Buy Then Build: The SBA 7(a) Strategy Anyone Can Use | Ben Kelly
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this compelling episode of Entrepreneur DNA, host Justin Colby sits down with Ben Kelly, a former U.S. Army Intelligence Officer who transitioned from military service to JP Morgan's Private Bank, where he discovered how ultra-wealthy clients build real wealth through business acquisitions. (02:33) Ben now runs a small business acquisition company focused on rolling up accounting firms with the goal of achieving a nine-figure exit. The conversation dives deep into using other people's money through SBA 7(a) loans, what lenders really underwrite, and the fascinating arbitrage opportunity in accounting firms that trade at 1x revenue but can exit at 10-12x EBITDA in rollups. (09:09) Ben also shares insights on how AI can increase profit margins without replacing the critical CPA signature requirement, plus his alternative cash-flow investments ranging from luxury assets and short-cycle supercar deals to semi-truck fleets with powerful tax advantages. (12:00)
- Main Theme: The episode explores practical wealth-building strategies through business acquisitions, alternative investments, and the critical importance of building strong foundations while scaling rapidly.
Speakers
Ben Kelly
Ben Kelly is a former U.S. Army Intelligence Officer turned entrepreneur and acquisition specialist. After transitioning from the military into JP Morgan's Private Bank, Ben discovered the strategy ultra-wealthy clients used to grow net worth: business acquisitions. Today, he runs a small business acquisition company focused on rolling up accounting firms to build a nine-figure exit and shares real-world insights through his newsletter Acquisition Ace while launching Alternative Ace to spotlight passive-income strategies beyond Wall Street.
Justin Colby
Justin Colby is a seasoned real estate investor and entrepreneur with over 18 years of experience and nearly 3,000 deals completed. He has built a seven-figure active income business through wholesaling and fix-and-flipping while accumulating millions in rental properties including 5 apartment buildings, 50+ single family homes, and 1 storage facility. His success led him to start The Entrepreneur DNA podcast and education company, where he coaches thousands of aspiring investors.
Key Takeaways
Ultra-Wealthy Build Wealth Through Business Acquisitions, Not Stock Markets
Ben's experience at JP Morgan's Private Bank revealed that clients with $10+ million in liquid net worth weren't primarily building wealth through traditional investments. (02:33) The vast majority were business owners who continued growing their wealth through strategic acquisitions, often doubling or tripling their net worth in a single year by purchasing $10-30 million businesses using other people's money. This insider view completely shifted Ben's understanding of how real wealth is built at the highest levels.
SBA 7(a) Loans Democratize Business Acquisitions for Average Entrepreneurs
The SBA 7(a) loan program provides up to 90-95% leverage for business acquisitions, but has specific qualification requirements designed for entrepreneurs with under $5 million net worth. (06:11) Applicants need a credit score above 600, some form of collateral (home, 401k, assets), and deals must show at least a 1.5x debt service coverage ratio. The program specifically excludes ultra-wealthy individuals, making it a powerful tool for emerging entrepreneurs to compete in the acquisition space.
Accounting Firms Offer Massive Arbitrage Opportunities
Accounting firms present unique acquisition opportunities because they trade at just 1x previous year's revenue while generating 40% profit margins, compared to typical small businesses that trade at 2-4x cash flow with 20-25% margins. (09:09) When rolled up to $10 million EBITDA, these same firms can exit at 10-12x multiples, creating potential $100+ million exits from approximately $20 million in acquisitions. The demographic shift of aging CPAs with no succession plans creates abundant acquisition opportunities.
AI Will Transform Accounting But Won't Eliminate CPAs
While AI can handle much of the grunt work in bookkeeping and tax calculations, the liability aspect requires human CPA signatures until new legislation passes. (15:15) Smart accounting firms using AI to eliminate unnecessary roles and improve efficiency will command premium valuations. The shortage of new CPAs graduating creates additional value for firms that can leverage technology to scale operations while maintaining the human touch clients still demand for financial matters.
Build Infrastructure As Fast As You Build Portfolio
The biggest mistake entrepreneurs make is focusing solely on growth without simultaneously building the systems, processes, and leadership to support that growth. (21:34) Ben emphasizes that sustainable companies aren't necessarily those constantly taking new ground, but those building leadership underneath them with systems that can operate without the founder. This foundation becomes critical when opportunities arise to scale quickly, as taking on too much without proper infrastructure leads to everything crashing down.
Statistics & Facts
- Accounting firms typically trade at 1x previous year's revenue compared to other small businesses that trade at 2-4x cash flow multiples. (09:09) Ben mentioned this creates a significant arbitrage opportunity since accounting firms also generate around 40% profit margins versus the typical 20-25% for other small businesses.
- When rolled up to $10 million EBITDA, accounting firms can exit at 10-12x multiples, potentially creating $100+ million exits. (12:02) This represents the multiple arbitrage opportunity that drives Ben's acquisition strategy.
- SBA 7(a) loans can provide up to 90-95% leverage on business acquisitions for entrepreneurs with under $5 million net worth. (06:11) Ben explained this program democratizes business acquisitions by allowing average entrepreneurs to compete using other people's money.
