Ep326: Jordan West – You Must Pay Attention to Cash Flow When Buying a Business

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win in investing, you must take risks but to win big, you've got to reduce it. This episode is sponsored by a Stotz Academy's online course how to start building your wealth investing in the stock market. I wrote this course for those who want to go from feeling frustrated, intimidated or overwhelmed by the stock market to becoming confident and in control of their financial future. Go to my worst investment ever.com slash deals to claim your discount now. Fellow risk takers This is your worst podcast host Andrew Stotz and I'm here with featured guest, Jordan West Jordan, are you ready to rock?

Jordan West 00:43
I am super ready to rock.

Andrew Stotz 00:48
Well, I'm excited to introduce you to the audience. So let's do it. When Jordan West was 23, he decided to buy a taco Del Mar restaurant. He knew he had made a huge mistake at 2pm. On the first day, when only three customers had walked in, and two of them were his parents. For five years, he worked hard to grow sales every way he could think of and in the end, tripled his revenue, which still didn't seem to matter. On the profit side, he lost a lot of money. The one thing that he seemed to be the best at in the restaurant endeavor was marketing and getting people in the door. Fast forward to 2014 when his wonderful wife, Carmen started a modest baby baby clothing line and was selling at craft markets. Carmen, he asked Carmen, if he could test run a few ads on Facebook. And the rest is history. He learned every up and coming strategy and tactic and help her to grow her small startup into a multi million dollar company. And it's still growing today. Over the years he realized what he is good at and what he is not good at. And he is good at marketing and helping others to scale their business. Which leads us to now. In 2019, Jordan started the podcast secrets to scaling your e commerce brand, which is now in the top 50 Business Marketing podcast in multiple countries, including Canada and the EU s. Jordan, my goodness, would you take a minute and filling further tidbits about your life

Jordan West 02:28
while you set it all. So this is a great podcast episode. I appreciate you having me on. But I guess that's it for now. Hey.

Andrew Stotz 02:35
And that'll be a wrap.

Jordan West 02:38
Yeah, I mean, I really like how you actually, you know, rewrote portions of that to really, I might even just use that from now on as, as my bio, I really, really appreciate that. Yeah, so much. So yeah, I mean, what what I'm doing now is, is so different than what I was doing, I want to go back and I want to just tell you right away about, you know, the beginning and, and what happened, but really, I want to tell you what's going on now for me. You know, things have really from 2011. When I bought that restaurant till now, things have changed a lot. So my wife and I now have three brands that we're running, I haven't updated my bio there, we're actually acquiring two new e commerce brands as we speak one down in Phoenix, Arizona, actually Mesa, and one, but an hour away from me in Vancouver, British Columbia. And so those are really, really exciting investments. And it's really fun putting that together. And I'm definitely you know, in my head thinking about, you know, all of the things I've done wrong over the years and making sure I don't make those same mistakes in this I also run a marketing agency. And we've grown to about 15 people now I'm the CEO of that, which I mean basically means that I set the direction. I really try and keep myself out of any of the actual work itself is really difficult for people who have grown things over the years. So for me, this is a lot a big part of my day is meeting incredible people getting to talk about my story and really trying to inspire people and let them know that you know, and I'm sure you let your listeners know that you will make mistakes. I remember my grandpa told me back when talking Omar was not going so well. He told me he's like Jordy I don't respect anyone who hasn't gone bankrupt at least once. And and luckily, luckily I didn't get to that point, but I was close man was ever close.

Andrew Stotz 04:27
Yeah, there's such so many lessons in the suffering. You know, that are lessons that you just can't read in a book, you know, that you just really get by experiencing it and the combination of what you're learning and what's failing with the emotional pain that's like connected with that makes it a lifelong lesson. And I'm just curious about if we just to help the audience to understand you and your approach. First thing we can see, you know, for the audience out there is what Jordan provided me with was a story. That was his bio. And that's different from most people, most people say so and so did this and this and such and such, but he tried to tell a story. So that's one thing that's different about you. But if we look at your approach to marketing, and what has worked for you, what is it that's kind of unique about the way you approach it compared to someone else?

Jordan West 05:27
Well, I think the big thing that we really focus on that at our agency and with our brands is telling a story and gathering a community together around a cause, right? So these brands that we're acquiring right now, they have causes behind them, which create this incredible story. You know, we're not just into selling products that people are going to take and then throw away, that's not what I'm in business for. I'm not in business, just to make money, right. That's a small portion of it. And I really believe that profit and cash flow are essential to every single business. That's the baseline, right. And that's, like the bottom part of the hierarchy of needs. And then there's so much more after that. So I really believe that story and connection and community kind of gather all of that together and create brands that are absolutely unstoppable and that people really want to get behind and become a part of.

