Today's Guest

David Barnett is a 1998 graduate of the Williams School of Business and Economics at Bishop’s University and a graduate of UNBSJ’s Electronic Commerce Management Program. Since the late ‘90s, Mr. Barnett has built his profile as an expert in small and medium-sized enterprises. David shares how small business owners should think about selling their businesses and growing their businesses through acquisition.

Resources Shared

• How To Sell My Own Business by David C Barnett
• DavidCBarnett.com
• Thryv

Episode Transcript

(Please excuse grammatical errors due to transcription)

Gordon Henry:

Hey, hey, this is Gordon Henry at Winning on Main Street. We talk a lot on this show about buying and selling businesses. And this week, we're bringing you a real expert on the subject, David Barnett. Since 2008, David has been advising business owners on how to buy and sell businesses. He's the author of multiple books, including How to Sell My Own Business: A Guide to Selling Your Own Business Privately and Not Pay a Broker's Commission, which became a bestseller under Amazon's entrepreneurship category in its release month. 

David has been working with small and medium sized businesses for decades. From 1998 to 2005, he was a major account representative with the Yellow Pages in Canada. This opportunity gave him an insight into the challenges of small and medium sized businesses. He dealt daily with the owners of these companies. In 2005, he left the publishing industry to start a small business with a partner. Their venture was an immediate success. And after operating and building the business, an opportunity came to sell the business in 2006. What should listeners get out of this episode? If you're looking or thinking about buying or selling a small business, you really need to know the key steps to ensuring you do it right. What are the steps you need to take? David is a good person to ask. This show is brought to you by Thryv. Small business runs better on Thryv. So David, welcome to the show. 

David Barnett:

Hey, Gordon. Thanks for inviting me on. It's great to be here.

Gordon Henry:

Great to have you. So first, why don't you just tell us a little bit about yourself, the business you run today? And then we'll get into your recommendations for listeners. 

David Barnett:

Yeah, sure. So I'm one of those people who, probably like a lot of your listeners, has been interested in business and making money ever since I was an adolescent. Right? All those teenage businesses that you get into, mowing lawns, in my case, shoveling snow out of people's driveways and stuff like that, it led me to want to learn more about business. I would go into businesses and feel frustrated if I as a teenager could see a better way to do it. I'd be like, "Why aren't they doing it this way?" So I went to business school because I thought they'd turn me into a business person. And then after about three years there, I realized what they were trying to do to me was turn me into what I now call a Fortune 500 bureaucrat, someone in one of these big companies. 

But my heart and soul has always been in the small businesses that you see when you're driving down the street in your town. Right? And so that's why it was so exciting for me when I finished university and got a job with the Yellow Pages because I got to go and sit down with the owners and managers of these very businesses. And I would be asking them the questions like, "The next time your phone rings, who would you like it to be? What's your ideal customer? And how do you make money with your business?" And I would try to figure out what a customer was worth because that could then determine what sort of ad budget maybe that they could afford to spend in the book. Right? And just how important was it to be the most noticeable person in that book, et cetera?

So I spent seven years at the Yellow Pages and met a whole bunch of small business owners. And it's where I learned what I like to call my inch deep, mile wide business knowledge. I met all these different people from these different industries. But I could tell that the days were probably numbered for the printed book, although it is still around today. And so I left to go pursue that entrepreneurial dream on my own, so as you said, I started a business. It was in the home services industry, and it was interesting to start a business and get it growing, but I missed my business owner clients. And so when the opportunity came up, I sold that business and I got into another business where I could work with business owners, this time, finance brokerage. So I was helping small and medium-sized business owners get loans, lines of credit, selling receivables, what they call factoring facilities. And so I was doing that until the big financial crisis in 2008, 2009.

And basically, my pipeline dried up, my sources of capital began to stumble. A lot of these companies ended up closing. But one of the things I noticed when I was arranging financing for businesses is people would come to me looking to get money to buy an existing company, and I didn't know what business brokerage was at the time, but when I started to look into some of the deals that people were working on, I realized that the other people involved in the deals didn't really know what they were doing either. I knew enough to know that things were not happening correctly. And so I explored the world of business brokerage and I ended up joining up with a big international franchise brand in that industry. And I chose them because they have me access to training. And so over a two and a half year period while I worked under the wing of an experienced broker, I went through a training program. And all of that was very exciting and interesting. 

