Seller Financing Your Business In Canada With David Barnett

Here's a problem with what's out there for people that own businesses. A lot of the material that's out there talks about, hey, here's how you can sell your business for top dollar. Here's how you can get the most amount of money, you know, and it's all talking about the motivations, needs and wants and desires of the business owner. In the world of small business, it's usually two things they're doing. They're making an investment and acquiring a job. Because a lot of these small businesses are bought by someone who's going to become the operator. That's right. And they have to see that the business is going to be able to pay them a salary, they can live on a fair market wage for the work they're going to be doing. And then we need to see that the business is going to be able to service the debt that was taken on to buy the business and get a rate of return on whatever cash the buyer happened to put into the deal. And if, if we can't do that with the cash flow, then the buyer's not going to buy it. It doesn't, it doesn't matter how nice you make the place look, if you, it's just not going to work.

Helping entrepreneurs to buy and sell businesses and helping people to finance them. And we are super excited to be joined today by David Barnett, who's hailing with us today from Moncton, New Brunswick. Also joined by amazing co host, colleague, dear friend, Richard Canfield from Chilliwack, Alberta, otherwise or Alberta, Chilliwack, British Columbia, otherwise known as the wac. And I just want to share with you. So David's been working with small businesses for over 20 years and so you're in for a real treat today. He's helped them grow. He's helped entrepreneurs buy and sell them, he's helped people finance them. And David is the author of seven, seven books about small business transactions and local investing. Very important. He's the host of a YouTube channel with hundreds of videos about buying, selling, financing and managing SMEs and can be found anytime at his blog site at david c.barnett.com that's davidcbarnett.com Now, David, I want to welcome you officially to the Wealth Without Bay street show. And I just want to dive right in by saying, in 2016 you released your book titled how to Sell My Own Business. Now that quickly became a bestseller in Amazon's entrepreneurship category. But in 2019 you released your latest book, Selling Smarter Than a Startup. The Risk Reduced way To get the business of your dreams up and running on that theme. David, welcome to the show. It's great to have you.

It's awesome to be here. You guys sound like you have a really fun show and I'm looking forward to participating.

Absolutely. And why don't you take us through what inspired you. So what inspired you to be on this journey of helping entrepreneurs and where did it all begin for you?

Oh, well, you know, began in childhood. I, you know, I used to watch that TV show with that guy, Alex P. Keaton. Remember that character on, on tv? I thought that guy was great. And you know, I was always trying to figure out ways to make money as a kid, you know, cleaning snow out of people's driveways and delivering newspapers and stuff. And I was always into business. And so I figured that I would go to business school because I thought they'd teach me how to be a businessman, only to later discover when I was almost done that what they really do there is teach you how to be what I now call a Fortune 500 bureaucrat. So you learn how to be like a middle manager and you're doing case studies about whether or not General Motors should enter this new foreign market. And really that's not my interest. My interest was in the businesses you see when you drive around in your car, like in your local community. And so my real business education came when at the end of the 90s, I had the good fortune of getting a job with the Yellow Pages. And, and so I would go out and I would actually sit down and meet with the owners and managers of these small and medium sized businesses and find out how they made money and what kind of customers they would want. And I used to answer, I used to always ask them this amazing question, you know, if the phone rings, ideally, who's there? Right. Because I was, my job was to try to figure out how I could help generate those phone calls and to bring the right customers through the door. And so I started to learn about, really learned about small and medium sized business there. Back in those days, if you typed plumber into Google, you would get a plumber in California no matter where you were in the world, because they hadn't figured out the local searching. But as I, the years ticked by with the yellow Pages, I realized that, you know, the writing was on the wall. This, you know, paper directories were going to be going by the wayside. So in 2005, I left and I started a business with a partner and I did it for a couple of years and it was exciting. And I sold that business. That was the first business I ever sold. And I then opened up a new business doing debt brokerage. So I would help people who had businesses who were looking for money to grow and expand. I would help them by finding loans when they couldn't get a loan from the bank. And the bankers were actually my best source of referral. Because if you went to the big red bank and they said no, the worst thing that could happen is if you went to the big green bank and they said yes, because then the big green bank would want to take all your business away from the red one, you know?

Right.

