In this latest episode of Minority Business Access, host Solomon RC Ali and Farming and Agricultural Entrepreneur David Buurma chop it up about gaining access to exclusive financial circles, must have experts in your business network, the pros and cons of raising capital, going public versus staying private, leveraged buyouts, tax shelters, buying businesses and exit strategies.
In the game of business, networks should work exponentially as each expert you connect with should introduce you to their network, creating a ripple effect that grants you access to exclusive circles of inside information. Listen to top farming and agricultural entrepreneur David Buurma and private equity investor Solomon RC Ali debate and discuss the secrets of good business and how to avoid the pitfall that 95% of privately held businesses experience.
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How To Pack Your Business Network With The Right Experts With David Buurma
Everybody, lean back, hold on, pay attention and don’t miss anything. It’s going to be a real fun ride. Dave, please tell us about yourself and your business.
I’m from Ontario, Canada. I was raised in agriculture. My father started in the 1980s buying land. It was a hard time in the ‘80s. Land prices were low. Farmers were having a hard time and that’s when he started buying them during those times. He understood that everything has cycles and everything changes. He started buying land then. I was in agriculture but having five older brothers and not knowing my purpose in life and what was I supposed to do, most of us dropped out in grade ten. That was the routine and from there, I didn’t enjoy going to work every day. That’s what you had done, saved money and you put it away and that was the only thing we were taught. Through that process, I pushed myself. I went to Mexico, I had done a few different things that were strange and different. When I came back, not only did I have hunger, I had difficult experiences. That’s where I started growing from that level of being basically broke and starting up again. I never felt I was broke. I always felt like I had enough.
It sounds like you had an experience at one point in your life like I did when you lost everything, didn’t have much to work with. You are broke, trying to make ends meet and figure it out.
I had done that. Once I started learning a few different things, I said, “I had an advantage that I didn’t know anything.” They didn’t go to school to be anything in particular but that advantage is the fact that I had to go learn. The disadvantage I find sometimes is that people feel like they know it but they don’t know it.
When you say you have to go learn, what are you talking about?
I went to any programs like Tony Robbins or I met up with Aaron Young, a friend of ours and he taught me how to manage businesses and how to structure businesses.
You went and seek out knowledge from experts who were able to share knowledge with you and you just didn’t seek out knowledge from any old guy. You got knowledge from people you have been paid by the game.
I paid the premium. I paid the price to get that. I say it’s not a big price. The reason I say it’s not a big price is that if you spend $5,000 to go to a program with some of the lead people in the world. Whatever you are getting from school, you are spending $10,000, $20,000, $30,000, $50,000, you are not getting that kind of information. The information they are giving to you has been put in a textbook and by the time it gets to you, it has been a little outdated. In this day and age, you should be quick.
Let me ask this because I did the same thing. I’m only a high school graduate. I would like to think I was at least a smart high school graduate but I have no education after that. Everything after that was self-taught. When I say self-taught, I had to go to different places like the Laughlin Group. I learn how to put a structure together to protect my family and things like that. It was costly. One of the structures back in the day that I use was Rockefeller’s structure.
I have spent thousands and thousands of dollars. I don’t mean I spent a few thousand. I spent like $20,000 or 30,000 back then just to get that Rockefeller structure and everything to do what they said it would do. I would not own anything but there would be a level of control to do various contracts. I can’t articulate it the experts will have to do it. That’s what you were saying that you did. You went to the leading experts within the industry to help you to do what you needed to do and then you applied those different applications in your business life.
You understand that I was taught to work hard and save money but I was never taught how to make money because it wants the same thing and no one is doing the same thing. This is a difference between working hard and saving money. It’s a good foundation but it’s a very different thing to go make money.
We were taught that “Go get a job, go work for somebody, be just over broke,” and doing that, you might have a good career and then you can retire and get a gold watch and still be growing. As an entrepreneur, you take a lot of risks. How does that risk fair out for you? Has it been worth it?
“Always follow the money,” that’s a slogan I always say. There are two things, it’s the cash that comes in as investments but that was good at teaching us to invest our money. He was good at that but he wasn’t taught us to make money. I don’t blame him for that, that’s what he knew. In this day and age, you’ve got to go out there, seek and find because things are changing very quickly. If I were going to ask you, as I understand, you create a public company.
You have to give me that energy.
I’m just wondering, public companies, that’s a business that you have been doing over the past is going to people, helping them take their company that’s successful, I imagine and helping them become public. Is that basically where you spend a lot of your time doing or what is it?
The first thing I would say to everyone is you can go to SolomonRCAli.info or you can look at the course. What I do is I consult and that’s the first phase of it. A potential person like you that’s looking to grow your business, I consult with you and I look at your historical financials. When I say I, I’m speaking about my team.
Why would I reach out to you in the first place? That’s my question.
It’s because you need money to grow your business.
What if I don’t need money to grow my business?
Don’t waste your time and don’t waste mine.
There are a lot of people that say, “I need money to grow my business,” but their business is a good business to grow.
When you say a good business to grow, what are you talking about?
Dirt doesn’t have good legs. It doesn’t have a good foundation and good potential.
You are saying basically, is it profitable or could it be profitable quickly?
What I’m saying is that my business, as far as I know, is quite successful. Don’t get me wrong, I’m starting to understand that I have a lot more energy, drive and vision than what I’m getting as far as money coming in. It’s successful but I want to blow it up. I want to go a lot faster, a lot harder than I am.
