Dr. Douglas M. Brown with Transworld Business Advisors

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 morning. Please join me in welcoming to the broadcast with Transworld Business Advisors, Dr. Doug Brown. Good morning, sir.

Douglas Brown: [00:00:49] Good morning, Stone. How are you this fine morning?

Stone Payton: [00:00:51] I am doing well and I have had the pleasure of having on air conversations with a couple of other folks in the Transworld Business Advisors system. Always informative, always inspiring. So I’ve really been looking forward to this conversation. What part of the country are you serving, man? Where is where is your go? As my wife would say.

Douglas Brown: [00:01:16] Well, our office is based in Richmond, Virginia, and serves most of Virginia. I operate out of Williamsburg myself.

Stone Payton: [00:01:23] What a beautiful area of the country. How in the world did you get into this line of work, man? What’s the back story?

Douglas Brown: [00:01:32] Well, the back story is I wish I would have discovered it about 20 years sooner. I had a small business myself in Atlanta after the dot com crash and all of that, and most of the people I knew weren’t getting employed. So I decided to hire myself, started a small business, and it was doing pretty well until I got notified to my reserve unit was going to be called up for the Gulf War. And I didn’t think I could run a start up small business from that distance. So I went to sell it and I was successful in that. But that’s where the problems began and would not have happened had I had a business broker, which I didn’t even know was a thing at the time. So I went about my way and I went off. When I came back from the Army, I did business consulting work of different kinds for many years and a few years back Transworld contacted me and said, Hey, you know, you’re doing this consulting stuff. Have you thought about being a business broker? And then we’ll know because I didn’t know that that was the thing. So they told me about it and showed me what they did and I fell in love with it right away. It’s really something I wish I would have found decades sooner. I just like working with small business owners, helping them achieve the best they can with the assets that they have. And then for many of them, it’s that’s their pet, their retirement plan. So you really want to always makes me always want to do the best I can for them.

Stone Payton: [00:02:59] Well, and there really are I’m learning so many moving parts on both sides of the equation, buyer and seller alike. After hosting this series. Now for a little while, I cannot imagine being a buyer or a seller without someone with your expertise in this domain. There just there are too many ways to get it done there. There are plenty of opportunities to to stumble. So are you finding that you gravitate to a certain type of individual, a certain type of buyer, a certain type of seller, certain types of businesses?

Douglas Brown: [00:03:37] Well, Stone, I do what we call the main street businesses, which is the ones that have revenues. Revenues, typically between a half 1,000,005 million. You get much bigger than that. You’re starting to get into stock transactions, which takes a whole lot of different licensing and so forth, and it’s a different kind of a sale. So no, we don’t pick a particular industry to work with because in the end, the sales process other than how you how you inventory the product and that kind of thing, is pretty much the same across all those smaller businesses. And the places you advertise is pretty much the same. You know, there are some sub communities in there like the convenience stores and gas stations that seem to have their own ecosystem going on. But for the rest of them, it’s pretty much the same across the board, and that’s who I serve.

Stone Payton: [00:04:30] Okay. Let’s talk about funding a little bit on the on the buyer side. Let’s hypothetically say that my wife, Holly, is not going to let me tap into her 401. To buy this business I’ve got my eye on. It’s okay. I’ve got some options. Right. Can you walk us through some places ought to be looking at or thinking about for funding that business here on Main Street in Woodstock, Georgia.

Douglas Brown: [00:04:57] Yeah, sure. And I mean, first let me say that, you know, there’s this perception that money going into a small business is risk money. And that’s mostly because the dot com stuff, you know, you do a startup, you might lose all your money. But if you’re buying an existing small business that’s making a profit, you know what you’re getting. It’s been doing it for two or three years. It’s going to continue doing it. And, you know, historically, those returns have been greater than what you can get out of the regular markets. But to your point, there are people that don’t want to use their own money to buy it. The Small Business Administration’s loans is what people tend to think about. And they’re not as readily available in the main street market as you would think. Because, well, first of all, it’s a misnomer that the Small Business Administration is doing anything other than providing a guarantee. It’s actually a program that the lenders will use to guarantee the loans that they issue. So lenders have different rules for what they’re going to do. But for the most part, you’ve got to start out with three years of the last three years being profitable and a couple of years ago you could get away with saying, but COVID. But that’s kind of going away now.

