Terry Monroe

How to Buy a Business When a Bank Loan is Hard to Get

Posted on 18. Jan, 2011 by Terry Monroe in Advice, Business, True Stories

If you have been following any of my recent blogs you would have read that I have touting from the top of my lungs that now is the time to be buying a business. And in case you haven’t been following my blogs I will restate why I think now is a great time to be buying a business.

Why? Well one of the reasons is that business valuations have come down in price. Businesses that were selling for 3 to 4 times their net profit are now selling for 2 to 3 times their net profit. Or if they were selling for 5 to 6 times their net profit they are now selling for 4 to 5 times their net profit. This is a substantial reduction of price from a few years ago.

Now this statement is true in generally all of the business sectors such as the retail and service categories. Of course there are going to be some categories that really hot at a certain time that are selling for a premium, but generally this true now across the board in most of the businesses on the market.

The second reason I think now is a great time to be buying a business is that the cost of money is about as cheap as it is ever going to get. You can get a commercial loan to purchase a business for 5% or sometimes lower depending on your credit and the situation and the lender you are working with.

So let’s say that I have convinced you that now is the time to buy a business because the valuations are down and you can get a good deal on the purchase of a business and the cost of money is cheap.

But gee Terry didn’t you know that banks aren’t lending and it is hard to get a loan. If you said or thought that you would be absolutely correct.

Banks do have money to lend, but they have changed the rules on lending or should I say that the Federal Government has changed the rules for lending for them and therefore it has become more difficult to get a loan in today’s economic environment. Yes, all of this is true, but there is still a way to get that loan for the business you are wanting to buy. Yes, the days of getting a 100% loans are long gone unless of course you are working with private investors, but we are talking about a financial institutions today so I will stay focused on such accordingly.

Here is how you get your loan for the business you want to buy today.

Most lenders are sitting on top a pile of cash and they are in the business of renting money. Yes, that is how they make a good profit in the banking and lending business of money. They receive money from people who deposit their money into their bank and pay them a pittance for doing so and then they rent that money out to people like me and you for a profit. It is a very simple formula. Once I understood that banks were nothing more than renters of money it became a very simple formula to understand.

But since the Fed’s have changed the rules and told the banks they must be more prudent in their renting of money the banks have become more conservative in the way they rent out their money, but they still are in the business of renting money.

In the old days before the Fed’s came to town and changed the rules on renting money an individual could buy a business with 20% down and the bank loaning the remaining 80%. Sometimes the bank would keep the note themselves and earn the high interest rate they were charging for the renting of the money or sometimes they would sell it off to the SBA and only retain a portion of the loan thereby allowing them to keep money in their bank and repeat the process again and again. Either way it was a good deal for the individual that needed a loan to buy themselves a business.

Now though the rules have changed and if you have spoken to a lender recently you would then understand that they will are still willing to loan you money for that business you wanted to buy, BUT it better have a solid cash flow and they are not going to loan 80% of the purchase price. No, more than likely they are going to be willing to loan you maybe 50% to 60% of the purchase price of the business.

But wait you say. I don’t have much money! Heck, if I was buying a business for $500,000.00 then instead of having to come up with $100,000.00 (20%) now I have to come up with $200,000.00 to $250,000.00. That is crazy I don’t have that kind of money. Doesn’t the bank understand that I have good credit, this is a good business, there are no jobs to be had in the market place and if I had that kind of money I probably wouldn’t be in the situation that I am now?

Well to begin the bank doesn’t really care about any of that. All they are concerned about is keeping their job. So it is better to tell you no and keep their job than to make a loan to you that could get them in trouble and they lose their job and then they would be just like you (except they wouldn’t have as much money saved as you have) so this is what we call a lender making a career decision. It is easier not to make the loan and keep their job rather than to take a chance on making the wrong loan and possibly losing their job. (I actually had a bank President tell me that one time). But I am straying from the point.

The point is since there are new rules and the banks want more money down and you don’t have the money how do you get the loan? The answer is right in front of us. We are going to get the additional capital we need from the seller of the business. He should be aware of how difficult it is to get a loan in today’s marketplace and if he isn’t he must have been living without a TV or access to the internet to see what has been going on with our banking system. But just in case the Seller of the business is not cognizant of what is happening in today’s marketplace in regard to the lending environment then I would ask the Seller of the business to go visit his local and long established banker to ask him for a loan to refinance his business. Yes, have the Seller go down to his old banker buddy who he has had a long relationship with and have him ask him how much money he would loan him against HIS business. Now remember this is a business that is a good business and has been up and running for quite a while. This is what we would call a reality check, because the Seller of the business will find out real quick what is going on in the world of lending for businesses. Hey, if I am wrong about this then great everyone gets the loan they wanting and you can totally disregard this article. But I don’t think I am wrong on this one.

But back to getting that loan. Here again it is really simple math. First go talk to some lenders and find out what is their criteria for the loaning money for a business. Some will want 30% or 40% or maybe 50% as a down payment towards the purchase of a business. Don’t argue with them just get the details. Then work your formula backwards and when you have found the business you are interested in explain to the Seller that you are a qualified Buyer and that you have the needed funds available to purchase the business with the normal amount of funds needed being 20% and that in today’s marketplace that lenders are requiring 35% as a down payment and you will need the Seller to carry 15% of the purchase for a limited time. By this I mean have the 15% amortized over the same time period as the lender is requesting, but agree to refinance the 15% in a shorter term like 3 or 5 years from the date of the purchase of the business.

Some Sellers will not like this idea and will not go along with it, but a Seller who wants or needs to sell their business understands that it is much better to get the bulk of their money now and have the business sold than to just sit and wait and hope that things are going to change later and still not sell the business.

Good luck and give this idea a try if you are really serious about buying yourself a business and enjoy the journey. It is all great.

New Business Venture Anxiety

Posted on 09. Jan, 2011 by Terry Monroe in Advice, Business

I don’t know about you, but I have read dozens and dozens of books and articles about long range planning and setting goals. And I must say that I am a very big believer of both of these concepts and can honestly say that I believe that they work and have seen them work for myself.

But, recently I was working with a business owner and friend  who is in the process of changing businesses and possibly buying a new franchise. They were concerned about making a long term commitment in the fact of buying the franchise, setting up the new office, changing personnel, signing a lease on an office space and the other items that go along with this type of new venture.

So concerned as a matter of fact that they were worrying themselves sick. Now keep in mind this individual is talented and experienced enough to know how to do the things that I have mentioned and as a matter of fact they have been doing these very same things for a number of years and has had a successful career, but still they were in a dizzy about this new venture.

