Financing for Buying and Selling a Business Webinar Recording

BOEblogUserSmall Business Lending

The webinar recording covers buying and selling a business with a focus on financing.  Topics covered include:

• A review of the current environment for business acquisition transactions
• Best practices in listing your business for sale
• Key steps a buyer should follow to find the ‘right’ business
• The role financing plays in business acquisition transactions
• Key issues facing lenders, such as good will, seller financing, and global cash flow


Mike Rozman:             – BoeFly, and I want to thank you for joining.  Before we start our session today, I’d like to ask Beth Solomon, vice president of strategic initiatives and industry relations with the IFA, the International Franchise Association, who – both the organization and Beth have been a great friend to BoeFly.  Beth, if you’re on, I know you were coming in from another call, if you’re on, love you to make a welcoming comment, if you’re there.


Beth Solomon:             Sure.  Thank you, Mike, and thanks, everybody, for joining this webinar.  We’re very pleased to be part of this, of a very – a good content, a relevant content, with BoeFly.  The IFA and BoeFly have a strategic alliance in which we’re working together to offer tools and solutions, good advice, counsel, information that our members can use to advance in franchising, especially on the financing side.  And you’ll find BoeFly a terrific source of all kinds of education and information that can really get you ahead of the game, in addition to the terrific platform that has really I think given an edge to franchise borrowers.  BoeFly, The Lending Tree or the, if you will, of franchise lending.


I just got off the phone with another webinar that we were doing sponsored by the SBA for veterans, and I just wanted to say, because BoeFly has waived its fees for veterans and has been a leader in this campaign to enable our nation’s veterans to come into franchising.  One of the questions they asked, and they are sharp, as always, was can you talk a little bit more about buying and selling a business and the ends and outs of it?  So of course, I gave them a link to this webinar.  We may have many veterans in this country tune on webinars this afternoon.  But we know it’s all good content, and we’re very grateful to BoeFly for this partnership and for offering this information today, which we hope you will all find very useful.  Thank you.


Mike Rozman:             Well, thanks for that, Beth.  I really appreciate those kind words.  We certainly appreciate the IFA’s leadership in keeping the importance of credit access on everyone’s radar screen, and all of us at BoeFly appreciate our alliance with the IFA, and certainly we love working with you and continue to work closely together.


Again, this is Mike Rozman of BoeFly.  BoeFly, as Beth said, is the online marketplace connecting business owners seeking financing with a network of more than 2,400 lenders.  And I’d like to start today by giving a special thanks to our BoeFly members, more than 125 franchise brands from all sectors, all of our lenders, and those professional brokers who rely on BoeFly to serve their clients, and we’re proud to have you all as clients and happy to build this program with you in mind.

A quick housekeeping item.  This session will be recorded, so for those veterans that Beth was speaking with before, they’ll be able to get a recording, as well as your colleagues who haven’t been able to make it.  We’ll distribute an email with a link to that recording.


Please, we want to get your questions, so submit those questions throughout our call, and we’ll handle them at the end of the program in a distinct Q&A period, but also we’ll incorporate them as appropriate.  And then there’s more than 250 folks that register for this event and are joined today.  So we want to get value from you as well, and not just our panel.  So we’ll be asking you to respond to some poll questions that we’ll be sharing those results in real time.


I’m thrilled today to be joined by a really expert panel.  We have Curtis Kroeker from BizBuySell.  He’s the vice president and general manager of BizBuySell, which is an online marketplace for the marketing of small businesses for sale.  Michael Arrowsmith is the managing director of National Franchise Sales, a leading business brokerage firm.  Neal Patel is principal of Reliant Business Valuations, a leading firm that helps banks in the valuation process.  And we’re joined by Tom Abraham and Tony Kim, both vice presidents of Ridgestone Bank, and a very active SBA lender, who you can also engage with on BoeFly.


We encourage you to look at their full bios.  They all have a distinguished background.  You can see those bios online at  But for – out of concern for time, you can visit those bios separately.

Before we start with our panelists, let’s take a quick poll question.  We want to understand who’s on today.  So please put yourselves in one of these appropriate buckets.  Are you a business owner, or do you want to be a business owner?  Are you a professional broker, either a business broker or a loan broker?  Are you a lender, a franchisor, or are you a SCORE counselor?  And I want to offer a special welcome to our SCORE counselors.  We have a working relationship with SCORE to provide informational opportunities like this one today.  So go ahead and classify yourselves, and we’re getting some great responses.  We’re going to wait just for one more minute, and we’ll actually share these results in real time with you.


And why this is nice is our panelists can really position their questions appropriately.  So we’ll give you one more second, and we’re going to go ahead and – if you don’t know who you are by now, we’re going to go ahead and end it.  So we’ll go ahead and publish those results.  And what we see is 20 percent of you are in business owner category.  We actually have a meaningful amount of franchisors, so panelists, keep that in mind as we think about our conversation today.  We’ve got a number of counselors from SCORE, and a good distribution of lenders and brokers as well, so that’s really helpful.


I also want – we want to go out with a second poll question immediately before we dive right in, and that’s to try to understand, of those in business today, are you currently considering buying or selling a business?  And that I think will be helpful in setting our understanding at this point.  So good, so we – go ahead and classify yourselves.  Are you currently considering buying or selling a business, and this will be – and some of you are just looking for information.  Others may in the short run be looking to leverage this information in a transaction.


So we’ll go ahead and publish those results.  We’ll go ahead and publish those results now.  And it looks like a good amount, 53 percent are actively in the market or considering being in the market.  This is helpful.


So let’s put our panelists to work.  To start our conversation, and we want to start at the higher level of things, and we want to think about the current environment for businesses for sale and those of you buying.  I want to start with Curtis.  You’re general manager of BizBuySell.  It’s described as an online marketplace connecting business buyers and sellers.  Obviously, online marketplaces are near and dear to our heart, and therefore, we know you’re in a unique position to give us this perspective from a high level view.  What are you seeing out there?


Curtis Kroecker:         Well, Michael, first of all, thank you very much for including us in the webinar.  Really, really happy to be here, and very excited about this topic, obviously.  You know, BizBuySell is the internet’s largest and most heavily trafficked business for sale marketplace.  We have about 45,000 businesses listed for sale at any one time, and we receive over 825,000 monthly visits.  So it’s a great place for entrepreneurs looking to either sell their business, move on to something else, be it retirement or the next opportunity, and obviously a great place for aspiring entrepreneurs or current business owners to buy a business, which is a great path and a great way to leapfrog into entrepreneurship.

On a quarterly basis, we conduct – one of the things we do is we conduct a – our quarterly insights report, which is – this is based upon transactions that are reported on a voluntary basis by our broker members.  We have thousands of broker members, and they report transactions to us, again, voluntarily.  So it’s certainly not comprehensive, but what it is is it’s a very robust sample.


