How2Exit Episode 44: David Barnett - Author, Speaker, Seminar Host, Consultant, Coach, Educator.

Ronald Skelton  0:06  
Hello, and welcome to the how to exit podcast where we introduce you to a world of small to medium business acquisitions and mergers. We interview business owners, industry leaders, authors, mentors and other influencers with the sole intent to share with you what it looks like to buy or sell a business. Let's get rolling.

Hello, and welcome to the how to exit podcast. Today I'm here with David Barnett. He's a mentor, author, speaker, educator, seminar host consultant, and he helps people buy and sell businesses. So hey, man, thank you for being on the show today, David. I, I was telling you, before we hit the Go Live button, I've consumed your content for quite a while now. You've got a pretty extensive collection of stuff out there. And it's just something that helped me get into the search history. So I want to thank you first for being here.

David Barnett  1:00  
Oh, thanks, man. It's, you know, I've been putting that step out for a really long time. I think I started my YouTube channel back in 2014. And the whole point and purpose of the channel, really is just to spread information to help people avoid getting into trouble with with ideas.

Ronald Skelton  1:21  
I seen you got quite a few books out there. One that caught my eye as we might we'll talk about this a little bit later in the show. But the 21 Stupid things people do when they're trying to buy a business. So I'd like to hear a few of those when we get into it. But let's just start off kind of, you know, like, I always joke around and tell people like, well, you know, you were born and you wandered around the Earth, and somehow you ended up on my show. Could you fill out the gap in between? So what is your origin story? How did you get into this space?

David Barnett  1:44  
Well, it's a great story. You know, I think that most people are supposed to have some kind of like tragic story about how they ended up, you know, down in the dirt, and then they recovered and they've got a secret to share with everyone. And, you know, my my story is that I was born to a young unwed mother, and then I got adopted. So that's, that's how I solved my problem at a very young age. But as as I grew up in my, in my adoptive family, which was really in, and perfect childhood really.

I began to, I, it was never secret that I was adopted. I began to realize just how different I was from my adoptive parents. And so my dad who raised me was an electrical engineer and had an engineer's mind and was always trying to figure out problems and how to fix things and, and very quiet, you know, kind of person and, and my mom was a very stereotypical homemaker type of mom, who was spent her time on, you know, at the house and made lunch for us every day when I was in school to come home for lunch kind of thing. So, a really, really great environment. But more and more I would see problems in the world and want to figure out how I could do things better and make money at it. And I remember my first real hero icon was that on that TV show, remember Michael Peake heating? Was that his name? The the young kid, who was the capitalist there on that sitcom. I forget the name of the sitcom. Like, I realized, yeah, I'm all about business, I want to be in business. And so when I finished university, or finished high school, I went to university and I studied business, believing that getting a business degree would turn me into a business man. And was in there for about three years before I realized that what they really do there is they turn people into what I now call fortune 500, bureaucrats. Which are these middle management people in these big companies. You start sitting through these classes, where you're learning about case studies about whether or not GE should enter this, you know, foreign market. And you realize, wow, this has really got nothing to do with what I'm interested in. Which are all these businesses, I see when I'm driving through a city, like the street level businesses that the tire service guy, the, you know, the hair salon, or the company that makes something a small factory or whatever. And so my real education and while I was a kid, I had all these little childhood businesses. Cleaning snow off people's driveways, and delivering newspapers and things like that. But when I finished university, I had a real opportunity. And that was I went into sales with a yellow pages publisher. And this was a huge eye opener, because I actually got to sit down with and talk with the owners and managers of all those businesses I just mentioned. The real world businesses that you run into every day, and this was at the end of the 90s. And so Google was around, but if you typed plumber into Google, no matter where you are in the world, you get a plumber in California, because they hadn't figured out how to localize search yet. And so those yellow pages were really important for those local businesses because if you came home and there was a leaking pipe, you had to grab that book to find a plumber, not in California, but someone who could come over and fix your problem right away. And so that was where I really developed sort of a wide level of, you know, that mild wide, mile wide inch deep kind of expertise into all of these different kinds of businesses, and learning what kinds of customers they wanted. And, and then I learned how I could help them get those customers, you know, either through yellow pages, or through doing other stuff. And this is all kinds of neat lessons I learned in those days, about sales, about presentations about empathy, and understanding other people's points of view and what they want to get out of the transaction. And it was really interesting, because I had some very good mentorship and leadership. In my years of Yellowpages, I was there for seven years ultimately. And one of the things that I learned is that you don't go looking for a customer today, you want a customer for a decade. And the way that you do that is by providing value, providing good service and, and, and giving somebody what's actually going to help them. So I remember I would have someone who would buy a moving truck and want to put a full page ad in the phonebook, for example. And I'd have to say to him, like, if I let you do that, number one, it's gonna be very expensive on a big commission, it'd be great for me, but you won't be able to handle the calls. And it's going to damage your reputation. And you need to grow into this. And so I would advise him to start off with something smaller. And so it was a great experience. I knew though that the days of yellow pages were limited. Google was learning quickly how to fix the problems to become what it is today. And so I left Yellow Pages. And I got I started a business with a partner. And we grew that business for about two years before I realized that my heart wasn't in it. And that's when I took the program to learn how to be a business finance consultant. And I started to help businesses grow through getting financing. So I was brokering equipment, loans and leases. I was brokering factoring facilities, which is the sale accounts receivable, helping people get bank loans, lines of credit, that kind of thing. And that's where I started to meet people who are looking for money to buy existing businesses. And I very quickly realized that that market was underserved. I was meeting people who had these deals put together that were not put to do together very well by people who didn't really know what they were doing. People like real estate agents, and sometimes even accountants or attorneys who, who had no experience in putting these kinds of deals together. And I saw people losing their deposits. I saw people buying businesses without any concern or understanding of operating capital requirements. I saw people doing deals where they really didn't have a frame of reference or understanding of how to put the deal together. And they were over valuing the business that they were buying. And I wasn't an expert at the time. But I saw that there was a gap. And so I needed to make a change. And I made the pivot into business brokerage. And I joined up with one of the big international franchise brands in that space. And the reason why I chose them was because they gave me access to education. And so I joined an office as a broker went and got my certification from one of the big international associations, and started to help people buy and sell businesses. And Business Brokers is exciting and interesting and it's a terrible business.

