Shownotes
Beware The Seller Add Backs!
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Deb’s Website: https://www.debcurtis.com/
Richard’s Website: https://richardparker.com/
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Transcripts
0:01
welcome to headbands and handkerchiefs where business buying banter meets no BS
0:07
reality get ready to dive into the world of buying and selling businesses without the fluff and fancy jargon we cut
0:15
through the BS to bring you raw unfiltered insights from industry experts seasoned entrepreneurs and no
0:22
hold bar discussions they get straight to the point whether you're a seasoned
0:27
business buying Pro or a curious aspiring entrepreneur this is where the
0:33
real talk happens buckle up for headbands and handkerchiefs because in
0:38
business there's no room for sugarcoating let's get down to the Brass
0:47
tax yeah let's get down to the Brass tax Richard amen I like it you know I I was
0:54
as I was listening to the intro when they're talking about no sugar coating well that's certainly true from you're in my perspective but I started think
1:00
about my God how many sellers sugarcoat you know their numbers and which which is a good introduction for what we're
1:06
going to cover today that's right and we're gonna get right to the punch uh talking about seller ADB backs or SD we
1:16
could call it as well would you say yeah and and and you know the the SD and and
1:22
one of the things that becomes very confusing for people that just getting into the market look for buyers it's called owner benefits it's called addb
1:28
backs it's called sellers discretionary earnings it's sellers adjusted cash flow and in theory it's all supposed to mean
1:36
the same thing yeah but it's incumbent upon the buyer to understand okay what's in that number like yeah you added this
1:43
plus this plus this and minus that and then when it comes to the ADB backs being able to go through that used to
1:49
say with a fine tooth comb which I don't say anymore because a fine tooth comb won't do me much good yeah and and I'd
1:57
like to add that I I I think of sellers with all the years that I've been doing
2:03
financing they get skittish because they think when I do an SBA loan for a buyer
2:08
SBA is government and if they tell me the seller you know what they expensed
2:14
in their tax returns whether it be personal or they paid somebody in the family that's not working and we'll get
2:20
into that list they're they're scared to tell me that thinking well I'm doing a government loan is the IRS going to find
2:27
out about it and now they're in trouble I just want to open up that the answer is no the IRS let you do some of that
2:34
stuff right but it will catch you if you don't track it the right way right and and the IRS lets you do it and also in
2:40
the position that you occupy you don't disclose that information I mean that's that's not your role that's not your
2:46
interest it's not your responsibility and so that's never going to happen I understand the concern and trepidation
2:52
you know I had it recently with someone said well I'll give them my pnls but I'm not giving them my tax returns and I
2:57
said is everything on the books they said yeah I said what the hell's the difference like what why you worry about it well you know they have the C I said
3:03
it's all there anyways and and if you can't if you want to sell this business and everything your books and records
3:10
are clean you're going to have to provide that information and so I understand the concern I to me if I'm
3:17
sitting on the seller side I'm I'm more concerned to make sure I'm doing right by my business and not
3:23
treating it like a personal ATM machine although I understand that that theory but they have to understand when it to
3:30
selling the business if they want to add those items back in they have to be able
3:36
to prove them and part of it is you know from a buyer's perspective you ask okay
3:41
well can you prove them how are you going to prove them and are you willing to prove them because
3:47
not you have to have all those three pieces in place Bingo Bo thank you for
3:52
saying that and and for our listeners out there if you are an aspiring business
3:58
buyer um most of the businesses that I've run into that have these I call
4:03
them verbal ADB backs or the broker listing summary will will disclose oh
4:09
yeah there were these one-time expenses and such I want to get them right away
4:15
because the bank is going to want them right away and a lot of the challenge today Richard and you would agree many
4:22
of these businesses are listed on the market talking about these seller ADB backs but they don't have the proof
4:29
crazy right well it it it is crazy in a lot of levels because you have adbs that
4:36
are put into place by Brokers or sellers on their own selling a business where they can't they can't necessarily prove
4:42
them a lot of them are arbitrary numbers what I and you see this very often what I tell buyer clients is any number
4:49
that's too round with all zeros like is usually a BS number right if it you know if it's $ 27,2
4:56
4263 chances are that's a lot more accurate than 28,000 they they put in the ADB backs and they
5:03
make a um I the ADB backs are fine like there's never a problem right if you if
5:08
you're doing an adjustment and I've had businesses who have no ADB backs I've had other ones where there's a laundry
5:13
list and we say where I've had either working with representing a buyer or seller it either case is okay it doesn't
5:21
really matter but they have to be legit and I say legitimate from a St a couple
5:26
