Ted Robertson, Host, KRDO’s Business Connection:
Welcome to KRDO’s Business Connection. I’m your host, Ted Robertson. Joining me this morning is Mr. Rob Amerine of The FBB Group. And The FBB Group is all about selling businesses, or a business brokerage. Is that… am I on point there, Rob?
Rob Amerine, CBI and Broker Associate, The FBB Group:
Yeah. Ted, thanks for having me. We were established in 1982, so we’ve been here through thick and thin, and we basically work with sellers to sell their businesses. We work with many buyers, as you can imagine. And I myself have been doing this for now coming up on seven years, and we have a lot of tried and true processes we put in place, and we want to help owners retire, and also buyers finding good businesses to buy. There are a lot of businesses out there right now for sale, and not all of them are worth what they’re asking or are going to do well, especially through these hard economic conditions.
Ted:
And you are what is called a Certified Business Intermediary. Talk about exactly what that is and what you do to make sure these transactions work for everybody involved.
Rob:
Yeah. The CBI designation is basically a course that we need to take to be certified to sell businesses. And it takes us through evaluations, it takes us through the do’s and don’ts, the best practices. And in terms of looking for someone to sell your business, you really want to look for that because that gives you good confidence that they’re accountable, and that they’re going to look at best practices for basically the whole transaction process – not just from marketing the business, but taking it all the way through the close and making sure that everybody gets to the finish line.
Ted:
Absolutely. Okay. So it’s a complex world you live in. You have to build a story around a business that you are marketing. It has to be compelling. It also has to be factual. So you’re spending a lot of time vetting that business that wants to be sold and be presented to buyers, which is… you do both of those jobs. Let’s talk about, leading up to that moment in time, why core business fundamentals are so important if you are the business owner and you want to prepare your business for sale.
Rob:
Okay. Yeah. So the fundamentals are what most buyers and lenders go to. You’ve heard the term “blue sky” and those things that are more future-looking. And, of course, we don’t know what tomorrow is going to bring, but those business fundamentals are what buyers really are attracted to. So, a business that focuses on good financials, a strong balance sheet, the right trends with the profit, and just good management of their entire process. And that includes having a good bookkeeper and a good accountant and having those things in place for years prior to actually selling the business.
I can tell you, Ted, that what happens a lot of times is that sellers are looking to sell, and they haven’t put those things in place, and they really go out to the market with a disadvantage and are unable to really get the value that they should be able to get if those aren’t in place, say at least two or three years prior to going to sell their business.
Ted:
And that’s when you’re really trying to meet folks like that, they’re into their long-term planning phase. And how soon into this process do you want to meet them? Three years, five years? Are you working with business owners that far ahead to help them prep their business and get everything ready for that transition?
Rob:
We are. Yeah. And a good example is a business I sold back in 2016, where the owners came to us in 2011 to say, “what do we need to be ready to sell in a few years?” No one knows when that’s going to exactly happen, but say, three to five years out is good timing. Of course, this was in 2011, and we have, as you can imagine, a lot of history of clients that we’ve talked to over the years, and we see that process time and time again. When they have prepared their business to sell three to five years out.
This example I’m talking about, they were ready to sell. We actually sold it in a matter of months and not years. Sometimes, the average is about a year to sell a business, and we sold it in a matter of three or four months for an all-cash buyer. And I just talked to the clients – our clients that sold – last week and they’re building their dream home still and continue to do that, that we were able to get them out of Colorado, and they got to go where they wanted to go.
Ted:
Yeah. That’s a big wow. It’s a very big wow. In other words, somebody who’s worked for many years to build up equity in their business, make it profitable and keep it sustainably profitable. What are some of the key elements that I’m looking for as a buyer? So, in other words, you want to have a business that you’re representing that can turn a profit pretty quickly for a new owner.
Rob:
Exactly. Yeah. And you can imagine we get approached by a lot of businesses looking to sell. And a lot of times we just have to say, no, we can’t help you until these things are in place, because we know buyers are not looking for those types of aspects of the business. One of them could be a high-client concentration. Say you have a business where maybe over 30% of the revenue comes from one client. So your job as an owner is to get that percentage down so it’s not seen as a high-risk to buyers.
