
“What types of businesses should we avoid acquiring?” That’s an interesting one. I describe myself as being sector agnostic, as in I will buy anything in any sector. Having said that, I’ve been more successful in my career in the business services space. So in companies that provide services to businesses. So just as a kind of natural default now, I tend to only buy companies that are in the B2B service sector. I don’t tend to do consumer stuff. I don’t tend to do retail or those kind of areas.
Jeremy Harbour
Now, there lots of Harbour Clubs that do do those businesses and there doesn’t seem to be any particular harm in doing that. So it is more of a preference. I would also say if you’re doing something in the distressed space, try and find something close to home. You’re going to have to go there occasionally, and the further away it is, the more you’ll resent it after you buy it. The great thing with the Harbour Club is that you can obviously joint venture with somebody in a different geographic area and so you can widen your spread, and it’s very easy to find people in other parts of the world that you can partner up with or other parts of the country you can partner up with.
Jeremy Harbour
“Why should you buy a business and not start one?” So this is really… Look, starting a business is really hard. You have to do everything from scratch, and I don’t think you ever really get that time or that money back. It’s a bit of a thankless period. That first three years of starting a business, the blood sweat and years as I call it, you’re really just trying to get everything figured out. I don’t think you’ve got many of those left in your career. They’re emotionally very draining. They’re financially very draining. Don’t get me wrong. It’s fun and exciting and it’s a rite of passage. But I don’t think you’ve got the energy and the resources personally to do it many many times at a high level and also, there’s only a finite number of three years that you have as well to do stuff.
Jeremy Harbour
So I would always much rather pick up something that’s already off and running. Something that has an office. It has staff. It has customers. It has revenue. Pretty much… If you have an awesome start-up idea. If you have something you just really want to go and do, why not buy a business that has the same type of customer or a business that has the skillset to deliver this new idea and just pivot that business into what you’re trying to do. Just save that first few years of trying to get that inertia pushing that rock up the hill. And also, it’s a lot cheaper. You can pour hundreds of thousands of dollars into that first three years and by acquiring a company without using any capital up front, you kind of shortcut the three years and the capital requirements. So I’m a big believer in buying businesses and not starting them. But I do think a start-up is a bit of a rite of passage. I think it’s something you kind of need to understand before you go on to do stuff.
Jeremy Harbour
Next question. “What type of distressed situation are business owners or their businesses in?” There tends to be a little bit of kind of perfect storm of motivations that drives people to do a transaction with us. But obviously, the overriding one tends to be cashflow issues. Companies tend to have cash issues. Most people don’t understand the relationship between their business and cash. They often try and solve cashflow problems by just generating more sales. Sales often have an inverse impact on cashflow. You can find that it’s not really working effectively. So I would say cashflow is one of the biggest drivers to drive people to you.
Jeremy Harbour
“How do you deal with a business that goes sideways after acquiring or merging?” I don’t know if this is an Americanism or whether sideways means going down. Basically, if a business is in trouble, you can simply close it. A business is always responsible for its own liquidation costs and if it can’t afford its own liquidation costs, then a liquidator is appointed to it. So very simply, if a business isn’t working, you close it. There’s no big stigma or issue with closing a company down. It’s just part of the natural course of business. And it’s your duty if you’re an officer of that company to close it down if it’s in trouble. So don’t be too hung up about that.
Jeremy Harbour
“What type of risk do you have when acquiring a business with no money down?” Well I always think the biggest risk in any acquisition is the capital that you commit up front to the acquisition. So one of the reasons why people do extensive and expensive due diligence on a business is to protect capital that they’re investing. So if you can reduce that capital exposure to a dollar, then you remove most of the risk that’s involved. So then the only other risk that you have is kind of counter party risk or… contractual risk. The way that we attack that is that we use an SPV. So we use a special purpose vehicle. It’s a separate limited company. And we use that company to do the acquisition. So effectively, any contract that you’ve entered into is through an empty limited liability company. So you have the limited liability nature of the target that you’re acquiring and the contracting party, the acquirer is another limited liability company. So you have almost a double insulation of limited liability.
Jeremy Harbour
“How do you do a roll up of businesses that you have access to to benefit from it?” So we have a couple of really interesting roll up strategies. The traditional roll up strategy that everybody has is either doing leveraged buyout, which is the private equity model. So they end up with a big group of companies, but also an even bigger pile of debt that they’re trying to service. Or they try and do kind of structured deals, rolling the cash from one business into the next business, but then that obviously takes much more time to execute.