It's entirely contingency driven. So people list a business for sale, you might charge them some kind of fee for preparing the business for sale. And then you get paid a commission when the business is sold. And sometimes it can take years to sell a business. And you can spend a year working on a deal but to have it fall apart, because of things entirely outside of your control or even that of the pirate zone. And so in my last year as an office owner, 2011, I'll tell you the story because it sums it up really well. At the end of August 2011, I had six deals lined up for the fall, they were bringing a quarter million dollars of commission earnings. One deal fell apart because it was a franchise business. And the franchisor was a real jerk to the buyer. And the buyer said I love this business, but I will not get into business with those guys so that deal fell apart. Another business was in a regulated industry. So the buyer needed to obtain a license from a government agency, and they wouldn't issue it. So I don't know why. It may be something in the buyers background or I don't know. But that was another deal that fell apart. And then the third deal the buyer obtained a finance letter from a bank, who then later rescinded that. They said yeah, you know we should do that, that finance letter, but now we're being told by head office that we have too much exposure in that industry and we're not going to do that. So that deal fell apart. So my six deals with a quarter million dollars in revenue turned into three deals with 110,000. And that 110,000 was enough for me to fill my holes, like in my finances, because people get into into business brokers, because they've seen that business brokers charge 10 or 12% commission, and they figure, wow, I'm gonna sell a million dollar business and earn $100,000 cheque. What they don't appreciate is that you can spend 18 months working on that deal, and how do you pay the bills, how you eat, you end up using lines of credit and credit cards. And when you sell the business, that money doesn't end up being a pile of cash, or is it become your Scrooge McDuck Money Pit money that you can go swimming in. It goes to the credit card company in the bank or line of credit. And so you work really hard on trying to do these deals, you end up in the red, you sell a business, then you get back to black and, and you're afraid to spend money, because you don't know when the next cheque is going to arrive. And then you slowly creep back into debt. So I had an opportunity to read the industry. And I did, and I went became a banker. And so it was over the course of the next two years, I started to build up this little side hustle, that's when I started to say you know what, I could use some of my knowledge in other ways. That's when I wrote my first couple of books that are there on Amazon today. And I started the YouTube channel around 2014, mostly to promote the books that I've written. And then the bank wanted to reorganize, and I realized, oh, there probably be offering packages. And by this time, the side hustle, I've grown into five figures of income every year. And I realized, Hey, I could actually turn this into a full time business again, but a very different business. One that's not related to getting the deals done. One that's simply me offering my expertise and guidance to people helping them go through this journey. And that's what I did. So the bank did offer me a package ended up on a continuance, which is simply they kept me on payroll and benefits for a few months, while I went and found another job instead of use the time to build this business. And I wrote a couple of books 21 stupid things, will be one of them, and set up similar websites and really worked on my online content. And I started to develop this clientele from all over the place of people who just wanted me to help them on their deal. Whether they were buyer's or seller's and wanted, you know, to invest a little bit of time and effort and money with me to avoid making the $100,000 mistake. And that's what I've always positioned myself as is is kind of like insurance, you know.

I now worked on hundreds and hundreds of deals, going all the way back to 2008. I was a broker during the last great recession that we went through. And I work with new people every week. And a lot of the times the extent of my work on the file is simply to go through things with people and then show them the things they don't see which I seek listen to them over and over again, and point out the hazards that they're not aware of. Now, one of the things that I think you talk about all the time on your show, is why would you start by businesses that are starting one. And we all point at the risk factors in starting a business and how if you buy a business, you already have the clientele and the systems and all that kind of stuff. But if you buy a business under the wrong circumstances, if you structure the deal incorrectly, you could end up buying a business with all the same risks of doing a startup. And and most people are not aware of that, especially if they're new to the game if they're just coming on the scene. And there's a big difference between someone who decides to buy a business or grow an existing business that they've got 15 years experience running. No, that person has the lens of an experienced business operator that they're really looking through, versus someone who has always had a job somewhere. And they decided that they're going to enter the world of entrepreneurship through doing an acquisition. And not only are they new to buy a business, but they're also new to the operations running, etc. And that's where there's a real experience gap that opens people up to making mistakes.

