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Microcap Stock Analysis: Hudson Technologies

Depending on whether you’re Team Al Gore or you believe global warming was created by the Chinese to promote manufacturing like Trump, you may or may agree to this report on Hudson Technologies (NASDAQ:HDSN) (“HT”).

HT is in the business of refrigerants, the chemical used in cooling like in air conditioners and refrigerators. The company provides new, reclaims old, and recycles refrigerants. HT passed the initial screening so am taking a closer look. Let’s see what we can find…

While doing preliminary research on Hudson Technologies, my key initial questions specific to this company are:

  • Environmental issues?
  • Trend of refrigerants?
  • Face any regulation challenges to reduce emissions that could affect refrigerants?
  • Did the business innovate/change over time?
  • How many refrigerant companies are out there as targets?
  • How helpful is their energy optimization?
  • How many certified reclaimers are there?
    • HT has 35% of market share in reclaim refrigerants
  • Uhhh

Wait, hold on.

Went into the financials. Yikes.

Three-months ending March 31, 2018 was abysmal. Problems:

  • Excluding the revenue from the acquisition of ARI, organic revenue decreased by $17.5 million YoY, mainly because of a decrease in the selling price per pound of certain refrigerants sold, which accounted for $8.5 million decrease and another $10.3 million decrease was due to a decrease in the number of pounds of certain refrigerants sold, which was due to colder temperature.
  • Cost of sales did not decrease in proportion to a decrease in selling price, which resulted in a significant loss in the quarter.
  • They have $100 million of debt on their books due to the acquisition of ARI.
  • ARI only contributed $3.6 million of revenue in the first quarter, which is not doing much.
  • Their operating cost was off the charts.

So, my friends, my analysis of HT ends here. The company’s financial position is way too risky. The acquisition of ARI did not prove to be synergistic. They have to sort out the transition with ARI. And let’s face it, they’re holding on for dear life in a dying industry – classic example of consolidations in a declining industry until last man standing.

Overall, there are too many uncertainties from external factors that affect the company’s performance.

I do believe that the refrigerant industry isn’t going to die off in the seeable future. Until there is a mass introduction and adoption of cooling air with renewable energy without refrigerants, air conditioners and refrigerators are going to exist.

The story doesn’t end here though. I’m going to bookmark HT until their next set of financials that shows an improvement in their operating cost and their debt position; i.e. that they are deleveraging and meeting their covenants. The summer months ahead isn’t going to be a good indicator since their sales will increase naturally due to hot weather anyway, but there might still be some positive changes the management proves such as negotiated decrease in cost of sales, etc.

Too bad, I had high hopes for this company.

Microcap Stock Analysis: DLH Holdings Corp

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DLH Holdings Corp (NASDAQ:DLHC)

DLH Holdings Corp. (NASDAQ:DLHC) is in the business of providing healthcare services military personnel and veterans.

DLH’s services help veterans in some way from the beginning of their military life to the end. This includes setting up military treatment facilities, providing nurses in the hospitals, training the medic, all the way through to providing pharmacists, pharm techs and people who ship out prescriptions to veterans.

The Business – What Exactly Does DLH Do?

100% of DLH’s revenue comes from federal agencies including the Department of Veteran Affairs, the Department of Health and Human Services, and the Department of Defense.

Their revenue streams with these federal agencies as their direct clients are comprised of (as of March 31, 2018):

1. Health solutions for military personnel and veterans – 63% of revenue

      • DLH’s project managers and biomedical engineers perform R&D, testing, and development of new medical systems and devices intended to enhance medical readiness of troops in combat theaters across the globe.
      • Medical logistics support assists the uniformed services plan for fielding these new systems and devices above.
      • Deliver clinical drug and alcohol counseling services to Navy installations worldwide as part of the clinical preceptorship program.
      • Provides a range of case management, physical and behavioral health examinations and associated medical administration services to enhance assessment and transition process for military personnel.
      • Also engaged in efforts to alleviate homelessness among Veterans and other case management services to support Veterans’ transition back into the community.
      • Ensure that Veterans receive their out-patient prescriptions on time through DLH’s cloud-based enterprise system.

2. Human services and solutions – 33% of revenue

      • Provides a systems-based approach toward assuring that underserved children and youth throughout the country are getting proper educational and environmental support, including health, nutritional, parental, and behavioral services, using an evolving system of monitoring, evaluation, tracking and reporting tools against selected KPIs relative to school readiness.
      • Provides the enterprise-level IT system architecture design, migration plan, and ongoing maintenance (including call center) to manage the implementation.

