Summary

Duke Henninger, a CFO turned acquisition entrepreneur, shares his experience of buying a restoration company and the challenges he faced. Initially overconfident, Duke quickly realized the tight-knit nature of the industry and the trust issues he encountered. He struggled with cash flow, accounts receivable, and reducing operating expenses. However, a large job opportunity saved his business and allowed him to pay off debts. Duke also sought financial support through asset refinancing. Overall, his journey highlights the importance of due diligence, cash forecasting, and building relationships in the entrepreneurial world. Duke Henninger shares his experience of struggling with sales and finances in his restoration business. The impact of COVID-19 further exacerbated the challenges. He tried adding complexity to solve the problems but realized it wasn't the right approach. Duke made the decision to sell the company and focused on finding a buyer. After negotiating the sale and closing the business, he learned valuable lessons and now works as a fractional CFO. His acquisition experience has made him more empathetic and effective in helping other entrepreneurs navigate their financial challenges.

Takeaways

Entering a new industry as an acquisition entrepreneur requires careful due diligence and understanding of the market dynamics.
Cash flow management and accounts receivable can be major challenges in the early stages of a business acquisition.
Reducing operating expenses and making strategic decisions about office space can help improve financial stability.
Building relationships and winning business are crucial for success in a competitive industry.
Seeking financial support through asset refinancing can provide relief during challenging times. Struggling with sales and finances can be a significant challenge for small businesses.
Adding complexity to solve problems may not always be the best approach.
The franchise model may not work well in all locations and industries.
Changing your mindset and focusing on solutions can lead to better outcomes.
Acquisition experiences can provide valuable lessons and insights for future endeavors.

 

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Transcript:

Jon Stoddard (00:01.135)
Welcome to the top M &A entrepreneurs. Today my guest is Duke Henninger, who was working as a CFO, bought a company and basically said, I hate it. Kind of like Ron Burgundy jumping into the bear pit, say, I immediately regret this decision. So Duke, welcome to the show.

Duke Heninger (00:19.554)
Thank you, it's great to be here.

Jon Stoddard (00:21.339)
Yeah. So what were you doing before you jumped into acquisition entrepreneur?

Duke Heninger (00:27.278)
Well, going back a little bit, I was a salesperson in 2008 or whatever. I was right in school. I didn't really care much about school. I thought I just wanted to get something done. I'm gonna go into sales. I'm gonna end up learning the key sales skills and then I'm gonna go into, I'm gonna start building my empire. And I really thought I'm just gonna buy and sell businesses. So fast forward, it was 2008, everything crashed. I decided, nah, I better choose a more, you know.

a route that's more technical. I need a job. Chose accounting, went into public accounting. After three years of public accounting, went into industry, was a controller, kind of did some FP &A work. We were both targets of acquisition during that time, as well as we were acquiring a couple of other companies. And so I thought, hey, I could totally do this. I can replicate this. And you know, and the interesting thing was, as I'm...

Jon Stoddard (01:17.563)
You could do it, no problem. Yeah.

Duke Heninger (01:22.958)
We're talking with all these business owners and we're, you know, we're chasing after their businesses. I thought, man, I'm so much smarter than them. Like I can, I can totally do this all day long and I can do a much better job than they can. So, um, after a few years of that, I left, I went and jumped into fractional CFO work and I really thought, okay, this is going to be a means to an end. I'm a consultant now so I can charge consultant rates. I don't have to work full time and with my available time, I'm going to focus on.

Jon Stoddard (01:29.883)
Hahaha!

Duke Heninger (01:52.846)
You know, my next step, what's it going to be? And I thought, well, I could start something, but that's really risky. And, you I don't have a ton of capital. I was still in my twenties. Um, and so I, I got introduced to a business broker, um, and started looking through the options and didn't even know that was a thing, you know, this like small business broker. I kind of told him my, my predicament of like, look, I don't have a ton of capital, but I have, man, I'm so smart and I'll be able to do.

really good job at this. Yeah. Oh, yeah. Because as we all know, accountants make great, great CEOs. Yeah, so I just I had this little restoration company that was presented to me. It was more of a turnaround. And the deal with it, though, was, look, it had some really good years in the past. And I could see like, you know, I'm doing all the

Jon Stoddard (02:22.107)
I know the language of business, which is accounting. I know it.

Jon Stoddard (02:31.707)
Yeah.

Duke Heninger (02:49.576)
Spreadsheeting, mapping everything out, all the numbers seem to be doing really well. And then this particular...

Jon Stoddard (02:55.835)
So let me ask you, you did some great projections too, right?

Duke Heninger (02:58.35)
Oh yeah, man. Yeah, it was going from this and it's instantly going to go like that. Right. And, um, so I started talking to this.

Jon Stoddard (03:03.259)
Hahaha!

Jon Stoddard (03:07.323)
That's what they all do. I don't care. Like nobody projects like, you know, it's probably going to go down for a couple of years and it's going to go up. It always goes up.

Duke Heninger (03:15.086)
No, no, man. I'm talking to this owner and I, you know, the story was he stepped away and he took a job and he thought this thing was, you know, he kind of reached his, he put all the capital into it and he put like, you know, hundreds of thousands of dollars into this thing. And it was a, it was a, um, a franchise. And so, you know, and turns out, well, he was more of a technical guy and I could see that, look, it's not a great fit. I've got.

way more personality than him. I'll do a much better job of this, right? And so I bought it. And I could do, because it wasn't doing super well at the time, it was all owner finance. I only had to put a little bit into it. Basically paid just asset value for what was there. And we got started. And that was in 2019. And...

Jon Stoddard (04:09.435)
Yeah.

Duke Heninger (04:13.678)
Yeah, I had a couple of kids at that point, one more on the way. And, and this was going to be the thing that was really going to start it off.