of standpoints one you have to be able to prove them meaning there's a paper trail because if there's no paper trail
5:32
forget about them that's number one number two is they have to be legitimate
5:37
ADB backs that stand on their own and you see that a lot in the examples you gave such as you know one-time legal
5:43
expenses or' seen it in cases where um the um you know there's a one-time legal
5:50
expense but it's something that's going to carry over and it may not be a one-time legal expense had it um a
5:56
couple years ago where a client of mine made a a huge company party the year
6:02
spent 50 Grand beautiful everybody was thrilled I mean it was It was supposed to be unbelievable and they wanted to
6:08
add that back she said well we only did that once every 10 years but you did it for the betterment of the business and
6:13
for the employees right and at that point in time you felt it was necessary whether to thank the employees or to
6:19
raise morale or whatever the case may be it's not an addback and so don't you
6:24
lose so much credibility with a buyer if you put inaccurate ADB backs not only are they
6:32
inaccurate and you may not be able to prove them but the buyer looks and say well if this is such a stretch and all
6:37
and and this is BS like what about everything else so choose your ADB backs
6:42
intelligently making sure that they are accurate provable and legitimate yep
6:48
that's right there we go says Patrick thank you for for that comment there we go is
6:54
Right H oh I see Mike is here thank you Mike you made it we appreciate your support so another area before we get
7:03
into some of the the usual ADB backs the the large ones Richards
7:09
Richard what about the everyday month-to-month
7:14
business owner addback self personal cell phone Auto expense lunches you know
7:22
they add that back as if it's cash flow for the buyer but they're going to have
7:27
the same expenses go that's that's the deciding factor so if you need a cell
7:33
phone to operate your business it's not an addback if you use your if your vehicle if you never leave the office
7:39
and you don't need your vehicle for the business well it's then it's an addback yeah no question but if you're going to
7:45
see customers and you're taking them to lunch and um entertainment is part of it
7:52
yeah right and the next buyer is going to incur it it's it's not an addback and you know where you see that a lot
7:57
related to Vehicles where they had the uh the full depreciation um for a while 100% depreciation if you bought V things
8:04
uh assets over a certain amount of money and I think like a a Range Rover over $240,000 qualified buyers buying Range
8:12
Rover depreciating the whole thing and the guy never left his office so that's not an addback it's it's it's the most
8:19
um obvious way to think about this is if the buyer is not going to need this in
8:25
their business in order to run their business status the way you ran it m MH
8:33
if they're not going to need it then it is an addback but if they're going to need their cell phone if they're going to need their car to visit people if
8:39
they're going to have customer um you know promotional items or entertainment or they're going to go um on you know a
8:45
trip um you know the other side is for example they write up a lot of travel where they go to you know could if it
8:51
could be a convention right that's right that's right and so they take their spouse and they go to the convention and they spend 12 Grand and it's an exotic
8:58
location and is wonderful they want to add it back no well you can add back your spouse but you can't add back yours
9:03
exactly because you were going to go there anyways and then and even if you say no no I had no intention of going we
9:09
never need go to trade shows well you know what if I'm sitting there as a buyer I'm saying I'm you know I'm calling because that may not
9:15
make sense right I mean you it's a trade show related to the industry if you're in the construction business and you go
9:20
to a knitting convention that's entirely different than going to a concrete convention and so you know you don't
9:26
want to lose credibility with the buyer and that's why ERS and buyers have to go through this diligently
9:32
diligently so I I'd like to start at the top of the list of of some ADB backs and and number one obviously is the current
9:39
owner salary and what I'd like our listeners who are potential business buyers out there to understand the
9:47
owner's salary today and in some cases these are baby boomers that have lifted
9:53
their salary up over the years because they deserve to they they're they're 10 15 20 years into the business business
9:59
and they could be pulling a 200 Grand salary and yes I do see that with business owners so now we have a
10:07
millennial business buyer is the millennial business buyer that's trans transitioning in going to
10:14
need to pull a $200,000 salary probably not maybe he only needs a 100 Grand so
10:20
what does that do it puts a 100 Grand of that current founding owner salary back
10:26
into the cash flow which in some cases can make the deal happen right because
10:32
now we're we're improving the bottom line for the buyer's loan project well
10:38
yes so you're it's exactly correct me but there's two parts of it one is for
10:43
this for the purposes of the loan it demonstrates more cash
10:50
flow that's able to service the debt so in that case yes cuz Hey the seller is taking out 200 I as a buyer only need
10:57
100 so I have use of an extra ex $100,000 to service the debt what buyers
11:02
need to be very cautious about however right is how does that play into the
