July 11, 2024 • 26 mins
The episode also explores the unsolicited LOI, highlighting red flags and potential scams in brokerage. Andy and Doug dissect the LOI, discussing buyer tactics and the importance of professional intermediaries for protecting sellers. They explain how to qualify serious buyers and ensure smooth business transactions.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Music.
(00:08):
Sure that they realized I was a broker I think they may have
thought I was the owner okay okay so if
you're for sale by honoring out on that business by sell and all of a sudden
you're getting a you're getting an inquiry like this man you can be feeling
pretty good about it right like okay well I'm gonna I'm they're giving me more
(00:30):
than what I'm I'm asking for.
Music.
Welcome back to the Apex Business Advisors podcast.
I'm your host, Andy Kavanaugh, joined, as always, by the president of Apex,
Doug Obluff. Doug Obluff.
(00:51):
Thanks, Andy. Will you be talking in an accent today, or you've decided?
My accents, I try to do accents and they turn into Russian-Chinese mix.
I don't know what it is. What's up with you, Andy?
Do you want to tell us? Do you want to fill us in on what's going on with you?
Sure, yeah. So I'm a tearful man.
(01:12):
A lot of crying over the last week as I have shingles in my eye.
Yeah, that's not fine. And it was a pretty rough week. But I feel like I'm on
the mend, and I feel like I am, I feel like today's the first day where I've
really got the energy to come in here and handle you.
(01:34):
I really, you know, now that I see you in tears, you know, the emotion that
comes out, I really appreciate it. Yeah, this is a very tearful episode.
This is a very emotional episode. I am an absolute mess, as I've just stopped
caring and just let them run down my face now.
And so I just really play as well with the sympathy crowd, watching a lot of Hallmark movies.
(02:02):
Just, you know, watching the end of Titanic, you know, really,
really getting into it and not having to hide my tears anymore.
More but no i appreciate the uh
had several people reach out so i appreciate
the appreciate folks reaching out to uh check on
me and really just point and laugh at the uh swollenness of my face and eyes
(02:24):
his first pictures were great yeah they were it was pretty it was scary looked
like i had uh looked like i had gotten myself into an mma fight the or a especially
when you You have it around your eye.
Yeah. Your eye and your nose. Yeah. Swelling and...
Scary. So couldn't drive, did maintain some productivity, maintain.
(02:48):
Your commitment. My commitment to the craft. Definitely, I just was not doing video calls.
And I was very transparent with people as like, I'm not going to do this,
not doing this as a video call.
Also, I probably have no business behind the rule of a car with my eyes swollen
shut and my head ringing. But no, I I'm back and I'm feeling,
(03:12):
feeling podcast ready. Good.
And I did have an, an incident over the, over my, my time away from the apex office.
I want to say time away from the apex office because I stayed,
stayed connected, but I got a unsolicited LOI off of just off,
just off of our web listing. Okay.
(03:34):
So just, you know, I mean, anytime you can get a bonafide offer without- Just
go to the bank with that is what you're saying.
Yeah. Without actually having to share a SIM or any cashflow or anything like that.
Now, as part of this LOI, they are going to want to get into all of the financials,
but they are backed by a private investor who does not want to be known at this point.
(03:58):
So I'm sure it's probably like a Bill Gates or an Elon Musk or somebody like
that kind Kind of dipping their toe. I mean, that happens all the time.
Yeah. I mean, they're dipping their toe into the million dollar HVAC market all day. Who wouldn't?
I mean, that's where those guys are playing these days. So your guy,
your person, your buyer has a lot of his own money then?
(04:20):
No, he doesn't at all. Because that's what attracts people. Yeah. So we will put a...
We've talked about our processes that you have to fill out an NDA.
Part of that NDA is a financial disclosure.
And part of our conversation why he has not seen a SIM is because he did not
have the money to qualify for seeing the information. He did not have the money.
(04:45):
When I say that the business is a million dollars, we kind of expect to see
100,000, 150 in liquidable assets.
It doesn't have to be cash, right? If you get it in stocks and bonds and market, that's fine.
You don't need to sit on $200,000 cash and let your money work for you.
(05:05):
Sure, we completely get that.
But when we see an NDA of somebody that's got 15, $20,000 in the bank and nothing
else, they don't share it with us.
If they don't share it with us, I'm not asking for For brokerage statements,
I'm not asking for- We're not asking for proof at that time.
Yeah, I just- And typically, they're pretty honest with us what they have.
(05:28):
Yeah, and I mean, they're showing a net worth of less than $40,000.
So it's like, how are you going to make this deal work? How will you do this? Right.
Because I know that the seller is not willing to do seller financing for the
most qualified of buyers.
It's been part of the issue of why we're still holding on to the business.
(05:51):
They don't want to do any seller note and it requires a very specialized license.
And so the buyer comes back and says, I have a private investor and we're willing
to offer 50% to 75% more than what you're asking.
50% to 75% more? More than what we're asking. Okay.
(06:11):
That sounds pretty attractive. Yeah, sure. Right. And so would you accept an LOI?
You know, I mean, I'm sitting at home with a swollen up face and not really
wet mealy. You're ready to play the game.
It's the middle of the summer. It's about 108 degrees out and that does not,
108 degree heat and shingles don't match well together.