Jon Stoddard (04:22.395)
And you told your wife this is gonna be it, honey?

Duke Heninger (04:25.198)
Yeah, and she was super supportive. Yeah, super supportive, but yeah, it was a little bit more of a ride than I expected.

Jon Stoddard (04:35.515)
So when did this, how long before I jumped in the bear pit? I immediately regret this decision. How long was that?

Duke Heninger (04:41.742)
You know, it actually took a while and I went into it like, I went to it with this idea of like, you know, I got to, I got to project positivity into this. I'm going to be super optimistic and, and, um, yep, I can totally do this. And we got into it, started talking to all the people in the industry, you know, you want to meet everybody and, and, and, and know who's who it's a very relationship based business. And real quick, I learned that.

Jon Stoddard (04:54.619)
It's kind of Tony Robbs. I can turn it around with my will. Yeah.

Duke Heninger (05:11.246)
man, this industry is super tight. And especially in our area in like Salt Lake City, Utah, everybody knows each other. You know, I have like 2 million people along this Wasatch front from, you know, in the Salt Lake Valley and other valleys, you know, nearby. Everybody knows each other. Everybody's been doing it for 50 years and the relationships are just there. And guess what? I'm a new guy. And no one really trusts.

And they said, yeah, but the other guy also wasn't doing a great job at this. So, you know, we don't really think you guys are going to do a good job. Oh shoot. I'm already seeing right out of the gate that I'm up against a lot of problems and what I thought were the problems, you know, I'm looking like through my financial lens, you know, it wasn't really there.

Jon Stoddard (05:57.499)
It's just getting jobs with the right margins. If I just quote it right, I'm going to get it. Yeah.

Duke Heninger (05:59.948)
Yeah!

Well, you know, looking at historically, you could see the numbers were there. You can see there is consistency with these particular customers. You could see it seemed on paper. It looked really good, but in reality, there was a lot more problems, but I don't know in a due diligence period of like 30, 60, even 90 days, it's kind of hard to uncover some of those issues.

Jon Stoddard (06:24.763)
Yeah. So what did you miss? I mean, how, how did those evolve? Like, could you have asked anything during that period that it would have mitigated the risk or just allowed you to understand it?

Duke Heninger (06:38.318)
Well, I wish that I could have talked to the customers, but that was, that was, I was stonewalled at that request. You know, they don't want to see that we're shutting down. We don't want, we don't want that kind of, we don't want that getting out there, you know, and cause if this all falls apart and people are thinking I'm selling my business, then then I'm basically going to have to shut my doors, you know? So I didn't talk to the customers. I didn't talk to anybody in the industry. I wish I would have known that. And I don't know anything about the restoration industry. You know, this was just like, Hey, this.

Jon Stoddard (06:52.059)
Yeah, yeah, yeah.

Duke Heninger (07:08.43)
This checks these boxes, this is gonna be great. Recession proof, business to business. My customers are insurance companies, they want it and it helps them save money, yada, yada, yada. And you get in real quick and it's a problem.

Jon Stoddard (07:24.859)
Yeah.

Duke Heninger (07:27.31)
But I got in and we powered forward. And what was amazing is the day that I signed, I went to the attorney's office, I signed and I left the attorney's office and here's the seller right with me. He gets in his car, I get in mine, I drive for five minutes, he calls me and says, hey, I just got a big job. So it's all yours. Here's how to do it.

You gotta go drive 100 miles away. It's this grocery store. You gotta go in. They had a fire. I have all this equipment that needs to be cleaned up and everything. It was like, oh, fantastic. You know, baptism by fire. I can totally do this. I got it. We did a great job, but guess what? In the restoration industry, people don't pay their bills until like six months or more later. They want to see is everything done.

Jon Stoddard (08:12.891)
Oh no way!

Duke Heninger (08:16.814)
And the fire just happened, I'm at the very beginning. So now we gotta wait for the whole place to get cleaned up, put back together. Then the insurance adjuster looks at it and then they pay their bills. So we have this sizable job that was sitting there and I didn't buy the AR. So all the receivables were going to this owner.

Jon Stoddard (08:39.291)
Was that on the AR, was it big little red flags or anything or was just like, or was it, what was the aging on it? You just go, I always tell, this is like, I always tell my students like, Hey, there's a big AR. You need to check the, you know, the aging report on them because this past 90 days, there's a really good chance that's never going to be black.

Duke Heninger (08:43.214)
out there.

Duke Heninger (08:59.15)
Yeah, John, I'm a really good accountant. So I definitely look at the aging report. Yeah. And, and what I found out from it, it was a lot of red flags and there were things back there. It was like, well, there's this really big AR sitting there, but you know, we're in litigation now. So there's a chance we'll get it. And we never did, you know, and there was a bunch of other jobs that were like that. And I said, look, these are all yours. You, you, you go get this. I'm going to.

Jon Stoddard (09:03.387)
Yeah.

Duke Heninger (09:27.214)
You know, and I, I set up a line of credit. I, I, I figured, okay. I, you know, I, I didn't have money. I didn't have a lot of money myself to put into this. So my own personal money was like locked up. I had this seller note. I had a line of credit. I had, you know, and, and with that, basically there's my capitalization. And I was really banking on the fact that we were going to be getting consistent jobs. We would turn some of those smaller ones around sufficiently.

it would be able to cover those operating expenditures throughout that first period of time. And, and man, things got tight, you know? So fast forward, I bought it in April of 2019. And in August, 2019, I'm looking at the cash forecast. By the way, I know how to do a cash forecast. That's super helpful. Uh, yeah, yeah. And I'm looking, I see.

Jon Stoddard (10:18.363)
Yo, what's your runway? Like, you got a runway of what, three months, six months, or?