And so what I showed the bankers is, hey, if I could get your client satisfied with, like, a capital lease instead of a loan, all the other things that you have with them are going to stay with you. And so the bankers would send me people, and I started to see these business deals that were being done by people and coordinated by people who really didn't know what they were doing. So I. And I don't want to point the finger in any one particular direction, but there were all kinds of intermediaries trying to do these business deals, like real estate agents and some accountants and some lawyers. And they didn't have all the parts to really know what they were doing, either, you know, from the numbers or from the way the deal was structured or from, you know, setting up the financing. And I would meet some of these people who were looking for money and to. To buy these businesses. And I saw some pretty bad things. I saw deposits lost, poorly structured deals, people who bought businesses without considering, like, operating capital, all kinds of problems. And I realized that there was a need. And the financial crisis of O8 hit around that time. And so a lot of the sources of capital I was using dried up. And so I got into being a business broker, and I joined up with a big international franchise brand because they gave me access to training. And, you know, this is where there's huge differences that started to become evident to me between Canada and the U.S. so I'm in New Brunswick. Okay. And there's a professional designation for business brokers called a CBI. And in 2010, I was the first person to ever earn it in New Brunswick.

Wow.

And it's been around since. It's been around since the 70s.

Wow.

Okay.

That should tell you something.

Well, it. What's interesting, and there's not very many cbis in Canada to this day, but.

Maybe the CBI needs your help with.

How to get the message out there. Well, here's here's the real difference. This is, here's why there's so much more of this activity in the States rather than Canada is. In the States there are tax provisions. If you sell an asset like an apartment building, say a small three unit building, you can then take the money and put it into a bigger building and you can find exchange, you can defer the tax, the capital gain tax, and you can keep rolling your money from one asset to the next. And then at the very end, when you're retired, you then face the gain that on all these tax deferrals you did. And so people are encouraged to trade. And that same tax provision can be done in the world of businesses in the States. And so I remember talking with some of these franchise guys down. I had a conversation one day with a guy in St. Louis and he was telling me that he had these regular customers that would come in every few years and they would sell a business and use the money to buy a business and they would pay down their debts and they would grow the business and they would come back and they would do it again. In Canada we don't have any of those tax provisions. And so it really doesn't make sense ever to sell a good business in Canada. And so it only really happens when people have to. And so that usually means that some kind of personal motivation has occurred within that individual's life that makes them realize that they can't carry on anymore in the business and now they need to exit. And this creates an opportunity for someone else to come in and buy. And so the frustrating thing for me as a business broker is, is that I had to work to acquire a new customer for every deal on both sides because most sellers would sell, then they'd go off and do something else or retire. And most buyers would buy and then they'd operate the business and then they wouldn't come back and buy more. They would, they would, you know, now they're happy they got what they wanted. And so I did that for a few years and, and it was very fulfilling. But it was also a bit of a nightmare cash flow wise because business brokerage is largely based upon the model that real estate agents use. So you, you list a business for sale, when you finally sell it, you get commission check. And some of these are six figure checks.

Yeah.

And so it's attractive in that way. But what a lot of people don't realize is you could have a nine month stretch with no closings. And so if you've got an office of Support and someone up front who answers the telephone. And you've got, you know, all the other expenses, and you've got expenses at home. You can quickly get into. Into your lines of credit and your credit cards. Then you close a deal, and you just get back to black. You don't really develop a, you know, a big pile of cash. And so after three years of that kind of existence, I said, this is nuts. I got to get out. So I left, and I got a job with the bank, and things seemed okay, but my phone kept ringing. And it was people that I had met in my brokerage days or people who had gotten my name from one of those other people. And they would say, david, I'm looking at doing this deal. And I, you know, my lawyer's telling me I need to get this done. My accountant's telling me I need to achieve this. But neither seems to be able to really help me stick handle the negotiation and talk with this other party. And can you help me? And at first I would say, no, I don't do that anymore. And then one day I said to a guy, I said, look, I can help you, but I'm not a broker anymore. I would have to act like a consultant. I'd have to charge you an hourly fee, and I can't work during business hours. And he said, great. Where do you live? I'll be at your house Saturday morning. And that was the beginning of this little consulting side hustle where I was basically applying the knowledge I acquired earlier in a completely different way. And it led me to writing my first book. And the first book led to the YouTube channel. But the real genesis of what I'm doing today came from after the YouTube channel was launched. Because here's what started to happen is I started to. I was talking about buying and selling businesses and answering people's questions, and then I started to meet people who were telling me how they had gotten into a bad deal and lost their life savings, or. Or people who had tried to sell a business and had spent years trying to sell while their spouse, you know, had a chronic illness and they really wanted to sell the business so they could spend time with their spouse, only to look at what they were doing and say, you know what? Here are the reasons why your business will never sell. But they never ran into somebody who is actually going to look at the deal and show them what they needed to see to make, you know, in that one particular case, that person needed to close the business, not sell it. And. And so there's a lot of issues problems. And I would have to say that the market for privately controlled small businesses is the least transparent market that there is. The information is not readily available, the information is, is incoherent. And even if you go looking for the good for good information, you can still be led astray. I was asked just the other day about, someone said, hey, I'm thinking about buying this book about buying businesses. What's your opinion? I downloaded it on my Kindle, I read it in two days and came back and I said the author of that book, which is a multi best selling book which has sold tens of thousands of copies, he doesn't know the difference between return on equity and return on investment. And so all the math in the book is wrong. And you can literally go and buy a top promoted book in this space and still not get good information. And so it creates, number one, a need for people to help decipher what's going on out there. But it also creates opportunities because people can look at the same thing over and over again and not see that there's something there. And then someone else who has the right tools and training can come along and see that there is in fact an opportunity there.