(06:32):
So, you know, I'm kind of stuck in the house. So sure. Why not?
Send me an LOI. Yeah. Let's have some fun here.
And so I get the LOI and what they're offering over the asking price,
they want that in a seller note.
(06:53):
So essentially they offered, well, they might be willing to go 50 to 75%. They went-
15 to 20% over what was being asked. They wanted to put that as a seller carry
that they will then use as equity injection into get their SBA loan.
(07:14):
Go over the price, but that's going to be a seller note that's going to show
as equity down payment basically for the buyer. Okay.
Sellers providing you. Yeah. So by the way, when I said, sure,
go ahead and send me your LOI, I said, and I'm going going to need bios of your
team because this isn't just a, this isn't just a, let's throw some cash at it.
(07:37):
And you know, like you're not buying a 2019 Honda Accord right here, right?
Like, you don't just throw me cash at it. I give you the title, you drive it off.
Like you have, there's a master mechanical license that's at play here that
is held by the owner and somebody on, and it's, it's walking out the door. Yeah.
(07:57):
So either you or somebody on your team has to have this. So I need to know.
Well, in the LOI, it's simply like, we'll put an operator in place that has it.
So first of all, we have a private investor that is going to- That we don't know. Fund the sale.
But then really what we're going to do is the private investor apparently is a seller.
(08:21):
Because they're going to be the one that's coming up with the equity injection.
There's no other equity. They're not offering up anything else. No. Okay. No.
And I will tell a seller when I'm talking, first question we get when we talk
to a seller, when a seller calls in or we're talking to a seller is,
how's my business value?
And I tell them there's three parts, operational, financial, and industry.
(08:44):
Those are the three things that are going to dictate the value of your business,
the combination of those three things.
And then there's value drivers, value discounters. We've done episodes,
blogs, and stuff like that on that.
Well, same thing for a buyer. Like,
sure, you have to have the money to do it, but you also have to have the operational
(09:04):
capabilities of doing it.
These sellers are not just going to turn their business over to you because you have money, right?
And oh, by the way, a large component of the money that they're expecting to get is in a seller note.
So if I'm a seller, if I'm seller financing, What a lot of buyers don't understand
(09:27):
too is when the seller is, when you're asking a seller to carry any portion
of the note, the seller now can evaluate you in due diligence.
So you now need to turn over your personal tax returns and now we need to see bank statements.
And now all of these things that a bank would ask you for, the seller now has
the right to do that because you've asked them to be in essence,
(09:49):
a portion of the bank and fund that in.
Well, so I got the LOI and again, I had some time on my hands.
They still weren't letting me leave the house.
And so I said, hey, thanks for the LOI.
Schedule a time with me. I want to talk through this with you before I present
(10:10):
it to the owner because I want to make sure that I've got to have an understanding
of this and that we have a conversation and.
To date, that meeting has not been set. Seriously? Yeah. Has he not gotten back
with you at all? Nothing.
And this was last week? Yeah.
It's been five business days since I sent my message.
(10:35):
Now, in fairness, it did take me two days to respond because it came in over the weekend.
And I can't be too eager.
Business days, I think, is realistic. I can't be too eager. you know, to respond to these.
These wonderful LOIs. Yeah. Well, and I think you have to look at too,
(10:56):
if I'm asking the seller to finance
more of his own transaction than the buyer's bringing into the deal,
how many sellers are wanting to do that?
You know, I think we see sellers who are saying, sure, I will finance 5% or
10%, but the buyer better be coming up with a good chunk.
(11:17):
Yeah. Because I'm now, I've gotten a risk here and I'm expecting to get paid back.
So like you said, now they're going to be interviewing that buyer.
Well, another key piece of this too is like, I mean, this essentially when you
structure a deal like that, here's what it screams.
Number one, I'm not going to pay you back.
(11:37):
And the reason why I'm not going to pay you back is because if that owner's
money, that 15% is full equity injection, it goes on standby forever.
If you're an SBA loan and I give you 15% to object as the equity into the deal,
it's on full standby. So you can't pay me back.
For 10 years. For 10 years. So now we're going to just let the interest churn up here.
(12:02):
And so we're starting at, I think it was 175 grand.
I'll just make it up. It was 175 grand that we're starting with. That's our principle.
Now for 10 years, we're going to have interest that's just accruing because...
So number one, I'm never going to see that money.
Number two, Number two, so number one, you're not going to pay me back.
(12:23):
Number two, you're going to try to repaper the deal.
You're going to get into due diligence and you're going to go,
hey, this thing doesn't pencil. It doesn't cash flow.
Still need that 15%, but instead of offering you 1.175 million,
I'd like to offer you 700,000, 800,000. So you're basically going to tie up
this person's business and then you're going to try to repaper the deal.
(12:45):
And we've seen this. Like this is not, like to us, it's so obvious that that would happen.
Now we've talked a little bit about why you need professionals and things like that.
And a couple of episodes ago, this is a prime example because I guarantee you
if this person had, and I'm not a hundred percent sure that they realized I was a broker.
(13:06):
I think they may have thought I was the owner. Oh, okay.
Okay. So if you were for sale by honoring out on.