Duke Heninger (10:24.864)
You know, we did get jobs and they were paying periodically and it was good. Um, the deal was I get to keep anything that you didn't invoice. So there were some jobs that I got and was able to invoice very quick, get paid on those and, you know, a few weeks to a month or two. And it was, and that's what really would funded operations.

Jon Stoddard (10:46.011)
Well, let me recap. How big was this business? It was a $100 ,000 business or was it a $500 ,000?

Duke Heninger (10:53.358)
Oh, it was, it was a, it was a $500 ,000 business that had been there for a couple of years. And then it went right down to 200. And that's, he put it on the market when it was 500 by the time he saw, he figured, Oh, I'll sell this thing in a couple of months. Right. And it takes like a year or more to sell some of these small companies. So I, you know, I bought it and he had already stepped away, took another job and was just letting his technicians run it.

You know, they're not sales people didn't have any salesperson there at the time. And, uh,

Jon Stoddard (11:26.683)
And how many people, how many technicians were on staff?

Duke Heninger (11:29.326)
There were three technicians and that was it. So I stepped in this company. It was a $200 ,000 top line company, Breakeven at the time, you know, and that's where I thought, okay, I'm going to be okay. This is Breakeven right now. I think I'm going to get in and I'm going to turn that top line upward and we're going to have profitability and we'll be able to go through there. Yeah, totally fine.

Jon Stoddard (11:54.189)
Easy lad, we're gonna start taking vacations with the wife, you know, and be like.

Duke Heninger (11:58.616)
No, and I figured it would be a while before we really got there, right? Yeah, but my five -year projections were nice and linear growth, you know, fake stuff. And so I got to this point in August, cash got super tight. And it was, and all I had was that it was a $30 ,000 job, you know, average job size in this industry for my business was like 2 ,500 bucks, maybe five grand for like a good one.

Jon Stoddard (12:02.087)
Yeah.

Jon Stoddard (12:07.867)
you

Duke Heninger (12:26.83)
And so a $30 ,000 job was going to be pretty good. And yeah.

Jon Stoddard (12:30.043)
Yeah. And let me ask you about that. Did you do anything, how do I collect faster? Or did you wear their constraints where you had to wait for insurance companies to pay them so they could pay you? Yeah.

Duke Heninger (12:37.102)
Oh yeah!

Duke Heninger (12:41.646)
Oh, I did everything talking with the insurance adjuster. Can I invoice you? We're finished right now. Can I invoice you right now? Yeah, I will give you 10%. Really? I'll give you 10%, 15%. What do you need? And, and the reality is in that industry, you have people that are sitting at a desk behind the computer and they're like, yeah, I don't really care. Like, and, and I'll, I'll, I just want to, I just want to touch this file one time. That's all. And it's going be right at the end. When everything's complete, I can look it over, check a box and then send the check. So.

Jon Stoddard (12:46.683)
I'll give you a 5 % discount. Whatever.

Jon Stoddard (12:59.387)
I don't care. I don't care about Duke.

Duke Heninger (13:10.894)
So I finally, I got that paid and it was like, oh, heaven sent, this is amazing. And that bought me two more months of runway. But by that point, the sales had been slowing. You know, I thought the sales were gonna be going up, but here I am, new guy. So the new sales had started to drop off. And you know,

Jon Stoddard (13:18.971)
That's it. Yeah.

Jon Stoddard (13:30.299)
what was happening with them? Like, what were you doing to say, hey, I'm a pleasant guy. They like me better. And what were you doing different from what he was doing in marketing and sales to bring business in?

Duke Heninger (13:44.846)
Well, you know, it's like how the new president always blames the last president. Well, I stepped into a company that he stepped away from. And when he stepped away from it, people noticed that and started using our competitors. And so that's what I didn't know. That was that black swan, right? That I didn't really understand was really, was like cruxed all of this. So I got in and I had to win relationships, get people to know me.

Jon Stoddard (13:49.721)
Yes? Yeah.

Duke Heninger (14:14.286)
And then I had to start pulling jobs over this way. And that took time. And this whole time I'm like, oh my gosh, what do I gotta do? Like I gotta reduce OPEX. We're in this 10, 12 ,000 square foot facility where the office space was like 3000 square feet of that. And I was the only person in the office, you know? And I hired a salesperson, like, okay, we...

Jon Stoddard (14:18.713)
Yeah.

Duke Heninger (14:39.822)
let's get this structure set up right. I'm gonna hire a salesperson, I got technicians, I'm gonna kind of like manage it all, but I need people like checking these boxes all the time, making sure it's all working. And so I, well, we had, so I had people and I had this large building.

Jon Stoddard (14:45.211)
you

Duke Heninger (15:03.374)
I'm like, let's do what I can control. What can I control right now? Revenue, revenue I can't control immediately. And I have a two month runway of cash and the sales aren't there. So I know that it's going to end. Like, and I know like the collection period, like unless there's some miracle that happens, this is all going to end. And, and so I had, I moved buildings. I went from, you know,

Jon Stoddard (15:06.841)
Expenses, yeah.

Yeah.

Duke Heninger (15:30.958)
Jeez, what was it like? Eight grand a month down to four grand a month.

Jon Stoddard (15:34.643)
Yeah, let me ask you about that expenses and that rent. Was there a imperative on their side to try to get you to sign the lease or something real fast and you're locked in for another six, 12 months or what?

Duke Heninger (15:37.358)
Yeah.

Duke Heninger (15:48.814)
Well, luckily it was, um, the landlord was really just a couple and it was their retirement, you know, thing. So they weren't, they were pretty amenable and the previous owner was still on the lease and I was just kind of subletting from him technically. And, and so I, uh, I went, I got a broker. He was able to find someone to take the space. The space that I was in was like actually 30 minutes away from me, but it was like a pretty desirable area. So.

