Business Broker Ahmed Refai

Intro: [00:00:07] Broadcasting live from the Business RadioX studios in Atlanta, Georgia. It’s time for Buy a Business Near Me. Brought to you by the Business Radio X Ambassador Program, helping business brokers sell more local businesses. Now here’s your host.

Stone Payton: [00:00:32] Welcome to another exciting and informative edition of Buy a Business Near Me. Stone Payton here with you this afternoon. You guys are in for such a real treat. Please join me in welcoming to the broadcast with BTI Group Ahmed Refai. How are you, man?

Ahmed Refai: [00:00:50] I’m very good. Very good. And thank you so much for having me.

Stone Payton: [00:00:53] Oh, man, we are so pleased to have you on the program. I got a ton of questions we won’t get to to all of them, but the place I’d like to start, though. Mission, purpose. How would you articulate what you’re really out there trying to do to serve people?

Ahmed Refai: [00:01:10] Yeah, sure. So first of all, I want to understand the buyers, the seller’s needs, what they’re looking for. Exactly. And each deal is different and unique. You have to understand the characteristics and the dreams and the objectives in the future and how to serve them in the future. And as I mentioned earlier, each deal is different and unique. And if you want to know what they’re looking for, some businesses have been around for ten years and some for 20 years and some for 30 years, and each one has different goal and objectives.

Stone Payton: [00:01:42] So how did you get into business brokerage when everyone else was playing cowboys and Indians? Were you playing business broker? I bet the path was different than that.

Ahmed Refai: [00:01:52] Yeah, it’s interesting. So in my previous position, I used to work for outsourced financial services firm. They provide a financial services and CFO consulting services, day to day transaction and accounting valuation services and taxes as well. And I was working closely with early stage venture backed companies and also I was partnering with VCs and Angels and lawyers. And in 2020, as you know, the pandemic hit and I got laid off among other employees. And I decided to focus in this space because I love numbers, I love finance, and I’m good at numbers. So I decided to focus on financial services industry and BTI Group reached out to me and I had a great conversation with my manager because he was so transparent and honest from the beginning. He talked to me about the pros and cons, about the industry and about the position, and he mentioned many negatives and cons in this space a lot. That’s why I like that he was so transparent. For instance, he told me that the survival rate in this industry is almost 5% because you won’t get paid until you sell a business. And here in the Bay Area, the cost of living is insane. So I have to be financially prepared for at least two years, sometimes more.

Ahmed Refai: [00:03:20] Also, it’s not easy to generate leads. You can generate leads, but it’s not easy to generate good leads. And the national average sale is between 8 to 12 months, sometimes more. So besides all the cons and the negatives, I saw this from different angles and I saw potential opportunity in this space because there is a shortage in online business brokers in the Bay Area. I don’t know what’s happening elsewhere nationwide, but in the Bay Area there is a huge shortage of business brokers. Also, I have financial and consulting background and I saw I can thrive in this space and more importantly, the impact that I provide to business owners and sellers. For instance, me and my manager, we were working on a deal last year and the lady had been operating the business for almost four decades and last year we helped her to sell the business. And she’s not from us. She came from Paris and after selling the business she used the proceeds of the sale and she went back to her home country, Paris, and she bought a new home and she started a new life and new chapter. So how cool is that? And these are the reasons why I decided to get into the business brokerage.

Stone Payton: [00:04:37] So you’ve been at it long enough now. I suspect you’ve probably built your own personal process framework methodology. Is that accurate? And if so, can you tell us a little bit about it?

Ahmed Refai: [00:04:50] Absolutely. And I’m glad you brought this up. So I’m going to answer this question this way. When I first started at BPI group, I didn’t sell a business before and I didn’t know the process. So for the first four or five months, I wanted to understand the ins and outs of the business, how the process looked like, and what type of questions to ask for the buyers and sellers. And I was shadowing my manager and other business brokers and people who have been in the market for 20 and 30 and 40 plus years to learn from them. And after four or five months, I created my own framework and has been working very well for me and I want to break down my framework into four stages. So stage number one is I have to have a consistent deal flow. This is very important and I generate leads through three sources. The first, I generate leads from the marketing department at the firm and I rely on them heavily, I would say 50%. I generate my leads from the marketing department and the other 50% are generate leads from LinkedIn. And through my network I know a bunch of lawyers and accountants and I get referrals from them all the time and once I get the lead, I have to qualify them and answer the. The right questions and then get the financials. It’s no easy task to get the financials from the client.