11:08
valuation because you don't have that soft because all of the owner benefits all of the owner salary and compensation
11:15
goes to the ad back yeah 100% because it's an owner operator so you have to you're slicing and dicing a little bit
11:21
but certainly for the presentation purposes and presentation negotiation and and approval process a if a buyer
11:30
can take out less then by all means you want you want to put that to the top of the list because that's an extra hundred
11:36
grand to serice debt that that'll service like 750 Grand or something like it's it's a big number now let's flip it
11:43
sometimes I have buyers come to me and they tell me uh that they don't need uh
11:49
that much salary and but the the underwriter is going to look at your household
11:54
expenses they try to say no I only need a 40 Grand salary when they're leaving
12:00
corporate America earning perhaps 85,000 a year the underwriter is going to scratch their head and I see it all the
12:07
time they're like you're used to living on that kind of a salary what makes me think you're going to live on a 40 Grand
12:14
salary because the buyer trying to uh punch it through where there's enough
12:19
cash flow to support the loan project payment or this listing broker is trying to say just reduce your salary so it
12:26
cash flows no no no no no no does that make sense Richard well yeah there's a
12:32
reason why they're Underwriters is because they're smart and there's a reason why they're Underwriters not lone sharks right they're Underwriters
12:37
because they're going to go through this and say that's that's just not realistic versus you know you go to the you go to
12:43
a lone shark and they don't really care they're just going to give you the money just make sure you pay it back but they're not going to buy that like it's
12:49
it's no different than mortgage fraud and it's not going to work I mean these are not idiots these Underwriters are bright people and the first step and I
12:55
mean my guess is in most cases you would catch it before it even gets to an underwriter so you're not fooling any
13:00
you're not fooling anyone I mean everybody everybody's going to know that so you you present documents that are
13:06
legitimate it's a credibility issue at every stage and and and that's another step where you're going to submit
13:13
something on a loan application make it accurate I mean legitimate and accurate thank you and thank you for uh bringing
13:21
up the fact that your frontend consultant your front-end lender the experience that they have in these
13:28
transactions matters most because if you're dealing with you know a very
13:33
young SBA lender that doesn't know how to look at the global picture the household expenses you know what are we
13:40
earning now they're just going to slap that deal into into underwriting and you're going to waste a lot of time and
13:45
money and that's why there is a wrap out there that SBA takes forever well a lot of reason why it takes forever is
13:52
because the wrong deals are being punched through into the underwriters queue slowing up the system so that's
13:59
why headbands and handkerchiefs is here today Richard to improve that process am
14:05
I right no you're absolutely right that the education is such an important piece of the equation yeah you know and to the
14:12
to your point related to having someone UM Vet this before the underwriter gets it you know a consultant or or what have
14:19
you it's you know similar to you know the requirement that there's got to be some relative business experience yeah
14:26
in the business that you're acquiring and good consultant is not fudging the details they're not it's not BS it's not
14:32
nonsense but they're able to dig really deep into what you've done in your career and see is there you know can we
14:39
connect the dots between what you've done in the past and what this business needs as the criteria for its manager if
14:46
you just take this your application you fired into an SBA lender and you haven't been thoughtful about your resume and
14:54
bio and relative um experience you just get reject Ed and so you know it's like
15:00
you know you want you want to have um experts to the extent that you can
15:07
afford them right at every step of the process I mean that's that with expert
15:12
advice because if you're going unless You' you've done this a bunch of times before you're you're just going to be much better off having the right team
15:19
around you to get you to the Finish Line it's it is pretty simple the qualified are the ones who have walked through the
15:26
fire and not just once several times because every deal brings a different
15:31
scenario I would like to toss in quick for our our loyal listeners here we will get to some questions uh at the bottom
15:38
of the hour uh we we see them coming in and our producers see us behind the scenes um does she have a bell to ring
15:45
for us is she awake back there I don't know um maybe she's got something back there for
15:52
hey she's awake is there she is that's our producer SE her behind the
15:58
scenes so Patrick I see your questions we'll get to them here at the bottom of the hour um now let's talk about
16:05
one-time expenses and I I'll give maybe one or two examples real quick and then maybe you can share one or two examples
16:12
um Richard I think back to a couple of deals um you maybe it's a business that
16:19
has to take care of any of the um leasehold improvements and they're responsible for the central air
16:26
conditioning in their unit of where they're business operates that's a huge expense good Lord my own personal home