Jon Stoddard (15:56.473)
Yeah.

Jon Stoddard (16:00.687)
Sublasing, okay, yeah.

Duke Heninger (16:17.07)
He was able to find someone to fill that space really quick. And then he went and found a, you know, another space for me to go and, uh, and we moved and I got, you know, I just negotiated as much as I could of deferred rent. She gave me as much the fruit. I can only get three months out of it. Well, I came over and I'm like, okay, perfect. That was my number one, biggest hard cost. All the other hard costs. Yeah. You down to four grand.

Jon Stoddard (16:32.219)
Yeah.

Jon Stoddard (16:40.475)
Which it was 8 ,000 a month or something to down to, yeah, down to.

Duke Heninger (16:46.062)
And like my insurance was paid for, like it got paid for. Like insurance, rent and labor. Those are like the main costs. Everything else is a small variable cost. There really isn't a lot of cost into it.

Jon Stoddard (16:58.171)
Couldn't, you know, deduct 10%. It was those three things you got to focus on. Yeah.

Duke Heninger (17:02.414)
Yeah. So I'm like, okay, great. Well, I just bought myself more time because I just deferred rent, found this other person. They just paid me my deposit back. Woo hoo. I've got, I've got like 10 grand, uh, you know, stuff that I can do with. And still I had this glaring like point in the future where my cash here's here's zero and it was going to come in and just have a hard landing. So I had, I started setting some, you know, stop loss kind of.

All right, once we hit this point, if sales don't happen, then I have to get rid of that person. And really everybody was on the table. Like, what do I do? I have to have that technician and that technician. Okay, but the sales person.

Jon Stoddard (17:45.249)
Oh, shoot. Have you ever done that before? Like, you have to pinpoint somebody that stopped laws and say, I got to fire this person.

Duke Heninger (17:55.118)
Well, yes, we had like, you know, I've been in turnarounds before and we had to put, you know, like we were like a 300 person company where I was at and we had to, you know, we were coming up against like those, uh, what do they call that act that prevents you from hiring or firing more than a third of people at a time? Uh, anyway, but you know, we had to, we had a plan for like, how do we reduce this, this overall costs like significantly, and it would hurt like the first time doing it. It's painful.

Jon Stoddard (18:05.659)
Yeah.

Duke Heninger (18:24.398)
And then you start realizing, you know what, those people are actually happy. They found other jobs, they're actually happy. And that's something that helped me in this process to go, okay, whatever happens, I know I'm gonna help them and do whatever I can to help them find their next place. But I can only go so far. So we're heading toward that. And the day came and it was just, it was like I was three days away from it. Okay, this was a...

Jon Stoddard (18:31.203)
Yeah.

Duke Heninger (18:52.302)
Friday a third. There was a Thursday evening. I got a I got a call Monday was my stop -loss date. It was in November of 2019 and I got a call saying hey, there's a Can you guys we did electronics cleaning? So, you know, we're we liked clean suit super I didn't even know this stuff existed before I got into it We clean suit off of electronics

Jon Stoddard (18:57.435)
Okay.

Duke Heninger (19:17.71)
And it's a lot cheaper than the insurance company having to replace everything. So it gets on something it's going to, it's going to mess up. Like, Hey, there was a fire to school. Can you clean like 45 computers this weekend? It's like, Oh man, that would be amazing. Like 45 computers, man, that's, you know, we usually charge like $200 per computer to go clean the stuff. Oh, this is going to be great. Yeah, totally. I could totally do this. Call the technicians, let them know, Hey guys, I think we're going to be working the weekend.

And the next morning, I got a call. No, it was an email. I got an email from my sales rep that I had hired saying, like, look, I'm out. You know, I don't think you're a very good manager. You kind of suck at this. And I'm out.

Jon Stoddard (20:00.191)
Oh my god, they like this the rats are jumping the ship in

Duke Heninger (20:12.526)
Yeah, and what was funny to me is I thought, oh, this is perfect. Well, he just left. I don't have to pay severance. Woohoo. You know? And so there was my person that needed to go. And then I went in that day to go and like scope this job. I went to this big school and fire everywhere and it was classrooms everywhere. And I said, hey guys, you have a bigger, bigger issue here. What this turned out to be for the next month, I had to hire

25 people working 12 hours a day, seven days a week. It was the largest job ever received in this particular franchise history. And, and, oh yeah. And basically like, you know, the revenue from that job just solved all my problems. And luckily they were able to get.

Jon Stoddard (20:53.823)
Wow. It started from just 45 computers, $200. Yeah.

Jon Stoddard (21:09.051)
Yeah.

Duke Heninger (21:11.822)
Because I saw that coming on, I went to a bank and said, hey, here's a contract. See the signed contract right here? I'm going to, this isn't going to pay for a while.

Jon Stoddard (21:23.803)
Yeah. When did they say they were going to pay? It's a school. It's a public, I mean, a local government. When were they going to pay?

Duke Heninger (21:28.3)
Yes.

Well, they don't pay, it's their insurance company. Yeah, so the insurance company, usually on these jobs, so larger jobs as I've come to learn, they're okay paying a little bit more, you know, but I had reached that stop loss was there, I had hard costs, I needed to make payroll. And now I have to hire 25 people. And, and so I have like 10s of 1000s of dollars in labor costs that I'm going to have to pay out. I ended up paying $100 ,000 of labor costs on this job.

Jon Stoddard (21:33.003)
their insurance company.

Jon Stoddard (21:51.419)
you

Duke Heninger (22:01.134)
And that was my number, that was my basically my real, you know, all the other, you know, consumables were, were fairly minimal. So I had this, geez, it was almost a $400 ,000 job and I had, I had about 150 of cost in it. And so with that profits, you know, I paid off the previous note, paid off these debts. Oh, but I didn't tell, I didn't finish.