And you can see, you know, anywhere from usually about 1,100 to, you know, back in the heyday of 2008, you know, 1,500, even a little bit more transactions reported.  So it is a sample, but a very robust sample, and we believe this gives a good indicator of what is going on in the business for sale transaction market.


And what we can see, given the scale of this chart, it doesn’t really show up quite as much as is evident, but if you basically look at the – the important factor is looking at the year over year.  It’s – so for instance, Q3 of this year versus Q3 last year versus Q3 of 2010.  And what you see is basically – obviously we hit bottom from a transaction basis in Q2 of 2009, and since then, it’s been up and down, but with a slow but steady improvement.  And what we see in the most recent quarter, which we actually – this is a very timely call, because we just released these results a week and a half ago.

And basically, the – what we see is that the most recent quarter, we’re up 2.8 percent, so about 3 percent over the same period a year ago, with nearly 1,200 closed business transactions reported to us.  And then if you flip to the next slide – are you there?  If you flip to the next slide, this is a very encouraging slide.  So a positive trend that we see that continued and actually accelerated in Q3 is the improvement to small business health in general.


This is the third straight quarter that median cash flows have improved, and then median revenue also took a notable uptick.  Both of those are well above where they were a year ago, and on a positive trajectory.  And we see that the – this is one of the factors that is beginning to strengthen the business for sale marketplace, is frankly, that small businesses are doing better.  It’s been a long road, it’s been a tough road, but they’re bit by bit performing better.  The owners are getting them in places where they’re able to actually think about selling _____, and new buyers are beginning to have more confidence in reentering the market.


And then the last stat that I’ll share with you is on the next slide, which just basically looks at the asking price and sale price.  You can see the asking price is the top of the bar.  The median sale price is the top of the blue bar.  And basically, what we can see is that because of that gradual improvement in the marketplace conditions and the improvement in small business performance, we’re beginning to see that the bid/ask spread has narrowed a little bit in the most recent quarter, and encouragingly, the asking price and sale prices are moving in the right direction in terms of from a small business owner point of view.


So we aren’t out of the woods yet.  We’re still a long ways off of where we were in late 2007, early 2008.  But bit by bit we are improving, and we anticipate that this will continue.


Mike Rozman:             Great.  And I want to stay with you for a second, Curtis, but before I do that, I want to thank all those SBDC counselors that joined us today.  I apologize that I didn’t properly welcome you.  We have a great relationship with the SBDCs.  We had a great visit with them at their annual conference down in New Orleans, and so very – a warm welcome to all of you that joined today, and certainly we love working with you.


Curtis, tell us the role of financing in that improvement.  What are your views on that?


Curtis Kroecker:         That’s been a – we – that’s been a little bit of a contentious point, or a thing that has been actually holding back the transaction market.  So in general, you know, of course, with the financial crisis in 2008, financing really essentially dried up altogether.  It has begun to improve.  There is certainly – there’s government programs out there.  Banks are beginning to lend.  But it’s really not trickling down the way that we would like to see it happening, and we think that this is the biggest – single biggest factor that’s holding back small business transactions.


So we see that most banks, they are beginning to lend more, but they have very stringent – understandably, but they have very stringent criteria.  They are requiring typically a lot of expertise and history within an area, and a lot of small businesses sell to owners who are looking to do something different.  They might be moving out of the corporate world into wanting to be an entrepreneur, _____ setting up a new small business, and it’s very – it’s still very difficult for these people to secure financing.


And as a result, you have the situation where business health is improving, small business owners are wanting to sell.  There’s a – over the past few years, of course, there’s been challenging sale environment, so there’s a I think over-capacity of supply.  And frankly, I think there’s also an over-capacity of demand.  The – you know, with – normally, in a small – in a recession, entrepreneurship really helps pull the economy out of the recession, and I think the tight financing situation has prevented that from really happening, because a lot of would-be entrepreneurs haven’t been able to secure the financing they need to feel confident enough to buy a business and take the plunge.


Mike Rozman:             And I appreciate that insight, and we’ll – in a moment, we’re going to share a slide which shows our views on lending based on our marketplace.  But Michael, I want to shift to you.  You’re an experienced professional broker.  You specialize in franchise businesses.  What’s your view?  Are you – are you seeing what Curtis is seeing, or are you seeing something different?


Michael Arrowsmith:  Yeah, it’s fascinating.  I think we’re seeing all the things that Curtis is seeing, probably amped up a little, and it may be because we do – I mean, we specialize in doing franchise re-sales.  Essentially all we do are franchises.  And so our market might be a little bit different, but I will say that this is the – by far the busiest year and most successful year we’ve had in the last five.  I would agree completely with Curtis on the timeframes involved.


I think what we’re seeing out there, again, kind of falls in line with Curtis.  I – there’s a lot of pent-up demand, both from the seller side, particularly, but also on the buyer side.  And we have seen in our business that financing has definitely loosened this year, and I think that’s kind of fueled this pent-up demand, which has enabled us to have a just extremely busy year this year.

Again, I would say that when I say financing has opened up a little bit more, you know, it’s not like it was, obviously.  It’s still very tight.  But I think what helps in the franchise arena is that when Curtis was talking about most of these banks want expertise and experience, you know, typically the folks that we deal with are experienced in the franchise industry, and so they’re able to get this financing that’s out there for select brands and select type of buyers.  So that’s real good.


We also, as kind of an aside, and a little tribute to the debate last night, I think another thing that we’ve seen in our business is there certainly are sellers this year that are in the selling market because of the Bush tax credits that are going to be expiring at the end of this year, and they’re wanting to get out capital gains tax.  I think that’s fueling a little bit of this as well.


Mike Rozman:             Great, and thanks for that insight, Michael.  So – and Tom, I’m going to come to you in a second, but first, we’re going to – because I want to hear your views from a lender’s perspective on this role of experience that we heard about both from Curtis and Michael.  What we’re going to show you now is a view from our perspective on what’s happening in the lending market.  We happen to be in this chart presenting detail as it relates to franchise lending, and we’ll focus in really over the last year, the climb from the lows experienced in the credit crisis – we saw the SBA stimulus program kick in, draw a meaningful spike, and then we’ve tracked very rocky growth since 2010, late 2010, into 2011.  So I think we’re likely seeing consistent things to what Michael commented on.

The next slide, the chart that we show here is year over year growth.  What to me is compelling is this August to last August, and we’ve actually experienced about I believe eight months of consecutive growth.  Now we have a little bit of a sneak peek.  We’re going to be releasing the index shortly, and we believe that that drops for the first time, and some more information is going to be coming out on that.  But we have seen expanding credit, which is a healthy thing.


On that point, Tom from Ridgestone, we heard about the importance of experience in a business acquisition.  When you’re working with a buyer, with a client ____, tell us how you value experience ____.


