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Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C.

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Presentation on theme: "Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C."— Presentation transcript:

1 Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C.

2 Agenda Entrepreneurs –Advisors – Allies or Roadblocks –Entrepreneurial Traits Deal Process –Buyers Side –Seller Side Financing the Deal –Equity - BORSA –Debt Due Diligence Closing the Deal

3 Advisors to Entrepreneurs According to a poll conducted by National Federation of Independent Business and Wells Fargo, 84% of small businesses sought outside advice from: –CPA – 59% (Most Trusted Advisor) –Family – 44% –Attorney – 39% –Other Business Owners – 34% –Suppliers – 31% –Stock Broker – 30% –Insurance Agent – 30%

4 Managing Key Advisors CPAs - “Most Trusted Advisor” Understanding Typical CPAs Avoids Risks Looks for Problems Focus on Past - Not Future Look for Reasons to NOT Do Something, vs Ways to Get it Done

5 Traits of Entrepreneurs Action Oriented - Make it Happen Go with their Gut Product and Sales Focus Willing to Take Certain Risks Take Control of Situations

6 Psychology of Entrepreneurs Entrepreneurs versus Accountants

7 Communication & Coordination Accountants are from Mars Are backward looking Are recording, organizing & reporting what happened in the past Have knowledge of what has happened Can produce tremendous amounts of data Can produce any type of report you want, but do not know what you need Entrepreneurs are from Venus Are forward looking Envisioning, planning & creating Have knowledge of what is planned. Needs information for decision making, not data Does not know what is available therefore does not know what to request

8 Deal Process Buyer Side Seller Side

9 Buyer Side Process Qualification Deal Review Letter of Intent (LOI) Due Diligence Financing Closing

10 Buyer Qualification Financial Resources Personal Financial Information Buyer Qualification Forms Experience Attitude and Motivation Strategic versus Financial

11 Deal Review Matching Buyers to Deals Finding Good Matches Deal Size Industry Experience Technical Knowledge Strategic versus Financial Buyer Presentation Appropriate Presentation and Disclosure

12 The Handshake Getting the LOI signed Valuation Issues Personality Issues Doing Due Diligence Managing the Advisors Avoiding the Deal Killers Creating the Definitive Documents

13 Financing the Deal Financing to Increase the Deal Value Appropriate Financing 3rd Party Owner Finance Earnout Good Financing yields More Bidders More Bidders yields Higher Price

14 Financing the Deal Equity First Savings Friends and Family Investors Tools like BORSA Debt to Increase Return on Investment External Startup Equity is Expensive Leverage Equity with Debt

15 BORSA Business Owners Retirement Savings Account Use 401(k), IRA and Pensions as Equity No Taxes, Penalties or Interest! Can result in 50+% more Equity in Deal

16 Full- Notification Factoring SBA Lender 7a Asset Based Transfer & Inv. Bank ABL Conventional Bank Mezzanine Start Up YY NNNN Concentration of Accounts YYY< 20% Inventory NYYYVariesNAP Balance Sheet/Income Statement NCompiled Review Preferred VariesAudited Turnaround Time 3-5 days3-4 weeks2-3 weeks4-6 weeks3-4 weeks3-12 weeks Current Ratio N/A> 1.0 > 1.25> 1.0 Working Capital N/APositive Total Liabilities/TNW N/A< 4:1 May be negative < 5:1< 3:1< 5:1 Debt Service Coverage N/A> 1.25> 0.75> 1.15> 1.25 LTV Equity Req'd N/A10%N/A 20%N/A Personal Guarantees N/AYYYYNegotiable Collateral YYYYYY Key Man Insurance NYNNYY Terms < 60 days7-25 yrs5-25 yrs 1-25 yrs1-5 yrs Max Loan Amt Asset Based$2MMAsset basedAsset BasedNegotiable Facility Comparisons

17 Closing the Deal Working with Attorneys Following up on Details Managing the Buyer and Seller Keeping the Advisors in Line Positive Attitudes Close Deals

18 Seller Side Process Qualification Listing Appraisal Maintenance Period Letter of Intent (LOI) Due Diligence Closing

19 Seller Qualification Seller Goals Seller Motivation Financial Position Timeline Managing Expectations

20 Securing the Listing Understanding Seller’s Goals Know the Seller’s Team –CPA –Attorney –Other Advisors –This Transaction and Future Referrals Collecting Key Information –Financial and Marketing Information

21 Appraisals Setting Expectations Dealing with Advisory Objections –Normalized Earnings –Understanding Trends Balancing Expectations with Hope