16:33
two years ago we had to replace our central air and that was a big chunk of money I think we had to drop at that
16:40
time like:16:45
a big uh uh business well that's a one-time expense because we don't expect
16:50
the new owner having to pay that and that expense for that massive central air system that was like an 80 grand
16:57
onetime expense expense in one year yes get us the proof show us the receipt you
17:03
paid it paid it out of the business account get a paid invoice I'll show it
17:08
to my underwriter We'll add that 80 gram back to cash flow that's a one-time expense right absolutely so what do you
17:16
have for maybe an example of a one-time expense I actually prepared so I'm going to put on my glasses let's go bring them
17:23
on so the big one is depreciation because um sellers broke
17:28
Brokers they they add back you and correctly so you add back the depreciation to come up with your sellers discretionary earnings owner
17:34
benefits whatever you want to call them and that's a correct addback non-cash expense it's it's correct but the
17:41
incidence of them doing an offset for future Capital expenditures is probably one out of a 100 you can add back the
17:47
depreciation but those assets have to be replaced now if they have to be replaced in the course of the next 3 to 5 years
17:53
you need to reduce the depreciation number by a number that my mother would say putting money away from for a rainy
17:58
day meaning if you want to take a um if there's a depreciation expense of um
18:04
let's call $300,000 but you know over the course of the next five years that you're going to
18:09
have to buy equipment worth $200,000 you've got to reduce that
18:14
amount by $40,000 for each one of the five years of financials so depreciation is not just boom like this vomited out
18:22
addback there's an offset to that right and people need to P pay attention to it because it's very very rarely done and
18:30
that and and so you need to dig into the useful life of the equipment and similarly what you're going to have to
18:36
expend in reasonably over in the course of the next you know one three five years um you also see it you touched
18:42
upon earlier Automobiles and phones there's two other ones which are really important which is if there's um manager
18:50
in place or family members in place that are going to be left or any employees that are going to leave that have to be
18:55
replaced that that you know about and making sure sure that their salary is commensurate with what you're going to
19:01
have to pay some a new hire yeah you see that more I remember there was a restaurant um many years ago selling and
19:09
and and asking the guy um and and this was a story told to me by by a broker
19:14
and I and it was so spot on he was asking about certain people the buyer was asking about certain people who were
19:21
working there and said that nice lady over there who's at the hostess stand how much she get paid get paid it's my
19:26
wife I don't pay her my wife and then what about the other guy there well that's my son he lives in my house I
19:32
don't pay him well those people are going to have to be replaced so so thinking about replacement income and
19:37
the other one is related to real estate where if there's whether there is or not real
19:43
estate involved in the transaction if you're not acquiring the real estate but you're going to remain in the real
19:49
estate you have to make sure that the what's currently what the business is currently paying the owner for that
19:55
property as a lease on an ongoing basis is market rate because there may be an adjustment and often times it's the
20:00
inverse the business is overpaying because the the seller owns the property
20:06
and wants to reduce their uh you know their wants to add more Equity into the uh into their property so they overpay
20:12
rent so that's an adjustment the other way but those are those are the three three big ones that I see yeah um and
20:19
I'd like to add to to those three big ones that you just talked about uh the the family the the spouse the um the
20:27
folks that supposedly are working and now we got to replace them or in some
20:33
cases the owner is paying them and they're not even at at the business they don't work correct we we can add back on
20:41
the lender side W2s of family members where the owner um deducted an expense
20:48
even though they don't work there just to reduce his tax liability I want to see those W2s for the last couple of
20:54
years and and then I will add that salary back but we have to prove too that they really aren't working at the
21:00
business correct um and I love how you mentioned rent I I had one instance a
21:05
couple years ago a rent expense seemed really reasonable and the founder in the
21:12
building that he was renting from it was a gymnastics center the rent was really low because the lease was signed like 15
21:20
years ago where rents were much less right and I always S I always recommend
21:25
to my buyers get talking to that landlord immediately because if anything major is going to change with that rent
21:31
expense or this happens a lot they want to sell the building because the SBA
21:37
wants to make sure you the new owner are going to have a lease that can be
21:42
renewed matching the 10year term of the SBA loan right okay and landlord the the
21:47
lease the lease assignment has to be done very early because often times you
21:52
know it and it's on different terms as you said they may raise the rent they may not want to rent it for for whatever
21:58
reason you got to address that earlier thank you for saying that Amen to that because I had that gymnastics center