Tom Abraham:            Yeah.  Let me just take a step back on this, Mike.  You know, since 2007, our ability or opportunities to seek out acquisition financing has been limited, at best.  The type of deals we’ve seen on the acquisition side is if the guy’s been operating a business and he’s got the opportunity ____ real estate, we would come in and help ____ that.


But a straight acquisition has been far and few from our perspective, so getting back to your question on management and making sure that we can tie in the buyer and the seller from a management perspective, as we look at these credits, I would tell you that on the franchise side, it’s relatively easy, whereby you would look at the franchise training program as a vehicle to do so.  We get the loan committee to look at the fact that the franchisors themselves would send them through three to six weeks of on the job training, both in terms of managing cash flow, hiring and staffing, menus, and so forth.


So we draw some comfort with the fact that the individual is coming from outside of that industry, so to speak.  Whereas if it’s a wholesale business, a manufacturer, or something of that fact, we have more of – we take a much different position on that.  We want to see the gentlemen – individuals themselves be involved in that business in some fashion prior to.  So we do hone in on that a lot more than we have back five years ago, when Tony and I began doing this here at Ridgestone.  So I don’t know if I captured your question.  You want me to get into more specifics –


Mike Rozman:             No, no, that’s – that’s helpful, and I think it’s important when we – and we’re going to transition to thinking about what a buyer of a business needs to think about.  But this is probably a theme we’re going to come back to, is this role of experience and the role of experience in financing as it relates to a franchisor.  I think that’s a compelling opportunity to think about.


BoeFly is not specific to franchising.  It so happens that we work with a lot of franchise borrowers, and it’s interesting.  I believe we have issued a press release with Ridgestone on a financing they did, a couple of financings, but one with a  franchise brand that’s on our call today, Martinizing Dry Cleaning.  So I want to welcome them on the line as well.


I want to shift a little bit towards when we think about a business owner who owns their business, and maybe they’re a few years out from selling, right, my kids are getting out of school and I’m looking for that exit, I’m looking to go down to Florida, what should I be thinking about?  I want to start with Michael.  What should I be thinking about if I’m a few years out in getting ready to sell?


Michael Arrowsmith:  Well, that’s a great question, because I wish everybody was thinking three years out, because what I would tell people, if you’re thinking about selling your business, you’d better start thinking of it three years earlier.  While that may be hard for some people, certainly a year before, you want to pick up the phone – pick up the call – or call – and call somebody like me or somebody else.


And what you should be focusing on, if you’re considering selling your business, is keep in mind that people are going to be looking at your business and your financial statements through a microscope, and they’re going to be looking at the last three years, as a lot of these lenders on the phone will tell you.  Your focus needs to be on building your business, building your sales, putting a strong team in place, managing your business, and don’t take your eye off the ball.


What happens a lot of times, people take their eye off the ball, and then a year or two later, they’ll say, oh, maybe I should sell this business.  That is the absolute wrong backwards way to do it.  Have your goal selling your business, have it not be in the next few months, but rather in the next few years.  Focus on growing your sales.  Focus on the fundamentals of your business.  The best thing you’re going to be able to do is – the best thing you’re going to do to increase value when you sell your business is have it be a strong business.


And let me just say one other thing.  There’s a fallacy out there I think sometimes that people think hey, buyers are looking for turnaround situations so they can get in low and turnaround and sell high, and while I think that’s true, there is some truth to that, I would say at least in our business, by far more buyers are looking for strong businesses, strong businesses that they can improve, but they’re looking much more for strong businesses than they are for, quote, turnaround businesses.


Mike Rozman:             That’s helpful, Michael.  And so you talk about making sure that the financials are in the right place from the perspective of profitability and generating revenue and presenting the financials in a meaningful way.  I want to bring you in, Neal, to this conversation.  Neal, what you do is you work with lenders in order to do a valuation exercise so the lender’s comfortable.  Talk us through kind of the basic arithmetic of what Michael referred to.


And I also want to raise the question that we received a couple of times now, is – in this case, a franchisor is the question.  Hey, we get – our franchisees may be selling a unit, reach out to us and ask what can they do on the – you know, how should they set the price.  So take us to two spots, Neal.  Help us understand the piece that Michael was talking about, what is the arithmetic that goes into this, and then also helping set that price.


Neal Patel:                  Sure.  Well, Mike, it’s pretty important for buyers and sellers, franchisors, for all of them to have a basic understanding of how to gauge their business value.  So I’m just going to go over at a very high level valuation theory.  There’s three main methods, but I’m just going to speak about the price to earnings multiple.

The price to earnings multiple is pretty simple.  It’s just a multiple that’s applied to your cash flow stream.  So let’s say your earnings stream is – which I’ll talk about in a second.  Let’s say your earnings stream is $100,000.00.  A 2 times multiple would mean your value – the value of your business is about $200,000.00.  What’s important is how to determine what a reasonable multiple is and then also how to determine the earnings stream.


The multiple can really depend on the size of the company.  It’s a lot of different things.  Size of the company in terms of revenue, how many employees you have, how many hours the owner works.  You know, when you’re looking at a small hair salon with an owner-operator working 60 hours a week, that may warrant a 2 times earnings multiple, whereas when you’re looking at a manufacturing company with 20 employees and revenues of $3 million, that may warrant something close to the 4 times earnings multiple.


And two times or four times, it’s very simple, because you just – the inverse is one over two, which means you have a two year payback period, or a fifty percent return.  So the higher the multiple, the longer you have to wait to return – to get a return on your investment.  So the business has to be worth the higher multiple.


And so let’s go to earnings.  You have to apply this multiple to earnings, and what Michael mentioned earlier is absolutely correct.  You want to make sure that all of your financials are ready, lined up, and as a seller or a buyer, they can figure out the earning stream that banks and business appraisers use all the time.  Those two earnings streams are EBITDA and seller’s discretionary earnings, and it’s very simple to calculate these.  If you have your tax return, if you look at your pre-tax net income, which is on the first page of your tax return, you add back the interest, depreciation, and amortization, and there you have your EBITDA.  That is one earnings stream that you can apply multiples to.


And a very popular earnings stream amongst business appraisers and business brokers, probably the most important for a small business, is seller’s discretionary earnings, which you just take the EBITDA and you add back the owner’s compensation.  That’s the true cash flow that the owner will keep at the end of the day in his pocket.


Now we may have to do some normalizing adjustments.  You may have to add back some non-business items, like owner’s health insurance, owner has a boat that he was _____, but that’s where you really want to do some housekeeping before you decide to sell and clean up your books, or have enough proof to show the broker and the bank and the buyer that, hey, listen, this is not really a business expense.  This warrants an ad back to the earnings stream.


And so once you get that normalized earnings stream, you can apply a multiple.  And like I said, the multiples range from anywhere between two and four, two and five times earnings, and that’ll give you a good range of values.