The problem, though, Gordon, is that business brokerage is based upon the model of real estate where you get a business owner that wants to sell, you work and try to sell that business. And when you sell it, you collect a commission. The difference between businesses and real estate though is that you can sometimes take years to sell a business. And so it was an incredible cashflow roller coaster. I had three and a half years in the business, close to four years. And in each year, I had growth in revenue and earnings. But each of those years also had stretches of time from seven to nine months with no deal closings. And so I would end up personally and my business would end up in debt with lines of credit and credit cards. Then I would sell a bunch of businesses and end up with a bunch of money. And then you wouldn't want to spend the money because you wouldn't be certain when the next deal would close.

And I have a young family at the time, and so after a few years of that, I realized this isn't going to work. I left, became a banker. And I was a banker for four years, and in that period of time, my phone kept ringing from people that were looking for help on these deals. And one day, the bank decided to reorganize. And I thought, "You know what, maybe I can help people with this small business stuff and just do it differently." So what I did is I basically took the business model of CPAs and attorneys and I applied it to this industry. So today, I work with buyers and sellers and I work as a consultant. And I have a list of services that I do. And when I help someone look at a deal, or I help someone prepare their business for sale, I just charge them for each step along the way that I do.

And so what's ended up happening is my cashflow has been smoothed out. I'm able to help more people. And for those that are selling this business, for example, they end up spending less with me than they would with a broker because there's no commission tied to the end of it.

Gordon Henry:

Got it. Okay. So great wrap-up, so let's talk now about your recommendations for business owners, or would be business owners. First, I'd like to talk about buying a business, and then maybe we'll get into a little bit about ideas about selling a business. Let's start with some basic questions. What's the best place for a prospective buyer, somebody who's looking to buy a business, to find a business to buy?

David Barnett:

There's two completely different ways that you can go about doing this. You can look for businesses that are for sale. And so there are these online marketplaces where people will list a business for sale, much like people list a home for sale or a used car that they want to sell, the big difference being that the listings typically are confidential. People don't want word to get out that a business is for sale. There's a whole bunch of reasons for that. But the other way that you find a business that's for sale is that you go out and you start networking and talking with business owners and you let them know that you're interested in expanding your business, or you're interested in getting into business through doing an acquisition.

And there are no good sources of data about this just because these transactions are private and the way that business sales are done, one of the ways you do a business purchase is through what's called an asset sale. And so at the government, they're recording, maybe you create a new entity to do this asset sale, and then the seller maybe has to keep their entity operating for a while. So the government will record a business startup, when in reality what's happening is a business has been sold. But from what I can tell and what from other people in the industry say, probably four out of five businesses trade hands without going through any kind of intermediary. So it's people that come together, they meet each other in various ways, and they decide to do deals. 

A lot of the times, business are sold within their industries. So if you think about a small business, a roofing business for example, and that business might be sold to someone who's already in the roofing trade maybe in the next county over, they're trying to grow their business. And they realize one of the easiest ways to do that is by buying someone else in the same industry, so they know how to run the business already. And that might even give them other advantages, like if they are doubling the purchases of their raw materials, they might get better pricing from suppliers.

Gordon Henry:

So a buyer could go to I guess BizBuySell is a well-known one. You could go to a site like that and find a list of businesses. But another way is just through connections, networking, people in your industry. A lot of this is done through contacts. And when people want to think about, "What should I be thinking about spending if I'm buying? This is my first time buying a business? What should I be thinking about spending?" And obviously, it could be all over the map. But is there some methodology you tell people to kind of think about? 

David Barnett:

The way that businesses are priced is it's a function of the cashflow that is available to the owner. And so one of the measures that you'll see out there advertised sometimes is simply called, the cashflow is called seller's discretionary earnings. And it's the money available to an owner-operator that works full-time in the business. So think of it as a combination of the business's profit and the owner's salary for doing that work. Now here's what you have to keep in mind is you want a number that's big enough for you to take home for your own expenses, but then it's also going to be big enough for the other things that have to be covered. And that would be the debt service, and then usually amortization and depreciation have been added back in the calculation of STE, and that represents capital equipment. So you have to take into account capital equipment that you might need to invest for the business. 