Biz by cell. And all of a sudden you're getting a, you're getting an inquiry
like this, man, you can be feeling pretty good about it. Right.
Like, okay, well, I'm going to, they're giving me more than what I'm asking for.
(13:27):
And, you know, so in mentally for the owner, that's not even real money. Right.
Because, Hey, I was expecting to get, you know, 1.175 and they're offering me
1.35, but I've just got to carry back 175,000 of it. Nah, no big deal. Right.
It's, I was still expecting $1.75, so I'm still getting bad at closing.
(13:47):
Yeah, it doesn't smell right when you say that.
It was unsolicited. You didn't give them any information.
They put on an LOI with this unique structure,
and then you respond to them, and then they probably figured out that you were
the broker on the deal at that point, that there was an intermediary protecting
(14:10):
the seller. Yeah, I don't know.
I guess I'll just ask you, I don't understand the scam.
What do they get? What's the scam here? What's the play?
Do they just want to see some tax returns? Are they going to try to get some
information off of tax returns?
I don't know, because are they going to go through the process of buying the
(14:34):
business, getting a loan for that million bucks, because they're not coming up with anything?
Are they expecting to get, they don't even have the information at all if there's
cash in the business or what the inventory is, or I mean, it's just general
information on the website, right? They literally have a blind ad off the website.
There's not much there. So they can see the asking price, they can see the revenue,
(14:56):
they can see the cashflow, they see a general description.
They don't know where the business is located. They don't know the name of the
business. They don't know any of this stuff.
And we do get these inquiries quite often where it's like, I have a private
investor that's backing me. Right. Fantastic.
We just need your private investor to fill out this NDA because,
(15:18):
you know, hey, we're not, deals have gotten done like this before.
I'm not saying that they haven't, but what I'm saying is that there's a level of,
I feel like there's a level of buyers that have really come into the marketplace
in the last 18 months that are thinking that, hey, I can buy these businesses
(15:41):
with no money and No equity injection. Right.
And somebody, you know, I read a, I was reading an article and somebody wrote,
if you have the operating operations experience, but not the cash, we can help you.
If you have the cash or not the operations experience, we could help you.
But if you don't have either, what are we doing here? Right. Why are we here? Right.
(16:06):
You know, it feels like somebody's wanting to play fantasy business owner.
I'm not sure. We've run across this before. I'm not sure what the scam is because
there does seem to be, we should have, you know what, next episode,
Ryan can talk about his buyer, who I think is now in jail,
who wanted to buy every business that we had.
(16:27):
So you've got 40 businesses listed. I want them all. Yeah, I'm going to, I buy them all.
And Beruvia's gonna buy Apex too I think he wanted Apex and for what he was offering up okay fine,
but there wasn't anything real behind it but I'm trying to figure out okay what
was his what was his play yeah what was he trying to get out of it because we were all,
(16:50):
trying I'm not chasing this guy this is so ridiculous but Ryan
was willing to spend some time with this guy so we should have
him I mean that was a that would have been a heck that would have been that's
a fun story would have been a heck of a commission for Ryan right yeah every
business okay well no funny i i remember when that was in because it was you
guys were in you guys were in cancun and ryan and i were here we we were still new,
(17:17):
and hadn't i think i'd been when you guys were in cancun i think i'd been with
the firm six months of three months and uh we were doing i remember this vividly
we were doing letters out in the,
the table. He's like...
I just got an inquiry. I just got a guy that wants to buy every listing that we have and OPEX.
(17:43):
I'm 99% sure that it's a scam, but I need to talk through this with somebody
because what if it's real, right?
And I think that's what these people are playing off of. And I don't know if
it's one of those things where they feel like I'm going to get this seller emotionally
involved and detached from the business.
(18:04):
And then they're just going to be like, well, you know, 1.175,
700 grand is close enough.
They'll do it. I don't know. I think that it probably works with,
I mean, I guess as we talked through it, it can't work with an intermediary.
It's got to work with a, it has to work with a first sale by owner.
(18:24):
Yeah. I think that we have, we have seen over the years and it hasn't happened
to our office, but we hear the stories through the IBBA where a buyer is looking
for that business that has cash,
receivables and inventory, and it's really enough to cover the price of the business.
And they get the seller to finance some of the deal. They'll get financing on it.
(18:49):
They'll go in, clean it out, take the cash, get the receivables,
sell off the inventory, and walk away from the deed. And seller does not get paid.
In those cases, the seller's probably financing a pretty good chunk of the deed.
But they're finding, you know, a sucker.
And I think that what we try to do is we see these weird situations like,
(19:10):
okay, is there something here?
We don't want to just walk away from it. I'm saying, is there something here
in this deal that we can work out or is this a scam?
Because we do have to, you know, we do have to protect the seller.
They've not gone through this before. We see a lot of situations.
So we have to investigate ourselves.
Well, and I think that just kind of from a, you know, we run a professional firm here.
(19:36):
And I think, sure. I appreciate that. I said we. Yep.
You run a professional firm. But to your point, we do chase it down and we do
follow the string, right?
Because it just takes up our time to follow something like this and track it down, right?
(19:59):
So, I mean, of course, there's going to be doorways and entryways that this
particular person is going to do.
