Journey Through the Business Broker World with Expert Trent Lee

Summary

Escaping the Drift with John Gafford: Journey Through the Business Broker World with Expert Trent Lee

In the episode titled "Journey Through the Business Broker World with Expert Trent Lee," host John Gafford delves deep into the intricacies of business brokerage with Trent Lee, America's top-ranked business broker for six consecutive years. This comprehensive discussion offers valuable insights for entrepreneurs, aspiring business buyers, and anyone interested in understanding the dynamics of buying and selling businesses.

1. Trent Lee's Background and Entry into Business Brokerage

Trent Lee's journey into business brokerage is deeply rooted in his family background. Growing up in Las Vegas, Trent was exposed to his father's janitorial business, which employed between 500 to 700 individuals depending on the season. Initially, Trent aspired to take over the family business. However, an unsolicited offer to buy the company changed his trajectory.

Notable Quote:
"I didn't pursue taking over the family business because my dad sold it when I was just graduating high school. Instead, I ventured out, started my own businesses, and eventually transitioned into business brokerage."
— Trent Lee [03:21]

2. Transition from Family Business to Business Brokerage

After selling two of his own companies and obtaining advanced degrees from Harvard, including a Master's in Finance and an MBA, Trent recognized the inefficiencies in the existing business brokerage landscape. Frustrated with the performance of other brokers, he decided to leverage his experience and education to offer a superior service, thereby completing a full-circle moment from his early aspirations.

3. Current Trends in Buying Businesses

Trent observes a significant surge in interest around buying businesses, a trend amplified by online gurus and increased market activity. This shift emphasizes the importance of understanding the business brokerage process to navigate the complexities of acquisitions effectively.

Notable Quote:
"It's all the rage right now. There's a buzz about buying businesses instead of starting them from scratch."
— Trent Lee [Back around [01:XX]]

4. The Easiest and Most Challenging Businesses to Sell

Trent identifies certain industries as "hot" and easier to sell due to their recurring revenue models. Home services and property management companies, for example, attract significant interest from private equity groups and family offices because of their stable income streams.

Notable Quote:
"Home services is a big one. Property management companies have stickiness to the revenue, making them highly attractive to buyers."
— Trent Lee [08:50]

Conversely, businesses heavy on inventory or equipment can present valuation challenges. Trent explains that such businesses often struggle to justify their asking prices because inventory and equipment costs are factored into earnings multiples, leading to potential discrepancies during valuations.

Notable Quote:
"You can't have it both ways. If a business is equipment-heavy, you have to choose the appropriate valuation method without double-dipping."
— Trent Lee [10:12]

5. The Importance of a Buy Box and Buyer Box

Trent introduces the concepts of "buy box" and "buyer box," emphasizing that successful transactions depend not only on finding the right business but also the right buyer. A well-defined buyer box ensures that potential buyers have the necessary experience and qualifications to manage and grow the business effectively.

Notable Quote:
"The buyer box is just as important because the buyer has to be the right fit, with the experience and qualifications to run the business."
— Trent Lee [18:11]

6. The Due Diligence Process

Due diligence is a critical phase in business transactions, and Trent highlights its complexities. He differentiates between "quality of earnings" reports for larger businesses and more streamlined approaches for smaller enterprises. Proper due diligence helps uncover financial discrepancies and ensures that buyers make informed decisions.

Notable Quote:
"A quality of earnings for a million-dollar business might cost $20,000 to $30,000, whereas smaller deals might only require a few thousand dollars for proof of cash."
— Trent Lee [45:36]

Trent also mentions the use of technology, including AI, to streamline the due diligence process. By automating the reconciliation of financial statements, he ensures greater accuracy and reliability in evaluating businesses.

Notable Quote:
"I've created a chatbot that analyzes and reconciles bank statements to profit and loss statements, flagging potential issues automatically."
— Trent Lee [27:35]

7. Technology and AI in Business Brokerage

Embracing modern technology, Trent leverages AI to enhance the efficiency of his brokerage services. His custom chatbot aids in automating the preliminary analysis of financial documents, providing him with peace of mind and ensuring the legitimacy of businesses before presenting them to potential buyers.

8. Compensation Models for Brokers

Trent discusses various compensation structures within the business brokerage industry. While some brokers charge upfront fees or commitment fees to cover their time and advertising costs, Trent prefers a performance-based model. He offers services like formal evaluations and marketing at no initial cost, receiving compensation only upon successful transactions.

Notable Quote:
"I don't charge anything upfront. I get paid based on performance, ensuring that my incentives are aligned with my clients' success."
— Trent Lee [31:08]

9. Common Regrets of Business Buyers

One of the most significant regrets among business buyers is underestimating the demands of business ownership. Many buyers transition from traditional 9-to-5 jobs without fully grasping the continuous responsibilities and challenges of running a business. Trent emphasizes the importance of thorough preparation and understanding the operational demands before making a purchase.

Notable Quote:
"First-time buyers often don't realize how hard it is to actually be a business owner. They're always on, there's no clocking out."
— Trent Lee [43:03]

Additionally, rushing the buying process without adequate due diligence can lead to unforeseen financial issues and operational challenges, compounding buyer regrets.

10. Final Insights and Advice

Trent underscores the importance of exit planning for sellers, advocating for well-organized financials and operational systems to make the business attractive to potential buyers. For buyers, he advises defining a clear buyer box and investing in proper due diligence to mitigate risks.

Notable Quote:
"From the sell side, get your books in order and build a business that's not overly dependent on you. From the buy side, define your buyer box and conduct thorough due diligence."
— Trent Lee [35:38]

Trent also touches upon the potential for vertical integration, contemplating future expansions into consulting or legal services to complement his brokerage offerings.

Conclusion

Trent Lee's expertise provides a nuanced understanding of the business brokerage landscape. From identifying trending industries and understanding buyer qualifications to emphasizing meticulous due diligence and leveraging technology, this episode equips listeners with essential knowledge to navigate the complex world of buying and selling businesses successfully.

For entrepreneurs and business enthusiasts looking to escape the drift and achieve remarkable success, Trent Lee's insights offer a roadmap to informed decision-making and strategic growth.

Connect with Trent Lee:

• Email: Trent@FCB
• Phone: [phone]
• Social Media: Search for @TrentLeeBusinessBroker or similar handles on your preferred platforms.

