Alternatives to College, But Still an Education

Three things have occurred since I went to college:

1. College tuition has massively increased even when accounting for inflation. The average annual increase in college tuition from 1980-2014 grew by nearly 260% compared to the nearly 120% increase in all consumer items according to Business Insider. Our young adults are signing up for student loans out of high school and then strapped with between $30,000-100,000 in debt, which is a nice down-payment on a home and a wedding. This generation is delaying or opting out of both, as a result.

2. Alternative education options have become viable and real. There are viable online and trade options for earning degrees and learning professions online and affordably like never before.

3. Young professionals change jobs frequently, unlike our life-long professional ancestors. No longer does a graduate take a job out of college and stay there through retirement. Today, the average person changes jobs ten to fifteen times (with an average of 12 job changes) during his or her career according to Balance Careers.

It was also notable that many companies no longer require a college education if you have experience and proof of expertise.

Surprisingly, in nearly ALL of the college marketing collateral I received, colleges claim 70 -90% of students from THEIR schools graduated in 4 years. Yet the national numbers say that more than 58% of college students take SIX years or more to graduate. That's hard on the pocketbook when there are so many other options now.

As the mother of 3 teens (one in college, one entering college), I asked myself whether the ROI was there for education given these factors. For my eldest, the answer was, maybe. For my next, I said, "why not something else?"

Because I am also a business broker, I deeply believe that one of the greatest gifts is the opportunity to build on an existing success. Investing in a business is securing a foundation to grow, improve, and reap benefits of what you bring to the business to make it better.

Compared to starting a business from scratch, investing in an existing business takes the biggest hurdle away -- surviving the first 3 uncertain years. Most small businesses fail in the first 3 years, but not one that has been in operation for 10 or 15 years. Changes in management and ownership are merely a manageable transition.

Therefore, when I learned that my daughter was 100% committed to interior design and she even had the knack for it, I thought I'd turn my $120,000 college education into a $80,000 investment in a business she could grow. A great career start with a $40,000 reserve for online education and travel. (thus still earning an education at a flexible rate).

At the same time, I could help support her with marketing and business finance, giving me the opportunity to apply my own education and work together as a family.

Why not, instead, learn to be an entrepreneur through real-life training?

If this is something you might consider for your own son or daughter, think about some of the businesses that are for sale right now as examples in the Puget Sound:

• Auto body and repair shop with acreage and a 2-story home on the property

• Home-service businesses that have crew for everyday labor including window-washing, garage-door repair and landscaping.

• Spa/Acupuncture/Facial facilities with trained staff.

• Small manufacturing companies like a print/sign business or a custom frame shop or this custom kiosk manufacturer selling for the cost of buying a car. Or, for fun, how about a long-board manufacturer.

• Several franchise options giving them even more bumpers to learn from

Personally, I would steer away from restaurants as a starter business. Unless you have family experience, they are risky to run and can fail fast.

Of course, if your son or daughter wants to be a dentist, doctor, nurse, lawyer, engineer, you'll probably be on the traditional route and that's just fine.

If you'd like to look at a business acquisition for your son or daughter, we have many creative ways to get you in with financing, training, mentoring, and more.

One additional benefit is that if you own a business and you choose to take college classes, your tuition (if related to your business) is tax deductible. If it is not related to your business, you can still take a $5K+ deduction for tuition. That's a nice scholarship!

Industry Matters: Advantages of Buying Within

Whether you are working in Financial Service, Retail, Manufacturing, Construction or niche markets, the domain knowledge you have by working in it is of premium value.

The SBA will lend to you on better terms if you show experience in the industry where you're buying the business.

Owners WANT to find people with experience who have worked from bottom to top.

Employees would rather work for someone who has walked in their shoes.

If you don't think you can afford the business you are working in, you just might be wrong.

Take a chance and find out what it would take to own the business you are working in today.

When Complexity Buries Value

There's nothing more consistent in an enterprise department than complexity.

I worked in a scrappy group at Microsoft in the late 90s where 16 people served 18,000 partners worldwide. It's unfathomable to think that I managed the following myself: a monthly box delivery, a monthly (printed) newsletter, AND the private web site for partners that I started in raw HTML (that I had learned on the job) with help from just three vendors.

There was a beauty in the rawness of our work.

We did not have the luxury of intricacies. As swiftly as we were able to get 18,000 boxes out the door containing the monthly culmination of Microsoft-wide product information, demos, and betas, we were already starting on the next box-- no time to stop and celebrate.

This came with its share of problems like a shortage of human editors, where spell-checker missed "Ask the Produce Manager" (yes, Product Manager) and sassy partners started mailing in questions like, "When are mangos in season?" I guess we knew who had read the newsletter! We even monitored the influx of emails from all partners ourselves and even asked that partners send their questions in English so we could respond quickly. We later splurged and hired a localization vendor to translate the content into eight languages -- from content on the CDs to the written newsletter. Every month.

The problems were frequent but small. Our intentions were to deliver essential information in the fastest, most efficient method without the Internet. This meant quick-turn diskette & CD production and lots of paper. But the information was vital and partners got the raw, brown paper sack version of Microsoft's genuine attempts to support its channel.