Okay. You don't want to sign an NDA. Your investor doesn't want to sign an NDA.
Cool. I'm not going to give you the SIM.
Okay. You want information on the business? Fair enough.
You wrote me an LOI. Great. Let's talk about it. Yeah.
(20:21):
Okay. Still not really convinced that I'm going to give you the SIM, but you know what?
If you're still, your person still doesn't want to sign the NDA and they still
don't want to do, well, let's just meet with the seller then.
I mean, come on in.
You know, if you're willing to jump on a plane and come to my office in Overland
Park, you know what, at that point, I'd probably just go ahead and hand you
(20:45):
the copy of the SIM and the cash flow.
Because, look, you didn't want to sign a piece of paper that says that you're
not going to talk about that the business is for sale and you're probably not
even really that big of a threat of really leaking confidentiality because of
where you're physically located.
But the fact that you won't do it, I just don't trust you.
(21:06):
I just don't trust you. And so now you've got to earn my trust and you've got
to do these 11 things to gain my trust, just to see who and what this thing is.
So a couple of things you've mentioned, it brings it kind of around to another
point here is wasting time.
And we've got a lot of buyers looking at deals. So we're kind of going through and qualifying people.
(21:32):
And one of the recent buyers that came in looking at one of Kevin's listings,
very little money down on his financials, again, has an investor.
We're not going to hand over information on a $5 million business or $6 million
(21:52):
business with somebody who has $100,000.
We're just not going to waste time. And you can write me an offer all day long,
but we're not going to go down that road.
And we'll talk about it. We'll say, this is why.
If you have an investor, which same kind of story you're talking about,
then let's bring your family in.
(22:14):
Let's talk to them. Let's see where all the money's at and how we can make this
happen because we don't want, we don't want the seller jumping through hoops.
They got a business to run.
And so we're, we're the buffer.
You know, our job is to make sure we're talking to qualified buyers before we send off information.
Well, let's run through the time of it, right? So if I'm going to bring you
(22:35):
in for a buyer seller meeting to meet with this buyer, I've got to be pretty
confident that you're pretty serious about it because I'm going to ask you to
to take about three hours out of your day. Right.
I'm going to ask you to drive a half an hour to my office.
I'm going to ask you to meet with them for an hour, hour and a half.
And I'm going to drive, ask you to drive 30 minutes back to your office. Yeah.
(22:56):
That's a, that's a big ask. Yeah. For, I don't have the money. Yeah.
You know, there are times where we need to have a buyer seller meeting because
the buyer's on the fence about whether they can or can't make this work, do or don't want to do it.
That's a completely different story. If we've screened for the fact that,
(23:18):
yeah, we're not a hundred percent sure this guy's really serious.
Please take three hours out of your day or even an hour or even 30 minutes to,
you know, it kind of goes back to if you're not giving us the feedback off of the.
Off the meeting. After you meet with the person, you're like,
you know what, after talking with them, I don't like the way that they,
(23:40):
it sounds like there's poor leadership from them. They probably instilled a poor culture.
They ran down every employee that they have. Or they're cagey about answering questions.
Yeah. You know what, it just doesn't sound like something that I'm interested
in. Hey, you know what, fair.
But if it's a, okay, I'm going to take three hours out of your time.
And really your question is, will you finance a sell?
(24:04):
I can answer that for you. Right. And we don't need to bring,
we don't need to take my time.
We don't need to take the seller's time. We don't need to take your time.
You know, and the, really the thing is, is a lot of what we're doing is we're
trying to save everybody some time.
Like I will just, you know, I have buyers that keep going back to the same business.
Hey, is he, is he more flexible on his terms yet? No, he's not. You need to move on.
(24:29):
There's other fish. You need to move on. Or the seller didn't like you.
That's a hard one. I'll be polite about it, but I'd be like,
the seller just didn't feel like there was a great fit.
The seller didn't feel like operationally you were going to be able to pick
up and run the business. Right.
(24:49):
And for many of these people, it's legacy. The unsolicited LRIs and the investors,
those need to come with the people who are like, this guy just wants to, his criteria is cash.
He don't care about legacy. He don't care about the employees.
He just wants the cash and he'll go.
Well, I think we've, any last thoughts on really what a buyer should expect from us?
(25:14):
Well. And what their expectations of what we can do. I think that's a whole
other episode because I think we can fill that in really what they expect from
us, what we expect from the buyer.
Let's do that next time. Sounds good. All right. Well, if you have any unsolicited
LOIs that you want to submit, you can submit those directly to Andy at KCAPEX.com.
(25:36):
Again, that's Andy, A-N-D-Y, at KCAPEX.com. Please send all unsolicited LOIs.
Make them good. Especially if you have no money, write to Andy. Write. directly to me.
If you have good LOIs or want to talk to a professional, that's D-Hubler.
That's Doug Hubler.
(25:58):
All right. Go check out our website, kcapex.com. That's going to be the place
to go for all your business buying and selling needs.
We've got spots out there for our active listings, what it's like to sell a
business, the process to go through, valuations.
If you are a serious buyer, There is tons of information out there,
including the prescribed process that has been tried and true for about 20 years
(26:24):
that has worked for over 20 years.