Let me ask this question because you started, “Why would someone come to you?” I don’t take companies public. What I do is, consult. I take historical numbers and my team and I will build a model. That team consists of various people in the law field, the accounting field, and other consultants and we look at the structure, then we look at, “What’s the possibility? What is it that you are doing this for? Why would you want to do this?” Once that piece is done and then I reach out to my network of investors or banks, I will arrange the funding for your company. You make the decision on, whether or not that funding is acceptable.
I am going to introduce you to a private equity company. I’m going to introduce you to a bank and I’m going to introduce you to different parties because you might want debt financing and you may not want equity financing. You might want a venture capital fund. I’m going to introduce you to various people that fit the model. I’m going to come back to you after we even developed a model and we are going to sit back and say, “Maybe your model is that you are looking for an exit strategy.” I would say, “The capital market is where you would want to go and that strategy will be the best fit with this particular person.” The person is a legal entity and then you will have that conversation with them. I would have already given them your material and everything of that nature that we have put together so that they know and understand. Almost 100% of the time, nothing’s a 100% guarantee but it will meet their qualifications and what they are looking for in a company to invest in.
Let me give my scenario and then you can feed off that and I will ask some questions based on it. In my scenario, we have land and we buy land that only has about 3% return investment on a good day and that’s what land gives us in Canada. What I have been doing in the past is having a business that generates a good cashflow. I have been taking that money and then buying land with that cashflow. I have a desire to build, we have one grade facility which we have taken by, ingrained and resell to the marketplace and that’s going to be quite profitable. I want to build another facility. I want to go buy more land and so forth, that’s my end goal. That’s what I want to do. I want to build the farms out. The thing is that when this land doesn’t have a good return on investment, the investment can go up, that’s the good return on investment but the cashflow side of investment is quite low. In a scenario like that, what are you suggesting? How would you help a person like, where I want to grow this business quite quickly, large but it’s capital intensive?
The first step is understanding the difference between a private company and a public company.
Let me start off by sharing a story that we are all familiar with. Amazon is a publicly traded company and one of the exciting things about Amazon is they lost money for fourteen years. Do you think a private company could have lost money for that long and still be in this?
The first step is understanding the difference between a private company and a public company. My trainer tells me, “Your public game is empty but your private game is off the chart.” What that means is that you are constantly doing the work required. When you show up for your public game, you are not going to always have a good game but the majority of the time, it’s going to be where it’s supposed to because you put the work in.
People are going to like the vision behind it. Is that the concept?
As a public company, everything’s transparent. You are going to share your books and your records. They are going to see the things that you do well and they are going to see the things that you do badly. They are going to see where you need improvement. You got to be comfortable there. Back to my Amazon story, fourteen years of losing money and the CEO always said, “Don’t ask me? I don’t know when we will make any money. I don’t know if we ever got to make any money.” The people continue to invest and buy his stock because they believed in him, his management team, his dream and his vision. That’s the best way to articulate that.
If you have a bit of success in the past and you have a clear vision and goals, you can see that you can go look at those statements. You go look at the person. My question is, “Is this like a banker?” My dad always said, “The banker is about your year-end income tax, your personality.” There are a few things involved. Is that kind of the same way that you look at all that? How does it work for you?
Each individual transaction is different. When I say transaction, I’m talking about the deal because every deal is looking for something different in every industry, every business. You can have two businesses in the same industry but require different things. A lot of what you are asking is determined throughout the due diligence. That’s where the exposure of how the strategy comes together and what fits, what your needs are. Let’s say you might be as old as I am and you are saying, “I want to retire and I want to exit out. I have been running this business for the last 10 or 15 years and we have been okay. We haven’t been greatly successful. We have had some years where we made money. We had some years where we lost money.”
“Now, I want to exit out and the chances of me finding a buyer for my business may be slim to none. You know that I got a good management team, let me go ahead and do an LBO, which would be a Leveraged Buyout and then my management people buy the business so that they can keep it going or let me take the company public and be a shareholder. One of the largest shareholders within the company that I founded and rely on the board of directors and rely on a CEO that we hired to run the company, now I can go retire, go on vacations. My net worth is in the stock now and that provides me some liquidity.
You said about going public and what you say you don’t bring people coming to expose so what’s the difference?
No. What I’m sharing is a difference between being public and being private and that’s why I use the Amazon story because having access to capital is what’s important. That’s the field of a business.
What kind of company would be the type that would have the struggle to sell itself in the marketplace privately but that would be good?
One that is not working with Solomon RC Ali Corporation. Exposing you to the market, I’m not a broker-dealer and I’m not a promoter. What we do is consult. We get down to the weeds and we understand business from a different level. Most of it is from all the failures I have had, a lot of it because I only had a handful of successes. The handful of successes were tremendous but all of the failures are where I learned everything. It’s where I learned how to tie this knot. It is where I learned how to move out the way. I learned where all the minefields were and it costs a lot of money.
People say, education is expensive however, ignorance is more expensive. When you don’t reach out to those who are proficient, who are experts in their field that can help guide you, that’s critical. That’s why I use consultants, attorneys, accountants and marketing experts. One of the advantages, let’s say a company like yours would get would be this, you get the Solomon RC Ali Corporation, my team and I, and that network, you get all of that knowledge. You get their networks and you get access to things that you wouldn’t have access to.
Let me give you an example, if I call up my attorney, I’m going to ask him a couple of questions about your business. He’s going to give me the answers to those questions. How much did that cost you? Nothing, because you’ve got the knowledge, you had a concern and a question and you share that with me, what your concern and question were, I went and had a conversation with my attorneys. “I have a client that has these particular concerns and things of that nature. What do you think about it?” He gives me the answer and that’s called leverage. You are leveraging my relationship.
