managing relationships in brokerage douglas a. dickey, cpa drda, p.c
TRANSCRIPT
![Page 1: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/1.jpg)
Managing Relationships in Brokerage
Douglas A. Dickey, CPA
DRDA, P.C.
![Page 2: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/2.jpg)
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
![Page 3: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/3.jpg)
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%
![Page 4: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/4.jpg)
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
![Page 5: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/5.jpg)
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
![Page 6: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/6.jpg)
Psychology of Entrepreneurs
Entrepreneurs versus Accountants
![Page 7: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/7.jpg)
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
![Page 8: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/8.jpg)
Deal Process
Buyer Side
Seller Side
![Page 9: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/9.jpg)
Buyer Side Process
Qualification
Deal Review
Letter of Intent (LOI)
Due Diligence
Financing
Closing
![Page 10: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/10.jpg)
Buyer Qualification
Financial ResourcesPersonal Financial Information
Buyer Qualification Forms
Experience
Attitude and Motivation
Strategic versus Financial
![Page 11: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/11.jpg)
Deal Review
Matching Buyers to DealsFinding Good Matches
Deal SizeIndustry ExperienceTechnical KnowledgeStrategic versus Financial
Buyer PresentationAppropriate Presentation and Disclosure
![Page 12: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/12.jpg)
The Handshake
Getting the LOI signedValuation Issues
Personality Issues
Doing Due DiligenceManaging the Advisors
Avoiding the Deal Killers
Creating the Definitive Documents
![Page 13: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/13.jpg)
Financing the Deal
Financing to Increase the Deal ValueAppropriate Financing
3rd Party
Owner Finance
Earnout
Good Financing yields More Bidders
More Bidders yields Higher Price
![Page 14: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/14.jpg)
Financing the Deal
Equity FirstSavings
Friends and Family
Investors
Tools like BORSA
Debt to Increase Return on InvestmentExternal Startup Equity is Expensive
Leverage Equity with Debt
![Page 15: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/15.jpg)
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
![Page 16: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/16.jpg)
Full-
Notification Factoring
SBA Lender
7a
Asset Based
Transfer & Inv.
Bank ABLConventional
BankMezzanine
Start Up Y Y N N N N
Concentration of Accounts
Y Y Y < 20% < 20% < 20%
Inventory N Y Y Y Varies NAP
Balance Sheet/Income
StatementN Compiled
Review Preferred
Review Preferred
Varies Audited
Turnaround Time 3-5 days 3-4 weeks 2-3 weeks 4-6 weeks 3-4 weeks 3-12 weeks
Current Ratio N/A > 1.0 > 1.0 > 1.25 > 1.0 > 1.0
Working Capital N/A Positive Positive Positive Positive Positive
Total Liabilities/TNW N/A < 4:1May be
negative< 5:1 < 3:1 < 5:1
Debt Service Coverage
N/A > 1.25 > 0.75 > 1.15 > 1.25 > 1.25
LTV Equity Req'd N/A 10% N/A N/A 20% N/A
Personal Guarantees N/A Y Y Y Y Negotiable
Collateral Y Y Y Y Y Y
Key Man Insurance N Y N N Y Y
Terms < 60 days 7-25 yrs 5-25 yrs 5-25 yrs 1-25 yrs 1-5 yrs
Max Loan Amt Asset Based $2MM Asset based Asset Based Negotiable Negotiable
Facility Comparisons
![Page 17: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/17.jpg)
Closing the Deal
Working with Attorneys
Following up on Details
Managing the Buyer and Seller
Keeping the Advisors in Line
Positive Attitudes Close Deals
![Page 18: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/18.jpg)
Seller Side ProcessSeller Side Process
• Qualification
• Listing
• Appraisal
• Maintenance Period
• Letter of Intent (LOI)
• Due Diligence
• Closing
![Page 19: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/19.jpg)
Seller QualificationSeller Qualification
• Seller Goals
• Seller Motivation
• Financial Position
• Timeline
• Managing Expectations
![Page 20: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/20.jpg)
Securing the ListingSecuring 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
![Page 21: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/21.jpg)
AppraisalsAppraisals
• Setting Expectations