22:05
they wanted to double the rent for our buyer which threw the deal out the
22:10
window but there was some hard negotiating being done and we finally got the seller to realize you you can't
22:17
just double the rent and then sell your business you know so finally he lowered the rent we worked it out but if we're
22:24
not having those conversations early on about expenses and ADB and and looking
22:29
at it and getting the proof early on people early on early on yeah and one of
22:36
the things you know that just for some um insight to uh buyers when they're looking at leases there's always an
22:42
assignment Clause a transfer Clause what have you and sometimes they get a little complicated that the landlord may require the seller to stay on the lease
22:48
as a guarantor for a while if your financials aren't robust those things happen but the language that you want to
22:53
look for in the assignment clause and that's across across North America is is that even though they say um that very
23:01
often that the lease assignment is subject to um the sole discretion of the landlord the language you want to look
23:07
for is that the assignment will in quotes will not be unreasonably withheld
23:13
as long as you have that language in there then the the landlord can't just be an ass and say I'm not assigning the
23:19
lease they can get themselves actually into a a a a um a legal jackpot if
23:24
they're not um Cooperative now if they have good reason that they you know the
23:30
the buyer's financials don't pass or there's or they're selling the business or whatever well those are legitimate
23:36
reasons but other than that they can't just say I'm not as you know they can't just throw a a uh a speed bump up in the
23:41
deal and say I'm not assigning it just because I don't want to so look for that language yes indeed look for that
23:48
language so if there's one message I want our listeners to take away and
23:53
maybe you'll have a a thought on this too Richard based on today's episode
23:59
seller discretionary ADB backs my message to any aspiring buyers out there
24:04
you can't trust what is in the broker lising summary as true and accurate to
24:09
what the bank will approve as cash flow to support your loan project so what do
24:14
we do when you work with me we're going to jump on it out of the gates I'm not saying it's all wrong in the listing
24:21
summary I'm just saying let's verify and get the facts that's the takeaway I want
24:26
and we're going to walk through those ADB backs together to make sure does it make sense and do we have the proof
24:33
before I shop your your loan file to get the best loan project out there that
24:39
would be my takeaway um to to share with everyone that's listening what are your thoughts Richard what would be your one
24:45
well I'm G I'm gonna Dove I'm not sure if it's a nugget but it's going to dovetail upon what you're saying which
24:50
is understanding that there's a difference between ADB backs that A lender is going to allow and ADB backs
24:57
that are legitimate to be calculated as far as your as far as your valuation is concerned and so when you're looking at
25:04
the valuation and you get the list of addb backs you want to go through that of course diligently um making sure that
25:11
everything is provable and understand while you're going to use that final number that adjusted number as your
25:17
valuation between you and the sellers what you come up with those th not all those ADB backs are going to be
25:23
acceptable to A lender there could be you know they're not necessar always aligned and so when it comes to ADB
25:30
backs of course you want to make their make sure that they're they're provable I the obvious one is if you can't add
25:36
back what you did in expense but understanding that adbs have to be are
25:42
are ones that are going to be not in the normal course of the business for a new
25:47
buyer yeah yep right on thank you for adding that so let's just take a break
25:55
here to talk about our sponsors and then then we'll open up the Q&A because I and I do know there's a LinkedIn glitch if
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you're a mobile user we don't see your questions our producers is giving us a private message here in the chat um but
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sponsors so let's move to the questions um let's pull them up here to and let me
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see what maybe CA can pull one up here on there's one that was um David Muno Muno asked something about inventory
28:46
which is a great question okay so David asked I was told inventor is included in
28:52
the sales price why is it if the profitability to business has already calculated the cost of buying that inv
28:57
ventory they don't get their inventory for free that's true and correct but here's the thing to consider a business
29:03
and especially at the smaller end actually it applies larger as well but certainly at the smaller ENT is a
29:09
business is sold to a buyer on the on the assumption that assuming everything
29:15
in status quo they're they're going to have an optimal level of inventory to operate the business there are some
29:21
cases in retail stores where there's a value put on the business and the inventory is value separately um
29:29
typically the at the day of closing and that's added to the equation irrespective of that even in those cases
29:37
when you take the multiple which is always lower plus the inventory it still has to fit into a parameter of a return
29:42