From then until March 2020, enterprises have grown healthier, more professional-- and fatter.

It's easy to gradually bury primary value in complexity.

Well-funded enterprises experience what I call "FOUR-CAR GARAGE SYNDROME". You've moved from a one-car to a four-car garage and find yourself one day buried in all of your stuff. You may even have given up parking in it -- the primary value of a garage.

In most successful enterprises, most initiatives turn into a group project -- one of collaboration, negotiation, concessions, launches, and celebrations. All the contributors are represented in the final outcome -- the idealists, the operators, the ladder-climbing managers, and the lawyers.

If your enterprise is disciplined, you might throw in a Steve-Jobs type -- someone to call the shots and ask the hard questions: Why is this so hard? Why can't it be easier for the customer?" Sometimes that person is seen as the Asshole. But it's a start.

Maybe now is time to think about letting go of the intricacies.

Returning to the Microsoft Partner Program example of the 2000s. One might say that the overall PRIMARY value shared between Microsoft and its partners has always been the dual responsibility of serving the customer well. Our main concern then was MATCHING the best partner for the job and dispatching them to the right customer using a partner-finding directory.

Enter Microsoft Partner Competencies. I truly believe that Competencies, introduced in the WPG and now OCP, were a genuine attempt for Microsoft to further validate the abilities of the partner to serve the customer. But the problem was less about credentials and more about the directory logistics of prioritizing and connecting partners. Through a series of complexities and built-up bureaucracies, the primary value has been buried and now the notion of "jumping through hoops" has never been more apparent to partners. Keeping up with thousands of variations of solutions, industries, and terminologies has made for an impossible tangle for matching. In fact, I noticed that the partner-finding directory is not visible from most pages on Microsoft.com. That's a shame when Microsoft depends almost fully on partners to deliver solutions to customers.

Fortunately, the solution to complexity isn't a dolled-up matrix, systematic process or Magic Quadrant. The beauty of simplicity is that it is its own solution. Simplicity just wants you to ask every day, every decision: What is my primary value?

Buying a Business in a Pandemic

It might seem outlandish to buy a business in a pandemic, but there are some strategies to deploy in times like this that can work for both parties.

In a nutshell, the challenge for the Buyer in these times is uncertainty. The challenge for the Seller is limited Buyers, so how can we mitigate uncertainty?

Let's take a page from landlords: Some landlords work on a percentage lease. They charge a low base rent and then a percentage of sales on top of that base. This addresses both parties' concerns -- if there is a downturn, the retailer doesn't pay as much, but they share in the plentiful times.

So, if you make an offer during a pandemic, a recession, or other uncertain times, offer a base price and a percentage of future revenues (I choose a revenue percentage instead of earnings since the Seller has no control of your expenses).

A percentage offer may not be what the Seller had hoped for but in these times, it's better than a lowball offer, or none at all.

*Please feel free to share There are many people considering alternative careers either by choice or not.

Here is one example of a purpose-driven business that is about a meaningful lifestyle: A dog-training franchise in Chicago -- the Seller doesn't know what to ask for the business in these times, but would consider all offers.

3 Phases of Business Evaluation

Buyers have many questions about the business they plan to purchase, so it's natural to come up with a laundry list of items that need clarification. However, there may be several buyers looking at a particular business, each with their own laundry list, so for a Seller, responding to all questions from all prospects could be a part-time job for someone who is hoping to work less, not more. :-)

Here is a 3-step process that will get the big rocks out of the way so you can eliminate the mismatches and continue to drill down on the details of the remaining businesses that you're evaluating. And remember, as a Buyer, you have the option to OPT-OUT of a purchase during due diligence if you find something not to your liking, so don't be afraid of a Letter of Intent or Contingent Purchase & Sale Agreement in order to be taken more seriously.

STEP 1 - PRE-OFFER

Before you've made an official declaration of interest, certain information is essential to know if you'd like to proceed. At this point, you have signed a non-disclosure agreement, obtained basic financials such as a P&L, Balance Sheet, and Inventory estimate, but to unlock the next level of information, the Buyer supplies an explanation of interest - Something informal like an email, with some basics about the Buyer's background, whether they are an investor or owner/operator and most importantly, the plan for funding the transaction - "how do you plan to pay for the business?" This can be short. It might look like this:

I am an individual buyer with executive-level experience within larger companies
managing teams of over 100. I started as a software developer with have a strong
technical background along with sales, marketing and ops leadership. This 
acquisition will replace my current executive role and I will plan to work in the
business.  I plan to put 20% down; obtain a bank loan for which I have applied, 
and will request a 10% seller note.    

In return, the Seller supplies: Answers to essential questions - say there are major expenses that cause questions, the seller can elaborate. A major expense is typically one that makes up more than 10% of the overall expenses. Items less than that can be considered in the next step.