So if you're looking at buying or selling a business, we got you, fam.
Music.
Music.
(00:08):
Sure that they realized I was a broker I think they may have
thought I was the owner okay okay so if
you're for sale by honoring out on that business by sell and all of a sudden
you're getting a you're getting an inquiry like this man you can be feeling
pretty good about it right like okay well I'm gonna I'm they're giving me more
(00:30):
than what I'm I'm asking for.
Music.
Welcome back to the Apex Business Advisors podcast.
I'm your host, Andy Kavanaugh, joined, as always, by the president of Apex,
Doug Obluff. Doug Obluff.
(00:51):
Thanks, Andy. Will you be talking in an accent today, or you've decided?
My accents, I try to do accents and they turn into Russian-Chinese mix.
I don't know what it is. What's up with you, Andy?
Do you want to tell us? Do you want to fill us in on what's going on with you?
Sure, yeah. So I'm a tearful man.
(01:12):
A lot of crying over the last week as I have shingles in my eye.
Yeah, that's not fine. And it was a pretty rough week. But I feel like I'm on
the mend, and I feel like I am, I feel like today's the first day where I've
really got the energy to come in here and handle you.
(01:34):
I really, you know, now that I see you in tears, you know, the emotion that
comes out, I really appreciate it. Yeah, this is a very tearful episode.
This is a very emotional episode. I am an absolute mess, as I've just stopped
caring and just let them run down my face now.
And so I just really play as well with the sympathy crowd, watching a lot of Hallmark movies.
(02:02):
Just, you know, watching the end of Titanic, you know, really,
really getting into it and not having to hide my tears anymore.
More but no i appreciate the uh
had several people reach out so i appreciate
the appreciate folks reaching out to uh check on
me and really just point and laugh at the uh swollenness of my face and eyes
(02:24):
his first pictures were great yeah they were it was pretty it was scary looked
like i had uh looked like i had gotten myself into an mma fight the or a especially
when you You have it around your eye.
Yeah. Your eye and your nose. Yeah. Swelling and...
Scary. So couldn't drive, did maintain some productivity, maintain.
(02:48):
Your commitment. My commitment to the craft. Definitely, I just was not doing video calls.
And I was very transparent with people as like, I'm not going to do this,
not doing this as a video call.
Also, I probably have no business behind the rule of a car with my eyes swollen
shut and my head ringing. But no, I I'm back and I'm feeling,
(03:12):
feeling podcast ready. Good.
And I did have an, an incident over the, over my, my time away from the apex office.
I want to say time away from the apex office because I stayed,
stayed connected, but I got a unsolicited LOI off of just off,
just off of our web listing. Okay.
(03:34):
So just, you know, I mean, anytime you can get a bonafide offer without- Just
go to the bank with that is what you're saying.
Yeah. Without actually having to share a SIM or any cashflow or anything like that.
Now, as part of this LOI, they are going to want to get into all of the financials,
but they are backed by a private investor who does not want to be known at this point.
(03:58):
So I'm sure it's probably like a Bill Gates or an Elon Musk or somebody like
that kind Kind of dipping their toe. I mean, that happens all the time.
Yeah. I mean, they're dipping their toe into the million dollar HVAC market all day. Who wouldn't?
I mean, that's where those guys are playing these days. So your guy,
your person, your buyer has a lot of his own money then?
(04:20):
No, he doesn't at all. Because that's what attracts people. Yeah. So we will put a...
We've talked about our processes that you have to fill out an NDA.
Part of that NDA is a financial disclosure.
And part of our conversation why he has not seen a SIM is because he did not
have the money to qualify for seeing the information. He did not have the money.
(04:45):
When I say that the business is a million dollars, we kind of expect to see
100,000, 150 in liquidable assets.
It doesn't have to be cash, right? If you get it in stocks and bonds and market, that's fine.
You don't need to sit on $200,000 cash and let your money work for you.
(05:05):
Sure, we completely get that.
But when we see an NDA of somebody that's got 15, $20,000 in the bank and nothing
else, they don't share it with us.
If they don't share it with us, I'm not asking for For brokerage statements,
I'm not asking for- We're not asking for proof at that time.
Yeah, I just- And typically, they're pretty honest with us what they have.
(05:28):
Yeah, and I mean, they're showing a net worth of less than $40,000.
So it's like, how are you going to make this deal work? How will you do this? Right.
Because I know that the seller is not willing to do seller financing for the
most qualified of buyers.
It's been part of the issue of why we're still holding on to the business.
(05:51):
They don't want to do any seller note and it requires a very specialized license.
And so the buyer comes back and says, I have a private investor and we're willing
to offer 50% to 75% more than what you're asking.
50% to 75% more? More than what we're asking. Okay.
(06:11):
That sounds pretty attractive. Yeah, sure. Right. And so would you accept an LOI?
You know, I mean, I'm sitting at home with a swollen up face and not really
wet mealy. You're ready to play the game.
It's the middle of the summer. It's about 108 degrees out and that does not,
108 degree heat and shingles don't match well together.
(06:32):
So, you know, I'm kind of stuck in the house. So sure. Why not?
Send me an LOI. Yeah. Let's have some fun here.
And so I get the LOI and what they're offering over the asking price,
they want that in a seller note.
