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Managing Relationships in Brokerage

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

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Managing Relationships in Brokerage

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  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. 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 Communication & Coordination

  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. 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 • Form a new corporation - Newco • Newco establishes a BORSA™ Plan • Prior employer plan rolls over entrepreneur’s retirement funds to BORSA™ Plan • BORSA™ Plan invests in stock of Newco and funds Newco • Save Money on Taxes, Penalties and Interest!

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

  30. BORSA™ Savings

  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 • Presentation Creates Image • Working with Professionals • Finding Unknowns • Positive Attitude Toward New Info • Put Positive People in Place

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

  35. DRDA Due Diligence • Colorful • Positive • Informative

  36. Sample List of Due Diligence Request

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

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

  39. Managing Relationships in Brokerage Douglas A. Dickey, CPA 281-488-2022 doug@drdacpa.com 2525 Bay Area Blvd., Ste. 460 Houston, TX 77058 281/488-2022 * Fax 281/488-5764 1011 Tremont Street Galveston, TX 77551 409/765-9311 * Fax 409/765-9393

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