Transcript

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[John Gafford]

One last question before we go. Same question I asked. The last question I ask every guest comes on. What's the one question you keep getting asked on podcasts you wish people would just stop asking you?

[Trent Lee]

You know I don't.

[John Gafford]

And now, escaping the drift, the show designed to get you from where you are to where you want to be. I'm John Gafford, and I have a knack for getting extraordinary achievers to drop their secrets to help you on a path to greatness. So stop drifting along esc the drift. And it's time to start right now. Back again. Back again for another episode of like it says in the opening man, the podcast that gets you from where you are to where you want to be. And today in the studio, people, look, there has been so much buzz. It seems like this has come out of nowhere in the last six months or so where it's just become everything is about how to buy a business. It's about buying businesses. It's about don't go out and try to start a business. Find a business to buy. And luckily for you guys in the studio today, I have a dude who was ranked by the ibba and that's no, he's not a fighter. He's not done weigh it. Didn't weigh in at a weight class for this. This is. The international business Brokers association has ranked this dude as the number one business broker in America for six straight years. That kind of makes him undefeated, I think. And we are lucky enough to have him in studio today because he lives here in the greatest city of the world, Las Vegas 2. Share his knowledge with you on all things buying businesses. Welcome to the program, ladies and gentlemen. This is Trent Lee. Trent.

[Trent Lee]

Thanks. Glad to be here. How are you, dude?

[John Gafford]

How are you? Thanks for coming over in the rainy days that we're having in Las Vegas.

[Trent Lee]

Yeah, the rare day.

[John Gafford]

I love the rain, dude. I love it. Although the weird thing is I kind of go backwards because, like, you know, like, you have like your. Your beater car and you have your nice car. My. I have a Bronco with no, like, top on it. So I have to take that home to then bring a very expensive car out in the rain, which is, I looked at that today. I'm like, this is probably backwards. I'm probably doing something wrong. I don't know.

[Trent Lee]

Good. Well, happy to be here.

[John Gafford]

No, I appreciate it. So let's, dude, let's jump right into it. So, man, you, obviously you're at the pinnacle of what you do in your business. And how did you get into being a business? Like, how did you get into.

[Trent Lee]

That's a great question. So I was interested in it early days. I grew up, as you mentioned, here in Las Vegas. My dad had a company, a pretty good sized company, depending on the time of year, between 500 to 700 employees. I was the oldest boy, and I thought that was like my ticket for success. I was, I was going to take that over. He ended up just as I was graduating high school, getting an offer or really what I should say is, someone came out and said, hey, we want to buy your company. He told him, thanks, but no thanks. This is a family business. It provided a fantastic lifestyle for us. And declined their offer. But just out of curiosity, kind of said, what did you have in mind?

[John Gafford]

What is it?

[Trent Lee]

Yeah. And so they sent the, their team down. I remember seeing them in the office for a couple of weeks, made him an offer and he said, done, I'll sell it. And so he, here's the great part about it from a kind of father to son standpoint. And now I've got my own kids. He was kind enough to let me and my brothers go through the whole process with them. And so we sat in with a lot of these meetings. I mean, really, what, what business do two high school kids have, you know, coming to these meetings?

[John Gafford]

I, I got one sitting about 60ft that way.

[Trent Lee]

Yeah, Sits in almost such a good experience and education. And so we walked, we went through all of these meetings with him, the due diligence meetings, meeting with the attorneys. We went out to California for a tax planning session for when he sold the business, how he was going to minimize taxes. That got my brother really interested in the legal side of things. He went to law school and followed that passion. I was interested in like the brokering side of things. How did this deal all come together? And so obviously coming fairly young at that point, I didn't pursue it, but I started a couple of my own businesses, exited from two of them.

[John Gafford]

Well, let me, let's back up. Let me ask you. So you thought this was Going to be your business one day.

[Trent Lee]

One day.

[John Gafford]

You thought one day this is going to. This was going to be your business?

[Trent Lee]

In the back of my mind, it's a hard business to come out of, you know, fairly young. It's not a young industry. You have to have a lot of experience in a lot of different.

[John Gafford]

What was it? What was the industry?

[Trent Lee]

My father's business.

[John Gafford]

Yeah.

[Trent Lee]

Janitorial.

[John Gafford]

Okay.

[Trent Lee]

So pretty much any business here or any building, any class A building here in town. The malls, the libraries, every Howard Hughes building, pretty much any class A building, they dominated.

[John Gafford]

But let me ask you this. So here you are, you think you have this path, right? And then all of a sudden, carpet gets a little ripped out from underneath you. Now, luckily, it happened to you at a very young age. And how did that send you spinning a little bit? Yes, it was great. No, it didn't at all.

[Trent Lee]

It was great. I, I came from. I watched my dad start. That wasn't his only business. That was one of them. I watched him start a number of businesses. And so after he went through that process, I left. I lived in a different country for a couple years. After mission. After high school, I served a mission for my church. I came back and my dad and I just started companies ourselves. And so I wasn't, I wasn't worried about it.

[John Gafford]

It wasn't worried about it.

[Trent Lee]

Yeah.

[John Gafford]

Yeah. Because I would say, dude, because one of the things with me, you know, as a young man, my father was fairly well off. And I always kind of felt I had this golden parachute. And it probably stunted my, it stunted my, My ability to push forward more than it should have. And I should have been more aggressive, younger. But my, my father was a, Was an attorney, so it was like. It wasn't really. I couldn't take. It was like step brothers were like, I didn't go to law school. Oh, we're just going to take over the family business. You didn't go to med school in.

[Trent Lee]

Gave me probably the opposite. It gave me all sorts of encouragement and confidence to go out and do it because I, I watched my dad do it a number of times and be successful. We started a company. And since then, how you got into it, the, the, the, the really. The quick version is we ended up selling two more of those companies that I was involved in. And I was so unimpressed with the business brokers that I worked with. And I saw by then I'd gone accounting, undergraduate degree, got into Harvard, did my master's of finance, transferred to MBA program at that point I had enough experience. I'd been, had a good background, sold two of my own companies and was like, you know what? I can do a better job than I think these business brokers that I'm seeing out there. And that's what kind of full circle came around to what I thought I was interested in back in high school. Now was the right time to get.

[John Gafford]

Into it, of making that work.

[Trent Lee]

Yeah.