Andrew Stotz 06:20
Yep, that's great. All right. Well, let's, uh, let's get into it. Speaking of story, now it's time to share your worst investment ever. And since no one ever goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to it, then tell us your story.

Jordan West 06:36
Yeah, so I think it was 2010 I started thinking about going into business and our family was in business, we had a mill. And for some reason, they just wouldn't let anyone in the family into it. Like, I'm like, I just want to learn business. like can I come and you know, work at the mill. They're like, No, no, we don't want any family. And

Andrew Stotz 06:54
what's a mill?

Jordan West 06:56
Oh, a mill, a mill. Sorry. Like a lumber mill. So. Yeah. So they would take cedar so the cedar mill, where they take cedar and remanufactured into different cedar products, so like fences and all of that kind of stuff, it really West Coast kind of thing over here. So yeah, so I asked about getting into that. And they said, No, absolutely not. I was a paramedic at the time. I'm still actually technically a paramedic. Right now. I really still enjoy doing that every once in a while. And I and I thought to myself, man, I just want to learn business. And I don't want to go to business school. And so I thought, well, what better thing to do then purchase a restaurant, right? or purchase some kind of business. I'm like, just do it. You can do that. And yeah, just learn. And I was like, what's the worst thing that's going to happen? So I looked on Craigslist, I found this taco Del Mar restaurant. So it was a Mexican chain restaurant that had actually had a lot of success in the past and was now kind of on a bit of a downward trajectory. But the restaurant itself was $35,000. Canadian, so 25,000 ish us. Like, what's the worst case scenario? I'm going to lose? $35,000, like, at 23 years old? Yes, that is a lot of money. But I thought, Oh, I can recover from that. That's no problem. If that's the worst case. I mean, really, like, I'll just fast forward a bit and then come back to some more of the details. The worst case was much, much worse than that. I lost about $150,000 in about five years of my life, and heartache. And I remember, I remember nights, I can specifically remember some nights in our first apartment, and just sweating, just thinking of like, how am I going to pay this bill and then our lease coming on our lease was about 50 $600 It's funny, I still remember these numbers, but like, and that check bouncing and then my landlord texting me and just saying, okay, the check bounced again. What's your plan? And I'm just like, I don't know what my plan is. I was working, you know, 60 hours as a paramedic, just to try to pay these bills, right? Because we weren't able to meet payroll, we weren't able to meet any of these bills. I was. I was working as a painter as well on the side. So I'd take these painting contracts, painting houses, just everything I could to try and keep this thing afloat. By the end, I owed my parents a bunch of money. I owed my father in law a bunch of money. I'm sure I owed money to friends. It was so difficult. But I knew I had to press on. And what's interesting is, this is your like, years ago now that I sold this. And one of my best friends said we had because they'll listen to a podcast every once in a while that I'm on or hear stories. Like we had no idea you were struggling like that. Because I just said things are going great. Hmm. Because if I didn't, I felt like I would have absolutely collapsed.

Andrew Stotz 09:51
I totally know that feeling.

Jordan West 09:54
It was one of the one of one of the hardest times of my life. I still feel like I don't think about the trauma that it caused having that kind of loss. And it's funny now because I look at $150,000 a lot differently than I looked at it back then. Right? To me, that was everything I had then. It was astounding. Now, you know, we make fabric purchases of a million dollars, right? So it's like, it's a different, it's a different level. But at the time, that was worth, that was my life. That was all of my savings. That was I mean, I'm sorry, all my all my savings, I was in deep debt that I never thought I could get out of. And I can have to try to make it look okay, on the outside.

Andrew Stotz 10:40
Can you remember the day that you decided? It's, it's over? Like, what was the worst day of this? Or that or the moment that you realize? This is gonna end? Where were you not remember,

Jordan West 10:54
I remember it was about six months before the end of the lease was up, and I had to renew and my landlord kept bothering me like, are you going to renew? Are you going to renew him? Like, no, like, how can I renew? But I'm like, gotta get something out of this. So I went to the franchise headquarters, and I'm like, Can somebody buy this from me? Like, I just need to get rid of this. And so somebody came in, they knew I was desperate, I was terrible at negotiating then had no clue what to do negotiations wise, I'm sure he saw me and was just like, Oh, this is gonna be easy. And, I ended up selling it for $25,000. After all of that, so, I mean, probably more than I would have gotten to the equipment if I would have sold it. And then I think he didn't end up paying me something like the last $5,000. After that. I remember, being in the Starbucks, beside our store. Hearing that number of 25,000, I thought I was gonna get like, I was like, Oh, I'm sure he'll give me like 100,000 or something. You know, they were buying new franchises for 300,000. I'm like, they kind of give me something, right. And I remember that like sinking feeling of like, Oh, my gosh, this is, this is all I'm getting. And I don't know what I'm going to do. That was the worst investment ever, and of time of energy.