(06:53):
So essentially they offered, well, they might be willing to go 50 to 75%. They went-
15 to 20% over what was being asked. They wanted to put that as a seller carry
that they will then use as equity injection into get their SBA loan.
(07:14):
Go over the price, but that's going to be a seller note that's going to show
as equity down payment basically for the buyer. Okay.
Sellers providing you. Yeah. So by the way, when I said, sure,
go ahead and send me your LOI, I said, and I'm going going to need bios of your
team because this isn't just a, this isn't just a, let's throw some cash at it.
(07:37):
And you know, like you're not buying a 2019 Honda Accord right here, right?
Like, you don't just throw me cash at it. I give you the title, you drive it off.
Like you have, there's a master mechanical license that's at play here that
is held by the owner and somebody on, and it's, it's walking out the door. Yeah.
(07:57):
So either you or somebody on your team has to have this. So I need to know.
Well, in the LOI, it's simply like, we'll put an operator in place that has it.
So first of all, we have a private investor that is going to- That we don't know. Fund the sale.
But then really what we're going to do is the private investor apparently is a seller.
(08:21):
Because they're going to be the one that's coming up with the equity injection.
There's no other equity. They're not offering up anything else. No. Okay. No.
And I will tell a seller when I'm talking, first question we get when we talk
to a seller, when a seller calls in or we're talking to a seller is,
how's my business value?
And I tell them there's three parts, operational, financial, and industry.
(08:44):
Those are the three things that are going to dictate the value of your business,
the combination of those three things.
And then there's value drivers, value discounters. We've done episodes,
blogs, and stuff like that on that.
Well, same thing for a buyer. Like,
sure, you have to have the money to do it, but you also have to have the operational
(09:04):
capabilities of doing it.
These sellers are not just going to turn their business over to you because you have money, right?
And oh, by the way, a large component of the money that they're expecting to get is in a seller note.
So if I'm a seller, if I'm seller financing, What a lot of buyers don't understand
(09:27):
too is when the seller is, when you're asking a seller to carry any portion
of the note, the seller now can evaluate you in due diligence.
So you now need to turn over your personal tax returns and now we need to see bank statements.
And now all of these things that a bank would ask you for, the seller now has
the right to do that because you've asked them to be in essence,
(09:49):
a portion of the bank and fund that in.
Well, so I got the LOI and again, I had some time on my hands.
They still weren't letting me leave the house.
And so I said, hey, thanks for the LOI.
Schedule a time with me. I want to talk through this with you before I present
(10:10):
it to the owner because I want to make sure that I've got to have an understanding
of this and that we have a conversation and.
To date, that meeting has not been set. Seriously? Yeah. Has he not gotten back
with you at all? Nothing.
And this was last week? Yeah.
It's been five business days since I sent my message.
(10:35):
Now, in fairness, it did take me two days to respond because it came in over the weekend.
And I can't be too eager.
Business days, I think, is realistic. I can't be too eager. you know, to respond to these.
These wonderful LOIs. Yeah. Well, and I think you have to look at too,
(10:56):
if I'm asking the seller to finance
more of his own transaction than the buyer's bringing into the deal,
how many sellers are wanting to do that?
You know, I think we see sellers who are saying, sure, I will finance 5% or
10%, but the buyer better be coming up with a good chunk.
(11:17):
Yeah. Because I'm now, I've gotten a risk here and I'm expecting to get paid back.
So like you said, now they're going to be interviewing that buyer.
Well, another key piece of this too is like, I mean, this essentially when you
structure a deal like that, here's what it screams.
Number one, I'm not going to pay you back.
(11:37):
And the reason why I'm not going to pay you back is because if that owner's
money, that 15% is full equity injection, it goes on standby forever.
If you're an SBA loan and I give you 15% to object as the equity into the deal,
it's on full standby. So you can't pay me back.
For 10 years. For 10 years. So now we're going to just let the interest churn up here.
(12:02):
And so we're starting at, I think it was 175 grand.
I'll just make it up. It was 175 grand that we're starting with. That's our principle.
Now for 10 years, we're going to have interest that's just accruing because...
So number one, I'm never going to see that money.
Number two, Number two, so number one, you're not going to pay me back.
(12:23):
Number two, you're going to try to repaper the deal.
You're going to get into due diligence and you're going to go,
hey, this thing doesn't pencil. It doesn't cash flow.
Still need that 15%, but instead of offering you 1.175 million,
I'd like to offer you 700,000, 800,000. So you're basically going to tie up
this person's business and then you're going to try to repaper the deal.
(12:45):
And we've seen this. Like this is not, like to us, it's so obvious that that would happen.
Now we've talked a little bit about why you need professionals and things like that.
And a couple of episodes ago, this is a prime example because I guarantee you
if this person had, and I'm not a hundred percent sure that they realized I was a broker.
(13:06):
I think they may have thought I was the owner. Oh, okay.
Okay. So if you were for sale by honoring out on.
Biz by cell. And all of a sudden you're getting a, you're getting an inquiry
like this, man, you can be feeling pretty good about it. Right.
Like, okay, well, I'm going to, they're giving me more than what I'm asking for.
(13:27):
And, you know, so in mentally for the owner, that's not even real money. Right.
