Brokerage 101: Keys to Success in Business Brokerage

07/13/161
Sunbelt Business Brokers
Brokerage 101

07/13/162
Sunbelt Midwest
A strategic marketed, process
driven business brokerage firm that
excels in exceeding customer
expectations!

07/13/163
What WE DO
 Help people buy and sell small businesses
– Helping people through life’s changes
– Want and need our help
 May not act like it
 Need strong leadership
– Placing their life’s work or their life’s fortune in our
hands

07/13/164
Behavioral Characteristics Of A Good Agent
 Strong interpersonal skills
 Business acumen
 Strong sales skills
 High level of persistence
 Highly creative
 Strong communicator
 Able to react well under extreme stress
 Strong leadership skills
 The willingness to be successful over being liked

07/13/165
Keys to Success
 Work Hard
 Embrace and follow the system
 Focus on effort and skill over results
 Create and stick to a great sart up plan
 Seek help
 Be humble
 Willingness to be dumb

07/13/166
Start Up Plan
 List everyone you know and make
contact via mail and follow up
phone calls … create a large
sphere of influence
 Create a daily, weekly and monthly
activities goal
 Track performance against goal
 Stick to the plan
 Attend mentoring meetings, take
notes, ask questions after
 Have trial meetings with
management present
 Role play
 Learn all of the system and
documentation, practice it
 Learn all of the listings … every
thing about every listing
 Meet with management and have
an honest evaluation session
weekly
 Hold your opinions until you have
four closings
 Don’t panic

07/13/167
The Target Market
 Small “main street” businesses
– $5,000,000 and below that are privately held
 35,00 small businesses per 1,000,000 in population
 Over 100,000 in the Twin Cities Metro area
– Larger businesses that are operated on a small
business entrepreneurial basis
 Lack of organization structure
 Lack of management systems
 Taking an extraordinary amount of perks from the
business

07/13/168
Agent’s are Relationship Brokers
 Seller  Business
 Buyer
 Agent

07/13/169
Seller Relationship
 Emotional ties to the business
– History, employees, customers, vendors, familial
 Partners
 Spouse
 Attorney
 Accountant
 Banker
 Influencers
 Unofficial advisors
 Dreams of the future
 Fears for the future

07/13/1610
Business Relationship
 Market
 Landlord
 Customers
 Vendors
 Key Management
 Employees
 Insurance
 Bank
 Lien Holders
 Ongoing Liabilities
 Contractual Obligations
 Outstanding Liabilities
 Government Agencies
 Licensing Authorities
 Tax Authorities
 Franchisor or Licensor

07/13/1611
Buyer Relationship
 Spouse
 Accountant
 Attorney
 Skills, experiences & abilities
 Informal Advisors
 Capital Resources
 Bank
 Credit Capability
 Partners
 OPM
 Human Reasons for Buying
 Income Requirements
 Fears
 Prejudices
 Timing
 Net Worth

07/13/1612
Basic Axioms
 Businesses are bought and sold for human
reasons

07/13/1613
Basic Axioms
reasons
 All businesses will sell one day; Given a little
luck, hard work and strong management

07/13/1614
Basic Axioms
reasons
 Buyers and Sellers must both use the
“Baseball Rule Book”

07/13/1615
Basic Axioms
reasons
 Buyers and Sellers must both use “baseball
rule book”
 Buyers and Sellers are working from a
position of fear … “Fear driven transaction”

07/13/1616
The Circle Of Life In Brokerage
Buyers
Deals
Listings!!!!!

07/13/1617
The Rule Books
Football
Rules
Strong Financials
2 Sets of books
Absentee Managed
Profit Driven
Stock

07/13/1618
The Rule Books
Football Rules
Big Business
Strong Financials
2 Sets of books
Absentee Managed
Profit Driven
Stock
Down Payment
No Confidentiality
Value by comps
Easily Financed
Basketball
Rules
Real Estate

07/13/1619
The Rule Books
Football Rules
Big Business
Strong Financials
2 Sets of books
Absentee Managed
Profit Driven
Stock
Basketball Rules
Real Estate
Down Payment
No Confidentiality
Value by comps
Easily Financed
Baseball Rules
Small Business
No stated profit
Run for owner’s benefit
2 Sets of books
Owner operator
Hard to value

07/13/1620
The Sunbelt Process
Prospect
Appraise
List
Market
Buyer
Buyer
Seller
Meeting
OFFER!

