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1. Business Brokers of Florida
Central Chapter
Quarterly Training
Maximizing the Broker’s ROI
July 20, 2011
2. Agenda
11:30 - 12:00
Our Current Market Statistics & What they mean?
12:00 – 12:30
Panel of Experts Critique their Own Success Stories
and Failures.
12:30 – 1:00
Lunch
1:00 – 2:00
Panel of Experts Continues followed by critique of 5
random listings (chosen by Lee Ossin)
3. Participants
Special thanks to Our Panel of Experts:
Bob Adams
Brian Bateson
Michael Mensch (filling in for John Hoyt)
George Rosen
Mike Shea
Statistics supplied by Lou Vescio (unable to attend
this meeting) and Michael Mensch.
4. The 4 Letter Word - RISK
Risk = Probability for a Loss
What is the risk in buying/selling a
business?
For the Seller?
For the Buyer?
For the Broker?
5. The 4 Letter Word - RISK
What is the risk in marketing a business
for sale?
For the Seller?
For the Buyer?
For the Broker?
Little risk on Seller & Buyer until the
closing.
6. Broker Buyer Seller
Prior to Listing X
Packaging the Listing X
Advertising the Listing X
Working with Buyers X X
Buyer-Seller Meetings X X X
Offers Made X X X
Contracts Signed X X X
Due Dilgence Phase X X X
Financing Phase X X X
Pre-closing Phase X X X
Closing X X X
Time Investment
The 4 Letter Word - RISK
7. The 4 Letter Word - RISK
Low Avg High
Prior to Listing 5 10 40
Packaging the Listing 3 10 50
Advertising the Listing 2 5 20
Working with Buyers 10 20 100
Buyer-Seller Meetings 10 20 40
Offers Made 2 10 50
Contracts Signed 4 10 50
Due Dilgence Phase 10 40 100
Financing Phase 0 10 30
Pre-closing Phase 5 10 40
Closing 1 2 4
Total Hours 52 147 524
Hours up to Offer 30 65 250
Broker’s Time Investment
8. The 4 Letter Word - RISK
Doesn’t include time for:
Marketing
Networking
Attending office meetings
Continuing education
Creating BBF chapter meeting slides
9. The 4 Letter Word - RISK
The Broker, by far, has the most at risk
in marketing a business for sale.
Yet with all the time that we invest,
there are no guarantees:
May not find interested buyers
Seller may step out of the business
Business may suffer a set back
Deal may fall apart
10. The 4 Letter Word - RISK
How can we mitigate our risk?
Weeding out lower probability sales
Businesses that are likely unsellable
Setting realistic asking price & terms
Setting price in-line with market demand
Prepping for realistic sale terms
Understanding common issues
With specific types of businesses
11. The 4 Letter Word - RISK
Purpose herein is to better understand
Low Probability Sales by:
Reviewing sold & current listing statistics
Hearing insight from some experienced
brokers
Analyzing issues with some sample
listings
12. Real World BBF Statistics
In the prior 365 days, BBF brokers sold 841
businesses.
BBF has 881 member brokers average of
0.95 businesses per broker
Average sale price was $241K
Average BBF broker earned about $12K in
the past year.
*Assumes 10% commission and the listing/seller associate
earns 50% of total or independent licensed broker would have
about 50% in overhead costs.
13. Real World BBF Statistics
Of the 841 businesses sold
46% sold for less than $100K
27% sold in the $100K to $200K range
11% sold in the $200K to $300K range
4% sold in the $300K to $400K range
3% sold in the $400K to $500K range
9% sold at $500K or more
84%
Most Businesses sold by BBF Members
are Lower End Main Street Businesses
14. Real World BBF Statistics
BBF Listings Sold in the Past 365 Days as of July 6, 2011
841 # of busineses sold
118 had Zero Sales Listed 14%
124 had Zero Adj Net or Negative Adj Net 15%
280 Had Adj Net below $50K 33%
156 Had Adj Net between 50-75K 19%
142 Had Adj Net between 75-100K 17%
89 Had Adj Net between 100-125K 11%
43 Had Adj Net between 125-150K 5%
23 Had Adj Net between 150-175K 3%
27 Had Adj Net between 175-200K 3%
42 Had Adj Net between $200 -300K 5%
13 Had Adj Net between $300 -400K 2%
13 Had Adj Net between $400 -500K 2%
22 Had Adj Net over $500K 3%
80% had
Adj Net
< $125k
15. Real World BBF Statistics
Of the 841 businesses sold:
46% (390) were a “sale of assets” and not
sold based on cash flows
45% (383) were sold with a cash flow of
$50K or more.
84% sold for less than $300k
80% had an adjusted net < $125k
*“Sale of Assets” = current & fixed assets valued at 80% or
more of sold price and/or the adj net was less than $25,000.