Mike Rozman:             Thanks for that, Neal.  And one of the points that Neal brought up, and we’re going to revisit this as well later on, is that you have add backs, and accounting for add backs.  I want to see if Tom from Ridgestone – again, we’re going to revisit this in a little bit, but what are your thoughts on that?  If I am considering selling my business, talk to me as a seller, you’re going to be ultimately financing the buyer.  What should I be thinking about in terms of my financials, if I’m presenting a meaningful amount of expenses, maybe healthcare, maybe travel, maybe expenses that you don’t – you as a lender may not value?  Give us some insight there.


Tony Kim:                   I think – I mean, we look at the add backs on a traditional basis.  I mean, but every case is – it’s hard to get a general answer.  I mean, we look at it on a case by case –


Tom Abraham:            Well, what I would say – I would add to that is if – when we look at the – when we look at a transaction where if the seller is pulling out a significant amount of salary from a company, and we first look at the buyer’s needs, so to speak, on a projection basis, and see what – how much money does he need to live on.  Then we go back to the seller’s salary draw and see how much – a portion of that can be added back.


We typically get very conservative on that, and – unlike other SBA transactions, because we feel that there’s got to be some amount of cushion in the deal, in our opinion.  So going back to Tony’s point, if we take a traditional EBIDTA number and if there’s an add back specific to owner’s salary or seller’s salary, we look at it very carefully in lieu of the buyer’s living needs, so to speak.


And the ultimate number that then we look at is the global cash flow.  So we look at the subject business cash flow on a standalone basis, EBITDA against PNI, and then we go to the global side of it, whereby we dice it and slice through the seller’s draw against the living expenses of the buyer, and then we come up with a final cash flow number.


Mike Rozman:             And so if it’s a husband and wife, Tom, do you take into consideration if let’s say the husband is starting a business and the wife is keeping her job and her salary?  Does that come into your thinking in terms of global cash flow?


Tom Abraham:            It doesn’t, because chances are the wife is not going to guarantee the loan.  If she becomes a guarantor on the loan, then we can add her salary back into the mix.  So there’s a philosophical argument internally with underwriting staff, and I – more than likely it’s me that’s been fighting with these folks internally, which is if you have a – we typically take – there a couple of ways we go about doing it, but more importantly for the purpose of this meeting, we take the credit bureau that’s present on a combined basis, husband and wife.


Now if the mortgage is, quote, jointly owned, my view is you got to look at the wife’s salary as part of the global cash flow, but our analysts believe that you got to keep her out of the deal because she’s not a guarantor to the transaction, so therefore they do not put that money back in, into the global cash flow analysis.


So – but if the deal is on the edge and if that’s the push we need, we’ve been able to make the convincing argument, you’ve got to put that back in.  But the deal’s got to stand on its own legs on the subject cash flow level, is what I’m getting at.


Mike Rozman:             No, and that’s helpful, so – and I appreciate you giving us a glimpse into the working relationships between the loan originator and the underwriting group.  That’s always helpful.  You know, last month we did a session on the personal guarantees that Tom was addressing.  You can find that on our website,  You can find a video recording of that session and some good content around the personal guarantee.


So Curtis, I want to come back to the idea of this business owner, they’ve taken Michael’s advice, they’ve gotten their financials looking great, and they’re ready to sell.  What’s next?  I know you guys have actually written the guide on this topic, and I want you to run us through the high level steps that an owner needs to think about, particularly as it goes to listing their business.


Curtis Kroecker:         Yes.  The – we’re actually very excited about this.  We’re always looking for ways to add value to our buyers and sellers within our community.  Obviously, our primary business is the helping people facilitate the sale of small businesses, both Main Street businesses as well as – and standalones as well as franchises.  But we’re looking to add value and help people along that path, because of course, there’s a lot of things to consider, as we’re discussing today.


In January of this year, we actually launched our book, BizBuySell’s Guide to Selling Your Small Business, which is jointly authored with Barbara Findlay Schenck, who’s the author of Selling Your Business for Dummies.  And really excited about this.  We launched it in January on our site.  It’s available there for free from that link that’s shown on this page here, and it has – and then we also created a book that is now available on Amazon as of August.  So someone can actually go to Amazon and can buy the book or can access the same content on our site for free.


And this – the book basically has five main chapters.  It helps small business owners decide why and when and how to go about selling their business.  It helps them decide – or helps them prepare their small business for sale.  And to your question, Mike, it helps them market their small business for sale, decide how they want to market that.  It helps them through the selling process, and then it helps them close the sale and transition the business to the new owner.


And so certainly it’s a very valuable resource, and something that a small business owner I think will appreciate, and regardless of whether they’re going to be selling themselves or selling through a broker.  On that front, when it comes to actually marketing, we certainly do recommend to small business owners that they use a broker.  There are pros and cons, and brokers – a lot of small business owners will say, well, brokers are too expensive.  They typically charge 8 to 12 percent.  But then as I believe it was Michael discussing it earlier, they aren’t really considering the cost of taking their eye off the ball at a very critical time.


And so yes, there’s very little direct cost to selling yourself, selling your business yourself, but there is the distraction that it could cause.  And for a lot of small business owners, that distraction is going to mean that their performance might either flat line or falter at exactly the point when they don’t want it to.  And so our experience has been that brokers typically yield a higher price for the business owner, and they also typically get a faster sale, and then – than the small business owners themselves.


But of course, the small business owner needs to weigh these various factors and their own experience level, and then also the value of the business will come into play, because there certainly are – a lot of Main Street businesses out there just sell for a price that brokers might not be interested in, because of course, the effort to sell a business, regardless of whether it’s $100,000.00 or a $500,000.00 business, is often the same.  And so brokers typically have minimum fees, and so sometimes for lower priced businesses, that can lead to someone being – choosing to pursue the path of selling the business themselves.


Regardless of whether the owner chooses to sell the business themselves or use a broker, the same basic steps need to be followed in actually preparing the business for sale.  And again, a broker can help a small business owner with this, as does our guide.  And it basically says, you know, number one, you need to demonstrate that the business is worth the asking price.  As we talked about already, you need to have well-organized, solid financial records, at least three years’ worth.  You need to fix up the facilities.  You need to basically get your house in order.


Second, you need to prove the potential for increased profitability.  As I believe it was Michael referencing earlier, the buyers, typically they want to buy a strong-performing business, but they also want to see the possibility of increasing that performance.  And so owners can do things like highlight key advantages.  They might be in a recession-resistant sector.  They might have excellent customer stability.  Something that actually gives the new owner or potential owner confidence they can increase their profitability, and frankly, it was worth their while to create a growth plan to outline some of these key opportunities and how a new owner could take advantage of it.