After talking with them for a while the problem that was causing all of this anxiety became clear. They were concerned about making this huge commitment. I asked them to explain to me further what this huge commitment was and they proceeded to tell me all of the things that they were going to have to do for this new business venture like sign a 5 year franchise agreement, sign an office lease, hire people, etc..and it became obvious what was happening.

What was happening was they were looking at the new business venture as a permanent change in their life. That all of this was going to be their permanent career for the rest of their days. What a bizarre and crazy thought.

 To begin with nothing in this life is permanent.  As a matter of fact life is just the opposite. Nothing in this life is permanent. It is all temporary and change is the only thing in life that is for sure and certain to happen.

So having recognized this issue with my friend I gave them the same advice that I have used myself for years and have given to probably hundreds of clients and friends in the past.  And that advice is:

When entering a new business venture or buying a business you should have plans and goals, but set your plans and goals based on a 3-5 year time span telling yourself that at the end of the 3 or 5 years that you will take the time to sit down with yourself and ask yourself some very pertinent questions like.

Am I enjoying what I have been doing? Has this venture been as profitable as I thought it would be? Does the future look like things are going to be getting better or worse? Do I want to continue doing what I am doing or is it time for a change?

You see by looking at new ventures with a 3-5 year time span you allow yourself to be more freely thinking, you will have more vigor and excitement towards the business knowing that there is a light at the end of the tunnel. Can you image coming into your place of work or business thinking that this was it forever. I guess that there probably are some vocations like that in government work or something similar, but as a business owner you need energy and vision and the thought you were going to be doing the same thing with no chance of anything changing would be depressing. (It is also the #1 reason people sell their businesses. Burnout)

After I explained this to my friend they began to look at the new venture as a 3-5 year project and they became more excited and actually began to plan and talk about all of the things they wanted to do for the business.

Remember, life is a journey and there are many stops along the way that are not planned and once you get into the game especially with the 3-5 year mindset you will be surprised as to what may come your way.

The Buy-Sell Agreement

Posted on 16. Nov, 2010 by Terry Monroe in Advice

Recently I had the wonderful opportunity to speak at the National Association of Convenience Stores annual convention in Atlanta, Georgia. The subject matter that the association had asked me to speak about was whether a convenience store owner should be getting out of the business or growing their business: “Go or Grow”. In part of the presentation I touched on the fact that if you are going to be in business, regardless of what kind of business it is, and you have partners that you will want to incorporate into the partnership in the very beginning a Buy-Sell agreement.

Now having owned many businesses and with the majority of them with partners you find out real quick what a buy-sell agreement is and why you will need one. First of all let me explain for those of you who have not had any experience with a buy-sell agreement what it is.

All partnerships start out with two or more parties deciding that they want to get together to either buy or start a business. Each of the different partners brings something different to the partnership. For example in a three person partnership, one of the partners may bring the money or the ability to get the money with their good credit or banking connections and the other partner may have the operational skills needed to run the business and the third partner may be the one who is going to run the business on a daily basis. Hence we now have a three person partnership with each individual contributing something different to the partnership and with the three of them together they have a viable business.

But what happens if one of the partners dies, gets sick or wants to get out of the partnership? What if one of them gets a divorce and needs to cash out? What is a partner is not contributing their fair and equal share to the business yet is still entitled to a 1/3 of the profits? Or what if the business fails and there are financial losses in the business, how is that addressed?

This is why you need a buy-sell agreement. It is used to address all of the issues I have just mentioned and then some more. Let’s say that one of the partners dies and he is married and his wife now inherits his interest in the business. Perhaps he was the partner that was running the daily operations, but his wife doesn’t know anything about the business and couldn’t run the business if she wanted to. What would you do? If you had a buy-sell agreement it would allow for this issue to be addressed without any hard feelings between the parties.

Too many times when a partnership is started all of the parties are having a love fest and they are not thinking about what could happen. They are only excited about the starting or acquiring of the business and they fail to address the buy-sell part of the agreement. Trust me, bad things can happen without such an agreement.

Please do not think that I am a pessimist, quite the contrary. What I am is a realist and have discovered over the years that things happen and people change and businesses change and you are much better off if you can prepare for these unseen circumstances that will happen eventually.

When operating a business there are many different items that need to be addressed and a buy-sell agreement is only a small part of the operating of a business, but it can be one of the major links when something goes haywire in the business. You may think that you will never need such an agreement, because you are going in business with your best friend or worse yet your relatives. But it will only be a matter of time before you wish you had such an agreement and to bring up the idea of entering into a buy-sell agreement after things have gone haywire is much harder than if you had put one in place when there were no issues to address.

To help give a better idea of what a buy-sell agreement would look like, click onto the link below and you can read a sample agreement that we have used as a template in the past. There are many different versions of a buy-sell agreement and you can add and change anytime to them, but even having a bad one in place is better than not having one at all.

Sample: Buy-Sell Agreement

To Go or Grow: Video NACS 2010

Posted on 12. Nov, 2010 by Terry Monroe in Advice, Blog, Video

The following video was part of a presentation I gave at the 2010 NACS show in Atlanta, GA this October. The topic was: “To Go or Grow? How to Know When it’s Time to Buy or Sell”. I was fortunate to share the stage with two great operators and industry veterans, Chip Lavigne and Rahim Budhwali.

This clip was the part of the workshop where I gave my presentation on how to know when it’s time to buy or sell. The video is about 25 minutes long, but worth the time investment if you are thinking about buying or selling a convenience store.

So grab a cup of coffee and enjoy the video:

The bulk of this presentation was adapted from my report: 7 Warning Signs that it Might Be Time to Sell Your Business. For a complimentary copy of this report or any of my other reports, please click this link for information on how to get a free report.

To Go or Grow Your Business

Posted on 10. Sep, 2010 by Terry Monroe in Advice

Today is the best time ever for someone in the convenience store business if they are thinking about getting out of the business or growing their business. Yes, it is the best for either one of the two.

Why in the world with the economy the way it is would anyone make such a statement?

Let me explain what I am talking about.

If you are even considering getting out of the convenience store business regardless of what your motivation should be you should do it now. Why? Because if one would do a study of the average sales price of a convenience store over the past 5 years you would find out that overall values of a convenience store that has been in business for a number of years has continually been declining in value. It is not near as bad as the recent deflation we have just experienced and continue to experience in the residential home market, but it has been declining and all indicators going forward show that an upswing in the valuation and selling prices of convenience stores is not in the upcoming future.