And then you also have the taxes that have to be paid. And so let's say you're looking for a business that's going to put $150,000 a year in your pocket. Your STE target may be 250 or a little bit higher than that, so you can fit all those other expenses in there too. And then what might that mean for the price of the business? It could be anywhere from two to three times typically that cashflow number is going to be the selling price of most small businesses. And it varies by industry because it's really a function of risk. So a restaurant is going to sell at a lower multiple than for example, a septic pumping business. And that's just because there's more risks in the restaurant trade, and in that septic pumping business, you've got less competition, more regulation, that keeps competitors out, and more of an investment in capital goods, so people are willing to pay more for that kind of business. 

Gordon Henry:

So if I'm borrowing the money or some of the money to buy the business, you're saying I'm buying it at something like three times cashflow, I should be thinking about, well, I'll be able to pay off that loan in roughly three years. Is that a way to think about it?

David Barnett:

Well, basically what you're saying is that I'm going to surrender the cashflow of this business for three years in order to acquire it. But the reality is that entire cashflow can't go towards debt service, and that wouldn't cover your taxes or your capital equipment. Right? 

Gordon Henry:

Right.

David Barnett:

And so most people end up paying for that. In the states, for example, most small business acquisition loans, if they're SBA financed, they're going to be over 10 years. And so that creates more wiggle room so that you can create that paycheck for yourself.

Gordon Henry:

Okay, makes sense. So why should somebody think about buying a business instead of launching a business, starting a business?

David Barnett:

Yeah. Well, would you like to know the secret to success in business, Gordon? 

Gordon Henry:

Yeah. You got that written down somewhere?

David Barnett:

Yeah, I do, actually. So the key to being successful in business is you need a product or service that people want, and you need to have a methodology to execute the delivery of the product or service successfully. And third, you need people that want to buy it. And so when you start a new business, you might think you know what people want, and you may still need to work the kinks out of how you deliver it successfully. And then let's say you open a new dry cleaning shop, all the people in town that need dry cleaning presumably are getting it somewhere else. And so now you've got to convince them to leave that other provider and then come over to you. And one of the ways people do that is through promotion. So now you're working hard in a new business and you're working for less because you're trying to lure customers over. 

And if you compare that scenario with buying an existing dry cleaning shop, well, then you know the product and service is already in demand because they've got a track record of customers. They've already got a clientele that wants to come to that store because they've already been coming there. And you've already got employees in place that know the system of how to successfully execute this service. And I love to use dry cleaning as an example because, and this is what blows me away about dry cleaners, is that if I bring in three shirts and two pairs of pants, and I come back a few days later, they give me back the very same shirts and pants. But I know that my clothes have been laundered in a big batch with other people's clothes, and this is what I think is amazing about it. It highlights the fact that there's this system to it that if you don't execute this properly, you won't be in business long if you can't give people back their own clothes. 

Gordon Henry:

I think that's a good bet. So let's talk about the risk then, so the risk of investing in or buying an existing business, you're saying is probably lower than starting one because the existing one has all those things you said, product people want to buy, a system for delivering it, and customers who want to buy it, whereas starting new, you don't. So the risk, right? Is there a way to gauge that risk if-

David Barnett:

Yeah. Well, I don't want anyone to listen to that and think that buying a business makes it risk-free because all that happens when you buy a business is you then assume the normal risks that any business operates under. And small business as a category is one of the riskiest asset classes that exists. And so sometimes people will say to me that they don't think that ... Because I tell people you have to be able to cover your debt service out of that cashflow. Right? And people will say, "Yeah, but that means that you expect the business to pay for itself over a first number of years." But really, the business is still going to have a value after that. I discount that entirely because I think it's very, very, very rare that a business is going to last for 10 years. 

So many small businesses have a short lifespan. Usually, the longer and more established a business has been around, the better its potential to continue to exist usually is. But when it comes to business, we just don't know what's going to happen. I've had instances where business have had to close because a city took three months to replace sewer lines in front, and nobody had access to the business. I've seen people have a very successful business, and then a new major national big box competitor comes into town, and all of a sudden, the market changes. I know people that were in the tanning industry, for example, and then there's new law that forbids people under a certain age from using their service. There's all kinds of things that can happen that are completely outside of our control, which is why when I think you get into business, you need to be understanding that these risks exist. And this is why ultimately small businesses sell for a relatively low price.