Jeremy Harbour
We have a couple of really slick no-money-down structures for doing this. I’ll share one of them with you. We call it the minority roll up. So we obviously have the contracts that we use in the Harbour Club, which enable us to take a controlling stake in a business with a minority shareholding. Now the advantage of having a controlling stake apart from obviously protection for you as a shareholder… because it’s very difficult usually as a minority shareholder. You can very easily be stuck as a passenger in that business and not really able to get the money out, the profit that it’s making, or be able to sell the business or really do anything.
Jeremy Harbour
With our contracts, you’re able to have a high degree of control over the business. There’s a happy side effect of control, which is that you have to be reported as having controlling interest in that company. So your SPV, your holding company, when it has this minority stake with this contract in place, when it files its accounts, it has to declare on those accounts that it’s the beneficial owner, or has a controlling interest in that subsidiary. Now when you have a controlling interest in a subsidiary, you can report all of its turnover and profit up to the hold code.
Jeremy Harbour
Now there’s an offset, which is the offset of the percentage that you don’t own that the headline is you have all of their revenue. So interestingly, with a minority roll up, you can take 15, 20% stake in say 10 different companies and if those 10 different companies are doing a million in revenue each, your holding company would be reporting $10 million in revenue. And also with the contractual terms that we have, you have the right to trigger a sale. So effectively, you can run around selling that $10 million revenue company. So it’s a hugely powerful tactic for rolling companies up because it’s very easy to take multiple minority stakes and this is just really a methodology for… It’s a low-friction roll up I would say. Where you don’t need any cash. You can take those stakes by just adding value to those businesses, but you can create something of quite big value in quite a short space of time. And we go into a more sophisticated version as well on the Harbour Club as well.
Jeremy Harbour
Lost where I am in the questions. Hang on a second. “How would a potential downturn in the economy affect the opportunity using this strategy?” Yeah, it’s a bit of a double-edged sword because obviously I’ve been doing this for 20 years, so I’ve been through the probably largest recession in living memory. And it was a really interesting thing. So in 2009, I did a lot more deals than I normally would. I guess in my business turnaround years, when I was cutting my teeth, I was doing maybe four or five deals in a year. In 2009, I did 12. But half of them failed. It was like catching a falling knife. I remember buying this furniture retailer that… Their revenue had halved. It halved again after we bought it. So there was real sense of falling off a cliff to an extent. But it was very fertile ground. So everybody you spoke to was in distress so every possible conversation was a possible deal. So there was just tons and tons of opportunity.
Jeremy Harbour
But was really interesting is… I don’t know if many people realize this, but actually the recession, the global financial crisis was 2009. But 2012 was actually a recession. 2012, it was actually quite hard to do distressed deals. There were lots of other deals around, but it was quite hard to do distressed deals. And there was more distress probably in 2012 than there was in 2009. 2009 was a big shock. 2012 was a real business malaise that was holding everybody back.
Jeremy Harbour
The problem was in 2009, because it was a shock, if a bailiff came into their office, it was a big deal and they wanted to take action. In 2012, if a bailiff came into their office, it was just Wednesday. It was just another day. So I think what we have now is… with all the different deal structures we in the Harbour Club. There’s 12 different deal structures that we teach which involve not putting any cash in up front. Those 12 different deal structures I think basically give you an evergreen strategy.
Jeremy Harbour
You have deals you can do with big solvent businesses. I have a deal I’m working on at the moment. It’s $13.8 million of EBIT. Very well established, very successful business. It will still be a no-money-down transaction. Right the way down to the company that’s doing half a million a year in revenue and is about to close its doors and send everybody home. So we give you strategies for all those types of transaction and those deal structures are… also suitable for different times in the economic cycle. So depending on where the economic winds are blowing, you have a deal structure for each occasion.
Jeremy Harbour
So that’s the downturn one. “What type of ongoing support is available when you become a member of the Harbour Club?” This is one of the things I think people always focus on the three day event. And of course, the three day event is important, because we’ve condensed 20-odd years of experience into that three days so hopefully, we show you some areas where I bumped my head and hopefully you don’t have to bump your head in the same place. We show you some really valuable lessons that we’ve learned and the contractual and structural solutions we’ve come up with to make sure that those don’t happen again.
Jeremy Harbour
But I think what people don’t realize is after the Harbour Club, there’s a forum. There’s access to our gold members. Our gold members aren’t… It’s a meritocratic thing. It’s not something we sell you. You can only become a gold member by contributing to the community and doing deals. There’s no payment required to be a gold member. So the gold members are within the online forum. You can reach out to them. You can joint venture with them. You can chat to them about deals. They’re always very giving of their time. I’m always available. I have WhatsApp. And you get my WhatsApp number and my Skype details on the course and you can ping me one line questions any time you like about any deal that you’re doing. I have a half a dozen right now that I will reply to after I finish this call.