Jon Stoddard (22:14.655)
Wow!

Duke Heninger (22:30.35)
I had to go to a bank and say, Kate, I need money. And I've got a truck, a van. I had these assets that were free and clear. And so I was basically able, they allowed me to kind of refinance some of these things that they don't love refinancing. And I pulled, I just pulled like 20, 30 grand out of that. I pulled 30 grand from those things.

Jon Stoddard (22:48.961)
Yeah, so you had to do an asset loan. Did they loan on your contract there?

Duke Heninger (22:58.062)
They use that to say as the collateral, kind of the collateral, you know, they have to tell a story and when your story is this all the time, they don't really want to give you anything. And they don't, and they.

Jon Stoddard (23:00.091)
as collateral. Yeah.

Jon Stoddard (23:06.891)
How many people did you have to knock on the doors? I need money. Yeah.

Duke Heninger (23:12.942)
Well, I had, you know, the company I was at previously, I was managing a portfolio of, you know, $25 million in, in debts. So I was able to, you know, I had, I had a network of people to go to. So it was actually fairly simple. But what was funny though, is that all that network of people, they were in like the middle market space. And I'm coming to them with like, Hey, I need $30 ,000. They just said, dude, here, talk to this person. It was basically like a receptionist.

Jon Stoddard (23:20.283)
Gotcha.

Jon Stoddard (23:37.227)
I'm sorry.

Duke Heninger (23:43.22)
But actually it was like our super, super great personal. It was a business banker, but a small business banker. And I was able to get her across the table fairly quick. She even came to the school. We were cleaning to go sign the docs. And I had money in the account and it was like, it was perfect timing. I can't tell you like, you know, people say faith or religion or whatever, man, there's something to the universe, whatever you want to call it, right? Like.

I saw something happen that wasn't supposed to happen. It was pretty amazing. And I'll take, I'll give credit where credit's due on that one. And, but it was, it was really, really cool. So like, no, no, we have money and everything's good. And, but the sales actually were still fairly slow. Like we had, you know, we had another job, we had like another hundred thousand dollar job a year later. And then, you know, and those types of jobs seem to be the ones that would be.

Jon Stoddard (24:12.763)
you

Jon Stoddard (24:18.617)
Yeah.

Duke Heninger (24:40.366)
coming across and outside of those jobs, we were like below break even if we were to take all those out, we weren't really getting enough. Yeah, like it wasn't great. Like how could you build a business plan off of spikes like this all the time, right?

Jon Stoddard (24:49.339)
Just ugly sales.

Jon Stoddard (24:56.443)
what they used to do in software, in trade shows. That's it.

Duke Heninger (25:00.142)
Yeah, yeah. Yeah, I'm like, I can't do this. And I was just stressed all the time. And oh, man, 2020 didn't help. Like,

Jon Stoddard (25:09.023)
Let me ask you about that because the relationship I have with my wife, like something goes on in business and it's almost like she's my board advisor. So I have to practice what I'm going to tell her to give her a good picture and the bad picture as I'm the CEO giving a presentation to my board of advisors, right? And whether they're going to fire me.

Duke Heninger (25:29.42)
Oh, yeah.

Duke Heninger (25:34.05)
Well, she knows that I use this like salesy voice and the moment she hears it, like it's instant. She's like, I'm turned off like this. You're trying to sell me on something. I don't want it, you know? And so, but I had to have a conversation with her to explain what a bankruptcy looks like. And for us, yeah, and for us.

Jon Stoddard (25:44.955)
The salesy voice, yeah.

Jon Stoddard (25:54.875)
Oh, shoot. Yeah, you were contemplating a bankruptcy on this. Yeah.

Duke Heninger (26:01.006)
with like no assets, like we don't really have a lot. We have a home, we have these young kids, even though like the total debts in the place was like, you know, it was like a hundred thousand dollars or whatever. It was not like this was, that was gonna tank me, you know, and that was something that gave me a lot of stress. And so, but then, you know, going throughout, yeah, this up and down all the time, I'm like, what do I do?

Jon Stoddard (26:20.507)
Yeah.

Duke Heninger (26:27.79)
So I started thinking of other ways, all right, you know what we're gonna do? We're gonna add on extra services. We're gonna solve this problem by adding crap. And you know what that crap takes is capital. And so I would take, here's this like bank account with hundreds of thousands of dollars. I'm like, okay, well, let's take this. Let's buy this machine. We added textile restoration. We added like we're doing art restoration.

Jon Stoddard (26:28.091)
Thank you.

Duke Heninger (26:56.494)
and we were adding people, processes, complexity, and every new thing, like it's this, it takes a lot of your focus and yeah, you're hoping.

Jon Stoddard (27:05.659)
It's a hypothesis that you still have to test. Like, what was your results on that hypothesis? Well, it doesn't make a lot of revenue. Yeah.

Duke Heninger (27:11.63)
Uh, yeah. Oh, it's, it's like everyone else's results, you know, where they say, here's my graph day one, it's going to start like this and grow. And it's never that case. Right. And, and so, you know, it would be a while out before, before we started seeing something, but, but I, now I'm like, I put 150 K into like building out this, this process more. And it wasn't turning around like I really wanted it to.

So I'm like, well, how do I fix the problem? Adding crap.

Jon Stoddard (27:42.331)
And you were going to other, I don't know what the franchise is, but you were listening to these other successful franchises going, what are you doing that I can model? And it's not still not working. Yeah.

Duke Heninger (27:48.556)
Oh yeah!

Duke Heninger (27:52.606)
Oh yeah.

You know, the interesting thing is about the franchise model is that, you know, they figure out a formula and as long as you follow that formula, then everything's going to be right. Well, the particular formula for my, in my case was you get an area with 3 million people and you're good. Well, the franchise started on like the Midwest and the East where like population density was so, we're so close at 3 million people is like, you drive 15 minutes that way and 15 minutes that way and there's your area.