07/13/1621
Asset Sale vs. Stock Sale
 Asset Sale vs. Stock Sale
 Advantages
 No legal liability for the corporation prior to the purchase
 No liabilities for employees
 Costs paid for the assets are depreciable
 "Clean" credit, reputation, workers comp, etc.
 Retain goodwill amortization
 Single taxation at time of sale
 Disadvantages
 No established credit
 Rehire the employees
 Negotiate transfer of leases & contracts
 New licenses
 Operating Capital
 Stock Sale vs. Asset Sale
 Advantages
 Established credit
 Many times, no or minimal operating capital required
 Leases are in place
 Contracts are in place
 Employees are in place with worker's comp rate
established
 Licenses are in place
 No public notification of the sale
 No sales tax on the FF&E
 No deposits required
 Corporation, tax & employment numbers
 Disadvantages
 Legal liability for the corporation prior to the purchase
 Assets are normally fully depreciated
 Sometimes stock is a hard sell to CPA's & lawyers
 Loss of goodwill amortization, remains in stock basis
 Double taxation at time of sale

07/13/1622
Taxable Consequences of a Sale
 The proceeds to the Seller will be taxed!
 The taxation level will be either Capital Gains
or Ordinary Income dependent on
classification of the asset being sold
 Ordinary income is approx. 35%
 Capital gains is 15% federal and 8% state

07/13/1623
Tax Categories for Seller
 Ordinary Income Tax
– Taxes associated with the portion
of the proceeds from the sale that
are assigned to the tangible
assets or FF & E such as:
– Gain on sale of inventory
– Recapture of depreciation
 Recapture of depreciation is any
amount that is allocated to the
purchase price of FF & E that is
above the book value of the FF & E
 Seller has benefit of write off in
previous years
– Non-Compete (no FICA tax)
– Employment agreements or
consulting agreements (FICA
applies)
 Capital Gains Tax
– Taxes associated with the portion
of the proceeds from the sale that
are assigned to goodwill or the
intangible assets such as:
 Name
 Phone numbers
 Market standing
 Vendor relationships
 Customer lists
 Etc.

07/13/1624
Taxable Consequences – Seller
S-Corp. LLC or LLP
Sale price is $500,000
$50,000 commission
$2,000 closing costs
Basis is equal to:
Retained earnings $ 50,000
Paid in capital $ 50,000
Note payable to shareholder $ 10,000
Outstanding debt $ 30,000
Total Basis $140,000
Proceeds Allocation
Inventory @ cost $ 50,000
FF & E (book value $50,000) $100,000
Goodwill $275,000
Non compete $ 50,000
Consulting $ 25,000
Total Purchase Price $500,000

07/13/1625
Taxable Consequences Non C-Corp
Ordinary Income Capital Gains
$50,000 commission
Basis is equal to:
Retained earnings $ 50,000
Paid in capital $ 50,000
Note payable to shareholder $ 10,000
Outstanding debt $ 30,000
Total $140,000
Proceeds Allocation
Inventory @ cost $ 50,000 $ - $ -
FF & E (book value $50,000)*** $100,000 $ 17,500
Goodwill $275,000 $ - $ 60,500
Non compete $ 50,000 $ 17,500 $ -
Consulting $ 25,000 $ 12,500
Total $500,000 $ 47,500 $ 60,500

07/13/1626
Comparison C Corp to Non C-Corp
$50,000 commission
Basis is equal to:
Retained earnings 50,000$
Paid in capital 50,000$
Note payable to shareholder 10,000$
Outstanding debt 30,000$
Total 140,000$
Proceeds Allocation
Inventory @ cost 50,000$ -$ -$ -$ -$ 17,500$
FF & E (book value $50,000)*** 100,000$ 17,500$ 17,500$ 6,125$
Goodwill 275,000$ -$ 60,500$ -$ 60,500$ 21,175$
Non compete 50,000$ 17,500$ -$ -$ -$ 17,500$
Consulting 25,000$ 12,500$ -$ 12,500$
Total 500,000$ 47,500$ 60,500$ 17,500$ 60,500$ 74,800$
Ordinary
Income
Capital
Gains
S-Corp, LLC, LLP
Ordinary
Income
Capital
Gains
C-Corp
Individual
Tax
 $108,000  $152,800

07/13/1627
Total Taxes Due 108,000$
Minus Closing Costs 52,000$
Minus Basis 140,000$
Total Taxes Due (84,000)$
Net Loss Carry Forward (84,000)$
Total Taxes Due 152,800$
Minus Closing Costs 52,000$
Minus Basis 140,000$
Total Taxes Due (39,200)$
(39,200)$Net Loss Carry Forward
 C-Corp
 Non C-Corp