Douglas Brown: [00:06:10] And you’ve got to be profitable enough not only to throw away, throw up enough income to service the loan, of course, but also to provide the owner. The requirement is that the owner has to be the operator of the business. So this business has to throw off enough money to pay the owner what they consider to be a reasonable salary. So you can’t say, I’m going to run a 20 person accounting firm and I’m going to pay myself 20,000 a year. I know that that doesn’t work. So it’s not that easy to get Small Business Administration financing, which means if they won’t touch it for the most part, most of the banks and the other lenders won’t either. The non SBA type lenders, they typically have deal sizes that are at least 350,000. A lot of them are higher than that. Some of them will require nets, annual nets on the order of 350 or 400,000. So at least for the market I’m in, getting financing from a third party is only for the best of the best. If you can get that, that’s great and it makes it a lot easier to get a buyer otherwise. And most of the deals on the main street level, the seller is going to have to provide quite a bit of the financing.

Stone Payton: [00:07:24] Okay, So say more about that, because I do. I walked into hosting this series and I’ve been hosting it for several months now. My picture of how this worked was I write you a check, you hand me the keys, and the deal structure can look a lot different than that and in the seller can finance all part. There’s a lot of different ways to do it and the seller be involved in helping finance the thing. Yes.

Douglas Brown: [00:07:49] Absolutely. One of the rules I tell buyers that I’m working with and sellers is if the buyer is coming in asking you to borrow the money to buy the business with, then they don’t really get to negotiate what the price of the business is. Mm hmm. And the seller is going to require the buyer to put down enough money to where if the buyer should happen to drive the business into the ground. And the business then says to the seller, I’m sorry, we just can’t pay you those debt payments we were talking about. Yeah, there’s a personal guarantee. A lot of sellers are unwise and refuse to pay the fee to a credit bureau to run the credit checks on the buyer. But even so, there’s a lot of things that doesn’t pick up. I mean, you really don’t know if this person would be good at running a business or not. So the seller is going to require enough of a down payment that if this whole seller financing thing blows up on them, they walk away with enough money. They feel like they didn’t just give this guy their business and now they got nothing. So I have just to see what they say. I’ve attended some of these seminars where they talk about buying a business with nothing out of pocket.

Stone Payton: [00:09:00] Mm hmm.

Douglas Brown: [00:09:01] One of the important things there is they don’t say nothing now. That’s not happening. Nothing out of pocket means you can razzle dazzle some ways to finance the inventory, to do some stuff where you can produce a check at the closing table that isn’t actually your money as the buyer. But the seller is not going to just turn their business over to you and let you borrow the rest of the money from them and walk away. Unless the business is just such a nightmare that they want to get rid of it. It’s kind of like having a boat. Nobody, nobody sells a boat. They give it to some other schmuck.

Stone Payton: [00:09:40] Oh, I resemble that remark. I grew up on the Gulf Coast.

Douglas Brown: [00:09:44] Yeah.

Stone Payton: [00:09:45] Oh, that’s funny. Okay, so let’s talk about the corporate guy. The corporate gal. Good career, you know, Still wants to stay there, at least during this transition period. You probably have some I don’t know if this is the right term or not absentee business, but something where I don’t have to be there Monday through Friday in the early going. Is that is that doable?

Douglas Brown: [00:10:06] If you’ve got money, anything’s doable. So, yeah, I mean, a lot of people say that the first thing that certainly we always tell them as a business broker is there’s no such thing as an absentee business if you think that you might. What would you pay to own an ATM? You know, you walk up to it, you take money out of it, and you come back when you feel like it. That would be very expensive. It is possible, of course, but you’re going to pay a lot of good money for it. And it would be a pretty good investment if you did it. But that’s not your typical business. You’re still going to have to have some hands on the owner if the owner was operating it at all. And so let’s just separate that out. If you’ve got a business that’s more than, say, three or $4 million in revenue, then they’ve got a full time professional person or two that’s actually running the place. And yeah, you can buy it as a semi absentee investor, but it’s going to cost you two or $3 million to buy that business. If you want to have an affordable business, it’s going to make the assumption that you are actually the owner operator of it and you’re going to have to do stuff.

Douglas Brown: [00:11:16] Now, you may not have to be the person that opens the shop every day and sweeps up the floor at the end of the night. But you’re going to have to be involved. The more the business can run itself, the more of a premium it’s going to command. But I would actually respond to the corporate part that we were just talking about. There’s a lot of people that come out of corporate and say, Oh, well, I have you know, I used to be a finance manager or a budget manager or contract manager. I was a line business manager, VP of 300 people. I know how to manage people well. And I can actually tell you this from my own experience, because the business that I started was a blue collar business. And I’d come out of that same corporate world, people in the kind of trades where you actually work for a living make decisions a lot differently from people that go to office and satisfy their boss for a living. Hmm. And managing people in that environment is completely different. A lot of people I talked to that are coming out of corporate world that have a chunk of money.