 So why would you want to wait any longer if you are going to be getting out anyway? You may tell yourself that it will get better and I don’t want to sell at the bottom of the market, but who says we are at the bottom of the market? The lowest point maybe yet to come.

In September of 2010 I read that the unthinkable was happening in the commercial real estate market and that is that they are starting to have short sales for commercial real estate something that has never happened in the past. Do you think this is a unique and isolated incident? Unfortunately based on the loss of jobs in the market place and the many businesses that have ceased to exist and the many people who are working from their home offices it is not a wonder that there are not more of these commercial real estate short sales occurring.

Now that I have stated why it one of the best times to sell if you would think about selling let me explain why I think it is one of the best times ever to buy too. No, I am not talking out of both sides of my mouth what I am doing is stating a fact based on reality.

 The reality of the situation if you are in the growth mode and have the infrastructure to support the addition of more stores and the energy level to go the distance you should be very aggressive in today’s market.

You may think I am making this statement based on the fact that I said that the prices of convenience stores are declining and therefore one could get a good price in today’s market place. Yes, that is one of the points I would make, but more so than that I want to stress the convenience store business has the tendency to perform well in difficult economic times.

When money is in short supply people tend to think more short term than long term and this type of thinking is reflected in their buying habits. They try to hold onto their cash longer and instead of buying large lots they will begin to buy in fewer quantities which are what a convenience store sells.

Plus even though the banks and commercial lenders have tightened up their lending practices there is still money out in the market place to be had and sellers are now educated enough to know that if they are going to really sell their store they are going to have to participate in the selling process with some owner financing.

And finally the cost of money is cheap. It is probably the cheapest we will ever see money for a long time. If the economic forecasters are correct about the possibility of us experiencing upcoming inflation then déjà vu of the late 1970’ & early 1980’s of double digit interest rates.

When interest rates are cheap as they are today you can borrow more and in essence buy more store for you money.

So don’t spend too much time sitting on the sidelines waiting of prices of stores to go up and the cost of money to go down. If you are thinking about “Growing or Going” now is the time. These are the good ole days of today.

Learn the Secrets to Buying the Right Business for You in today’s Economy

Posted on 01. Jul, 2010 by Terry Monroe in Advice, Business

From the first day of your life that you enter the work force you have had a choice. And that choice has always been to either get a job or buy yourself a job. You probably didn’t look at it that way, but stand back and think about it now. If you continued on with your education, you were preparing yourself for a job. You can call it a career if you like, but in simple terms it was a job regardless if it was the president of a large manufacturing company, the local bank or an executive position on Wall Street. You still had a job with an employer. Your other choice has always been to buy yourself a job. By this statement I am referring to by either becoming an entrepreneur or buying yourself a business. Which in turn means that you have bought yourself a job.

 Some people are made to have a job and work for someone or some company and do very well and are very happy or content in that position. Others would be restless in working for someone else and feel the need to make their own rules and have more control over their work place. Because we only have one of the other choices in the matter of how we spend our time you would think it would be a pretty simple decision wouldn’t you? Well sometimes it is, but here is the clincher to this situation.

 People change. Change is the only constant we truly have in our lives. You may stay with the same partner for 50 years and you may stay at the same company or work in the same industry for years, but the one thing that is constant in all of this is change. People change, industries change, families change, economies change. Everything changes. And that is where the confusion and anxiety comes from. It is when the change occurs and we don’t know how to react to it. Plus a lot of the time change has a tendency to sneak up on us and before we know it. We need to change. And then we are in a reactionary mode instead of being in a responsive mode, therefore creating the anxiety and uncomfortableness that comes with change.

 The change feelings that may occur in ones like can come in many different forms and have many different reactions to oneself, but the one I want to address here is the one regarding whether you get a job or buy yourself a job.

 Buying or starting a business is an area that I am an expert on since I have owned 35 different businesses that I have either bought or started and probably managed to make more mistakes in the short time that I was buying, starting and selling business than most people could make in their lifetime, therefore enabling me to write and comment on this subject for your benefit.

 In today’s economic climate we are experiencing a large number of people who had been employed and have had a job and their job was eliminated and they are out on the hunt to find another job. A commendable quality for them. But the chances of them finding another job is probably pretty thin, especially if they are looking to stay in the same field they were in, with the same amount of pay and in the same geographic area that they were working in before. As my old science teacher used to say. “It is very possible, but not very probable” that they will find such a position. So what are their choices? Back to what I mentioned earlier. Either they go out and find a different job or buy themselves a job.

 Since I am a qualified expert on the buying oneself a job you need to take heed and review the 11 different points I have listed below. These are short, but substantive issues that you must address if you are going to be buying yourself a job and be happy and successful at it. Not following the listed information could determine you financial failure and or the cause of your personal unhappiness.

Take your time and study each of the listed areas of life and business I have described and then move forward.

  I have not gone into great detail as to all of the ins and outs and intricacies of operating a business. There are plenty of books on that subject for ever particular business that is available. What I want to address and for you to think about is whether you want to or have the qualities to be the one who buys themselves a job or not. The final decision if for you to make, but by following the listed points I have made there is a very good chance of you actually making the right decision for you and your family and your future happiness, which is what it is all about.

 Good luck and good hunting for the business of your dreams and enjoy the journey.

 1. First decide what you like and don’t like to do.

Sounds simple, but if you don’t like cooking or working around food then why would buy a restaurant? Because you tried to justify it by saying it is really marketing and the food is only an end to the means? You can say that and part of it is true, but in the beginning you will BE working with food. So to begin with find something you like to do and gravitate in that area. Reflect on what you enjoy doing. Your hobbies. Do you enjoy working one on one with people? Old people, young people. Maybe you are tired of working with people and want to work in an indirect manner with people on a business to business level instead. This is probably one of the most crucial parts of the equation you need to address before you go any farther.

 2. Where do you want to live?

Generally people want to work close to where they live. This is not always true, but for the most part it is. Are you willing to buy a business that is 1 to 2 hours away from your home and commute daily to it? Or do you want it to be across town within 5 minutes of your home? Or do you want something that involves traveling all over the country and enjoying a different setting every day?

In today’s business with an individual’s access to the internet, cell phones, web sites, asp systems on the internet, outsourcing of administrative duties and pcanywhere you can be doing business literally around the world from your bedroom at home while never leaving home and having the perception of a large company. So your ability to reach a large audience of customers without leaving a geographic area is available to you. So if you want to live in a resort town and work across the world it is possible for you to do in today’s economy.