22 Relationship Management Avoiding Seller’s Remorse –Keeping the Seller Motivated –Waiting for Offers Managing Information Exchange Letter of Intent –Managing Advisors –Educating / Counseling the Seller

23 Due Diligence Confirming Known Information –Presentation Creates Image –Working with Professionals Finding Unknowns –Positive Attitude Toward New Info –Put Positive People in Place

24 Closing the Deal Working with Attorneys –Do Not Change the Deal –No Renegotiation Following up on Details Managing the Buyer and Seller –No Runaway Bride or Groom Keeping the Advisors in Line Positive Attitudes Close Deals

25 Sourcing Equity and Debt Equity is Ownership –Every Business has Equity –Even if it is less than Zero Debt is Borrowing –Can be From a Bank or Other Places –Debt Pays Interest

26 Sources of Equity Personal Savings Refinance Personal Residence Friends and Family Private Equity Group Capital Markets Retirement Funds - BORSA

27 BORSA – Sources of Funds 401(a): Pensions, Profit Sharing, ESOPs 401(k) 403(b) Teachers’ Annuities 457 State, County & City (government)  IRAs – most all  Traditional IRAs,Rollover IRAs  SEPs, SIMPLEs, & Roth IRAs  EXCEPT Inherited Non-spouse IRAs

28 How BORSA™ Works oForm a new corporation - Newco oNewco establishes a BORSA™ Plan oPrior employer plan rolls over entrepreneur’s retirement funds to BORSA™ Plan oBORSA™ Plan invests in stock of Newco and funds Newco oSave Money on Taxes, Penalties and Interest!

29 BORSA™ Diagram Prior Employer Retirement Plan BORSA ™ Plan Rollover Cash Newco C-Corp. Cash to Purchase Shares Corporate Stock to BORSA TM

30 BORSA™ Savings BORSA TM Tax Savings Married Filing Joint No Dependents WithoutWithDifference/ Distribution Savings Wages100,000 0 Distribution0150,000 Total Income100,000250,000150,000 Standard Deduction9,700 0 Personal Exemption6,2004,3401,860 Taxable Income84,100235,960151,860 Income Tax14,50658,89244,386 10% Pre-59 Penalty015,000 Total Tax/Erosion14,50673,89259,386

31 Sources of Debt Credit Cards SBA Loans USDA Business & Industry (B&I) Traditional Bank Financing Asset Backed Loans  Equipment  Factoring

32 Deal Structure Type of Transaction  Asset Sale  Stock Purchase  Licensing Debt and Equity Mix Vary According to:  Collateral  Interest Rate  Deal Size

33 Due Diligence Process Confirming Known Information Confirming Known Information –Presentation Creates Image –Working with Professionals Finding Unknowns Finding Unknowns –Positive Attitude Toward New Info –Put Positive People in Place

34 Normal Due Diligence Boring Tables of Numbers Boring Tables of Numbers Potentially Confrontational Potentially Confrontational Stressfull Stressfull Negative Impression Negative Impression

35 DRDA Due Diligence Colorful Colorful Positive Positive Informative Informative

36 Sample List of Due Diligence Request A CD copy of Quick Books Compensation schedules for employees Bank statements for the previous 12 months Articles of Incorporation Records indicating orders, back orders and WIP Corporate by laws List of all products and their costs List of owners and their percentage of ownership Special discounts Employment agreements written or verbal Profit margins based on wholesale and retail markets Contingent or off balance sheet assets or liabilities Aged Accounts Receivable Any existing buy/sell agreements Aged Accounts Payable options to purchase stock Physical Inventory count rights of first refusal Income tax returns from inception of the company List of current Distributors Equipment list with related depreciation schedules. Copies of Distributor Agreements Copies of all leases and rental agreements.

37 Buyer Due Diligence People Matter People Matter Buyer Team or Broker Team Buyer Team or Broker Team Recommend Advisors Recommend Advisors –Good Approach –Makes Deals Happen Manage Timeline to Closing Manage Timeline to Closing

38 Seller Due Diligence Good Preparation Good Preparation –Well Organized –Well Documented –Makes Good Impression –Fewer Problems and Surprises Be Ready Before the Buyer Asks Be Ready Before the Buyer Asks –Avoiding the Deal Killers Keep It Positive! Keep It Positive!

39 Douglas A. Dickey, CPA 2525 Bay Area Blvd., Ste. 460 Houston, TX / * Fax 281/ Tremont Street Galveston, TX / * Fax 409/ Managing Relationships in Brokerage


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