07/13/1628
Allocation Consequences
ProceedsAllocation
Inventory@cost 50,000$ Noeffect Addstobalancesheetasasset
FF&E(book value$50,000)*** 100,000$ Sellerpaysordinaryincometaxonrecapture Addstoassetsanddepreciateover5,7,10years**
Goodwill 275,000$ Sellerpayscapitalgainstaxes Addstoassetsamortizedover15years
Noncompete 50,000$ SellerpaysordinaryincometaxnoFICA Writesoffover15years
Consulting 25,000$ Sellerpaysordinaryincometax+FICA Writesoffinyearofpayment
Total 500,000$
EffectonSeller EffectonBuyer

07/13/1629
TAX Calculation Non C-Corp
Total Taxes Due $108,000
Minus Closing Costs $ 52,000
Minus Basis $140,000
Total Taxes Due $ (84,000)
Net Loss Carry Forward $ (84,000)

07/13/1630
Listings
 Listings drive this business … what is your
goal for listings?
 Ideal is an inventory of 10 listings at all times
– 5 in the box
– 3 saleable yet not ideal
– 2 junk to make the phone ring

07/13/1631
Listings - Prospecting
 Listings come to those that go and search them out
… they will not drop in your lap!
– Drop notes
– Telemarketing
– Face to face
– Networking – referrals
– Personal marketing
– Direct mail
 There are 93,000 small businesses in our market
20% change hands every year

07/13/1632
Prospecting for listings
 Remember axiom; All businesses will sell
one day … Wouldn’t it be a good idea to
have a clear understanding of the selling
process as well as the price that your
business is worth in today’s market, while
learning of ways that you can increase value
when you are ready to sell?

07/13/1633
Telemarketing Script
 Hi, I am _________________________, from Sunbelt
Business Brokers, the largest business brokerage firm in
the world. I am calling today to find out if you have been
thinking about selling your business now or in the near
future.
 Wait for reply (yes I have been thinking about it, I think
about it form time to time, everything is for sale for the
right price, no business is great and we wouldn’t think of
selling, we just bought it and it’s much too early to sell,
business has been bad and we are going to wait until
business gets better, etc.).
 If the reply is positive to include “everything is for sale for
the right price, yes, or think about it from time to time,
etc.;
– “Great, I would like to set up an appointment with
you to meet with one of our agents. During the
meeting the agent will give you the overall picture
of the important factors involved in the sale of a
business and will help you understand the selling
value of your business in today’s market”, I will
have an agent in your area (day) or (day), would
either of those days work for you to meet with an
agent for about 30 minutes?”
– If yes “Do you have a confidential meeting place at
your facility or should we set the meeting for a
confidential off-site place?
– Confirm appointment, time and location
 If possible, try to get the prospect to bring financial data to
the meeting, “If at all possible, it would be great if you
could bring 3 years of financials and 3 years of tax returns
for the business to the meeting. If all goes well and you
feel as though you may want to move forward with our
company, the agent will need that information to do a
thorough analysis of the business to help you determine
it’s selling value
 If he reply is anything other than a positive response;
– “I think that you have to agree with me that all
businesses, given a little luck, hard work and good
management will sell one day. Even if you are not
thinking of selling today you will find that a brief
meeting with one of our agents will help you
prepare for the day when you are ready to sell.
The agent will help you understand the value of
your business in today’s market, go over the
process of listing and selling a business and give
you a set of pointers that will help you create a
higher selling price in the future.” We find that the
business owners that we meet with find this brief
appointment to be invaluable” ”, I will have an
agent in your area (day) or (day), would either of
those days work for you to meet with an agent for
about 30 minutes?”
– If the prospects declines the appointment;
 “Even though you do not want to set a time
for a brief meeting today, would it be OK if I
checked back from time to time just to see
if anything has changed regarding your
position?”
 If OK, set a call up for 30 days
– If no, update data base and move on but whether
yes or no ask the following;
 “We send out a quarterly newsletter that
covers topics that are important to business
owners, would you be interested in
receiving the newsletter?”
 If yes, update database, make sure to
determine the most confidential manner for
them to receive the newsletter. We prefer
to set it up to go to a secure email address

07/13/1634
Telemarketing
 Watch yourself for sales reluctance
 Watch yourself for sales arrogance
 Do not use the “We have buyers for your
business” routine
– Recipe for trouble