I said that you multiply the cashflow by two to three times. If you compare that with companies on the public stock market, I mean, over there they talk about valuation of 11, 12, 15, 20 times. And the big difference there is that when you buy a business on the stock market, you are investing in the leadership and management team that exists, all their plans, all their experience, much larger organizations that have longer life, economic momentum. In the world of small business, when you buy that business, the main sort of decision making power of that business is leaving and you're taking their spot. And so there's risk just in business, but there's also risk in the continuity of the business.

One of the things that we get into quite often is understanding where exactly the goodwill of the business resides. So in a corner store in a busy neighborhood, busy intersection, we could say that the goodwill of this business resides in its location. People are used to going to that corner. But if you're talking about some kind of engineering firm, let's say, and they have relatively few number of customers every year, and everyone wants to talk to the owner, well, the owner is where the goodwill resides. So one of the challenges in that kind of deal is working something out where the buyer's going to feel confident that the clientele is going to want to transfer their loyalty to the new owner. And so some of these things can get a little bit sticky.

Gordon Henry:

Yeah. So you've been talking a lot about risk. And I mentioned to you before I want to talk a little bit about buying a franchise versus buying, or investing in a franchise versus an independent, standalone business. And I would imagine you would tell me that the risk in a franchise is less because it's got a brand and a system, but I don't know. Tell me how you compare those two.

David Barnett:

Well, I don't think it's as simple as that because if you open up a new franchise location, you've got the same difficulty that dry cleaner has in the example I gave. So if you open up a brand new franchise restaurant, everyone's going to another restaurant, you still have to lure those customers over to your place. If you have a recognizable brand, this could make it easier for you, if people are already familiar with that brand. One of the challenges a lot of people have with franchises is that if you are an entrepreneurial and creative person that has a lot of their own ideas and you want to try different things, you could feel very frustrated within the framework of a franchise because that's not encouraged. You need to fit within the rules that they lay out. 

If you are the kind of person that really likes having those rules, and there's plenty of people who are very successful in the world of franchising, if you want to get into it, I always suggest this to people. Don't open a new one. Go looking for an existing location that's for sale because then you can actually look at the track record of that business and decide what it's worth. But then you still get all of the benefits of being within that franchise framework. 

Gordon Henry:

Yeah, that's interesting. And does a franchise typically sell for a higher multiple than a standalone business that's not part of a franchise?

David Barnett:

It can vary. And it really depends on what industry and what the franchise setup is like. I have seen for example in the world of pizza that independent pizzerias will sell for a slightly lower multiple than franchise pizzerias. But when you compare the businesses and you compare the revenue, the franchised pizzeria has this added level of expense. I actually refer to it as an added layer of taxation, that royalty fee that is charged that the independent one does not have. And so I don't think you can just blanket say they are good or they are bad. What I always tell people when it comes to franchises is look at exactly what you're getting for the royalty fee because if you're getting a lot of national advertising, if they're putting that brand name in the outfield behind a Major League Baseball, it's getting television coverage and all that kind of stuff, the local independent is never going to be able to play in that field. 

And so when I look at chain restaurants and franchise locations and they've got seasonal specials and these billboard campaigns that come out, this is only possible because you've got hundreds of locations pooling their money together to do this kind of thing. So really, you have to look at: What do you get for the royalty fees? And could you do it on your own? And is it really worthwhile? And in some cases, it's a resounding yes. In other cases, it's more questionable. 

Gordon Henry:

So people may be listening and thinking, "Well, I've got some money I could invest in a small business, but I could also invest in real estate or something." How do you compare those two ideas, where to put your money?

David Barnett:

So it's a great question, and I think if you look at real estate, what you're buying is you're buying a very tangible thing. You're buying a building. And it's really hard for you as an owner of that building to do something wrong that's going to reduce its value by half. Right? It's also going to be very difficult for you to double the income of the building. Right? And so if you want to think about investments having leverage, a certain stick you can push on to make things change, the building is probably going to have a lower variability and it's certainly going to be a little bit more passive. It might require your attention if you're going to renovate an apartment, or you have to meet a new tenant, or something like this. Right? 