Ronald Skelton  14:22  
Yeah, got it. It's a lot of things have changed in that you're talking about the Yellow Pages kind of caught my eye it was because I had an intern here a guy found me online. He lived here, where I live in Tulsa, Oklahoma. And he said, Hey, I'd like to come up to the office to talk to you. And he wanted to figure this out and that he just sold a boxing supply company. He was a boxer, a professional boxer that he owned a company that sold sporting boxing gear. He's sold that and he was looking for his next venture. And he he was he's like I'm really good at cold calling. I want to do cold calling like I don't do cold calling but you can he goes Can you give me some leads? That's it. Absolutely. So I take a big yellow pages, I stuck it over on his desk. And he's like, why would you give me this? I said, because anybody that's still advertising in that has been in business for 10 to 15 years or more, and they're more likely to sell. Right? It's kind of an antiquated product. But if they're still advertising in it, they've probably done it for the last 20 years. And that's a good place to start. Because he was looking for, you know, brick and mortar type stuff, you're just not going to find on LinkedIn as much, right? I'm in Tulsa, Oklahoma, I own a few things. One of the things I own a pest control, there's 30 of those in this town at least, and four of them I can find on LinkedIn. Right? So but I can find them all in the yellow pages, right. So in, you know, he was here for two or three weeks and made some calls, and he's gone now. So I'm suspecting, he told me he had something we worked him through some of the conversations, and then he hasn't been back. So I think I think he got his hands on, he's working now. But uh, that's it was just one of those, he did a little bit of work for me. In exchange, I answered questions for him. But uh, nowadays, I, you know, I still take the yellow pages when they drop them off at my door. But if I'm looking for something, like I have a buddy here in town, this look for auto service companies I did to that. And then I see if I can find them online. And I can see a little bit more about them or whatever. But it's pretty quick to take a look at who's been around the longest. A lot of them will do it just for you. It'll say in business for 21 years, right and their ad, right.

David Barnett  16:25  
So what when, when I was at Yellow Pages, one of the one of the amazing things about the organization, and I don't know if this is common everywhere, but for the publisher I worked with, they were very sales training intensive. So we had five or six weeks of training before we spoke to our first prospect. And then every year, we had development days where we would learn more and more stuff. And one of the interesting things that we learned is that they have done research and studies and all kinds of things. But it's about buying habits. And so we learned when in a person's life, they were more apt to use the yellow pages, and it has to do with life events. So young person leaving home for the first time is all of a sudden has to suddenly get into the market for things they never bought before because your parents took care of it. So if you're selling today, something that could be purchased by somebody who's buying habits were formed in that time, those moments in their life. And if those moments were pre 2000, you're probably talking about a market that is still using the elevators. So I know someone who started a brand new maid service, and one of their target markets were this baby boomer demographic, these older people. And so this is a brand new business that couldn't add the elevators. And they told me it's driving 70% of their inquiries. And so but it's because the users of the book fit that demographic, their buying habits were created beforehand, they're much more apt to reach for that book, rather than open up their smartphone. Some of them don't even have smartphones. Right? And so it's Who am I selling to you that yellow pages is gonna be with us for a while longer, I think, but not forever.

Ronald Skelton  18:04  
Yeah, for one of my businesses, I ran ads last year, we got a couple calls off, not what I expected. I really expected more from it. Because I tracked I gave it a different phone number for the print version as I did for the online. And I got, you know, a decent number of appointments from their online version of the Yellow Pages. But I think in the entire and pest control is usually active anytime it's warm. So early spring, right right now, the guys are busy. I got four text messages this morning that they're out doing at jobs, you know, but you know, during the here in Oklahoma anyway, about mid November, it starts cooling down the business pretty much shuts down unless it's pretty much cockroaches and in bed bugs in. But yeah, the I love the customers, I do get out of it, because they're usually 55. Plus, they're accustomed to paying their invoices when they get them. And my younger millennials are like, Oh, just send it to me via email than I have to. Like, you know, there's a there's a tag game that gets played. Of getting that done. Right. So oh, I didn't see it. Like yeah, you did. I did a little tracker, and I can see you open the email. Right. So you can't say that to him. But so yeah, it is different. If you've got I think if you I think it's still valid, especially for very particular industries to is like the if I was a real estate agent for certainly right, especially if I if I catered to the higher end markets, because you know, here in Tulsa, like this number is gonna sound low. So I tell everybody, we're live. I don't know if I've ever said that on the show. I'm in Tulsa, Oklahoma. And because I'm about to tell you that I can get a decent house here for 250 to 300k. We're I'm about to move in two weeks from now I'm moving to Sonoma Valley, California. I can't get a shock for that there Right. Like you can't, you couldn't get a condo there for 250 300k. But if you're going above that here in Tulsa, A it's chances are your fair most likely you're you're either a doctor, a lawyer, or you're you know, 55 plus, and you're fairly established. So if I was a realtor and I wanted to target that, that crowd, that demographic absolutely would have a big huge display on there. The issue is your display is, you know, side by side with everybody else. And it's a jockey of who could spend the most to have the best looking at to where is on like, I guess it's the same for you think about it. Like, technically, it's the same on Google or anything like that. Because your

David Barnett  20:34  
search terms, you know, you write the Google keyword.