Because, Hey, I was expecting to get, you know, 1.175 and they're offering me
1.35, but I've just got to carry back 175,000 of it. Nah, no big deal. Right.
It's, I was still expecting $1.75, so I'm still getting bad at closing.
(13:47):
Yeah, it doesn't smell right when you say that.
It was unsolicited. You didn't give them any information.
They put on an LOI with this unique structure,
and then you respond to them, and then they probably figured out that you were
the broker on the deal at that point, that there was an intermediary protecting
(14:10):
the seller. Yeah, I don't know.
I guess I'll just ask you, I don't understand the scam.
What do they get? What's the scam here? What's the play?
Do they just want to see some tax returns? Are they going to try to get some
information off of tax returns?
I don't know, because are they going to go through the process of buying the
(14:34):
business, getting a loan for that million bucks, because they're not coming up with anything?
Are they expecting to get, they don't even have the information at all if there's
cash in the business or what the inventory is, or I mean, it's just general
information on the website, right? They literally have a blind ad off the website.
There's not much there. So they can see the asking price, they can see the revenue,
(14:56):
they can see the cashflow, they see a general description.
They don't know where the business is located. They don't know the name of the
business. They don't know any of this stuff.
And we do get these inquiries quite often where it's like, I have a private
investor that's backing me. Right. Fantastic.
We just need your private investor to fill out this NDA because,
(15:18):
you know, hey, we're not, deals have gotten done like this before.
I'm not saying that they haven't, but what I'm saying is that there's a level of,
I feel like there's a level of buyers that have really come into the marketplace
in the last 18 months that are thinking that, hey, I can buy these businesses
(15:41):
with no money and No equity injection. Right.
And somebody, you know, I read a, I was reading an article and somebody wrote,
if you have the operating operations experience, but not the cash, we can help you.
If you have the cash or not the operations experience, we could help you.
But if you don't have either, what are we doing here? Right. Why are we here? Right.
(16:06):
You know, it feels like somebody's wanting to play fantasy business owner.
I'm not sure. We've run across this before. I'm not sure what the scam is because
there does seem to be, we should have, you know what, next episode,
Ryan can talk about his buyer, who I think is now in jail,
who wanted to buy every business that we had.
(16:27):
So you've got 40 businesses listed. I want them all. Yeah, I'm going to, I buy them all.
And Beruvia's gonna buy Apex too I think he wanted Apex and for what he was offering up okay fine,
but there wasn't anything real behind it but I'm trying to figure out okay what
was his what was his play yeah what was he trying to get out of it because we were all,
(16:50):
trying I'm not chasing this guy this is so ridiculous but Ryan
was willing to spend some time with this guy so we should have
him I mean that was a that would have been a heck that would have been that's
a fun story would have been a heck of a commission for Ryan right yeah every
business okay well no funny i i remember when that was in because it was you
guys were in you guys were in cancun and ryan and i were here we we were still new,
(17:17):
and hadn't i think i'd been when you guys were in cancun i think i'd been with
the firm six months of three months and uh we were doing i remember this vividly
we were doing letters out in the,
the table. He's like...
I just got an inquiry. I just got a guy that wants to buy every listing that we have and OPEX.
(17:43):
I'm 99% sure that it's a scam, but I need to talk through this with somebody
because what if it's real, right?
And I think that's what these people are playing off of. And I don't know if
it's one of those things where they feel like I'm going to get this seller emotionally
involved and detached from the business.
(18:04):
And then they're just going to be like, well, you know, 1.175,
700 grand is close enough.
They'll do it. I don't know. I think that it probably works with,
I mean, I guess as we talked through it, it can't work with an intermediary.
It's got to work with a, it has to work with a first sale by owner.
(18:24):
Yeah. I think that we have, we have seen over the years and it hasn't happened
to our office, but we hear the stories through the IBBA where a buyer is looking
for that business that has cash,
receivables and inventory, and it's really enough to cover the price of the business.
And they get the seller to finance some of the deal. They'll get financing on it.
(18:49):
They'll go in, clean it out, take the cash, get the receivables,
sell off the inventory, and walk away from the deed. And seller does not get paid.
In those cases, the seller's probably financing a pretty good chunk of the deed.
But they're finding, you know, a sucker.
And I think that what we try to do is we see these weird situations like,
(19:10):
okay, is there something here?
We don't want to just walk away from it. I'm saying, is there something here
in this deal that we can work out or is this a scam?
Because we do have to, you know, we do have to protect the seller.
They've not gone through this before. We see a lot of situations.
So we have to investigate ourselves.
Well, and I think that just kind of from a, you know, we run a professional firm here.
(19:36):
And I think, sure. I appreciate that. I said we. Yep.
You run a professional firm. But to your point, we do chase it down and we do
follow the string, right?
Because it just takes up our time to follow something like this and track it down, right?
(19:59):
So, I mean, of course, there's going to be doorways and entryways that this
particular person is going to do.
Okay. You don't want to sign an NDA. Your investor doesn't want to sign an NDA.
Cool. I'm not going to give you the SIM.
Okay. You want information on the business? Fair enough.
You wrote me an LOI. Great. Let's talk about it. Yeah.