on investment and so when you do while it seems to be a disconnect David that you take a business you value it based
29:49
on the the cash flow or the you know the seller's discretionary earnings you multiply that wouldn't you add the
29:55
inventory no because you need that inventory to generate that level of
30:00
income upon which you're valuing the business so there are exceptions to the
30:05
rule mostly in retail but by and large businesses are sold including an optimal
30:11
level of inventory so that when the buyer takes over the next day they can operate the business status quo and the
30:17
valuation at a multiple takes that into consideration and David if there's anything we want to get to some other
30:23
questions that are unclear you have my contact number um or contact information that comes up across the screen feel
30:29
free to get in touch with me directly and I'm happy to jump onto a call and provide some more um color on that oh
30:35
that's awesome Richard and maybe CA can throw up um before we move to the next question um your top 10 things that
30:43
sellers don't tell you the the QR code and and and whoever is listening if you want some additional information here's
30:50
10 things that sellers won't tell you you want to touch on that Richard sure it's a great report um combined after 34
30:58
years in this business of things that are commonplace that sellers won't disclose and if you go to um you can
31:05
either do it through the QR code or go to Richard parker.com subscribe to the report and there's I think there's 13 or
31:11
14 subsequent emails which are um great tips about the entire process of buying a business so if you're in you know even
31:18
considering buying a business it's it's a despite the fact that I wrote it myself it really is is really is good
31:23
information I love it I love it well that was a great question so and and and
31:29
David thank you for putting that up that inventory that's a very common question and Richard did a great job of
31:35
explaining it what what else do we have here for questions um let's see oh here
31:41
is Patrick talked about here we go do you folks keep a list of businesses you represent for sale so I don't list
31:50
businesses personally for sale what I do is help individuals that want to
31:57
purchase finance an established money-making business get prepared
32:03
pre-qualified fully vetted by the SBA then we search for the business that is
32:09
the proper way to start your business buying Venture is to see what you the
32:15
individual have a desire for and most importantly what do you qualify for
32:22
because businesses range from 150,000 up to 510 million and if it was
32:28
up to the business brokers they would sell you the most expensive businesses that they can because that's where they
32:34
make an income so we need to discuss what that is and work together uh to
32:40
figure out where do we go shop then to find that eligible business for sale
32:45
Richard do you list any businesses I I list a very limited amount I take on a few engagements um during the course of
32:51
year it is um very highly selective the majority of my time is spent um educating business buyers you know our
32:58
program how to buy a good business at a great price sold about a little over 100,000 copies of those and most of my
33:03
days just because I've been blessed to have a really wonderful career um enjoyment and finan and enjoyment wise
33:10
and financially so I spend my day on the phone answering buyer questions and emails I mean I never charge anybody and
33:16
so that's really what my day consists of I don't represent um I I I represent very few businesses and and typically in
33:22
the market of you know probably you my sweet spot is about2 and a half to$ 7.5 million of EA and and I just handle a
33:29
few during the course of the year um by the way Sandy asked a question about and you and I may have this differen
33:35
different answers on this you need to have um a great credit score so why
33:41
don't you answer it from a lender's perspective and I'll answer it from a a deal perspective yes so yes you do need
33:48
to have a good credit score and just like a firsttime home
33:54
buyer firsttime business owners first-time business buyers you do need to have a good credit score now banks
34:02
have thresholds some banks have thresholds where you got to be at a certain number others will mitigate it
34:09
so there are banks that recognize bad things can happen to good people
34:15
therefore if there is a bankruptcy a personal bankruptcy that maybe happened three four years ago there are some
34:22
banks that will consider taking you on with a letter of explanation that's
34:28
presented to the underwriter and that's my job to coach you on that but if you're coming to the table with a credit
34:36
score that's suffering because you're taxing your personal credit cards out to
34:43
the point where they're at at the limit youve got some late pays happening the last 12 months 24 months nobody's going
34:51
to want to finance a house for you much less a business so yes you do need a
34:57
good credit score are there things that can happen bad to good people of course
35:03
but it's got to match up to the story and I help coach um individuals on that
35:09
what would you say to that Richard so on on my answer to that is as first of all
35:14
I agree 100% with Deb said except for one part of the equation which is if you're going to look for significant
35:20
leverage through a type of loan like an SBA loan you've got to have a credit score that's going to meet their
35:26
criteria of that there's no escaping that in those situations where there is you you don't have the credit score to