Ronald Skelton  20:42  
You're either jockeying for position like you would inside of the print media is like you paying for ads and try to get a better spot. Right. And then online, you're doing paid ads, and like pay and SEO people to try to get a better spot. So I guess the summat the the method of doing it's changed, but the necessity of just being right there beside and buried within everybody else is still there. So let's jump in a little bit about just that keep kept in mind this 20 Because I'm out looking for buying businesses, I've taken a few courses from different people. But when I see something that says 20 was stupid things people do when they're trying to buy a business, I want to make sure I'm not doing some stupid things. So give us some of those, what are some of the stupid things we do when we're out there looking for businesses? Well,

David Barnett  21:27  
you know, one of the things like if you're out there looking for businesses to buy, then you might end up on one of these websites where businesses are advertised for sale. And you might end up talking with a broker, for example. And so what one of the things that is in there is confusing, what's called sellers discretionary earnings with money in your pocket. Because when you start to get out there in this world, this SDE number, there are other terms that mean essentially the same thing, it's, it's the amount of money available to an owner operator that works full time in the business. But here's the problem is that it's not all money that ends up in your pocket, because certain things have to come out of there. So the number one thing that has to come out of there is somebody for you to live on. So you got to take home a salary because this Ste number is assuming you're at work full time in business. The next thing is any debt service. So if you borrow money to buy the business, you got to make the payments that are the STE were the one that people often forget about his getting some kind of return on the cash he put down. So if you if you put you know, 3050 100 grand a year on cash down as part of the acquisition deal, you need to get a rate of return on that money, and you have to be able to pull that money out too. So that's in addition to your what's called the salary and the debt service. And then there's two more Uncle Sam, so that that Ste number is always based on EBIT, da which is pre tax. And so if you're gonna be making money in the business, then you're gonna have to pay tax, and depending on your legal entity structure, etc, you're gonna be able to figure out what that tax bill is right? So you gotta pay tax. And then the other one that is kind of sneaky, where people deceive themselves a lot, is that last two letters of EBIT, da da, depreciation and amortization. So, depreciation and amortization are how accountants recognize things wearing out. So if you buy a truck, it's a lot of money. It's not an expensive the year that you buy it, you depreciate it over time. And this ends up being called depreciation, or amortization, depending on what it is. Now, under the tax code, the government lets you do accelerated depreciation. And this is, it's an incentive to get the economy humming. And so because of that, what you find in some of the statements being the depreciation often doesn't relate in any way to the actual wearing out of stuff. And but what the point I want to get across is out of that Ste number, you have to create an allowance for replacing things, whether that's the idea that you're going to outright buy something every couple of years, or you're going to take a payment out to maybe make a lease payment on something new, a new delivery truck for business. It really depends on the type of business and people will get into trouble looking at the SPE when they start to look at capital intensive businesses. So people will see a business that has a lot of big equipment, trucks, buses, what have you. They'll look at the STE number. They'll offer a multiple of Ste and think that they're getting a good deal. And then they need to like replace one of those big pieces of equipment. And very quickly realized this comes out of the STE number. So it's not true cashflow. So that's one of the biggest ones.

Ronald Skelton  24:41  
I think one of the problems is people go out and do this. They're not looking for big enough businesses, they think they can acquire something much bigger than maybe even outside of their comfort zone. There's a I have a good friend who are helping do this right now. And he's like, Well, I've got this amount down Licious Scope. Buy something in, you know, this whole half of it and reserve this buy something that, you know, fits that model. And the, you know, some will care, what kind of income would you like to have? And when I do, you know, about $150,000 a year out. I was like, okay.  So I'm looking for something with a, you know, EBITDA of you know, three to 400. He's like, why it's 150. I said, Yeah, but you're, you're thinking take home, something you could use a live on. And you got to, like, we walked through there, there's taxes, there's expenses, you know, and he was digging through, like, biz, buy, sell, and some of those sites out there, and I was like, Wait a second, you got to remember, just because they say the numbers a certain thing, there's gonna be a lot of adjustments. By that time. It's like, we're gonna if we're looking on there almost double what we're looking for it. He said, Why is it just most of the picking on brokers and most of that number, let's just say it could be very inflated, right? There's not very many of those deals where I haven't seen where we had to adjust something. And I have, like, I've talked to hundreds of people. Usually, there's some adjustment needed to be done. You know, I was, here's a great example, this might be in your book. Seller, the seller actually is carrying more than one job. Right. So the owner is like, yeah, you know, I put my salary back in, you know, $100,000 a year, I'll say, Cool. What do you do here? He says, Well, I'm the head sales guy. I'm the head engineer. And I'm the head, you know, which I'm all of none of those. Right? So I'm thinking that he gives you lift, and he's the repair. But this was the one I keep. I brought it up on the show before people have heard this one before. But this guy is a machine shop. And he was the head sales guy. He was kind of the HR guy, because he hired and fired everybody. There's about 30 people 30 or 40 people in this shop. Depending on the time of the year, he had seasonal workers come in. And then when he was busy, he had people that come back, they were semi retired. But anyway, he helped me people come in. So at certain times a year you have more people and I said, Oh, cool. Like, tell me about the staff. And he ran through everybody when everybody did. And I said, Well, you got to let machinery out there and everything. You haven't you just do a service, like you have a company that comes into service. He goes now if something's broke, I go fix it. I'm like, Okay, I don't know how to fix your machine like this. They're making machine. When I say machinery, they're, they're leaving metal and stuff, right? That's a machine shop. And I was like, I don't? Yeah, I was like, I was like, Well, are you a licensed electrician like this? That's three phase. Equipment is like, No, I've been doing this for 35 years, or 40 years, or whatever the number was. And I was like, so he had added about 100 grand back into his him and his broker friend, it was a buddy, his it's just became a broker, they'd added his salary back in, right. And what they should have done is tripled it because you know, anybody else that higher yield goes in there unless you run in another machine shop for 25 years. And you can go fix all that and carry those three hats. You're replacing him with two, maybe three people, that's if you're going to work there full time.