16. Sold Multiples to Consider
Brokers that sold businesses in the past year, priced them high but not
high enough to deter a Buyer.
Listed Sold Listed Sold
Adj Net Mult Adj Net Mult % Sales Rev % of Sales Rev
50000 - 75000 1.84 1.47 56% 44%
75000 - 100000 2.12 1.75 69% 57%
100000 - 125000 1.94 1.61 51% 43%
125000 - 150000 2.22 1.88 70% 59%
150000 - 175000 2.79 2.24 103% 81%
175000 - 200000 2.49 2.17 90% 80%
200000 - 300000 2.45 2.06 61% 52%
300000 - 400000 4.04 3.51 97% 82%
400000 - 500000 2.21 1.90 69% 60%
500000 plus 3.23 2.86 72% 65%
Average 2.57 2.12 66.57% 54.92%
Adj Net
21.2% 21.2%
17. Current BBF Listed data
BBF Listed Data as of July 6, 2011
3276 number of current listings
40 Had Negative Adj Net 1%
446 Had Adj Net of 0 14%
682 Had adj net 0-50K 21%
550 Had adj net 50-75K 17%
401 Had adj net 75-100K 12%
296 Had adj net 100-125K 9%
182 Had adj net 125-150K 6%
126 Had adj net 150-175K 4%
89 Had adj net 175-200K 3%
237 Had adj net 200-300K 7%
110 Had adj net 300-400K 3%
44 Had adj net 400-500K 1%
73 Had adj net over 500K 2%
74%
have
Adj Net
<
$125k
18. Current Listed Multiples
compared to Sold Data
Current Current
Listed Sold Listed Sold
Adj Net Mult Adj Net Mult % of Sales Rev % of Sales Rev
50000 - 75000 3.03 1.47 87% 44%
75000 - 100000 2.58 1.75 72% 57%
100000 - 125000 2.89 1.61 79% 43%
125000 - 150000 2.75 1.88 82% 59%
150000 - 175000 2.91 2.24 74% 81%
175000 - 200000 2.85 2.17 75% 80%
200000 - 300000 3.43 2.06 90% 52%
300000 - 400000 4.62 3.51 117% 82%
400000 - 500000 4.35 1.90 101% 60%
500000 plus 4.05 2.86 123% 65%
Average 3.35 2.12 90.07% 54.92%
Adj Net
Current listings are priced so high that most will never attract a serious
Prospect, let alone a yield Buyer.
58.0% 64.0%
19. Current Listings
Are priced 50 to 100% too high.
At least 36% will qualify as a sale of assets.
(adj net < $50k.)
Based on our current trend, only about 12.8%
will result in a closing.
That suggests that BBF brokers have wasted
at least 296,000 to 840,000 hours of effort in
the past year trying to sell bad listings.
20. Supporting Data
This data is not new!
In 2008, JohnsonServices.com
completed a detailed study for the IBBA
White Paper entitled “Will Your Listing
Sell” – paper by Douglas Perreault
(April 2008)
Copies available on request
email: LouisVescio@bellsouth.net
21. JohnsonServices.com Data
JohnsonServices.com reviewed
Listed Data
Sold Data
from all of the databases they manage –
includes BBF MLS data
Every effort was made to exclude any
duplicate data
Start-up listings were also excluded
The data was combined and just the overall
results are provided
22. Percent of Listed to Sold
Of the 96,935 listings in the databases, about
16,000 were still listed, leaving 80,927
businesses to evaluate.
Of this number, 8468 businesses were sold.
Sold
10.5%
Not Sold
89.5%
Current Status Listed Percent
Sold 8,468 10.5%
Not Sold 72,459 89.5%
Totals 80,927 100.0%
23. Sold Based on Source of
Financial Data
Sale of Assets (sale of fixed assets only)
Non Operating
Projected, Owner to Prove, Annualized & Owner’s
Estimate
P&L’s, Tax Returns, Part Yr
2794 Unsold 330 Sold 10.56% Sold
17,751 Unsold 3,877 Sold 17.93% Sold
14,244 Unsold 2,416 Sold 15.50% Sold
3078 Unsold 29 Sold 0.93% Sold
56% of Listings, 62% of Sold
24. What the Data Suggests
Brokers can reduce their risk by:
Pricing businesses properly. (Those that sold were
listed at a price within ~20% of the sale price).
Listing businesses with positive cash flow
(probability increases by 1.5 to 19 x).
Listing businesses with provable financial data.
Listing businesses with financing (PeerComps)
Now lets see what the experts say…
25. Panel of Experts
Will each discuss:
A good listing that they sold
A bad listing that they could not sell
Someone else’s listing (chosen at random)
Audience: Feel free to ask questions or
add insight.