And then are you also working with the established business owner, the established entrepreneur, to make sure that the right framework is in place to position the business to be, I guess, for a lack of better description, the most attractive to, to a prospective buyer? Because what we see, Rich and I, in our interactions with entrepreneurs and you know, business owners who have been established, they're in profit, their companies have been running for many years is that there are, there are many missing elements to that framework and they, they don't even know it.

Yeah.

And so is that, is that part of the framework of your consultative service and how you go about educating?

So I work with buyers and sellers and if I meet somebody who is a prospective seller early enough, then I can add a lot more value in that vein. Yeah. You know, here's a problem with what's out there for people that own businesses. A lot of the material that's out there talks about, hey, here's how you can sell your business for top dollar, here's how you can get the most amount of money, you know, and it's all talking about the motivations, needs and wants and desires of the business owner. Right. And so let me tell you a quick story. I once met with a cafe owner who had health problems and she needed to sell her business. And I looked at her business and I came back and I Said, I think that your business is probably worth about 59 or 60 grand. I think you should ask $74,900 and you know, we'll sell it for what it's worth. And she said, no, I need 100 grand. And I said, great. I said, I can get you 100 grand. You just have to implement one little change. You just have to put in a two drink minimum. So no one's allowed to buy one cup of coffee. People have to buy at least two. And she looked at me and said, well, that wouldn't fly. People don't, a lot of people don't want two cups of coffee. They're just one person. They want one cup. And I said, so you're saying that you need to consider the needs of your customers. That's crazy talk. And then she finally got it. She was like, if we're going to sell this business, the business itself becomes a piece of inventory on a broker shelf. In my case, I was a business broker. I was there to meet with her to talk about turning her business into a piece of inventory on my shelf. And so I had to think about what the buyer needs. Right? And what a buyer needs is to make. In the world of small business, it's usually two things are doing. They're making an investment and acquiring a job. Because a lot of these small businesses are bought by someone who's going to become the operator.

That's right.

And they have to see that the business is going to be able to pay them a salary. They can live on a fair market wage for the work they're going to be doing. So obviously, you know, running a little coffee shop, it's going to be a lower fair market value than if it was an engineering firm, for example. But we want the fair market value of that work. And then we need to see that the business is going to be able to service the debt that was taken on to buy the business and get a rate of return on whatever cash the buyer happened to put into the deal. And if, if we can't do that with the cash flow, then the buyer's not going to buy it. It doesn't, it doesn't matter how nice you make the place look, it's just not going to work. And, and so all the stuff that's out there about selling your business for top dollar, it's all targeted at the egos of the business owner. And it's all targeted. I, I believe a lot of it is targeted around selling books and courses and programs, etc. For people to feel like they're going to get more. But the top five reasons that businesses go up for sale, and I mentioned earlier, these are personal. Number one is burnout, fatigue and boredom. I put them in the same category. Then there's divorce, poor health, the need to relocate and retirement.

Okay, covered all the bases.

80% of the reasons a small business seller are not planned for. Right. There's just stuff that happens. Right. And so the people who really if, if they're willing to look forward, the people who have an opportunity to really put everything in place properly are the people who are planning to retire. If they have a timeline or horizon, they want to get things ready. They can meet with different advisors, consultants, get systems and operating plans in place and all the fun stuff that's going to make the business more transferable. Those people are going to be able to, to, you know, develop themselves and get the higher price. The other 80% of the reasons that motivate people to sell what ends up happening is one day they're happy being a business owner. It's providing what they want lifestyle for them and their family. The next day they realize one of those things has come into play. Now they need to sell. We have entered what I call a controlled liquidation. We now have to find a buyer to buy that business before the changed personal conditions of the owner start to affect the numbers. Right.