[John Gafford]

You know, it's interesting, your father. So one of the lessons I learned also late in business was you build a business to be sold. Most like your dad was building a generational business. So probably wasn't structured properly off the, off the cliff after he sold the first one and you guys started the next one. Was it day one. We are structuring this thing for the sale.

[Trent Lee]

You know, I didn't have the foresight to do that at the age. And I don't think he did either. I think it just happened to be he was good at starting and ramping up businesses and, and that's what he knew. I don't think he necessarily went into it with a better strategy the second or third time around.

[John Gafford]

How many people that you work with now do you see that? Don't see it that way either. Like when they say I want to exit, it's a mess.

[Trent Lee]

Yeah, pretty much everyone.

[John Gafford]

Yeah.

[Trent Lee]

Most of the sellers I'm dealing with are selling because they have to, not because they want to. Health issues come up or sometimes they just get burned out. In that case they, yeah, they want to, but they're so burned out. Sometimes they're, they're not two or three years away from really doing proper exit planning and exiting on the, on their terms versus mom gets sick on the east coast with cancer and they've got to move or spouse gets a job opportunity and they've got to move or whatever happens. And most of these people are selling and they're just dealing with whatever the business is at the time.

[John Gafford]

You, you see probably. I mean, because you do so many, you're averaging over 100 a year, I guess is what we talked about.

[Trent Lee]

Yeah. Depending on the year in the year.

[John Gafford]

And so you see such a blend of, of businesses. What would you say is the easiest business to exit right now as far as a class like I, I, I have a guess is what I think it would be.

[Trent Lee]

You know, that's so, it's interesting because there, I don't know if I would rank it as maybe the easiest business, but, but there are certain industries that are very hot right now. Home services yes, Home services. Yeah, the online guru community. Love like that. They're what they call buy box. Home services is a big one. But one industry that you'll be familiar with is property management companies. In other words, companies that have some type of stickiness to the revenue. Not just one time, you know, selling a pair of tires or whatever, but with, in this case, property management companies. I don't even have to necessarily take it to the open market. I have a list of buyers who will just. They're just buying doors.

[John Gafford]

They just buy it.

[Trent Lee]

They're just buying doors.

[John Gafford]

They're. Their property managers. Want the business.

[Trent Lee]

Yeah, exactly. There are a bunch of industries like that that have some sort of reoccurring stickiness to the revenue component of it that are, are very big with private equity groups, with the family offices or someone who's not quite that size. But they're already in the industry and they know it. They've got the experience and they can, they're capitalized enough that they can, they can expand.

[John Gafford]

What's the, what's the class of business that people always think is worth more and then they're shocked at what it's actually about?

[Trent Lee]

Every business.

[John Gafford]

Fair. Yeah. Yeah, fair.

[Trent Lee]

Everyone thinks their business is worth more.

[John Gafford]

They always think it's worth more.

[Trent Lee]

Yeah, everyone thinks. And here's, here's one that is to your point. It's a great question. Here's one that comes to mind only because literally just an hour ago I was dealing with it. It's the business that has that, that's a good business. I'll give you an example here. But it's a good business that makes money but is very equipment or inventory heavy. That's, that becomes a problem because when you do a business valuation, we're not valuing the business from a multiple of earnings approach. We're calculating SDE sellers, discretionary earnings, ebitda. We're looking up the market multiple. We're not valuing that plus inventory. The inventory's wrapped into a component of the multiple of earnings. So right now I'm dealing with a tire company. They have a retail and a wholesale division. They sell tires, rims, all those type of accessories. And they've got about a million dollars of inventory. They're bloated. The guy doesn't have a really good clean system for inventory management. Because of that, he's got too much inventory on the books. And so what happens is he wants, he, he wants about 1.3 million for the business, which is a fair multiple. He's, he's Fairly profitable. He's asking for about three times earnings, which is reasonable, but he's not going to get three times earnings plus a million dollars.

[John Gafford]

Yeah, for the inventory.

[Trent Lee]

The inventory doesn't exist or the multiple of earnings don't exist if you take the inventory out. And so what ends up happening is someone like that, that has either a ton of inventory or a ton of equipment, heavy equipment is a big one. You can't, you can't have it both ways. That's essentially the same. I told them, look, in the car industry, you get this example. You either sell your car for parts at the junkyard, which is the worst valuation, or you go to the dealer or some other private party and sell the car. And if they offer you $25,000 for whatever the car's worth, you don't go to them and say, yeah, but you know what I mean, Include the transmission for you. So you got to pay me $3,000. And by the way, I'm going to throw in the tires too, and that's an extra thousand dollars. It's the whole package or it's the parts. You can't take two valuation methods and combine them together and double dip. That's essentially asking the buyer to pay you twice.

[John Gafford]

That's what everybody wants to do. Like. Well, let me ask you this. We talked earlier about the rise of the Internet guru saying buying businesses, buying businesses, buying businesses. And what is there there my sell. And there's all these websites online. I have a philosophy which is it's kind of like really good commercial real estate. Like really good commercial real estate never sees the light of day. The deals are done like, okay, you want to sell this? Let me make two phone calls and it's gone. Right. Is the same thing to be said with really solid based businesses?

[Trent Lee]

Sometimes, not always, but sometimes. For example, if it's a franchise and you see it on biz, buy, sell, and it looks like a smoking deal, you got to ask yourself why, why did the, why did the neighboring franchise not pick this up?

[John Gafford]

Yeah, or the, or the franchisee just take it back as a corporate store.

[Trent Lee]

Or their friend or the neighbor or their kid or whoever. And so yes, in some ways that's, that's true. But there are plenty of really good deals on the market because the owner has no preparation for exit planning and they don't know anything more to approach the neighboring franchise or, or the neighbor, you know, competing, Competing business because they don't want to violate confidentiality. They don't want the employees to know. They don't want word to get out or they just don't know really how to handle that. And so they, they reach out to a business broker who just puts it on the market. So there, there are plenty of really good deals.

[John Gafford]

Is there a FSBO market for businesses the way that there is for houses? Sometimes?

[Trent Lee]

Not a, not a bad. I mean you can look at Facebook Marketplace and.

[John Gafford]

For sale restaurant is where that's, that's going to, to find that stuff for sure.

[Trent Lee]

Not really. And there's really. There's no such thing as the mls. Yeah, like there is for real estate. And so it's a very fragmented market. There's a bunch of biz buy sell type websites, but there's no consolidated place.