David Barnett  27:49  
A lot of businesses that are sold, or that are up for sale, really have a very limited market because they need to be acquired by somebody who has that set of skills. People will ask me sometimes what's the market like for small businesses? And well, back in my brokerage days, I would always tell them, it's great, right? Because it was I was in the business of selling booze. Oh, the market is great. But after a while, I realized, you know what, there's no such thing. Like there's a market for Ford or used cars. And there's a market for three bedroom homes in Tulsa, Oklahoma, because you got many of these homes and many buyers, many sellers. Same thing with the cars. But when it comes to businesses, with the exception of certain categories, like maybe convenience stores or gas stations, many businesses are very unique. So it's more like the market for artwork, where you got these individual things where, you know, this is a really great business, but only for someone with 20 years experience in machine. Right to use your example. Right, right. But, you know, with respect to the cashflow and stuff, there's there's two things Number one, I don't know if this isn't my book or not. But I always find it instructive. When I'm talking with a new seller or coaching a buyer that one of the questions you should ask in meeting with a business seller is what their spouse does. So and ideally what you're looking for as a stay at home spouse, because if they're married to an attorney or a surgeon, that can cover a lot of a lot of problems to be covered with a high income earning spouse. Right. And so I've met people before who run quote unquote businesses for decades, that never made any money because their spouse was shouldering all the burden of the expenses at home. So that's, that's one thing you won't have an idea if that's even possible. Right. And, and the the other thing is that even though smaller businesses that you mentioned, you know, the business wouldn't Ste of 75 grand and people say, Well, who would who would buy that? In my books, that's not really a business. It's more like a job, right? Because you're gonna you're gonna buy that and you're going to earn an income, but not to discourage people who have a business like that there's actually a market of people who want to buy jobs. And usually because they face some kind of barrier to employment. So often you'll think about a business that doesn't have a whole lot of profitability. But maybe this is the business that a new immigrate to the country buys. They might have skills or certain professional expertise, but they can't transfer it into the new country, because of, you know, some kind of regulation or licensing or something of that nature. And so that person needs to get an income. And so they're going to buy what they can afford, and maybe that's going to be a job. But it can also be somebody who has some other limitation in the labor market. So we can think about somebody who, you know, didn't go to college, and they didn't get a degree. And they're kind of stuck in a certain level of employment income, that person might also be tempted by that $75,000 ste business because it represents a real opportunity for them to grow their their earnings. We're in a way that nobody can say, No, you can't, because you don't have this degree from University or something like that. And, you know, another comment that you made there, Ron, about the owner being disengaged and kind of sleepy. That's the other thing about businesses that maybe have these lower STDs, if it's making money, and it has problems. To me, that's an opportunity, especially if the buyer knows how to address those problems. So if you're familiar with a certain industry, if you've worked in an industry, and you see one that has a lower SDE than what you would like, but you see that there's a sleepy owner at the switch, that's an opportunity for you to buy based on what's doing today. And then push it into a higher gear, like getting moving, do the things that are required all kinds of businesses out there, that to your point about pest control, you know, they're not on LinkedIn, they're not online, but they are in yellow pages. Well, that can be the opportunity, someone needs to get a good deal on business, and they will grow it significantly over a couple of years, without the risk of a startup because you actually do have positive cash flow from the day you start.

Ronald Skelton  32:12  
Yeah, got it. And there's so many of them out there. Like, let's talk about the size of the opportunity here. I don't know that. You know, I know it just because I've done the research. And I follow a lot of people that talk about it. But I don't know that we necessarily talked about what is the skill of opportunity out there, how many businesses are there out there, that, you know, if you wanted to, even if you just wanted to buy another job, you're you you're a pest control tech at somebody else's company, and you know, you've been doing it for 10 years, and you'd like a raise you we'll give you a raise, you know, you got some money saved up? You know, what's the opportunity out there? You know, I kind of know the answer. But I want to hear your opinion of this. Are there plenty of businesses out there for sale?