Usually means a discount. Well, or at bare minimum, it means it's not necessarily a fire sale. But you have to move with the timeline. The timeline is rapidly changing time.

That's exactly it, Richard. It's timing. Because you know what a lot of people will instinctively want to do is I'll ask a high pricing, I can come down later. And the problem with that is if you ask too high a price, the informed buyer, the person who's done research, has money, has good credit, has been looking for a business like yours. They take one look at it and they go, wow, it's way overvalued. That person doesn't know what they're doing. They're going to waste my time. And so you never meet the seller, never meets the qualified buyer. The people they meet are other people who aren't uninformed, who don't know what they're doing either. And they could come in and make a full price offer. I've seen this before where someone asks double what the business is worth. A buyer comes along who doesn't isn't informed either. They make a full price offer, they sign a deal. Everyone's handshaking and smiling. And then the buyer goes to the bank and the banker explains why the deal doesn't work.

Yeah.

And the deal doesn't happen. Right. And so it's not like a piece of art or a house. It's not. This is what, you know, is in the eye of the beholder. This is what they'll pay. Those, those situations happen. They're very rare. They're usually like strategic acquisitions. Some big company needs your business because it fits some kind of piece within their, their master plan or whatever and their timeline. That doesn't happen. I mean, the number one prospective buyer of most small businesses is an individual who hates their job. And they want to own a business like yours. And they like the fact that if they buy your business, they don't have to find customers and start from scratch. They can step into a profitable business right away. So when the person makes the decision that they need to sell, then we need to price it correctly so that it will be attractive to those people who do know what they're doing. As far as being buyers, I've had deals go from a business being put up to sale to closing within nine weeks.

That's fast.

When it was priced right. And the buyer will appear immediately in some instances. The other thing that, the big mistake that sellers often make is that when they first list a business for sale, if they meet a buyer right away, they'll get the impression that there's a big demand for their business. And they, they feel like they can, they've got a power position like they can, you know, ask for more or be a little bit, you know, on the greedy side. And the reality is, is that there is no such thing as a market for small businesses. There's a market for four door used cars. There's a market for three bedroom homes in Chilliwack. Right. Because there's a lot of three bedroom homes in Chilliwack. A lot of buyers, a lot of sellers. So there's people who are moving in and out of the market and people know what those three bedroom homes are worth. And the same thing could be said for four door used cars in Alberta. Right. You know, there's a lot of them.

You've got Autotrader Kijiji and you've got the MLS system to give you clear understanding of those values. Because there's a public database essentially.

Yeah, but with the small business, I could have a very highly profitable flower shop for sale and a process engineer from a manufacturing plant looking to buy a business will not buy it no matter what the numbers. Are because they're looking for a business that is going to enable them to take advantage of their knowledge and expertise and skills to further develop and grow the business. And so you can have a very profitable business that can actually sit on the market for a year and no one will look at it because none of the buyers that come along are, feel that they're suited for that particular kind of business. So I've seen sellers rebuff an offer from the first person thinking that because they showed up so quickly, it means there's going to be a ton of interest and the second buyer shows up a year later. And so often the first person that comes along, it actually represents pent up demand. It is a buyer who's been active in the market looking for a business like this one in particular. And when you finally put it up for sale, the buyer said, oh, there it is, I've been looking for that. And, and so yeah, you meet them right away, but it's because they've been in the market looking for you. It doesn't necessarily mean that there's a huge flood of buyers that are going to fall all over themselves. Now certain categories are different corner stores, gas stations, laundromats. Like certain categories of business, there are a lot of buyers that are looking for those. But for any kind of degree of specialization in your business that is going to require an owner with any kind of skill set. Oftentimes the first deal you have is one that you need to work with. And you know, to get back to your point about preparation, I like to use the example. A lot of a roofing company, if, if you're like a 55 year old, 60 year old roofing guy and you run three crews and you run around doing all the quotes yourself and everything's kind of run out of your head and you make notes on a little notepad and you know, you basically got no systems in place and you're the one that coordinates all the activity and labor and the delivery of goods and all that kind of stuff. The only person who can buy your business is another person who's a roofer who happens to be younger. Right, right. So that's a very tiny buyer pool. But if you invest the time and the effort in building the systems, if you have a quoting system where you know, here's our Excel spreadsheet, this is where you put in the measurements, this is where you put in the number of dormers, the how many feet of valley there is, you know, et cetera. Here's where you put in the material costs. This is how it estimates the labor. Well, now I can teach anybody how to go out and estimate that job. And I can teach, you know, just about anyone who's got an HGTV habit how to come and be the owner of this roofing company. What you've done is you've grown the buyer pool. The other way that we grow buyer pools is by thinking about the conditions of sale. So you guys talk with business owners, you talk about investments and, you know, insurance policies and things like this. I was invited to a financial planner's office about two years ago because they had a revelation over at their office. They realized that for the past several decades they've been asking business owners what they were going to sell their business for, and they were putting that into the financial plan without actually having any sort of validation around those numbers. Right.