Ahmed Refai: [00:06:18] Sometimes it takes more than a year to get the financials. You heard me right. It’s a long time. It’s a long time. And I had four clients I got. I reached out to them last February in 2021, last year and in March. And I just got the financials this year. So it’s not easy to and you can imagine you have a business and someone asks you for the financials. It’s not easy. We never send in the financials right away. Right. And once I get the financials, I get I get to the stage number two, which is value the business. And I agree on the purchase price value of the business. It’s mix of art and science and it’s teachable. But to agree on the purchase price, it’s not easy. I became comfortable on agreeing on the purchase price with the seller after having ten or 15 conversations. I guess because most of the times we have valuation in the mind. For instance, there is a client he thought that his business valued at $10 million and after doing the valuation, the business is valued around 1.52 million maximum. So we are far away from 10 million. And I have to justify this number and I have to back up my numbers. So if we are far away that much, then respectfully I have to walk away from the after educating him. But if it’s if he thinks that it’s 10 million and my valuation is seven or eight, then it’s fine.

Ahmed Refai: [00:07:48] We can go from there. And this stage is very important and I had to focus on this one a lot because if you can convince the seller to agree on the purchase price, you will never have a listing. And once you agree on the purchase price, get to the third stage. And this stage is very critical. I start preparing the marketing materials such as the teaser. It’s one page or two, two pages, just the general information of the business to attract and read investors and just vague information. And if investors are interested, then we send them the NDA to send them. The book we call a CVR stands for a confidential business review and then lists all the potential buyers for this stage. Stage number three, I like to check the box for four points. First point is, I want to make sure that the seller is ethical and is truthful because truthfulness is contagious. If the seller lied to me from the beginning, then guess what? It would be lying down the road, especially when we get to the due diligence process. So I want to make sure that how ethical is the owner and he’s truthful or not. The second checkbox that I want to know is most businesses, they need to do some adjustments to enhance the business.

Ahmed Refai: [00:09:13] Some of them are minor and some of them are major adjustments. If it’s minor, it’s fine. But if it’s major, I have to have a hard conversation with the client and be honest with them. If you are going to sell the business at this situation, then you would never sell it at a premium. However, if you can do this adjustments, which is going to take one or two or maybe three years, you will sell the business at premium. And I have to be honest with them upfront from the beginning to set the right expectations. And the third checkbox is I want to see how motivation is the seller because because if he’s not motivated, then how on earth is going to work with me and with the buyer when we get to the due diligence process? So it’s very important to see how cooperative with me and how motivated he is. And the last piece is I want to make sure that I have all the documents at hand and be ready to expedite the process when we get to the process. And I want to extend to this point one of the things that I learned the hard way, I had a client and we prepared everything. We prepared all the paperwork and the documents, and we were ready to go out. And one, when I brought the buyer, he was sophisticated investor. He started to ask the owner a lot of questions and guess what? The owner couldn’t answer all these questions.

Ahmed Refai: [00:10:36] And if I were the investor, I would walk away and he walked away. And what I learned here is in the future, I have to make sure that the seller and the owner is equipped and prepared for this type of conversations because it’s under my responsibility. They haven’t sold the business before and it’s an emotional event and they don’t know what to say and what not to say. So I learned the lesson and I wrote down that in the future, when I encounter this, I have to make sure that the seller is equipped for this type of conversation. And finally, the stage number four is the business goes live and start reaching out to buyers. And when we agree with a potential buyer, we will start working on the process. And this makes or breaks the deal. But if you are prepared for the stage and the seller is prepared as well, you will go through it and you will sell the business and the seller will enjoy the benefits and we get the rewards. This framework works very well for me. This is the foundation I have to master each stage and I’m evolving this framework down the road because if I am not evolving this framework, I will never grow and I will never get to the next level.

Stone Payton: [00:11:53] Sounds to me like you have a very thorough process and one that provides the right kind of education and preparation for for buyer and seller alike. It sounds to me like you’ve invested a lot of energy in this process, this framework of yours.

Ahmed Refai: [00:12:11] Yeah, I read a lot of articles and saw many videos. I shadowed the many, many, many people. I talked to a lot of people. And this is how I become a professional, because I love the industry. I love the impact that I provide to business owners. And this is how you grow and this is how you get it done. Each thing you have to have the framework, but to have a framework that is workable, you have to test it many times and reflect and start again until you get it done. And this one has been working for me for a while. So yeah, it’s working now.