David Barnett  32:53  
Well, well, here's, here's a look, I love this question. The question, right? Because people will, you know, names statistics, and try to put numbers on this. But the truth is, it's impossible to calculate. And here's why. You know, in the US, for example, most small business deals are done as asset sales. But over the government office, they're recording, you know, the creation of an LLC, for example, and other people are winding up LLCs. So the government doesn't actually record it necessarily, as a business being sold, they record the creation of the business and the Closing Disclosure of a business. So that shows up in a different kind of set of statistics. And when you're talking about the sale of shares of a business, there might be a government filing, where the directors of that corporation are changing, but they may not necessarily be recording that as a sale of a business, the IRS might have a better idea, because there's forms related to purchase and sale. But are they reconciling that with any other bits of data? Or, you know, what, what transparency is there? And do you consider it, you know, the sale of a business when one big corporation folds an operating division into another? Because that's going to show up in those statistics, too. Right. And so there's all of this opacity in the market, which is the opposite of transparency. There's just all this stuff going on that Ken uses in befuddles what is actually happening and people don't know. There are some statistics out there that I believe anecdotally do hold ground number one 80% of businesses that are put up, quote, unquote, for sale never sell. So these are businesses that ended up on these marketplaces that we mentioned. They're never going to sell because they're terrible opportunities, and no one's ever going to do them. Right. And then a lot of the business I personally believe that 80% of businesses that change hands never end up in a broker's hands. But that doesn't necessarily mean they're an opportunity for you because that also encompasses one generation transferring business to another. So if a business changes, live families hands, it's unlikely you're going to get yourself in the middle of that deal. Right. And so we don't know, it's also going to vary greatly depending on where you happen to be. What's blowing me away is the number of 60 people aged 60 Plus, who I'm working with, who are selling their business in the north, and they're entering the market to buy a business in the south, because they know business, they like to own a business, they know the benefits of owning a business, but they want to quote unquote, semi retire. And they believe that doing you know, acquiring a business in a Sunbelt state is gonna be the way that they're going to do that. So that flies in the face of a lot of the statistics, we see about the gray tsunami of people retiring. Retirement looks different for entrepreneurs than it does for everyone else. A lot of the academics who are writing these books and putting out these pieces are operating under some flawed assumptions. Number one being that people retire at 65. Your if you're a business owner, and you get to control your every day, and you get to decide what you do and how you do it, and you enjoy owning a business. You know, I've helped people in their 80s Sell, they didn't retire 65, they kept going until they didn't have a choice anymore. They knew that they were becoming limited in their capacity, whether mental or physical, and they just, they didn't want to be responsible anymore. And and then there are the other reasons that people use it. I always I always say there's five big reasons why people get out of the business letters. The biggest one is boredom, fatigue and burnout. That happens people in their 40s, you know, just as easily as it can happen to someone in their 60s. So that's number one, then there's divorce, poor health and need to relocate, and retirement. Well, retirements, the only one of those five people plan for the other four happened to us. They're just the things that happen in life. And so this is why I say to people don't be prejudiced. You know, some people will say, Well, I'm going to look up a business and and do some research and to try to find the owner on LinkedIn and look for gray hair. I'm 46, I have gray hair. But the gray haired owner isn't necessarily the only seller out there, you can have people who increasingly as you know, back when I was a kid, women were entering the workforce in a bigger way than ever before. And today, we have married couples, where men and women are both income earners in the household. One of them could be an entrepreneur on his business, but it could be married to someone who's employed or has some kind of career where they actually earn much more. And so if someone is a business owner, and you're married to a military officer, and that military officer gets transferred, guess what business is going to for sale, regardless of the owners age because the couple wants to stay together, right. And they're going to follow the higher income earning career and move to that new place. So there's all of these different circumstances in the marketplace, that mean that it's harder than ever to recognize where the opportunity is or what the opportunity is. So what I actually counseled people to do wrong, is not to look at the market or the externalities are where they are, but to start within. So what do I know? What am I an expert in? Where can I deliver value to a business? Now, now that I've written that stuff down, and I have an idea, what does the business look like? That I can help? And what is my end goal state? Where do I want to end up in 20 years, and let's try to look for a business that I can improve that will help be the vehicle to take me to that end, rural state, but I want to be at the end of my career. And now we can start to say, Well, are we going to find that by industry or size or the type of business? These are all the things that we're going to add to our wish list and I, I talked about business wishlist not by being I want to own a machine shop in upstate New York, but rather, I want to own a business with, you know, this many employees that has this kind of cash flow, where we are a cash business, or we have a small number of b2b clients who pass on 30 days, right? Or we have a high investment in capital assets, or we have a high investment in intellectual property. And so you create a list of characteristics of the different traits that a business might have. And then you go looking for businesses that fit that fit that mold. And you can be surprised at the kinds of businesses you find because it couldn't be an industries that you weren't really aware of before. And one of the things I've learned over the years is that it's the opportunities in business as far as having a good profitable business are often far from the spotlight. And that's the kind of example that I'm talking about is that, you know, everybody sees the Ford dealer or the McDonald's franchisee because they're being they do a lot of marketing everyone's aware. And if you just see just how busy that McDonald's is pretty soon Burger Kings gonna open next door, right? And that's that high visibility is what invites competition. And so one of the things I've come to learn is that you look for things that aren't necessarily so apparent amongst people in the marketplace.

Ronald Skelton  40:10  
I like that. I stumble across something like that, because, you know, I've, there's certain I built my criteria, kind of, like you were talking about, I know I want 10 or more employees, I want the, you know, revenue to be over a million. Certainly right now I'm searching for revenue about 5 million just because for 10 or more employees, and I love the recurring revenue model. I love loyalty models where the customers are willing to lend to customer their customer for quite a long time. And of all things I start really gotten intrigued lately, and I'm meeting with somebody, hopefully, tomorrow I'm having dental surgery later today, I may cancel my meeting and move it because I may not feel good in the morning. But uh, anyway, he's got a coffee roastery now his his cool because his family, his wife's family has the farmer the beans are grown, they inform him that he travels around brings other beans into but they have that. And then they roast them, but it's got the revenue, you know, recurring revenue, meaning that when people order from him, they're loyal to it. You know, if you think about, like, certain through certain projects, or products like coffee, I would say golf, bass fishing, right? If you show somebody something new, and that they want to try it, and if they like it, they're kind of a customer for life. And, and then you add on things like coffee and some of the others, or golf if you've got a brand new golf ball you like that you think you do well with it, you'll go to five shops to find that if the first two are out, right or first three or four out. Same way with coffee, you got to brand you like and my dad of all things drink coffee, whether it was 30 degrees below outside, which is never here to global who's 10 degrees below outside. And whereas 110 outside, he had a couple of black hot coffee in his hand and a in a thermos out of it and in the truck. But it was always that, you know, nasty old Folgers. So funny thing is, I have a gag reflex, to golf to coffee, but I love the smell of it brewing. And I actually am very intrigued with the business. And I'm meeting with people now to do it because it met all these other criteria. And if you'd have told me a year ago, I would be considering buying coffee groceries that have a subscription model, I'd say he I don't like coffee, you know, but it doesn't matter that, you know, I really got to my my mind, it meets all the other criteria, it's got recurring revenue, if you get them big enough, they've got no other reason I do 10 or more employees as I want, I don't want to buy another job, I really kind of want somebody else there to be the general manager, and be able to run the day to day operations. So that kind of kicks in when you have over 10 employees, at least from what I'm finding.