My question would be at that point, what time do I feel, “I’m bothering you.” At what point do I say, “This is a good situation for you.” Everybody’s question would be in general, what do you get out of at the end of the day, on your side?
Here’s what we do, we charge a fee for consulting services. We charge a fee for arranging the capital. Once we introduce you to a private equity company, you work out your terms and your conditions with what you are looking for from the money. They say, “I’m willing to give you $1 million and here’s the performance indicators and everything of that nature that we are going to need.” You agree and say, “I can meet all of those things,” and you are ready to accept the $1 million. What a private equity company may want debt in your company and you pay them back in time. Another private equity company or VC might want equity in your company, they just want to be a shareholder and take the ride with me.
Are you a third party to this all? Do you consult on both sides or how does that work?
No, I never consult with the money. All I do is make the introduction. In other words, I leverage the relationships that already I have. Let me give you a true story. Years ago, I took a company to Wells Fargo and we got almost a $300 million line, that’s what I did. I didn’t do anything other than say, “This company, here’s their package.” I put the package and everything together knowing what the bank would be wanting to look at and what they would want to see.
I went to my friend over at Wells Fargo and I said, “Here’s the package, what do you think?” He looked at it and said, “We will take a look and make the phone call. Introduce us.” I introduced the parties. They turned around and they were going to do business. That’s what we did. At the end of that particular deal, they didn’t end up doing business and this is where CEOs get in trouble and this is very important, the CEO wasn’t truthful on some of the information he provided. If he would have shared that with me upfront then we would have been able to address it.
It’s slightly different or changes it up a little bit.
Exactly, so that we can have character and transparency all the way.
They weren’t transparent because they are ashamed of themselves or are they ashamed of the deal, a little detail or ashamed of what? Why did he feel the need to do that?
They think that they are going to be rejected and they feel like, “If I tell this, this is going to happen,” or it can be their ego and their pride, I don’t know. “I have been to banks before nobody is telling me I’m going to omit this information and I’m only going to share what I think is important.” The moment they do that, they were not relying on their expert. That’s why we do the due diligence so we can drill down and figure out exactly what is needed. If you are truthful and honest, we know how to address those things in a certain way and write the explanation to explain those things so the lender or the investors understand them. When you don’t share that information and you say, “We never had a problem or this and that,” and they find out, all credibility is shot. No one wants to do this and that’s one of the largest mistakes that businesses make when they were seeking capital, them and their management team. That’s why it’s so important to use a consultant, to use experts who are proficient in what they do.
Do you have an ideal client?
My ideal client is a person that is not going to lie, cheat or steal and just do the work because that’s my saying, “You don’t have to lie, cheat or steal but you do have to do the work.” A lot of people want to do is to fake it until they make it. You can’t do that in business. You have to do the work. You can’t perpetrate, either you know it or you don’t. If you don’t, then you need to surround yourself with the people who do. I like working with those types of people.
The second trait that I look for is character. Do I want to see that person be successful? Do I want to help that person become a multimillionaire or fulfill their dreams and their obligations? Do I want to help them to do that? I’m not saying you are but if you are the kind of person that’s going to go spending your money on drugs, alcohol and various device, stuff like that, I don’t want to help you because that goes against the core of who I am and what I believe. If you are the kind of person that’s going to help your family, friends, community, employees, customers, you are going to solve a problem for mankind. You are going to make some type of contribution to society, that’s the type of people that I want to help. Those types of people deserve to be held and taken there.
You are not subject to the size of a company, to profitability. That’s not a thing for you based on those few dynamics that you just talked about.
Those things play a part in it but the first two things I described are the most important to me. If I don’t feel that you are a good fit for me in that way, then I’m not a good fit for you. What we like to do is we like to consult. We do our due diligence to see if it’s a good fit, to see if there’s anything there. We try to discover all of your hidden secrets and see if we can put the right package together. If it’s a good fit, how do we merge this into what? Maybe we need to merge it with a VC company. Maybe we need to merge it with an investment banking company that’s going to bring in capital and take you public. Maybe you are going to want to grow by acquisitions. We don’t know until we do the due diligence. That’s where the consulting comes in, then we make the decision. Before I would even consult with you, I’ve got to know that you have character and integrity that I want to see and help you.
We’re taught to work hard and save money instead of making money.
Do you give people an ABC type of thing? Like, “Here’s this option, this is why I recommend this option.” Generally speaking, is that what you do or you say, “I have thought it all through and this is the deal.”
I don’t particularly give people ABCs. It’s funny that you talked about ABCs and here’s why. In our consulting company, Solomon RC Ali Corporation, if you go to the website, SolomonRCAli.info, here’s what you would find out. We arrange capital that means we bring people to meet you and you to meet them so you guys can work out some funding, that’s the first thing. Second, we help to build wealth. We have that network of investors. They come from all walks of life. Most of the time, they were all accredited investors. They own private equity companies. They determine whether or not they want to make that particular investment based on your vision. A lot of times, they follow me because they were like, “We read an SEC report about Solomon when he was in a complaint. SEC had this allegation that Solomon made the stock go up consistently 30,000%.”
That’s huge and unheard of. A lot of people found me that way. They read the SEC report and they asked me about it. That’s what investors find. It’s like, “You help build wealth.” If I help your company, there will be people who want to know about farming and they will say, “I want to invest in a farm. There’s no more food. There’s no more land. Everybody’s got to eat.” All of a sudden, a group of investors that follows me might say, “Let me invest some money over here and do this.”
A struggle that entrepreneurs that have a strong vision that has lots of goals is that cash doesn’t come in quick enough. It sounds like an oxymoron because a lot of times I would say, “If you can’t get the money from the bank, you don’t deserve the money.”