 3. How much money do you want to make?

Don’t give the lame answer of a lot? Be definite. Determine how much you need and then add to that amount to get a realistic number. You have got to have a goal as to how much money you want to make before you set out to buy or get into a business. Before you get into a business you HAVE to know the dollar amount as to what you want to make, because without this number you will never be able to determine if the business can support that amount.

All too many times people jump into a business not having a clue as to how much money the business can really generate and then after they get into the business they are disappointed that they have invested a large amount of time and resources only to find out the business could not support them.

That is why we want to know on average how much income a business will generate before we start or buy the business and then having that number we work backwards to see if it meets our requirements of being capable to support us in our financial needs.

 4. What is your risk tolerance?

Are you willing to put everything you have on the line to get into business and sink or  swim or are you only wanting to put your toe in the business and try it out to see if it is for you or not. If you are not one who has a high risk tolerance then maybe you should be looking at a franchise where they already have systems in place and if you follow the tried and true program of the franchise you should be successful. But keep in mind that the more you put into the business the more you are going to get out. So if you think you can only work 20 hours a week at a business instead of devoting 60 hours a week to knowing everything there is about your business and industry there will be a difference in the results you receive from the business. Plus, if you are concerned about not wanting to lose all of your money I would suggest that you start out small with a low investment business, because you will make mistakes and you will end up paying tuition to learn the business so you might as well start out with a small investment and work your way up to a larger business later.

 5. Do you buy or start a business?

When offered the difference between the two I always suggest buying an operating business. Why? Because the day you purchase an operating business you have a cash flow. It may not be the greatest cash flow in the world, but you have a cash flow and with that cash flow you have a jump start with the business and all you will need to do is to concentrate on growing the business and cash flow. Where if you start out with a new business you have nothing. Only a hope and a dream and it will be exciting, but you have no cash flow.  

Buying a business is always a safer bet than starting a business. At least with buying a business the day you take the business over you have a cash flow and all you have to do is build the cash flow. Starting a business regardless how good of a franchise or idea it may be you are starting with zero and when you start at zero it can take a long time to get to breakeven let alone profitability.

 6. What is the upside to the business?

If you are buying an existing business you need to know if there is an upside to the business. In other words is the present business owner getting all there is out of the business or have they been lazy and not advertised or marketed the business and not paid attention to it and all it needs is your attention. Do your due diligence and check out the business and chances are the present owner of the business has gotten tired and burnt out and left a lot of opportunity in the business.

You never want to buy a business that has no upside to it. Sometimes there will not be any upside to a business, because the previous owner has owned it for so long and ran it so well that you can never duplicate their business model. Sometimes there is no upside to a business, because the industry has changed. One does not want to be selling horse whips, when cars were first coming onto the scene.

Check the competition of the business. Generally speaking regardless if you are buying an existing business or starting a business the success of the business if going to be determined by the amount of competition you have. Very simple to find and very definite the reason for the success or failure of the business.

7. Where do I find a good business to buy?

Good businesses are hard to find. There are many of businesses for sale on the internet on business for sale web sites like bizbuysell.com, businesssesforsale.com, bizquest.com, AmericanBusinessBrokers.com and dozens of other web sites. But some of the best businesses you could buy are not on the internet. They are being run by their present business owners and all that is needed is for them to be asked. Yes, just ask. Once you have determined what kind of business you want to be in and where you want to be, then start asking around with the present business owners if they have every considered selling their business. You will be surprised that there are many business owners that would like to sell their business, but don’t know how to or have just been putting it off and all they are needed is to be asked. Take it upon yourself to ask and if they are not interested in selling their business you will at least get a preview and education of the business is all about.

 8. How do know what a business is worth after you find it?

Valuation is one of the toughest things about buying a business. ALL sellers think their business is worth more than what it really is. It is just human nature and you are not going to change that. Part of the valuation process is going to be decided as to what kind of buyer you are. By that I mean are you looking to buy yourself a job or are you looking to buy a business to sell in a few years? It makes a difference when it comes time to buy. If your goal is to buy yourself a job and expect to keep the business for quite some time then you can afford to pay a little extra for the business. But if you are planning on buying a business and then selling it in a few years you have to make sure that you get it as cheap as possible so that you will have a larger profit margin when it comes time to sell. There are several different ways to determine the value of the business. One is to hire business valuation consultant and have them review the numbers and quality of the business. Another way is to purchase the book “The Business Reference Guide” by Tom West, which lists hundreds of different business and what the general rule of thumb of valuation for each of these businesses is. It is the same book that is used by business brokers when valuing businesses. And another way is to hire a knowledgeable business broker and pay him to do the valuation for you. But make sure they are an experienced business broker and are not going to school on you.

9.     Do you have the money or where do you get the money?

Depending on the total cost of the business and if it has a good cash flow stream you will be able to find the money. A lot of businesses are still being sold with the seller doing owner financing or at least partial owner financing and I suggest to buyers that they look for this kind of arrangement. Because, if the seller is willing to finance part of the sale they are electing to remain a part of the business and are your partner until you can get them paid off and they will be more willing to take your phone calls or offer advice if you still owe them money. Local banks are the next choice for getting money to purchase a business. They will be very conservative and probably only want to loan on a business that has real estate included as opposed to a Subway or something that is in a leased space with very little in the form of hard assets for them to collator, but they will probably loan in the 60% to 70% of the total sale price of the business. However, you get the money whether it is from your savings, relatives, friends, or banks get the money so you can get into the game so to speak. Once you get into the game and own your own business all of the banks, relatives, friends etc… will treat you differently, because you are now a business person. It may sound weird, but it is true.

 10. When do you buy the business in today’s economy?

As soon as you find the right one. It is not all about the price. Sure price is important, but the quality of the business, location, industry of the business, whether you like it or not and especially if you are going to be staying in the business for a while are more important than the price. Of course you don’t want to over pay above the market price and end up behind the eight ball right from the start, but when you find it. Buy it. Don’t get caught up in the small details of trying to save a ½ point on the financing or a few thousand dollars on the purchase price. Your goal is to get into business and stay in business and make a profit. Until you get into the game you are nothing more than a wanta-be who is setting on the sidelines talking about. I don’t care if you have hundreds of thousands of dollars in the bank. Until you get into the game of business you just a wanta-be on the outside looking in.

 11. Bonus Tip.

DO NOT search for the perfect business. Why? Because there is no such animal. All businesses will have some warts on them and what you are looking for is a business that will meet your general needs and wants. Just like in friends, spouses, co-workers there are no perfect people or perfect businesses so you might as well accept this fact before you begin your search.