(20:21):
Okay. Still not really convinced that I'm going to give you the SIM, but you know what?
If you're still, your person still doesn't want to sign the NDA and they still
don't want to do, well, let's just meet with the seller then.
I mean, come on in.
You know, if you're willing to jump on a plane and come to my office in Overland
Park, you know what, at that point, I'd probably just go ahead and hand you
(20:45):
the copy of the SIM and the cash flow.
Because, look, you didn't want to sign a piece of paper that says that you're
not going to talk about that the business is for sale and you're probably not
even really that big of a threat of really leaking confidentiality because of
where you're physically located.
But the fact that you won't do it, I just don't trust you.
(21:06):
I just don't trust you. And so now you've got to earn my trust and you've got
to do these 11 things to gain my trust, just to see who and what this thing is.
So a couple of things you've mentioned, it brings it kind of around to another
point here is wasting time.
And we've got a lot of buyers looking at deals. So we're kind of going through and qualifying people.
(21:32):
And one of the recent buyers that came in looking at one of Kevin's listings,
very little money down on his financials, again, has an investor.
We're not going to hand over information on a $5 million business or $6 million
(21:52):
business with somebody who has $100,000.
We're just not going to waste time. And you can write me an offer all day long,
but we're not going to go down that road.
And we'll talk about it. We'll say, this is why.
If you have an investor, which same kind of story you're talking about,
then let's bring your family in.
(22:14):
Let's talk to them. Let's see where all the money's at and how we can make this
happen because we don't want, we don't want the seller jumping through hoops.
They got a business to run.
And so we're, we're the buffer.
You know, our job is to make sure we're talking to qualified buyers before we send off information.
Well, let's run through the time of it, right? So if I'm going to bring you
(22:35):
in for a buyer seller meeting to meet with this buyer, I've got to be pretty
confident that you're pretty serious about it because I'm going to ask you to
to take about three hours out of your day. Right.
I'm going to ask you to drive a half an hour to my office.
I'm going to ask you to meet with them for an hour, hour and a half.
And I'm going to drive, ask you to drive 30 minutes back to your office. Yeah.
(22:56):
That's a, that's a big ask. Yeah. For, I don't have the money. Yeah.
You know, there are times where we need to have a buyer seller meeting because
the buyer's on the fence about whether they can or can't make this work, do or don't want to do it.
That's a completely different story. If we've screened for the fact that,
(23:18):
yeah, we're not a hundred percent sure this guy's really serious.
Please take three hours out of your day or even an hour or even 30 minutes to,
you know, it kind of goes back to if you're not giving us the feedback off of the.
Off the meeting. After you meet with the person, you're like,
you know what, after talking with them, I don't like the way that they,
(23:40):
it sounds like there's poor leadership from them. They probably instilled a poor culture.
They ran down every employee that they have. Or they're cagey about answering questions.
Yeah. You know what, it just doesn't sound like something that I'm interested
in. Hey, you know what, fair.
But if it's a, okay, I'm going to take three hours out of your time.
And really your question is, will you finance a sell?
(24:04):
I can answer that for you. Right. And we don't need to bring,
we don't need to take my time.
We don't need to take the seller's time. We don't need to take your time.
You know, and the, really the thing is, is a lot of what we're doing is we're
trying to save everybody some time.
Like I will just, you know, I have buyers that keep going back to the same business.
Hey, is he, is he more flexible on his terms yet? No, he's not. You need to move on.
(24:29):
There's other fish. You need to move on. Or the seller didn't like you.
That's a hard one. I'll be polite about it, but I'd be like,
the seller just didn't feel like there was a great fit.
The seller didn't feel like operationally you were going to be able to pick
up and run the business. Right.
(24:49):
And for many of these people, it's legacy. The unsolicited LRIs and the investors,
those need to come with the people who are like, this guy just wants to, his criteria is cash.
He don't care about legacy. He don't care about the employees.
He just wants the cash and he'll go.
Well, I think we've, any last thoughts on really what a buyer should expect from us?
(25:14):
Well. And what their expectations of what we can do. I think that's a whole
other episode because I think we can fill that in really what they expect from
us, what we expect from the buyer.
Let's do that next time. Sounds good. All right. Well, if you have any unsolicited
LOIs that you want to submit, you can submit those directly to Andy at KCAPEX.com.
(25:36):
Again, that's Andy, A-N-D-Y, at KCAPEX.com. Please send all unsolicited LOIs.
Make them good. Especially if you have no money, write to Andy. Write. directly to me.
If you have good LOIs or want to talk to a professional, that's D-Hubler.
That's Doug Hubler.
(25:58):
All right. Go check out our website, kcapex.com. That's going to be the place
to go for all your business buying and selling needs.
We've got spots out there for our active listings, what it's like to sell a
business, the process to go through, valuations.
If you are a serious buyer, There is tons of information out there,
including the prescribed process that has been tried and true for about 20 years
(26:24):
that has worked for over 20 years.
So if you're looking at buying or selling a business, we got you, fam.
Music.
Popular Podcasts
United States of Kennedy
United States of Kennedy is a podcast about our cultural fascination with the Kennedy dynasty. Every week, hosts Lyra Smith and George Civeris go into one aspect of the Kennedy story.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com