And to that point, they need to be very organized, consider their key contracts, create perhaps an operations manual, an employee manual, etcetera, to help the new owner.  And then, of course, building – all of this helps build a business that’s easier for the new owner to finance.  To that point, I think we’ll talk about this a little bit later.  But of course, the offering of seller financing is a very key point in today’s environment.


And then they of course need to focus on the positive.  You know, focus on the business’ strengths, timing the sale to coincide with an upswing in performance.  For instance, if it’s a seasonal business, taking that into consideration, etcetera.


And, you know, our guide goes through all of these things in more detail, as well as helping the small business owner actually approach the marketing of a business, helping them make that decision between – or showing the advantages of a broker, and so the owner can make the decision of whether they want to use a broker or not, and then also talking about the marketing of that business, which of course, you know, whether it’s through the broker or not, clearly leveraging the internet to market your business is key.  And I’ll be self-serving in this regard, but obviously I believe that listing a business for sale on BizBuySell is a great way to get visibility, as well as, of course, other online and offline resources as well.


Mike Rozman:             And appreciate that, and obviously at BoeFly we think real highly of the idea of taking advantage of efficiencies online.  Neal, core to all this is going to be the idea of getting that valuation set.  Do you guys – do you ever get engaged at the point when a business owner’s thinking about setting the price?


Neal Patel:                  Well, Mike, our firm perform business valuations nationally for SBA lenders or buyers or sellers that are referred to us by a lender.  If the seller is working with a broker, however, the broker will most likely be able to point them to a certified business appraiser, and that’s – I do sometimes get an appraisal request, where the lender will send me a business valuation that the seller performed, and that’s just being prudent.  That’s being smart, if the seller does want to get a professional opinion, in addition to the broker’s opinion.  And if the buyer is not working with a broker, or if – and if they’re looking for a valuation, sometimes if they already have a lender in mind, the lender will recommend either our firm or any valuation firm that they use.


It’s very important to remember, though, Mike, that it’s important for buyers and for lenders to know that for SBA loans, the lender must engage the business valuation company directly.  So we can’t be engaged by the buyer or the seller.  We can, but then they can’t use that valuation in their SBA loan package.  So that’s very important.  So you don’t want to keep wasting your money.  You have to kind of plan it with the lender so they can streamline the process.


Mike Rozman:             And that’s great, and that’s part of the – that’s part of the rule system under SBA.  It’s part of their operating procedures?


Neal Patel:                  That’s correct.  Yes.


Mike Rozman:             And Neal, we’re going to talk about our upcoming events, but I know Neal is running a training class for lenders next week at the – what’s called NAGGL, the National Association of Government Guaranteed Lenders, and we’ll be there as well.


So I want to give – one of the things that we want to really think about is the role of financing here.  So I want to talk about how financing comes into play in the marketing process.  Curtis, do you see, if I’m listing my business for sale on BizBuySell, and maybe I’m using a broker to facilitate that, are businesses leaning forward about financing that’s available?  What role does that have in there?


Curtis Kroecker:         The role of seller financing?  Or the role of financing –


Mike Rozman:             Well, any financing in the marketing process.  So if I’m listing my business for sale on BizBuySell, can I highlight – tell me about if I can highlight the fact that I can offer seller financing?


Curtis Kroecker:         Oh, yeah, yeah.  Yeah, no, definitely.  The provisioning of seller financing is a key way the sellers in today’s market are really differentiating their businesses and really helping to get deals done.  Basically, sellers have – they’ve been weathering the storm here for a few years, focusing on getting their business performance back in shape.  That’s starting to come around.  Financing, as we discussed, is beginning to improve, but it’s certainly not as available, especially for new owners, as we would like it to be.  And so sellers are basically stepping up to the plate and providing seller financing.


Any time that a seller does that on BizBuySell, they have the opportunity to highlight that.  And you can see, this is just an example listing.  I should go back to the other slide that we were just looking at just a second ago.  But basically, the – this is a seller listing.  This is just a randomly selected one on our site, a restaurant and bar location, and you can see that green bar at the top above the picture, it says seller financing available.


And we also provide a mechanism for buyers to search for businesses specifically on this basic, along with other criteria, such as obviously sector, location, cash flow, revenue, etcetera.  And we see that about 25 percent of the businesses listed on BizBuySell now are including seller financing.  And we did a broker survey in August of this year where we actually asked brokers, all right, what – is financing improving, and – or is it improving, staying the same, or getting worse?  And then we went into specific details on seller financing.


And basically, what we found was that unfortunately the brokers are – about 70 percent of brokers believe that the availability of financing has not improved over the past year, and that’s actually very consistent with where they were last year.  So we aren’t seeing – most brokers are sharing the thought that we shared earlier in this call, which is that financing really is not opening up as much, and therefore, if you flip to the next slide, we asked them about seller financing, and what is the role that seller financing plays.  We asked them a couple of questions.  The vast majority of brokers thought that seller financing was either critical or very important to getting the transaction done.


And then this particular graph shows the percentage of closed sales that include seller financing, and you can see that about a third said that nearly all of the deals that they see getting done, 90 to 100 percent of them involve seller financing, another third that most of them, you know, 60 to 90 percent, involved seller financing, and then you can see it tails off from there.


But the net message being that, you know, brokers are certainly seeing that seller financing is critical to getting a deal done, and most of the deals that they see getting done are requiring seller financing.  And my understanding from talking with brokers and small business owners out there is that often even if there is bank financing involved, seller financing is really a key component that a lot of banks look to in order to give them the confidence to lend on the deal.


Mike Rozman:             Thanks for that, Curtis.  Michael, you’re maybe one of those brokers that completed that survey, and if not, we want to hear from you directly.  Where are your transactions as far as using seller financing and the role of financing in the transaction?


Michael Arrowsmith:  Our situation is a little bit different, and so we are probably the opposite of that.  We don’t see that much seller financing, particularly this year.  And I would say over 90 percent, if not over 95 percent of our transactions do not have seller financing, a seller financing component.


Now I think there’s a couple of reasons for that, that is why we’re maybe a little bit different than some of the other brokers that are participating in that survey.  I think probably the biggest reason is because we ____ on the franchise resell market.  And so what’s different in that market is it’s not just about the buyer and the seller.  It’s about the buyer, the seller, and the franchisor, which is a pretty important component.


And a lot of buyers – and a lot of sellers don’t really realize this, but the buyers have to be qualified by the franchisor, if you want a chance for that franchise agreement.  It’s almost like getting a divorce, if you want a chance for that thing.  And so the franchisor is intimately involved in this.


For that reason, most of our buyers at least that we specialize in already have experience in the franchise world.  They’re experienced and expertise – and their expertise is in franchising.  So a lot of our buyers are just looking – they’re looking to diversify.  They’re looking to grow.  But they’re not guys typically that are coming off the street and all of a sudden deciding to be a franchise owner.  Now we do have those, but that’s not typically the norm.