With a business, you can make a mistake in a business that will cut its value by half relatively quickly. The example I like to use is a pizzeria, long-standing pizzeria that the people in the neighborhood love. You buy it, you come in there and you change the sauce recipe, and half the customers leave. Right? Just in one day, you just cut the business's value dramatically. You can also do things in a business really aggressive marketing or promotion, or new innovative things that can help grow a business very quickly. And so businesses can offer a much longer stick when it comes to leverage, and I'm not just talking about financial leverage with debt, but the leverage of your own ingenuity and your own knowledge or desire to execute. And so one of the things that I'll say to people is, "If you're going to get into a business through an acquisition, it really is worthwhile to know something about that industry." 

And this is surprising, Gordon, because I've had people before who were considering spending hundreds of thousands of dollars to buy, for example, a restaurant. And I'll say, "Have you ever worked in that kind of restaurant?" And they haven't. And I'll say, "Why don't you go get a job in one? Why don't you go work in a pizza place for a couple of months and just see what this business is really like?" You can literally get paid to learn an industry. Right? And some people will be taken aback by that. And I'll say, "Look, go tell them you're willing to work Saturday night and they'll hire you because there's a shortage of workers out there." And so if you have industry knowledge, you can really do a lot with a business.

Gordon Henry:

Fascinating stuff. I want to switch over to the selling side because we have a few people listening who may be interested in selling a business. But first, we're going to take short break, hear a word from our sponsor, and we'll be right back, more from David Barnett. 

Thryv:

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Gordon Henry:

We're back with David Barnett, fascinating conversation about buying and selling a business. David has decades of wisdom really about how you should think about doing each of these things if you're a buyer, seller, and so forth. We've been talking about buying a business and I want to talk for a second now about selling a business from an existing entrepreneur, David. I have a business, I'm thinking about selling. Maybe I want to pass it on to my kids, but they're not interested. So what should I eventually do to sell my business?

David Barnett:

So the first thing is to recognize why small businesses go up for sale. I already mentioned earlier what kind of prices people get for a small business. Most of the time when I work with sellers and I do an evaluation of this business, the general reaction is, "Wow, if I just stay here for a couple more years, I would have the same money." And every one of those sellers is correct. So we might get this idea from the news headlines that people sell a business to cash out in some way, and that's a very rare subsection of business owners, IT people and this kind of thing.

So the reality is that businesses get sold for one of five reasons. There's burnout, boredom, and fatigue, I put into one bucket. Then there's divorce, poor health, the need to relocate, and retirement. And only one of those five is planned for, retirement. And so people will often say to me, "I have a certain time horizon to sell." And I say, "Well, that's what you think now," because one of the four of those other things could just happen to you kind of unannounced. And so I always say to people, "You should get your business into a saleable state because you may have to sell given short notice, something could happen to you." But here's the other thing is that when you get your business into a saleable state, you often end up with a business that's easier to manage and often makes more money, which is good for you in the present. Right? 

And so the key things that I'm talking about are, number one, getting the cashflow as high as possible on paper. So small business owners have various tax management strategies that we don't have to get into, but if you're a business owner who puts personal things through their business to reduce your tax burden, stop doing that because what's going to happen is you may meet a buyer one day and you may say to them, "Look, my profit is this, but there another $10,000 of profit hidden in the expenses." That buyer might believe you, but their banker may not. And so what it could do is it could create complications and mean that the terms of sale are not going to be as favorable to you. 

So number one, we want to have the cashflow to be as good as it can be. And number two, we need to be able to answer this question. The buyer's going to ask, "What is the cashflow? And will I be able to carry on having that cashflow once I am the owner?" So that second question is a little more complex. It leads back to one of the examples I gave earlier. You have to be able to demonstrate to a buyer that they are going to be able to execute on your business the way you do. And so to use the roofer example again, if you're running a roofing business, and you're going out and meeting customers, and you're measuring their roofs and you're working up a quote on the back of a little notepad, and you're getting prices, and then you're calling and ordering all the materials and you're scheduling all the people, and none of it is written down in any kind of process, the only person that can buy your business is someone who knows the industry.