Stone Payton: [00:12:49] Have you found that some types of businesses are? I don’t. I hate to use the word easy, but are a little more marketable or the process comes together faster. I will go ahead and say it. Are they are some businesses easier to sell than others?

Ahmed Refai: [00:13:05] Yeah, of course. Somebody. So my question, my manager told me each business is different and each business is unique and you have to put your ego aside. If you sold five or ten or 20 or 30 businesses don’t think that you can sell any businesses in the future because again, each deal is different. Some businesses to answer the question, some businesses are easy, of course, and some of them are not. But from my experience, you need to do some work and adjustments. Remember when I told you I want to check the box to see that the business needs some adjustments? It could be minor or major. Most of the business owners, unfortunately, they are not prepared to get to this stage. Most of them, they break even. They have a good lifestyle. They send their children to very good schools. They have cars, they bought properties and their businesses are not sellable and they don’t have a management team. They are very good operators. They don’t know how to manage and create a management team. We don’t have sales team. They do everything and when you have this type of businesses, you can’t sell it at a premium.

Ahmed Refai: [00:14:13] You will never sell it at a premium and they are not prepared to have free cash flow, they are not prepared to have a great margins. And they always think about the revenue as a whole as as the whole revenue streams combined. And when I ask them to break down the revenue streams, I would say 95% of them, they don’t have the numbers, they don’t break even each revenue stream. And it takes a lot of work because I have to know each revenue stream, I have to know the margins, the gross profit and everything to see what works and what and what doesn’t work. Because I have to disclose it when I talk to investors and buyers because we talk financials a lot and I want to know what works and what doesn’t. And also, no one is perfect and each business has its own weaknesses and negatives. And I have to suss it out when I talk to investors, because investors wants to know everything about the business. And if you are honest and transparent upfront, it will expedite the process.

Stone Payton: [00:15:16] Well, what I like in what what I’m hearing or I think I’m hearing is if I’m preparing to sell my business, I come to you. We sort of work our way through this framework and we get to that part where we’ve got a valuation or we’re beginning to work on valuation, and then you identify some adjustments that could really move the needle on that valuation. It’s not game over if if I’ve got some of these challenges in my business right now as we sit here today, and if I’ll have an open mind and listen to some of your counsel, I can go back and clean up some things, do some things differently and then come back. I don’t know what the time frame is 18 months, two years, whatever it is. Then we’ve got something that’s very sellable. We don’t have to give up just because we hit that point the first time.

Ahmed Refai: [00:16:06] Right. Exactly. And I want to give you a. And a story that happened to me last year. There was a client came to me and he told me, I want to sell the business. He has been operating the business for almost three decades, 28 years. And he has a good lifestyle. And as I mentioned earlier, he sent his children to good schools, UC Davis and UC Santa Barbara, and he has four or five cars and he has a very good lifestyle. And when I started to the various business and these financials, I was surprised. I was surprised. First of all, his financials were not clean. His margins were very bad. And I had a hard conversation with them. I told him, listen, to sell the business, you have to clean your financials and you have to do major adjustments, not minor adjustments. And if you are going to do these major adjustments, it’s going to take for you 2 to 3 years. So I want to know, are you in a hurry? You want to sell the business, you have something that is emergency. You need liquidity. You want to sell the business right now, or it’s fine to wait two or three years to make the business sellable and attractive to investors. And the answer was great. He told me, No, I can stay two, three years. It’s not good for me, of course, because I want to sell the business. I want to sell the business. But you have to be honest upfront because it’s my reputation and the company’s reputation and we we work for the interest. Remember when I told you one of the most important things that I like about this job is to have an impact. And I remember when I was me and my manager sold the company that I told you about earlier. She was super happy and I’m in touch with her from time to time, use that as a reference and she has a great life and we were the reason to have this life. And she bought a house and she started a new chapter. So it’s amazing.

Stone Payton: [00:18:06] Okay, so let’s talk a little bit about deal structure because it doesn’t necessarily have to be where you’re just writing a check and you’re done. There’s some creative ways that you can structure the buying of a business. Right.