• Dealing with Advisory Objections– Normalized Earnings– Understanding Trends
• Balancing Expectations with Hope
![Page 22: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/22.jpg)
Relationship ManagementRelationship Management
• Avoiding Seller’s Remorse– Keeping the Seller Motivated– Waiting for Offers
• Managing Information Exchange
• Letter of Intent– Managing Advisors– Educating / Counseling the Seller
![Page 23: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/23.jpg)
Due DiligenceDue Diligence
• Confirming Known Information– Presentation Creates Image– Working with Professionals
• Finding Unknowns – Positive Attitude Toward New Info– Put Positive People in Place
![Page 24: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/24.jpg)
Closing the DealClosing 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
![Page 25: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/25.jpg)
Sourcing Equity and DebtSourcing 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
![Page 26: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/26.jpg)
Sources of Equity
Personal Savings Refinance Personal Residence Friends and Family Private Equity Group Capital Markets Retirement Funds - BORSA
![Page 27: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/27.jpg)
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
![Page 28: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/28.jpg)
How BORSA™ Works
o Form a new corporation - Newcoo Newco establishes a BORSA™ Plano Prior employer plan rolls over entrepreneur’s
retirement funds to BORSA™ Plano BORSA™ Plan invests in stock of Newco and
funds Newcoo Save Money on Taxes, Penalties and Interest!
![Page 29: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/29.jpg)
BORSA™ Diagram
Prior Employer Retirement Plan
BORSA™Plan
Rollover Cash
NewcoC-Corp.
Cash to
Purchase S
hares
Corporate S
tock to B
OR
SA
TM
![Page 30: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/30.jpg)
BORSA™ SavingsBORSATM Tax SavingsMarried Filing JointNo Dependents Without With Difference/
Distribution Distribution Savings
Wages 100,000 100,000 0
Distribution 0 150,000 150,000
Total Income 100,000 250,000 150,000
Standard Deduction 9,700 9,700 0
Personal Exemption 6,200 4,340 1,860
Taxable Income 84,100 235,960 151,860
Income Tax 14,506 58,892 44,386
10% Pre-59 Penalty 0 15,000 15,000
Total Tax/Erosion 14,506 73,892 59,386
![Page 31: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/31.jpg)
Sources of Debt
Credit Cards SBA Loans USDA Business & Industry (B&I) Traditional Bank Financing Asset Backed Loans
EquipmentFactoring
![Page 32: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/32.jpg)
Deal Structure
Type of TransactionAsset SaleStock PurchaseLicensing
Debt and Equity Mix Vary According to:Collateral Interest RateDeal Size
![Page 33: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/33.jpg)
Due Diligence ProcessDue Diligence Process
• Confirming Known InformationConfirming Known Information– Presentation Creates ImagePresentation Creates Image– Working with Professionals Working with Professionals
• Finding Unknowns Finding Unknowns – Positive Attitude Toward New InfoPositive Attitude Toward New Info– Put Positive People in PlacePut Positive People in Place
![Page 34: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/34.jpg)
Normal Due DiligenceNormal Due Diligence• Boring Tables of NumbersBoring Tables of Numbers
• Potentially ConfrontationalPotentially Confrontational
• StressfullStressfull
• Negative ImpressionNegative ImpressionFreight 2,520 1,440 1,920 1,800 1,920 2,510 Repairs 2,076 183 713 244 1,935 2,949 Telephone 1,521 746 1,100 718 1,288 959 Legal fee - - - - - - Advertising 2,434 478 525 624 - 67 Auto Expense 76 2,062 143 - 1,983 2,040 Dues & Sub. 104 150 99 - 104 99 Postage 382 47 225 - 162 114 Maintenance 3,605 1,200 1,467 1,526 1,251 1,467 Licenses & Fees - - 100 - - 450 Interest Other 213 109 128 126 122 2 Consulting Fees 9,009 5,000 3,750 - - -
![Page 35: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/35.jpg)
DRDA Due DiligenceDRDA Due Diligence
• ColorfulColorful
• PositivePositive
• InformativeInformativeOptimal Profit Improvement
76,045 85,551 95,056 104,562 114,067
1,299,768
1,462,240
1,624,711
1,787,182
1,949,653
1,223,723
1,376,689
1,529,654
1,682,620
1,835,585
611,862688,344
764,827841,310
917,793
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
80% 90% 100% 110% 120%
Percent of Normal
Do
llars
($)
Current ProfitOptimal Profit
Optimal Improve.50% Optimal Improve.