07/13/1635
Telemarketing … The Numbers
 100 calls will yield 60 contacts
 60 contacts will yield 2.5 appointments on
first call
 Less than 25% of those will list
 Second call will yield 3 appointments
 Less than 25% of those will list
 Third call will yield 3 appointments
 Less than 25% will list

07/13/1636
Prospecting … The Math
1st Call
Dials 100.00
% of conversations with owner 60.00%
Number of conversations 60.00
% of appointments from 1st call 2.50%
Number of appointments 1.50
% of Prospects willing to schedule 2nd call 45.00%
Number of 2nd calls set up 27.00
% of non-interested prospects 52.50%
Number of non-interested prospects 31.50

07/13/1637
2nd Call
Dials 27.00
% of appointments from 2nd call 7.50%
% of Prospects willing to schedule 3rd call 65.00%
Number of 3rd calls set up 13.16

07/13/1638
3rd Call
Dials 13.16
% of appointments from 3rd call 12.00%
% of Prospects willing to schedule more calls 40.00%
Number of additional calls set up 5.27

07/13/1639
Prospecting … The Outcome
Total
through
3 calls
Dials 140.16
% of appoints from 3 calls 4.82%
% of Prospects willing to schedule 2nd call 49.33%
Number of additional calls set up 45.43
% of non-interested prospects 0.48

07/13/1640
Business Valuation Methods
Ed’s Method
1. Sales Revenue
2. Determine cash
flow by saying” I
someone bought
your business
and worked hard
how much do
you think that
they would
make?”
3. Answer to #2
should be 10%
to 20% of sales
revenue
dependent on
type of business
Rules of
Thumb
A set of publications
that set out what
certain types of
businesses should
be valued at and
what formula values
to use
Valuation
1. Best for
unbiased
professional
valuation
2. Supports
Listing price
decision
3. Supports
buyer value
decision
4. Uses 4
methods to
value
Recast
EBITDA + OEB
1. E = Earnings
2. Before = Add
back
3. I= Interest
4. D= Depreciation
5. A= Amortization
Plus
Owner’s Economic
Benefits

07/13/1641
Ed’s Method
 Use for businesses
without reliable financial
records
 Key points
– Accurate revenue
– Accurate owner’s income
 Compare to 10% to
20% of revenue
depending on business
and expense model
 Make sure that you do
not ask owner how
much profit you make
… instead ask “If
someone came in here
and worked real hard
and you helped them
learn the business, how
much do you think they
would earn?”

07/13/1642
Rules of Thumb
 Rules of thumb are a
collection of factual
information that tells
how to value certain
types of businesses,
the formulas to use and
the values to be placed
in those formulas
 The best rule of thumb
resource is the
Business Broker Press,
Tom West publication
 Our statistics run higher
than reported in West’s
book

07/13/1643
Recasting
 Used most often if financial
records are available or can
be recreated
 Generally gives most
reliable statement of cash
flow
 Agent becomes intimately
familiar with the financial
side of the company
 Need 3 years taxes, 3 years
financials and someone that
knows the books

07/13/1644
Listing Meeting
 Sell yourself
 Sell Sunbelt
 Sell brokers
 Ask questions
 Teach the seller

07/13/1645
Sell Yourself
 Create a 30 second commercial
 Use your full scope of skills and abilities
 Use letters of reference
– If no deals yet get from business aquaintenances
 Walk the walk & talk the talk
 Exude leadership

07/13/1646
Sell Sunbelt
 Largest business brokerage firm in the world
because we know that businesses are bought and
sold for human reasons, keeping in mind that your
financial goals have to be achieved, but business are
sold for human reasons
 Sunbelt has best practices and is able to get the
greatest results, we will sell your business for
maximum dollars in a minimum amount of time, with
no hassle to you

07/13/1647
Sell the Broker ... When you hire a
broker you are paying for 8 things.
 Help the seller place market relative
price and terms on the business
that will ensure a satisfactory sale
 Create a supply side economic
model for the business through
strategic marketing that will create
buyer demand in a confidential
manner
 Interview and filter out buyers in
order to bring only qualified buyer
candidates into the deal
 Sell prospective buyers on the
value of the business
 Solicit offers from qualified buyers
and provide council regarding the
offer and the options that are best
to instigate
 Use our expertise in negotiations in
order to maximize the total deal for
the seller while solidifying the
purchase agreement
 Work with the buyer through due
diligence by supporting their
requests and quieting their
concerns
 Take a leadership role in getting to
the closing table in a timely and
organized manner that will result in
a satisfied seller and buyer