And if you take that one step further of some of the stuff that we’ve heard today, well, if you’ve got buyers that have that level of experience, they’re typically able to get that level of financing, and in some cases I think our lending is maybe a little bit easier to work with because there’s a franchise involved.  So it’s not just a mom and pop restaurant or business out there.  This is an actual franchise business.


For all those combined, I think that’s why we don’t see much seller financing.  I mean, we’d like to.  It’s nice.  But our sellers know that they don’t really need to do that, and they don’t really want to do that.


Curtis Kroecker:         Yeah.  I’m just – just adding on that, Michael, I would say we do see that as well.  When you’re in the – that’s one of the key advantages, of course, of going down the franchise path for a buyer, is that availability of funding and financing through the franchisor.  And so that is a key distinguisher between the two, so totally agree with you there.


Mike Rozman:             Great.  And I want to – so I just want to alert our audience, we’re really appreciative of our expert panelists.  They’re going to stay on until 3:15 eastern, so 15 minutes past the hour, and we have about 10 minutes left before that point.  Get your questions in.  We’re getting some great questions in.  They’re going to stay on to handle those.  We’re going to keep going.  Again, for those of you do have a commitment and need to drop, we will have a recording of the session, but we encourage you to stay on, because it’s some – the best part’s at the end.


Tom, I want to bring you in here as it relates – we talked about the valuation process.  Tell us about how this works into your process.  We heard from Neal that it’s a bank requirement, or at least for SBA transactions, the bank needs to order the valuation to be done.  Tell us about how that fits into your business, and can you share any insight or anecdotes of how that valuation has affected an ultimate decision?


Tom Abraham:            So I was kind of intrigued by the conversation about the seller financing problem from the ____ perspective and so forth.  But from our end, business valuations come in handy on all change of ownership.  So in other words, any sort of business acquisition, whether there’s ____ associated with it, we need to have an outside evaluation.


Now SBA is not so keen on having outside evaluators do it if it’s under $350.  Is that right, Tony?


Tony Kim:                   Yeah.


Tom Abraham:            So we do have internal models that we can use to do that, but we have traditionally farmed it out just for back end purposes.  In other words, if the deal goes bad or so forth, we don’t want SBA to come back and contest what we put in our files in the valuations and so forth.


Now I’d like to kind of go back to the seller financing side a bit, and this is – and how we look at it from the perspective of an acquisition.  We view that as a positive from our perspective, whereby if the buyer has let’s say less than 20 percent into the deal, and our credit committee feels that cash flow is tight, and, you know, the ____ position is not adequate and so forth, we have historically gone back and sought some sort of seller financing with a standby provision, and I can define that in a moment.  That standby provisions gives us the ability to use that seller financing in form of an equity to the deal.


So – oh, go ahead.


Mike Rozman:             No, that’s great.  And so you mentioned if the borrower or the buyer of the business has below 20 percent, so what levels of equity injection are you looking for, and continue on about the role that seller financing can play in helping the buyer get over that – the hurdle that you’re looking for.


Tom Abraham:            So if it’s a tier one franchise, we’ve gone with less, ten percent equity on a straight up acquisition.  If it’s a startup, per se, in other words, the guy has no other locations, but it’s a tier one location, which is really odd in this market, but let’s say it does exist, and that would enable us to only require ten percent into a deal.


But putting that aside for a second, if it’s an acquisition and the – we believe the borrower has to have some liquidity going into the deal in terms of working capital and startup costs and so forth, and we want to keep him liquid on a ____ funding basis, we’ve sought as little as ten percent.  But if the credit committee comes back and says, you know what?  We want more skin in the game, then we always go back to the seller and say, okay, let’s get an additional ten percent from the seller, so with a two-year standby, whereby no payments are received by the seller, no PNI, so to speak, and with the subordination to our loan for the full term of the loan, we have always look at it as equity, from our perspective.


So in essence, now that deal turns from 10 percent in to 20 percent in, from our perspective.


Mike Rozman:             Great.  And I want to really highlight this point for the audience that are on.  You know, we’ve heard – so Tom and Tony are bankers on the line, have expressed this point twice.  They’ve taken their limited amount of time to talk about what we – somebody referred to as post-transaction liquidity, right?  After this business is – after this owner has the business, what shape are they in financially?  Can they weather these – the period in opening their business and starting up?


Now what’s nice, and we heard this from Tom at Ridgestone, what’s nice about a business acquisition transaction is the banker can rely on those historical financials to get a good picture of where that business is going to go.  And Neal, I want to bring you in here.  As you run through a valuation exercise, and I know it’s a meaningful amount of work that you put into getting to a valuation, and you addressed it earlier, you take a couple of different approaches –




Mike Rozman:             Say it again?  Yeah.  So a couple of different approaches on it.  Tell us what you’re looking at, particularly as it relates to those historical financials.


Neal Patel:                  Sure.  Well, first of all, the banks typically send me all of the financials directly.  This avoids the bank having to check on all the financials, were the buyer and seller to – if they were to send those documents directly to me.  So I receive all the documents from the bank.  That’s typically all of the financials and documents that they used for their underwriting.


We look for three years of tax returns, and we look for an interim income statement and balance sheet.  We look for a purchase sale agreement, if that’s applicable, and then we obviously look for description of the company, and we usually get a lot of the information about the company through a questionnaire that I send over to the buyer and seller.


On a business valuation standpoint, we don’t focus at all on the buyer.  So as Tom and Tony mentioned, they do a lot of global cash flow analysis of the buyer and make sure that their personal debt can support the business acquisition.  We’re not interested in what the buyer – whether or not the buyer can afford it.  It’s basically – we look at a hypothetical buyer.  If a hypothetical buyer were to put 20 percent down, then would that person – would that hypothetical buyer make a – you know, a reasonable return on their investment?  And so that’s where banks and valuation companies slightly differ.


But we do look for all the same information, all the same financial information, and then we use our – we use historicals, we use the financial strength, and then we use industry and economic data.  And we have a database with about 90,000 closed transactions broken down by SIC codes.  So we use all of that to compile our business valuation, and that helps us determine the value of the business.


Mike Rozman:             That’s great, Neal.  So what we’re going to do, we’re approaching on the hour.  We’re going to do – we’re going to shift to question and answers.  Before we do that, and so those of you who are looking to get a question answered, I have all the questions that we received so far.  Please chat those questions in.  You can go ahead and submit those questions.  I just want to raise a couple of upcoming events.


As mentioned, we’ll be – BoeFly will be at the NAGGL annual event in Las Vegas coming up next week.  For those bankers that are going to be there, stop by.  We have some trick or treating candy at our booth.  We will certainly be at the restaurant finance and development conference in November, and I think those dates may be off.  I’ve got to check those.  But I believe that’s November 11th, or excuse me, 13th, in Las Vegas.  And then we’ll certainly be at IFA, one of our core events over the course of the year.  So for you franchisors that are one, please visit – I also want to briefly say that we are excited to make an announcement on Veterans’ Day, we’re going to visiting with – in San Antonio with a new Lenny’s franchisee.  They’re open for business after obtaining financing through BoeFly, and it’s a veteran located right off the local Army base there, and we’re thrilled to be a part of that.  So that’s our Veterans’ Day plan.