People have a natural tendency to look for and talk about the things that are wrong about a person or a thing. Become a good finder and look for the things that are good about the business and how many of the points I have listed here that meet your criteria and then go forward. Nobody bats 100% and you won’t either. But by following my list of what to look for in the buying or starting of a business you will come much closer to your goal of having an enjoyable journey in your life as a business owner.

The 10 Myths of Investing in Oil

Posted on 27. Jun, 2010 by Terry Monroe in Advice, True Stories

It may seem strange that I am a specialist in the selling of convenience stores and writing about investing in oil. But the oil industry is where I got my start and spent many years next to and drilling oil wells before eventually working in the mergers and acquisition of convenience store chains and other petroleum based companies. And recently I have revisited the oil industry with the drilling of oil wells, quite successfully I may add since I recoginize that the United States is no longer the dominating factor going forward in the world economy of oil consumption. No, going forward it is going to be Indai and China and that is a fact. But regardless of this I thought I would use my blog to help educate the many people who like most know very little or nothing of the oil industry.

Oil seems to be on every bodies mind a lot lately both in the good sense and the bad sense, but regardless of what one thinks of the oil industry it is the #1 most efficient energy source in the world. And if we didn’t have it we would still be on horse and buggies or riding a bicycle to and from work.

The oil industry has always had a mystical aura about it in the fact that it just appears out of the ground and the thoughts of Jed shooting at the ground in the Beverly Hillbillies and it comes bubbling out of the ground. In reality this is not the case, but it does make for a good story.

I am not going to go into the many different reasons of why oil is a good thing, but I do want to address the bad publicity it has gotten in the area of risk that is involved when investing into the oil industry.

First I want to disclose that I come from a family that was born and raised in Southern Illinois who made their living working in the oil industry by drilling and servicing oil wells. I know people are never aware that there are such things as oil wells in Illinois, but there are approximately 650 oil fields and around 30,000 oil wells in the state. It is a dirty business and not very many people want to do this kind of work, but we are all thankful for the people who have chosen to work in this industry.

When most people think of investing in oil wells they think of dry holes and unscrupulous individuals like Snidely Whiplash hiding in the weeds waiting to prey on another suspecting investor with cash hanging out of their pocket. Again, another myth. The reality of investing in oil wells is that with this kind of investment you can at least visit the well site and see where your money was invested and talk to the operator who you invested with and find out the situation if it is either good or bad. Not so when an individual invests in the stock market or mutual funds. And that is why I wrote the article about the “10 Myths of Investing in Oil”

When people invest money they are either buying stocks or mutual funds or REITS or some other type of investments I can’t even pronounce and how do they do it? Either online with a computer screen in front of them or at an Edward Jones or Financial Institution’s office. And even then you don’t know what you are investing in. You get to meet a nice person to whom you write the check to, but that is about it. And is it risky? Can you say “Bernie Madoff?”

My point to the story is not to make light of investing in stocks, bonds, mutual funds, or CD’s or other financial instruments. It is only to let people know that investing in oil is no more risky and sometimes less risky than the many different financial products that is touted by the many financial institutions.

Relax, enjoy the journey and hopefully I have shared some information that will benefit you in some way.

Myth #1 – You can lose all of your money.

Truth – It depends on how you want to look at your money. In reality the money that you invest into the oil business is different than the money you would invest into the stock market or the purchase of real estate. When someone invests into the stock market or the purchase of real estate they are investing with “post” tax dollars. Meaning they are using the money they have left over after paying the taxes that are owed on the money they earned to make the investment. But when someone invests into the drilling of an oil well they are given preferential treatment from the federal government in the form of Tangible and Intangible investment allowances. What this means is that if you invested $25,000.00 into the drilling of an oil well you would be allowed to write off or deduct the Intangible amount of your investment off of your annual gross income 60% to 75% of your investment could be written off against your personal income) of the year you made the investment. In essence you could never lose all of your money, because it never was all your money in the first place. The government was going to get their part of your income regardless whether you invested into an oil well or not. Generally they were going to get between 35% to 40% of your income anyway. So when you invest into an oil well you are really using some of your money and part of the government’s money.

Truth – When you purchase stock from a stock broker or online in essence you are buying tiny piece of a huge corporation with millions of many different pieces. There is some comfort in knowing that it is a large corporation with holdings all over the world, but it also comes with a huge overhead to support. When one purchases stock in such a large corporation with their large overhead it takes a lot of movement in the market for one to make a substantial profit, plus you are buying the stock with “post” tax dollars so you only getting to invest 60% to 70% of the income you had earned. You have already given up a large part of your buying power before you even start. When you invest into an oil well it is called “Direct Participation” and that is what is happening. You are investing directly either into one oil well or a group of oil wells. Your investment is more focused on the production of oil and not on the running of a huge corporation. Your investment will have the chance to grow faster and larger when it is focused instead of thrown into a huge group where it is used to run the machine.

Truth – There are different kinds of drilling when it comes to finding oil. The type that most people have heard of is “Wildcatting”. It is what was talked about on the TV shows of Dallas and other movies about oil wells where the guy goes out into the middle of nowhere and when he is down and out on his last dollar hits a gusher of a well and it blows up in the air and everyone lives happily ever after like the Beverly Hillbillies. In situations like that where one is drilling in the middle of no known oil production the odds of getting a dry hole are probably more like 25 to 1 that you will get a dry hole.

The other type of drilling that is done and has a much higher success rate is “Developmental Drilling”. When you are doing developmental drilling you are either drilling next to or very near to existing oil wells or oil fields. This type of drilling is highly successful and can sometimes have a 100% success rate. When investing into an oil well be sure to clarify if the investment is a wildcat or a developmental drilling project. Chances are if you are investing into a developmental drilling project you odds of hitting oil and making money are going to be very good.

Truth – The best way to find out if you are getting a good investment opportunity is to do the research. Generally that is why people buy stocks and investments from a stock brokerage house or online service they have heard of, because they are not really interested in doing the research. An investment representative will ask them their tolerance for risk and take their money and invest it for them. Minimal risk. Minimal return.

When in investing into an oil well do the research. A for real oil drilling and exploration company will invite you to the drilling site and explain the risks to you first hand. They will allow you to hear what the geologist has to say in regard to whether the well is going to be commercial or not in his opinion. Legitimate oil operators don’t shy away from the investor who wants to learn more about the process of drilling and producing oil wells. They welcome the questions and comments and it allows you to get directly to the people who are making the oil well investment decisions and thereby increasing your knowledge of the oil industry and reducing your risk.