Jon Stoddard (28:25.179)
That's your domain and range. Yeah.

Duke Heninger (28:25.55)
And I'm in Utah where we didn't even have 3 million people in the state. So my franchise area had to be all of Utah and half of Idaho. And I can't service all of that. So I really, I was limited to receiving only about a third of, you know, by the calculation, if you need 3 million people, but my serviceable area is 2 million people, then I've lost a third of the opportunity. And that was already, that was.

You know, looking historically, I'm like, oh, these other people that are doing pretty well, they're hitting these types of numbers and I'm hitting this type of number. You do the math. Oh, that is a third less than that. Oh, and the successful ones also bought up like three or four or five areas, you know? So they had like.

Jon Stoddard (29:11.131)
Yeah. So that's a pretty good analysis because Ray Kroc used to pick the locations, use a lot of analysis and Walmart the same way about what would work based on the density in the population.

Duke Heninger (29:23.598)
Yeah. Yeah. And I talked to some of the people inside after a while and they're like, you know what, had we, it was a new team. There was old team and new team and old team was the one that just sell, sell, sell. Let's just get as many of these out there. And they were selling technical people. Cause that was the owner. The owner was a technical guy and come to find out the new team said, yeah, we w we wouldn't have sold this franchise to you because we would have seen that it was a failing, you know, proposition. So.

Jon Stoddard (29:37.209)
Yeah.

Jon Stoddard (29:45.077)
Yeah. And they, by the way, they, that the franchise has taken 10 % off the top, right? Yup.

Duke Heninger (29:53.198)
Yeah, yeah. Which pinches things even further. So yeah, you're like going along the next two years were just a ride, you know, and it was, I was just trying to figure out how to do this. Now the whole time I'm still a fractional CFO. I have all these clients and not a lot of them because I can only do like 20 hours of work or something like that to be able to focus on the business for another 20 hours or 60 hours. And.

And I've, I'm like, you know, I actually really enjoy what I'm doing. And that entrepreneurial itch that I've always had, I'm getting scratched because I am part of the strategic team. I'm doing stuff I really enjoy. I'm working with these entrepreneurs. I'm providing lots of value to them. That stuff that is definitely within my wheelhouse, man. And I, and I'm just stressed all of the time with this company that I have.

I don't want to do this anymore, but I felt stuck. I was married to it. And, but that was like a mindset. And, and all I had to do is change that mindset a little bit. Go, no, I don't. I don't have to do this anymore. That was at the beginning of 20, 22, like right at the beginning, you know, I was trying to add, I was going off of this area of like adding more complexity to solve the problem. When I realized the real answer is to.

take away complexity, take away this whole entire thing. I've got something now that like, and really just like the timing, what was interesting is like, you know, you look at whenever you're doing due diligence, you got to look at the P and L both on a cash basis and on an accrual basis. Cause if I did, if I, if I set it up on an accrual basis, then I had tons of revenue in 2019. Yeah. Yeah. And it's like, well, it goes, it went like this. Like my actual was like,

Jon Stoddard (31:45.467)
It looks like it looks great on the bottom line. Yeah.

Duke Heninger (31:51.47)
this and this and this, but if I just tweaked it and showed it on a cash basis, it looked like this like perfectly fluid thing because there was this like getting payments here and here and here and here over time where the reality was not that. The reality didn't match the cash flow. The reality matched really the output, the amount of work, the demand, the sales and everything else. And so when converted to a cash basis, man, this was a valuable company.

Now, I bought the company for $140 ,000. Well, based off all these valuations, it was now, and it was really seller's discretionary earnings, like below what, $5 million or so, like it's just all SDE, not like some EBITDA multiple or something like that. And so calculating all out, man, this was gonna be worth.

350 to 400 even like it could be argued at $500 ,000 if you had like a 3x multiple and

Jon Stoddard (32:54.821)
Well, so you switch that mindset, but who's like inserting it? Like, you know, we need to, it should just sell it. Where did that come in? Yeah.

Duke Heninger (33:01.39)
Oh, that came from the one thing, the book, the one thing you've heard of that book, the one thing. Yeah. Uh, let's see. I have to look it up, but anyway, yeah, it's bugging me now. It is. Yeah. But in the, in this one thing, there's this focusing question, which is like,

Jon Stoddard (33:07.227)
The one thing. Yes, yes, that's Peter Thiel. Or is it? Yeah.

Jon Stoddard (33:15.035)
Who is that?

Duke Heninger (33:27.278)
What's the one thing you can do and by so doing everything else becomes easier or unnecessary? And I read this book at the last part of last part of 20. There it is, Gary Keller. And I read this book and I'm like, what's the one thing that I could do? And I just thought about what if I sold the company and this like all of my like pressure and stress just was like.

Jon Stoddard (33:39.195)
Gary Keller, Gary Keller. Yeah.

Duke Heninger (33:55.502)
I could totally do this. And so that was the change of mind. It was like a no duh. Let's take away complexity and let's just focus on this. So I started making like a deal room, you know, putting all the information I needed into it, reached out to the business broker, got it listed. Same guy, like, look, you already know the business.

Jon Stoddard (34:03.099)
Yeah.

Jon Stoddard (34:17.659)
Same guy.

Yeah. Oh, he's probably saying, oh, I know it's coming back around.

Duke Heninger (34:25.186)
Yeah, yeah. But during this whole time, I had, oh, let's back up a little bit. COVID sucked, you know, in a relationship based business. There was another thing and we couldn't, even though our industry wasn't like required to stay home or all that, all the insurance adjusters, they didn't want to talk to us. No one wanted to talk.

Jon Stoddard (34:35.579)
Oh, fuck yeah.