Probably made those plans look really good.

Well, sure. I mean, everyone. I can tell you what most businesses are, you know, foreseen to be sold for. It's. Is this on video? $1 million. It's the most common price out there because it's a big, round, fat number that a lot of really small business owners, they want to be able to go to the golf course and say, I sold my business for $1 million, like $1 million. And so, so, so I went and talked with those guys about this because. Because it's a big problem. The business owners, in fact, don't have a very good idea a lot of the time of what their business is really worth. They'll read things like articles saying that businesses like their sell for a certain multiple of revenue, for example. They don't. They sell for multiples of cash flow. It's very much like in the investment world, how do you price a bond? Right. It depends who issued the bond, what the yield is. And then there's a function of that same thing. In the world of small business, just our risk factors are way higher, and so the yield that people demand is way higher. And that means that it's just that big lever. It just moves one way or the other. And so a lot of the times it's expressed as multiples of cash flow in the world of small business, which is just the inverse of that sort of cap rate or yield math.

That's all very accurate and very true. And what are you feeling most optimistic about in. As it relates to small business and the development of small businesses in Canada?

What do I feel most optimistic about? Well, I know it's getting easier and easier and easier for people to be in business on their own. And you know, this hearkens back to one of the positions I held when I was at the Yellow Pages. What I loved about the Yellow Pages is that I oftentimes I would talk with guys like that roofer, right. And I would talk with them about, you know, very topics that were really far away from roofing, like advertising and yield and reach and all this kind of stuff. And I got really good at explaining some of these concepts, some of these complex qualities to people. And so I ended up in this position called the new in rep. So it was my job to visit new businesses in their first year to set them up properly, you know, for their, for their future with yellow Pages as far as advertisers. And I used to meet a lot of people that were scared of their minds because they were starting a new business. And I would sit there and go, listen, when you have a job, 100% of your revenue comes from one source. You're completely dependent on that one source of revenue. You know, if the local Tim Hortons loses me as a customer, they won't even notice. Right, right. Like when you have a business, you can have dozens, hundreds or thousands of customers and you will lose them all the time, but you have an opportunity to gain new ones all the time. And so you, you bring in this redundancy, this diversification in your income and cash flow just by the fact that you own your own business. And so, I mean, I think businesses is great. I think that, you know, through the pandemic we saw a lot of business closures. A lot of those businesses were businesses that weren't doing very well anyway. Right. And the businesses that, you know, that were doing okay and they got a little bit of government assistance through the different programs that were available. You know, a lot of those people are going to live to fight another day. They got the help they needed to get through the bad patch and they're probably going to recover. I was on a podcast recently where I discussed that, you know, if you are been in a business that was impacted by Covid and government lockdowns and things like, like that, if there's been a lot enough of a lockdown that your customers patterns have changed, that's when you really have to start to be worried, you know, because people are very habit driven. And so that's my big caution about, about the COVID pandemic. But sorry, we were talking about expanding the pool of buyers. The first way to expand the pool of buyers is to make it so that other people can, can run the business. The second way to expand the pool of buyers is the same way that your local car dealer does, and that is to take care of the financing. Car dealers know that the average person doesn't have 30 or $40,000 in their pocket to buy a car. And so what do they do? Well, when you walk in there, they, they have it all promoted. You know, we've got lease payments, we've got financing, we've got fill in the form here. We've got a guy in the little office out back whose only job is to figure out how you could borrow money to buy this car. And when it comes to selling a business, it's the same problem here in Canada. The banks will finance small business acquisitions, but only a percentage of the tangible asset value. What does that mean? It means if you have a tire shop that's putting a quarter million dollars into someone's pocket every year, I mean, someone might be willing to pay 6, 700 grand for that store. But what's the stuff worth? Right? The stuff, the machinery, equipment, inventory, loan.

To value on tires and rubber.

Well, well, but, but the, you know, so the, the bank will lend you a percentage of what the tangible stuff is worth. And if the business is a good, successful business, there's going to be a gap. The gap is what we call goodwill. It's the difference between the tangible asset value and what you're paying for the business.

