Why a Seller Will Say Yes to You (Without a Bank Involved) | 332

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Transcript

SPEAKER_00 0:00

Welcome back to the Business of Beers Podcast, your daily dose of strategies, tools, and tips to help you build an eight-figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.

SPEAKER_01 0:16

How do you get these deals? How do you hunt for these deals? Part of it is you you talk to people and you want to figure out like what are their intentions for selling. We talked about there's people who who want a very high price that a bank's not going to justify. There's another one where it's zero profit and no bank is gonna loan you if it's zero profit. Another big one is time, where sometimes you'll you'll work with people, you'll get to know, and and they have like a deadline to do something, right? Maybe they are getting a new job, or maybe they're launching a new business, or maybe they want to move, or maybe they're just like they're near retirement and they just want to get out. All right. And for them, time is what's most important. And so in a in a seller finance deal, I mean, I I personally could get a deal done in anywhere between 30 to 45 days, depending on how slow like their side of it is in the franchise. Because I already have all the documents. I mean, I've done it 20-something times. Like we have our set of documents. They sign it, we sign it, they sign it, then it's just like give us the keys. Like it, I could probably get done in two weeks if if we were really motivated to do it. Like, it is extremely quick because there is no like underwriting there if if if you know the business, right? You would want to do your due diligence on this thing. I'm not saying buy with no due diligence, but for me buying another existing franchise or repair shop, like I don't need to do all that stuff. So for me to do the actual financing component of it is very quick. Versus, you know, an SBA is gonna be what three months. Conventional financing, if you go like with a bank, is probably gonna be three months, maybe longer. And then there's also this other component of just like the pain of doing it, right? So when you when you deal with the bank, you know, they're gonna want tax returns, right? Not only from you, but they're gonna want to see the sellers to make sure they're not lying about the numbers. They're gonna need PLs, they're gonna see balance sheets, they're gonna want to see uh bank account statements, they might want to see payroll registries. All right, there's gonna be like all these things that they are gonna ask for again and again and again and again from everyone involved. And so sometimes it's like for the seller, it's just like not worth it to them, or they just don't want to go through this, or you know, maybe their tax returns aren't super clean and they don't want prying eyes on it, right? Maybe their balance sheet and their PLs aren't super great, but you trust it because you know the business inside and out, but they don't really want someone else going through it. And so, for you want speed, you want ease of use, like the the deals can be done this way. We talk to them about time and how long it takes to do deals, and you can get it done way quicker if you know you don't have all these things, you don't have all these things to do. So then we get into this is another reason, is the the the uh there's there's two there's tax spend, there's like a cash flow thing. All right. So you buy their business. So let's say I buy uh a deal. So I did a deal once, and it's not you know, so a lot of times I've been talking about the small deals, right? I've been talking about like they're not making any money, one deal, two deals. I did one that was uh a two million dollar purchase price, and we structured this deal. It was multiple stores, it was a package, and I knew the guy, I've known the guy for a while, but we structured it with 50k down. That's all I had to do. I had 50k to get into this thing to buy it. Um and I think we're paying 10, I don't know, somewhere around like 10 to 12k a month. I'm not I'm not sure exactly in the numbers. And we're gonna we're gonna be paying that for like I don't know, eight to ten years, something like that. On this one, the business was extremely profitable. It was making six, like 500 to 600k a year profit. And we bought it, we took control of it for $50,000 down and are making payments of 10 to 12k a month for the next 10 to 12 years, whatever it is. And you're like, man, why would they why would they do that? Why not just get the check, right? Why would someone like put put the trust into me, really? Like that's what they're trusting. First of all, there's a couple things that's unique about this. And again, why I love this the franchise rolled up game, because a lot of the my best deals are other franchises, okay? And there's just like trust that gets established. There's people that you get to know. And people ultimately want to do business with people they know, like, and trust. And so, like, yeah, we knew each other. He knew me. Uh uh, we had already done one deal together. And so I'm like, he trusts me with his money to make payments every month more than he would trust a random like financial advisor or other places that he could put it. And so if you're like looking to get into business, you're like, hey, this sounds good, I want to do this. This this happens in lots of franchises. This isn't unique to me, this isn't unique to auto repair or MITIS or anything else. I know I, you know, I have this eight-figure franchisee program. We work with other franchisees to help them structure these deals and get these, and like I got I got guys doing this in blinds, I got guys doing this in senior care, in fitness, in food, home, other home services, in terms of structuring some really great creative financing deals with profitable locations inside systems. And yes, it is possible to do it with outsiders, but it's hard to establish a trust. But in franchise, it's it's way easier. So that aside, there's some tax benefits. All right, this is another big reason why they do it. So when they do seller financing, the seller gets to defer their capital gains. All right, they don't get to eliminate it, but they get to spread it out. And depending on the math and like how you structure it, it's entirely possible, like I have a couple of these this way, that the interest that he is making every month pay the capital gains tax, essentially. And