28. Answer Good OK
Not so
Good Bad
Years Established 20 X
Years Owned 20 X
Financial Records Tax Return X
Meets Financial Model for Industry
Cost of Goods Sold 50% X
Labor Costs 10% X
Profitability 26% X
Rent as % of Sales 3.5% X
Profits over recent history
Sales Increasing, Decreasing, Steady Increasing X
Pricing
DE multiple to comparable sold businesses 2.07 x DE 2.2 w/o inv. 2.45 w/ inv.
% Sales to comparable sold businesses 46% 57% to 64%
ROI to comparable sold businesses 36% 34 to 38%
Financing Offered
Bank or Third Party Yes X
Seller Yes X
Other Comments
1 Health foods & supplements X
2 Revenue steady through year X
3 Minimal add backs and all provable X
4 Seller worked 45 hrs/wk with one wk off/month X
5 Seller was part of the business brand X
Mensch – Sellable Listing
31. Answer Good OK
Not so
Good Bad
Years Established 44 X
Years Owned 17 X
Financial Records Tax Return X
Meets Financial Model for Industry
Cost of Goods Sold 69% X
Labor Costs 7.5% X
Profitability 11.5% X
Rent as % of Sales 6% X
Profits over recent history
Sales Increasing, Decreasing, Steady Same X
Pricing
DE multiple to comparable sold businesses 1.64 X DE 2.02 w/o inv. 3.25 w/ inv.
% Sales to comparable sold businesses 35% 23% to 37%
ROI to comparable sold businesses 44% 43% w/o inv. 27% w/ inv.
Financing Offered
Bank or Third Party Yes X
Seller Yes X
Other Comments
1 Niched electronics store X
2 Business was very well known in area X
3 Revenue seasonal X
4 Seller only worked 20 hrs/wk and traveled X
5 Add backs were a little heavy X
Mensch – Unsellable Listing
36. Answer Good OK
Not so
Good Bad
Years Established 10 X
Years Owned 10 X
Financial Records P&L X
Meets Financial Model for Industry
Cost of Goods Sold 42% X
Labor Costs ? Owner works 80 hrs/wk
Profitability 19% X 15% if 1 employee is added
Rent as % of Sales 7% X
Profits over recent history Yes X
Sales Increasing, Decreasing, Steady Increase X
Pricing
DE multiple to comparable sold businesses 1.9 x DE 2.6 w/o inv. 3.19 w/ inv.
% Sales to comparable sold businesses 39% 33% 62%
ROI to comparable sold businesses 42% 19%
Financing Offered
Bank or Third Party Yes X Only 40% financing
Seller No X
Other Comments
1 Owner works 80 hrs/wk - error in adj net X
2 Only two employees X
3 Spike in sales in 2010 & $20k depreciation X
4
5
Random Listing Critique 1
39. Rosen – Sellable Listing
Answer Good OK
Not so
Good Bad
Years Established 18 X
Years Owned 10 X
Financial Records P&L X
Meets Financial Model for Industry
Cost of Goods Sold 22% X
Labor Costs ?
Profitability 17% X
Rent as % of Sales 11% X
Profits over recent history Yes X
Sales Increasing, Decreasing, Steady Static X
Pricing
DE multiple to comparable sold businesses 1.59 x DE 2.79
% Sales to comparable sold businesses 45% 48%
ROI to comparable sold businesses 38% 26%
Financing Offered
Bank or Third Party No X
Seller No X
Other Comments
1 Lease - Up for Renewal Market Rate X
2 Management team X
3 Recasting minimal add backs X
4 National Franchise X
5 High Profile Location X
42. Answer Good OK
Not so
Good Bad
Years Established 18 X
Years Owned 10 X
Financial Records P&L X
Meets Financial Model for Industry
Cost of Goods Sold 42% X
Labor Costs ?
Profitability 9% X
Rent as % of Sales 13% X
Profits over recent history
Sales Increasing, Decreasing, Steady DOWN X
Pricing
DE multiple to comparable sold businesses 1.69 x DE 7.7
% Sales to comparable sold businesses 39% 77%
ROI to comparable sold businesses N/A X
Financing Offered
Bank or Third Party No X
Seller No X
Other Comments
1 1 Partner wants out, Silent Partner Ambivalent X
2 Liquor License worth $130,000 X
3 Financial Add-Backs are myriad X
4 Owner Works Short Hours (20 / week) X
Rosen – Unsellable Listing
45. Random Listing Critique 2
Answer Good OK
Not so
Good Bad
Years Established 14 X
Years Owned 14 X
Financial Records Projection X
Meets Financial Model for Industry
Cost of Goods Sold 61% X
Labor Costs ?