The CEO of Amazon was saying the same for those fourteen years. Being a publicly-traded company and having access to the marketplace, he was able to get the money that he needed to continue to stay in business for Amazon to become the company it is now. Let’s back up, you asked the question earlier, you had a successful business. What if you don’t need the money? You wanted to invest because we want to build wealth. You want to look at some of these different projects like your business and farming.
John who has been following Solomon RC Ali Corporation may say, “I always wanted to be in farming, but I just want to invest. I don’t want to do the work. I want to own some of the company.” It’s because you are a publicly traded company, he’s going to go in and buy some of your stock. He bought into your dream. Now, you are sharing a dream and you have found someone else out there in your community and that community continues to grow and develop. Those are like your people. Those are your tribes. That’s where the excitement comes in because it’s like, “They believe in you.”
They want to go on the journey with you.
You make money, they are making money.
They are rewarded for it.
That’s what they do.
A lot of times people would prefer to invest in something they believe in. How are they going to find out? It’s easier to hear with the Amazon story because now that’s a big announcement, everybody knows about it. How do the people know about Joe that’s just starting up compared to Amazon where they are now? They are just starting. They have the vision, the goal and a certain level of success in the past and they are going public or whatever that transition is, how do they get to know about that?
Normally the first people, it’s always word of mouth. It always starts with family and friends because more than likely, you are going to allow your family and friends to participate in your company in the early stages at a discount to what the retail market is or what it will become. Later it’s like, you should solve NCRE and all of a sudden, all of these followers were like, “I like Solomon. I saw him do this, then I saw him do that deal.” Everybody’s like, “I want to be involved in that,” and so, let me go, “He was talking to this guy, Dave and he was working and doing the consulting work on that company. Let me see if that company has gone public, let me go do some research.” Again, our team does all the research and all the due diligence.
We have two different types of due diligence. We do, what’s called industry due diligence and then we do the financial due diligence on the company to make sure this makes sense. Who are the competitors within the industry? How can you compete with them? Is there a particular niche that you can find in the industry? We show that in all our due diligence. On the financial side, we show, “The company was profitable the last three years, the company is projected to grow over the next few years based on this.” We show all that in our due diligence but that due diligence is for us to provide back to you and then you share that with the world. The people who ran about Solomon, who know about Solomon, sit back and say, “Dave, I want to invest in your company,” and they call you to invest in your company.
It’s because I don’t know this answer, that’s why I’m going to ask this question but where are they finding this information? Is it to your website? How are the people in the loop?
They normally will go to SolomonRCAli.info and they will look and see what’s going on. They may see, “Solomon’s working on a law firm,” and then they will say, “I always wanted to do something in the law industry and invest in that.” Typically, you have to be an attorney to buy a law firm or to invest. It’s very close except in 1 or 2 states. Someone might say, “I’m going to invest in agriculture,” and they heard Solomon talking about agriculture, talking about he was working on a project or a deal and they are looking at what I liked about it. I’m able to articulate the things that I liked about it, “I liked that the price of land was this price and their customer base was this.” People are like, “Solomon likes it. We should probably take a serious look at them and that’s typically how that goes.” You are leveraging our network and our name.
It’s because you get out to people that typically invest in you and there are always those types that are always in the loop is what happens and they are smart because they have had a certain amount of success with you in the past and they say, “If something’s working for you.”
Some of the people made 3,000%, 4,000% return and I don’t have to brag about it. They see and have a complaint out against me and said, “One of the things was, he made the stock go up 30,000% but they never said it would be so bogus. The stock and they told you what the numbers were, it went from $3 million to $300 million shares trading and stuff like that and the stock price. That isn’t Solomon saying that. Solomon didn’t even know, they brought that to my attention. Those are the things that people who know Solomon’s character and integrity. People who know that Solomon believes, you shouldn’t have to lie. You don’t have to cheat, steal and have to do the work. The people who know Solomon and understand who Solomon is, they understand that.
Even when they read a complaint or something to that nature, they were like, “But we know the man.” When I’m talking about being in a particular industry, whether it’s manufacturing or something of that nature what’s about to happen in that industry, what I believe, because of course, it’s only my opinion, other people are like, “Okay.” They are my tribe, my community, they are believing the same thing and so we are walking together. We invest together in your company. We want to be a part of your vision because we believe in your vision.
Another question that you have asked me and I know you thought I wasn’t going to get back to it. “What if your company’s losing money and it’s not making any money? Is it a good fit to going public?” Maybe, maybe not. It depends on the management team. Here’s how I would say it, if you are going public just to do one deal, it’s probably not a good idea to go pump. If you are going public because you need access to capital to do acquisitions and do multiple deals to grow your company and your business, now it’s an excellent time to go public and that doesn’t matter if you are making money or if you are losing money. Again, I will redirect everyone back to the Amazon story because they were losing money for 14.5 years, the CEO had to keep coming out and saying, “Don’t ask me. I don’t know when we are going to make any money. We are losing money. I don’t know.”
He was brutally honest. He was transparent and people love that and that’s what you have to feed. If you are losing money, it doesn’t mean you shouldn’t go public. It all depends on what your strategy is, are you planning to grow your business by acquisitions or organically? What does that look like? What does your performance look like? If you don’t have that then you got to go back to Solomon RC Ali Corporation or something like that and have them put that together.
What sets you apart?
