Colin Gates·June 20, 2024

Why Work IN the Business You Buy (Not Just On It) | Colin Gates Interview

Colin Gates, a 26-year-old with a farming upbringing and a background in agricultural private equity, bought a 30-year-old commercial painting company in the Detroit metro for $1.05 million (roughly 3x SDE of $300-400k) using an SBA loan with 5% down (~$64k) and a seller-financed 10% note. The business specializes in HOA and property manager accounts, providing quasi-recurring revenue at 40-50% gross margins by going direct to clients rather than through general contractors. Colin's central thesis is that he needed to work IN the business first — he spent a month painting alongside the crew before close without revealing his identity, built operational credibility, identified inefficiencies, and then systematically upgraded hiring (via Indeed vs van magnets), introduced technology and health insurance, and grew revenue from ~$2m to a projected $3m+ in his first year by simply telling existing clients he had capacity. His biggest ongoing challenge is working capital: aggressive growth doubled his payroll in months, and his deliberate no-deposit payment policy delays cash inflows by 45-60 days. He is now transitioning toward working more on the business, having hired a general manager and project manager, and is targeting $10m in revenue within three years through continued organic growth and potential expansion into residential painting.

Deal facts

purchase price: $1.05m
multiple: ~3x SDE
sde ebitda: SDE $300k-$400k
revenue: $1.8m-$2m at acquisition; ~$2.5m contracted by May of first year
financing structure: SBA loan ~85% + 10% seller note (full standby) + 5% equity (~$64k down)
notes: Business was ~30 years old; 8-10 W2 employees plus 2-3 subcontracted companies at acquisition. Seller stayed on post-close. Buyer eliminated $50k/yr admin role immediately. No deposits taken from clients — cash-flow-negative posture chosen deliberately.

Why this business

Colin wanted commercial construction from the start — it tied to his bluish-collar, farming background and felt tangible and real. He knew he didn't want residential and didn't want anything that wasn't hands-on. He found the business on BizBuySell, sent one LOI, and it was accepted. The HOA-focused commercial painting niche appealed because of its quasi-recurring nature (HOAs stick to maintenance plans) and the direct-to-client margin structure, which he saw as far superior to working through general contractors.

What's working

Deep HOA/property manager client relationships built over 30 years give a near-captive repeat revenue base — existing clients send multiple properties and Colin has work contracted into the following year
Going direct to the end customer (property managers and HOAs) rather than through general contractors preserves 40-50% gross margins vs ~20% via GCs
Working in the field himself for a month before and after close gave him operational credibility with the crew, the ability to identify inefficiencies, and leverage in managing employees
Aggressive hiring via Indeed (vs the prior owner's Help Wanted van magnets) allowed him to double crew size and absorb backlogged demand the previous owner was turning away
Introducing technology (digital time clock, direct deposit, paperless systems) and health insurance improved employee satisfaction and retention at low incremental cost
Promoting a crew member to foreman and running competitive parallel crews on the same job sites drives both speed and quality accountability
Hiring a strong general manager (from a company that grew from $3m to $60m in foundation repair) and a project manager to enable working more on the business

What's hard

Working capital is extremely tight when growing fast — Colin had to write personal checks back into the business after hiring eight additional painters; payroll went from $8k/week to over $20k/week
The business is seasonal (commercial painting in Michigan) so the cash flow J-curve is pronounced at the start of each season
Subcontractors lack quality control and Colin is actively trying to replace them with W2 painters, but skilled painters are genuinely scarce
He believes he slightly overpaid by not fully accounting for the sellers' working time contribution to the business, though he views that as an acceptable tradeoff given the deal speed and quality of client relationships he inherited
Estimating new-client bids has a ~20% close rate, making it an expensive customer acquisition channel, but Colin views it as necessary funnel-filling
No-deposit policy (chosen to differentiate and ease client relationships) delays cash inflows by 45-60 days per job, compressing liquidity further
One crew member was angry about Colin working incognito pre-close, though he remained and became one of the best employees

Notable quotes

I'm not the guy that is like going to be like the only way to buy a business as if you're working on the business not in the business but you're just going to get where you want to go a lot faster if you can acquire through the SBA for 90% leverage 70% leverage whatever it is someone's life's work where they've basically done all the leg work for you and then you can build off of that.

I literally just posted the job on Indeed instead of like putting a magnet on the Vans with small lettering with our number saying Help Wanted. That is like the biggest change I made.

If you delay your search like a year, you're effectively paying a higher multiple. You don't need to sweat getting a perfect purchase price.

You can be extremely profitable and have like $200 in the bank with $250,000 of AR and just crushed it. You cannot understand working capital until you run a business.