[John Gafford]

It's like even, you know, even with commercial, there's LoopNet Costar, but there's no centralized database for all stuff and there's no rules to it, which sucks too. I know. In commercial, the worst part about it is there's no regulating body telling you to take stuff down when it's leased or sold.

[Trent Lee]

Yeah.

[John Gafford]

So the biggest problem, especially in Vegas, the hardest part with commercial is you make these, you make 20 calls and they're like, oh yeah, we sold that like six months ago. You're like, dude, take it down. But they leave it up because they're shopping for leads.

[Trent Lee]

Oh, interesting, right?

[John Gafford]

Does the same thing happen in business brokerage?

[Trent Lee]

Really? And, and I'll tell you why. Because a good listing gets an overwhelming number of inquiries.

[John Gafford]

Ah.

[Trent Lee]

And so it's, it's almost out of hand unless you have technology and automation in place, which is really one of the biggest frustrations. Why most business brokers are so bad is because they get so many inquiries and they can't possibly keep up with it. So at least from my perspective, as soon as I have a deal that's sold, I want it off the market. Because I've already collected 500 inquiries for this whatever h vac business. I don't need more time. Suck taking out, you know, phone calls about a business that's already been sold. I've moved on to the next next one that I'm selling.

[John Gafford]

I'm guessing with that type of volume, dude, you got to have some institutional buyers that are like any.

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[Trent Lee]

There are some and. But it depends on the industry.

[John Gafford]

Yeah, well, home services, I mean, exactly. H Vac, roofing. You've got to have buyers in your pocket for that stuff.

[Trent Lee]

Yeah, absolutely.

[John Gafford]

As he says smugly, if you're not watching the video, he's like, yeah, that's a two phone. That's a, that's a two phone call afternoon for me. And, and it's done. So if you're somebody out there thinking about buying a business, right. What are some things. I'm not talking about the necessarily at this point, the nuances of what you should look. Look for. But if you're thinking about getting into that, what, what are some things you think they should consider about themselves before they jump into that?

[Trent Lee]

So it's such a good question because it's all the rage right now. Like we Talked about for these online gurus about what's called a buy box. And don't get me wrong, I'm, I love the buy box. I, I love a buyer being able to filter what their crit investment criteria is. But it's not just about the buy box, it's about the buyer box. In other words, what I mean is just because there's a great H Vac company for sale, if I get a buyer who has no experience running that business, they have no management experience, how are they going to get the license to buy it to begin with? And so the buyer box is just as important because the buyer has to be able to come to me as well as an SBA lender and say I'm the right buyer. Forget the business being a good fit, let's just assume that's a good fit. But I'm the right buyer because I have the right experience and I either have the license already or I have direct or what the bank calls ancillary experience. If, if I get, here's, here's one of the worst things I, I hear as a business broker, this immediately tips me off to a first time inexperienced buyer.

[John Gafford]

Oh, I'm going to guess which. There's seller financing.

[Trent Lee]

Yes. And we can talk about that.

[John Gafford]

We're gonna get there.

[Trent Lee]

Yeah, we can talk about that. And don't get me wrong, there's nothing wrong with a first time buyer.

[John Gafford]

Most everybody gotta start somewhere.

[Trent Lee]

Ideals are all first time buyers. Yeah, but when someone comes to me and says I'm industry agnostic, that's an immediate sign to me is you do not know really what you want to buy because you haven't finalized and thought through the buyer box. Yeah, you might have a buy box, but just because you fit, just because the business fits the buy box doesn't mean that the lender, the SBA lender, is going to say, sure, I'll give you a loan, Mr. Buyer, who has no experience managing people, no experience in the industry and can't come up with a good resume as to why they can step in and manage the business and make the bank feel comfortable with the loan.

[John Gafford]

What's your process for walking people through that?

[Trent Lee]

Finding out what their background is. So I want to find out what their experience is and what their passion is. So I'll give you another example. I'm closing on a deal next week. It's an auto mechanic shop. Fantastic little business, makes $400,000 profit. It's a small business, but for the buyer, it's going to be a great transaction. He's putting about $40,000 cash, going to walk into a business after debt service ratio, debt servicing, all that. He's going to be netting $200,000, which.

[John Gafford]

Is more than he's buying every day.

[Trent Lee]

More than what he's making now. He'll have the freedom to, to run his own business and, and to grow it. But that's funny. And now he doesn't have experience as a auto mechanic, but he has a passion for it. He's tinkered around for, for decades with his dad and now his son and he can walk and work his way around a mechanic shop. And so yes, he doesn't have specifically experience as an auto mechanic or a, you know, working or owning, but he has enough experience to go to the lender and say I can turn a wrench and I can talk shop with the guys and that's really what I'm buying. I'm buying a business that already has the employees that are established there, but he has to know enough to walk in and have some sort of respect with the employees for them to want to stay.

[John Gafford]

I think the better thing is I know the right questions to ask to hire qualified mechanics. Like I understand what it takes to be that, you know, I don't need to be the tap dancer, but I know how to watch one dance.

[Trent Lee]

Yeah. Now here's the biggest problem. Not only is there industry, industry agnostic people, but when they come to me and say I'm industry agnostic and I see their area code and they're calling me from Florida and they want to buy an out of state business that they have no experience in and they don't even live here. That's just a recipe for a disaster and it's not going to probably get done. I'll give you another example. I closed on a med spa. $5 million med spa, fantastic business. One of the rare, rare businesses that actually was absentee owner. The employees had no idea who the business owner was.

[John Gafford]

Oh wow.

[Trent Lee]

Never, never came in. Very, very rare. All these absentee business owners that I know, Internet people love to chase it. Very rare to have a real true absentee business. This is one of them. However, the lender said this was an out of state buyer. The lender said, and by the way, this was a perfect buyer. It was a med spa and it was a nurse practitioner that was buying it.

[John Gafford]

Perfect.

[Trent Lee]

He was going to come in and be the license holder, do a lot of the oversee a lot of the procedures, had the money, had the credit, had the background, had the collateral. But he didn't live here. One of the closing conditions. One of the closing conditions was that he get a house or an apartment here in Las Vegas. So the lender wanted to see that he's got real commitment.

[John Gafford]

Yeah, you're going to be here.

[Trent Lee]

He's not just going to run this thing from, you know, Midwest, where he.

[John Gafford]

Lives in, Even though it was able to be run that way before.