Another example is just making the business relocatable, especially with what we’re going through right now, with needing to move and not being able to be around so many people. Having something you can relocate to a different area is really important. Now, that can be hard because businesses are sometimes tied to local clients. But if you can diversify your client base enough to reach out to show that there’s not a lot of risk in moving the business, that’s very attractive as well.
Ted:
Well, there are things in the world that we can count on, and one of them is that we can’t count on things, especially economic conditions. And we are in the midst of a viral pandemic right now that is affecting businesses in very profound ways. Market volatility can impact the business transaction process. But at The FBB Group, and Rob, for you, can it stop the process cold?
Rob:
It can for businesses that are just scraping by, right? And unfortunately, we’ve seen a lot of businesses that have come to us over the years that are now having… they didn’t sell at the right time. They held it for too long, and now they’re having to basically close the doors because they want to get up to a certain point to sell it. And of course, this downturn is really going to affect them. And if they can make it, a lot of them, I think, will make it through this. But the ones that are just getting by, they just don’t have the ability of the cash flow to do that.
For example, I have a business that we were under contract with, a real estate, recently, and they decided to close the doors for right now, but they are able to do that. They’re going to be fine. They’re going to open back up when things get better and because they’re doing so well, they’re going to be fine. And we’re just going to pick up where we left off here in about another 30, 45 days.
Ted:
Rob, there’s the $64,000, or $64 million, or $64-something-in-between question. And I mean profit on the sale of the business so you can build your dream home, for example. How does a business prepare itself for economic volatility?
Rob:
I would say volatility is always relative. We’re going through a massive change right now. I just check the stock market every day. But small businesses themselves, the volatility leads to buyers looking for opportunity as well. One thing I noticed that as we’re coming into the last couple of years of this very great Bull market we’ve been in, is that a lot of buyers were standing on the side lines. They’re waiting for a downturn to happen. And so now I still get a couple of buyer inquiries a day, even in this volatility, because buyers know that now is the time to get into something because there is this correction that has happened. So a lot of buyers with cash, there’s a lot of cash reserves out there, a lot of “dry powder” for buyers coming in. And now is the time to protect your value as a seller and continue to move forward with best practices.
I’ve listened to lenders that have basically said, “how are we going to address this?” And I think everything’s going to have an asterisk next to it for March, to say this is uncommon. What did it look like beforehand? And if we can get up and running and show some good traction for maybe a couple of months after this all settles down, then things will continue to go forward. But that’s why the buyers are going to be in the market, and the sellers still need to sell. That’s always going to be the case.
Ted:
Well, I guess in the most basic terms in which I can express this, a business’s bones can be very good. Its foundation can be generally good. It can be well-built to turn a profit. And somebody who is not wanting to pay full price could wait for a downturn like this and could be looking at a well-structured business like that.
Rob:
Yes. Exactly. One thing that I think we’re going to see more of now because of the volatility is that buyers are going to be wanting more of these sellers to carry a bit. They’re going to want them (to put) a little more skin in the game to mitigate that risk going forward, because we don’t know what this is going to do long term, short term right now, but I think we’re going to see more of that where even the banks are going to say, Well, let’s have the sellers carry a bit.
Prior to this, we weren’t seeing many sellers carrying much of the purchase price back. The SBA would fund the entire transaction, and we would have pretty much all cash for our buyers, or say 95% cash for our buyers. So I think there’ll be a little bit, but not much. That’s what we want to fight against. That maybe it’s 10-15% seller carry. So for our clients, we’re going to be educated on that to be prepared for that, because that’s how you help hedge the risk for both the buyer and the lenders.
Ted:
All right, Rob, thank you. Certified Business Intermediary Rob Amerine for The FBB Group, buyers and sellers or business brokers. Rob, a quick way to get a hold of you if business owners are interested in talking to you right now?
Rob:
Yeah. So the easy way is we just launched our new website or updated website. It’s called fbb.com (short for First Business Brokers). Of course, our name is The FBB Group now, we rebranded about four or five years ago, and so that’s a good way to get a hold of us, see our team, learn more about us. Of course, you can email me at rob@fbb.com or you can call 719-635-9000.
Ted:
Rob Amerine, Certified Business Intermediary with The FBB Group. Thanks for spending a little bit of your time here with us on KRDO’s Business Connection.