Jeremy Harbour
Basically, yeah. You’ve got access to me. You’ve got access to the gold members. You’ve got access to the community. Look, we show you a process on the Harbour Club and it’s a multi-point process that you have to take every single transaction through. And what you will find is that you need to master that process from start to finish. You need to be good at all of the parts of that process. But of course when you start, just doing a three day course doesn’t necessarily catapult you to expert status in those areas. Expert status comes from doing. From actually taking action and delivering these things.
Jeremy Harbour
Effectively, you’ll need to go out and do it in a live environment. Now if there’s an area in that process that you’re weak at, the simplest way to overcome that is to joint venture with somebody who’s strong in that area and do a deal with another Harbour Club until you have the experience to then strike out on your own. And it’s something that we’ve really noticed about the community is that there are just a lot of these natural partnerships that form either by geography or by skills or by sector. So people are looking for somebody that’s got expertise in a particular sector or they want somebody that’s really good at one of the parts of this process. The community is really, really important. It’s a lifetime membership. The rule is as long as you’re not a dick, you’ll be part of the community for lifetime.
Jeremy Harbour
You can also come back and do the Harbour Club if you want. We have a number of people that come back. You get a much, much lower ticket price for a retake so you can meet a new network of people face-to-face. You can experience the information through a different lens perhaps after you’ve got some experience. You’ll hear it in a different way. So there’s always that open to you. But we’re not selling you the next training course. There isn’t another thing you have to do after the Harbour Club. You do the three days. You’re in the group. You’re able to share and work with everybody in the community.
Jeremy Harbour
“Can this work for consultants that have existing clients?” Yeah, sure. We’ve had dozens and dozens of consultants who are basically of swapping time for money or tired of making their clients rich. So they’re adding loads of value to these companies but they’re not getting the upside from it. And so this is a great way to pivot those relationships into ownership relationships in a really ethical way that helps all parties. So it’s a win/win scenario. We can also show you how you can maximize your consulting fees. How you can guarantee you get paid. How you can get equity kickers as part of your consulting and what you can do with those equity kickers, because it’s really easy to get a 5% or a 10% stake in a company that you’re helping out. It’s what you do with it that’s really important because otherwise, like I said, you just become a passenger, and that’s not particularly useful to anyone.
Jeremy Harbour
By the way, I apologize if I’m talking really fast. We’ve got tons of questions and we have a one hour timeframe. So I’m going to try and get through as much as we can and answer as many people’s questions as possible.
Jeremy Harbour
“How much does it cost on lawyers, accounts, and experts in due diligence?” So basically, if you’re doing a distressed deal, we show you a structure for doing a distressed deal where it won’t cost you anything in legal fees or due diligence. If you’re doing the roll up kind of structure, we can show you how you can use the eventual buyer to pay for the due diligence and legal fees. So again, we’ve structured all of these deals around not needing any cash up front. Now, some people can get a little bit overwhelmed by not having legal advice. We give you template agreements that you can use.
Jeremy Harbour
But look, if you don’t have the confidence or the competence to use those legal templates, then of course, use a lawyer. I was about to say a liar, which is quite appropriate. Freudian slip. Of course use a lawyer. Give them the agreement to sanity check and give them really strict instructions on a fixed fee structure. Within the Harbour Club community, there are some lawyers that people have found that will do less than a $1000 fixed fee to complete a deal. So don’t get stuck in the open checkbook scenario. Lawyers are really good. They’re paid by the hour. Basic economics says that if you pay somebody by the hours, things are going to take a long time. So you need to take that incentive away and make sure that they’re rewarded in a way that meets your goals, too.
Jeremy Harbour
Now we have questions from the audience. So these are questions… The ones I’ve just run through are questions that were emailed in. So from Zafar, “Example of the most common problems for a target business to acquire. What solutions normally implemented fix those problems increase value.” So we have a list of motivations. I think there’s about 30 of them. Like I said, the most common one is cashflow, but there’s tons and tons of other things that drive people to want to do one of these transactions. The great thing about fixing businesses… I mean, we have a methodology that we follow, a day 1 through to day 100 methodology that we follow to fix the businesses. One of the great things I would say is pretty much just being objective is a huge advantage.
Jeremy Harbour
Often, a 12 year old could see what’s the problem with the business. I don’t know if anyone’s experienced this. You can always see what’s wrong with other people’s businesses. It’s very hard to see what’s wrong with your own business. So it’s often just having that objectivity that means you can often see very quick and easy solutions. With distressed companies, you’ll find that one piece of really low-hanging fruit that exists in most businesses is the squeaky wheel is getting the oil. So the person that’s complaining the most is getting paid. People aren’t paying people in the right order. They’re not paying people based on a business-critical hierarchy. Simply by shifting that, so shifting away from the squeaky wheel getting all the oil, you can have quite a big impact.