[Trent Lee]

Even though. Yeah. And so you get some of these now, if you're paying cash, you could do whatever you want.

[John Gafford]

Yeah, sure.

[Trent Lee]

But from a lender standpoint, which most deals are going to go through the sba, they're going to want to protect their investment. And they're. One of the ways they do that is. I mean, think about. They just. They've got all these metrics to say, okay, all of these businesses that are run from someone out of state who never comes to town have a higher risk of failure.

[John Gafford]

Sure.

[Trent Lee]

So we're going to make a contingency that they've got to come, whatever, and live here a couple of times a month. He didn't have to move here full time, but he had to show that he had the ability to come in a couple times a month and, you know, put his feet on the ground with the business.

[John Gafford]

Yeah. So you mentioned the sba, which I want to talk about. How long is that process? Because I've never. I mean, like, we boot, like all the companies we own have just been bootstrapped. Cash, all of them. So luckily, no. No debt.

[Trent Lee]

No debt long enough and hard enough. By the time you get done, you want to pull your hair out, but.

[John Gafford]

Fair answer.

[Trent Lee]

60 to 75 days would be fairly quick.

[John Gafford]

That would be fast.

[Trent Lee]

That would be fast. Yeah. 75 to 90 would, would be a safe bet.

[John Gafford]

Have you ever had a deal take a serious financial turn in that time, waiting for the SBA to get. Get it. Get approved?

[Trent Lee]

Yes. I've had, at this point, having closed over 650 transactions. I've seen all sorts of crazy stories. I've, I've seen sellers days away, like SBA is approved. We're literally days away from closing. Pass away. I've seen burned buildings and the business burned down when we're right in the middle of closing, I've seen all sorts of crazy transactions.

[John Gafford]

Well, let's, let's. It's funny you mentioned burning. Let's talk about this because one of the reasons, you know, we do everything here, we do when it becomes real estate, we handle everything at this in my shop, but we do not do Business brokerage, because it's so litigious. Because somebody's always cooking the books. It always comes back up later. So how. I want to talk about what percentage or how many of your deals have wound up with sellers and buyers suing each other over cookbooks. Have you ever been dragged into that? Because the due diligence process, however, you protect yourself because this is. Look, I'm not looking to get the business. Yeah. I'm just curious if I'm right about thinking. Not being.

[Trent Lee]

Well, you're right in the sense that it requires additional licensing.

[John Gafford]

Oh, sure.

[Trent Lee]

So. So that's. That's the first. First step. I'm trying to think two that I can think of.

[John Gafford]

That's it. Out of six. That's great.

[Trent Lee]

Yeah. Which is not bad.

[John Gafford]

Now, does that talk. Does that say a lot about you, or am I just completely wrong with the industry? Do other people have a lot of issues? Do you think your issues are less because you're good at what you do?

[Trent Lee]

Yeah, I think it's a combination. We have lots of disclosures where we're not doing the due diligence for the buyers, and we tell them that up front, and we make them sign everything. In fact, we refer them to other people who do due diligence, and they're signing off knowing that we're not warranting, we're not guaranteeing anything, we're not doing the due diligence. That's totally up to them. So plenty of disclosures are important. A good team is important. So you can refer out legal questions, you can refer out to CPA for due diligence things. But I think it also comes down to a good business broker managing and setting the expectations and knowing up front, are you dealing with someone who's. Lack of a better word, shady, that's got, like, the second set of books and is going to try and value the business on the second set of books.

[John Gafford]

Yeah.

[Trent Lee]

Or. And in this case, I'm a licensed business appraiser, which is unique. Most business brokers aren't licensed as a business appraiser, so I know what to look for from an SBA standpoint. I'll do expert witness casework, SBA valuations. I'm only valuing it off of the tax returns. I don't care what they really tell me about this extra hundred thousand dollars that went unreported. Great. I tell them you got the benefit when you stole that from the irs, you're not getting the benefit when you try and sell the business.

[John Gafford]

Yeah. You're not getting it now.

[Trent Lee]

So we're val. We're valuing this off of the tax returns. And then not to get too off topic, but I have, I use a lot of technology. In particular AI is why I do a lot of the transaction they do is because so much of it's automated. I created my own chat bot that will analyze and reconcile the seller's bank statements to their profit and loss statements to their tax returns and start flagging potential issues. Not because I'm doing the due diligence for the buyer. In fact, I don't even tell the buyer. I do this. I want to know.

[John Gafford]

This is your peace of mind.

[Trent Lee]

Yeah. I want to know between me and the seller, are we selling a fairly legitimate business here? Now do they always reconcile perfectly? No, of course not. But I want to make sure there's not major discrepancies that we can't have a realistic explanation for.

[John Gafford]

Yeah man. So you know, again, it's funny you say that. Oh by businesses it's in vogue with, with a lot of the, the gurus talk about buying them absentee. Right. Is there any way the. Obviously it's a high probability of failure there. Is it. What industries is that even possible if.

[Trent Lee]

It is to buy absentee?

[John Gafford]

Yeah.

[Trent Lee]

You know that's a great question. I would probably say almost any industry is possible. It's not so much an industry question, it's an operating or an operator question. Most operators just don't have the background or the experience to build the systems, the processes, the procedures to build a business that's absentee. Yeah, that, that's more of the issue. Once you get a really sharp operator that can. Knows how to do that and, and they're, they're out there, then the next question is once they build that, why are they going to sell it?

[John Gafford]

Yeah.

[Trent Lee]

I'll give you. Here's another example. We're in escrow right now for a business that does special like, like I'm going blank on the term but the students who like special need students, they do all the bus transportation. So they pick them up from home, get them to school.

[John Gafford]

State funded. State funded contracts.

[Trent Lee]

Yep, all funded. So they, this company has, has contracts with each of these like schools, high schools, elementary schools. And we'll just handle the whole thing. We've got a fleet of vans. There's great against stickiness reoccurring revenue. That is, that was actually the seller built and has the experience to build a business. He lives out of state and operates this truly absentee and it's very profitable. Million plus dollars in ebitda. To my point, the question is, well, why would he sell it? Well, it's in escrow right now. We're in the due diligence phase. The only reason he's selling it is, is not because he wants to. It's because he's going through a divorce. And as part of the settlement, he's got to sell two of his businesses to pay off the portion of what he owes. And so he's letting go of two of his top businesses so that he can essentially kind of start over and rebuild. But that's a good point. There are really good businesses out there that do sell and there's, there's reasons for it to sell. You just have to know what the reason is.