Q&A:  Thank you for your background, Jim, here are answers to your key questions:  

- Our staff consists of 12 W-2 and 6 1099 employees who are paid $100/hr
- 2019 professional expenses = one-time atty fee to submit our patent.  
- The fleet has maintenance records on file; a new van should be added in 2023.  

STEP 2 - CONTINGENT OFFER

Now that the major expenses are accounted for, the next step is to describe the framework for an offer and, most importantly, the associated contingencies. If you don't feel confident in making a dollar-value-based offer, you can revert to a multiplier of earnings as your offer price. This can take the form of: a) Letter of Intent (least commitment which allows the Seller to continue to entertain offers) b) Letter of Intent with Earnest Money where you can include a no-shop clause or; c) A Contingent Purchase & Sale Agreement (stronger in that it secures a no-shop clause and includes more detail so you can move swiftly to closing).

*If any of your contingencies are not met, your earnest money is returned and you can pull out of the sale without consequence.

Based on my understanding of the business from the materials provided, I would 
like to pursue this transaction further. Since I will be asking for additional 
materials and more of your time, I want you to know that this effort is 
worthwhile, and my intent is to purchase the business at the end of this process 
if my due diligence results are positive.  Here are the principal terms and 
conditions of the transaction:


___Asset or ___Equity Purchase.  I plan to acquire the assets owned by and in 
connection with COMPANY with a offer price of 3X adjusted EBITDA. (adding back 
discretionary or one-time expenses).  The transaction would be funded as follows:
__% down; __% cash at closing and __% requested as seller note. We would ask you 
to stay on for 6 months during the transaction and will negotiate a fair salary. 
We would aim to close by January 15, 2020.  

This offer is contingent on:
- Bank financing approval
- Lease assumption
- Verification of financials/taxes
- Transfer of certifications/credentials
- Any additional contingencies that are a concern of yours

STEP 3 - DUE DILIGENCE

This is the stage that, with earnest money and a stated offer will give you access to nearly all documents needed except private information or trade secrets such as customer and vendor contacts and formulation/recipes. Once the contingencies have been evaluated, you then move to closing where the formalized offer is mutually signed and a closing date is established.

As brokers, we have templates and suggestions to streamline the process so look to us for help!

-Kris

Small Business Sales: ASSET or EQUITY (stock) sale?

--THIS OPINION ONLY APPLIES TO SMALL BUSINESS--

We are sometimes asked if it's better to sell as an equity sale vs. asset sale. My personal opinion is that for small businesses, the asset sale is preferred. If you are LLC then you do not have the option, so you needn't read further.

Asset sale pros:

This is the only option if you are not a large corporation.

Seller:

Allows you to pick and choose what to negotiate into the sale (both assets and liabilities)

Buyer:

The buyer is sheltered from debts that the seller had. I was personally relieved of this fact when we bought the yogurt company since several vendors came forward claiming that we owed them money but since I was a separate entity that had purchased the brand and assets, I was not subject to any outstanding payments due. Another tech buyer told me that they would have been subject to a 250,000 tax liability had they taken the business on as an equity sale. This is a very real benefits.

The Buyer is also no longer locked into contracts, can renegotiate. The buyer can also amortize goodwill for tax purposes.

Both:

Asset sales avoid securities regulation laws which may add in additional overhead and expense in the transition for both parties.

If there would have been shareholders who did not want to sell their shares you would not have to keep them in as partial owners.

Equity (stock) sale pros:

You do not need to re-title the business or assets.

You do not need to renegotiate good contracts (if they are favorable to the company vs. having new contracts.)

In Washington State, there is a one-time use tax on equipment for the sales or transfer. A stock transaction can avoid some or all of these taxes that apply in the event of an asset transaction.

With only one shareholder, an equity sale may be somewhat less complex than an asset sale.

This is not advice that should be acted upon, but merely for your consideration -- simply perception and opinion. You should talk to accounting and legal experts about this.

Here are a few resources that may help you have those conversations:

https://smallbusiness.findlaw.com/starting-a-business/asset-purchase-vs-stock-purchase-advantages-and-disadvantages.html

https://www.thebalancesmb.com/how-to-sell-a-business-asset-sale-vs-share-sale-2948477

Self-Talk and Missed Opportunity

I recently noticed that there was a density of trade businesses for sale --HVAC, electricians, body shops, heavy equipment, so I wanted to find buyers with experience in these areas. These retiring owners have created an amazing opportunity for someone in the industry to pick up an existing, profitable business, I thought.

So I set up a table at Renton Technical College during lunch on a Career Day where staggered lunch schedules poured students in from various trade groups into the cafeteria at particular times.

I visited several tables with students wearing protective goggles, scrubs, or Carhartts telling them about specific businesses whose owners were retiring or moving on and needed to find successors. What I thought would have been perceived as opportunity was perceived as an impossibility. I mainly heard these objections: "I can't afford to buy a business", "I won't know how to run it" or "I'm not ready yet".

For the few aspiring business owners out there, I say, take advantage of the flood of businesses available in your craft. Don't think of a business acquisition as a one-day purchase, but as a slow transition over the course of years to ownership that not only allows you to learn the craft and the business from the owner, but also learn and benefit from the employees and vendors. Put yourself into a challenge, be resourceful and unafraid to ask questions, you might be the best owner the company has ever had!