Right.

And the bank won't finance that. And so the question is, where does a buyer get that money? Part of it's going to come out of their own pocket. Most buyers have to bring some kind of resource to the table of their own.

You can't put a lien on goodwill.

Well, and the reason, and the reason why is because it's so easily destroyed.

That's right.

I use the example of a pizzeria. You know, like you could buy a pizzeria for 100 grand. It might have $50,000 worth of equipment. The reason it's worth 100 grand is because of all those people that come there, you know, on payday and pick up a pizza and. But if the new owner changes the sauce and nobody likes it, all the goodwill disappears in a day. Right.

Or if they change the phone number and nobody remembers how to call the pizza joint, boy, you got a real problem then. Well, we bought the pizza joint, but we forgot to get the phone number.

That would be a bad mistake. There's no question. Yeah. So the other big thing, like when I was talking with these financial planners, a Couple years ago, I said not only do you need to be talking with your clients about what their business is going to sell for, you need to be talking about them with them about the terms of sale. Because nine times out of 10, when a business is sold, the entire amount of the purchase is not paid on closing day.

Right.

So the, the seller gets some amount of money on closing day from the, the buyer's money. Maybe they mortgaged their own house to get money or maybe they had savings if they were able to get a bank loan. That's an if. When I had my brokerage office open, less than half the deals had any kind of commercial business loan, bank financing. Okay. So a lot of the times it was the buyer refinances their house or qualifies for personal credit, they use that money to buy the business. The seller carries the balance, which means the seller might get payments, a payment every month for years and years and years. Well, that's part of a financial plan. You need to know that if you're going to have this, this basically kind of like a little annuity payment coming in for several years.

Yeah.

Sometimes sellers, you're also tied to the.

Success of that new owner to make sure that they're actually keeping your, the business that you sold alive so that they can make that continuity payment to you because that's part of your now future income.

And there's risk. There's risk there.

Well, it's interesting that you mentioned that in particular, Richard, about the continuity and about what's going on with the buyer. One of the best features of seller financing for the buyer is it actually aligns the interests of the buyer and seller together. If you think about a used car deal. So I go out, Jason's got a used car, he's going to sell me to me for six grand. I give him the money, I drive away and then the transmission breaks. Right. Well, too bad. So sad. You know, I, I bought it. It's my problem now. Right. Well, when we're talking about something that has goodwill, intangible value, when we're talking about something as complex as a business, I can't. I could take the car to a mechanic and get an opinion on it. I can't take the business to many people and get a full understanding of everything going on in that business. Right. I'm going to end up relying upon what I'm told by the seller to a certain degree with certain topics of what's going on in that business. So how do I hold the seller accountable? Well, that seller note Usually has an offset clause which says if it turns out after the fact, you've lied to me or not disclosed important things. There's a feature now for me to offset against what I owe you. So this protects the buyer. What that does, though, is it gives the buyer confidence that what the seller's telling them is the truth. It allows the seller to actually sell the business for more money to get that fair value. But now the seller has an interest in making sure that they choose the right buyer. Because the seller not only is selling the business, they're also making an investment in this new person. And so that you kind of put your banker hat on, you go, is this person qualified? Is this person got a good plan? Do they have the right experience? And so what I've seen happen is there's always a training and transition period negotiated where the seller sticks around, teaches the buyer how to run the business. But what I see in practical matters is that they never end. Like, the seller goes away, but then the buyer keeps calling them. And the seller is happy to answer the questions on the phone because he wants the guy to be successful, he wants the payments to continue. And so two years later, the buyer runs into a unique situation, picks up the phone, calls the seller, hey, did this ever happen to you? Oh, yeah, that did happen to me. And this is how we handled it. And boy, was that a mistake. You should do the other thing right, or whatever the advice is.

Yeah.

And you know, when I was a broker, I, in a three year period, I helped sell 35 or 36. I keep forgetting. But it was all three dozen businesses. In every case but one, the buyer and seller ended up becoming friends and they talked with each other for years after the deal was done. And so that's what you want, is you want a win win solution where the seller gets out in a timely fashion before their lack of enthusiasm starts to have an impact. As soon as a small business owner loses their enthusiasm, employees feel it and it affects the way they interact with the customers.

And customer starts happening.