[John Gafford]

You know, it's interesting you talked about because. Because the reason I was walking you down that path earlier of what your process for helping people establish their buyer box was I was wondering if you had developed a GPT to help people do that so you didn't have to.

[Trent Lee]

I've played around with it a little bit. I've. I've messed around with having people take personality tests and running it through that and I haven't, I haven't really mastered it because. And I'll tell you why. The real money in business brokering is on the sell side, not the buy side.

[John Gafford]

Yeah.

[Trent Lee]

So I'm spending most of my time developing automations and systems and processes to accelerate the sell side representation of the business rather than the buy side. A good. A good. When I have a good listing, the buyers will find me.

[John Gafford]

How does the compensation work for. For brokers and agents that come.

[Trent Lee]

Depends on the broker. Some charge for upfront. Some sort of a commitment fee to cover their time and their advertising. Because it's a lot longer process than it is for selling real estate. It's going to take us six months to a year.

[John Gafford]

Yeah.

[Trent Lee]

To sell these, these businesses. So some people charge an upfront fee. I love the model of if I'm as good as I say I am, then I don't want any money up front, I want it all on the back end. And so I don't charge anything up front, I charge a percentage on the back end. So I'll do a formal evaluation for. For free. We'll spend our own time in marketing developing the pitch deck.

[John Gafford]

Yeah. Same thing that we do.

[Trent Lee]

Summary. Yeah. And then I get paid on, on performance.

[John Gafford]

So if you had to go, if you had to call it not a percent. I don't care how much you charge, but I'm just, I'm wondering. Say there's, there's a total commission pot for a deal for the buyer's broker and for the selling broker. What percentage traditionally goes to Selling broker. What percentage traditionally goes to. There is a 75, 25.

[Trent Lee]

Traditionally.

[John Gafford]

Well, there's no standards whatever.

[Trent Lee]

Percent goes to the listing broker, the.

[John Gafford]

Listing and then the buyer's brokers paying themselves.

[Trent Lee]

Most buyers don't have their own broker.

[John Gafford]

They're not coming. They're coming unrepresented.

[Trent Lee]

Yes. And so the selling broker will do often what's called dual representation or the buyer has no representation at all.

[John Gafford]

Yeah.

[Trent Lee]

So it's unique in that sense.

[John Gafford]

So you're not. Deal. You're not really negotiating with a lot of other agents. You're just facilitating between two parties.

[Trent Lee]

Deal.

[John Gafford]

You're facilitating.

[Trent Lee]

We're just making sure both sides are fairly treated often. But to your point, kind of what's majority.

[John Gafford]

Yeah, but that makes. That makes it so much easier most of the time.

[Trent Lee]

Yeah. In fact, when I get. When I get buyer brokers who come to me who don't have the credentialing and don't have the experience, they're just in the way they make life more.

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[Trent Lee]

It's harder. And so I traditionally try not to give them much of a split because I actually don't want them to deal with. I would rather, in fact, sometimes if they have a really serious buyer, sometimes I'm like, look, just whatever your split is, I'll just pay you the referral fee. Just let me handle the whole transaction so you can get out of the way.

[John Gafford]

Yeah. I walked into our, walked into our director of commercials office a couple months ago. He's on a zoom. And I look at it and I'm like, what? He's like, he's like, with my clients. And I said, okay. And I look around the screen and it's a table with like 20 doctors. And I'm just like, I, I, I, I literally like, I like, like what a, what a nightmare this must be to deal with this at a table voting on buying a building here. And I was just like, oh my God. Like, I do not envy that at all. The more, the more hands you put in the pot, the more difficult it becomes for sure. What's the one thing you think people should know before? If you had to pick one thing before they either try to sell their business or before they buy one, you had to pick one thing.

[Trent Lee]

What is on the sell side we talked about is exit planning. Best thing they can do is get their books in order and start building a business that's not overly dependent on them. Because most buyers don't want to buy a job even though it may be a good paying job and that may be a job that might be better than their real 9 to 5 job in many cases. Well, most cases really, the sellers are selling a job because the business doesn't operate without them.

[John Gafford]

Yeah.

[Trent Lee]

So from the sell side, getting their books in order, cleaning up all the financials, getting all the income on the books and starting to build that, the systems, the process, the procedures, letting the employees handle the business, that's the best thing the sell side can do.

[John Gafford]

You know, one of my good friends, Kent Clothey, always says, if you think you own a company, go on vacation for three months, don't call, don't write, don't do anything. If you come back, if the place is not better than it was before, you don't have a company, brother, you got a job.

[Trent Lee]

Exactly. And think about it. How many business owners could really do that and come back with a better business. Very few.

[John Gafford]

So you know especially well, like you look at the business that we're in, right. Like this is such a figurehead type business. And that's always been a challenge with my partner, Gavin and I is, is. We are, we are this business and we're making some moves. You know, we're not selling, but we're making some moves to, to, to step back away from, from those things a little bit.

[Trent Lee]

Yeah. This year there are some industries that are just, I mean, to your point, you are the business in, in many senses, many case. Cases. And so you gotta figure out, okay, what are you gonna do? Because selling the business may not be your big, big payday, but you gotta use the income that the business produces to fund other things.

[John Gafford]

Oh, sure. But like you look at like our title company, our financial services company does amazingly well. And I don't have to do anything there. We have great staff, we have great management. They just, it just runs and we just own. So yeah, I wish they were all like that.

[Trent Lee]

But you've got the skill set to do that.

[John Gafford]

Yeah. Well, thank you. But I still have to show up for work, so I still feel that nagging need to show up for work every day. Like if I'm not here, people like, where's John? Why isn't he here today?

[Trent Lee]

That, that's your personality though. And here, this is interesting because look, I'm the same way. When I sold my second company, I thought, you know, I'm going to do this like four hour workweek thing. It was awful. Like after a week I was bored to death. I had nothing on my calendar, nothing to do. And, and the sense of lack of doing anything was worse than just like sitting at home taking it easy.

[John Gafford]

Well, dude, this is why you see how like these superstar coaches in like college football, right? And then they retire after like this glorified 50 year career and then they're dead in two years.

[Trent Lee]

Yeah.