Duke Heninger (34:53.518)
So those lunches stopped happening, face -to -face meetings stopped happening. Those are like old school marketing methods in this industry reign. It's just relationships. So we couldn't do that anymore. And so we did the best we could. And we were receiving enough jobs to be okay, but it was just the stress of like that, the hockey sticking.

Jon Stoddard (35:03.451)
Yeah, especially the essential services.

Duke Heninger (35:24.27)
Well, we stopped getting jobs and I was like, and also I received idle money, like, you know, the SBA, not the PPP, we got PPP loans and that was like, that definitely helped, but the idle loans when you have to pay back, we got that. And with that, I'm like, great, I'm going to hire salespeople, we're going to fix this problem. Yeah, we're just going to, we're going to, I'm going to, this will allow me the funds to be able to like afford.

Jon Stoddard (35:33.371)
PPP launch, yeah, yeah.

Jon Stoddard (35:47.227)
Just push through.

Duke Heninger (35:53.262)
to like build this the right way and let it start working again. But it was after I did that and after I hired, there was really like two extra hires during this time that I had this epiphany of, I don't wanna do this anymore. So I listed it and then I went and talked to one of our competitors, not competitors, sorry.

I went and talked with one of our big customers that we get a lot of like a contractor who is subbing out a lot of stuff for us.

Jon Stoddard (36:32.123)
Were you going for advice or to try to sell it to him? What was the intent?

Duke Heninger (36:36.978)
Well, the intent actually was that I didn't want to do this anymore. I had these salespeople and they were doing, I liked them and I wanted to give them a soft landing, but I just didn't, I didn't need them anymore. I just decided I don't want to push this and grow it. I want to get rid of it. So what do I need? What do I need to just sell this and have it be successful? And I'm going to get rid of everything else. So I had a particular person that I knew I needed to get rid of. And I went over to this contract.

and said, hey, there's this person here. Do you want them? And they're like, ah, well, I'll look into it. But you know what? I gotta be honest with you. We're probably gonna bring in -house everything that you're doing. And it was like this blow for a moment of like, oh no, this is like one of our biggest contractors. They give us a lot of jobs, a lot of referrals. And if they go away, like this thing is worth nothing.

And I'm just going to have to sell every asset like piecemeal. And, and then, and then the light bulb went off. Well, what are you doing to, to build it out? Like, how are you going to do it? He goes, I don't know. We haven't really figured it out yet.

Jon Stoddard (37:40.795)
Yeah. Pennies.

Duke Heninger (37:55.982)
was like, Hey, Oh, just right, right there. I, and he was like, actually, yeah, that, that makes sense. So we both asked our franchises because he was a franchise. I was a franchise. The both franchises said, no, this is like a competing thing. You can't do this, you know, in the restoration industry. And so, um, I said, dude, this really sucks. I can't do it. He's like, yeah, man, but Hey, if you want to just do an asset sale, you know, give me a call.

Jon Stoddard (37:56.859)
You said that right on the fly with the

Duke Heninger (38:27.086)
And I thought, oh shoot, well, I don't want to do that. I want to see if I can get as much money out of this as I can. So yeah, it was there. And like, okay, I'm going to have to go find an owner operator like me, someone who wants to buy their job and get into it like I did. But the sales kept declining and now we're in the red. And so those few people that I talked to,

Jon Stoddard (38:32.251)
Yeah, there's some cash flow there. It's not pretty, but there's some cash flow. Yeah.

Duke Heninger (38:53.774)
You know, you have to show them the most current financials. And it was like, Hey, what's going on right now? You know, I try to make up the best story, the best spin on it. But the reality was that this isn't going to be good. And even if they, even if they want it, if they need financing for it, the SBA is going to say no. Yeah. So, so it's all up to like seller financing at that point. And I'm like, you know what? I'm just going to shut it down. And so I did, but.

Jon Stoddard (39:09.755)
Yeah, that's zero. Yeah.

Duke Heninger (39:22.414)
I called this other guy back and said, all right, let's, let's move forward with it. And, and, uh, was able to get asset value, like, you know, market value of all the assets. And it actually like, if you're looking at it from a multiple perspective, I actually ended up getting more out of just the assets themselves than if I had some like multiple valuation at that point. Yeah. So like all in all, once all assets were, you know, uh, they bought.

Jon Stoddard (39:43.323)
Oh really? Oh interesting, yeah.

Duke Heninger (39:50.638)
a ton of these assets, they didn't buy the vehicles, so I sold the vehicle separately and I ended up having like $250 ,000 left over after that. So bought for 140, sold for 250, now that sounds great, but don't forget the 150K that I had put into it, you know, plus all of that. Oh, I know. So like, you know, you throw up a little bit in your mouth. And now it's been, that was in 2022.

Jon Stoddard (39:58.189)
Yeah!

Jon Stoddard (40:05.891)
and the stress and years off your lice and how much did that cost?

Duke Heninger (40:18.382)
that I sold at summer of 2022. And I, when I shut the doors, sold it all out. I had now, uh, an empty building that I needed to lease, that I needed a sub lease, uh, because they took everything over to their location. And, you know, but this was in 2022, everybody was looking for warehouse space. So I, and, uh, you know, I got into it at 45 cents a foot and the going rate at the time was 95 cents a foot. So my.

my landlord who is backed by a REIT was more than happy just to take it from me, you know, and renegotiate the lease. And they got someone in within three months and I was completely out. And man, that feeling of just being out was like, I remember just standing in this empty warehouse and just having this sense of, ah, when it was all over.

Jon Stoddard (41:16.475)
Yeah.

Duke Heninger (41:17.048)
You know, and, and I, you know, and then I just doubled down on what I enjoyed already, which was the CFO stuff. And it was in.

Jon Stoddard (41:24.667)
So is there any craziness to do it again?