07/13/1648
The Interview
 Become prepared to write the entire book
about the business, the financials are only
one chapter … there is always so much more
 Use multiplier grade sheet as a prop
 What is motivating you to sell
 How much would you sell your business for
 Stay in control … you are the leader

07/13/1649
Grade Sheet Questionnaire
1. Continued Earnings Risk Assessment Possible Score Assessed Score
a. Continuation of Earnings at Serious Risk for a New Owner 0.00
b. Steadily Increasing/Stable Earnings Likely for a New Owner 2.00
c. Significantly Growing Earnings Assured for a New Owner 4.00 4.00
2. Company History Assessment Possible Score Assessed Score
a. Recent Start-up Company/Not Well Established (less than 3 years) 1.00
b. Well Established Company/Good Customer Base (5-15 years) 3.00
c. Long Record of Successful Business/Strong Customer Base(16+ years) 4.00 4.00
3. Company Growth Projection Possible Score Assessed Score
a. Business Revenues Have Been Declining 1.50
b. Steady Revenue Growth/Faster than Inflation 2.75
c. Dynamic Revenue Growth Rate (15%+ annually) 4.00 2.75
4. Competition Analysis Possible Score Assessed Score
a. Highly Competitive Market/Non-Unique Product/Service 1.50
b. Normal Competitive Conditions in a Stable Market 3.00
c. Little Competition in a Stable or Growing Market 4.00 3.00
5. Seasonality Possible Score Assessed Score
a. Highly seasonal business 1.25
b. Moderately seasonal business 2.50
c. Non-seasonal business 4.00 1.75
6. Operating capital requirements Possible Score Assessed Score
a. Business requires substantial capital reserves/loans to meet operational expenses 1.50
b. The business meets operating capital needs with minimal reserve capital/loans 2.50
c. The business cash flows and is able to operate without cash reserves/loans 4.00 2.60

07/13/1650
7. Business Expansion Opportunity Assessment Possible Score Assessed Score
Business Expansion Not Likely Without Major Capital Investment 1.00
Moderate Expansion Possible With Moderate Capital Investment 2.50
Immediate Significant Expansion Possible/Little to No Investment 4.00 3.50
8. Barriers to Entry for New Competition Possible Score Assessed Score
None or Minor Barriers to Entry by New Competition 1.00
Moderate Barriers to Entry by New Competition 2.50
Major Barriers to Entry (e.g. limited customer base, high capital costs,
restrictive licensing, limited business locations, etc.) 4.00 3.00
9. Customer Base Sensitivity Possible Score Assessed Score
Revenues Highly Dependent on One/Few Customers 1.00
Revenues Dependent on a Moderate Number of Customers 2.50
(Revenues Not Dependent on One/Few Customers)
Broad-based/Diversified Customer Base 4.00 5.50
10. Customer Base Retention and Loyalty Possible Score Assessed Score
Rapid turn over of customers with limited repurchase activity 1.75
Loyal customers with sporadic repurchase history 2.50
Loyal customer base with frequent repurchase history 4.00 3.75
11. Contracts Possible Score Assessed Score
No contracts in place for vendors and/or customers 1.50
Some unassignable contracts in place for customers and/or vendors 2.00
Assignable contracts in place for customers and/or vendors 4.00 2.50
12. Management Retention Projection Possible Score Assessed Score
Owner-Managed With No Employee Management to Retain/Owner
Unable or Unwilling to Remain to Transition Company 1.75
Mainly Owner-Managed With Some Employee Mgmt. to Remain or
Owner Willing to Remain to Transition Company 3.00
Full Company Management Team Likely to Remain 4.00 3.00