[John Gafford]

Because they just don't need to do. But if they're still in the game and keeps you young, keeps.

[Trent Lee]

The interesting part is sellers eventually become buyers because they think they sell. They think they're ready to sell their business and retire and they just need six months break. And then they're bored. They're like, you and me. And they're like, I don't know what to do.

[John Gafford]

And they're back.

[Trent Lee]

They're back and they buy a business.

[John Gafford]

Same interest, same industry or something new, often sometimes different.

[Trent Lee]

But on the flip side, buyers become sellers. There's so many businesses here in town that I've sold multiple times.

[John Gafford]

One, there's one buy here, pay here, car lot. We can repo it and sell it to somebody else.

[Trent Lee]

There's one pizzeria here in town that I've sold everybody six times in seven years.

[John Gafford]

Oh, my God.

[Trent Lee]

It turns over. At this point, I've racked up more in fees than the whole business is worth.

[John Gafford]

Yeah. Yeah. Because, you know, you know why? Because I think restaurants are. That's the, that's the field that I think people are like, oh, it'd be fun to own a restaurant. It's like, have you ever worked at one? No. Yeah. It's not that fun.

[Trent Lee]

Yeah. In fact, there's a, There's a bunch of banks who won't even touch restaurants unless the buyer has direct management experience in a restaurant. Because it's such a tough industry, it's.

[John Gafford]

Really hard to make money there. I, I had, I, I spent a lot of my, A lot of my years in that industry, and zero industry to go back in or zero interest to go back to it. My wife every now and again will send me something like, well, how about this? And I'm like, no, that's food. Nope, not doing it. Have no interest at all. What if you had to go, like, if you quit being a business broker today and you had to go buy a business, what kind of business would you buy?

[Trent Lee]

That is such a good question. You know, I haven't thought about it. And, and let me give you my. I'll take a step back and give you my initial game plan. When I got into this industry, I thought I was going to do it for a while, and then I would just start buying all these businesses myself.

[John Gafford]

Yeah, I was going to get to that question.

[Trent Lee]

And the reality is, and I don't mean this to sound arrogant, so don't, don't take it the wrong way, but at this point, having sold a couple of businesses, having sold at this point over $200 million in transactions, and we get a fairly good percentage of these deals, double what most real estate agents are getting. It pays well. I don't really have any interest in buying any of these businesses because my, the quality of life at this point is worth so much more than buying a business that maybe it nets 200. You know, let's say, let's, let's say there's $2 million EBITDA per year. Well, I can just make that doing what I'm doing now. Working from home. I play tennis four times a week. I, I Take as many vacations as I want. I have no employees, I have no overhead. I didn't personally guarantee any type of a lease, any type of equipment. And so if I run into a business that maybe makes $3 million a year and I got to go into debt to buy it or shell out a bunch of money to buy it, the quality of life is not an extra million dollars really at this point. What does it do? It doesn't do any, it doesn't do anything.

[John Gafford]

I think it's funny. I think the more you pull the curtain back in anything that you do, like the higher up the pyramid you climb, whatever you want to call it, the easier it becomes to a make money and get out of the headache. Like for example in real estate, I have flipped hundreds of properties. I just have flipped hundreds of properties in my life. And now you couldn't pay me to flip a house. You just couldn't pay me to ever do it again. Because I can buy notes at 70% LTV, first position that are 60 day coupon at 12% with 1% discount point. I have zero risk. My money goes out, my money comes back. I don't swing a hammer, I don't look at tile, I don't do anything.

[Trent Lee]

It's smarter work.

[John Gafford]

Yeah. And I'm making a blended average of in the 20% of my money. Why in the world do I want to go swing a hammer or wonder why my tile guy is not here at 10am These problems.

[Trent Lee]

And that's not to say that buying a business is for the right person at that stage.

[John Gafford]

It is.

[Trent Lee]

Buying a business is the next step in there, in where they need to go. Yeah, but it's not necessarily.

[John Gafford]

But you've just found a better way within that circle to make money.

[Trent Lee]

Better way. That works for me.

[John Gafford]

It works for you. But not everybody can do what you do. That's the difference. Right. It's not like, well, I'm not going to buy business, I'll just become business broker and do what he does. Because not everybody can do that.

[Trent Lee]

Yeah. And I'm not so self centered that I would think the, what I found is the best way. Everyone has to follow it. That just works for me.

[John Gafford]

Sure.

[Trent Lee]

Yeah.

[John Gafford]

I think, I think that's the key to it is finding what works for you. What is the thing that you see like you, it's funny you talked about the, the pizzeria sold six times. What's the biggest regret you get from people when they buy businesses?

[Trent Lee]

Oh, biggest regret when they buy a business. They, they don't first time buyers don't realize how hard it is to actually be a business owner. Not to say that that's a regret, but sometimes they just don't know what they're signing up for. They're used to working a 9 to 5 and clocking out and taking, you know, here we are the day before a holiday and taking the long weekend off. In most businesses, that doesn't, it doesn't fly.

[John Gafford]

Nope.

[Trent Lee]

And they're not, sometimes they're not quite ready for that shock of. They're always on. You have to always be on.

[John Gafford]

I think I always look back to when my son was probably 8 years old and I said, what do you, what do you want to do when you grow up? What do you, what do you want to do? I want to do what you do, dad. I said, what do I do? You're the boss. And I said, okay. Why do you want to be the boss? And he goes, he goes, because nobody gets to tell you what to do. And I said, okay. I said, do you know what the hardest thing about being the boss is? He said, what? And I said, nobody tells me what to do. I gotta figure it out, right? And I think not enough people realize that there's, when you, when you become the top of the food chain in any situation, there's no helpline. You gotta figure it out on your own. And if you can't, you're going to fail.

[Trent Lee]

Here's one other regret that I sometimes think about. It's when someone, a buyer from the buy side is rushing the process and they, they don't spend the time. They're either being cheap and they don't spend the time to hire someone to help them with due diligence. And then there's issues, financial issues that they didn't know about, that they should have known about. Or I'll give you another example. I have another business that is really a good, fantastic business. Buyer and seller. I'm sorry, the buyer is a husband and wife team, or was, this is now past tense. And they went all in. In other words, they quit their jobs and they're, they're all in, in this, this situation, buying a business which sounds like, oh, that's great, romantic, they're gonna make it big time, right?

[John Gafford]

Yep.