Dare to Make an Offer. Even if...

"The price is too high"

Owners notoriously over-price their business. Many buyers then see their high asking price and move on. Fortunately for you, if you are the only one to make an offer, you may be the only offer they receive and you could get it for the price you wanted. Try it.

"I'm not sure if I can get financing for it"

Your offer is made contingent on financing. If your financing falls through, your agreement ends without consequence. If you deposited earnest money, you get it back.

"What if I can't get the lease transferred or extended?"

Your offer is made contingent on a lease transfer. If your lease transfer is not approved, your agreement ends without consequence. If you deposited earnest money, you get it back.

There are many ways for you to make an offer and still protect yourself. Offers with contingencies are a way to give yourself the time you need to conduct your due diligence and call "dibs" on the business before another buyer can swoop in.

The Lost Art of Appenticeships

Back in the day, a shoemaker, blacksmith, or carpenter would bring in a youth to shadow and learn the trade. The many techniques and lessons learned by the elder were passed on to to accelerate learning and avoid pitfalls, allowing each generation to be smarter faster and better in each generation.

Today, if you ask many kids what their parents do, you might hear, "Uhhh, I dunno, works at a desk? or, "he types things", "she talks on the phone" or "he works for Amazon?" There is little career information that is naturally passed along to youth today. Most expect that learning to come from an institution from someone "certified" or credentialed in some way.

What about Internships?

Internships, while helpful, are not the same as apprenticeships. Internships are short stints of time, usually in a support role for a department or company with few deep or individual interactions around the fine skills of the job. Interns are generally seen as affordable labor for some exposure to an industry where the youth is thrown into a scenario and are expected to figure out what to do. This is also learning, but nothing like apprenticeships where you are molded to learn the techniques.

Apprenticeships (mentoring) is long-term relationships between two people where the intention is to pass along years of learning to another.

Just Ask!

When I asked my daughter why she didn't ask her elders to teach her their ways, she said, "well, I didn't know you could, would that even be okay?" Of course! When someone reaches around the age of 50, their perspective shifts to teaching. There is an inherent need to pass on your knowledge. You won't live forever and you want your legacy to live on. What a gift to have a young person interested and curious in your passion.

Some people call this elder a Mentor. Personally, this title feels uncomfortable. If someone called me their Mentor, I would squirm a little. Is your curiosity in my trade worthy of a title? Not for me, but that's just personal preference.

It's pretty simple: Find someone you find interesting and has a lifestyle you admire and tell them you are curious about what they do. Let it evolve from there. You will probably find that the elder will GLADLY assist you in any and all ways possible!

Becoming Hotelian: Co-working/living

In the quest for talent, businesses are inadvertently driving a new era of flexibility into spaces. They are evolving Flex Work Policies that take the form of co-working and co-living space where the brightest of employees are hoping to efficiently balance work and life. A few things employers and employees are seeking:

• Minimal windshield time - A two-hour commute is a two-hour waste of valuable time for both employers and employees.

• "Doing the Work" vs. "Going to Work" - Younger generations are becoming accustomed to disassociating where they go to work vs. the time they dedicate to it.

• Commercial real estate on demand -- for overflow and shorter lease commitments, innovative companies are paying a little more for flexibility.

• Vitamin N - Nature! Proven to drive productivity and happiness.

Many of these characteristics feel a lot like hotels where flexibility, great amenities and freedom rule, thus the term "hotelian"

Companies like LulaFit, and Coeo are combining location searches with amenities and living/working spaces that are made to be flexible with managed amenities that allow the growing millennial generation to focus on experiences, family, mission, or work.

My personal vision is that the metropolitan focus for workspace is a Living 1.0 experiment. For folks like me, small towns have more charm than any city and if I were able to work from a town or near a lake or mountain, I'd be much more satisfied than sitting in a cubicle in a city. For me, Living 2.0 shows up in smaller towns and closer to nature. This is what's driving my next generation commercial real estate effort, where I'm trying to bring together innovators, investors, and designers to build these rural communities, turning affordable (even historic) properties into co-living/working and shared spaces, making them the best place to work and live.

Evaluating a Business: Big Rocks First

When you evaluate a business to buy, you don't have to know everything about it at once. Richard Branson once said he mainly focuses on three measurements to monitor his business:

1. Butts in seats - or whatever your equivalent for "sales/consumption of capacity"

2. Customer loyalty and satisfaction

3. Employee satisfaction

Everything else will just be details that can be ironed out.

As Steven Covey famously said, "The Big Rocks are your most important, so put them first. That way, you make the less important things (gravel) fight their way in."

Apply this concept to your business evaluation. Your FIRST step is to understand DEAL-BREAKERS. What could KILL your business? What isn't SUSTAINABLE? Then, determine the details of the expenses to ensure that overruns can be identified.

Below are some examples of LESS effective ways of evaluating a business. This comes from an exchange I had with one prospective buyer after I sent him the P&L for a business. Can you distinguish the big rocks from the pebbles?