3. Public health and life sciences – 4% of revenue

      •  Services include advancing disease prevention methods and health promotion to underserved at-risk communities through development of strategic communication campaigns, research on emerging trends, health informatics analyses, and application of best practices including mobile, social, and interactive media

So, this is quite confusing because their core capabilities on their website encompass a lot more than the 3 above. It’s explained in their quarterly report that they are technology-enabled health solution provider by outsourcing the business process. It looks like their core capabilities include the capabilities of their outsourcing.

The obvious question is whether reliance on government agencies is a safe bet for the company in the long-term. Firstly, the have to bid and win contracts and although this gives them visibility into their revenue projection 1-2 years in advance, by the same token, they have to sustain the company with their own capital during that time until the project comes online. It’s crucial to maintain overlap so that they don’t have dip in revenue in any given year.

Secondly, the process of winning contracts means it’s not guaranteed and therefore you can’t really say that their revenue is recurring. I love recurring revenue model, so this concerns me. So one of the analysis questions is around the security of their revenue, which I added to my analysis questions below.


Zachary Parker has been CEO and director since 2010, which is not a long time given the company has been around for more than 2 decades. He has held leadership roles in company divisions dealing directly with the government such as GE Government Services (now Lockheed Martin). He is active in the defense and veterans government associations. I imagine having a strong relationship with the government is critical since 100% of their revenue comes from the government.

The rest of the senior management is a roster of strong background in government programs. Having worked closely in my day job investing in a company that gets the majority of the revenue from federal agencies, the most significant difference I found in government facing companies is that they have to be “cautious” in maintaining their relationship with their customers. They can’t be too aggressive and they have to follow the rules but they also can’t be completely nonchalant and expect the customers to come to them. So their management team seems to be stacked well to face the federal agencies as customers.

The company’s recent acquisition of Danya International whose capabilities are in the “human services and solutions” coupled with the composition of their management team’s experience suggest that their long-term vision is to solely focus on selling to government agencies.

The company has strong corporate governance with a proper audit committee, management compensation committee and governance committee.

Financial Health

The company’s had a successful growth in its revenue and EBITDA over the past 3 years although the jump in growth in 2017 is attributed to the newly acquired Danya International.

The good news is that the company has a positive cash flow and their interest cost is more than covered by its cash flow. The company has been deleveraging, paying off the debt each year. And with enough cash in the bank as at March 31, 2018 and a revolving credit line of $10 million, they would be able to pay the interest if they had a cash flow shortfall in a given year; i.e. they wouldn’t go belly up if they had a negative cash flow year in an odd year (if they consistently produced negative cash flows, then that would be a different story). Compared to their peers, their debt to equity ratio is slightly below the industry average. The debt is also at a reasonably low interest rate.

The bad news is that compared to its peers (although the peers are much larger), DLH’s margins are lower than the industry average. DLH’s operating cost as a % of gross profit (not as revenue since gross margin for each consulting business in the industry varies) is much higher than the industry average.

All in all, the company’s financial health is in an okay shape. They have positive cash flow, they are deleveraging and have enough access to liquidity to pay off their debt over the next 3 years. But their margins are lower than the industry average. Notably, an EBITDA margin of 5.2% for the most recent 6 months they reported is very low. The 3 year average EBITDA margin has been 4.9% so the profitability of the business is inherently very skinny.

Until the acquisition of Danya in May 2016, DLH’s organic financial statements didn’t look all that great. In 2013 and 2014, the company’s EBITDA were below a million dollars each year with 0.5% and 1.3% EBITDA margin, respectively. In 2015, they increased their revenue and improved their margins significantly and increased EBITDA and EBITDA margin to $3.2 million and 4.9%. I understand now why they needed the acquisition of Danya. This leads me to 2 interpretations:

  • Before the acquisition of Danya, their business model was basically only in delivering prescriptions and providing logistics related to medical activities to the department of defense and department of veterans affairs. Margins were skinny in this business model and there was a cap in their growth.
  • Because of the cap, the only way to grow is inorganically by acquiring companies that service the government so they can expand their portfolio of capabilities. The problem with the business of Danya is that the overarching project management services doesn’t scale either.

Hmm, I don’t know about this company anymore.

Is DLH under or overvalued?

A discounted cash flow model in this case is not the best to use because of the non-recurring nature of the revenues and because as an illiquid microcap company, the stock isn’t going to hold much weight in reflecting the intrinsic valuation.

So in this case, I used multiples to compare to DLH’s competitors. The competitors were found in DLH’s annual report. They are all much larger than DLH.

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Compared to the industry average multiples in the table above, DLH’s share price now at $5.45 is undervalued. The company is better positioned in terms of leverage with a lower debt-to-equity ratio, which would actually be lower had DLH not acquired Danya International in May 2016.