Profitability 11% X
Rent as % of Sales 5% X
Profits over recent history
Sales Increasing, Decreasing, Steady Decreasing X
Pricing
DE multiple to comparable sold businesses 2.0 x DE 12.5
% Sales to comparable sold businesses 60% 33% 138%
ROI to comparable sold businesses 34% 4.50%
Financing Offered
Bank or Third Party Yes X
Seller Yes X
Other Comments
1 Selling based on projected growth X
2 Total debt service > 2010 adj net X
3 $650k in inventory > 2010 CGS X
4
5
54. Answer Good OK
Not so
Good Bad
Years Established 6 X
Years Owned 5 X
Financial Records Projection X
Meets Financial Model for Industry
Cost of Goods Sold 89% X
Labor Costs ? No expense listed for any year!
Profitability 11% X
Rent as % of Sales ?
Profits over recent history
Sales Increasing, Decreasing, Steady Increasing X
Pricing
DE multiple to comparable sold businesses 2.08 x DE 6.7
% Sales to comparable sold businesses 34% 74%
ROI to comparable sold businesses 41% 11.90%
Financing Offered
Bank or Third Party No X
Seller No X
Other Comments
1 Projecting doubling two years in a row? X
2 No expenses listed X
3 No financing X
4 Low profit margin X
5
Random Listing Critique 3
57. Answer Good OK
Not so
Good Bad
Years Established 19 X
Years Owned 19 X
Financial Records Tax Return X
Meets Financial Model for Industry
Cost of Goods Sold 28% X
Labor Costs ?
Profitability 13% X
Rent as % of Sales 9% X
Profits over recent history Yes X
Sales Increasing, Decreasing, Steady X
Pricing
DE multiple to comparable sold businesses 1.9 x DE 2.59
% Sales to comparable sold businesses 40% 33%
ROI to comparable sold businesses 38% 27%
Financing Offered
Bank or Third Party No X
Seller No X
Other Comments
1 Lease - 3 five year options X
2 Manaagement team X
3 Recasting minimal add backs X
4
5
Good Listing Checklist
Bob Adams Good Listing
Adams – Sellable Listing
60. Answer Good OK
Not so
Good Bad
Years Established 24 X
Years Owned 7 X
Financial Records O to P X
Meets Financial Model for Industry
Cost of Goods Sold 37% X
Labor Costs ?
Profitability 47% X
Rent as % of Sales 2% X
Profits over recent history ?
Sales Increasing, Decreasing, Steady ?
Pricing
DE multiple to comparable sold businesses 1.5 x DE 2.1
% Sales to comparable sold businesses 40% 33%
ROI to comparable sold businesses 38% 23%
Financing Offered
Bank or Third Party No X
Seller No X
Other Comments
1 Lease - 3 years remaining X
2 Minimal hours opened X
3 Owner to prove financials suspect X
4 Buying a $50K job for $125K X
5 Has 1 PT employee X
Good Listing Checklist
Bob Adams Not So Good ListingAdams – Unsellable Listing
63. Answer Good OK
Not so
Good Bad
Years Established 18 X
Years Owned 18 X
Financial Records Tax Return X
Meets Financial Model for Industry
Cost of Goods Sold 39% X
Labor Costs 31% X
Profitability 10% X 12-15% desired
Rent as % of Sales 2% X
Profits over recent history
Sales Increasing, Decreasing, Steady Yes X
Pricing
DE multiple to comparable sold businesses 2.48 x DE 2.96 For Bus only
% Sales to comparable sold businesses 37-39% 38.6% Real Estate excluded
ROI to comparable sold businesses 28-33% 25%
Financing Offered
Bank or Third Party Yes X
Seller No X
Other Comments
1 Lease - 3 five year options X Real Estate sold with Biz
2 Management team X
3 Recasting minimal add backs Recasting error in rent X
4 Very nice Conf Bus Review X Very nice work
5
Random Listing Critique 4
72. Answer Good OK
Not so
Good Bad
Years Established ?
Years Owned 9
Financial Records Tax Return X
Meets Financial Model for Industry
Cost of Goods Sold 67% X
Labor Costs ?
Profitability 7% X
Rent as % of Sales 2% X
Profits over recent history
Sales Increasing, Decreasing, Steady ? Gross sales decreased but Gross Profit fluctuating
Pricing
DE multiple to comparable sold businesses 1.77 x DE 5.7
% Sales to comparable sold businesses 34% 41%
ROI to comparable sold businesses 41% 12.70%
Financing Offered
Bank or Third Party No X
Seller No X
Other Comments
1 A/R, Inventory & F,F &E not included? X
2 Slim margins X
3 No financing X
4
5
Random Listing Critique 5
73. Summary
The Broker carries most of the risk in
marketing a business for sale.
Steps should be taken to minimize your
risk and maximize your time & money:
Screening for sellable listings
Pricing & packaging them right
Following your gut
