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Toby Mathis
Thinking of Buying a Business? How Big Changes to SBA Rules Can Make That a Reality
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In this episode of Anderson Business Advisors, Toby Mathis, Esq. welcomes back Trent Lee of First Choice Business Brokers (FCBB). Trent has been ranked NUMBER ONE in business brokerages for the last five years in a row. You’ll hear Toby and Trent discuss the latest industry stats and requirements surrounding the purchase of small businesses. From restaurants to medical facilities to construction companies, there’s something for every interest in this space. Get in touch with Trent if you want the expert in the business broker space.

Highlights/Topics:

  • Trent’s the number one business broker in the country by volume for the last 5 years in a row
  • Higher interest rates don’t mean that great businesses are not available
  • Good businesses in their industry, bad owners
  • Motivated sellers
  • Case study – an urgent care facility
  • Cap rate vs. multiples
  • Case study – EBITDA to determine value
  • The SBA, deals, and some positive changes
  • Case study – a paving and grading company and the SBA
  • Buying franchises
  • Follow Trent on socials to hear about deals

Resources:

Trent Lee YT

Trent on Facebook

Trent on Twitter

Trent on IG

Business Brokers Las Vegas

Toby Mathis YT

Tax & Asset Protection Events

Full Episode Transcript:

Toby: Hey, guys, Toby Mathis here. I have Trent Lee with me. You guys have met Trent before. Welcome back Trent.

Trent: Thanks. Happy to be here.

Toby: I think the last time we spoke you were the number one business broker by volume in the United States. I know you’re one of the most active business brokers that I’ve ever seen. Is that still the case? Are you number one or are you up there?

Trent: Number one, actually, for the last five years in a row. So it’s been a good ride. There are guys who do bigger deals than I do, but there’s literally no one in the country who closes more deals than I do year over year.

Toby: That’s why I like having Trent on because he is in the trenches and he is doing this all day. Is now a good time to be investing in these little businesses?

Trent: Now’s a great time. Interest rates obviously are up, and that affects the ability of a buyer, how much they can actually pay from a debt service standpoint. But it doesn’t change, necessarily, the nature of a good business out there that’s making good profits, making good income for the owners.

Toby: We’re going to title this, we haven’t figured out the number yet, but we’re going to say big key changes the SBA has made that make buying a business attractive right now.

We have to put this against the backstop of you can go and get a savings account, a high-yield savings, or a money market, and you’re going to be in the 4½%–5½% range, probably closer to the 4½%. But is it worth the risk to be looking at this businesses? What are you seeing?

Trent: There are some fantastic businesses out there. Like we talked about, primarily there are some really good businesses out there, and they often have bad business owners or bad business operators.

I love that model because the business itself is sound, the industry is sound, whatever the business model is great. It’s a lot easier to replace a bad business owner with a good business operator than to change an entire industry that might not be good or an entire business model.

There are a lot of really good opportunities out there. In particular, there are fair deals. I try to price all my deals fair and accurately, but I get a lot. I guess this is why it’s helpful just to stay in contact with someone to help you look at what’s in the business, what’s available out there in the market.

I get a good amount of deals that the business is just fine. In fact, I’ll give you an example of one just yesterday that we did. The point I’m making is it’s a good spine business, but the seller is really motivated.

There’s a health issue, a death in the family, or whatever, pending retirement. Something comes up, and it no longer is the priority of the seller to sell for top dollar. They might have had this business for 20–30 years and it’s already funded their retirement. Now they have a real reason to get out.

That example I was going to say, just yesterday we updated the price on an urgent care. Ironically enough, the primary seller, the medical director, has a health issue. Well, I should say his wife has a health issue. Out of country, he has to sell this thing in 90 days.

We’ve priced it well under one times net profit, so talk about return on investment. Someone’s getting their money back in less than one year and buying an urgent care. Urgent care businesses are not going anywhere. That’s a solid industry.

Toby: Is that urgent care? Is this somebody who has to be a doctor that owns it, or can anybody own it.?