07/13/1651
13. Employee Base Possible Score Assessed Score
a. Short term employees that are difficult to hire and retain 1.00
b. Stable employee base with 1 to 3 years tenure 2.50
c. Stable well trained employee base with 3 + years tenure 4.00 2.75
14. Enterprise process & procedure Possible Score Assessed Score
a. No documentation of process, procedures or handbooks, etc. 1.00
b. Process, procedures general business knowledge is documented but loosely assembled 2.50
c. Process, procedures, handbooks, etc are well documented, updated and easily transferable 4.00 1.75
15. Operating systems Possible Score Assessed Score
a. Business is operated primarily with manual operating and accounting systems 1.00
b. Business has minimum levels of technological support to operate the business 2.25
c. Business has invested in adequate technology to support operations & management decisions 4.00 3.00
16. Financial documentation Possible Score Assessed Score
a. Business lacks financial statements or other adequate documentation to support SDCF claims 1.00
b. Business has tax returns that validate SDCF claims 2.50
c.
4.00 3.00
17. Business Location Continuation (where location is important) Possible Score Assessed Score
a. The Business Must Be Moved After the Sale 1.00
b. The Business Has a Lease That Must Be Renegotiated 2.00
c. The Business Has a Long-Term Lease at a Desirable Location With
Favorable Terms or Owns Its Premises 4.00 4.00
18. Operational Facility/Equipment Analysis Possible Score Assessed Score
a. The Facilities/Equip. Require Significant Immediate Capital Investment 1.00
b. The Facilities/Equip. Require Moderate Capital Investment 2.25
c. The Facilities/Equip. Do Not Require Capital Investment 4.00 3.50
Business has full financial documentation prepared via standard accounting methods that readily
supports SDCF claims

07/13/1652
19. Industry Strength Assessment Possible Score Assessed Score
a. Declining Industry Not Expected to Recover 0.00
b. Industry Growing Moderately (faster than inflation) 2.00
c. Dynamic Industry With Broad Rapid Growth Likely 4.00 2.75
20. Environmental Risk Assessment Possible Score Assessed Score
a. Produces/Uses Hazardous Substances Subject to Regulations 2.00
b. Minimal Amounts of Hazardous Materials Involved 3.00
c. No Hazardous Materials Used/Produced in the Business 4.00 4.00
21. New Owner Social Desirability Assessment Possible Score Assessed Score
a. No Community Prestige/Rough or Unpleasant Product/Service 1.00
b. Respected Business in Satisfactory Environment 3.00
c. Highly Regarded Business in an Attractive Environment 4.00 4.00
22. Buyer's Market Demand Possible Score Assessed Score
a. Business appeals to a very limited number of buyer prospects 1.00
b. Business appeals to a moderate percentage of available buyer prospects 2.50
c. Business type is in high demand by buyer prospects 4.00 3.00
23. Down Payment Terms Possible Score Assessed Score
a. Cash at closing 0.00
b. Down Payment = to greater than 1.25 x SDCF 2.00
c. Down Payment = to less than 1.25 x SDCF 4.00 2.65
24. Inventory Possible Score Assessed Score
a. The purchase of the business does not include inventory 1.75
b. The purchase of the business include inventory, but the inventory is old or outdated 2.75
c. The purchase of the business includes a fresh salable inventory 4.00 3.00
25. Amount of FF & E Possible Score Assessed Score
a. Very low tangible asset level 1.75
b. Moderate amount of tangible assets 2.75
c. Large amount of tangible assets 4.00 2.50

07/13/1653
Train the Seller
 Must get Baseball Rule Book on the
table
– Banks do not like to finance the
acquisition of small businesses
– The financial reporting does not
support the loan decision … lack of
profit
– Sold on seller’s discretionary cash
flow which is EBIDA + OEB
– Businesses are sold on a multiple
of SDCF 1.5x to 4.0x
 Price is also dependent upon terms
 If you want all cash and the bank
will not finance you will get 50%
less for your business than if you
were willing to provide owner
financing
 I know that you do not want to
finance someone to buy your
business, but to get full value you
may have to … there are ways to
protect yourself

07/13/1654
Train the Seller … Financing
 Make sure that we are selling the
business to the RIGHT buyer, you
are hiring a president to run your
company, you know what that
individual will need to succeed
 Make sure that you get the RIGHT
down payment amount, right does
not mean the most, you want to get
enough of a buyer’s net worth so
that failure is not an option
 Stay on the lease, it is an early
warning device for financial
problems in the business, also if
failure occurs you have a place to
restart your business from
 Demand quarterly financial
statements made in accordance
with standard accounting practices
 Demand annual financials and
business and personal tax returns
 Retain a 24 hour notification of right
of visitation
 Be diligent on oversight and do not
be a “good guy”
 Explain the timeline for taking a
business back in case of default

07/13/1655
The Financing Arguments &
Overcoming Objections
 IF YOU CAN NOT CONVINCE THE SELLER
TO OFFER TERMS … YOU WILL NOT
SUCCEED IN THIS BUSINESS!!!!!
Discussion

07/13/1656
Getting the Listing Signed
 CAUTION: Telling the seller an unrealistic price with
unrealistic terms may get a listing signed, but it will
not get a business sold. You must be honest …
selling the business is the only way we get paid …
the seller wants honesty and you must have integrity

