Buying a $1.2M sewer-and-water distributor for $536K with SBA

The Setup Joseph Cruz spent eight years as a VP at Fifth Third Bank covering industrial companies (manufacturing, distribution, construction). His total compensation package was around $400K. He left to search, drawn to small business ownership after a chance neighborhood conversation with a laundromat owner. After exploring laundromats and finding the deal flow thin, he refocused on his banking domain: industrial distribution serving contractors. The Deal A&A Equipment and Supply, a Chicago-suburbs sewer-and-water construction supply company operating since 1982. Six employees plus a general manager. $1.2M in revenue, $270K seller-marked SDE (Cruz underwrote $240K). Gross margins 40-45%. Located in Bensenville near O'Hare; serves contractors, municipalities, and state agencies. Purchase price: $536K, approximately 2.25x SDE. Capital stack: - $75K equity down - $550K SBA 7(a) - $55K seller note - $50K earnout - $25K cash holdback Projected debt service coverage just over 2x. First-year cash-on-cash return projected around 80%. The GM Crisis Two weeks before close, the general manager quit. In Cruz's framing, "a blessing in disguise." It forced him to document the operational knowledge that lived in the GM's head before close, rather than discovering the gaps six months in. Onboarding became a process of building systems instead of inheriting them. First-Year Operating Moves - Spent the first months working in the business to build credibility with employees (three to four in their 60s, one or two in their 70s) and customers - Digitized institutional knowledge that had lived in employees' notebooks and memory - Expanded the equipment repair service line, which generated 55% of the year-over-year revenue growth and offered higher margins (up to 65% per job) plus counter-cyclical demand during the slow December-February months - Conservative cash management to handle the seasonal swing (the business loses money December-February, makes everything March-November) By the 16-month mark, revenue had grown from $1.2M to $1.5M with a $2M target for 2026. Operating Lessons - The "one-stop shop majority" position works in industrial distribution. A&A doesn't carry the comprehensive inventory of larger competitors like Cornwell or Ferguson Waterworks, but it has the items contractors need urgently plus equipment repair services. The combination is hard for big-box players to match. - Aging workforce is a real risk. With four of seven employees in their 60s and 70s, succession planning is not a Year 5 problem; it is a Year 1 problem. - Service line additions to a distribution business are leverage. Equipment repair is a different unit economics profile (higher margin, counter-cyclical) bolted onto the existing customer relationships and physical location. - The finance background helps with diligence and structuring, not with operations. Cruz emphasized this directly: financial sophistication does not substitute for hands-on operating learning.