Jeremy Harbour
The other massive impact you can have is by not being them. What you’ll find is that the existing business owner has burned all of their bridges and just by you being the new kid on the block, you can have a completely different conversation with the stakeholders and the people that are owed money. That in itself can be quite transformational. Hopefully that gives you a couple of really quick ideas.
Jeremy Harbour
“What kind of business should you avoid acquiring? It’s kind of only three that we avoid. One would be really overhead-intensive businesses that can’t wash their face. An example I give is a health club and spa where you have all this rent and you have all this staff costs before you get a single dollar in through the door. If you’re relying on having to add more sales, then it’s going to be a really tough call. And then there are some businesses that are just very cashflow intensive. Feast or famine, I would call it. They require a lot of cash to deliver their service, and they get little projects every so often. That lack of consistency can make it very difficult.
Jeremy Harbour
The other one is where they have huge amounts of term debt. So quite often, these are people that have done a leveraged buyout to buy the business in the first place. They’ve borrowed a huge amount of money to do the acquisition. It’s all secured over the company. They probably signed a personal guarantee as well. Those are just much harder to deal with because the assets really belong to the lender. So the person you’re dealing with just feels like the owner because of the distress they’re under. But it doesn’t really work.
Jeremy Harbour
“Is there a specific time or revenue target to crystallize the exit strategy after acquiring it?” So look, with distressed deals, we focus on a four month time horizon from acquiring to exit. I’m not saying you can do them in four months. I’m saying that’s what we’re aiming for. We have lots of examples where they have been completed within four months, but quite often, they can take 9-12 months before you get them off your books. Obviously, it’s the person you’re selling to that dictates a lot of that timeline. So you really have to have your stars in a line to achieve it in four months. But we do remove the two biggest obstacles to sale. The two biggest obstacles to sale are due diligence and finance. So when we’re selling a company, we’ve already dealt with the due diligence and the finance. We have that wrapped up as part of our sale process. And that’s just a massive, massive lubricator for the transaction. It just makes everything happen that much easier and quicker.
Jeremy Harbour
“Who is the target buyer?” I think I’ve kind of covered that already. So let’s start running through some of these questions. “Do you ever use cash as part of the deal structure?” Not ours, no. Like I say, the biggest way you can de-risk a transaction is not committing capital up front and I think people get stuck in a bit of a paradigm that, “Well you just need a little bit of cash.” Also I hear people say things like, “Oh yeah, but this wasn’t one of those deals. This was one where I had to put a bit of cash in.” Or, “This is a good business, so I need to give them some cash.”
Jeremy Harbour
You can do these deals without using cash. It’s all about the sourcing methodology you use and the deal structure that you use. There’s a case study quite recently of a Harbour Club… I think it’s one of the ones we sent out to people like you. So ask for the Steve Pratt case study. But basically, he bought a company with a million pounds’ worth of real estate. The business had cash in the bank. It was profitable. It had 400 grand of cash in the bank. It was making 200 grand a year profit. And that deal structure used none of his own cash up front. Used a bit of the company’s own cash, some of the cash in the bank, but there was no other cash involved. No mortgage, no debt, no bank debt, and he ended up with a million pounds’ worth of real estate to boot.
Jeremy Harbour
You have to remember, in these small-to-medium size companies, they will talk about how many buyers they have and how there’s people queuing up to buy their company. It’s bullshit. If you look on bizbuysell.com, there are two million businesses for sale. If you look again in a year’s time, you’ll notice 200000ish of those will no longer be there. And not all of those have sold. So less than 10% of the businesses are selling. Some of them are closing down. Some of them are just winding themselves down to take cash out over a period of time because they can’t get the acquisition price that they’re looking for. It’s a buyer’s market. There are way more companies available than there are natural buyers and there are very, very few people running around with a checkbook ready to write a check for a bricks and mortar traditional type business. There are tons and tons of opportunities and don’t get sucked into this idea that you have to commit a bit of cash. It’s less about the cash and it’s more about the structure. How you structure the deal to do it.
Jeremy Harbour
Somebody says here, “I signed up for Miami.” Congratulations, Chad. I look forward to seeing you. “And I’m really looking forward to it. Will us in the US have access to the glomeration model or is that a UK thing right now?” No, absolutely. The glomeration model works extremely well in the US. In fact, I think it’s even more powerful in the US because you have more of a mcmarket issue. So a glomeration works really well for companies that do $1-5 million of EBIT, so Earnings Before Interest and Tax. Traditionally, globally, those companies don’t have many options when it comes to… They’re a bit too small for private equity. They still can’t really borrow money from the bank without personal guarantees or betting the house as I put it. This is just a much bigger problem in the US. There’s way of those and there’s way less financing options for them or ways that they can take their business forward. So I think it’s an even bigger opportunity.