"Thanks for the info. I have a few questions: How many estimators in the business? Do they also function as Project Managers? What is the role of the owner in the business? Was the large expense of entertainment the Christmas party? Costs of sales are high. Is there other ways to decrease this? Would they have a current Work in Progress report? What makes up the balance of the office staff? Do they have a breakdown of business by revenue - eg. government contracts vs industrial vs retail/commercial? "

There are some important questions in here, but the Christmas party probably wasn't a huge priority in this early stage of evaluation.

One effect the All-at-Once approach has is that it discourages you from nearly every business you look at and the whole transaction becomes intimidating or you may walk away from a great opportunity.

Keep a realistic view of what's important and what's just sand and pebbles so you keep your eye on what really is going to lead to success or failure in your business.

The Common Investor: Seeking Revenue $5M-50M EBITDA $1-5M

I am approached daily by investors looking for opportunities. The problem is that all of the investors are competing for the exact same criteria:

I think I've determined that this common approach is founded from the advice in the Harvard Business Review Book: HBR Guide to Buying a Business and I wish there were more investors looking just outside of these criteria that would be willing to apply some creative approaches.

The Common Investor appears to be looking for the “Perfect Business” - one without risk that builds on the backs of those who took the risk and sacrificed their lives time and again many years ago. Here is what I usually see from the Common Investor:

Ownership Criteria: Owner seeking liquidity and/or exit – such as a retiring owner without a successor in place, an operator looking for a new role, or a serial entrepreneur ready for a new venture. Concentrated ownership

 Business Criteria:

·         Sustainable competitive position in a growing and/or niche industry

·         Past and clear future growth trajectory

·         Diverse and expanding customer base

·         Strong middle management team

Financial Criteria:

·         Revenue between $5M and $50M

·         Cash flow (or EBITDA) between $1M to $5M

·         Recurring revenue streams from loyal customers

·         Low ongoing capital expenditure needs

If you send me this criteria, please know that I have a dozen or more of these inquiries every month. If you have something a little more creative, please let me know. I like working with investors who are operating outside this box. I’ve seen a couple of investors who are innovating their level of participation in the business or they are willing to combined several smaller businesses in the same industry for an additive benefit.

Explore the boundaries of a Common Investor. If you’re willing to innovate, I’m willing to help you. I’m an entrepreneur. Entrepreneurs take risks, innovate, and reap the rewards. Join me, will you?

Employee Purchases for SMALL Businesses: A Simpler Method

Perhaps you've read about ESOP. Employee Stock Option Purchase. Generally speaking, businesses with under 15-20 employees might be better off taking a simpler path. Attorney costs come into play for ESOPs along with administrative costs of keeping records, filing reports, sending plan account statements, etc.. A firm of 20 employees end up paying $2,000 to $4,000 per year plus $30 to $60 per employee. As a result, many small business owners shy away from this approach.

There is a simpler option for small businesses.

Because SBA loans favor employee purchases, your own employees are likely to more easily qualify for a loan so the transaction may be as simple as getting them the terms they need for a down payment and/or partial seller financing to qualify for their own loan. Of course, it's important that the business and the owner qualify and will be able to service the debt within the company's current earnings.

Here are some of the benefits of simple employee purchases:

• You are confident in their ability to run the business, your legacy: You likely know the person in your company most capable of running the business. It may even be more than one person. If so, that person simply forms their own business entity and you work with someone to define the terms and timing of the transition which can range from months to years depending on how long it takes for the employee to come up with the down payment.

• Your team transition more easily vs. an outsider. Many teams are accustomed to seeing the owner/owner and if they've already worked with the new owner, the transition is less jarring to the employees. You do need to manage the feeling around whether the choice was equitable and if any employees will feel resentful if they were not asked by the owner to take over the business.

• You retain private ownership. Sometimes an absentee investor will buy a privately owned business and the owner/operator is no longer in the business.

• Reduced broker fees: I reduce fees for employee purchases for my clients since it reduces my time normally spent marketing the business to a third party. Instead, my time is spend drawing up terms for the mutual agreement and working with an attorney in a streamlined fashion to file the proper records.

Ask me about how we might work out a simple solution for your business to transfer to one or more of your key employees.

How SBA Loans Work: SBA101

This is an interview with Key Bank's Carrie Callaway-Cardy, Vice President, Senior SBA Relationship Manager. I wanted to highlight some of the key principles around SBA lending that are covered in most of my clients' discussions with Carrie.

This is a brief synopsis. You can find all kinds of detailed articles about SBA loans online. This is a practical view on the main points of understanding:

First, it's important to understand that the SBA does not LEND the money, they merely GUARANTEE the loan (or 75% of it, anyway). You still need to work through an SBA-approved bank. They are lending their money and need to go through their underwriters to see if they can get the loan backed by SBA according to their guidelines. Using a lender that is a certified “Preferred Lender” is ideal, as they can make decisions on SBA loans themselves without having to ask the SBA to chime in.

How do I qualify?