Duke Heninger (41:28.878)
Oh, absolutely not. I have had that that scratch itched, you know, or it's scratched with like a steel wool and I don't want to ever go back to it. And yeah, so now, you know, and now, but I still am an entrepreneur. I do my own thing. I'm, you know, I'm a, I do it with my clients as well as I'm building my book of business and, and I, and I enjoy that. I have a lot of fun with it.

Jon Stoddard (41:39.227)
Just say no. Just say no.

Jon Stoddard (41:56.763)
Yeah. And that's fractional CFO work, right? So exactly, tell me exactly what, when somebody comes in and goes, hey, I need a fractional CFO. What is that? What do you do there?

Duke Heninger (41:58.542)
And, but man. Uh huh.

Duke Heninger (42:09.838)
It just means, you know, they're okay. The term CFO is like a really diluted title that means so many things to different people. So, and it can really be me in anything. It just means the financial leader for your company. Someone who can tell you not only, you know, I do more than just accounting. My background is in accounting, but accounting is not finance. So I take accounting, I set it up right. And then we look at the finance, which is.

Um, reporting, forecasting, modeling, um, capital structure, um, debt raising, equity, um, helping through. So at my stage as a fractional, mostly I'm jumping in companies that are somewhere between five and 50 million. This is the point where they're like, doesn't make sense for them to hire a $300 ,000 CFO. Let's get that same kind of, um, you know, knowledge and skill, but on a fractional basis. So, you know, maybe.

$40 ,000, $60 $80 ,000 a year or something, depending on how much time is required. And that's what I do. And I really enjoy it. So you have a handful of clients at any given time.

Jon Stoddard (43:17.849)
Yeah.

Jon Stoddard (43:22.011)
What about this acquisition experience made you smarter about your current transactional

Duke Heninger (43:30.176)
Oh man, it had so much to do with it because now I come in. I feel like a lot of advisories just are, you know, lip service. They tell you stuff because they read it in a book and now I tell it from experience.

Jon Stoddard (43:41.467)
Yeah, it's like a policy walks in Washington, right? They've never been to the country. They're done anything. They're writing this policy. And like, just once I'd have somebody that was in the country for a while, understand what's going on.

Duke Heninger (43:51.118)
Uh -huh. Oh yeah. So I can, now I can talk to these founders and I can say, guys, I know you're not sleeping well right now because of, you know, because of this problem. Here's, here's three solutions and I'll tell you it's going to be okay. I'm seeing that a hundred times now we're going to be okay. And let's just do these things and I'll go get some capital and you guys.

Jon Stoddard (44:02.873)
Empathy? Yeah.

Duke Heninger (44:17.998)
We have to make some apex changes. It's gonna be kind of painful, but just laying out the groundwork and the path forward from the perspective of someone who's really been in their shoes before, super valuable.

Jon Stoddard (44:31.515)
Oh yeah. I mean, what do they say about boating? You know, anybody can, you know, navigate a boat in calm weathers, but get that experience in rough seas, completely different.

Duke Heninger (44:42.286)
Yeah, absolutely. So, you know, I like to say it was a merit badge that I now have. I don't ever want to do it again. Would I do it again if I had the opportunity? You know, no. But I needed it. That was the only way that I was going to really understand what I really enjoyed.

Jon Stoddard (44:50.019)
Hahaha!

Jon Stoddard (45:03.579)
Do you think that's why you did it? To say, hey man, I need to baptism by fire here. I need some, yeah.

Duke Heninger (45:09.294)
Yeah, I think I'm a risk taker and I just kept talking. It was like this insatiable appetite to do my own thing, so much so that everybody who was like, all the naysayers around me are like, whatever, man, you just have to go do it. And I did it. And it was like, yeah, I was burned, but I wasn't burned too bad. What I got out of it was...

Jon Stoddard (45:31.579)
Yeah.

Duke Heninger (45:34.882)
I was able to get out of it with my own resources and it was fine. It wasn't how I wanted it to be, but it wasn't bad.

Jon Stoddard (45:44.539)
You know, I don't know how much you've read about Warren Buffett, but you know, Berkshire Hathaway, it was his textile company and that died on him. That stopped making money because they outsource his textile. So that, and he kept the name, I think as a reminder. So like, don't buy these cigarette puff, last cigarette puff kind of companies. Like, was there anything in there to go on? Okay, if the company was, you know, 10 years, 50 % margins, really profitable.

Duke Heninger (45:59.054)
You

Jon Stoddard (46:13.019)
You would, would you still say no? I mean, everything checked the box. Would you still say.

Duke Heninger (46:17.742)
If I went back, well, the thing is, there was a lot of boxes that I didn't know existed that needed to be checked. And now that's the big thing that I gained from this. The financials and all of that, that's only a portion of this. And honestly, it's not the most important thing because all we know about a forecast is that it's wrong. And so, but what are those lead indicators that are really gonna change things and how do you go and measure those things? That's what's really important.

Jon Stoddard (46:24.379)
Yeah.

Jon Stoddard (46:35.605)
Yeah.

Jon Stoddard (46:45.993)
Yeah, like, you know, how many turns does a business do? Well, if it only turns twice a year, you're going to be, you need a big line of credit. Yeah. God, Duke, this is a great story. I really appreciate you being on the show.

Duke Heninger (46:54.03)
Oh, yeah. Uh huh. Yeah.

Duke Heninger (47:01.752)
No, absolutely. It's fun to tell it now. I couldn't talk about it for maybe a year or so, but thanks for being my therapist for a moment.

Jon Stoddard (47:13.563)
Thanks for being on the show. Yeah.

Duke Heninger (47:14.568)
Thanks so much, John.

Jon Stoddard (47:17.883)
Okay, I'm stopping and give it a few seconds.