Jeremy Harbour
Obviously we did our first ever event in the US in April. The reason for doing that was really to create community in the US because up until that point, we had a handful of intrepid… pioneers that have found their way to Europe or to Singapore to come and do the Harbour Club. And we really just wanted some people they could play with, some more people that could come and do deals. From that really small group of people, we have three really good casestudies. Well, three people who have done deals that we could use as really good case studies. And we really just wanted to build on that to create community so people had people they could joint venture with. People they could work with and everything else.
Jeremy Harbour
The first event was just a raging success, which is what led us to do this next event. The idea is to create a similar kind of community that people have access to in Europe because that really then starts to create a lot of deals and a lot of inertia that can work really, really well.
Jeremy Harbour
From Daniel, “How and where do I find businesses to have a head start before the Harbour Club Miami so I can kickstart immediately when I return from the event?” This is always a tricky one. So it’s not long to wait now. You’ve got two and a half weeks. I would wait the two and a half weeks and just hit it hard as soon as you finish, because there is a risk in approaching things half-cock and not understanding the whole picture before you get there. Of course, we have lots of video content. Lots of stuff that you can watch and consume. I would probably just consume and watch as much of that as you can and try and get a better feeling from it there.
Jeremy Harbour
Somebody put their sources for finding deals. Again, we run through tons and tons of different sourcing techniques and… there’s lots of different ways. A really simple shift you can make straightaway is to position yourself differently. So what do you say you do when you meet people and what does it say you do on your social media profiles like LinkedIn and things like that? Because this is probably the most powerful question you will ever answer, because the way you answer this question dictates how the rest of that conversation goes. So when you meet somebody new, the first thing tends to be, “What’s your name? Where do you live?” And the second thing is, “What do you do?”
Jeremy Harbour
In fact, sometimes, “What do you do?” comes before, “Where do you live?” So answering that question in a powerful way can really give you a powerful lead in to what happens next. The one that we found over the last decade of trying all sorts of different things from, “I buy and sell small-to-medium companies,” or, “I focus on distressed companies.” All those kind of answers don’t elicit anywhere near as much of a positive response as saying that you’re an investor in small-to-medium size companies.
Jeremy Harbour
By positioning yourself as an inventor in small-to-medium size companies, you will get everybody’s attention. Most distressed companies are looking to solve their problems with more money. So the way I describe it is everybody wants to fix the leaking bucket with more water. So quite often, they don’t actually need money, but by positioning yourself as money, you’ll attract the conversation with them. So just a really simple thing you can do is reposition yourself online and in public as an investor.
Jeremy Harbour
I don’t know if anyone’s ever done one of those BNI meetings where you stand around and you talk for a minute about what you do. Go to one of those meetings and say you’re an investor and see what happens. To use a farming expression, it’s like flies on shit. You will have every single person in that room swarming around you. So it’s a hugely powerful technique and something that is really simple. It is literally a different way of positioning a question that you’re asked every single day. It really does create powerful conversations. I go into that in a bit more detail on the Harbour Club as well. I’m doing it in a congruent way.
Jeremy Harbour
“What are some of your exit strategies? Businesses typically take a long time to sell.” The thing I would just say on exit strategy is the key to selling. One of the keys to selling is we’re the best vendors ever. So a lot of the businesses that are out there for sale are thoroughly unprepared in how they’re presenting the business and thoroughly unprepared emotionally for selling the business. They’re still connected to it in some way and they put unreasonable things around the deal. So our focus on selling business is to create a path of least resistance to the exit. So to take away the roadblocks and make it as easy as possible. So being flexible in your structure. Fixing the finance and fixing the due diligence. When you take away all the obstacles, it’s kind of like buying something on Amazon. It’s one click. It just makes it much, much easier. So removing the obstacles to sale is actually one of the biggest things you can do.
Jeremy Harbour
Brokers are fantastic at putting obstacles to sale in the why of anyone that inquires about that business. They don’t solve the key problems. They don’t have a finance solution. They don’t have a good information memorandum. They don’t have a due diligence virtual data room that’s ready to go to the buyer. So they haven’t solved any of the core underlying problems and the first thing they want you to do when you ring them is you have to send them a copy of your passport. You have to sign a non-circumvention agreement. You have to do this. You have to do that. You have to give them a DNA sample. Everything that they do is focused around creating the maximum resistance to getting a buyer through the process.