• First, the business is qualified. If you don't know the exact business you want, you can still start the SBA loan process by inserting the TYPE and relative SIZE of the business you are looking at. SBA lenders need the business you want to buy to be profitable enough to pay you and support your loan payments with some left over.

• Second, you the buyer, are qualified based on experience, liquid assets (that you have the down payment and a cushion after) and credit/personal background. They approve or deny the loan based on the business primarily, but credit score and repayment history still matter.

What kind of fees and interest are there? How long is a typical loan?

Generally banks range between 2-2.75% over prime. There are a few other fees: Attorney fee: Usually around $2,000, Business Valuation fee around $2,000 - $2,500 and a fee to the government for the guaranty that is determined by loan amount. If you have a smaller business, there can be an in-house valuation and you don't need a third party Business Valuation. Most loans are around 10 years with no prepayment penalty. You almost always must have a lease in place for at least the length of the loan or options to get there.

How do I get pre-qualified?

Supply a basic SBA application packet, 3 years of financials, and basic business transition plan to the bank and the bank will send you a Term Sheet Proposal stating the type of loan, terms, rate, collateral, covenants, Good Faith Deposit and down payment required of at least 10%. In some cases, 5% of your down payment may come as a Seller Note if you wish.

How long does it take?

Once the SBA Loan Application is submitted you may hear back within days or a week with a Term Sheet Proposal. Once the final documentation is supplied by you (including a signed around letter of intent or sales agreement), you can plan on 45-60 days. Keep in mind that the required paperwork may trickle in from various sources, so the entire process may extend for several months while information is gathered and reviewed.

What if I don't get approved?

If you don't get approved, consider a 2-year Seller Note. Once 24 months of on-time payments have been made and documented, the SBA will do another in-house valuation and you are likely to qualify with this special consideration.

Thank you to Carrie for her insight on this article. Contact Carrie if you wish to start the SBA loan process and she'll walk you through the steps.

carrie.callaway.cardy@keybank.com

Generation X: The One that's "Along for the Ride"​

I've heard from multiple sources that my generation is not only the smallest, but is really just a spec on the spectrum between Baby Boomers and Millennials. We're along for the ride of our pred/successors who paved the way and vote the majority. The powers that be had defined our generation with such a narrow window of birth years that there are only 65 Million of us born 1965-1980. So in that way, I guess we're kind of an exclusive Breakfast Club.

While no one wants to be characterized as the one that "doesn't matter" I feel a strange pride in the era of my reference points and I think they counterbalance the current generation quite nicely. Here are some our non-modern values that I think will swing back into mainstream:

• Boredom - today it's called meditation -- the ability to put down the distractions and just sit and do nothing. I struggle with it myself now, but I'm still able to be bored. I don't know how we can introduce this to our children without a temper tantrum, but maybe something better will come along that will allow our kids to learn how to chill and let their minds wander.

• The male pursuit - I cringe sometimes at the emasculation of men whether in sitcoms, memes, or TV ads. I think the biological direction is for the male species to pursue the female species (I also feel compelled to say sorry for thinking that) and we'll eventually return to that state once women generally become less angry at all men as they appear to be right now.

• No media shaming - Gen X'ers were, perhaps, the era with the most number of mediums in the market at once and whether you had an 8-track, a cassette, or dabbled with land-line downloads to your Intel 386 PC, you were not judged for the medium (just the music). People didn't care if your listening gear (e.g. ear buds) were white or black.

• Face-to-face - this is huge. I think we're with Boomers on this point. We're both from an era that talked to people without distraction. We learned to look people in the eyes when we spoke even if it was uncomfortable because it was necessary. Human connection is necessary. Of all the "old fashioned" values, this one is perhaps the one I yearn for the most for my children and future generations. If the Berlin Wall can fall, then the smart-phone barrier between us can too.

I have a real respect for the Millennials in a few areas, so let's cover those too:

• Purpose driven - This generation questions its purpose in an organization and is not afraid to say no to things that don't align with those values. They're not willing to pour in hours of work without the added value of being part of a mission.

• Affiliation - I see that this generation gains strength from their digital-validations. You can feel confident in your decisions if you've vetted them in your digital community. Those groups can strengthen, but can also blind us, so we are probably going to need to get wiser about how we use them, but the confidence that you are not alone has never been stronger.

• Lifestyle first - Young people are taking on an enormous debt for their decisions around major expenses like college, cars, and homes, so they are often deferring those (and kids), and focusing less on "stuff" and more on experiences. I think that's wise. Good on 'ya M's.

So what's left to learn? Be careful about your sources of information. Nothing can be trusted like your first-hand impressions and experiences so you still have to go out and see for yourself. Stay close to those experiences as reference and not depend on heresay. If you and everyone you know has jobs, yet the employment report says it's at an all time low, you might be right to question the methodology of that report or determine that the situation is geographical (or maybe not true at all).

Things usually aren't as bad as the media paints them. They bait us. As a former journalism student (not a very good one), reporters are increasingly trained to elicit emotional response over everything (more ads!) and we, as a society, seem to be falling for it. But with the strength of character you've demonstrated around lifestyle and purpose, you can overcome this one too!