Trent: In this particular state where it’s listed, no. A non-medical doctor can own it. Obviously, there has to be a medical director on staff, but in this case, the medical director is really the primary physician. In this case, they’re seeing it. The ideal buyer really is someone who can take the place of a doctor, so it’s not really a good investment for just anyone out there in general. It’s someone who’s in the medical industry.

Toby: When you say one times net, to me I’m a real estate guy, so I immediately go, huh? Because that means it’s about a 90% discount in my world. That’s the way I look at it. Are we getting that? Is that that extreme?

Trent: Exactly. In the real estate world, we look at cap rate. In the business world, we look at multiples. In theory, you can just divide the multiple by one and get yourself the cap rate. If it’s selling for a 2.5 multiple of earnings, for example, that’s a 25% cap rate.

In this case, if it’s under one times earnings, you can’t really get a better deal than that in real estate. Now, on the flip side, it’s not nearly as passive, so there’s some trade-off there.

Toby: It still sounds interesting. Give me some of the businesses. I’m always curious about this, just because I grew up doing liquidation and stuff. I always saw businesses at their end and it was such a wide variety. But the businesses that you see changing hands, is it restaurants, automotive shops, muffler places? Is it all of the above? What are you seeing the most activity in?

Trent: Literally all of the above. Every single one of those industries you mentioned, I have a deal in escrow. I have a muffler shop in escrow. They net about $330,000 a year. We’re selling it for $800,000. I have plenty of restaurants.

Toby: Wait. You could literally invest $800,000–$900,000, and are you going to have to come up with a salary to replace the person or something? Or is this really kicking down over $300,000? Because it sounds like you’re getting all your money back within 2½ years.

Trent: Exactly. It depends on how you calculate it. We might be getting totally off topic, so tell me if we’re off here. There’s SDE in the small business space and there’s EBITDA. The difference really is SDE is essentially EBITDA plus one owner’s wages.

When we value small businesses, we’re typically taking a value of SDE (seller’s discretionary earnings). That means the owner’s wages have been added back, and you either need to replace them as now the owner-operator or you need to hire that out. That would then mean you’re operating from an EBITDA standpoint.

Either way, those multiples, maybe you’re paying a 2½- or 3-point multiple on SDE, or a 3½-, 4-multiple on EBITDA. Either way, they’re pretty good rates of return, as long as you’re willing to know the industry, get in, and handle the day-to-day operations.

Toby: In that case, it sounds awesome. I want a muffler shop and immediately, I’m making $300,000 a year off of my $800,000 investment. It’s not quite that clean, right? You’re going to have to hire somebody inside that $300,000, maybe it’s $100,000, so now you’re making $200,000. Still a great deal, but now there’s that little bit of risk.

What other businesses? I’m just always curious. And then we’ll jump into the SBA stuff, I promise.

Trent: There are so many. I have, I believe 18 deals in escrow right now that we’re just in somewhere in the process of an offer to closing, waiting on SBA approval or due diligence approval. There are a lot of transactions.

One that I really like is in escrow right now, their EBITDA. When you get into bigger businesses, it will be measured in EBITDA rather than SDE. We just did a quality of earnings on this business. Their EBITDA was north of $5 million per year. Nice, clean, solid business.

They’re being sold for four times earnings on the EBITDA figure. They’re selling it for $20 million. It’s a good transaction. They’re a granite fabrication company. When you or I go to KB Homes, party homes, D.R. Horton, all these major home builders, you go to the design center and you pick out your upgrades.

This company deals with no customers. They deal with no quotes, no sales quota. They just get the order from the design center, from these major home builders. They have contracts. They just cut it, install it, and they have contracts to handle entire divisions, so hundreds of homes at a time. It is a great business.

Toby: It sounds like a great business, and four times your EBITDA. I’m used to being somewhere in the 7–20 range in services. That sounds like you’re getting a pretty good deal when you’re not […]. Again, there are different levels. The bigger the business, probably the higher the multiple.

Trent: And it’s a full-time owner-operator. There are licenses, there’s credentialing, there are bid limits and all that stuff. Again, not just your average, any day buyer can walk in there and qualify. It has to be the right buyer.

I get lots of people who just call me and say, I want to buy a business. I’m open to anything. The reality is they have to have some general background to be a good fit, or at least have some way to cross over.

