Premiere - Who's going to own your small business with Michael Kerr

 

Who's going to own your small business 

New guest – Michael Kerr

I’m joined by Michael Kerr, founder of Kerr Capital and an Australian business broker and small business adviser, to explore why selling a business is far more complex than selling a house.

Tune in as we discuss business succession planning, realistic valuations, employee buyouts, community ownership, preparing a business for sale, and why key employees may be the most natural buyers.

We also examine the “silver tsunami,” the risk of vital local businesses closing, and how owners can create better exit options before time runs out.

This is a must-see event for business owners, buyers, brokers, advisers, and anyone planning a small business exit.

Join us live to ask questions. A replay will be available.

Set a reminder on YouTube:  https://youtu.be/VfNuUc4w0js 

It will be going live Thursday September 10, 2026 at 2:30 PM Atlantic Time and 1:30 PM Eastern Time

See you there!

David C Barnett

Should You Stick with the Same Business Broker When Buying a Business?

 This week’s question comes from Dustin, who asks:

“If I start working with a business broker to buy a business, should I stick with that same broker even if I find a business for sale somewhere else?”

Great question, Dustin.
Let’s unpack this by talking about how co-brokering actually works in the world of business brokerage. https://youtu.be/09ndJBQT6A8 

What Is Co-Brokering?

In real estate, co-brokering happens all the time.  Agents have access to Multiple Listing Services (MLS) that make it easy for them to show and sell properties listed by other agents. The MLS is designed to facilitate cooperation between brokers—so one agent can show you dozens of homes listed by many others.

But the business brokerage world doesn’t work quite the same way.

Why Co-Brokering Is Rare in Business Sales

When I was a business broker, I worked under an international franchise brand that technically encouraged co-brokering between offices.
But in practice, some offices refused to do it.

Why?
Because they wanted to keep the entire commission for themselves.

Here’s why that’s easy to do in business brokerage:

• Business listings are private.
  Unlike houses, businesses for sale aren’t publicly listed with names or addresses.
  
  

• There’s no shared MLS system.
  Each broker markets their own listings independently.
  
  

• Some brokers simply don’t get along.
  Personal differences can stop co-brokering dead in its tracks.
  
  

The end result?
Cooperation between brokers is the exception, not the rule.

What This Means for Buyers

If you start working with a broker and they show you a few opportunities that don’t fit, don’t feel obligated to stay with them exclusively.

You’re absolutely free to talk with other brokers who are representing other businesses for sale.
You’re not stepping on anyone’s toes—it’s just how the business works.

Every broker only has access to their own listings, and since there’s no central database, you’ll need to cast a wider net to find the right fit.

Why Relationships Still Matter

That said, there is value in building a strong relationship with a broker who understands your goals.

A good broker will:

• Learn what kind of business you’re looking for
  
  

• Understand your financial and lifestyle objectives
  
  

• Help guide negotiations between buyer and seller
  
  

That leadership and insight can often make the difference between a deal that happens and a deal that falls apart.

Final Thoughts

So to answer Dustin’s question directly:

No, you don’t have to stay with one broker exclusively.

Feel free to explore other listings and other brokers if it helps you find the right business to buy.

Just remember—the business brokerage world isn’t like real estate.
You’ll likely need to contact several brokers to see the full range of available opportunities.

Learn How to Buy a Business the Right Way

If you want to make sure you’re approaching your search correctly, check out my full online course at BusinessBuyerAdvantage.com.

It’s a full-day workshop that you can take at your own pace, and you’ll get lifetime access to all materials—so you can review and revisit whenever you need.

👉 Want deeper dives like this? Join my email list at DavidCBarnettList.com  for early access to videos, insights, and 7 free bonus gifts.

— David C. Barnett

Why You Should Never Pay a Seller for Future Potential

 I want to talk a little bit about business valuation, specifically when you’re buying an existing franchise location—and how to avoid one of the biggest traps buyers fall into: paying for future potential instead of proven performance. https://youtu.be/Yu1xkgI8X9I 

The Franchise Valuation Case

I was recently hired to evaluate a franchise restaurant that was for sale.

When I perform a business valuation, I start by normalizing the income statement to calculate Seller’s Discretionary Earnings (SDE)—the total cash flow available to an owner-operator.

That SDE needs to be enough to:

1. Pay the owner a reasonable salary
   
   

2. Cover any loan payments for the purchase
   
   

3. Provide a return on the buyer’s investment

4. Cover CAPex needs as machinery and equipment wear out
   
   

Once I have that SDE, I compare it to data from hundreds of past business sales—properly normalized and tracked by the International Business Brokers Association (IBBA).

In this case, the restaurant’s cash flow supported a valuation of about $175,000. That represents the enterprise value—the business plus its inventory, working capital, and equipment, but not including real estate (since it was a leased location).

The Problem: Renovations and “Future Growth”

Because it’s a franchise, there were some obligations tied to the sale.

The franchisor required the new owner to complete a $100,000 renovation and pay a $30,000 franchise fee for the latest décor and menu updates.

The seller and their broker claimed these upgrades would increase sales by 20%—and therefore, profits would rise too.

So, they were asking for $150,000 for the business, plus the $130,000 investment for the upgrades.

What the Buyer Was Really Paying For

Here’s the thing: the only thing we know for certain is the cash flow that exists today.

If you agree to pay for the business plus invest in renovations because someone told you sales “should” go up, you’re essentially paying the seller for your own hard work and risk.

That’s not smart buying.

As I always teach in my business buyer seminars:

You pay for what you get. You buy for what you believe you can create.

But you never pay the seller for the future potential that you have to deliver.

The Reality Check

So I told my client:

If the cash flow supports a value of $175,000, and you have to invest $130,000 after buying it, your offer should be $175,000 minus $130,000 — or roughly $45–50K.