Jeremy Harbour
Next question. “What is your assessment of start up or new venture. Should we look at it as JV or business investor?” Look, start ups are wonderful. They’re the engine of entrepreneurship. I think if you’re between 18 and 30, you should be doing start ups. I think it’s a fantastic way to learn about business because everybody… The day I knew the most about business was the day I started. You really think you know everything when you start your first business. Start up and entrepreneurship is a fabulous teacher. Comes with quite a lot of school fees, but it’s a fabulous teacher. And it’s a great teacher of humility and it’s a great teacher of skills and strategies. So people kind of need to get that out of their system and understand how business really works, but after that, no. I think it’s time… when you’ve done something, it’s time to move up the entrepreneurial ladder. And I think start up is all about customer value.
Jeremy Harbour
I think the next rung of the entrepreneurial ladder is all about shareholder value. It’s all about working on the business and not in the business. If you want to know if you are truly working on shareholder value, then your days should consist of mergers, acquisitions, joint ventures, and exits. And if you’re doing anything else, then you’re not a shareholder. You’re not on your business. You’re in your business. So it’s about transitioning to shareholder value.
Jeremy Harbour
“Is the information and related documentation applicable to the Canadian market as well, excluding French language?” Yeah. Basically, the deal structures are basically rooting in human nature. Contract law is remarkably similar everywhere in the world, so we do give you a guide on contract law as part of the course and it does talk about some of the variations in different jurisdictions, including Canada and US, Japan, other places around the world. But yeah, most of the structures and most of the ways we do stuff is human nature-related and if there is a geographical specificity to it… Some of the things we do are specific to the UK. Some are specific to the US. Then we highlight those. We give you the information anyway, but we highlight that these are things that are specific hacks or loopholes that you can exploit within a particular jurisdiction.
Jeremy Harbour
“How much time does it take to do the first deal after attending the event if you already have a few years experience running businesses?” This is a really tough one to answer. We’ve had people do deals within the week of coming back and we’ve had people that have taken a year to do a deal. I would probably position it in a slightly different way. If you’ve got a reasonable grasp of the whole process that we run through… So if you’re pretty good at all of it. You don’t have to have mastered all of it, but if you’re pretty good at every component, you’ll need to have 20 meetings to close a deal. If you’ve mastered every component, you’ll need to have 10 meetings to close a deal. And a meeting would be a qualified deal, which we’ll go through what that looks like on the course. So it’s more of how the habits you create to create the inquiries that lead to the meetings and then it’s the meetings that turn into the deals. So I think that should work.
Jeremy Harbour
Somebody here said, “Are you offering another three day training in the second half of 2019?” So if you reach out to Monty. So harbourclubusa.com. Harbour is spelled in the British way so it’s got a u in it. H-A-R-B-O-U-R. Harbourclubusa.com. Click on there to book a call with Monty and he can run through all the different times. Yes there are. There’s a course in US in the second half. There is a course in the UK. But don’t ask me the dates. I just turn up and speak. So reach out to Monty. He’ll be able to tell you exactly when those are.
Jeremy Harbour
“Can you share how you bought a yacht for $2000 US? Literally have sadly a business owner who is dying and he makes luxury yachts. He’s selling his business to the first person who buys his $3.8 million of yachts.” Yeah, so this is actually more a wealth strategy. So basically, I always used to think that you had a choice whether you either saved your money, or you spent your money. So you had investing or spending and basically, you couldn’t do both. I then discovered private wealth banking, and with private wealth banking, you have something called lombard lending.
Jeremy Harbour
So basically, you can invest in a portfolio of income-generating assets. So these can be diversified. Fixed income, so bonds and debts. You can have real estate. I get my exposure to real estate not through direct properties, although I have a few, but most of my real estate exposure is through real estate investment trusts, which are effectively liquid real estate. You can buy and sell the shares very… You can invest in property in the morning and divest in the afternoon and you can cover lots of jurisdictions very easily so you can get a globally diverse property portfolio.
Jeremy Harbour
And then equities. And I have two strategies for targeting equities as opposed to just a traditional buy and hold strategy. We go through this on the wealth section. The portfolio generates quite high returns. I’m up 24% so far this year. It creates a huge income stream. So I get consistent income from my portfolio. So the goal with my wealth strategy is that you live off your income, the income from your investments. And then you invest 100% of what you earn. I believe that’s the way you really snowball your wealth is by being able to invest everything that you earn.
Jeremy Harbour
But the way you buy the yacht, is that once you have this core portfolio… The core portfolio is this thing that’s providing you your income. If you have private wealth banking, which is basically rich people banking. We go through how you get it and how you do that in a bit of detail on the wealth section of the course and I know you’re coming along already, so I’ll see you there. But basically, you can lombard lend against that portfolio. So what that means is you can draw cash against your portfolio at 0.7% per year. So 0.7% interest per year, plus the prevailing bank base rate.