07/13/1657
Getting the Listing Signed
 Common objection
points
– Exclusive
– Commission
– Cancellation of listing
– Protective list period
– Term of listing
– Exclusions
– Etc.
 Ways to overcome
those objections

07/13/1658
The Ideal Listing … the Box
 Price is less than or equal to 3.0 x SDCF
 Down payment is equal to 1.0 to 1.25 x
SDCF
 Terms allow for a reasonable buyer income
and cushion money
 Getting the seller into the box

07/13/1659
Buyers
 Destination shoppers
– Searching for a business
– Searching for help with a life dilemma
 95% of buyer call ins should result in an appointment
– 75% of appointments should be kept
 We fails buyers .. Buyers do not fail us
 50% of buyers should at least get to a buyer seller interview
 50% of buyer seller interviews should result in offers
 50% of offers should close

07/13/1660
Buyer Call Ins
 Hello this is ________________, how can I help you? I am calling
about the ____________ I saw in the paper. What can I tell you about
it? Where is it located? Due to reasons of confidentiality I can not give
that information out until we have had time to get together and sign
confidentiality and non-disclosure agreements. Once we have signed
the forms I can tell you everything about this business as well as talk to
you about the other 200 listings that we have. We generally like to
have you come in and sign the documents and then spend about 40
minutes together where we help you identify your goals and give you
some of the information that you will need to help you buy a business
such as how businesses are valued, the formulas that you can use to
determine value and what options may be available to help you with
financing the purchase of a business. When would you like to come in
and get together?

07/13/1661
Buyer Meeting
 Determine goal
 Determine motivation
 Understand fear level
 Understand the person
 Create aura of advocacy
 Interest is not important
 Determine other influencers
 Determine resource capability
 Determine income requirements
 Take strong leadership role

07/13/1662
Buyer Interview
 Overview of purchase process
– Define goals and motivation
– Determine resources
– Learn how to value a business & how to buy a business
– Review selected businesses that fit goals and capabilities
– If interested, meet with Seller
– If still interested write a contingent offer
– Negotiate offer
– Thoroughly investigate every facet of the business (due diligence)
– If totally safe and ok, move forward with purchase

07/13/1663
Buyer Interview
 4 resources to buy and succeed at owning a business
– Time available
 Owner operator
 Manager operator
 Absentee owner
– Skills & Abilities
 Education & Training
– Experience
 Sum of professional experiences
– Capital
 Look for all sources
 Home equity is the best

07/13/1664
The Rule Book
 Businesses are sold for human reasons
 Banks do not like to finance the acquisition of small businesses
because the financials and tax returns are made to mitigate profits
 Do not judge a business on profitability
 Use seller’s discretionary cash flow as the judge of a business’s value
– SDCF = EBIDA+OEB
 Businesses are valued and sold on multiples of cash flow
– Low side is 1,5 x SDCF
– High side is 4.0 x SDCF
– Most businesses sell for 2.5 to 3.5 x SDCF

07/13/1665
The Rule Book
 Every deal is made up of price and terms
– Terms are much more important than price
 Ideal buyer equation is that down payment should equal 1.0 to 1.25 of
cash flow
– 100% return on down payment investment every year
– Cash flow is used for 3 things
 Pay the buyer
 Retire the debt
 Provide extra capital for unexpected emergencies or expansion
 Payment terms need to suit the buyer’s needs

07/13/1666
The Buyer Needs Your Help
 Focus on goals not on likes and dislike, not
on interest
 Help discover skills, ability and experience
 Find out decision makers
 Find out true compensation requirements
 Discover sources of down payment capital

07/13/1667
Buyer Interview
 Show the buyer no more than 3 listings
– Determine interest and capability before revealing the name and location
 Sell the business using CBP
– Know the listings
 ALLOW THE BUYER TO MAKE THEIR OWN DECISIONS
– With your guidance
 Get commitment that buyer will visit or investigate businesses to
determine interest level for purchase
 Move buyer to buyer seller meeting

07/13/1668
Buyer Seller Meeting**
 Agent’s role is to
– Get buyer and seller ready for the meeting
– Pour coffee and serve up softballs
– Re-enforce seller’s value positions
– Keep the meeting on track , steer it… strong leadership role
– DO NOT ALLOW NEGOTIATIONS TO OCCUR
– Critic the Seller after the meeting
 Critic and coach the Seller after the meeting
 Meet with Buyer immediately
 Ask “What concerns would you have if you were to buy this business?”
– List concerns … these will be contingencies
– Do not try to address the concerns at this time