But if you have tools that you've built, Excel spreadsheet that helps you price out how to quote a job, you put the measurements of the roof in, it calculates the material for you, it calculates how many hours of labor, you're able to then generate sort of a order list of things, materials you need to order and have delivered. And you've got all your advertisements that you've ever run together and you've got your plan for your radio and Yellow Pages and your flyer campaigns for the coming year, and all of it is organized into systems, and you've got checklists and all this sort of thing, well, now some guy who works for the post office can come in and see how he can learn how to do what you're doing. And what you've done now is you've expanded the pool of potential buyers from just people who have experience in roofing to anyone who potentially is going to have the skills to manage a small business. And so that's probably the biggest thing that is going to be helpful that most people hesitate to do.

I always point out to business owners that they already have systems. It's just a question of whether they're written down or not. And to get them documented is going to be one of the biggest value adds you can ever do.

Gordon Henry:

And when you talk about systems, you've been talking about the system, meaning kind of the way you do what you do. But in addition, there's also computer systems. Right? So we were talking before about a CRM system. So what's your database of customers? When have you communicated with them before? What have you sold them? When have they paid you or how did they pay you? All that history that tells who is the customer base, you went back to what is a business really, it's got a product people want to buy, way to deliver it to them, and customers who want to buy it. If you have that documented, who are the customers, what have they bought, what's the history, that's pretty valuable because that's your starting point. 

David Barnett:

Listen, if I was going to buy a roofing business and there were records going back 20 years of all the other jobs that were done, wouldn't that be valuable? Because you would say, "Hey, wait a minute. Once I know these jobs are 12 years old, I should be driving over there and knocking on some doors." Right? 

Gordon Henry:

Yep.

David Barnett:

Because you're going to realize at what point likely the person is maybe back in the market for another roofing job. And so whether or not the current, that past customer still lives in the house, you're going to know when the shingles need to be replaced. 

Gordon Henry:

Absolutely. Yeah. It's funny. I relate to this. We bought a house I guess three years ago now. And the house is, I don't know, 15, 16 years old. I'm exactly that guy you just described, the shingles are starting to get worn and I've got to replace them. And if the original person who installed the roof knocked on my door and said, "I have a record of exactly what we installed and when we installed it," I'd probably say, "Why don't you take a look around and let me know what I need to do?" Right? So absolutely.

David Barnett:

Very valuable information.

Gordon Henry:

Totally. I know you're an expert on this question, so I really want to ask it. Should I sell my business myself, or should I hire a broker to sell it for me, or something else if I'm interested in selling? 

David Barnett:

Yeah. So here's really what it comes down to. If you are going to sell your business yourself, it is going to distract you from operating the business, so that's the first thing people need to know. And so then that leads to the next question is: Can you manage that distraction? How much potentially could it cost you to take your eye off the ball? And then you have to weigh that against the potential savings of not having to pay a broker's commission. And so I try to fit the middle ground. I try to say, "If you decide to sell it on your own and you want some help with it, that's what I'm there for." If a business is of significant size, if you have a cashflow in the hundreds of thousands of dollars, over $250,000, I think you definitely should be looking for a qualified professional to help you sell that business because you've got a lot more on the line when it comes to that kind of thing.

One of the things I would caution people with is that there is a vast array of levels of qualification in the world of business brokers, and so you really want to take the time to do your due diligence on the business brokers that you talk to to make sure you're dealing with someone who's qualified and you want to talk with some other past clients, both buyers and sellers, and see what the experience those people has had and what they would recommend about that broker.

Gordon Henry:

Yeah, excellent recommendation. I guess the math you sort of go through in your head, it's like when you're buying or selling, well, selling a house, which is if I do it myself, I save that fee. What is the fee I would pay? And then would that broker get me that much more in value to kind of pay for themselves? You've got to sort of think about that. And the answer I guess you're saying is, yes, especially if it's a bigger business, just like if it's a bigger home. Right? 

David Barnett:

Yeah. And the other case would be if it's a particular business type that happens to be in a really high demand. So if you're in a major city and you're talking about selling a convenience store, gas station, there's a lot of demand for those kinds of businesses, and so a broker would probably be able to better get you a lot, sort of get a competitive scenario going on with buyers. 

Gordon Henry:

Yeah. So you probably get this one all the time. But is now a good time to sell? I think you began our conversation, you were talking maybe before the show, there's more buyers than sellers Right? So is now a good time to sell? 