35:33
to um to go through that type of financing well you have to look at Alternatives and in those cases what you
35:40
need to do is you know seller financing is going to be the road to go down because that while they will check your
35:46
credit score you're you're going to be able to establish a relationship with that seller hopefully build trust um
35:53
with with one another trust and credibility and obviously want to disclos that but if you can't go if you
35:58
can't use um SBA type financing for your deal your only option is either pay cash
36:05
which again I'd never let i' tell everyone don't pay cash for business even if you had it but your only option
36:10
is going to be seller financing and in that case your credit score is not important it's it when I say not
36:16
important they will look at it but what's more important is they want to make sure that you have the skill to
36:22
operate that business successfully for them to consider financing you so it
36:27
really depends what road you're going to go down and clearly with SBA I mean you got to have the right thing to the point
36:33
if you're going to buy a house or a car or whatever you have to be at a certain level but you do have some options if your credit score isn't optimal that
36:40
without question that should not prevent you from going through the process and I would like to add to that Richard if you
36:46
do go 100% seller financing please engage Richard somebody that's going to
36:53
protect you the business buyer because when you don't have a bank an SBA lender
36:58
or a consultant Like Me On Your Side doing the due diligence as deep and
37:04
heavy as Banks do going 100% seller financing on your own is a nightmare you
37:10
need right and it's not gonna happen I mean I mean I you you know the concept you have to put a down payment down on a
37:17
business I wish I could tell people that you could buy a business for zero money down and get 100% financing yeah you can
37:22
get a business pardon my friends for because no one's going to give a complete stranger that'll be a whole
37:28
other subject but no one's going to sell a a good business to a complete stranger and give them 100% financing so if your
37:34
credit is down and you're going down the road I wish I could tell people how to get businesses for 100% financing that
37:39
are good businesses because if that were the case I wouldn't have sold 100,000 copies of my course I would have sold a hundred million but it's a lie and so
37:47
and and it's a terrible lie and so if you don't have good credit but you you want you're going to go down the road to seller financing you're going to need to
37:54
have a down payment on the business that range es dramat dramatically but getting
37:59
a business for 100% seller financing is one out of a 10,000 cases if you're lucky so there is a component usually
38:06
it's anywhere 30 50 sometimes 70 I've done them at 70 and 80% but zero down
38:11
this it it just doesn't exist right on I have another question here oh here we go
38:19
how do you calculate market rates for those employees would you like to answer that one Richard yeah there's um a very a lot
38:27
of it is geographical but some of the um websites like indeed and other um um
38:34
Personnel websites could really give you some good parameters and relate it to geography and sometimes you need to just
38:40
um you you may need to engage on a temporary basis a recruiter not to find
38:46
someone but to give you some uh consultation related to the parameters of the job but it's it's very available
38:53
information especially if it's more standard type position it becomes a little trickier um the higher that you
38:59
go up the uh the employee scale when you get into uh you know more management level or specialized trades but the
39:05
information is available indeed is a a terrific Marketplace to search for it that's great and Patrick had another
39:11
question about H how do you walk through those expenses the ADB backs we were
39:18
talking about earlier in a clear transparent way uh number one right away
39:24
out of the gates but but but I'm GNA put in a big butt here no broker and no
39:30
seller is going to release any information until they know you've got proof of funds or a fully vetted SBA
39:37
pre-qualification letter as a business buyer they don't want to release anything until they know you qualify so
39:44
that's my job to to present you like a diamond in the rough because these Brokers get hundreds of business buying
39:51
calls per day and emails the shinier I make you look as a business buyer that you're fully and you're qualified you're
39:58
going to speed pass to the front of the line and that broker is going to want to talk to you and he's then they will
40:04
share information if they don't Patrick if they don't and any other business buyers out there listening if they don't
40:10
want to share information with you and you've got proof of funds that you are a legitimate eligible qualified buyer they
40:17
don't want to share you with us those expenses we're out of here we're moving on to the next business and um take it
40:25
from me over 100 transactions when I was younger I I was a sucker for business
40:30
brokers that would promise me that the stuff was coming and I believe what happened the sellers were promising the
40:35
Brokers that the stuff was coming it doesn't come it does not show up so if
40:41
you can't come up with it right away and I have an eligible buyer we're moving on
40:47
yep and I have a it's a great point and I have a question here I see I'm reading
40:52