David Barnett  42:41  
So what are you mentioning a trap there indirectly, that I point out to people quite often is, you know, you said, I wouldn't want to get into coffee, because I don't like coffee, well, the converse of that is actually a trap people get into that people will buy like a franchise restaurant because they like eating them. Right. And they'll they'll confuse the product with the business. And they're very different. And, you know, I've seen this with like, in particular in the restaurant space, where people will enjoy going to a certain place. And so they want to get into it or, you know, the classic, you know, guys who like to go to the sports bar, decide their own loan, their own sporting Sports Bar kind of thing. And, or steak house or wherever it is, it's you really have to look at a business on the merits of it being a business. And, you know, there's all kinds of great things about the business, you describe the coffee roast, like if you've got people on subscription, where you know, you're shipping out so many bags of coffee every month, you're gonna have so much revenue, well, then you don't have to worry about your overhead. The next question is, you know, how do we get more people on that program? Or what else can we sell to the people who already know and love and trust us? And that could that could be no other products or other things? Or maybe it's like, hey, you know, if you really are into the gourmet roasted coffee, maybe you'd like to add, you know, a shipment of fresh pasta every month, I don't know. But the the hardest thing in business is to get the customer, right. And once the customer is your customer and they know you and they trust you and they like you it's going to be easier for them to agree to buy other different things from you. And that's that's how you grow a business either sell more to the people that already already are your customers or to find those new customers and that's that's where you're fighting right? That's where you have to convert the Folgers customer over to the to the gourmet roasted coffee customer.

Ronald Skelton  44:36  
You know, it's interesting people ask me like why don't you just get a business brokerage and that's the same reason I didn't do it in real estate is every customer I land if I do a great job. It's a one time I gotta go find another one. Right? There's a good there's a slight chance if the guys under 40s That you're selling because they're bored. And I do this when I'm talking about buying it. If I find out somebody's in their 30s or 40s and they're saying About selling, I do everything I can to build a deeper rapport with them. Because I know, three or four years from now after I, if I buy this when I help them, you know, some a lot of times people bring stuff to me I don't like but I always point them to somebody's like, you know, I have this huge audience with people I know, I bet I know somebody who would be interested. So I point on it. And that's one of the things I do is like, I may not be the buyer, but I probably know. So let me let me take a look. And I'll go through it. And if I like it, we'll make an offer. If I don't, I'll put it through my network. And so I don't, it's more of a referral type of thing than anything. But um, that one and done thing just doesn't appeal to me. I'm sure it's great for a lot of people, but I want it to build something that has great customer service has a great product, and people are begging to come back. Right. They're, they're wanting to share it with their friends. One of the most brilliant things I've seen in the coffee industry is a guy I was chatting with, when I first kind of looked at this, he had a YouTube video out. And he one of the things he does is during holiday seasons, he sins, you know, somebody's buying bags of coffee from him every holiday season where you might, anytime there might be guests, he knows their birthday, he knows anything. So every time there might be guests coming to that person's house, he sends sample packs to him. And with a little letter in there. So he sends them their package, and it sends them three or four samples, hey, when your friends are over, if they love the coffee you serve, give them this to take home and it has on the sample pack. It has a way for them to order more in his piece with seven and a half million in subscriptions. He won't sell it to he's, he's not ready to sell. But he was willing to, you know, chat with me for a little bit and everything. But I think that's brilliant if you have a product that people love and are willing to share. That's the kind of business I'm looking for right now. And everything's different. The thing that bugs me about business brokerages and even the real estate brokerage is you've got a customer, you did a great job. Sure there were for the people, but that customer is not probably coming back for even in real estate, 510 years, most likely, in business, maybe never, you know, maybe in five or 10 years, when they get bored of the next thing they will Oh, believe