But most of DLH’s competitors have established themselves as large-cap companies and pay a dividend. After the acquisition of Danya International in May 2016, the company’s stock rallied up for a little over a year until October 2017. Then the share price started declining gradually, which I have to think is attributed to the results of the acquisition after a year highlighted in the annual report.

Overall, the share price is undervalued compared to the peers but you have to discount the company’s valuation anyway because of its illiquidity, so I would say it’s fairly valued with that perspective.

Reasons to be Bullish about DLH

According to this chart by Statista, the number of veterans in the US is projected to grow albeit small growth.

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  1. Consulting business with outsourced processes thus no inventory and no capex. So the key focus is on sales, outsourced cost control and opex control. Outsourced costs are out of their control to a certain extent so gross margin may fluctuate. Operating cost is within their control. It increased from 2015 – 2017 but the first half of FY2018 has seen a decrease again in both annualized and YoY.
  2. Sales are based on contracts won so they typically have visibility of 1-4 years beforehand for each project. As of Sep 30, 2017, the backlog of project commitments was $174 million, of which $93 million was not yet funded.
  3. In terms of A/R and risk of bad debts, since the government is the counterparty which has a high credit worthiness, there is not too much worry in collecting receivables. The company allocated $0 allowance for bad debts.

Reasons to be Bearish about DLH

  1. DLH has a relatively high debt on their balance sheet which was for the acquisition of Danya. It’s not a huge concern as they have been deleveraging as the debt is amortized upto 2021.
  2. Customer concentration is a big concern because more than 60% of their revenue comes from the Department of Defense and the Department of Veterans Affairs for their technology-enables enterprise system that helps to deliver healthcare such as prescriptions to veterans and medical logistics to active duty. Although they acquired Danya in 2016 to expand their portfolio of capabilities and reach into other federal agencies, DLH is still providing services to a small number of federal agencies and programs. If any one of them has a budget cut or the demand goes down, then DLH’s revenue and profits will quickly erode.
  3. DLH is not paying dividends. Five out of seven of their competitors pay a dividend. Dividends indicate somewhat of a discipline for the company to control their spending in order to maintain a dividend yield no lower than dividend yield paid previously. So that’s a bummer.
  4. Capabilities are limited and not scalable. Currently their services are very specific to veterans and military personnel and social work under the human services and solutions business unit. What they offer is difficult to provide on a mass scale to corporations. They would have to look for companies that are large organizations needing service in for example coordinating pharmacists and prescription shipping for a specific group of people. There are opportunities but pharma companies tend to already have a strong grasp in that which is already vertically integrated into their overarching supply chain.
  5. CEO only owns 1% of the company. Especially for a microcap company, I want to see that the founder is still around and/or that the CEO owns enough shares to be incentivized to work their ass off and do whatever it takes to not let the company fail because it’s their blood, sweat and tears and lifeline. Not the case here as the current CEO and other senior management members came on board relatively later stage and relatively recently.
  6. Directors, William Alderman and Frederick Wasserman, have both been selling for the last year in the open market. If they were selling their options to make some bucks, then who am I to question their personal reasons… but still it’s concerning that they’ve been selling for a year, particularly the last half a year. Do they not believe in the company’s long-term super growth?
  7. I’m struggling to see the multiplying growth opportunities from their acquisition of Danya International in May 2016. I understand that the company’s capabilities is human skill related – i.e. there is no tangibility like construction; rather, they provide services. So in order to expand their capabilities of providing project management skills and a technology-enabled enterprise system in project management for government programs, they acquired Danya. And Danya also services government agencies so they wanted to expand their reach into other governmental units. It makes me question whether the reason was because there isn’t enough growth opportunities in defense and veterans affairs alone. We saw from 2013 to 2015 that their margins in that business alone was quite skinny. So I can understand that they needed a business unit that can expand their sales sideways, but I see limitations for revenue growth in both the Defense/Veterans Affairs and educational/health solutions for underserved children. I think leveraging their enterprise level system of project management to reach as many clients as possible could help them grow organically but if they continue to face government agencies as their only customers, then I see a cap on growth.

Summary of Analysis

The main things to note are that the share price is slightly undervalued but if you take into account the discount for DLH being an illiquid microcap company, then it’s relatively fairly valued.

DLH’s financials looks okay as they have a positive cash flow, they have cash in the bank and they’re deleveraging after having taken out debt to acquire Danya International in May 2016. But since the acquisition, their operating cost has gone up quite a bit relatively speaking, so they need to contain their spending after figuring out the synergies.