Truth – If anyone really knew how much oil an oil well would make before it was drilled do you really think they would be asking you to invest? Nobody knows. And I mean nobody knows how much an oil well is going to produce.  When a project is based on developmental drilling it is easier to get an idea and a possible range, but even then nobody ever really knows how much an oil well will make. All oil wells are different. They can be right next to each other and be totally different. And that is why oil operators share the wealth and the risk when drilling. Because of the unknown. Even the largest companies in the world like Exxon, Shell or BP share the risk when they are drilling new projects, because they too know that there is an unknown factor when drilling oil wells and it is better to have a piece of a lot of oil wells than have all of your eggs in basket per se with just one oil well.

Truth – Very rarely are the carrying costs to maintain and operate an existing oil well excessive. The exception is rare. The cost to prepare, drill and complete and oil well are expensive, but if an oil well is completed properly the cost to maintain and operate are almost minimal. There are some wells that may go a year or beyond before ever needing any additional maintenance.  Only when you have factors such as corrosive fluids or other chemical reactions down hole do you encounter excessive maintenance costs. It is rare that you will have excessive mechanical costs after an oil well has been completed. Your oil operator is also your partner when you are involved in direct participation oil drilling and they do not to be burdened with high carrying costs either. You can be assured they have already factored carrying costs into the equation, because they want the oil well to be a viable investment too.

Truth – Investing into oil wells is like when you buy stock. You are only liable for the amount of your investment. In the stock market if the company you invested in goes broke or has a product liability issue you are not affected by these issues other than your investment may go down or become worthless. The same is true when investing in an oil well where you have an operating agreement between yourself and the operator stating that you are not liable for any actions of the oil well and the operator is assuming the responsibility and liability. It is like getting the best of both worlds. You are on the ground so to speak in the front row watching your investment, but without any of the liability.

Truth – Oil wells have a very long life span. Oil wells have a tendency to begin with a higher rate of production, because in the beginning you are letting off the pressure that has been captured underneath the earth’s surface for millions of years and over time it is like putting a very tiny tube into the side of huge tire full of air whereby it eventually slows down to a slow stream and continues to blow out air. Oil wells are similar. After the initial pressure has been released there is still oil in place and some wells will continue to produce 20, 30, 40 & 50 years under their own pressure. Some oil wells will need to get a push later in life with an operator injecting water or some form of gas to give the oil a push and help it come out. But generally an oil well has a long life. The production won’t be at a very high daily rate, but it will keep going and going and going like the Ever Ready Battery Bunny.

Truth – Everything in life is cyclical. Things go up and thing and things go down. And the price of oil is not different. However, in today’s world the market place is different. We now have 1 Billion people in India with a 300 Million middle class that is evolving and we have 1.1 Billion people in China that has 300 Million middle class that is evolving there too and are consuming more and more energy to help their countries grow and prosper. Plus like the stock market oil wells are known to be long performers and continue to produce and give an economical return to their investors. In the stock market if the sales of a company should tumble and go into the negative column as it did with General Motors and all of the investors money was wiped out with the company filing bankruptcy due to low sales. In the situation of an oil well if the market price should drop below the amount needed to be profitable you can turn the well off and wait until the market price returns. And it always cycles back around again to profitability in the oil business.  You find after doing the math on the amount of money you have invested that over time before factoring in your tax benefits that oil investments generally have a very high rate of return.

Truth – An interest in an oil well is sellable, because it is based on cash flow. Just like a stock is priced based on earnings times a multiple an oil interest is the same way. The longer you own an oil interest and the more established the production becomes the easy it is to sell, because it has a proven cash flow record just like a stock in a company would have.

Truth – It is believed that all of the big oil or easy oil has been found in the Continental United States excluding the offshore oil which is yet to be discovered. But big oil and new oil is expensive. Because it is in hard to get to places and it is much deeper than the oil found in the past it is much more expensive and therefore it would cost a private investor considerably more to invest in this type of oil exploration.

But there are thousands of proven oil fields in the United States with oil reserves in place that have been sitting idle for many years. Fields that were abandoned when the price of oil had dropped and before new technology was invented to get the oil out with reduced costs and at today’s prices make the developmental drilling procedures of an existing oil field very profitable and cost effective in today’s market place.

WARNING! If YOU are a business owner. Someday your business WILL be for sale.

Posted on 10. Apr, 2010 by Terry Monroe in Advice, Business

Nobody likes to think about selling their business and for some it is like the thought of having to buy a burial plot, but the truth of the matter is that someday your business is going to be for sale and if you are a business owner you need to have an idea as to what to do when that time comes. There is a chance that the business will be sold to an insider such as a relative or family member or maybe it might be somebody outside of the family to someone who may or may not be in the industry. But regardless someday it is going to happen and the good news is that you have a choice. And that choice is to prepare for that day now so you will have more control over the situation and invariably probably get more value for your business or you can put your head in the sand and continue to be in denial and wait until that time comes and then react to the situation. (Sort of sounds like going to the dentist doesn’t it? Either you get a checkup on a regular basis or you end up with a rotten tooth and have a situation that is ugly).

Everyone knows that there are “rules of thumb” formulas in every industry. For example when determining the value of a business there are “rules of thumbs” as to what different businesses are worth. Motels are figured on a multiple times the gross sales, convenience stores are figured on a multiple times the net profit, service businesses are figured on a multiple of net profit plus equipment and so on. But did you know that there is a “rule of thumb” as to how long your life expectancy should be? Yes, as wild as it may sound there is a “rule of thumb” in regards to how long you should have left to live. Remember this is just a rule of thumb and not a scientific formula, but yet very interesting.

The “rule of thumb” for life expectancy is as follows. Take the difference between your present age of today and 100 and multiply it times 2/3 and then add that amount back to your present age to get the “rule of thumb” of your life expectancy. For example if you are 55 years old today then 100 – 55 = 45 x 2/3 = 30 + 55 = 85. In other words if you are 55 years old today the “rule of thumb” is that you should live to be 85 years old.

OK, I know I don’t have any scientific data to confirm this formula, but remember it is a “rule of thumb” and what if it is pretty close to being right? The point here is that there is going to be an end and generally our bodies don’t continue at the same rate and energy level that we are at today and then all of a sudden quit working like some batteries in an electronic toy or flashlight. No, we gradually begin to slow down and the light gets dimmer. Remember, I am not a pessimist, just the opposite I am a realist.

So if any of this is true then why don’t we do something about it and get prepared. Maybe a little bit prepared?