Jeremy Harbour
So if you’re borrowing, say euros or Japanese yen or Swiss francs, or Swedish kronor for example. The prevailing rate is a minus number. So you just pay 0.7% per year in interest. So what I did. I’d just sold a boat and it’d taken me about two years to sell the boat. Boats are remarkably illiquid assets. What I did is I realized [inaudible 00:52:18] liquidity [inaudible 00:52:21] my next purchase, so I went onto approvedboats.com, which is just a working website for boats. I typed in the type of boat I was looking for, and I shortlisted 20 boats that I wanted to make offers on.
Jeremy Harbour
I then proceeded to make offers for every single one of those 20 boats at 50% of the price they were asking. Not surprisingly, most of them told me to… I think the French word is go fuck myself. So basically told me to go away. I ended up in dialogue with about two or three of these boats. And eventually, one of them turned into a deal. And it was a boat broker that had taken this boat in part exchange and it was now sitting on their books. As you know, every year that a boat sits there, you have to service the engines. You have to pay the mooring costs. You have to do antifouling and cleaning. There’s a whole bunch of things you have to do every year and it was just coming up to the next time they would have to do this. So they were just about to spend another 20 grand on this boat. They were asking 300 something thousand for it. I can’t remember the exact price now. But anyway, I know what I offered. I offered 210000 euros to buy the boat.
Jeremy Harbour
Basically, when they said, “Yes,” I used this lombard loan to buy the boat. So it cost about $2000 US a year for the capital cost of the boat. And then I put it straight back on the market for a higher price. In fact, back at the same price that they were asking for it. And I had the use of that boat for two years whilst it was for sale. And then I sold it. Not quite for the price that they were asking, but for a profit over and above what I had paid. So effectively, I got two years of using the boat for the $4000, plus sold it for a profit at the end. And that is now how I buy boats. And I’m currently again… I do have a Sunseeker at the moment. But that I bought as kind of a day boat just to use when I’m at my house in Mallorca and I am in the market for another boat right now. So I will be using that same strategy to do that again.
Jeremy Harbour
So I think we’ve got to the end of the Q&A questions. Let’s just see what’s on the chat panel. “How much is it to attend the Miami event?” So yeah, reach out to… one of the team. Monty is handling the US event. So if you ask [email protected] or Monty, I’m sure you can reach out to Ken and let him know the answer to that question. There’s different payment methods, so I won’t go into those here and now.
Jeremy Harbour
“Two construction company financials have crossed my desk. I think they might be great for a glomeration. What do you think of the construction industry and forming a glomeration? Business brokers are like college professors. Never a solution but many meaningless questions.” Yeah, so don’t get me started on brokers. There’s a lot of things that brokers could do that would really improve their lot, but they don’t do it.
Jeremy Harbour
So construction companies. Yeah. So let me caveat that with pure construction, I would say falls into that feast or famine profile in that they tend to be project-based and kind of all or nothing. So you have to be a little bit careful with project-based construction businesses unless they have a really good pipeline and lots and lots of projects on the go simultaneously. But what we are doing a lot of deals in at the moment are the construction services space. So we’ve done two deals so far in the last 12 months. We’ve probably got another half a dozen that we’re about to do in the construction services area.
Jeremy Harbour
This is things like interior fit-outs. The kind of glass and glazing. The lift maintenance. The facilities management. Anything that kind of sits around construction, that supports the construction industry seems to be really, really good. But yeah, look. If they’re doing a million to five million or a million plus of EBIT and they’re not completely exposed to project-based work, then let’s have a look at them, because I think it could be interesting.
Jeremy Harbour
Somebody says, “Can you use this for a Lamborghini Aventador instead of a yacht?” Of course you can. You can use the money for anything you like. You can even invest it in more stuff. So the great thing is, you can borrow at 0.7% per month, so you can lend it to people. You can invest it in property. You can do whatever you like. It’s unencumbered cash you can do what you will with. So anything that has a positive carry on that 0.7% can be a really interesting thing to use that money for. Because you’re effectively then double counting your money. You’ve already got it invested in generating a high return. You’re then able to invest it over here and get an additional return from that cash that’s not correlated to markets and other things. So yeah, there’s all sorts of cool stuff you can do with this lombard lending.
Jeremy Harbour
“What is a simple structure for a 500 million business using only one pound?” Well, basically, a glomeration. So the pitch a large company would be to effectively take them public through reverse merger and you use an SPV. So the SPV effectively acquires the company. The SPV sells to the public company. Effectively the public company pays for all of the due diligence and the legal process to do it and you take a stake on the way through for a dollar. So you effectively get your stake for nothing.