If you have a management background here, then you can cross over that experience. But it’s tough to take a chef who’s worked on the strip as a chef, and buy a construction company. That type of stuff is a bit of a stretch.

Toby: They’re not the same thing. Let’s just use a segue here then, because $20 million sounds like somebody’s not-coming-out-of-pocket $20 million. Are they using some sort of financing in most of these cases?

Trent: They are. Deals like that obviously are beyond the SBA limits. They don’t qualify for the things we’ll talk about today that are SBA-related. That type of a transaction won’t qualify.

Toby: What’s the high limit for an SBA loan?

Trent: Five million dollars, unless you do what’s called a pari-passu transaction where you couple it. So you got $5 million here and then maybe you get a $2–$3 million conventional loan and a pari-passu transaction combines the two of them. But you don’t do $5 million here and then $15 million somewhere else. There are private equity groups that are buying this.

Toby: And you’re probably dealing with Blackstone, Blue Owl, or one of those for finance.

Trent: They’re private equity groups that know this space. They already have granite fabrication companies. Their goal is to roll this up into five or six granite companies that do $20 million in EBITDA, and then they’re going to flip that thing for 10 times.

Toby: That’s exactly the equation, and that’s what they love to do. They love to buy at the low, make it big, sell at the high. They didn’t have to do anything. They usually get financing to get all their money out. They’re not even coming with money at the table. It’s kind of crazy.

Let’s go back to the SBA because a lot of these folks you’re looking at it saying, I would love to buy a small business for half a million dollars that’s going to kick me an extra $200,000 a year. That would just be absolutely fantastic.

Are those types of deals out there? And if so, how does the SBA play? Even more importantly, what are the new changes that make it easier for people to acquire those types of businesses?

Trent: Let’s talk about some of those changes. Some of them are really positive for buyers. It makes it even better. Let me just mention, as we were talking about before, I feel like probably how you feel. Some laws are changing, tax rules are changing. The SBAs are still going through making changes and adjustments here. It’s a little bit of an evolving process.

As of August 1st, there’s been some positive and significant changes that we can talk about. One of those is the equity injection that a buyer needs to plan for and have available. Typically, SBA lenders like at least 10% down or 10% equity injection. There were ways to get around that, a little bit of creative financing ways to get around that.

Let’s say the buyer only had 5% down. What you could do is you could ask the seller to do a seller carry note for 5% or 10%, and that would count as an equity injection if—this is a big if—that seller carry note was what is called on full standby for the term of the loan. And the term of most SBA loans is 10 years.

Basically, what that means is that the seller carry note for whatever it happens to be, 5% or 10% in this case, there’s no interest, there are no payments on it for 10 years. That doesn’t really get a lot of sellers excited. But we used that when we needed to get transactions. Essentially, to get a buyer in that didn’t have quite enough equity on their own.

Now, here’s the change. The SBA will now allow that seller carry to count as equity injection, and the seller note only has to be on standby for 24 months.

Toby: So for two years, you’re sitting there, not getting anything.

Trent: Yeah. That’s a big difference. And in addition to that—we’ll talk about this here in a minute—they will allow 100% of the seller carry to count as capital injection. What that means is if the seller carries 10%, the buyer can buy a business with no money out of pocket.

Toby: So you could buy a business, no money down, probably not the wisest decision, but you could. Have you got anybody to do that?

Trent: This is key. It’s important because the SBA has certain rules and guidelines. But the lender has their own set of rules and guidelines. Most lenders are not going for that 100% carry, or essentially zero down.

Toby: No capital injection by you because you’re counting the owner carry as though you put it in.

Trent: Yeah. I have one transaction that I’m doing right now. In fact, it’s in escrow where the lender is okay with that. I’ve only found one lender that’s okay with that.

Toby: Who is the lender? Was it a big bank, small bank?

Trent: No. Most of these are not big banks. You’re not going to find your Wells Fargo and your Bank of America doing these types of transactions. In fact, honestly I don’t even recommend you do SBA loans with them because most of the time, they’re not specialists in SBA loans. There are other lenders that are non-brick-and-mortar lenders, and this is all they do is SBA loans. That’s their specialty.