that, you know, if I'm paying him more than $50,000 a year in interest, kind of like mentally, he's like, all right, I'm getting all this interest, and that that extra interest money is going to pay my taxes. Now, he does have obviously like additional taxes he has to pay on that interest, but like we don't want to get into that. So mentally, it is it is a lot of people like this. They a lot of sellers, they like cash flow. You think like if you're a business owner, you know, you live your entire life on cash flow, right? Every week you take a distribution every month, every quarter, whatever it is, but like you're used to money coming in again and again every month, right? We're not really used to like I have never had a big payday. Like, I have never, because I've never like, I've never, I'm not gonna sell the company, right? And I'm not gonna do some big like debt refinance thing. And so I've never had a big payday. And so for me, like I like the the consistency of getting monthly cash flow from my business. And many sellers feel the same way. And so it is scary to them to say, well, let me just get this like one big lump sum, because they've never really had that before. And they're in the the mentally, it's easier to figure, like, plan around, you know, I'm gonna get a $10,000 a month payment for the next 10 years. And I know like that's coming in. And I and I take that responsibility seriously as the retirement plan of I think it's seven people now who like we've done these deals with, and they're retired, and I'm making payments every month. And so he gets the cash flow, he gets the he gets the interest payments, he gets the capital gains tax kind of deferred out, he gets the higher price that we wanted, we get the deal done quicker. Then you've got to deal with uh I'm gonna say it's confidentiality. That's what that's supposed to say. Where picture this you are a seller of of a business, you've been in your your whole life, you are you are finally ready, ready to like pull the pull the plug and and and get out. You have some key people in your organization. People have been with you for a very long time. People who are nervous that if you sell, that a new buyer is gonna come in and they're gonna like fire everyone and like everything's gonna change, right? Very, very real. And they are very, very nervous about their employees finding out. Because as soon as their employees find out that they're selling, there's no going back from that, right? And all of a sudden, now all this fear builds in people and they start looking for other jobs. And if that got out, like the seller who now has this business, he's ready to retire and all these things, and then all of a sudden, his key, like everyone in the company now knows that he is looking to sell. He's trying to calm fears, but like it's too late. His key people leave. All of a sudden, now this business that was like, you know, a business in a box, ready to sell, uh, is now crumbling. He has no people. He he is back in the stores working it. He is posting online to try to fire, hind people, and fire Nick, hire him and train him, all while he was like getting tired and ready to move. And all of a sudden, this business now we thought was worth a lot of money is worth a whole lot less because now he doesn't have the tenured people and sales are dropping and cash flows dropping, and he's stressed out. And nobody wants to be in that situation. And so one of the biggest so then think about this. Okay, so that so like that's a huge fear is my employees will find out and everyone will quit. All right. And so if he if he decides to go down this route and he lists it with a broker, and then the broker is putting it on biz by sell, and then people, you know, people are are going through it. You've got then all these outsiders doing walkthroughs because they they ought to do it. He's got to get all these documents and tax returns, and he's submitting all this information and answering all these questions, and then these, you know, people are random insurance inspections, right, are coming by and inspecting the business. And like it's like really hard to really hide it, right? Especially in a retail business like like ours or anything where like, you know, someone has to go and physically see it and talk to the people. And so this is a huge, huge concern for a lot of a lot of sellers. And so one of the one of the benefits of you know, I pitch as part of how do I convince a seller to do a deal with me is the fact that like, hey this is gonna be 100% confidentiality. I like I want their employees. Like what every time we do a deal, I literally want everybody that's on their team. Because I don't have any, like, like if I bought you know five stores at once, I don't I can't staff five stores at once. Like I we need the team on day one. And then, you know, I have people we we we acquired stores seven years ago. The the people still work for me today and they're crushing it, right? Like we have a lot of success in keeping the key people and on and honestly at giving them a better system to run with it. And so for me, like I don't want anybody to quit either, right? And there is no broker involved because they're going direct to me. There is no, there are no banks, there are no like other people digging into all their stuff. You know, I can do a walkthrough like on a Sunday when they're closed or after hours or whatever, but a lot of times, because I'm in the business, like there's not a lot I have to see. I mean, I have never asked for a tax return in my in my life for any of the the deals that I've done. I don't need it, right? I don't that's the benefit of the franchises. Once again, I I know what the sales are, I know what I can make with it. I don't, I I I need to see their rent, I want to see their PL, I want to understand payroll, but like for the most part, the the people is what matters the most. And that the less you can have all these other parties involved, and it's just like, listen, it's a deal between me and you that we could get done in a matter of like 30 days or 45 days. Think how quick and easy that would be, even if it's not at the best price. Even if, yeah, you could go get a higher price from somebody else, but you also risk everybody finding out. You do a deal with me, we're gonna get this thing done in no time. Literally 30 days, I could have you out of here, and you could be on the beach somewhere, and and I'll be, you know, make I'll be making payments every month, right?