Andrew Stotz 12:15
Yeah. And you know, that. Also, if you sell it for that amount, it's very clear, you have serious debts on your hand.

Jordan West 12:23
And it's also clear that I was a failure. And I think that's, that's one other really big part of that is that, at that time, my success, and my failures were really wrapped up in myself and my ego. And I was really connected to those failures and successes, where they feel like now that's very different. I don't necessarily that the successes don't really make me some better person. Right? I feel like I've kind of gotten to that phase now where I'm like, Yeah, I want to tell people about this. Because I genuinely want other people to stay away from bad, bad investments. And also, I don't feel like I'm some incredible person because I somehow have business success. It's just like one side of life.

Andrew Stotz 13:09
Yep. So maybe you can summarize what lessons did you learn from this?

Jordan West 13:15
So big, big lessons that I've learned, and I'm using these in acquisitions right now are get a financial projection, right? know your numbers, right? Know what those numbers, if I would have looked at those numbers. Now I'd laugh I'd be like, when I went into that business, like, I am not taking over this business, there's just, there's nothing here to grow, right. But I had no clue I couldn't read a financial statement, learn how to read a financial statement out alone and see what they're spending money on. See if there's any possible way that you're ever going to make money in it, right? a financial projection really includes a good cash flow statement as well. Figure out how much money you're gonna actually need to keep this thing floating until you can make money. That was another massive lesson that I learned. And I think one of the biggest lessons and kind of a hard one for somebody like myself, who's I think a pretty good marketer to learn is that marketing can't save a sinking ship. Great marketing cannot save a company that doesn't have sound financials. I look back at that. Now, I don't think I ever would have ever been able to make money in that business with the 40% food costs when there should have been 30 and 12%. franchise fees and all these percentages that really, were always going to add up to zero leftover at the end of the day.

Andrew Stotz 14:36
Great lessons. And I wrote down so many notes, maybe I can go through a few things that I take away. The first thing is that and I always tell people about restaurants is that restaurants are a really limited business. I highly recommend not going into restaurants. And one of the reasons is because you can just look at the restaurant and you can say okay, how many tables There's this many tables, what's your revenue per table? If somebody sits down on average? Three people, one people, five people, whatever the average is, you're going to have two and a half people there. And how much are they going to spend? There, you have your formula, tables, average spend number of times the table's turned. And that's it. And that's the maximum. Okay, you can scale. Yeah. And so then you had to say, okay, the only way that we can scale from here is to add another restaurant, we're now you're in another business, you're in the business of managing managers of restaurants. Yeah. And that's hard. Because you can no longer be in both of these restaurants. If you made it successful yourself, you're now going to have to be split across them. And you, as someone said to me a long time ago is that when you aim, one arrow at two targets, you can't hit them both. So yeah, the second thing is that goes to what you said about, you know, making money, losing money and all that I always like to say, particularly from a finance guy, you know, we talk about money, a lot, and profit and all that. But I always say, money is neutral. Money is neutral, you know, you're not winning or losing, you're not a winner or a loser based upon money. Money is a measure money is neutral. And so that's another thing. Now, the other thing is small businesses a trap. My own experience, when we started a factory here in Thailand, my coffee factory called coffee works, which is now 25 years old. But after the 1997 crisis, I lost my job as an investment banker, we lost almost all of our customers, we had to move into the factory, live in a tiny little room on the outskirts of Bangkok. It was painful, and we were basically going to lose it all. And the fact is, is that there was nothing we could do. We were trapped, we couldn't move forward, and we couldn't move back. What do I mean by that? We couldn't hire, we didn't have the budget to hire salespeople to go out and sell. And we only had limited amount of time that we were already devoting to the business and we're running the whole business, so it can just only sell. But we didn't have the budget to hire the salespeople. So he really had a hard time going forward, particularly in an economic crisis. And we couldn't go back by saying, let's just get out of this, no, nobody's gonna pay for it. We paid 100, you know, for this, and maybe someone to come along and pay us 10, we're not going to exit it and you know, make anything out of it, we're gonna lose a lot. And so we had to kind of just, that's like this, this point where you just have to walk every day, and try to get through it. And that's something I often say that business is a trap small businesses a trap, because you're limited in your revenue, and you're limited in your resources. And it takes a lot to get out of that trap. Now, the next thing is, is the concept of working capital. When we tell you a story, when we set up that business, we spent almost all of our money on buying this huge, you know, roasting machine from the US, you got shipped from the US, we set it up in the factory, it looked amazing. And then we got our first customer thing, oh, wait a minute, we need to get green coffee. So we called to green coffees in inventory item. It's a working capital item. It's not something you plan for I mean, we just order it. And when we call the guy, we said, you know, we got our first order, and we want to order some green coffee. He said, How many times do you want? And we said, we were thinking more like kilos? Not tons. He said, Sorry, minimum orders a ton. We're like, holy crap, we didn't realize that. And then we said, okay, but can we get like 90 day credit terms? You know, we're just starting, he says, No, I don't give any credit terms to someone's just starting cash only. So we had to take our cash, not only was it already allocated to our fixed asset, meaning the roasting machine, we had to devote it to this working capital, meaning the inventory. And then of course, we had our first customer. And then we said, Oh, we need that money desperately. And they said, No, we'll pay you in, you know, 30 days. And that's accounts receivable, which is another working capital item that we didn't think at all about. So these working capital items are really important in most cases. When you said I paid x, you know, 35,000 for it. The truth is that you thought the most I can lose was 35,000. But actually, there's a whole lot of operating losses that can you know, come into that. So, man, I took a lot of things on last thing is this idea. Like when you got out in some some times, it's best to just take the easy exit and get out, even though you got loss. It's humiliating, but just sometimes it's just better to take that price and get out. Yeah, so those are some of the things Anything you'd add to that?