In wrapping up, before we shift to Q&A, I just want to – want a quick moment about BoeFly.  We’ve received a number of questions online about it, and I’ll just say briefly that we’re here to support business owners seeking financing, whether it be a franchisee or an independent business.  What we believe is it’s a more efficient path to seek financing through BoeFly, and we’ve proven it.  And the endorsements we get from our borrowers confirm that, as well as the lenders that have been closing business, so we’re happy to host an event like this, and certainly thrilled that you can all join.


Getting back to the Q&A, I want to stay with Neal for a second.  You mentioned looking at those historical financials.  We had a question come in from one of the participants.  What if the business is losing money?  How do you go ahead and value that?  Obviously, there’s times when a business will sell at that point.  What happens in that case?


Neal Patel:                  Well, we look at – that’s a great question, by the way.  We look at the reason why it’s losing money, and then, of course, we look at why the buyer is willing to purchase such a business.  There has to be a reason, and most likely, it’s because the expense structure is too high.  So we look at what type of expenses can be cut, and we project out cash flow over a three to five-year horizon, at which point we feel the – you know, the earnings will stabilize.


Now we have to be very prudent and very careful when we’re doing this.  If I was doing this, you know, I was engaged for a buyer or seller directly, I would have a little bit more freedom to kind of use the management’s projections and their expectations, but if we’re doing it for financing purposes, we have to be very conservative, and I have to understand if this business can turn around, and if it can, if it can turn around within the next 12 months, because the borrower – I’m sorry, the lender doesn’t want to hear that, yeah, 3 years from now it’ll start making money.


So we’ll look at the expenses that can be cut.  We have to look at fair market value, which is a hypothetical buyer.  But some buyers may want to come in and move the location to a lower rent facility.  They may have synergies with existing businesses that they can use to increase sales by just using a client list and getting rid of the employees, or hiring more employees, or hiring their current employees, using their current employees for – there’s a lot of intrinsic values involved.


So it’s rare that I see companies that are losing money without an explanation of exactly why it’s losing money and how they can be turned around.


Mike Rozman:             That’s great.  Thank you, Neal.  We have a question – well, and there was a quick question around can – I’m looking to buy a franchise.  Can I obtain SBA financing for this deal?  Certainly SBA – the SBA program, which provides a guarantee for lenders in the event of that business failing, that franchising is a vibrant source of deal flow for SBA lenders and SBA financing is a vibrant source of capital for franchisees, so certainly that’s available, and you can – that’s a core reason why folks turn to BoeFly, to find those lenders that are doing those deals.  And that’s an opportunity – we have a free tool available called our Fundability App, and it lets you get a sense of how many lenders are interested.


Curtis, I want to turn to you.  We have a question from actually a business journalist on the line, Jerry Chautin, and Jerry, who is a regular attendee of our sessions, always comes up with some good questions.  He’s got a couple that hopefully we’ll get to.  He brings the question, brokers sometimes say a listing is pre-approved by SBA, and actually, I saw that on one of the listings on BizBuySell.  Now I assume you don’t do any screening of the detail there, but do you have any insight?  Is that misleading from your perspective?  And I also want to – anyone else that’s in a position to join in, I mean, I can give my two cents on it, but do you guys have a comment on that, Curtis?


Curtis Kroecker:         No, that’s actually interesting.  We do – actually, one of the things that we do at BizBuySell which is fairly unique is we do actually have a manual review process of every business that goes up, and we look for things that are either obviously inappropriate or fraudulent, and we do that to try to maintain marketplace security and marketplace efficiency and consistency.

The – in terms of that particular situation, in terms of whether a business can be pre-approved for SBA financing, I’m actually not aware of whether that it – or I’m not certain whether that’s possible or not, so I would actually need to turn to one of the other panelists for that.


Mike Rozman:             And Tony, I don’t know if you can sound off on that, if you have a view, but – and I’ll actually ask it more directly.  Have you ever pre-approved a loan only having the seller’s information without knowing who the buyer is?


Tony Kim:                   No.  We – that’s a request that we get quite often from our – from a lot of our referral sources, to pre-qualify a business, but for us, the deal – you know, it’s weighted so heavily on the buyer, his experience, his background, if he doesn’t have specific industry experience, how would he mitigate that in terms of working with the franchisor to get the training that he needs.  It – you know, we can always look at the subject business, the cash flow, and say, yeah, you know, the cash flow works for that acquisition price, but that’s really just half of it, you know.  The other half is really the strength of the buyer.


So it’s a difficult – I don’t want – I don’t ever want to just say no to someone, but it doesn’t – there’s no value to it, I guess, if –


Mike Rozman:             Right.  So I – and I would echo that idea.  From our perspective in the market, what a banker, exactly as Tony made clear, is he wants to understand who the buyer is, right?  That’s going to be a core part of the credit decisioning process.


And so for you buyers, or better yet, prospective buyers on the line, be aware that if something says pre-approved by a – for SBA loan, ask them to see what that means.  Now could it have historically had an SBA loan because it has a nice profitability level?  Absolutely, in which case, maybe it’s a little bit of aggressive marketing.  But being truly pre-approved for SBA finance, I have a hard time not being cynical, which I think is somewhat consistent with that Tony had mentioned.


And I want to stay with you, Tony, on this question.  With seller financing, will Ridgestone give a seller a right to cure default and acquire the business, and will the bank notice the seller when there is this default?  So for you folks on that aren’t as close to the financing process, if the buyer who has a loan is making payments to Ridgestone bank and they get in a crisis, but there’s also a seller financing in place or seller note in place, that seller note is junior or subordinated to the bank debt.  Will you notify that seller, Tony?  Is that part of your process?


Tom Abraham:            Once we get into that – the point where there’s a default and we’re – we get into a work-out situation, it’s really hard to speak generally about it, because it’s really a case by case.  But absolutely, we would definitely get the seller involved in coming up with a plan to get everyone out of the – you know, out of the situation.  But it’s not our responsibility to do it, but it’s good practice to do it.


Mike Rozman:             Yeah.  And so when you think about – if you’re a seller, and this is kind of – I label it as good practice.  If you’re a seller and you have a note that’s in place, you certainly want to be engaged with – in the same way that Tony wants to be engaged with his borrowers, you should be engaged with your borrowers.  Is that – if your borrower in this case who bought your business is getting into a crisis, you want to make sure that you’re in the room at those conversations, and you do have an opportunity to rectify the situation, and I think that’s something that is really embedded in the question that we received there.