Ahmed Refai: [00:18:23] Exactly. So I’m going to answer this question this way. I work for B.T. Group. It’s a subdivision of business team and business team. They they like to work as a team. When we structured and when we get to the process, we have to work as a team because each deal is different and each deal is unique. And the president wants to make sure that we want we will avoid all the pitfalls down the road. That’s why we have to work as a team, and that’s why the name of the company is business team. Each deal is different and we have to structure differently. And first of all, we have to understand the client’s needs. It’s going to be purchased sale or stock sale and what works for him and based on the tax consequences, because most of the buyers they like to have, they have the love to do asset sale. And because of liabilities and some of the business owners, they don’t understand what does SSA mean and what does stock sale mean. And I have to educate them. But in general rule and this is how it works for most of the deals, most of the times the buyer pays. I’m talking about financial buyers. Most of the financial buyers, they pay between 10 to 20% down payment, preferably more than 10%. The more the better. And the rest will be financed by the bank and 10% would be financed by the seller. The bank wants to make sure that the seller has skin in the game. They want to make sure that he will have a smooth transaction to the new buyer and smooth transaction to the employees is very important. And also want to make sure that the new buyer is he can afford to complete an acquisition. He can afford to pay ten or 15 or 20% for the down payment or not. And then we go from there. We have to be creative, but it’s not it’s not complicated. Again, we work as a team, my manager and other managing directors and VP and the president and we see what’s the best interest for for the seller.

Stone Payton: [00:20:35] Okay. Before we wrap, let’s leave our listeners with with a with a few pro tips buyers and sellers alike, just some actionable tips, some things they can begin doing, maybe reading, maybe be thinking about. I mean, the number one tip is reach out to refi. But, you know, short of that, what are some some pro tips that we could leave them with?

Ahmed Refai: [00:20:56] So I have tips for buyers and sellers that start with the buyers. First, the buyers should understand what does business brokers look for? Business brokers look for two important questions. For me. For me, for instance, I want to know that this buyer is capable to run the business or not. He’s qualified to run the business or not. He will be qualified by the bank or not. Second, I want to make sure that he can complete the acquisition. He can afford to complete the acquisition. And finally, for the buyer, as they have to have their own characteristics and their own thesis. Last last week, I had a conversation with sophisticated buyer. He told me, you know, refi. I’m looking for businesses that they have between 1 million to 3 million pre profit and should be in the Bay Area concise to the point and he knows what he’s doing. Other buyers, they don’t know what they’re doing and they’re all over the place. They’re looking for any business and it doesn’t work that way. They have to be concise and understand the characteristics regarding the sellers. They have to clean the financials. They have to have all the documents and the paperwork ready at hand to expedite the process when we get to the deed process.

Ahmed Refai: [00:22:10] Also, I always start with the sellers. They have to ask themselves what they’re going to do after selling the business. If they can’t answer this question, then I tell them, Please don’t proceed and don’t sell the business. This is very important. Also, they have to understand the working capital and the tax consequences for the sellers post acquisition. And this is the contentious that happens between the sellers and the buyers and the continuing involvement post-sale. They have to be prepared and willing to stay at least six months, maybe more. It depends on the business because each business that is to stay for at least six months to make sure that they have a smooth transaction and to increase the value of the company. The seller should have a management team to run the business and his or her absence and have a sales team and more importantly, to have a subscription model. This is very important to estimate the demand and predict the free cash flow, because if you can predict the free cash flow, then there is no business. Right?

Stone Payton: [00:23:16] Right.

Ahmed Refai: [00:23:18] If the seller can can have a strong and robust management team and can have sales team and can have a robust subscription model, the seller can buy the business sell the business at premium price.

Stone Payton: [00:23:32] Well, I’m glad I asked what a marvelous set of tips. Okay. So if someone would like to reach out, have a conversation with you or someone on your team, or just learn more about any of these topics, let’s make sure that they can get connected with you, whatever you feel like is appropriate. Email, phone, website, LinkedIn. I just want to make sure they can connect with you.

Ahmed Refai: [00:23:54] Sure. Like LinkedIn. And through my email. My email is a wi fi a r e f i at business dash. Time.com is a way I can reach out.

Stone Payton: [00:24:07] Well, it has been an absolute delight having you on the show this afternoon refi. Thank you for making the time to do it.

Ahmed Refai: [00:24:15] Thank you so much, Stone. I really enjoyed this conversation and thank you so much for having me.

Stone Payton: [00:24:20] All right. This is Stone Payton for our guest today. Refi with BTI group and everyone here at the Business RadioX family saying we’ll see you next time on buy a business near me.