Over the years of my helping business owners in understanding all of the ins and outs of either selling their business or getting it prepared for the sale I have discovered one thing that has helped them to get the most value out of the business when it came time to sell. And that was that they took the time to prepare themselves and the business in a manner that was practical and understandable to what a buyer would look for and ultimately pay top dollar for. Regardless as to whether the buyer would be a family member or an outsider. I have a lot of respect for business owners who operate their businesses everyday and I know how much work it is to keep the business operating and how distracting things are on a daily basis, let alone trying to grow a business or taking the time to prepare and collect the needed information so that a proper valuation of the business can be done, because I too ran and operated 35 different businesses and as they say “I feel your pain and have walked in your shoes”.  But generally business owners always will put this type of work off thinking they will get to it later and later comes faster than we all think.

Businesses owners are a very unique group of individuals who are generally not given the appreciation and recognition that they deserve. They are the ones who make things happen. They are constantly taking action either because they want to or they have to in order to get something done. Yet, when it comes time to get the most value for them and their families for the equity they have accumulated over the many years of hard work it is sometimes a mystery as to how to get that equity out of the business.

There isn’t a week that goes by that someone will ask me what their business is worth thinking that since I have sold hundreds of businesses that I should have the answer on the tip of my tongue, but in reality without the proper information I don’t have a clue. But there are some general “rules of thumbs” that I am going to share with you that can give you an idea as to what a buyer may think your business may be worth and ultimately they are the ones who really matters. It is irrelevant as to what you think your business is worth, because you are not buying it, someone else is and they are going to have their buyer’s hat on and you are going to have your seller’s hat on.  But first let me ask you a few questions that will need to be answered.

1. What do the Numbers Say? Look at the income & expense numbers for the last three (3) years.  Why?  Buyers are looking to purchase an income stream and want to see what the business has been doing for at least the last 3 years. Is it trending up or trending down? Buyers are looking to buy an income stream and especially one that has an upside to it. They like to find businesses that are well ran in a good industry and just need a little tweaking to make it more profitable.
2. What is the Quality of the Assets? By this we mean: What kind of condition is the building or the vehicles, the fixtures, the  equipment that is being used in the daily operations of the business?  Have these items been neglected and possibly antiquated or worn out? Is the business current with all of  the governmental codes and requirements? If not what will it cost to get the business current.
3. We are always selling a revenue stream. So has all of the income generated by the business been ran through the books? Are there personal items that have been paid by the business that need to be identified so that the buyer can get a true picture of what the business is generating? Remember, the buyer is looking to buy a revenue stream. If you have any questions about this philosophy I would recommend that you take your seller hat off and put on a buyers hat and make a list of the items that you would be concerned about if you were buying a business to support yourself and your family. It is a good reality check. We are not trying to be personal on any of these items only realistic for both parties.

These are just a few of the many questions that will need to be answered before a definite valuation can be arrived. With the above listed information you can now use a multiplier to get an idea what your business may be worth at a particular point in time. For a retail business that would include real estate you can generally estimate 4.5 to 5.5 times the net profit to get a ball park market value of the business. For a service business or a business without any real estate you can estimate 1 to 3 times the net profit plus the value of the equipment and other items used in the daily operation of the business.

Please keep in mind that these are general rules of thumbs and there are always different variations of the multiplier based on the specifics of the industry and the business. But in today’s economic climate it is always good to have some kind of idea as to what your assets may be worth.

The best way to get a market valuation of your business is to get an outside opinion from someone who is familiar with the industry that you work in to give you a market valuation. Not an appraisal, but a market valuation. And it generally cannot be done by ones accountant even though they may inject some of the information, but since they don’t work in the industry of the business owner they are not qualified to give a market valuation for that industry.

Keep in mind that a market valuation is something that should be done quite often as it is like a personal financial statement. A personal financial statement is a flash in time as to what one is worth. It never stays the same and it changes constantly and a business is no different.

So in conclusion I would suggest that you put your numbers together, take a look at the quality of the assets and review the revenue stream that you have and then contact an industry professional and get a market valuation even if you are not considering selling, because the preparedness will help to ensure you that when the time does come you have the correct information helping you to get the best value for your business.

And don’t get too excited about the “rule of thumb” of live expectancy, because who knows I could be wrong. It could be shorter than what we think.

NO BROKERS PLEASE!

Posted on 09. Feb, 2010 by Terry Monroe in Advice, Business, True Stories

Well that isn’t exactly what they said, but their actions and words were the same as if they had said that as we spoke. I was responding to an individual that had mentioned to me that they wanted to sell part of their convenience store business, because some of their stores no longer fit their business model and the stores were getting old and didn’t perform to the new standards of their company. And they believed that they would be better off to sell the underperforming assets and reinvest the money into new facilities. A wise choice on their part and I commended them on their decision. It takes a lot of foresight and courage to be able to constantly be reinventing your business, something that a lot of people talk about, but very few act on.

As the conversation continued it was obvious that even with all of their foresight into the business of growing and nurturing their business to the next level it was of extreme discomfort to them of the thought of using a broker to assist them in the selling of these underperforming assets they had been discussing with me. Now, since I am a business broker and I make my living by assisting other people in such task as helping them to determine the market value of an ongoing business and prepare marketing materials that will enhance and present the business in its best light when presenting to a buyer I probably should have been offended by this individuals feelings toward a broker. But, surprisingly I was not. It is not that I am callous to the these type of remarks it is that I too can relate with their thoughts about the use of broker and certain things that we just can’t bring ourselves to doing even though we know that we should even when it is the right thing to do. Like not wanting to pay someone to pump our gas when we know we could afford it, but can’t bring ourselves to paying someone else when we know we could do it ourselves. Like not wanting to pay someone to carry our bags or briefcase at a hotel, because we know how to do it. Like not letting anyone else drive the car while we talk on the phone or write a note, which would be more efficient for us, but not wanting to give up the control of the situation, because we know how to do it. Lots of little things that we just can’t seem to let go of. I am not trying to reason as to why, only recognizing the fact.

So in response to my friend who had made the statement about not ever wanting to use a broker, because they could do it themselves I said. I agree with you. I don’t like to use brokers either. As a matter of fact it drives me crazy when I have to use a broker to sell anything for me whether it is a piece of real estate or something small that could be sold on E-Bay. I concurred with their feelings and agreed. Now needless to say this isn’t going to do anything for my cash flow in the world of business brokering, but it was how I felt and I wanted to be truthful with the gentleman.