You got the big boys out there and the big boys look at particular companies that are going at a certain dollar revenue and doing a net. The big boys charge you a tremendous amount of money as just a retainer. It has been a while since I have been around one of the big boys but the big boys will charge in the old days, in my day, $1 million upfront non-refundable to take your company public. If the market conditions and everything were correct, they move it forward. If the market conditions they felt were wrong, they stopped, you don’t go public, that’s it. You don’t get your money back. They keep your money because that was the cost to do their due diligence and everything, to put your model and everything.
It’s a win-win for them no matter what.
They will make more money getting you public. You lose a lot but they win. For us, we deal with all walks of life. I like working with people who have to bootstrap it like me, who look like me, who have that high school education, going out there and just doing it and had to learn by trial and error. I know they have something and I know the obstacles that they are faced and challenged with. I like working with women especially minority women, women of color and here’s the reason why. They are the fastest-growing in education, in starting their businesses and everything like that. Women tend to do what in life? They dot the I and they cross the T. They pay strict attention to all of the details, working with them is a joy.
Normally, when I work with people that look like me, who are men, whether they were black, white or whatever, what do we come up with? A big idea and then we leave the details sometimes to other people and then we realize, “It won’t work because we hadn’t zero down on all the details and the mechanics,” and women tend to already hone in on that. That will be the difference. Companies that I like to work with, the sweet spot for us is what I call it, are companies doing $3.5 million and above. I try to cap it at about $20 million because I don’t want to extort the different people that I have to go to arrange the capital.
I know what the capital is looking for and what their sweet spot is. In understanding that that’s become my sweet spot. If I know the capital of this particular private equity company like to do $3 million, they like real estate I put your package together, my team and I, that makes sense for them. Everybody likes manufacturing and they do a million for manufacturing. I put your package together, my team and I, to design it for them.
You don’t always need capital, do you?
Some companies don’t always need capital and again, the companies that don’t always need capital, then might say, “Solomon can you help consult us? Can you help provide an exit strategy for down the future? Can you help to show us a better way of possibly building a mousetrap?” We get in there and again, we have to go back to one simple thing, some due diligence and investigating the books and the records in their industry. Normally, we end up knowing more about the industry than they do.
These people, there are going to be a lot of companies that should have gone public that didn’t, that should do other things that are not doing it. What do you say or how do you reach out to those people and say, “You should probably look at plan B or C of going public?” Again, going back to that question, if it was trying to look for that one common I’m always looking for like, “This is the thing that you should be doing and if you are not doing it you are missing out on things.” That’s what I’m always wondering, what am I missing out on? What kind of companies are missing out on things that you could or would have provided should they reach out?
You don’t have to lie, cheat or steal, but you do have to do the work.
I’m a firm believer when the student is ready, the teacher will appear. I don’t go out and we don’t go out looking or advertising for clients or things of that nature. Most of the time they come through word of mouth. Someone else had a level of success with us or they heard about us and they call us up and have questions like yourself and want to know more about the process. They are trying to ascertain whether or not it’s a good fit for them. You keep focusing on going public, that’s not what we do, we consult.
I need money to build stuff.
If you need money to build stuff, going public may be the strategy and one of our lenders may watch and see what the lenders want. It’s what the investors want. When you have a private company, let’s understand, you can’t get out of a private company unless you sell it. The only ones willing to invest in a private company is a bank and that’s typically through a loan because they know that you are going to put up all your assets and everything of that nature to get that loan. If you came to me and I was the bank, you said, “I have $1 million in assets.” How much do you think I will loan?
If I have $1 million of you guys that they are extremely clear and free. If it’s farmland, I will offer you $300,000. That’s 75%, 25% of cash or assets are free and clear.
That means they are not willing to take the, what?
Take the risk.
That’s how they make their money, you come to an investor and the investor may say, “I want a piece of the company but because you are using my money, I should get a bigger share.” Now you guys have to negotiate. The investor may say, “It depends if you got a straight startup,” because a great startup, if you come and say, “I need a $1 million,” and all you got is a pipe dream, the investor is going to be like, “We are going to take 65% or 70%.” You get the opportunity to go work it, have a salary, everything and fulfill your dream, hopefully, it all works out.
Let’s take a different scenario. If you are a business that’s already established, making money and losing money in some years and then some years you make money and you say, “I need $1 million,” but the investor looks at it and say, “There are some possibility here.” It’s like what you guys see on Shark Tank, it’s what you see on the show, The Profit. They can look at it and say, “Here’s where I can invest and here’s how much I can invest.”
Typically, a true investor is going to do pretty much what you said earlier. If it is a $1 million asset, they are going to probably say, “I will give you $250,000. I will give you $300,000.” It’s because they know, if they have to get rid of that asset, what are they going to do? They are going to have a quick-fire sale. They are going to sell that $ 1 million assets for $500,000. They are going to still get their money back and they are still making a profit.
That’s one of the key things that people, especially CEO entrepreneurs have to understand. The investor is taking the risk because they are utilizing resources, money that has already been earning. The CEO and the business owner asking for someone to buy into their dream, to their vision. Something that may work, may not work but when the investor buys into it, he’s hoping that it will work. He doesn’t want to come back in and take your assets and try to sell them off. That may mean he doubled his money in that situation but he didn’t share in the windfall if it would have worked because he would have made 1,000% versus just doubling his money. That’s the thing why most people don’t get funded and don’t get the capital they need. They don’t understand what it is that they were asking of the investor. What it is that they were asking other private equity companies?
They will come in and say, “I have $1 million in assets,” and they will say, “Let me have a $1 million.” The investor was like, “You are smoking, I can’t give you $1 million on a $1 million of assets because if it fails, I’m going to have to sell these assets at half the price just to get rid of it. I’m going to take a $500,000 loss.” Most people don’t think like that, they are so caught in themselves or what they think the value is and they are not thinking about a win-win scenario for everyone.