Douglas Brown: [00:12:16] The first thing they tell me, I don’t want to buy a franchise. Let me get this right. Now, you want to buy a business. You know nothing about an industry. You know nothing about managing people. You don’t understand. And you want to figure out how to do this by yourself so that you’re not paying the franchise or. A $50,000 fee or whatever it is. To buy a model that 1000 other people have proven works. And all you got to do is do what they do, and the least you’re going to do is a decent rate of return. But no, you know, if you don’t want to do that, then we’ll go find you at one off business. And it’s astounding the number of folks that we work with at our buyers that don’t want anything to do with franchises because they don’t want to pay that six or 7% royalty or whatever it is. And yeah, I get it. It changes the profit picture, but not really knowing how to run the business and run it into the ground is a whole lot less profit than giving somebody a 10% rate.

Stone Payton: [00:13:11] Go a minute. So you’ve been at this a while now. What? What are you finding the most rewarding, man? What’s the what’s the most fun part about the about the work for you?

Douglas Brown: [00:13:23] Well, I’m fortunate enough that I have other sources of income, so I’m not going to I’m not going to say that. Yeah, cash in the commission checks is the most exciting part, although I like to do that. But that really isn’t what it’s about for me. I really enjoy working with small business owners I like and I enjoy just seeing what they do every day. You go in and you see how these businesses operate. You see people who come in to work and are happy to work every day doing what they do in all kinds of different industries. It’s just curiosity stimulating for me as to how they work. And I really like working with these folks who have worked. For many years, try and trying to build up this business and make an asset out of it, because the sad part is almost 90% of businesses, small businesses. When the owner leaves, they get nothing. Either they don’t bother to sell it or they can’t sell it or whatever. And they’re, you know, a lifetime of something they thought that was going to be their retirement ticket turns out to be nothing. And I have that when I’m talking to folks in the back of my mind is I can’t let you retire from 20 years of this business with nothing to show for. We got to do something and figure out how to get you a reasonable return.

Stone Payton: [00:14:37] Yeah, well, talk about timeline a little bit if I have, you know, just poured my heart into this thing for 20, 30 years, and I do have my eye on exiting. Let’s talk about timeline. Timing window. I need to reach out and start having conversations with you to kind of get my ducks in a row because there are some things I need to get set up to get the most for it and have a good clean deal. Right.

Douglas Brown: [00:15:04] Right. So the answer that is now or maybe last year. Because here’s what happens. Small business owners, especially if they’re owner operators, they’re all busy, super busy and planning for the future for some day, that that could be five or ten years from now. I’m not ready to retire. I don’t have time to spend time in some ivory tower exercise coming up with an exit plan and doing all that because I got plenty of time for that. My observation has been that some day has a habit of arriving tomorrow. And to your point exactly, is there’s a ton of things I could do to make my business more valuable to a buyer. But if I did them now or over the next couple of years, wouldn’t be very expensive to do and wouldn’t disrupt the business too much and they would be possible. But if I wait until I need to sell. Those things are either super expensive to jam them in at the last minute or they’re just not possible. So. You really need to start. If you think about retiring any time in the next three or four years, you definitely need to start figuring out how that’s going to work and start doing the things you need to do to make the business more viable. If you need to retire right now, the reality is. And it may not be retired, right? It could be.

Douglas Brown: [00:16:26] You get sick, it could be somebody in the family has an issue. It could be somebody offers you a fantastic opportunity to join in with them in some new venture, but you don’t have time for it. So you need to sell the business. Could be any of those things. It’s going to take a business 3 to 4 months to close. Even if you’ve got a buyer standing there right now that actually wants to buy it. And I’ll tell you, half the people that have nothing. 90% of the people that say they want to buy a business, they never buy any business. And I can tell you in 100% of the cases where a seller is telling me, oh, I’ve got a buyer all lined up. You know, my Uncle Charlie or the guy from the my church choir or whatever, but we’ll have them show up here with a checkbook. We should be able to get a deal done in no time. You know, I don’t really need to charge you significant commission for that. We’ll cut you. We’ll cut you to get you in on the deal is if you brought us the buyer. I have never seen one of those people show up yet. Never. Yeah, you need 4 to 6 months as a minimum. If if your timeline is. I need to close this business right now, then you’re in the liquidation sale business.

Stone Payton: [00:17:31] Okay, so you’re helping clients market and sell their business. How does the whole sales and marketing thing work for you? How do you get the new interest, the new clients?