Yeah, slippery slope. You know, the light bulb goes out in the bathroom and nobody really cares enough to go change it. And then all of a sudden the bathroom's kind of dark. And then the person who cleans it doesn't do such a great job because it's dark. And then all of a sudden people's attitude about the restaurant or whatever it is starts to change. And then people say, you know, instead of going there, let's go to this other place, right? And it doesn't take Long before the numbers start to fall. And then once you get to the end of an accounting period and you start to have year over year decline, that's when you're in trouble as a seller. Because now you've, you've broken the pattern. Now you have a pattern to the downside.

Yeah.

Now the buyers say, what's wrong with this business? Right. And so this is where I get back to that whole idea. Once you've made the decision, it's got to be priced right so you can find that buyer quickly. You have to know that you're going to need to make an accommodative solution where you work with that buyer to help them get into the business as quickly as possible. And that you're going to have to coach, help train and guide them along to make sure that they're successful. And really, you know, the alternative is really an unfortunate situation. I've had many sellers over the years who will say things like, I'm not going to finance anyone or, you know, I'm doing this or I'm doing that or I'm asking this high price. What eventually happens is when the sales and the earnings start to fall, eventually the price and value of the business starts to fall and the person ends up getting so worn out, tired and fed up that they will eventually agree to a price that is lower. And if they wait long enough, the value of the business will fall to the point of the tangible asset value. And that's when the buyer now finally can get financing for the business. Wow.

All awesome, awesome, awesome knowledge.

Rich.

A couple of things I love here is that, you know, David's also sharing with us basically another method. Method that people can become essentially their own banker and that they're financing or seller financing, you know, which can happen. It's not through the medium that we, we talk about, which is through the mechanics of insurance, but also important to identify. David, maybe you see this, or perhaps you haven't seen it, but I know it would be a source of capital. The buyers of these business need to get capital from someplace. Well, one of the places where capital can reside, we talked about before we hit go on the recording today is inside of participating whole life insurance. And so that is a mechanism by which you can finance yourself into deals of this nature where you don't have to ask permission.

That's right.

And you had actually identified an interesting story about your own experience with that. Not necessarily in the business purchasing realm, but it'd be really, I think, beneficial, maybe just talk super high level with A few minutes here. How have you seen insurance play a role in, in any of the business dealings that you do or with on the books of the businesses? And, and then maybe just would you mind volunteering what, what your own experience has been around, you know, looking to get insurance and having an issue come up where it became difficult and having to do it a kind of, in a roundabout fashion.

Sure. So I've, I've never had a buyer use a, a participating whole life policy plan as a source of their down payment. But I have run into other brokers who've seen it done and they've, and they've told me this story and it's just like, you know, any kind of, you know, savings facility. Right. People can draw upon that and some people will liken it to having home equity, for example. With the big difference being that you have to qualify if you're going to draw against your home equity, you have to get that HELOC or what have you with the insurance product. You don't, you just, if the value is there, you make the phone call, you are able to borrow the money. The I've seen these types of policies within companies, especially companies where there is some degree of volatility in the requirements of the operating capital.

Right.

So you could have like project based companies like in construction or other fields where the need for operating capital is low at one time and then higher at another time. And I've seen policy loans on banks, on financial statements many times and over the years the policy loan number goes up and down and up and down and up and down. And the companies, when they need the money, they pull it out of the policy, when they don't need the money, they put it back in. And you know, so these are company owned life insurance policies. And so I've seen that quite often in my own example that you were alluding to. A few years ago I ran into an American fellow who does this, the type of work that you're doing and he was explaining to me how this type of solution can work and I said I need that. And so I went and started talking with my own life insurance guy. And then I was diagnosed with cancer. And so the cancer problem's all gone now, it's all resolved. But as you might imagine, once you've got that on your medical record now you have to wait several years before you can qualify. And so luckily I did have a term life insurance policy that had a convertibility function. And so I was able to, you know, show my life insurance guy what I Wanted, he'd never seen it before. And so I had to do a lot of coaching with him. He had to talk to head office a bunch and he had to talk with some other brokers in his network who were doing similar kinds of things to what you guys are doing. And I was able to get one of these policies put together by converting some of my term. And I would say, you know, for anyone that's listening to you guys that want to get into this that maybe can't afford the premiums today, if you're young and healthy, get a bunch of term with the right carriers so that when things change down the road for you and you have more cash flow, that you've got that option open to you. Because regardless of my medical record, I was able to convert that and I still got more room that I can convert some more. And it's probably going to happen. I'm probably going to add policy number two here shortly.