Going back to bringing a company public, you said that they have to have more nerve or more cojones or whatever you want to say because they are going to have to come up and to have all that vision, the direction and be able to sell it and also execute it.
Exposure and ego are what you were talking about. When you said that, what I’m hearing is exposure. If you are wanting to take your company public, just to be the CEO of a public company. The first thing you have to do is ask yourself, “Is this all for exposure? Is this all to feed my ego?” If you find out, honestly that, “No. I want to grow. I can grow my business from a $5 million company to a $20 million company over the next 36 months, 60 months,” and whatever that scenario is and you believe that you can do it.
One of the things that we do in our due diligence is we look at your management team and see what have they done in the past. Do they have the ability to do the acquisitions? Are they going to need help? Can we surround them with the right help? You were looking for your weakness in your armor. We want you to be successful because if you are successful, everybody makes money a win-win. If you are not successful, everyone loses money including you and then you will think it’s the worst thing that you could have ever done.
When you are talking about a $6 million, $3 million, you are talking about gross profit?
Let’s say revenue. Typically, we want to see a company that has a 25% net on its revenue. That being said, we don’t give a crap what the revenue mountain is, it could be $3 million, $5 million or it could be $20 million. Twenty percent or twenty-five percent net, if they have that, we know what we are working with. It could be a company. I’m going to jump all over that deal and try to put that deal together quickly as possible because that’s going to be a tremendous opportunity.
You are talking about a $20 million, 25% net. Is that what you are talking about?
Yeah. Any company, whether it’s a $3 million company with a 25% net, we are jumping all over it. That’s what makes a good company. That means management knows what they are doing, most people would think that it’s just net. No. Who got to the net? The management team. They knew how to run the business, what they were doing and how to cut their costs. They knew how to be efficient in their business. They understand their industry. That’s why that makes it. Most people will hear me say that, “If you got a $3 million company or a $20 million company with a 25% net,” they think it’s all about the money. No, it’s about the management team and the people.
When you are looking at it being able to leverage that basically, you can then leverage that to do whatever the success of that individual’s looking for.
At that point, let’s say you are a $5 million company and you have a 20% net, a $5 million company in revenue with a 20% net means you bring it in a $1 million, that’s pretty good. If you become a $10 million company, it will stand to reason that you will still bring in the same 20% net which is too many. If you become a $50 million company, you are going to have a $10 million net because you already know how to run the business successfully. There may be some other factors that come in as you scale your company, the cost of money and things of that nature. There are always other factors, but you know how to run the business and that’s very different than a management team that does not know how to run the business.
I don’t want anybody to take this the wrong way but one would say, “Amazon, doesn’t know how to run the business because they lost money for fourteen years.” I haven’t seen too many people that look like me, that bootstrapped a company together to have fourteen years to be able to fail and get access to money and capital. That’s why I do what I do because the people who are looking for access to capital and had to bootstrap it together, who didn’t go to Harvard and Yale. Who doesn’t have a network and can’t call on some of their college buddies who are in great possession and say, “Who do you know who can help me?” That’s how all this works. You get to call on sides of our league.
That’s what helped you. There were people in your life that helped you at the beginning, right?
No, I learned hard knocks. I went into the military and came home. I couldn’t find a job and had to go do something that I didn’t like doing. When I was in high school, after football practice and track practice, I had to go clean up my parents’ rental properties and things of that nature and get them ready for a tenant to move in. All the other kids got to go play or put their feet up and play their video games or hang out at the mall with their girlfriend. I had to go clean up after some people.
There was a couple of individuals that I met where you mentioned afterward that you respected because they believe in you. Does that kind of save the loss that you are using here at this point like, “If you bring you your information, I can read you? If I understand your character, understand your business, I can be that guy that can also find the contacts and the connections to help you get to the next level.”
What you were talking about is in my early days, when I started that first maintenance company, I didn’t know what accounts receivables were, I knew nothing about this. All I knew was, how to go do the work and I had people and I learned how to manage people because I came out in the military as a Sergeant. I was managing people, I had people under me. I put together what my parents taught me after football practice and track practice, “Go do this work.” I hired some people. I knew how to manage them because that’s what I learned in the military and then when I had a financial problem, I was looking for a Solomon RC Ali Corporation.
When I had a financial problem and I needed to make payroll in five days, back then it was five days because I called the people on a Monday and payroll was on a Friday. In that case, we were like, “What’s the accounts receivables?” I didn’t have a clue. What I knew how to do was, go in, paint, fix the walls, clean the carpets, and everything of that nature. I know how to manage the people who were doing all that work for. I had to go find someone who could help me because I had a payroll company. It was a $100 or $1,000 something payroll and so I got over there and I prayed.
After praying, I called the people on a Sunday, left a message and someone called me back. First thing, Monday morning, I told the guy, “I can’t have time for you to joke me around. I need to find this money because I got people to pay.” He said, “Do you have a moment? Let me go through what we do and how we do it,” and he asked, “Do you have any accounts receivables?” I told the guy, “No, I don’t have any accounts receivables.” He asked me, “Do you know what accounts receivables are?” I said, “No.” I had to be humble and understand and be honest. This is why I tell CEOs and everybody, you should be honest. You don’t have to lie, cheat or steal because people will help you when you are honest and you truly want to help. He told me what it was and he said, “If you can get down here, I may be able to help.”