Correlation, Causation, & Coincidence

A Nutritionist I know told me that she has made a career of listening to people's grumblings --both tummy and opinions. One woman came to her about every 28 days complaining that the food she ate at the meal before had upset her stomach and that she must have a sensitivity to that food and would therefore ban it from her diet from this day forward! When the Nutritionist asked her if it might have to do with premenstrual symptoms which include gastrointestinal discomfort, she denied the prospect and continued building her long list of forbidden foods. While she hasn't seen this client recently, she wonders what is left for her to eat!

Perhaps everything is connected, but in what way?

Causation - Easy, there is a proven, direct, and repeatable connection. One event precedes the other. Science's holy grail.

Correlation - When two things simply travel together it's not always clear if one caused the other or even less obvious, the apparent effect created the apparent cause.

Say you were sick for three days and then took a medication and started to feel better on day four, you might say, "wow, that medication really helped" but think about the timing, you were probably already going to feel better on day four. The CAUSE for improvement was TIME (and an active immune system), not necessarily medication but the medication correlated with your destined improvement.

When we don't know for sure, we can park situations in the category of correlation, or limbo. In other words, we noticed a pattern between these two things, but the jury is out and we don't know -- yet.

Coincidence - My personal observation is that people (including me) attach causation and correlation more often than warranted. While we can't all conduct scientific experiments to see if two events are truly causal, we can reserve our conclusion so that when we don't yet see a repeated pattern, we might just note, "my, what a coincidence!"

So when you're working on your business, whether to sell or grow it, and are making decisions, be careful not to over-connect. Some business owners I've worked with have given up on several paths of great opportunity because a negative outcome resulted for a reason that may have simply been coincidental and not repeated.

What might have been if innovators had forged ahead until they learned that a bad outcome wasn't just coincidence or correlation? Analyze why someone gave up on what seemed like a great idea and you may find many innovations there.

Why You Can Probably Afford to Buy a Business Even if You Don't Think You Can

If you don't have a lot of cash in the bank, you can still likely buy a business. It's quite simple: Unlike a car, a business is making money that repays its own loan.

Think of a business as "earning its keep" - it not only needs to pay for expenses, employees, and your salary, but it also should be able to pay the loan payment every month and STILL leave you profit left over. (If it doesn't, don't buy it).

Let's take a main street example:

You find a coffee shop for $80,000. Now, you might not have $80,000 in the bank, but if you can find yourself $8,000 between you, family and friends, you have enough to put down on it.

Then, let's see if you can make a living:

The sales revenue for the coffee shop is $200,000. After rent, payroll and expenses, about 1/3 of that ($66,000) is left as profit as it is running today. However, the retiring owner has been gradually cutting back the business' hours and they are now only open for breakfast and lunch. You plan to extend the hours to the evening and expect easily, another 25% in revenue since you are near a college campus. So you offer $75,000 and plan on putting $7,000 down (you have $4,000 of your own money and ask friends and family to help pitch in for the rest) and you take out an SBA loan for $75,000 (this gives you some extra capital for refinishing the counter and buying some inventory). Your loan payment for a 10 year loan is roughly $800/mo.

Your first year, you will make the original $66,000 profit and subtract the $9,600 loan but look what have you done to streamline or grow the business! It turns out your 25% gain for keeping later-hours prediction actually turns into a 30% increase (that's $19,800) and you have easily paid your loan and earned an additional $10K! That's just your first year. You can proudly tell your friends that you instantly turned a $76,000 profit in the first year of your business and you're well on your way to further growth over the next 2-3 years.

Compare this scenario to a startup which typically does not turn any profit for 2-3 years and you're well ahead of the game!

Your tech startup friends will grumble that they're still eating ramen with the hope that they are in the vast minority of tech startups that make it big and hit the jackpot. But you can still take part in the fun: when they're ready for a round 2 investor, you can bring some cash into their business and earn even more! :-)

Keep in mind that the coffee shop is a very small business used for example. If you plan to go big, you also must plan for scale. How will you open more locations or exit the business to move into a more profitable industry? Knowing your exit path before you commit your initial funds is often an overlooked step for new business owners.

Now let's go to special circumstances:

You are a veteran, or other protected species like the <insert sarcasm> rare, endangered woman ("woah-man") </end sarcasm> and you may qualify for special circumstances. Here in Washington state, we have groups that address these situations with special considerations:

Business Impact NW: offers loans ranging from $5,000 to $250,000. Business Impact NW is a compassionate lender that exists to fund women, veterans, communities of color, immigrants, LGBT, and disabled entrepreneurs. The 5 C's of Financing allow them to be more flexible with funding than traditional lenders. The 5 Cs are: Cash-flow, Capacity, Character, Capital, Collateral. (read more on their site)

CRAFT3: Another non-profit offering creative lending and can say yes without full collateralization and account for character and other traits important for repayment.