which oh a question from Nate Duncan that um someone actually looks like they
40:58
answered it but I want to make sure you got this straight will there be or will there be a replay available well Deb
41:03
could touch on that after and then there was a question here um whether you not are ADB backs do ADB backs need to be
41:10
part of the LOI or we need to address it prior to the submission of an Loi so the answer is what Nate said but it's also
41:16
both one is you don't want to submit an Loi until you look at those ADB backs and could at least vet them at a high
41:22
level because what's the use of putting together a valuation or an offer on a price of a business if it's going to change dramatically so the the the
41:29
quality of the information that you receive from the seller will dictate whether or not it's going to have to be massaged further but you you know you
41:36
don't the only time that I would consider or one of the only times that I would consider putting to an Loi when I
41:42
haven't seen all the ADB backs yet if this was a business that I recognize is going to move quickly and good business
41:48
to sell fast but if I believe it's going to move quickly I will put in an Loi for full priceing terms yeah just just to
41:54
lock up the business and then you go back and you look at at the numbers you're not going to be misleading but you want to let the sellers know that
42:00
you know it's subject of course to due diligence and the verification but in an Ideal World and not withstanding that
42:06
type of example you want to get as much information as you can related to the ADB backs the adjustments and the
42:11
financials that you can so that you you're able to compile a valuation that is going to be pretty accurate assuming
42:18
nothing changes and that is why you are Richard Parker Richard parker.com what a segue
42:25
look at you look at you okay very good stuff man
42:31
that's a clip right there in the making very good what do we got here Nate
42:37
Duncan yes go ahead what does he have here will there be a replay available yes um LinkedIn will live stream all of
42:46
or replay our live streams on our profiles you'll always find them we also have I also have a YouTube channel
42:53
Richard do you have your YouTube channel yet are you working on it's at Richard Parker doomo okay fantastic and and we
43:00
are branching out in:43:06
we're going big or going home and just to let anybody you reach me on Richard parker.com but diomo was my original
43:11
company it's Dio it's the abbreviation for doing it on my own and that's the company I've had around for 34 years so
43:17
but the social media is all at Richard Parker Doo doing it on my own I love
43:23
that thank I love that even when I've sold some of the business I wouldn't sell the name there we go let's remember
43:30
let's remember aspiring entrepreneurs out there that want to buy a business
43:35
let's change the narrative Norm let's not start the journey blindfolded just
43:41
looking for a business and talking to business brokers start with business buying experts that understand how do
43:48
you qualify to buy a firsttime business or in many cases second and third
43:54
businesses because I have buyers that own multiple businesses and that's a deck of cards that needs to be shuffled
44:01
and figured out as well right so yeah absolutely absolutely and I see a
44:06
question here from Patrick Allen which says what business segments are you seeing exiting now I don't know if you meant exiting now or exciting now
44:13
there's you know what businesses are bought and sold all the time regardless of the economy regardless of interest
44:19
interest rates Recession Proof non- Recession Proof the the market is very fluid it has its ups and downs of course
44:26
if there's a real um catastrophic impact um uh one way or the other but what what
44:31
I'm seeing very very popular right now and what I mean by very very popular is
44:37
there's um multiples are getting a little outrageous is in a lot of the Home Service businesses Plumbing Heating
44:43
electrical um Pest Control Landscaping ones with a high level of recurring
44:48
Revenue there's a lot of rollups going on within the um private Equity world
44:53
and those rollups typically acquire a large large platform business than buy a bunch of small ones um and because
44:59
they're the level that they must be at is is less important when they're when they're tucking in the additional
45:05
businesses but home services are are um are really popular right now which when
45:10
again to qualify when I say popular that's when a whole lot of people are very attracted to that particular sector
45:17
and the multiples start to go on fire um it usually does not end well just to let
45:23
you know yep right on well Richard we managed to make it to
45:28
the 45 minute Mark we promised ourselves to to make this impactful in 30 to 45
45:33
minutes max because time is short for everybody we want to thank all of you for joining us our sponsors we will be
45:41
back again next week Thursday 2 pm Eastern next week's topic is business
45:46
brokers Friend or Foe yes and then we also um have a special note for thank
45:51
you for Devin Craig and Keith Singh George Bennett zah cun and Sandy chony
45:58
thank you very much guys for attending yes and Hound a business community and anyone else out there supporting us we
46:04
thank you until next time I believe there's a big holiday if you celebrate
46:09
Christmas merry Christmas happy Hanukkah whatever it is that you celebrate this is the season we call it separation
46:16
ason well let's get ready for:46:22
Deb bye
46:30
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