[Trent Lee]

That's the worst thing they could have possibly done because now not only are they depleting their down payment capital, but now they're starting to feel pressure to make a quick decision to buy maybe a mediocre deal and convince themselves it's a good Deal because they, they need the income. Yeah. It's been five months that they haven't quite been able to find something close on it and they're feeling rushed to make a bad decision.

[John Gafford]

What should due diligence on a business cost? What's the investment?

[Trent Lee]

Depends on the business. So there are. I always like to. To classify it as kind of 2, 2 caps.

[John Gafford]

Let's tear.

[Trent Lee]

There's a quality of earning done for bigger businesses that's expensive. Those are million dollar plus EBITDA businesses where you want to spend some good money. And by good money, 20, $30,000 to do a quality of earnings. But then there's quality of earnings light or proof of cash where you can get away with spending just a few thousand dollars.

[John Gafford]

If you have just had a CPA reconcile what you have and not only.

[Trent Lee]

Just your c. Not only just a cpa. It needs to be a CPA that really specializes in this.

[John Gafford]

Yeah.

[Trent Lee]

Because what ends up happening is the buyer who's got their buddy or their neighbor, their best friend from college, that's a CPA that files taxes. He's so busy and he doesn't really specialize in due diligence work. He tries to help someone out and overcharges them for mediocre work versus a CPA that just does due diligence and acquisition work. They're going to be better equipped and they're going to be better priced typically.

[John Gafford]

Okay, so my next. So obviously you're referring these people because my next question is me. I love vertical integration. It is, I think it's, you know, it's the greatest thing ever. We own, in the process of purchasing a home, every single thing that you can do, you have anything to do with buying a home. We own it like we own part of a company that does that. Like we gotcha. So as somebody that buys and sells businesses, have you ever personally thought about maybe I should vertically integrate a little bit it into consulting firms into a M and a maybe just law firm? Like how much business can I bring you before all of a sudden it's like hey, maybe I get a piece of this or what I can do.

[Trent Lee]

If I were to ever buy something, it would be exactly down that road.

[John Gafford]

Yeah.

[Trent Lee]

It might be an accounting side practice, it might be a legal escrow service, some type of a small law firm. Yeah. If, if I went down that road, it would be that buying that whole package from, from start to finish.

[John Gafford]

Do you find that. How many buyers do you have that come to you with that dream saying, okay listen, our clients Also use X. We want a business like this because we want to vertically.

[Trent Lee]

Most don't because it's more of a sophisticated thought process rather than just excited about buying in their first business.

[John Gafford]

I'm going to take that as a compliment. I'll take that as a compliment. Thank you so much. All right, dude. Well, man, that is. I mean, that's. Look, obviously you got it down for people. It's been good, you know, you know how to do it. So if they want to find you, how do they find you?

[Trent Lee]

I'm on all the social media. In fact, I post a lot. A lot of educational content. Whatever their favorite social media.

[John Gafford]

What's the handles?

[Trent Lee]

I don't have them all memorized. I should.

[John Gafford]

They should all be the same. What are you doing?

[Trent Lee]

I think it's Trent.

[John Gafford]

Oh, my God.

[Trent Lee]

Business broker. Trent Lee, biz broker. I'll have to actually get them to you.

[John Gafford]

I'm giving you a book before you walk out of here today. I'm going to give you Dan Fleischman's how to Build a Personal Brand book. And they should all be the same.

[Trent Lee]

They're close.

[John Gafford]

You're going on podcasts. You should be able to say, Trent.

[Trent Lee]

Lee, the business broker, number one biggest mistake I made.

[John Gafford]

That's it. Well, dude, hey, look, if that's the biggest mistake you've made, you're doing pretty well.

[Trent Lee]

Yeah, it's. It's. It's been good. So I can give you. Give you my. My cell phone number, email address, and then they can look me up on any social media cell phone. [phone] or email address is Trent@FCB. So, Frank. Charlieboyboy.com I got it.

[John Gafford]

All right. One last question before we go. Same question I asked. The last question I ask every guest comes on. What's the one question you keep getting asked on podcasts you wish people would just stop asking you?

[Trent Lee]

You know, I don't. Podcasts are so great and they're so, so different. I don't run into one question that I think, oh, that's a dumb question. And. And this has been the exact same thing. This has been fantastic. Love your question.

[John Gafford]

I appreciate that.

[Trent Lee]

Absolutely.

[John Gafford]

Well, guys, there it is, man. If you are looking to strike out on your own, hopefully some of that is going to keep you on the straight and narrow and keep you on a better path of just thinking, hey, this is easy. Do your due diligence. Make sure this is a business you understand? Make sure it's a business you want to be involved in understand the risks. But hey man, if it looks good, charge, go get it. See you next week. What's up everybody? Thanks for joining us for another episode of Escaping the Drift. Hope you got a bunch out of it or at least as much as I did out of it. Anyway, if you want to learn more about the show, you can always go over to escapingthedrift.com you can join our mailing list. But do me a favor, if you wouldn't mind, throw up that five star review. Give us a share. Do something, man. We're here for you. Hopefully you'll be here for us. But anyway, in the meantime, we will see you at the next episode.

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[John Ashton]

Hey, I'm John Ashton. And I'm Neal Michaels. And we are the hosts of the Approach Shot, the Golf Flavored podcast. Golf Flavored? What does that mean? Oh, it means we talk with celebrities like athletes, actors and authors about their careers, their passions and what sets us apart. Their golf game. Hence the golf flavored.

[John Gafford]

Got it.

[John Ashton]

Yeah, we've had terrific guests like baseball all stars, Fred Lynn, Brett Saberhagen, Dale Murphy, CRO and football all pros like Dwight Freey, Lofa Tatupu, OJ McDuffie, Jeff Garcia. And from TV, how about Richard Karn from Home Improvement, Donnie Mose from Happy Days, Ben Higgins from the Bachelor. You get the idea.

[John Gafford]

You?

[John Ashton]

I certainly do. We have a lot of laughs and our guests love to tell amazing stories. Join the fun by downloading an episode or five of the Approach shot today. And not today, maybe tomorrow. Today I've got to wash my hair.

[Trent Lee]

Really?

[John Ashton]

John? Bragging about your full head of hair again? Got it. You flawed it, man. And if you don't download the Approach shot today on Apple, Spotify itunes, I harder. Wherever you get your podcasts.