They have enough access to liquidity if they have an odd shortfall cashflow year and although they have a high accounts receivable, the good thing is that the counterparty is the government so they have not had bad debts from ageing accounts receivable. But by the same token, the government is the only customer and more than 60% of their revenue comes from 2 departments of the government so there is major concern for customer concentration risk.

The leadership team is very experienced in dealing with the government as clients. But the CEO only owns 1% of the shares of the company and two of their directors have been selling their shares over the last year.

All in all, I picked this company to analyze because I saw potential. But after a rigorous investment analysis and following my investment checklist, I believe there is a cap on growth for the time being until they figure out how they can scale and there are too many risks that outweigh the potentials, so I’d rather not bet on this company.

I know, I’m bummed too. Days of analysis just to get to the conclusion to NOT invest my money in DLH. Well, at least you know I’m real and I don’t get paid by these companies to promote.

Thanks for reading and see you in the next one!

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Microcap Stock Pick: Manhattan Bridge Capital

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Manhattan Bridge Capital (NASDAQ:LOAN)

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The first company I am adding to the official portfolio is Manhattan Bridge Capital (NASDAQ:LOAN). I have to say that at first glance of their website, I was completely put off. The website looks like a school project. But it passed my initial sniff test, so I decided to look past the unprofessional looking website.

From learning more about the company, the aesthetics match my analysis of the company. It’s a small group, really a one-man band. The business is lean and very simple – a hard money lender (i.e. short-term lending to real estate development investors with real estate as collateral) in the New York metropolitan area. There aren’t layers of complex operations but rather, what you see is what you get which is good because there are only few factors that could go wrong to drive the business into the ground, but on the same token, there isn’t blue sky upside.

So, is Manhattan Bridge Capital stock worth it?

First, The Business

The company was founded by Assaf Ran in his basement in Queens in 1989. Ran started a Jewish yellow pages publication company known as DAG Media. In 2007, the company started a lending operation, allocating $5 million lending to businesses. In 2008, the company reported that its lending operation was the most profitable, so Ran changed the name from DAG Media to Manhattan Bridge Capital and listed on NASDAQ under the symbol LOAN. And so the story really begins in 2008, ironically, a great year to really launch a lending business.

Despite many challenges MBC went through over the years, I appreciate that Ran is a scrappy entrepreneur who wouldn’t let his business fall by the wayside. When the Jewish yellowpages business wasn’t performing as well as it used to, Ran started lending to businesses, and when he saw that this was a more profitable business, Ran pivoted the company completely to lending in the niche of short-term lending to real estate investors in metropolitan New York.

The Business Model

Manhattan Bridge Capital lends typically in the range of $300,000 – $600,000 for 12 months (often with extensions) to real estate investors developing residential or commercial buildings in the New York metropolitan area.

Every loan is secured with a first lien on the building and a personal guarantee from the borrower, which may or may not include the borrower’s equity interest in the real estate project. The company apparently has as rigorous due diligence as the big banks but the approval of the loan is much much quicker at 3 to 10 business days. The loan-to-value is a conservative 75% and 80% for construction costs.

The loan portfolio consists of 3 types:

  • Purchase, fix and flip
  • Small/New Construction Projects single and multi-units
  • Income Producing Properties

The loans are currently charged at 11% – 14% interest rate. Currently they have ~120 loans outstanding. Since 2007 when they started lending to real estate investors, the company has closed ~620 loans and *knock on wood* there has not been one default on the loans.

How I Analyzed the Business

As a microcap analyst, analyzing the financials of the business is not as important. The company might be at the cusp of an explosive growth. The business might not be breaking even yet but have been working on an innovative idea that could disrupt the industry.

More important in my experience of microcap companies are looking at the capability of Management, the idea/product – can it scale and is it innovative, and is the business’s operation robust or are they amateurs without a proper system in place?

This is one of the reasons I truly enjoy analyzing and investing in microcap stocks. It’s a more qualitative process more than anything else. You can approach looking at a microcap stock in any number of different ways and there is no right or wrong. I admire analysts’ work but it gets pretty boring for me looking at blue chip stock analyst reports that follow a certain template. Picking the best microcap stocks involves more about really understanding the underlying operations of the business, not about hype or what the mob thinks. Don’t get me wrong – if you don’t have a disciplined investing philosophy, it could be a disaster.

Anyway, the reason why I like this company particularly is because the business model is simple, which means there isn’t a myriad of factors that could screw up the business. On the flip side, if one of those few factors go wrong, it can be detrimental to the business.

This is how I valued Manhattan Bridge Capital, starting with the most critical questions in Tier 1.