Toby: Really? Because the big one in Nevada, I think it was Wells Fargo and then US Bank or something like that.

Trent: Yeah, but if you get someone like a Live Oak Bank that no one necessarily knows because you don’t drive by them, but they do more SBA loans than Wells Fargo and Bank of America combined. That’s their specialty.

I’ve got one lender that is trying to get this done. It’s in escrow right now, pending buyer’s due diligence and bank approval. I have not yet seen it. But all of my other lenders that I’ve talked to, they want at least 2.5% down. They’ll allow out of that 10% the seller to carry 7.5%, but they want at least 2½%.

Toby: I’m buying a million dollar business. I’m buying a business that’s netting out $400,000 a year. If I’m 2½ times, I think that adds up to a million. I only have to come to the table with $25,000?

Trent: Yeah. Frankly speaking, that’s why some of these lenders are saying, look, you got to come to the table with something. A buyer who buys a business with zero down, either because they don’t have the money, is a little bit risky, or they’re not really all that committed to it. I don’t blame a lot of these lenders for wanting a bit of a down payment there.

Toby: Now, the lender makes the loan. The SBA just guarantees it, right? The SBA’s not the lender.

Trent: Exactly. That’s what a lot of people don’t realize. They think they’re getting a loan from the SBA. That’s why it’s important that you shop around and you get with someone who can help you get the right loan. Just because one lender says no, doesn’t mean that another lender won’t do it or that the SBA won’t approve it. Every lender still has to have their own guidelines.

Toby: What interest rates are they getting hit with right now?

Trent: They’re tough. They’re tied to prime, so most of them are variable, and they’re around 11½%. It’s high right now.

Toby: But if it’s variable, then the idea that the Fed’s going to start lowering rates. Let’s say that happens, then your loan would drop in the future.

Trent: Exactly.

Toby: We’ll see if they do. Is inflation helping people in a really weird way? Is it actually helping the folks that are buying these businesses, given that inflation’s been so high for the last few years?

Trent: The challenge is because the interest rates go up, essentially the buying capacity goes down. Lenders are going to look at what they call a debt service ratio. Because the debt payment is up, interest rates are up, the amount of debt that someone can essentially service or that business can service goes down.

Right now, because of the interest rates where they are, it decreased the buyer’s buying capacity by about 20%. That’s made a significant impact. Not that it changes the valuations of the business, but it changes what a buyer can afford. Therefore, in a roundabout way, that changes the valuation of the business.

Toby: Geez, Louise. Yeah, I can imagine. What other big changes are there in the SBA that make buying a business right now attractive? If I’m an investor out there and I’m looking at this stuff like, what’s going to suck me in, Trent?

Trent: Here’s an interesting one. Earnouts are not allowed in the SBA. I assume most people know what earnouts are, but just for the sake, we’ll just cover it in general.

Let’s say someone buys a business for $500,000 and maybe $200,000 of it is tied to some type of an earnout. That’s basically based on the performance of the business. Whether it’s good or bad, both parties are going to benefit up or down on that business.

Earnouts are not allowed, and still they never have been allowed by the SBA. But here’s what is allowed. I have done transactions like this before with other lenders that were comfortable with it, but now essentially it’s fully approved by the SBA. It’s called an adjustable seller note.

Here’s how that works. The seller financing portion can only go down. In other words, it can only benefit the buyer. It can’t go up to benefit the seller. This is ideal when you’re buying a business that has aggressive growth. There’s a lot of growth happening here and the projections are pretty aggressive, or there are really key employees or key vendors that need to stick around.

What you could do in this made-up example, let’s say $500,000, you put $300,000 down. Whether it’s down payment, all cash, or SBA financing, there can be a $200,000 adjustable seller carry note. We know for sure it’s never going to go above $200,000. No matter how good the business goes, it’s capped out.

But based on performance benchmarks, that could come down, and that could be adjustable. If that key vendor or that key employee leaves and the business doesn’t hit certain benchmarks that adjust, that $200,000 can come down.