We have a couple of comments that came in on that SBA pre-approval process, and I think we have some from the SCORE counselors as well as the SBDC counselors, and I’m taking the view that in fact that they would be – they share that skepticism of the pre-approval.  We do have – one of our attendees did make a comment around the SBA registry for franchises.  Now that’s going to be a little bit different, where a franchise brand may be on the registry, the SBA registry, which allows a banker to determine eligibility for that franchise brand.  So when a bank is approving a loan, if it’s a franchise, they need to underwrite the franchise and understand the contracts in place, and they can fast track the approval of the franchise brand if it’s on the registry.  So that may have been embedded in that question as well.


Michael, I want to bring you in.  We had a question around how long does it take for a listing to be consummated?  You represent sellers.  They’re anxious to sell their business.  Talk about a transaction.  Once someone engages with you and starts listening, what should they expect?


Michael Arrowsmith:  Timeframe for the time they list to the time they actually transfer the restaurant?


Mike Rozman:             Yeah, and I’ll start with two time periods.  When they list and you’re out there – this is a process for you to get them listed.  Once they’re listed and they have a handshake with their ultimate buyer, you know, what’s that time period, and then maybe add on the closing time period to get that buyer across the finish line?


Michael Arrowsmith:  Yeah.  Yeah.  You know, there’s not really a standard there, although I will tell you what we typically see, and then I’ll tell you why it varies a lot.  I mean, we will typically take a listing and we’ll have it sold I would say typically within 90 days, sometimes a little bit longer.  That all depends on geography, strength of the brand, a lot of the other marketability.  If it’s a smaller restaurant in a more remote area, it’ll take us a little bit longer.


But now once we have a deal in hand, and again, we’re dealing with franchise situations, so there’s a whole process we’ve got to go through in terms of franchise approval.  Typically, there’s landlords involved.  Most of our businesses, the real estate is not owned, so we have landlords we have to do assignment documents with.  And then lending, those are probably the three biggest things.


I would say that process on a – everything going perfectly is probably a three to four month process.  Running into the typical bumps, it’s probably a six to seven, eight month process.  And it’s not unusual to see it bump out over nine months.


Now why is that?  Well, a lot of it is some of the stuff we hit on earlier in this.  I mean, a lot of it is getting the business ready, prepping it, getting your ducks in a row, but there’s a lot of unpredictable things that come up along the way, not only financing requests, but you’ve also got – probably one of the – other than financing, probably one of the biggest hurdles we have to overcome today is landlords.  Landlords have become very skittish.  They’ve been – they feel like they’ve gotten taken advantage of a little bit in the past with the economy, and people closing on them and/or trying to demand rent decreases.  And so most of them are very stingy.  Most of them are – and when I say that, I don’t mean that in a negative way.  They’re just trying to protect themselves and protect their business.  They’re very crafty about the language that they want, and they’re not very responsive, because they don’t have any skin in this game.


So a landlord in and of itself can stretch a transaction out three months.  I’ve seen that happen.  You get a good landlord, you have a good relationship, again, going back to one of our points earlier about what do you want to do to help get your business ready to sell and focus on your business, one of them is focus on keeping your vendors happy, particularly your landlord.  If you’ve got a great relationship with the landlord, you can pick up the phone and call them, that’s going to do wonders to accelerate this whole process.  So I’m not sure I completely answered that question, or maybe I over-answered it.


Mike Rozman:             No, no, that –


Michael Arrowsmith:  That would be my insight.


Mike Rozman:             That was really helpful, Michael.  So what I want to do is we’re going to ask one last polling question of our audience.  And so much of our conversation today has covered this idea of financing.  I certainly want – you all have different perspectives, because you come from different roles.  How important do you think financing is to the business acquisition transaction?  So on the buyer side, seller side?  And then what we’ll do is we’ll take a look at that and understand the level of importance of this, and we’ll also separately analyze the responses by the category that you’re in, right?  So we’re going to be able to monitor that.  I certainly think the bankers think it’s probably the most important transaction, and that makes sense as to why.


I also want to – we’re going to multi-task.  I want to get one more question over to Tony.  We talked about the positioning of seller financing and engaging the seller in that transaction.   I know we heard from you that it’s important.  What is your recommendation to a buyer in their relationship with the seller financing?


Tony Kim:                   In terms of just overall structure, or –


Mike Rozman:             Yeah, just overall structure, structure as well as just – kind of almost two cents.  You know, I’m thinking about buying a business and it’s going to have seller financing.  What advice do you have as I work with my – the buyer I’m working – excuse me, the seller that sold me the business.  Do you have any advice for me as I handle that relationship?


Tony Kim:                   One of the things, it’s the seller’s commitment also to the buyer.  In selling his business, the buyer’s always going to want to do due diligence, their own due diligence.  And we’ll do – we’ll assist them in doing that.  But when a seller is willing to take some responsibility in terms of seller financing, whether it’s five percent of the total acquisition price or ten percent, it gives a buyer that much comfort – that much more comfort in what the seller is selling them.


So what I would – if I was working with the buyer, I would ask, depending on the strength of the deal, now, you know, sometimes the deal that the buyer’s getting is very good, and we look at it, and we’ll see that the seller’s probably not going to agree to it.  So again, it’s a case by case.  We’ll look at a business.  If there’s a lot of goodwill in the transaction, the buyer should push for seller finance – a portion of seller financing, even that much more.


But two year standby allows us to count that as equity injection, and it always strengthens the deal when there’s more equity injection in the deal, so –


Mike Rozman:             That’s great.  And that’s – that is helpful, Tony.  So I want to wrap up on –




Curtis Kroecker:         If I can add just one thing on that, which is just – Tony just made me think of one thing, which is seller financing shows that the seller believes in that business, which gives the – which helps the buyer believe in that business, like Tony was talking about.  And the other thing that is important to remember is, you know, these are small business transactions, and a lot of the deal comes down to the relationship between the buyer and the seller.  And so anything that the seller can do to improve that relationship and strengthen that trust and confidence is going to really increase the likelihood of a successful sale.


Mike Rozman:             Okay.  And I appreciate that addition.  So – and there are still some questions that came in.  We will get those over to the appropriate expert to answer, and we will respond back to you.


I want to close by sharing the results on this.  And not surprisingly, you folks have joined to get some information here, and what we hear is that financing continues to be critical in transactions as a whole, and business acquisition transactions are no different.  Ninety-eight percent of you say that it’s most important or very important, right?


So this is something that we – in light of that, I want to particularly thank all of our panelists for taking time to help us all understand this issue.  We want to thank each of you for joining us today to learn more about this, and we look forward to our clients leveraging BoeFly and you joining us on future sessions.  In the near term, the recording will be made available, and we’ll be sharing this by email as well.  So thank you very much, and a special thanks for our panelists for joining today.