07/13/1669
Getting an Offer**
 MUST ASK FOR THE ORDER … NOW!!!!!!!!!!!
– NO BETTER TIME THAN RIGHT NOW!
 Best time to ask is right after buyer seller meeting
– “Let me show you how to reserve this business for your self with no
risk to you!”
 Write a “practice offer”
 What price should I offer
– Remember back to our first meeting …
 What down payment should I offer
– Remember back to our first meeting …
 I don’t want to offend the seller
– That’s my job, I will keep this transaction on a business level and not allow
it to become personal

07/13/1670
Getting and Offer**
 Help structure the deal
– Make the terms fit the needs for utilization of the cash flow
 Pay the Buyer
 Pay the debt
 Cushion or seed capital
– Use creative financing
 Extended amortization with a balloon
 Multiple promissory notes
 Anything is possible … work with the resources at hand
– Closing date needs to be at least 4 weeks out, don’t jam the deal
 Make closing date fit the deal
 Buyers timeline, licensing, franchise transfer. Etc.

07/13/1671
Contingent Offer**
 Using the Addendum form
 All offers will have
– Buyers review and approval of Business documentation to include but not
limited to 3 years of financials and tax returns, customer records, employee
records, etc.
– Review and approval of a lease that is acceptable to the Buyer
– Seller to provide assistance and training for a period of ___ days after the
close at no additional cost to Buyer.
– Buyer and Seller to reach an acceptable agreement regarding a non
compete for the Seller
 Then add the items from their list of concerns that were not addressed
in the Agreement to Purchase
 Just write them down … do not try to address them at this time
 No Contingencies that will breach confidentiality
– Employees, customers, vendors

07/13/1672
Contingent Offer**
 Ask for a signature
– Close 3 times and let it go
– If no signature let them take with
– If want to take to a lawyer “Yes, if that will make you more
comfortable.”
 Remind them of sense of urgency
– Others are highly interested, don’t want to lose the ability to be the
first offer
– Being second in line can be expensive
 Follow up no longer than the next day
 Just because they say no now does not mean that they do not
want to buy

07/13/1673
Presenting the Offer**
 Analyze offer and prepare 3 separate well reasoned counter offers
– Lay out the outcome of each offer
 Control the meeting
 Always in person
 Always use seller’s contingencies
– Review and approval of buyer’s financial documentation to include but not limited to 3
years tax returns, 3 reports from credit reporting agencies and a signed and dated net
worth statement
– Buyer to personally guarantee all debt
– Seller’s acceptance of buyer for financing
 In deals greater than $250,000 dictate allocation scenario
– Match FF&E allocation to book value … depreciation recapture ordinary income
– Minimum non-compete … Ordinary Income
– Minimum training & consulting …ordinary income + FICA
– Maximum to goodwill .. Capital gains

07/13/1674
Negotiating the Offer
 Be very, very creative
– Understand and solve the problems
– It’s the wild, wild west
 Use earn outs or consulting agreements to bridge large gaps
 Keep focused on
– The Seller wants to sell
– The Buyer wants to buy
 Keep the deal working … strong leadership

07/13/1675
Due Diligence***
 Never give out documents that are not fully explained, never have the
Buyer take financials to accountant without having an opportunity to
explain cash flow to accountant
 Take on one contingency at a time and clear that … in writing
 Hierarchy
– Financials
– Non-compete
– Training & transition
– Lease is last
– Protect confidentiality
 Keep on the time line and manage the project
 All deals will die 3 times

07/13/1676
Non-Refundable Status “Go Hard”***
 In accordance with “sunset clause” on addendum
 Commits funds to a non-refundable status
– Buyer loses all rights of refund
– Does not have to close
– Can go hard before due diligence is complete
 Upon going hard
– Authorization to retain attorney – form
– Launch the closing documents
– Use closing check list
– Follow the proven system
 Keep everyone on track

07/13/1677
Negotiate the Fine Points***
 Buyer’s attorney comments
 Seller’s attorney comments
 Find common ground
 Turn over to closing attorney if needed to have them bring the
parties together

07/13/1678
Closing***
 Always examine checks first and make correct
– Make sure Sunbelt has a certified check for the right amount
 Be on the look out for trouble spots
 Act as administrative assistant
 Have attorney bring a disk of closing documents to closing
– Changes on the fly
 5 sets of originals signed
 Ask for letters of recommendation when completed

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