Monday, January 25, 2016

Want to buy a business? The seller needs to take you seriously...You need to make the first sale.

I've been e-mailing recently with a person trying to buy a business.  The sellers will not discuss terms and make demands that seem unreasonable.  What is the problem?  Watch...

Want to be properly prepared to buy a business?  Take my course at www.BusinessBuyerAdvantage.com 




Transcript:

Hey guys, it's Dave Barnett.  I just want to make a quick video because I was chatting online with someone who had seen a bunch of my videos and basically was expressing some frustration because they had been actually trying to buy a business.  I'll let you know the two things that seem to be happening to this person all the time.

Number one:  They were always been asked by sellers to put up a big deposit to demonstrate good faith in making the transaction and they were always been asked to provide very detailed financial information by the sellers and they said that they had tried to convince the sellers to do some vendor financing for them and they hadn't been successful at all in getting anyone to be able to even discuss it with them.

They were looking for some help.  Basically what I said to this person is, you are not being successful because you haven't made the first sale.  When someone goes to buy something like a car, or you go to Walmart to buy a blender or something; basically you're the customer and the other person who is trying to sell something, is trying to accommodate you, they are trying to make things happen for you so that you will buy their product.

The same thing doesn't happen when you go to buy a business because we need the sellers to be willing to help us out with training, financing most of the time and other sort of accommodations.  The first sale when you go to buy a business, it's not actually them selling you the business, it's you as a buyer selling them on the fact that you are the right person to buy the business, and that you are actually capable of doing it and you have the resources to do it.

In my online course, Business Buyer Advantage, I go on at length about this and how you properly prepare yourself in order to go out and meet those sellers, and what I said to this particular individual is that they actually were working against themselves because the sellers won't take them seriously.  They were failing in that first sale, so these people didn't believe that they were able to get the money together so they were asking for detailed financial information.  They didn't think that they had enough money to buy the business so they wanted a big deposit to show that they were serious and maybe they didn't believe that this person was capable of running the business so they dismissed the idea of vendor financing out of hand because they didn't want to take the risk on this particular buyer.

If you are going to go out and approach someone with the idea of inquiring as to whether or not you might be able to buy their business.  You need to get your act together first so that you are able to come up on that person and confidently argue your case for why you are the right person to run that business and why you have the resources and you are going to be successful and that in turn mitigate the risk they might take in mitigating the finance for you.

Anyone who is going to buy a business should take my business buyer course which is available at businessbuyeradvantage.com.  With respect to the initial preparation for going out there, I talk a lot in the course about the buyer resume and in fact in the follow-up program which is called the next step that people can take after a business buyer advantage, we actually go through an exercise of you creating a buyer resume to go out there and sort of break down these barriers and help you make that first sale, which is selling the business owner on the fact that you are the right person for the business and you are going to be able to pull this off.

Anyway, thank you guys and keep sending in your questions.  I love to get questions about local investing, buying and selling small businesses, personal finance etc.  

Thanks, we'll talk to you later.  Don't forget  to sign up for my e-mail list.

Hey, you made it to the end of the video, that's great.  Don't forget visit www.investlocalbook.com.  Sign up for my e-mail list, it's right down here, under the welcome video.


Thanks and we will see you next time.

The Invest Local Book blog is all about small business, franchises, local investing, home economics, small business systems and borrowing money for your business. It's full of great content and I look forward to seeing your feedback.  Sign up for my mailing list and don't miss a thing! [CLICK NOW]

Saturday, January 23, 2016

New Covers for my books

In getting ready to release my new book in April I decided to spruce up my older titles with some new covers.  What do you think?  The new covers are available to purchase from Amazon as paperbacks and Kindle or click the links below to purchase .pdf versions.  Cheers.







Thursday, January 21, 2016

Do you own a business? What's your plan to exit one day?

Do you own a business or work with business owners?


I've been doing an exit planning seminar for live audiences since 2014 and it will be coming out shortly as an online video course.




Pre-sale deal for a limited time. Sign up and learn more here: https://gum.co/howtogetoutofmybusiness/earlybird

Monday, January 18, 2016

I've been asked if a business buyer should ALWAYS be represented by a qualified business broker. [VIEWER QUESTION]


I used to be a business broker, so what do you think my answer is?  May surprise you.  But please, please, please, don't do the dumb mistake I tell you about in the video.