I had to drive from San Bernardino, California to Orange County. Going there, he helped me. It took about 2.5 hours. He looked at all the paperwork and everything like that. He gave me a check for $186,000. My accounts receivable is $305,000. Everybody needs to understand accounts receivable so you are not like me when I was 21 or 22. Accounts receivable are work that has been done and completed and the people have signed off on it and you are waiting to be paid.
As long as they have the invoice and the check.
When the student is ready, the teacher will appear.
That’s what accounts receivable were, that was my first experience and that’s how I made my payroll. When you are in business, especially doing business-to-business, you provide all the equipment, all the inventory and all the labor. The company gets a 30-day float that they pay you in 30 or 45 days.
Sometimes they get a little late and then you have to pay and charge for a little extra but it can be 60 days.
The next company that helped me was lost and it’s cutting my structure together so that I wouldn’t bring the pain home. I found out within that structure what financing looks like. All of a sudden, I had these multiple entities that fell up under a trust or this or that. You will hear a lot of people say, “I made six figures.” I’m like, “You paid a lot in taxes.” They get excited about that. I’m telling people, “It’s not about how much you make. It’s about what you do with what you made.” I would rather make $30,000 a year and pay less in taxes but control $1 million. In other words, if I had made the six figures, what’s the tax on six figures?
They are bragging about making six figures but they paid Uncle Sam taxes for $35,000. They only took home $65,000. I only made $30,000 but I control $1 million. Which person do you want to be?
When you say control, what do you mean by that? My corporate businesses pay quite a bit in taxes. You can’t get away from that, can you?
Legally, you can. The objective is to pay your fair share in taxes. Not any tax avoidance or anything like that but to pay your fair share in taxes and how you do that is being structured and set up properly. That’s why we have tax returns. President Trump is a genius because he doesn’t pay a whole lot of taxes. He forgot to tell everybody. We got some experts that knew. He didn’t read all those tax books. His experts read those textbooks and found those loopholes. People tease him and say, “He’s not a billionaire. Who cares?” Here’s the thing, he controls a lot. That’s the key, it’s how much you control. What are you passing on to your family? What’s your legacy? Are you going to be the guy that’s an entrepreneur and you are going to work and then drop dead?
Eventually, we are going to drop dead anyway.
Here’s the thing, you can drop dead. We are all going to drop dead. We came into this world and die. We are all going to do that. If you stay fit and healthy, you are going to live a little longer and you are going to get to enjoy. Here’s what I’m saying, what’s your exit strategy? Are you going to do all this work and never get to enjoy it? If you are in a private company, the way you get to enjoy it is you got to sell it to someone or you got to bring a partner in to buy you out of it.
You got to make a lot of net revenue, which is difficult.
If you get sick, what happens to your business? 95% of the private businesses, even that are extremely successful, end up failing when the business owner goes through a failed marriage or a medical situation. You have to start over. When you start over, how much ground have you lost where if you could have had everything set up in place? That’s what the corporation does. That’s what my team and I do. We structure it so that you avoid those minefields and pitfalls. We don’t take companies public. We arrange the funding, the capital, you go and sit back and say, “I like this. I don’t like this. I like these terms.” That’s between you and the lender. A lot of times, the lender is not going to be flexible because they don’t have to be. They understand the value of their money. What they are bringing to you is, let’s say if it’s $1 million, worth $1 million, what you are bringing are hope and dream.
I must pick on this complaint that the SEC said, “You failed to disclose.” That’s wrong. I didn’t fail to disclose. I had no obligation to disclose legally by State Law and by Federal Law because I didn’t own it and it wasn’t a part of the stuff. They felt like I did. They felt like because you started something years ago, you were supposed to talk about it. How crazy is that? It’s a regulatory issue that makes no sense. Why am I talking about the job I had years ago? Why am I talking about a company that had years ago? I’m not. That’s crazy. We had the best trust attorneys set our stuff up, give us a structure and help write it for the state and the government. All they did was gloss over it.
Here’s what I’m talking about. When you were looking at what’s going on in your life, you want to make sure your legal structure is correct. It’s not about how much money you make. It’s about not bringing the pain home. It’s about making proper investments so that you can make an investment in the company and that it goes to your family, friends, charities you want it to go to. That’s what you are supposed to be doing. You are supposed to be looking at what’s your exit strategy.
I’m at an age where I got to go take care of my parents. If I’m going to take care of my parents, that means I got to remove myself somewhat. That means my thinking might not be always right. I may not be focused because I haven’t taken care of them. When you have a public company, you are surrounded by a good and solid management team that can drive your business forward even in your apps. You can’t do that with a private company.
Can you get a good management team because you have connections to people that know how to put a management team together?
The reason you can get a good management team is that you can give them stock incentives. You can give them bonuses. You can give them profit sharing in the company so that they can participate in the success of the business.
The question I have is that you would never recommend starting a business from scratch.
No. Starting a business from scratch makes no economic or business sense. Find a business that you can buy. You can go to the bank and cut down 10%, 20%, 30%, 40%. Let the bank finance the rest. The business itself you are looking to buy should be able to service the debt that you are taking on. It will help you to qualify. Whatever my dream is, I may want to implement these microphones into that business as a new product line. Now I have my infrastructure and everything all set up.
A lot of businesses don’t like their infrastructure.
If you don’t like it, then go buy and change it. It’s cheaper. The cost that you will spend starting a business from scratch typically is 2.5 times that of buying a business. If that business is going to cost you $500,000, you are going to spend about $1.5 million trying to figure it out starting from scratch. You can go buy that business and be done with it. The question will return on the investment side.
Let’s say I have this manufacturing company. My strength is not engineering. It’s marketing and sales. If I wanted to do something with that engineering team and have them part of the return on investment because it’s important that the team come up with the new designs. Is there a way of doing it through what you are talking about where they are motivated somehow?