David Barnett  47:01  
me, I ran headlong into that problem with my own brokerage. It was one of the reasons why I decided to get out not only the cash flow rollercoaster, but just the the acquisition cycle. And in business brokerage, you're going through that acquisition cycle on both sides, you're going through that with business owners to get the inventory and then you're going through it with the business buyers. I think there for all the talk people have about roll ups and buying multiple businesses and holding companies all that kind of stuff. For all those deals I did, there was only one buyer that bought more than one business. And so that's a very tiny subset. So even on the buying side, every time I would have to develop a new buyer. And then of course, then you're also sifting through all the people who are excitedly claiming they want to buy a business who never actually will pull the trigger, but the watcher printers, we can call them it's hard to sort through all of those people to actually find the real legit buyer is willing to, to actually do a deal. So it's tough. I listen to I hear you and I got a video on my YouTube channel my life as a business broker. And I it's got a lot of use, like over 100,000 views. And a lot of the comments and feedback I get are from people who've been considering that industry with a Yeah, you know what, I was only looking at the upside and I really realized what the day to day was going to be like and how he would be in a lot of people get into the industry. There are a lot of these sort of senior experienced business brokers who have been very successful in many markets around the world who do good. And their and their experience they and they do a business broker is supposed to do in my mind, what a business broker is supposed to do is set the expectations of the buyer and seller, so that they'll recognize what a reasonable deal is and then move forward and do that deal. There's a lot of people who get into business brokers who don't do the job that and they get into it without having the resources or any other kind of income to support them to those gap periods. One of the reasons why I was able to survive as long as I did as a broker was because I only can properties so I was collecting rents from apartment apartments that I own and and that was able to give me some stability at home. The so a lot of people get into a drawn in by those big commission percentages and you can call them big 10 or 12% being big. I don't actually but that's because they're comparing it to real estate agents. But I will draw this analogy you know, a good business broker qualified business broker will do an evaluation on the business to ship and share with the with the owner whether it should be so forth, then they'll go and find a buyer. And then the last step would be very few brokers do but the really successful ones do do is that they then work with the buyer to help them with their business plan the cash flow forecasts in order for them to get the financing. So if you want to draw the analogy with realist Say, I'm good qualified business broker is doing the job of the real estate, like the appraiser does, and the realtor and the mortgage broker. And so those are like the three different skill sets that a good broker has to help accomplish the execution of the deal. And, and when you look at it that way, you're like, yeah, 10, or 12% Doesn't make sense, because we're doing all of those different things. So many people hop into business brokerage, because they're thinking about that $100,000 check from the million dollar business, and then the eight 910 1418 months in without having done a deal. And that's when things get really real, the, you know, their savings are gone, we're getting pressured home from their spouse, we've got bills to pay, they can't put money in their kids college fund. They're realizing if I'm going to carry on doing this full time, during business hours, I'm gonna have to get a job and off our job, like, we're gonna have to be working at a call center or delivering pizzas or something like that. And let's face it, for someone who's got the skill set and experience to be a good business broker, they're caught in some kind of sales, financial accounting background, working full time in a business broker job is then delivering pizzas on Saturday night is not going to satisfy most self, most people self image requirements who fall into that category. And so this is why you get people coming in and out of the industry so much like a revolving door, because they think they have what it takes to make it they get in there, they realize what it's really like. And you can do nothing wrong and still have every deal fall apart.

You know, I gave the examples earlier in the conversation, you've got the buyer and seller both have accountants and attorneys who have input on what's going to happen and can do things to upset the deal. The buyers got, you know, the bankers, the loan, people that are could have potentially upset the deal. The sellers have a good profitable business, they actually profit from delay. So if the deal gets delayed three months, they get to own a proper business for three months more. So they get to enjoy that. The buyers often have jobs or other businesses. So if a business if a deal is delayed, the buyer is still getting money in some other way. The banker gets a paycheck from the bank, the accountants and attorneys have other clients. So they're still earning money, even if the deal gets delayed. If a deal gets delayed, the only person who's really quit out is the broker. And in all the deals I've ever worked on, there was only one that closed on the day that was put in the office. Only one, every other one got delayed, delayed delayed. And that's the reality of being a broker is that even if you've got deals in your pipeline with certain closing dates, you cannot bank on them. It's all just like trying to grab sand flows through your fingers.

Ronald Skelton  52:45  
Awesome. David, I didn't look at at the time, man, we're at 57 minutes. And then we have to like start wrapping this up. This is an hour long show. So let's just jump right into it. If people want to reach out to you what's the best way for them to do that.

David Barnett  52:57  
So my blog site is at David C barnett.com. And that's kind of like the central location of everything. And you can find easy links over to my YouTube channel to courses that I offer books that I have. All my books are on Amazon, I've got courses on buying businesses, and also a group coaching program for people that want to work more closely with me. And mostly, if you're just interested in deal making, if you're interested in business operations, deal making, etc. Go over to David C barnett.com. And sign up for my email list. I send out an email every day and you also get notified of the new videos as they come out on YouTube. There's one of those every week at least. And my mission is to help people avoid bad deals. And the easiest way to do that is through education. And then when people do find a deal that they think might be a good deal, then I can help you with consulting services just to make sure that that you're not fooling yourself.

Ronald Skelton  53:53  
Awesome, I appreciate it. I want to thank you for being here today. Like I said, it's a little bit of a bonus item when I when I get guys like you on the show that have been doing this for a while and I kind of learned through your YouTube channel and and it's interest you feel like you know people before you actually do it, because you've just got you've got so much content out there. It's like, I get out here and just like just comfortable chatting with you cuz I've seen so much of your content. So appreciate you being here sharing that, you know, sharing your experience with the audience. And I want to thank you.

David Barnett  54:19  
Awesome. Thanks for having me on. It's been a lot of fun.

Ronald Skelton  54:23  
Awesome. Well, that's the show, hang up for a second when we're done, and I'm going to end the stream. Hey, it's your host, Ronald Skelton. I want to thank you personally for watching the show today and invite you to call our new hotline 918-641-4150. That's 918-641-4150. Call us and tell us about our show, ask questions, suggested guests or even tell me about a business you have for sale and we'll reach back out to you. Again that number is 918-641-4150. Call our hotline leave us some information. Thank you. The investors and entrepreneurs professional mastermind. The investors and entrepreneurs professional mastermind combines that additional peer to peer mastermind introduce first in Napoleon Hills famous book Thinking Grow Rich. With accountability partnering, where your peers help you ensure that you set goals take action and get results. If you want to scale blow past roadblocks and achieve success faster than you might think is possible, I suggest you take a visit over to tiepm.com That's T i e. P m.com. And check out the investors and entrepreneurs professional mastermind.