Cheers.

Transcript:

Hello everyone, it's David Barnett once again and this time I've got a viewer question from Yan and Yan wants to know, should a business buyer always be represented by a broker?  Honestly, no.  They don't need to be always represented by a broker.  What I always advise is that business buyers should surround themselves with several capable advisers.  So, people who know what they are doing.  An accountant that help people buy businesses before and is familiar with due diligence.  A lawyer who has done transactions before and knows what to do.

Now as far as deal making and negotiation; if you have a good friend who is an experienced business owner, who maybe has bought businesses before, that kind of person can help you out.  So, no, you don't always have to be represented by a broker, but having someone who is an experienced business broker to be one of your advisors can certainly be useful.

I'll tell you what's really foolish though and I have seen this happen several times is when people actually engage someone who is completely unqualified to help them buy a business when they could have the help of a business broker for free, basically.

Let me tell you a story, happen a few years ago and it was before I was a business broker, it was when I was strictly doing finance brokerage for small businesses and I was approached by some new Canadians who had arrived from Korea.  They were looking for help in financing a convenience store purchase.  Now, the convenience store was for sale with a business broker who had been around for a long time.  I knew of him, many people had known of him.  He was experienced, had done lots of transactions and business brokerage is usually done in dual agency, meaning that the broker represents both the buyer and seller and has certain obligations and duties to both of them.

They had become aware of a certain convenience store that was for sale by their realtor who helped them buy a house, and the realtor said to these new  Korean people that arrived in Canada; I know of a convenience store that is for sale and then the realtor went to the business broker and said, we are going to represent these buyers in this transaction. The business broker spoke to the buyers and said,  these guys are real estate agents, they don't know what they are doing, if you want to work with them I will split my commission with them but I won't represent you.  I won't have any duties to you and in my experience, you should be getting advice directly from me.

So being very trusting and the fact that they had already bought a house with the real estate agent, they thought that it would be a good idea to use their realtor to help them buy a business.  The problem is of course, the real estate agent didn't know anything about businesses or how to buy them. 

They came to me looking for advice on how to do the financing and I showed them how to structure the deal and it was going to require some vendor financing on the part of the sellers.  So the real estate agent promptly wrote up an offer for the price of the business and didn't put in any detail whatsoever of the vendor take back note.  So, the offer was presented and closing day arrived and the lawyer said, where is all the money?  The realtor said, well we were going to go through with David's suggestion about the vendor take back note, but of course, the seller had never been presented that offer, and the seller had never agreed to do the vendor financing.

So, the deal didn't close and the Korean couple had spend money on their accountant, they had spent money on their lawyer, money on an engineer to look at the structure of the building.  They spent close to $20,000 and at the end of the day, didn't have a business because they chose to go with someone who had absolutely no idea how to buy a business.
When I say you don't need to be represented by a broker, I mean that honestly, you don't have to and there are plenty of experienced business people out there who certainly go and negotiate and buy businesses without the help of a broker.  If you are able to get an experienced person to help you and in the case of a dual agency arrangement, they are being paid by the seller anyway.  You would be foolish not to take advantage of them and sign on as a buyer and be in an agency relationship.  It doesn't bar you from having other advisers around you such as your accountant, lawyer or other business people or people that you know to help you and give opinions on what you are doing.


You should not say no to a qualified adviser because you want to use someone who may be much less than qualified.  In my business buyer course which is available at www.businessbuyeradvantage.com.  I actually go through at length, there is an entire module about building your team and intermediaries.  What to look for in an intermediary, what to look for in an advisor, how to vet them and make sure they really know what they are talking about and they know what they are doing.

The worst thing that can happen if for you to have faith and trust in an advisor and then discover later that they don't know what they are talking about.  There is a funny thing that I see sometime and it's a mean one on facebook.  It says, if you think hiring a professional is expensive, wait until you hire an amateur and I think this is one of those cases.  I work with business buyers all the time and end up charging people in the hundreds to low thousands of dollars for advice and help and consulting. 

