Wednesday, July 31, 2024

Get into Biz 101 Ep4 Search Plan


***New Video Alert!

Part 4 of the ‘Get into Business 101’ summer series.

Today, we’re talking about your search plan.

People have a hard time considering how you go out and buy something that ‘isn’t for sale.’

Easy.

It’s a sales exercise.

Also, even if you want to start a business, you don’t want to miss this step and I’ll tell you why.

Check out this week’s video:  https://youtu.be/YS7gW0qk_P8 


Cheers


See you over on YouTube

David C Barnett


Monday, July 29, 2024

Live Growing a new franchise Brand. The challenges and opportunities in something new.


Growing a new franchise Brand. The challenges and opportunities in something new.

New Livestream guest- Megan Rosen- Beef-a-Roo.

I’m happy to have Megan join me on a live broadcast.

She has years of experience in the realm of franchise development.

Tune in and as we’ll be discussing the growing challenges and pains of starting a new franchise brand. In this case, a mid-western, mid-market sit down dining experience called Beef-a-Roo.

They have a milkshake subscription!

This is a ‘must see event’ for people thinking about franchise opportunities or making their business into a franchise.

Be sure to join live so that you can ask questions, replay will be available.

Set yourself a reminder on YouTube here: https://youtube.com/live/kYp3DqRNqyM 

We’ll be going live Monday July 29, 2024 at 1 PM Atlantic Time & 12 Noon Eastern Time

See you there!

David C Barnett


Saturday, July 27, 2024

Unlocking the Secrets of Price Allocation in Business Acquisitions

Today, we’re diving into a crucial aspect of buying a business: price allocation. A viewer asked an excellent question about how to break down a negotiated purchase price among the different assets of a business. If you’re new to this concept, stay tuned—I’ll explain everything you need to know. https://youtu.be/Zzt7xznT7fU

 

Why Price Allocation Matters

When you purchase a business through an asset sale, you’re buying various components—both tangible and intangible. Tangible assets include inventory, equipment, and vehicles, while intangible assets might encompass goodwill and non-compete agreements. Allocating the purchase price among these assets is essential for tax purposes for both the buyer and the seller.

The Seller’s Perspective

Tax Implications: Different assets receive different tax treatments. For instance, equipment is typically depreciated, which saves on taxes over time. However, if equipment is sold for more than its book value, the seller might face capital gains tax or have to pay for recaptured depreciation savings on previous year’s tax returns.

The Buyer’s Perspective

Depreciation Benefits: Buyers aim to allocate more value to assets that can be depreciated quickly, like equipment and vehicles, to maximize future tax savings.

An Example of Price Allocation

Imagine you’ve agreed to buy a business for $1 million. On the balance sheet, equipment is listed with a book value of $200,000, but its fair market value is $300,000. Here’s how this scenario plays out:

For the Seller:

  • Selling equipment for $300,000 (above the book value) means recognizing a capital gain and reversing some tax benefits from previous depreciation.

  • Sellers prefer to allocate the equipment at its book value ($200,000) to minimize tax liability.

For the Buyer:

  • Buyers want to allocate $300,000 to equipment to maximize depreciation benefits, which reduces taxable income in the future.

Tips for Successful Price Allocation Negotiation

  1. Discuss Early: Address price allocation at the start to avoid disputes later.

  2. Understand Both Sides: Recognize how different allocations impact both parties’ tax situations.

  3. Consult Professionals: Hiring an appraiser to determine fair market values can be worthwhile, especially if required by lenders.

Regional Considerations

Different regions have unique tax treatments for various asset classes. For instance, in the United States, allocations to non-compete agreements are common, while this is less prevalent in Canada. Goodwill and capital gains are also treated differently depending on the jurisdiction. It’s crucial to be aware of these differences and plan accordingly.

Avoiding Common Pitfalls

Negotiations can falter if both parties are unaware of the importance of price allocation. Including an allocation component in your offer to purchase can streamline this process. By addressing it upfront, you prevent potential roadblocks during due diligence or closing.

Conclusion

I hope this answers your question about asset price allocation. For anyone buying a business, understanding and negotiating price allocation is vital. If you want to delve deeper into this topic and many others related to business buying, check out my online course at https://www.BusinessBuyerAdvantage.com 

Also, are you on my email list? Sign up while you’re here on my blog.

Download my free Guide here:




Friday, July 26, 2024

2023 HC#007 Harry inquires about a government contractor Video

 

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HC#007 Harry wants Uncle Sam as a customer. In this call, he and I discuss an opportunity for a temporary staffing agency that sells to a few government departments. What are the risks? What pricing makes sense? What if those contracts don’t renew? Gulp!

Wednesday, July 24, 2024

Get into Biz 101 Ep3 Build your team

 

***New Video Alert!

Part 3 of the ‘Get into Business 101’ summer series.