David Barnett:

So back to what I said earlier, in my opinion, the value in a small business is not in the exit, it's in the operation. So when most sellers look at their business and what it does for them, and what it provides for them and their family, and they look at what the outcome of the sale would be, they very quickly realize that they're better off keeping and running the business. It's when one of those pressing personal circumstances kind of comes up that can't be dealt with that they realize, hey, I need to sell this business now and move on to the next thing. That's usually going to be the motivator. It's a personal thing.

So I tell people be prepared to sell all the time. And when those things happen, you'll be able to do it. If you're looking at retirement, and you're kind of flexible on your timeframe, last year was a great time to sell because interest rates were low. Now interest rates are higher and I know there's a lot of sellers out there who are hesitant to accept the offers they're being given because they know that people last year got more. But the reality is from the buyer's point of view, from that cashflow, they have to be able to service debt. And they can't get loans anymore at 5%. They're paying 10%, 11% now. And so all of that extra expense, the interest expense, it's got to come out of the cashflow. And that means that the businesses are worth less. The people cannot borrow as much. 

Gordon Henry:

So if you have to sell and you have the time, sell on a low interest rate environment and not a high interest rate environment I guess.

David Barnett:

Yeah. And so there's people out there who now have to sell and they're going to have to enter this market, which isn't quite as good for them. In my opinion, selling a business is difficult. There's a whole bunch of hurdles that have to be jumped over. And one of the saddest things that I see is when people go out to try to sell a business and they meet a buyer, and then they don't do a deal thinking that they can get a better opportunity around the corner, and then sadly, they don't. So there are often people in the market looking for a business like yours, and when you put it up there for sale, if your price is within the range of reason, you'll meet that person because they're looking for that opportunity. And often, one of the first people that comes and approaches you is likely going to be one of the best deals you can make.

Gordon Henry:

Yeah, interesting. Well, we're just about out of time. I wanted to ask you: Is there anything we haven't touched on or maybe important thoughts that you just wanted to make sure listeners heard about either buying or selling a business that you want to share with them?

David Barnett:

Yeah. I'd like to just share this idea that buying a business should be considered a leveling up move for people. It's something you want to do because you feel like you can grow professionally, or you want to take yourself to the next level, you want to embrace a new level of responsibility and freedom. It's not a silver bullet for money problems. You don't want to go and find a business and leverage everything you can and put every last nickel that you have into a deal because business is risky. There can very well be ups and downs in cashflow. And businesses are what we call asymmetrical systems, so a 10% decline in sales could be a 40% decline in profits. And so you might look at a business's performance over a 10 year period and see it bump up and down 10% all time. That can be totally within the range of normality for that business.

But the day you buy it, especially if you use a high leverage loan like you can get from the SBA, you can have very high debt service costs and then with that bump to the downside of 10% of revenue comes, all of a sudden you can be in a position where you're not writing a paycheck for yourself. So I like to see people come into business acquisition from a position of strength, use leverage, but having other resources they can draw upon if they need to so that they have options. You want to have options in the case of trouble, and that would probably be the biggest bit of advice I'd like to share with people. 

Gordon Henry:

Great. So David, I'm sure people would be interested in reaching out to you to talk further, get advice, potentially hire you for advice or brokerage. Where should people find you and learn more about what you can offer? 

David Barnett:

Sure. The central nervous system of everything I do is at davidcbarnett.com. That's my blog site. And I've got a YouTube channel with over 500 videos, and all the audio is on a podcast stream. So if you look up David Barnett small business, you'll find me almost anywhere. 

Gordon Henry:

Awesome. Well, David, thank you so much for coming on the show. This has been great, and really hope folks look you up and check out all that information you have available on the way.

David Barnett:

Thanks, Gordon, for having me. It's been great. 

Gordon Henry:

And I want to thank our producer, Tim Alleman, our coordinators, Diette Barnett and Daniel Huddleston. And if you enjoyed this podcast, please tell you colleagues, friends, and family to subscribe. And if you don't mind, please leave us a five star review. We'd really appreciate it. It helps us in the rankings. Small business runs better or Thryv. Get a free demo at thryv.com/pod. That's thryv.com/pod. Until next time, make it a great week.

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