Often times that's for businesses that are going to cost $200,000; $300,000; $400,000; $500,000.  It certainly makes sense in my opinion to spend a few hundred or a couple thousand dollars to get good advice to help you avoid a potentially huge mistake that you might never recover from in your life.

Anyway, so that's my opinion on whether or not buyers should be represented by business brokers.  I look forward to your feedback and comments.  As always, if you enjoy my videos, please subscribe to my e-mail list, subscribe to my youtube channel.  You'll make sure that you get all the latest content delivered to your e-mail box every week. If you ever decide that you don't like the content and want to take yourself off the list, it's very easy because I use mail chimp.

Thanks and we will see you next time.

Hey!  You made it to the end of the video. Thant's great.  Don't forget to visit www.investlocalbook.com.  Sign up for my e-mail list, it's right down here under the welcome video.

Thanks and we will see you next time.


The Invest Local Book blog is all about small business, franchises, local investing, home economics, small business systems and borrowing money for your business. It's full of great content and I look forward to seeing your feedback.  Sign up for my mailing list and don't miss a thing! [CLICK NOW]

Saturday, January 16, 2016

Monday, January 11, 2016

What if your friend asked you for a $15,000 startup loan? [VIEWER QUESTION]

What would you do if a friend asked you for money to start a business? Would you make a loan, become a shareholder? How would you get your money back out? Listen as I answer these questions for a West Coast viewer.