Toby: Does that count as liquidity, by the way? Is that one of those notes that counts towards the contribution from the buyer?

Trent: Like from a tax standpoint?

Toby: No, I’m thinking of earlier we were talking about I have to come up with 10%. But if I had an owner carry that, that could now count.

Trent: No, that one doesn’t.

Toby: That one doesn’t? That one’s probably I’m paying right from the get-go, so it’s not going to count towards that?

Trent: No, because if you think about it, the bank still has to make sure that the business can debt service that full $200,000. It still has to meet the basic debt service criteria, and it can go down. But we know for sure it can’t go up, and at the very highest we know the bank and the business can support it.

Toby: It sounds like it’s good for a buyer, for sure. It reduces their risk because all of a sudden they’re paying less for a business that doesn’t perform. But also if I’m the seller, I’m like, this is what I want. Maybe I can get myself a little bit better price because I do have that assurance. All of a sudden you’re taking less risk, so you should be paying me on the higher end of the spectrum as opposed to the lower end of the spectrum.

Trent: Yeah, and there’s a risk for both parties. The buyer’s taking a risk that the business is going to perform like the seller says, but the seller’s taking a risk that the buyer’s going to be able to continue to operate the business just as good as they have, if not better.

Toby: What else has changed that makes this an attractive time for a buyer to come grab a business?

Trent: Here’s something that hasn’t necessarily changed but it’s relevant for buyers and sellers if they’re looking at buying and selling a business. Traditionally, when a business financials are steady or growing, when we do a valuation on the business, or when a bank looks at valuing the business and calculating debt service ratio, they’re going to look at a three-year weighted average.

Not just one good year. One good or bad year is not going to just magically make or break the business. They’re going to look at a three-year weighted average. But if revenue is shrinking, the bank and most buyers are going to put primarily most of their weight on trailing 12 months financials.

The point I’m making is, if you are thinking about selling the business, whatever you do, don’t let the gas off. Keep that revenue steady or or trending up.

Toby: Don’t wait. Don’t ease yourself out and then sell it. Sell it at the top.

Trent: Yeah. Sell it at the top or sell it when it’s still heading to the top. Don’t get so burnt out that you get frustrated and let revenue start slipping, because it makes a big difference on the valuation.

Toby: Now, there was something else. Is there something about key employees? If somebody sells a business, can they actually stay on as a key employee where they may have been restricted in the past?

Trent: Exactly, and that’s a big one. I’ll give you an example. One of the deals that we have on the market right now, in fact, I drafted the offer this morning. I sent it out for the buyer to review it. He hasn’t signed anything yet, but it’s a paving and grading company.

They make about $900,000 adjusted profit per year. Because of the industry that it’s in, there’s what’s called a QE (qualified employee) and there are contractor licenses. In the past, the SBA just took a hard stance saying, no, if the buyer doesn’t have that license, we cannot close on the loan. Someone, whether it’s the buyer or one of the employees, has to have the license and be the QE. The seller can’t. That’s what has happened and has changed.

Now, the seller can stay on as that qualified employee, that license holder post-closing, and allow the buyer to get in, get the experience, get the references, and qualify for that license sometime in the future. That’s a big change.

Toby: I’ve seen that. Here we are in Vegas, I’m in Vegas, but they have the restaurants with gaming licenses and liquor licenses. Quite often they’ll sell, but the previous owners have to stay on for the licensing. It has to operate, and then there’s a transition period. Is this something like that?

Trent: Yeah. Anything that the SBA deems as a key employee or a key license holder, that becomes a lot easier for the transition. To your point, gaming, I’ve got a Mexican restaurant gaming bar here in town. It’s fantastic. It makes good money. It’s been here for 30 years. For someone to come in and not be able to close until they get both the liquor and the gaming…

Toby: That could be a while.

Trent: Yeah. It’s a year-long process.

Toby: Yup. The previous owner then could stay on, and the SBA could be involved. I’m thinking about some of these. They had to find outside financing is probably the same deal as they wouldn’t underwrite it. which could make sense. What other issues are floating around out there that have changed, that make now a good time to be that buyer?

Trent: Here’s a good one. The SBA used to have what they call an excessive liquidity issue, or when a buyer had excessive liquidity.