He made the offer.

And of course, the seller said no.

The business has now been sitting on the market for over two and a half years because nobody is willing to pay for blue sky.

“But I’ll Benefit From the Renovation…”

My client asked a fair question:

“Shouldn’t I pay a bit more since I’ll benefit from the renovations?”

Here’s the logic I shared:

If those renovations truly guaranteed higher sales and profits, the seller would have already made them.

They’d spend the money, see the higher profits, and then sell the business for a higher price.

But they’re not doing that—because they know it’s a gamble.

They want you to take on that risk and pay them as if the results were already proven.

That’s not how smart buyers think.

The Bottom Line

When evaluating a franchise (or any business), pay for the results that exist today, not the story of what “might” happen tomorrow.

If a franchisor or broker is trying to sell you on “potential,” remember: Potential is free. Proven cash flow costs money.

👉 Want deeper dives like this? Join my email list at DavidCBarnettList.com for early access to videos, insights, and 7 free bonus gifts.

How Many Years of Results Should You Average When Evaluating a Business?

 I got a great question from Bob the other day about evaluating businesses. Specifically:

👉 “When looking at a business, how many years of results should I average together to figure out the right numbers—three, five, or more?”

The short answer: it depends. And here’s why. https://youtu.be/2To6nl7GIuw 

Why Simple Averages Don’t Work

Many buyers want to take three or five years of sales or profits, average them, and use that as the baseline for valuation.

The problem? A company three, four, or five years ago may be very different from the company today. Markets change, customer bases shift, management evolves, and growth (or decline) can dramatically alter performance.

That’s why I prefer weighted averages, with the most weight placed on the most recent year.

1. The Growing Company Example

Imagine a business that’s been consistently growing year after year.

In this case, the most recent year tells you the most about how the business is performing today. I’d weigh it heavily—say 50% on the latest year, maybe 20% on the prior year, and smaller percentages on the earlier years. If you have a reliable forecast and you’re already into that new year, you might even give it some weight too.

Key takeaway: A company with steady growth deserves more weight on the latest results.

2. The Declining Company Example

Now, flip the script: sales and profits have been dropping year after year.

If you’re the seller, you’ll want to argue for averaging several years to make things look stronger.
If you’re the buyer, you should weigh the most recent year much more heavily—maybe 85% current year, 15% forecast—because that declining trend is the reality.

And before you even crunch numbers, ask: Why are sales falling? Is it poor management you can fix, or is the industry itself in decline (think video rental stores after streaming)?

Key takeaway: Always pay for what the business is today, not what it was in the past.

3. The Uncertain Trend Example

Some businesses bounce up and down without a clear trajectory. Maybe it’s seasonal (like a ski resort tied to snowfall) or cyclical.

Here, I’d still weight the most recent year the most (say 60%), but sprinkle in more from prior years to account for variability.

Key takeaway: The latest year still matters most, but past fluctuations give context.

4. The Rapid Growth Example

Finally, what if the business is growing explosively—30%, 50%, even 100% year-over-year—thanks to unique products or intellectual property?

In this case, the company today looks nothing like the company even two years ago. I’ve worked on deals where we weighted 80% to the latest year and 20% to the forecast, with the understanding the valuation would need to be updated frequently as the business kept changing materially.

Key takeaway: Explosive growth businesses get valued mostly on the here-and-now, and they’ll often command a premium multiple.

So, what's the Rule of Thumb?

I never simply average three or five years. Instead, I:

• Weight the most recent year most heavily,
  
  

• Consider forecasts if reliable, and
  
  

• Reduce weight as you go back in time.
  
  

Because ultimately, what matters is:

• How the business operates today,
  
  

• What it’s likely to do in the near future, and
  
  

• Whether its trajectory is up, down, or uncertain.

Learn More

If you’re serious about buying or selling small businesses, check out: My Business Buyer Advantage course at BusinessBuyerAdvantage.com

👉 Want deeper dives like this? Join my email list at DavidCBarnettList.com for early access to videos, insights, and 7 free bonus gifts.

Off-Balance Sheet Financing in Gas Stations: A Hidden Risk (or Opportunity)

 When evaluating a gas station, I came across an interesting situation that perfectly illustrates why buyers need to dig deeper than the income statement. https://youtu.be/PNGKaRg9uWU

Here’s what happened:

⛽ Two ways gas stations work with fuel:

1. Buy and resell the fuel (you own it).
   
   

2. Dispense the oil company’s fuel for a commission (per liter/gallon).
   
   

In this case, the owner had accepted money from the oil company to replace tanks and pumps. Instead of recording that advance as a loan, the repayment was buried in the operating results:

• They earned just 1¢ per liter, while the industry standard was 2.5–3¢ per liter.
  
  

• Why? Because the oil company was deducting repayment from their commission.
  
  

On paper, the business looked weak.

 In reality, once repayment ended, profits would rise dramatically.

👉 The accounting problem:
They should have:

• Recorded full commissions as income
  
  

• Shown the oil company’s advance as a loan on the balance sheet
  
  

But because it was buried, the business looked like it was underperforming.

💡 Key Takeaways for Buyers

• Learn industry benchmarks (margins, cost structures, typical commissions).
  
  

• Watch for off-balance sheet obligations — they distort performance.
  
  

• Misstatements aren’t always bad news. Sometimes they hide upside.
  
  

This gas station wasn’t struggling — it was on the verge of becoming more profitable once the “hidden loan” was repaid.

📚 Want to go deeper?
Check out my program: businessbuyeradvantage.com — a course on how to properly analyze and buy small businesses.

Don’t forget to join my email list for early access to my latest videos and insights at DavidCBarnettList.com . You’ll even receive 7 FREE gifts when you sign up.

– David C. Barnett