Today, we’re talking team members.

This is something you do before you get into business.

I’ll explain the experts and the not-so-experts that you need to find in your community and online.

Check out this week’s video:  https://youtu.be/hA75uMo3cNw 


Cheers


See you over on YouTube

David C Barnett


Monday, July 22, 2024

X-Ray the personality of someone before you hire them!

X-Ray the personality of someone before you hire them!

New Livestream guest-> Fletcher Wimbush

I’m happy to have Fletcher join me on a live broadcast.

He’s got over a decade of experience in hiring and talent acquisition and evaluation.

Tune in and as we’ll be discussing DISC assessments in the hiring process and how to properly use them.

This is a ‘must see event’ for anyone who will need to grow their team in the future.

Be sure to join live so that you can ask questions, replay will be available.

Set yourself a reminder on YouTube here:https://youtube.com/live/rApkiUGMW3c 

We’ll be going live  Monday July 22, 2024 at 1 PM Atlantic Time, 12 Noon Eastern Time

See you there!

David C Barnett


Saturday, July 20, 2024

Competing for the best businesses against Private Equity Funds

Today, I’m sharing a story about a viewer in Chicago who’s struggling to buy a business with around $500,000 in EBITDA. This tale might just resonate with many of you looking to make a similar move. https://youtu.be/L-muWEy2Y1E 


The Struggle of Competing Against Bigger Fish

Our Chicago friend, a retired C-level executive with a substantial budget, is looking for a solid business to purchase and grow. However, he’s finding himself constantly outbid by competitors with deeper pockets. Why? It’s all about the magic of the $500K EBITDA mark.

The Magic Threshold

At $500K EBITDA, a business becomes highly attractive to both Private Investment Groups (PIGs) and Private Equity Groups (PEGs). These entities have the resources to transform such businesses into larger, more valuable enterprises. Here’s how they do it:

  1. Target Industry Segmentation: They focus on industries with many independent operators.

  2. Strategic Acquisition: They buy a successful business and pour resources into rebranding and marketing.

  3. Expansion: They acquire similar businesses within the same media market, creating a chain.

  4. Scaling: They grow the business from $500K EBITDA to several million dollars.

  5. Exit Strategy: They sell the aggregated businesses at a much higher multiple or take it public.

Why Strategic Buyers Have the Edge

Strategic buyers are willing to pay more because they’re not just buying current cash flow—they’re buying future growth potential. They can afford to offer higher prices because:

  • They can spread marketing and operational costs across multiple businesses.

  • They’re aiming to sell at higher multiples typical in the stock market (8-15 times earnings) compared to the small business market (3-4 times earnings).

What This Means for Individual Buyers

For individual buyers like our Chicago friend, competing against these strategic buyers is tough. Here’s my advice:

  1. Look for Smaller Targets: Focus on businesses just below the $500K EBITDA mark. These are less likely to attract PIGs and PEGs.

  2. Build to Sell: Find a solid business, grow it, and then sell it to a PIG or PEG once it hits that magic EBITDA threshold.

Conclusion

Navigating the business buying landscape can be challenging, especially when competing with well-funded investment groups. However, by adjusting your strategy and targeting slightly smaller businesses, you can find valuable opportunities and potentially sell at a profit in the future. www.DavidCBarnettList.com  

Cheers!

David C. Barnett


Friday, July 19, 2024

2023 HC#006 Jim raises investor money to buy an online Biz Video

 


HC#006 Jim is a smart computer guy. He and his buddies have the skills to take a SaaS business to the next level. Just one thing- they won’t sign personal guarantees on loans. So, what is the plan or a workable strategy to try and raise millions of dollars to buy a business without going to a banker? In this talk, we discuss crafting securities, thinking about the investors as a market and the relationship between the buyer, investor and the seller in a crafty non-bank deal. If you're interested in working with Jim and his team, contact him at https://bluesagedata.com/

Thursday, July 18, 2024

Great Conversation with the host of He Said, She Said: Razor Branding Jaci Russo

The Financial Side of Branding with David C. BarnettHe Said, She Said: Razor Branding™ Podcast


    Join me to this interview with the host of He Said, She Said: Razon Branding Podcast together with Jacci Russo and Michael Russo.


    Tune in to learn why business is tough, why it’s important to be realistic about business opportunities, and how to navigate the ever-changing landscape of buying and running a business. Don't miss my practical advice and candid insights that could help you make better business decisions.


    Wednesday, July 17, 2024

    Get into Biz 101 Ep2. Assess your resources


    ***New Video Alert!

    Part 2 of the ‘Get into Business 101’ summer series.

    Today, we’re talking resources.

    Understanding what you’re working with will inform your options.

    Money

    Debts

    Personal Assets

    Skills and Experience.

