The Best Are Free Because They Save, or Make You More Than They Cost
You might be wondering what all that gibberish means, so I’ve outlined three scenarios for you, each detailing why the best are really free.
First you might need a re-education of what ‘free’ really means. Sure it relates to your personal freedoms. And yeah, you’re right; freeing slaves or a person who is oppressed is also a definition. So what does free mean?
Free can be one of three things:
- an adjective,
- an adverb, or
- a verb.
It all really just depends on the way you’re using the word, or interpret its true meaning.
It seems like everyone these days is taking advantage of poor helpless victims. Taking away their ‘free’ and charging ridiculous rates for something you could have done on your own! I’d like to show you a couple of examples of why the best are free. I challenge you to choose which is the best in each example…then we’ll see how well you do!
The first example is pretty easy, you ready?
There are two accountants to choose from. Accountant A charges $4,000 to do your taxes while accountant B charges only $1,000.
Do you already know who the best is? Probably not – keep reading.
Now, let’s suppose you made $125,000 last year and end up with a $15,000 tax bill- no biggie right? It can be scary to some people, but for others, depending on how you look at it, might be grateful for making $125,000 in the first place.
So let’s get back on track here:
Accountant A finds legal loopholes and strategies, and sets you up with a defined benefit program where you can deposit a sizable amount of cash into, and you end up with a final tax bill of $2,500. (and $10,000 in your defined benefit retirement plan)
Long story short, you end up paying the Accountant $4,000, pay the IRS $2,500, costing you $6,500. (but you also got $10,000 in retirement tucked away)
Go accountant A!!
Now lets take a look at Accountant B, he does the minimal amount of work and you pay him $1,000 for doing the work and write a check to the IRS for $10,000. Costing you $11,000, (And nothing in your retirement).
Wrapping it up,
Accountant A: Total cost $6,500
Accountant B: Total Cost $11,000
Accountant A SAVED You $4,500 (Plus another 10 Grand in your retirement)
Looking at this example, which one cost you less money? Obviously, Accountant A.
He was the best because he made or saved you a heck of a lot more than he cost!
Now Lets Take a Look At This From A Business Brokerage Side of Things:
You have a business you want to sell.
The gross sales are $1,000,000. Net profit (EBITDA) is at $150,000.
A reasonable ‘For Sale’ asking price is normally 2.5 times the net profit, (EBITDA) or in this case about $375,000.
- Business Broker A charges 15% commission on the sale. That equals $56,250.
- Business Broker B charges only 8% commission on the sale, or $30,000.
Business Broker B takes the information provided and plunks the business in the MLS system and waits for a buyer to come along. (Statistically, this type of business listing has a 24% chance of selling within a year, and will sell for approximately 75% of your asking price.
8 months go by, no action and the broker talks you into lowering the price to $350,000.
Three more months go by and finally – you have an offer for 75% of the asking price. You counter the offer and settle at a 20% discount, or a final sales price of $ $280,000.
Now you need to pay Broker 8% commission, ($22,400) and end up walking with $257.600.
A bit disappointing, but your out of the business after 12 months, and you can move on to other things.
Now Let’s just jump onto Broker A:
He does things completely differently.
He has you take an online business scoring survey (www.OurBizScore.com) and get a Sellability Score of 64.
You send him copies of your past 3 years Tax Returns, P&L Statements and Balance Sheets.
About a week later, he then has you come into his office for a private and confidential meeting (Confidentiality is of utmost importance so you go to his office because the “Walls don’t have ears” in his office).
At the office, you go over the Business Score and he points out a few things you can do immediately to begin increasing your score and by the end of the meeting you decide to hire his firm for $1,200 per month.
He assures you he and his team can help you increase your Sellability Score and increase the sales price of your business.
You and his team are going to work on “Staging” the business before put it on the market.
You find is a bit hard to swallow, but everything he had to say made sense and he has the statistics to back up his claims. So you bite the bullet and go along.
After-all ….. no other Business Broker you have ever talked with has given you this much information. All the wanted to do was get you to sign a listing agreement!
FAST FORWARD 4 MONTHS:
- Your books are clean as a whistle and you are showing higher profits on paper.
- You’ve developed a couple operating procedures and the employees are doing more work without you actually being there.
- Because you have more time on your hands, you have gotten your suppliers to lower their fees and terms.
- You fired a few bad customers and this has made it possible for you to add a few new ones.
- Because you’re not needed every minute in the business, you begin attending more functions and actually begin enjoying it.
All in all, the business has a positive story and bright future because of the work you did together and it I on track to be running itself within the next couple months.
Instead of listing the business for sale at the previous revenue, you have built up the value of the business and have increased the actual EBITDA to $175,000 with a multiple of 3, and have a higher “projected and predictable” future earnings of an additional $25,000, so you now list the business at a price of $600,000 ($200,000 times 3) which give you a new listing price of $600,000.
Remember- during these past four months you’ve been paying Broker 1 monthly, resulting in $4,800 in ‘staging’ fees, but at the same time, profits have increased by $9,000 over the same timeframe, leaving you with an additional profit of $5,200 or about $1,300 per month.
Now the business is listed at $600,000. A buyer comes along within the next four months offering you 90% of your asking price, or $540,000 Cash, Close in 30 days. You accept the offer. (which is $225,000 HIGHER Than Broker B).
Broker A’s breakdown goes a little something like this:
- $540,000 sale price minus 15% commission (of $,81,000) = $459,000.
- $1,300 additional profit per month, over 8 months = $10,400.
- Your ‘Net” after 8 months proceeds = $469,400.
Comparing apples to apples;
- With Broker A you walk with $469,400…and that’s pretty dang good!
- With Broker B, you walk with only $257,600.
- The difference is a whopping $211,800.
It’s easy to understand why the best are free because they save or make you more money than they cost!
As you can see by this second scenario, just because Broker A charged more upfront, asking for a higher commission rate- he also did twice the amount of work that Broker B and made you a whole lot more money!
Moral of the Story:
The Best Are Free Because The Save,
or Make You More Than They Cost.
At Corporate Business Brokers, we do the same thing other Business Brokers Do, and We Also Do More Because We Offer Business Staging and Business Value Builder Services.
To learn more about Corporate Business Brokers and what we do, feel free to contact us.