|
Michael: Tell me how this all
came about.
Art: Okay, well, let’s go back a
few years to the first thing
that we did many years ago when
we were teaching classes. We
gave all the people going to our
class at that time free help up
until the time they bought a
business, and because of that we
had a lot of feedback, and the
feedback basically was people
were really afraid of the price.
They weren’t getting the right
value. They’re overpaying.
So, I sat down and over a period
of a couple of years, I
developed mathematical equations
called weighted values to come
up with the value of a business.
In fact, it worked so well, that
right from the day we started
doing this thirty years ago, the
IRS and the Small Business
Administration adopted our
program.
Of course, the IRS did because
we were the IRS approved
seminar. IRS agents had to
attend our class to get promoted
and stuff like that. So, it was
interesting.
Michael: The IRS – had did that
all come about?
Art: I don’t have any idea. I
think they heard about it. In
fact, I could probably spend an
hour or so just showing you
programs that have been changed
for the IRS because of them
attending our class because they
got an insight into what
business owners were doing
because I had to show buyers
what the sellers are doing to
keep them from getting shafted
by the seller in the
transaction.
So, the IRS agents enjoyed
coming. Again, we’d have three
or four in a class. I still
remember the one in Washington,
DC when the agent showed up. I
remember he three piece pale
blue suit on, sat in the front
row, and every time he’d lean
forward, I could see the gun in
his holster, and he had told me
during break that he was not
only with the IRS, but he was
the head of their enforcement
division. That was a good thing.
So, what happened is up until
working with you about a year
ago, when you suggested that
maybe I start working with
buyers because I had complained
to you about the fact that in
all the years in Mexico, we had
developed millions of dollars in
investment dollars, and then
when I sold out, I really didn’t
move too fast to get involved in
business again. So, I had these
people calling me every month.
Well, again, I had not worked
with buyers before directly. The
office had. So, going out and
doing this, I spent a lot of
time and in person talking to
different people trying to
explain to them the subjective
stuff that I had in my head. In
other words, I’ve been doing
this for fifty years. I knew
what I was doing. I knew all the
details that I wanted to look
for, but I was having a hard
time putting it across because
even with 25 basic categories,
I’m sure I didn’t cover all 25
with everybody, but just taking
a few of them and covering them
took a lot of time which means I
bored them because if you look
at something like this, if I
took all 25 and sat down with a
new buyer and went through all
25, he’d be asleep by the time
we got through five.
So, what I did is I sat down and
developed this program, and
again we’re not using weighted
values, I did not go into great
mathematics. All we have is
basically is eight of the 25
categories.
Michael: So, now let me ask you
this for anyone who doesn’t
know, what is a weighted value?
What does that mean?
Art: I take a complete price
that a business pays, and
basically work the thing
backwards, like reengineering
it, taking something apart. What
I do is just work the thing
backwards, and then took all the
areas that made up business
values, and then based on the
importance to the total, we
ended up with a weighted value.
It’s really very simple, but the
only problem is trying to break
the thing down which took me a
couple of years.
Michael: So, how is a buyer
going to benefit from
understanding this checklist?
Art: Okay, they can do a better
job of analyzing the business
purchase is what I said on the
sheet, but the key thing is the
average buyer does not what
they’re really looking for. They
don’t know on a scale say of one
to four, how important each one
of the things is.
What happens is when they get
down to the end, and let’s say
they take all 25. They circle a
different thing there, add up
the numbers, they’ll then end up
with a score.
Now, one of the first persons
that came back recently was a
college professor, and he told
me the business he was buying
scored an 86. I said that’s
great. He said, “That’s a 3.6
grade point average. So, it’s a
B plus.” I said, “I don’t think
we’re going to be using grade
point averages, but it was an
86.”
And, again, the thing that’s
important is it gives them a
chance to compare this number
with other businesses they’re
looking at. So, say I have an
86. I’m looking at a 70. I’m
looking at a 40. And, what we’re
hoping to do is get them away
from the ones that don’t score
too well because those aren’t
the businesses they want to buy.
Also from the standpoint if they
come to me and want me to get
investors interested, they have
to have a business that has a
higher number because when I’m
out talking to the investors,
there may be three or four
different businesses that we’re
trying to provide investors for.
In doing that, if somebody has
an 86, and the other people are
in the 70s, the 86 is going to
go immediately.
So, we’re getting a lot of
benefits from it, but again,
it’s helping the people that are
buying the companies, first of
all, as to what they’re looking
for. Again, we don’t really have
to have the thing being a B or a
C or anything like that. it’s
just a comparison of one
business to another.
Now, the other thing that’s
important, and I’ve talked to a
few buyers about this, when they
are out looking at a business,
and say the thing comes in at
70, well, it’s very easy to go
through the 25 categories and
figure out what they can do with
the seller to improve the value
of this company.
Again, it doesn’t really mean
you’re increasing the value, but
increase possibility that the
investors are going to invest
because the buyer wins if the
investors come in, and so does
the seller. If they have too low
a number, the chances of them
are getting an investor either
from us or anybody else is
little or none.
So, give them a chance and talk
to them about it. They can go
back category by category, maybe
on owner financing, there’s no
owner financing. There’s three
categories there, and if the
owner’s are willing to come up
with owner financing in those
three categories, and they’re
willing to go to extremes, to
the best, that’s going to add a
lot of value to the company.
Michael: All right. Well, we’re
going to get to all of those.
Let’s talk about how we’re going
to use this business evaluation
program before we get into it.
Art: Okay, well, basically what
I’m trying to do is I’m trying
to use it as a teaching tool. In
other words, when buyers first
come in, instead of having me
spend the first hour going
through a lot of these different
details, they get this first.
They get to look at it, and then
as we go on, we can go on with
the different things, but so far
nobody I’m working with has had
any problem analyzing or
figuring out what it says, or
the plus or minuses.
It’s just like on the pricing we
came up with years ago. Even if
they didn’t use it to price,
it’d show them in 25 categories
what gave businesses value and
what took it away. Now, what
they’re looking at is will this
business qualify for an
investor. In other words, will
an investor put a million
dollars up or more on this deal?
So, that’s what they’re really
looking for. They’re looking for
something with a high score
that’s going to enable them to
interest investors in doing
this.
Michael: Let’s keep a goal in
mind. What do we need point wise
for us to have a good chance of
having an investor invest in the
business?
Art: There is no number I had in
my mind. It’s going to depend on
what the buyer’s – the buyers
are going to the investors are
scoring at the time. In other
words, an 86 may be good today.
A couple of weeks from now, they
may all be in the 90s.
All I’m saying is as they go
out, investors are going to have
this as a guide, and what the
investor had before, he had the
business plan. He looked at the
business plan and will either
put the money up or he won’t.
Now, he has an additional thing,
and I want to tell you
something. From the buyer’s
standpoint and the seller’s,
this is going to make it more
difficult for them to get their
business financed or an investor
to come in because the investor
instead of just looking at fifty
pages of whatever, he’s going to
be able to look at 25 different
items that’s going to tell him
the good news and bad news of 25
categories of this business he’s
looking at. And, he is going to
be much better prepared to make
this decision, and it behooves
the buyer and the seller to do a
better job of putting this
together.
Michael: Right. It sounds like a
great tool. Well, let’s go
through all 25 of them and
expand on them a little bit for
the benefit of both the buyer
and the seller.
Art: Just keep in mind, this is
a very simple thing. Each one of
the categories, when people are
going through this, they just
circle the plus number after
each description that applies,
add the 25 up and they have a
score, which is a number out of
a hundred.
Michael: Okay.
|