Jordan West 19:41
No, I think that the working capital piece is really really huge and figuring out what that is. I remember when we got in on day one and figuring out because we'd closed kind of that day with the lawyers and I'm like, What there's an extra like, $5,000 I have to pay you. I didn't know that. Your first business you don't know that right, like, so like that's that's all stuff terms again, something that I have almost completely forgotten about. Because at our businesses we never offered terms. It's just something we just don't do. We've learned our lessons on terms over the years. And so it's funny, I haven't done due diligence on either one of our these acquisitions and terms is 100% of due diligence, right? Are you offering to one of them there in 450? doors? And are you offering returns to them, because that's going to be massive on our balance sheet, right? We're gonna have to find those terms. So I really appreciate you bringing up some of those those finer points,

Andrew Stotz 20:43
I actually developed a course called finance made ridiculously simple. And I tell the story of the coffee business, and I teach about what's a fixed asset. And I talked about that, you know, roasting machine, and I haven't even a picture of myself and my business partner when we first brought it into Thailand in 1996. So it's fun. And then I talked about, okay, here's inventory and stuff. And I think these are things that most people just don't realize when they go into business. So Alright, so now let's think about that young man or woman who's listening right now. And they're just about to sign that contract, to buy that neighborhood business or to buy that business. So based upon what you learn from this story, and what you've continued to learn, what one action would you recommend our listeners take to avoid suffering the same fate?

Jordan West 21:30
I've got a mentor who has this rule, and he calls it the four by two rule, or two by four rule that it's going to cost twice as much. And it's going to take four times as much time as you think. So just think about that in anything you do. I've done some projects with him. And it's always correct every single time. So remember that whatever you think it's going to take, it's going to take longer, whatever how much, however much you think it's going to cost, it's going to cost more.

Andrew Stotz 22:03
That's great advice. So ladies and gentlemen, if you're just about to put your foot into the deal, stop and ask yourself, can I afford double what it is two times what I'm putting in number one? And do I realize that it's going to take four times as much of my life energy to make this work? And hopefully, what we've learned from Jordan will help you to question yourself and decide that, yes, I'm all into this, or I maybe I need to rethink this. Fantastic. All right. Last question. What's your number one goal for the next 12 months?

Jordan West 22:43
My number one goal is to go mountain biking 100 times. So two times a week, I think it's a pretty attainable goal to SMART goal. So I've already gone four times this year, so I think I'm gonna make it.

Andrew Stotz 22:57
That's awesome. That's interesting, because I'm doing a, I do a 26 kilometer ride, either once or twice. I haven't really set it concrete. But you make me think, you know, maybe I need to set it more concrete. And I found for myself recently that scheduling my future exercise really helps me to stay focused. Okay, on Thursday, I'm going to do this and stuff. So great stuff, great stuff. All right. listeners, there you have it another story of loss to keep you winning. Remember to go to my worst investment ever.com slash deals to claim your discount on my course how to start building your wealth investing in the stock market. And also, hey, check out my finance made ridiculously simple course to while you're there. As we conclude, Jordan, I want to thank you again for coming on the show. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Jordan West 23:59
Just don't make that bad investment.

Andrew Stotz 24:02
Don't all do it. Awesome. All right. That's a wrap on another great story to help us create, grow and protect our well fellow risk takers. This is your worst podcast host Andrew Stotz saying that I'll see you on the upside.