A good credit score goes a long way too (banks will put a 650 as the normal threshold), but a not-so-good credit score doesn't make it impossible either. If you have assets, those can be collateral but try to limit your collateral to assets other than your home if possible. One attorney reminded me that everything regarding what collateral the bank requires before the loan is negotiable. Once the loan is made it is close to impossible to get a piece of collateral released.

In sum, there are so many ways to fund a business, you just need to lean on the existing business profit and your own ability to improve, streamline, and grow to really make the business work hard for you and your family.

Buying an established business is a great way to go (even if you have a day job).

Get an Intermediary "On Alert"​ for You

I'm on alert for several buyers who have shared with me what they are looking for in their next opportunity. As a result, they have first access to businesses that are selling even before they are available on the open market.

Today, I was notified of a coffee shop owner whose kids are graduating and he wants to retire in August. It happens that I have eight buyers who are actively seeking a coffee shop, so before we have all of the formal documents available for listing, I let these buyers know about it.

Be first to know. If you want me "on alert" for you, fill out our BizQuiz and send me the opportunity you are looking for. You can list it by industry, characteristics, size, employees, location, or lifestyle.

Gather & Grow: Forming a Private Investment Group

A lot of investors are looking for something different. They have a core investment in the market, bonds, portfolios, but most of their returns are a yawn.

Recently, I've been working with several savvy entrepreneurs who have formed at a consortium of investors and instead of picking startups and stocks, they're looking at buying existing, profitable businesses where the owner is looking to retire.

There are some formal investment groups already in place but they tend to either be pretty large (Kiretsu Forum) which is well-established and has a great group, but it is a larger size than some prefer. Smaller groups may be already full.

If you wish to form your own, you may want to establish a due diligence process; find someone to supply deal flow to you (like me); and a set of experts you can place into the businesses you buy who will trust to run the businesses.

Here are a couple of their strategies in growing the value of these businesses:

1. Decide the scope of your mission. You may be looking to invest in an industry, a purpose, or a characteristic in the market. Even a loosely articulated scope is more helpful than saying you'll invest in "anything".

2. Assign a talented Due Diligence Team to review and supply details to the rest of the team. This Team responsibility can cycle around the group and experts can be brought in to answer industry-specific questions and specific problem or opportunity areas.

3. Pick an anchor tenant and buy up the supply chain. If your anchor business is stable and relatively recession-proof it can churn out a core revenue stream, say, a Trucking Company (we will always need goods/services distributed). Then, buying up the suppliers and downstream partners of that company, say, a pallet manufacturer or a distribution services company, you have an automatic advantage of keeping the middle-man profits to yourself.

4. Assess the team's strengths and fix the same "broken" in various businesses. Say your team has an amazing digital marketing capacity. You can build a nice portfolio of companies who all benefit greatly from digital marketing. Buy these businesses at a good value and apply your fix.

I have several other strategies that can be deployed if you are interested in becoming the ringleader of your own investment group and will share them with you when we work together.

Keep in mind three things when you buy a business that are often misunderstood or unknown to investors:

1. You only need about 10% of the business value down in order to buy the business. If it's profitable enough, it can sustain the debt service on a loan.

2. Transition plans can be on your terms. If you need time to learn the business or hire a manager to run the business, just ask for an extended period of training with the owner. A business is rarely transitioned by the writing of a check and a key exchange.

3. The risk is far less than most alternatives. There are few investments with a better ROI or cap rate than a business that's been profitable for decades. See my ebook "Start or Buy"

I'm developing some great case studies with investors who gather and grow their value by working together on a shared strategy.

The Skilled Trades Shortage & Economics 101

We've been seeing more and more commentary recently about the celebration of the MAKERS of America as pride flows from the trade schools graduating construction, plumbing, HVAC, electricians and more. I'm experiencing this shift first-hand as many business owners are looking to sell because they can't find enough skilled labor.

Beware Lawyers, Pharmacists, IT Experts, and Data Jockeys. If economics proves as certain as gravity, supply and demand will prevail and graduates in excess will be lower paid than the scarce tradesmen and women who understand the technical aspects of creating and maintaining our infrastructure. The Massachusetts Collegian even wrote a well-researched article: "Too many people are going to college. Consider vocational school."

When the repeated sentiment is that the retiring and buying business owners' biggest concern is lack of available workers as they consider HVAC, Construction and Transportation, we have a problem.

The President of Renton Technical College (RTC), Dr. Kevin McCarthy, spoke to a small group of us about the modern tracks they are graduating including mechatronics (internet of things) and transportation technology. These blended career paths will be the perfect storm for what's coming. It is these visionaries ramping up education and working with their local businesses to match what they are hungry for that will prevail!

I'd like to find graduates within these trades who can take on some of our existing businesses whose owners are looking for successors.

I once sponsored a table at RTC and students had no concept that they could be the next owner of an existing business. It wasn't within the realm of possibility to them. But with a little validation from these colleges that taking on an existing, profitable, business is a viable track, I think we could get these high-potential leaders within the trades to continue the legacy of our core infrastructure businesses that keep America running. Please feel free to connect me to trade school programs and events. I'd be happy to present the opportunity to those interested.