Sales vs Profit
Sales
Profit
7.1%8.1%
8.9%
10.1%
6.8%
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
2000 2001 2002 2003 2004
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Sales
Profit
Percent
Asset Financing
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
2000 2001 2002 2003 2004
Net Fixed AssetsCurrent LiabilitiesLong Term Liabilities
![Page 36: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/36.jpg)
Sample List of Due Diligence RequestSample List of Due Diligence Request
A CD copy of Quick BooksA CD copy of Quick BooksCompensation schedules for Compensation schedules for
employeesemployees
Bank statements for the previous 12 Bank statements for the previous 12 months months Articles of IncorporationArticles of Incorporation
Records indicating orders, back orders Records indicating orders, back orders and WIPand WIP Corporate by lawsCorporate by laws
List of all products and their costsList of all products and their costsList of owners and their percentage List of owners and their percentage
of ownershipof ownership
Special discountsSpecial discountsEmployment agreements written or Employment agreements written or
verbalverbal
Profit margins based on wholesale and Profit margins based on wholesale and retail marketsretail markets
Contingent or off balance sheet Contingent or off balance sheet assets or liabilitiesassets or liabilities
Aged Accounts ReceivableAged Accounts Receivable Any existing buy/sell agreementsAny existing buy/sell agreements
Aged Accounts PayableAged Accounts Payable options to purchase stockoptions to purchase stock
Physical Inventory countPhysical Inventory count rights of first refusalrights of first refusal
Income tax returns from inception of Income tax returns from inception of the companythe company List of current DistributorsList of current Distributors
Equipment list with related Equipment list with related depreciation schedules.depreciation schedules. Copies of Distributor AgreementsCopies of Distributor Agreements
Copies of all leases and rental Copies of all leases and rental agreements.agreements.
![Page 37: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/37.jpg)
Buyer Due DiligenceBuyer Due Diligence
• People MatterPeople Matter
• Buyer Team or Broker TeamBuyer Team or Broker Team
• Recommend Advisors Recommend Advisors – Good ApproachGood Approach– Makes Deals HappenMakes Deals Happen
• Manage Timeline to ClosingManage Timeline to Closing
![Page 38: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/38.jpg)
Seller Due DiligenceSeller Due Diligence
• Good PreparationGood Preparation– Well OrganizedWell Organized– Well DocumentedWell Documented– Makes Good ImpressionMakes Good Impression– Fewer Problems and SurprisesFewer Problems and Surprises
• Be Ready Before the Buyer AsksBe Ready Before the Buyer Asks– Avoiding the Deal KillersAvoiding the Deal Killers
• Keep It Positive!Keep It Positive!
![Page 39: Managing Relationships in Brokerage Douglas A. Dickey, CPA DRDA, P.C](https://reader036.vdocuments.site/reader036/viewer/2022062308/56649cb65503460f9497b4cb/html5/thumbnails/39.jpg)
281-488-2022
Douglas A. Dickey, CPA
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
Managing Relationships in Brokerage