Transcript:
      Oh hey there everyone it's Dave Barnett once again from investlocalbook.com. I got a question from a viewer about making an investment into a startup business and we had a brief exchange of emails back and forth but I thought it was a great example of a potential situation that some people out there may be looking at and I thought I would make a great video so I am going to share it with you.
      Now the viewer individual was out on the west coast of the United States and he basically emailed me and he said that he has a friend who is looking at doing a start up and has a business plan all put together and has been told by a bank that he has been approved for a loan, but the friend needs to have a certain amount of cash on his own in order to get the loan. So this would be some kind of equity requirement. Now in the email, the viewer, the potential investor, said that what they are talking about a $15,000 investment. So the business start up entrepreneur has asked this viewer for $15,000 and he is basically giving him 2 options. Number 1- Lend me the $15,000 or invest $15,000 in my business and the viewer wants to know the pros and cons of each and how would he then get his money back out?
      So in my book invest local, I actually have a whole section in there about why you don't want to be a minority shareholder in a small business and the reason for that is that as a shareholder in a business you get dividends, okay and dividends are controlled by two different things. Number one is the net income of the business. So it there is a net income the business can then have a dividend but the board of directors basically decides how much that dividend is going to be, when it's going to be paid out, the amount of money. So you could have an incredibly profitable business for example and the majority owners who control the board could decide not to issue any dividends. And as a minority shareholder you are not going to get any money, you are not going to get any return on your investment.
       The other thing that can happen is that a business owner could manage the business so that there is no net income. So for example you know you see this all the time in companies like the construction business where the owner who is going to drive around in a pickup truck all day, instead of buying a $15,000 pickup truck will buy himself an $80,000 pickup truck. Now if that's his business and he owns it that's fine it's his business he can do has he wishes. But if you own 10% of the company and the reason there is no net-income is because all of the money that would normally be available is going to lease payments on this fancy truck, then you're going to start to feel a little bit abused because basically he is sucking up all the profits, they are not ending up on the bottom line which means that there is no money left to declare dividend with. So that's why I am not a big fan of being a minority shareholder in a small business.
      Now the other option was to loan him the money. So we don't have a couple of the key details if somebody I knew approach me and said ‘Dave I have a business ready to go, I need a certain amount of equity you know from the banks point of view, I am short could you lend me $15,000?’ My first question would ‘ what's the total equity position you need to have?’ Because if somebody told me I need to put up $90,000 Dave and I am short $15,000 that means they are in for $75,000 of their own money. That's a completely different scenario than if somebody says I have no money and I would like to get $15,000 from you that I can then put in the bank and pretend that it is mine so that the bank will then lend me more money. Because in that scenario we were talking about someone who has no skin in the game, I would much rather be in business or make a loan to someone who has got $5 or $6 invested for everyone of mine, because it means they are going to fight like hell to make the business work.
      Now the viewer also asked, now what sort of interest rate should I look at if I am looking at making a loan? And my advice to him was first of all, if you can at all if it's at all possible, you want to have some sort of collateral on any loan that you do. One of the reasons why the investments that I describe in the book Invest Local are so relatively risk free is because they always include some sort of security, something you can go put your hands on if the deal goes bad. So if there is security, if the guy owns a car or an RV or something that has no debt on it, and he can offer that to you as security, then you might want to look at doing this deal because there is a plan B. If the business fails there is a way for you to get your hands on some money. You can take that asset and sell it somewhere.
      The other question is if there is no security at all, what sort of interest rate would you be looking at? Let's consider this from the point of view of a banker. So if I walk into a bank and I said, Mr. Banker I would like to borrow some money. There are 2 different vehicles that a bank might use to lend me some money. They might do a line of credit for instance, so in a line of credit there is probably an underwriting process. They might ask me to provide details about my assets and liabilities and might examine my net-worth. So they are getting a good picture of my overall financial position. And then they might come back and say we are going to give you an interest rate on this line of credit of prime plus of so many points, Prime plus 2, prime plus 3 for example. And many of you out there may have been in the situation where you have this line of credit.
      The other way that a bank might lend you some money is by providing you with a credit card. Now when you apply for a credit card, and you can do it in many instances online now-a-days, you fill out an application form; they check your credit bureau. It shows your debts and your history of payment but it does not show your assets. So you could be technically insolvent, you could be bankrupt and if you pay your bills on time every month, you could have good credit score and that credit card could get approved. So the difference though from the bank's point of view is they haven't done the same level of underwriting for the credit card so the risk is greater for the bank but the reward is also greater because they are not charging prime plus 2, they are charging 19%, 21.9%, 23% so the interest rate is much higher and that's what compensates the bank for the fact that they haven't done a full underwriting. So I recommended to this viewer, if you are going to make an unsecured personal loan to this guy then you need to start thinking about the types of interest rates that a bank might do. You're basically being a credit card to this guy, no security, no collateral, a personal loan, we already know that he is going to use the money and represent it as equity to bank so he can borrow more money so he is going to take on even more debt and while the business plan may look good.
      Business plans do look good, often business plans are not written to determine whether or not a business makes sense. Often they are written as a sales document to convince a banker to make a loan. So yeah, they often do look great on paper, everything should work out. But we know because of small business failure rates that often times it doesn't work out and we need to have a plan B. That said, I have got experience doing these deals, I would probably not do a $15,000 unsecured loan to someone who is starting a business, If it was a good close friend of mine I might say to him, look you know I believe in your project, I believed in you, I would like to help you out but with no collateral it's a little risky for me. How about I consider doing a $5,000 loan, if you can find two other people to come in with me and basically 3 of us will provide the $15,000 that you need. Now he has got to convince not just me but 2 other people to get involved in the same deal.
      So I hope that was an interesting story for you guys, I know in this exchange with the viewer I went back and forth a few times and gave him some ideas about the way he should think about this deal and help to understand just exactly what the risks are. Because really it is a very risky proposition because you are talking about making a loan potentially to someone where there is no collateral available potentially. Who is then going to take that money and use it to borrow even more so the person is going to be in a highly leveraged state which means that more than ever the business has to be successful in producing the correct amount of cash flow to make sure that it works.
      Anyway if you want to learn more about doing local investing deals then you should read my book Invest Local which is available at investlocalbook.com or from Amazon stores around the world and if you want to do a deal of your own you should invest in education and take my course on how to do small local investing deals which is available at localinvestingcourse.com and we will talk to you next time.
      Hey you made it to the end of the video that's great don't forget, visit www.investlocalbook.com sigh up for my email list its right down here under the welcome video, thanks and we will see you next time.

The Invest Local Book blog is all about small business, franchises, local investing, home economics, small business systems and borrowing money for your business. It's full of great content and I look forward to seeing your feedback.  Sign up for my mailing list and don't miss a thing! [CLICK NOW]