Jeremy Harbour
We’re actually completing one of these as we speak. I hope to have it complete by the end of the month, although I probably would have said completed by now two weeks ago, as these things go. This is a joint venture with a Harbour Clubber. It’s a business that’s doing about 7 million of EBIT and the upside, the slice that we’re talking about, is around about $7 million. So there are $7 million of profit in effectively flipping this business into a public company. And that transaction started in August, so what will that be? Like six months, seven months? Something like that, to create a really decent seven figure upside in partnership with that Harbour Clubber. So yeah, they can be quite interesting.
Jeremy Harbour
“Can you say more about how brokers could improve?” So Brian, you’re obviously a broker. The problem with most brokers is that they charge upfront fees for people to join them. And those upfront fees are often what keep the bills paid and the doors open and so a lot of them… I’m not saying all of them, but a lot of them, tend to then focus around signing up new clients rather than actually selling the businesses. So they might sell a business by accident, but generally, they’re trying to just get this upfront fee. Basically, that makes them give the seller unrealistic expectations. So look, if you’re selling your house and somebody says it’s worth 200 grand, another says 300 grand, and another says 400 grand, you’ll list it with the 400 grand one because human nature, greed, whatever it is, says that that’s the best option. So brokers do the same thing. They promise people way more money to get them listed because there’s a listing fee for getting them listed.
Jeremy Harbour
And then, as I say, there are obstacles to a sale. And the biggest obstacles are due diligence and finance. Brokers don’t solve those problems for people. They literally just put the business in front of people and let them have a look. The other thing that brokers do is they manipulate the numbers. They have something they call adjusted net profit. Adjusted net profit basically means not the net profit. If we hadn’t spent all the stuff that we did spend, this is what the profit would be. It’s a made up number. It’s how they get to their crazy valuation, and it’s not helpful because you have to try and talk people back down from that ledge and yeah, it’s just very disruptive.
Jeremy Harbour
You’ll quite often find that these businesses get stuck with brokers for a couple of years. They lose their passion for their business because they’re not selling it for the amount that they wanted to and the business actually goes down. It’s just not a great environment. And also, if you’re new to this as you’re saying, “I’m just learning,” you can waste a lot of time with brokers because they will keep you very busy but you’ll be a busy fool. You’ll have loads of companies to look at, but they all have manipulated profits. They all have unrealistic expectations. You can spend a lot of time peeing around in that area. So it’s much better to find deals that are off-market, that haven’t maybe thought about selling and look at solving those problems instead.
So we’re kind of wrapping up now. We’re coming to the top of the hour. I’ve got one last question here. “When looking at a business statement, what is a formula you use to see if a business is profitable when considering acquisition?” Again, there’s loads of different strategies. There’s not one strategy. There’s 12 different deal structures that we use for acquiring companies from distressed all the way up to the $500 million company that somebody asked the question about here. But, if you were doing a distressed company for example, our due diligence is the price we pay.
Jeremy Harbour
The best due diligence you can have is price. So effectively, if you can buy the business through a limited liability vehicle for a dollar, you could eBay the doormat, and you’re in front. So everything after the doormat is kind of the upside. So the business can be a basket case and you can just close it. But quite often, because you have low expectations, you’ll be more pleasantly surprised by what you find than disappointed by what you find. I would say, you don’t need necessarily… in the distressed end, you don’t need a formula. The formula you need is to de-risk. Cover your downside. Make sure you’ve protected your downside. And then you only leave room for upside. And that really is the simplest way to look at it. Of course, with other deal structures, there’s more complex ways to look at it, but hopefully, that gives you a flavor of doing something in a slightly counterintuitive way. In a way that perhaps isn’t the first thing that jumped to mind.
Jeremy Harbour
I think we’ve got a few people on this call… There’s 40 people on this call, so thank you so much for taking the time to come and join me on this sunny morning here in Singapore, but probably just before you guys go to bed. Thanks so much for joining us. Look, if you want to find out more, go to harbourclubusa.com. H-A-R-B-O-U-R clubusa.com. Reach out to Monty. Monty also has your details as you registered for the event here. We have a free pdf report which gives you some more information. We have lots of video content online. We try and share a lot of this stuff out there in the public domain. So feel free to have a dig around and have a look at what’s going on out there.
Jeremy Harbour
I really hope some of you decide to take kind of the first step on what has been such an exciting and game-changing journey for me. Which is just going into this world of buying and selling companies instead of just dealing with staff and customers the whole time. It really is a very exciting way to create wealth. It’s a great way to engage your brain and to find creative solutions to real world problems. I really hope to have you as part of the community and do deals together or do deals with other Harbour Club delegates.
Jeremy Harbour
Thank you all for your time. Thank you all for joining us on this and I look forward to seeing you face-to-face at one of the events in the future. Thank you very much. Bye.