Toby: I want some excessive liquidity.

Trent: I know. That would be nice. I’ll give you a perfect example. I had a business for sale. You’ll know this, Toby, In Vegas, there are all these gated communities. They all have these electronic gates, and you have to push the PIN code or call someone before you go in. This company manufactured the gates and serviced the gates and the box. Anytime the gate breaks, which you’ve seen, they break all the time, they handle that.

I had a perfect buyer. He contacted me, had all the right background, everything. He already had the licenses, just the perfect buyer in every way. We wrote the offer. Often when offers come in, what we do to enhance that offer or make it really credible from a seller standpoint is we present the offer and we present buyer’s proof of funds to show this guy’s got at least enough money for a solid down payment that we can get the rest from the bank.

Well, he sent me his proof of funds, and there was $30 million just sitting in his investment account. I’m like, why are you buying this business? The business was $2.3–$2.4 million, I can’t remember the exact amount. I’m like, why are you getting a loan from the SBA? Just write a check for this business.

Some people like to leverage and use other people’s money, which is fine, but the SBA would not approve him. That was obviously an exaggerated, excessive liquidity issue.

Toby: Let me make sure I get this right. The SBA says, you don’t need the money, so I’m not going to give it to you.

Trent: Yeah. If you think about it, the SBA program was really funded for people who didn’t have the money to begin with. It was not meant for people to leverage the government’s backed money for their own investments.

Toby: Depending on where he held it. Why wouldn’t he just do a security back line of credit and use that money?

Trent: That’s essentially what we ended up doing. The SBA said no.

Toby: Because the SBAs like, why would we underwrite this asset? For those people who don’t know, if you have money sitting in a brokerage account, they’ll loan you money on that. It’s called a security-backed line of credit. If it’s just sitting in stocks and bonds, you can write 75%–80% of that amount.

Trent: Yeah. We ended up going back to his credit union, his primary bank, and just just leveraging some existing assets. He got the money quickly and we closed the transaction. But that issue, excessive liquidity has been removed.

Toby: All right. What else is out there? That does seem silly because there are a lot of people, especially in the last three years that have cashed out of deals, where you’ve had massive amounts of equity, especially if you’re in real estate. Some cases sitting on portfolio properties that are tripled.

Trent: Here’s another good one that’s been changed. In the past, if you bought a business, let’s just say you and I, you were the buyer, I was the buyer, and you gave me the money just to close the transaction quickly. You could not then refinance that business with the SBA for 24 months.

That’s been changed. Now, if you can show that I have a benefit of saving at least 10% of that debt service, whether it’s hard money, whether it’s high interest rates, whether it’s a short-term loan, I can then refinance that. That’s helpful for people who want to close on it quickly and not deal with all the SBA that would drag out the closing process.

Toby: All right. I’ve lost count, Trent, so I’m just going to have to call this SBA change. Are there any other changes that you’ve seen that actually make a pretty big impact to make it easier to buy these businesses?

Trent: There are a couple more. Maybe two more that we’ll talk about.

Toby: I knew you had some in your pocket. I try to come up with a little list of things that I’m like, okay, forget it. He’s beyond that. What are they? Let’s put it all on the table. All the chips are out.

Trent: Here’s an interesting one. The SBA redefined the definition of small business loans from $350,000 to $500,000. Now, here’s why that matters because most people wouldn’t care. What does the SBA define that as? Why does that even matter?

If it’s classified as a small business loan, the requirement to pledge personal collateral such as your primary residence can be removed. It’s not required. Now that to your point, we started that $500,000 small business that someone wants to buy, they may be able to buy it without putting a lien or collateral on their primary residence.

Toby: Wow. you can come in there, again, a half a million dollar business, which sounds like it’s probably doing, net, somewhere in the $150,000–$200,000 range?

Trent: Yeah.

Toby: And when you calculate that net, you’re not taking out the salary of the owner. The salary could be what they’re making?

Trent: We do both. We take out the salary of the owners in order to calculate the seller’s discretionary earnings. We leave fair market salary in to calculate EBITDA.

Toby: But you’re buying it off the former, right?