Douglas Brown: [00:17:42] Well, partly by doing things like this, which is fun, and then partly the shoe leather way where you go out and you visit businesses and drop in on them and see what they’re doing and meet the owner. We do have telemarketers. We do have mail campaigns. I don’t like the corporate and I’m not saying this about Transworld, particularly just the entire industry, the corporate telemarketer campaign, where somebody calls up a business, hey, your industry is really hot and we’ve got buyers that are waiting to buy your business at a premium price. Give us a call to that. I don’t like that. Yeah, because we don’t have a buyer like that usually. And if we do, we do. But the problem is they’ve heard it so often that there have been occasions like have a couple of buyers right now, and one guy really wants to buy automotive businesses, have another guy. And weird enough that I’m working with who is buying while in shops? I mean, what is that? Right. But that has set up a national chain. So he’s buying he’s buying shops, but they get these calls every day. So if I were to call somebody up and say, Hey, I’ve got a buyer interested in the shop, like, yeah, sure, if I click and your number goes on spam. So I don’t like that kind of thing, but it does go on. And for me, calling the business directly and talking to the owner is actually a pretty good way of doing it, but it’s pretty tedious.

Stone Payton: [00:19:04] Well, and now, I mean, you’re working Main Street, as you put it, and being affiliated with an organization, the caliber of Transworld, one of your best tools, I’m sure, is just like many of us. I mean, doing good work is an excellent sales tool, isn’t it?

Douglas Brown: [00:19:21] Yeah, Well, it especially comes in handy when you’re in the process because you have buyers and sellers and want to argue about how it needs to be done. And you know, model one is the real estate industry, which we are quite different from in some ways, but very like in other ways. Say, look, you know, you don’t argue with your real estate agent about the form that they use to do disclosures, and let’s not waste time with that. This approach that we’ve taken has worked worked for several thousand businesses a year. You’re really not going to be any different. There’s no need for you to reinvent this wheel. And that usually quiets things down, which is handy. It’s certainly handy being affiliated with transfer. I can look and see not just the stuff that’s on the Internet as far as what’s for sale, because stuff isn’t for sale and it doesn’t sell at that price. But I can actually see what we’ve done in the last couple of years, what we’ve got on the books right now, and you can get a much better sense of what a reasonable price is going to be. Then I can go look on some of those big platforms and get an idea. But I don’t know that typically businesses like that sell for two or three times earnings. But in the last two years, the best we’ve ever seen is one times earnings. That’s, you know, that’s good information to have.

Stone Payton: [00:20:33] Well, it’s great information. And I’m thinking like from my side of the table, if Lee Kantor and I, he’s my business partner. If we were getting ready to to sell all or part of business Radio X and I reach out to you, you’ve probably somewhere in that repertoire across that system, you probably have some precedent of buying or selling some types of media companies that would give me, I guess, a level of comfort. So that must be nice to be able to lean on that.

Douglas Brown: [00:21:04] It is nice. And I will say that some of the large business databases that the industry relies on, they are the best that there are out there, but they’re by no means complete. And probably 50% of the time I go in there with a small business. Obviously, you want to use those resources. I am not going to name them because no point going there. But. 50% of the time I go in there in the business I’m trying to list is not on their list of businesses that they have any data on. But if I go into the Transworld database, like you say, the odds are if we haven’t sold that kind of business. Exactly. We’ve sold something several, four or five things like it, maybe not this year, maybe four or five years ago, but at least you get an idea not of what people are asking, which doesn’t mean anything but what they’ve actually got.

Stone Payton: [00:21:53] All right, So what’s the best way for our listeners to connect with you? Have a conversation with you about any of these topics. What’s the best way for them to connect with you, man?

Douglas Brown: [00:22:02] Well, you can certainly call me on my phone anytime at 2025999996, which works pretty well if you get the nines. Right. So it’s two or 25999996. Or you can email me at DH Brown at TX world dot com.

Stone Payton: [00:22:23] Marvelous. Well, Doug, it has been an absolute pleasure having you on the program this morning. Thanks for investing the time and energy with us. And thank you for what you’re doing. The work you’re doing to me is just it’s so important. It’s so critical. It’s such a key aspect of what I think makes America great. I know I’m a little bit jaded, you know, being an entrepreneur, but being out there, helping people exit properly, helping them acquire businesses. And you’re doing important work, man. And we we sure appreciate you.

Douglas Brown: [00:22:55] Well, I appreciate what you’re doing is letting people know how the industry works and you’re not even judging them for it. That’s that’s a great service.

Stone Payton: [00:23:02] Well, it’s my pleasure. All right. Until next time, this is Stone Payton for our guest today with Transworld Business Advisors, Dr. Doug Brown and everyone here at the Business RadioX family saying we’ll see you again on Buy a Business near Me.