Oh, that's outstanding. That's outstanding. And you know, really good words of wisdom too. It's, you know, purchasing the insurance, making sure that it has a guaranteed conversion privilege and that it's placed with a carrier that down the road when your cash flow improves and you're ready to convert that you can do so without any medical evidence of insurability. And this is one of several prime examples. A client, one of the more recent examples, who had brain tumor, had a term insurance policy in place. We sat down, we talked about converting it. The client was absolutely convinced that it wouldn't happen. And when the carrier said, yeah, absolutely, submit it, submit the premium and of course we will convert it, the privilege is guaranteed. And we made it happen. And you know, the client was quite emotional in a very happy way that it was able to get done. And so you're absolutely right. You know, get, get your hands on some term insurance while, while you know, you're insurable because you never know. You just never know what tomorrow can bring. And especially as it relates to instances of cancer. I mean, you know, when we do live events, Rich, we ask the attendees, show of hands, how many people have either experienced or know someone who's had an experience with cancer. Every hand now in the room goes up.

You know, I grew up. Well, there were four of us in the family. Mom, dad, me and my sister. My sister is like the last person. The, you know, everyone else in the family's had it.

So you're the Canadian statistic of not like two. Two of every three people basically are going to experience like a cancer event, kind of essentially is what you're saying.

Yeah, yeah. In, in, in my particular case, I knew that there was a problem and, you know, speaking with the surgeons and stuff, they didn't think it was cancer, but they were like, oh, we're going to take it out. I got the call 30 days later and it was like, hey, we got the results back from the lab. There's good news and bad news. Bad news is you had cancer and the good news is it's gone. And so, you know, I was, I felt very fortunate that that decision had been taken, you know, before anything could go further. But even though it's gone with that on my medical record, of course a new carrier is going to be hesitant to take on someone like me until, I don't know. You guys can tell me. Several years would have to pass, I think. Right.

Yeah, that's.

And it, and there, there's, there's, there's, there, it's an, it's a, it's a moving target. There's increasing underwriting capacity that's happening there. And so it's, it's interesting how many people who have had cancer that now are in trouble and often don't know that they are. So it's really good that you're sharing this, David. I mean, your life experience can lead to so much value for others. We learn vicariously through what happens to other people. There's no better teacher, really, than life experience. Whether it's yours, probably the best one, second best is somebody else's. That's real. And just by the virtue of you sharing this with our listeners, I mean, I believe it's tremendous value, tremendous benefit because it could really make all the difference in the world for anyone that's listening today.

Yeah, David, it was a pleasure. We'd love to have you back. If you're agreeable, we'd love to have you back on the show because there's a couple of areas that I think it would be incredibly beneficial for us to even dive a little deeper into. And we'd also like to again share with our viewers and listeners. We're going to provide links in the show notes to davidcbarnett.com Again, that's davidcbarnett.com we're also going to provide links to folks who want to get a copy of two of your seven books, how to Sell My Own Business and the Smarter Than a Startup, the risk reduced way to get the business of your dreams up and running. Rich, take us across the finish line.

Well, David, one of the things that we like to share and just to have our guests, you know, speak to a little bit is we believe that in the world that we operate in today, although we have Marvel superheroes and DC superheroes and a lot of great movies and high value entertainment there, you don't see people running around in capes all that often. Maybe in Moncton you do, but certainly not Chilliwack anyhow. And you know, we believe though, that when you're writing these books, people are reading them, you're having conversations like this on podcasts like ours, you're sharing these real world stories, you're making a massive difference. And some business owners going to listen to this and they're going to say, wow, that's exactly what I need to know to make that change, make that differential to sell my business properly. Or I was looking to buy one and I was about to get in a bad deal because of what David said, man, I can actually reevaluate that deal I'm about to move forward with. So our question to you is, who would you like to be a hero to?

Well, you know, the mission that I operate under is simply to help people avoid bad deals. And, and that's not limited to buyers or sellers because the bad deals happen on both sides of the fence. And so that's. So, I don't know, like, you want me to make up a superhero name for that?

I think there could be one.

There could. There is one there. There is one there.

The Good Deal Inator.

The Good Deal Inator. Yeah, maybe. Yeah, yeah.

David, it was a pleasure. Thank you sincerely for joining us. We appreciate it. We will have you back. And for all of our viewers and listeners, if you look right up here on the YouTubes, you're going to see a recommended playlist of additional content that we would encourage you to consider your journey. Continue to grow, continue to learn. There's always something new to learn. There's no such thing as having arrived in knowledge. And so, David, thank you sincerely, again. And to everyone who's tuning in, make the rest of your day great. Gentlemen, it was a pleasure. Thank you. Thank you.

Awesome. It was great to be here and I look forward to seeing you again.