However, regardless of how he and I feel about the use of brokers the issue of needing someone or something to sell the underperforming assets still existed. All we had done at this point was have a good conversation with ourselves, but the issue of needing to sell the convenience stores was still at hand. I then asked him if he had anybody on his staff that was familiar with the stores in such a way that they understood the basics of the operation of a convenience store and could read and understand a profit and loss statement for a convenience store and he said yes that he did. He said that he had an individual that had a basic understanding of the income and expense side of the business and had helped them build a couple of stores and was presently working  in their company in their real estate development and marketing side of the business.

I then asked him if the mentioned individual were presented with a prospective buyer for one of the convenience stores did he feel that they would be capable enough to work with the individual in supplying them with the needed information that a buyer would need to decide if they wanted to buy the convenience store and help them through the process of consummating the sale of the store and he said that they could do that. I then suggested that I had a solution to that nasty old broker situation that we both had discussed a few minutes earlier.

I explained to him that in order to be a successful broker it is not always about you the broker. True, you must have a pleasant personality and be reasonably educated and informed about the product or service that you are selling, but you must also have a system to get something sold. Having the ability to build rapport and work with people is very important, but without a system to back you up and guide you through the process of taking a buyer from the introduction of a business to the closing you must have a system and that is what makes a difference between the successful and not so successful brokers of the world. I suggested that if he had such an individual that he had mentioned earlier then I could probably help him in the selling of his underperforming convenience stores and implement  a systematic approach to the selling process and not have to pay a brokerage fee in doing so. He was intrigued and interested.

I explained to him in the respect of selling convenience stores there was such a system that he could employ on a cost basis that could supply him with a selection of services that would accomplish the same thing that a broker would use, but without the cost of a broker. The services available included marketing packages that had been designed specifically for the convenience store industry that conveyed all of the pertinent information that a convenience store buyer was looking for and the marketing tools that brokers use to get the businesses they are selling in front of thousands of buyers who are looking to buy businesses. I also explained to him that there was a book that could guide him through the process of what it would take to sell a convenience store and included most of the forms needed to accomplish a sale and included a list of items to be on the lookout for when selling a convenience store. And that the cost of all of this was less than $500.00 and could save him literally thousands of dollars. Basically, I had given him the road map he was looking for and was going to save him lots of money.

He then asked me where could he get this information for such a small price and why would I as business broker be willing to share this information with him when this is what I do for a living? I explained to him that I understood his feelings about brokers and knew that in my heart of hearts that I was never going to get his business and I knew that there are times when either I or another business broker could not be available to serve his needs, but he still had the situation of needing to sell his stores and I wanted him to have all of the tools he could possibly have when selling his stores. Even though it could have impacted my business it is still human nature to want to help your fellow man and woman. Giving is a part of us and is what we must do to grow.

I can happily say that the gentleman did take my advice and he did contact the company that I had suggested and in the first 60 days had received over 170 buyer inquiries and is now entertaining offers with a closing pending on one of his convenience stores.

So if you feel the same as my friend who could not utter the word broker without leaving a bad taste in his mouth, but yet want to save the many thousands of dollars he is, feel free to contact me at  and I will gladly share with you the same information that I did with my friend who is now in the process of putting buyers into the underperforming and cash draining stores that he once operated.

The $30 Million Dollar Sale & Pennies in Your Pocket

Posted on 21. Jan, 2010 by Terry Monroe in Advice, Business, True Stories

I heard a story recently from a very successful businessman and friend of mine that literally made my mouth drop open. Now, I am in the business of selling businesses and have been for many years and with me being in such a business I love hearing and reading about individuals who have started out in life without a lot of formal education nor a silver spoon in their mouth and have been able to go from rags to riches. It is always good to hear such stories and it is even more interesting if you actually know the individual instead of just reading about them.

This is the case of my friend who started out with nothing and worked his tail off in several different businesses and through luck and his intelligence to realize he had a good thing worked and built his business into a very profitable company. And to add to his luck another company came along and realized what a good job he was doing and wanted to acquire his company.

As he explained the transaction to me the two companies had synergies between them that made the two of them a good fit and they began the due diligence process, whereby the acquiring company inspects all of the details of the selling company to verify all of the numbers and the things that they had portrayed about the company was true. After the due diligence process was done then the financial numbers were stated and the price was set between the two parties based on the EBITDA of the company. EBITDA means earnings before interest, taxes, depreciation and amortization. It is the true net income of the company and once this is determined then a buyer and seller come to an agreement on what the multiple is (every business is different, but for convenience stores with real estate it is generally between 4.5 and 5.5 times the EBITDA) and that is the selling price of the company.

As the story continues the eventual selling price was $30 MIL. Now in my book and most people’s book $30 MIL is quite a bit of money, especially if you don’t have any debt against the company and as the story goes he didn’t have any debt. So I know you are probably thinking the same thing I was. Wow! This guy has got it made how can there be a problem with this story? Well as he continued to share with me the deal was closed in January and the taxes that he was going to have to pay on the sale of the company were not due for 15 months. Meaning that if you get the income on January 2008 then you would not have to pay the taxes until April of 2009, but the tax amount was based on the sale price of $30 MIL that took place in January of 2008. (Please keep in mind that the dates have been changed as to not reveal the company or the person in this story). And I didn’t ask, but I assumed that the selling entity must have been a C-Corp, because he said that the taxes that were to be paid on the $30 MIL was $12 MIL (40%) so let’s assume that it was a C-Corp. But as he explained to me that was not a problem, because he had fully invested all of the $30 MIL so that he would have the money available to pay the taxes and then some more, because he could work off of the $30 MIL and make more money in the 15 months before the taxes were really due. So far so good.

Fast forward 15 months later to when the taxes were due to be paid and guess what? The $30 MIL that had been invested was now down to $15 MIL. I didn’t ask him where he parked the money, because it would have been too much torture to put him through. So now he has $15 MIL in his account, he owes the government $12 MIL, which leaves him with $3 MIL a net of 10% of what he sold the company for. Was he broke? No, but a far cry from the original amount of the sale price of the company.

So what is the moral of this story? BE PREPARED. As I mentioned earlier my friend was a very intelligent and successful businessman, but I imagine he got involved into the selling process of his business focusing on the top number and didn’t do a lot of preparing in advance with a team of experienced individuals in all aspects of the selling of a business. As an experienced business broker I would have coached my client far in advance as to what his tax implications would be and would have worked to structure the transaction as to minimize the amount of taxes he would have had to pay. Many times there are several ways to legally reduce your tax liability if start preparing early enough. Selling a business is a team effort that requires many people with specialized skills with everyone focused on the same outcome. Getting as much money as possible into the seller’s pocket. A very simple goal. But must be executed in the correct manner or you could end up like my friend. Big sale number, little money in his pocket.