Absolutely. That’s profit sharing.
This is off-topic, but that didn’t stop you from hiring and firing certain individuals.
Not at all.
That money stays in that division of the organization. Does that only happen when a company goes public ahead of time?
You can do it ahead of time but most employees won’t find any value in it. It’s a privately held company, it’s not trading, there’s no liquidity and there’s no market for your stock. It’s of no value to them.
It can be pre-sell. By the time it’s public, it can be well aware of its stuff. In this process, as we go along, we may have to do these 1 or 2 more times. Along this journey, I will probably have a whole bunch of more questions.
Let me ask something, why do you need capital?
I have goals in the agriculture community that’s bigger than my pocketbook. When I started, my first farm was by borrowing enough money from my brother for the 25% down. That’s how I bought my first one. I had no money the first time. When I came back, I started over again. I’m in a situation with my brother that had deep pockets. He’s on a different journey in life. I have these visions and goals that I have that my brother doesn’t longer want to be part of. He has deep pockets. I’m always pushing myself to the next thing. The things that I wanted to invest in like farmland, grain facilities for buying and selling grain, those areas take their capital intense.
People will help you when you’re honest, and you truly want to help.
Are these things that you want to invest in for the business or personal?
If it were “public” and I had a certain percentage of that public company, I would keep it in public unless you told me something different. I’m okay with that percentage personally. I’m good either way. I always say all boats float together. As long as I’m rising with the tide, I’m happy. That’s how I look at it. I wouldn’t care either way. I have these visions and goals that I want to hit. I know there are opportunities there.
Let me see if I understand you correctly, Dave. You want capital. You believe being public will help you to get capital. You want the capital to grow your business.
My one business is cashflow rich and the expansion is more difficult because it’s based on cities and locations.
We are talking about the logistics.
It’s more intense logistically. Can I grow? Yes, but its capability of growing that part of the division will be slower. That’s why I’m going more to retail and so forth.
What do you need the money for it?
I want to go buy the land. I want to own my land. I want to own facilities, I’m huge in agricultural service. If you are a farmer, I will look after the fertilizer for you. I will look after buying your grain. I will do all that stuff. The land still is a strong portion of an investment side. It’s the cashflow investment side.
What you were telling me is you need capital to grow your business.
Why not go to a bank or a private equity company?
I’m getting maxed out. As I explained at the beginning, if I buy a piece of property, it’s going to have a 2% to 3% return on investment. It didn’t take too long to the point that you might be having a good investment. You might have good investments but the cash return on these investments is not big enough to float the moat.
It can’t service the debt.
You need another good investment that can service debt.
I understand that. That’s why you don’t go to a bank. What about taking on private investors?
They will take enough money to wipe out the cash.
They will eat up all your profits. You have answered your question. That is the reason you come to us, Solomon RC Ali Corporation, for us to do the due diligence and how they model together and then help arrange capital for you. We have people who follow us, who are looking to build personal wealth, they invest in companies like yours and sharing the vision. As you said, all boats rise together. That’s how you set that up. That way, everyone wins. You get to leverage our network, experience and talent.
This land might not make much money in the next few years but if it’s worth $6,000, $7,000 now and if it’s worth $12,000 years from now, that’s where the profits make cash.
Trust me. I understand multiple different industries. I’m saying this without seeing anything and without doing any due diligence or research on what it is that you are looking for. I would sit back and say, “We will put a package together. I would introduce you to a private equity company.” That private equity company will invest. You guys would agree on your terms and everything. More than likely it’s going to be the terms of the private equity company and they are going to bring you maybe two. One may say, “We want 60% of your company.” One may say, “We are going to want 25% of your company but we are going to provide you with a line of credit.” In both scenarios, they are going to give you what’s called financial covenants that you must be keeping with and milestones. That’s how it works.
Are they more of a shark than a public company? They want a return on investment quite quickly in general. A business that has good return investment and good cashflow, I don’t need help with it.
Yes, the investors want to share in your vision but they also want the freedom to be able to exit out of your deal when they need to. It’s not a time limit. It’s not like somebody is saying, “I’m getting out tomorrow.” They want the freedom to be able to exit when they want to. That is the difference between a private company. If they invest in a private company, they cannot exit when they need to or wish. In a public company, they will be able to exit out.
That’s what I’m trying to understand. We are talking about the same thing. I wasn’t understanding that they had the flexibility. That’s what I like, they have flexibility in exiting.
The main thing is if it’s equity money, there’s nothing to repay back. You may be giving up ownership. It could be large. It could be small but you are giving up ownership. If it’s debt money, you are not giving up any ownership. What you are giving up is you are dragging your books down because you have this big liability showing and weighing on your financial state until you pay it off. You have to pay it off with the cashflow or you may have to bring in some more equity money to pay off that debt.
One of the questions is how do I, as a person that is interested in your services, get in touch with you? How do we get to know about you?
You can reach us at SolomonRCAli.info. The other thing you can do is go to our show, look at that and get yourself familiar with some of the things we do at Minority Business Access. I have a book coming out in late 2021. It’s a must-read.
Are you putting it all together?
Yes. We are going to put a book out to help people to go through all the minefields so that they can make decisions a little faster and know exactly what decisions they need to make and understand why.
What percentage of your customers come from word of mouth versus other social?
I have no clue. What I will say is I’m far removed from all that. The people do what they do and I do what I do. That’s trying to figure it out, “Do we want to help this particular person? Here are the reasons why.” The question is this, can we help? Yes, we can help. We got to like the people and the people got to like us. It’s got to be a good fit.