    Check out this week’s video:  https://youtu.be/8_IiRwZ0bOo


    Cheers


    See you over on YouTube

    David C Barnett


     

    Monday, July 15, 2024

    LIVE Neal Isaacs - Seller Journeys with Business Brokers

     



    Business Seller’s Journeys with Business Brokers

    New Livestream guest-> Neal Isaacs

    I’m happy to have Neal join me on a live broadcast.

    Neal has sold dozens of businesses in his role as a business broker with VR Business Brokers in Raleigh, NC.

    Tune in and as we’ll be discussing what ideally a broker should be telling/showing/helping sellers with and we’ll hear some of his stories from the trenches.

    In particular, I’m going to ask Neal about how, as a broker, he views his inventory of businesses for sale.

    This is a ‘must see event’ for any small business owner who might want to sell one day.

    ESPECIALLY if you want to learn how to spot the tells of a qualified broker vs. a poseur.

    Be sure to join live so that you can ask questions, replay will be available.

    Set yourself a reminder on YouTube here: https://youtube.com/live/-7vt5Ef-9i8 

    We’ll be going live NOW! July 15, 2024 at 1PM Atlantic Time and 12 Noon Eastern Time

    See you there!

    David C Barnett


    Saturday, July 13, 2024

    David Barnett’s Top Five Tips for Small Business Success

    I was invited by a small business lending website to share my top five tips for small business success. I’ve discussed these in various podcasts and thought it was a great opportunity to compile them all in one place. So, without further ado, here are my five tips for achieving success in your small business: https://youtu.be/hjJUly_MLBQ


    1. Know Your Gross Margin

    Understanding your gross margin is crucial. It’s the foundation of your business’s financial health. I once worked with a craft manufacturer who sold products at fairs and markets. He didn’t realize he was operating in three different business models—manufacturing, distribution, and retail—each with different margin expectations. By breaking down the margins for each level, we found that he was more successful as a manufacturer and distributor than as a retailer. This analysis allowed him to focus on building wholesale accounts rather than retailing, significantly improving his profitability. Always ensure you know the margins you should be achieving and monitor them closely.

    2. Reconcile Your Books Monthly

    Having a robust system for monthly financial reconciliation is essential. One of my clients, who buys and installs products, struggled with margin discrepancies because they only did inventory quarterly. This delay made it hard to track their true cost of goods sold. By implementing a better inventory system, they reduced the time spent on inventory from a full day to just an hour and a half, allowing them to reconcile their books monthly. This timely tracking ensures they stay on top of their margins and make necessary adjustments quickly.

    3. Understand the Difference Between Debt and Equity on Your Income Statement

    Though debt and equity typically appear on the balance sheet, understanding their impact on your income statement can offer valuable insights. Think of debt as a fixed obligation—like paying an employee a wage, which you owe regardless of their productivity. Conversely, equity, such as a commission-based salesperson, is only compensated when they generate value. By leveraging this concept, you can structure your business to minimize fixed costs and maximize performance-based expenses, enhancing your financial flexibility.

    4. Maximize Return with Minimal Investment

    Big companies excel at leveraging other people's capital and resources. For example, instead of purchasing real estate, they often lease to utilize the landlord’s equity. A client of mine wanted to open a second automotive repair location but was concerned about the high equipment costs. I suggested they lease a nearby space and use it for estimates and customer service, while performing repairs at the original location. This approach allowed them to expand without a significant upfront investment and minimize their risk if the new location didn’t succeed. Always look for creative ways to achieve your goals with less capital.

    5. Understand the Customer Journey

    Knowing what drives your customers to choose your business is vital. Back in my corporate days, I encountered a small-town restaurant that didn’t accept American Express. As a result, I had to go through a cumbersome expense process, which discouraged me from returning. The restaurant owner likely focused on food quality and cleanliness, but overlooked the inconvenience caused to customers by not accepting certain payment methods. Always consider the entire customer experience, from their perspective, to remove barriers that might deter them from choosing your business.

    Final Thoughts

    I hope you find these tips helpful. If you enjoyed this, make sure you join my list so you’ll never miss any of my new content online: www.DavidCBarnettList.com 

    Cheers!

    David C Barnett


    Friday, July 12, 2024

    2023 HC#005 JB needs help finding a biz for sale video

     


    HC#005 JB is frustrated by not being able to find a good small business to buy. If you feel the same, you’ll want to listen to this. I break down proprietary search, broker channels and what a hard-working buyer needs to know about finding deals and why it can take so much time. If it was easy, everyone would do it. This is the least-transparent market on Earth and there are gems for those who aren’t afraid to invest time and money.