Trent: Technically, really valuation should be done with both. A good business appraiser should look up what the fair market multiple of the SDE is, the fair market multiple of EBITDA, and do both of them. And in theory, they should be fairly close.

Toby: I guess, yeah, you’re looking at it because it should match up. Again, in real estate, you’re just looking at one thing, usually, which is the cash flow. The real estate does the heavy lifting, but here you have to figure in, somebody has to work, somebody has to do that labor, and it’s usually the seller that is working in that business. Now, you’re going to have to substitute yourself in, so they have to figure that out just in case you don’t have the time. What else?

Trent: One last update. We’ve had lots of good updates. I’ll give you a bad update. There are some changes with the franchise approval. If you’re looking at buying or selling a franchise, the issue is the SBA used to have something called the franchise registry, where all banks, everyone, all lenders could look up in this national database and see what the FDD say about ownership changes, review it from an legal eligibility standpoint.

That has been removed. The reason that’s bad is because now, the SBAs put it on every single lender individually. A lot of these lenders are not set up to have a legal team start reviewing FDDs, franchise requirements, and transfer of ownership eligibility based on the FDD. So some lenders are just saying, thanks, but no, thanks.

Toby: What’s your favorite franchise to buy or sell? You got to have a couple that you’re like, all right, never these folks ever again. Or, yeah, these ones are easy and they make money.

Trent: This comment might get me in trouble, but let me just say it and you can tell me if I’m bad here. I’ve sold a lot of franchises. Here’s the one thing I’ve learned about franchises.

The guy or girl who buys that first franchise, pays all the fees, all the build out, and buys all the equipment brand new, those are tough. They end up spending so much money on brand new franchises, and then the business doesn’t make as much.

But the guy or girl who buys that same franchise on the second around, or the third, now they’ve bought a business that, it’s established, they’re not paying those high rates. Some of these people go in and it’s concrete floors, dirt floors. They’re doing the leasehold improvements. They’re building out the landlord’s property for him.

Toby: They’re saying, here’s what it has to be. Sometimes you have to use my vendors, and you’re paying up the nose.

Trent: Yeah. I’m a big fan of franchises. I’m just not a big fan of being the first one to open that franchise.

Toby: You’re a fan of buying the franchise that’s been there for 2–3 years. It’s like buying a leased car. You don’t want to be the guy that buys the brand new car. You want to be the guy that buys the car when it has 12,000 miles on it.

Trent: Exactly.

Toby: They took the 30% hit.

Trent: Yeah. And to our point that we started with at the beginning, you find a good franchise, good brand, good reputation, that has a bad business owner that just overspends and doesn’t quite know how to operate. You get in there as a good business operator, you pick it up at a fair price.

It’s not so much how much you’re paying for it. Not franchises in general. Any business. It’s not just how much you’re paying for it based on maybe a bad business owner or a poor business owner, how much profit they were making. It’s the opportunity you have to get into that business and grow it.

I have seen over and over again, good buyers who go in there, and in a year or two can double and triple a business because they put operations, they put processes, procedures, systems in place, good marketing plans.

How many business owners have absolutely no database of customers that they have any relationship with, that they’re trying to create any recurring revenue? A lot of business owners don’t operate the way they should. You get a good business operator that buys a business at a fair price and then turns that into a great business, now you’ve got a really good recipe for success.

Toby: That’s awesome. All right, Trent, how does somebody get a hold of you if they’re interested in buying a business?

Trent: I’m finally on social media. I’m getting set up on all those. I have two people that like me—my wife and my mom—on Twitter, Instagram, YouTube, and are starting to make some videos. They can find me on any social media platform. I’m there. Just look me up there.

What I try to do is I try to post on my social media account usually seven days prior to me taking listings public. I post it on my social media following about a week ahead of schedule, so people can see good deals.

Toby: Perfect. And we’ll put a link in the show notes to make sure people can find you. Thanks again, my friend, for coming in. It’s always enlightening. If anybody’s out there who’s listening, and you have the energy, the wherewithal, and maybe an expertise, now it’s the time to buy a business.

Trent: Thanks. I appreciate it.