    2023 HC#005 JB needs help finding a biz for sale video

     


    HC#005 JB is frustrated by not being able to find a good small business to buy. If you feel the same, you’ll want to listen to this. I break down proprietary search, broker channels and what a hard-working buyer needs to know about finding deals and why it can take so much time. If it was easy, everyone would do it. This is the least-transparent market on Earth and there are gems for those who aren’t afraid to invest time and money.

    Wednesday, July 10, 2024

    Get into Biz 101 Ep 1 Integrity

     


    ***New Video Alert!

    If you’re going to be in business for the long term and grow, you need customers who think highly of you.

    This means they’ll refer you and buy again.

    But you’ll never have this if you lack this one crucial element… Integrity.

    I’ll show you how to maintain it in this week’s video:  https://youtu.be/hR-y5ceSjB0 


    Cheers


    See you over on YouTube

    David C Barnett


    Monday, July 8, 2024

    Live From small time crook to big league Wall St. Fraud! Author Gary Weiss

     


    From small time crook to big league Wall St. Fraud!

    New Livestream guest-> Investigative Journalist and Author Gary Weiss

    I’m happy to have Gary join me on a live broadcast.

    Gary is the author of RETAIL GANGSTER: The Insane, Real-Life Story of Crazy Eddie.

    Tune in and as we’ll be discussing the evolution of this small business person from a typical local small business owner to a big time Wall St. fraud artist.

    This is a ‘must see event’ for anyone interested in business and crime!

    You want to learn about Crazy Eddy’s frauds especially if you’ll be doing due-diligence on a business you might purchase.

    Be sure to join live so that you can ask questions, replay will be available.

    Set yourself a reminder on YouTube here: https://youtube.com/live/8-C5y26Hi6g 

    We’ll be going live Monday July 8 2024 at 1 PM Atlantic Time & 12 Noon Eastern Time

    See you there!

    David C Barnett

    Saturday, July 6, 2024

    How to Buy a Cash-Heavy Business with Unreported Income

     Today’s question comes from Jolson, who is negotiating to buy a cash-heavy business like a laundromat or dry cleaner where the seller doesn’t report all the income. Jolson wants to know how to make an adequate presentation to the bank to get a loan for this business, given the incomplete financial records. https://www.youtube.com/watch?v=8pVgc2u07pU


    The Unreported Income Dilemma

    First off, Jolson, you’re facing a common issue in cash-heavy businesses. Owners sometimes pocket part of the revenue without declaring it, aiming to reduce their tax liabilities. This practice, while not recommended, does happen. The challenge for buyers like you is that the financial statements don't accurately reflect the business’s true income, making it difficult to secure traditional bank financing.

    Why the Bank Won’t Help

    You’re correct in assuming that banks rely heavily on accurate financial statements to assess the viability of a loan. When the reported income is incomplete, the business appears less profitable and riskier, making it "unbankable." In this scenario, presenting these financials to the bank is not an option because the bank will likely reject the loan application.

    Vendor Financing: The Solution

    While traditional financing may be off the table, you can still make a deal to buy the business. The key is vendor financing. Here’s how it works:

    1. Negotiation: Explain to the seller that their practice of underreporting income makes it impossible for you to secure a bank loan. This is a critical realization for the seller to understand that all potential buyers will face the same hurdle.

    2. Vendor Take-Back (VTB) Financing: Propose a deal where the seller finances a significant portion of the purchase price. This means the seller loans you the money to buy the business, and you pay them back over time.

    3. Sales Warranties and Protections: To protect yourself, structure the deal with sales warranties. This ensures that if the seller’s claims about the unreported income are false, you have recourse. For example, you could adjust the purchase price if the actual income doesn’t match the seller’s assertions.

    Practical Example

    I’ve helped clients in similar situations. For instance, a client purchased a pizzeria where the owner was pocketing cash receipts. We used vendor take-back financing combined with sales warranties to protect the buyer. This approach provided confidence in the transaction and safeguarded the buyer’s interests without needing to rely on court actions.

    Running the Business Legally

    Once you own the business, I highly recommend operating it transparently and legally. Declaring all income not only ensures compliance with tax laws but also provides accurate financial records that can be invaluable if you decide to sell the business in the future.

    Final Thoughts

    Jolson, buying a cash-heavy business with unreported income is challenging but not impossible. Vendor financing offers a viable solution, allowing you to negotiate a fair deal while protecting your investment. For a deeper dive into buying businesses and structuring deals, consider taking my online course, Business Buyer Advantage. It’s a comprehensive guide that has helped hundreds of people and offers a 30-day money-back guarantee.

    If you have further questions or need personalized advice, feel free to book a session with me. 

    Many clients have found it extremely helpful, and you can read their reviews on the site.

    Thanks for your question, Jolson, and good luck with your business purchase! Don’t forget to subscribe to my email list at www.DavidCBarnettList.com 

    Cheers