Tier 1 Analysis Questions:

1. Are they earning a spread on interest earned and the funding cost?

They’re earning 11% – 14% interest on 1 year short-term loans. Plus, if the borrower can’t pay the principal in a year when it’s due, the company will often extend the loan at a premium.

The cost of equity – which is critical for MBC since they’ve been raising equity financing every year – is probably 6% – 8%. The company’s cost of debt is 6%.

So, the company’s spread on the interest earned and their cost of capital is 3% – 8%. If the company’s operating cost; i.e. CEO compensation, staff salary, office cost, is reasonable, then that’s a chunky spread. Since 2014, the company has been registered as a REIT, so 90% of their earnings is passed through to the investors, which means there’s more meat on the bones for the investors because there’s no corporation tax and 90% has to be paid as dividends.

2. Reasonable operating expense?

So that brings me to the next question of whether the operating expense is reasonable. 2017 G&A was $1.227m which is a 22% increase from 2016 G&A of $1.006m. Their annual report says that the increase is “primarily attributable to bonuses to officers and increases in payroll, board compensation, travel and meal expenses.” That is a pretty hefty operating cost considering the company consists of 2 officers, 3 operations personnel and 3 board members excluding the CEO. But the company’s net income and dividends paid did increase by the same amount of $600,000, so the company isn’t cutting their bonus check from what the investors “earned”. This indicates to me that the business is still a “family” business run very close to heart of the CEO so he will take what he thinks he deserves first and foremost but more importantly, he won’t take more than what is on the table to the detriment of the investors. A good sign of a CEO’s character.

3. Do they ensure creditworthiness of their clients?

The company states that their due diligence process is as rigorous as the banks but their approval time is much much quicker at 3 to 10 business days. In their annual report, they discuss the due diligence process as:

“In terms of the property, we require an assessment report and evaluation. We also order title, lien and judgment searches. In most cases, we will also make an on-site visit to evaluate not only the property but the neighborhood in which it is located. Finally, we analyze and assess financial and operational data provided by the borrower relating to its operation and maintenance of the property. In terms of the borrower and its principals, we usually obtain third party credit reports from one of the major credit reporting services as well as personal financial information provided by the borrower and its principals. We analyze all this information carefully prior to making a final determination. Ultimately, our decision is based on our conclusions regarding the value of the property, which takes into account factors such as the neighborhood in which the property is located, the current use and potential alternative use of the property, current and potential net income from the property, the local market, sales information of comparable properties, existing zoning regulations, the creditworthiness of the borrower and its principles and their experience in real estate ownership, construction, development and management. In conducting our due diligence we rely, in part, on third party professionals and experts including appraisers, engineers, title insurers and attorneys. Before a loan commitment is issued, the loan must be reviewed and approved by our Chief Executive Officer. Our loan commitments are generally issued subject to receipt by us of title documentation and title report, in a form satisfactory to us, for the underlying property. We require a personal guarantee from the principal or principals of the borrower.”

4. Does Management have a track record of success?

Assaf Ran, the CEO and founder of the company started the business in 1989 as a Jewish yellowpages business. Slowly and steadily, he grew the business. He saw an opportunity to lend to small businesses and when the lending arm became more profitable and the yellowpages was declining as expected from switch to technology, he made the decision to pivot the company completely to a real estate lending business. He didn’t start out as a real estate lender but being in this business since 2007 has earned him the stripes.

Tier 2 Analysis Questions:

5. Is their revenue generation defensible?

Here what I’m looking for is where they originate their deals from. How much of their revenue is recurring and is there a risk that the number of borrower approaching them declines? According to their 10K, the company relies “on our relationships with existing and former borrowers, real estate investors, real estate brokers, loan initiators, and mortgage brokers to originate loans. Many of our borrowers are “repeat customers.””

Great news as long as the New York metropolitan market continues to rise. But if there comes a day when the market is no longer attractive or the market is saturated and the real estate demand (whether residential or commercial) starts to decline, they’ll be in trouble. I don’t see that happening in the short term or medium term, for that matter.

6. Does the company have a positive, increasing cash flow?

MBC doesn’t have any capex or taxes since it’s a pass-through. So looking at net income is a good proxy for free cash flow. MBC has been reporting an overall trend in increased and positive EPS for the last 5 years.

best microcap stock | manhattan bridge capital

best microcap stock | manhattan bridge capital

Source: NASDAQ

7. Has the series of equity financings been issued at a higher share price each time?

In other words, is MBC’s growth attributed solely to injecting fresh capital or is the underlying business’s organic growth fueling the growth? And Public offerings have been at higher stock price each time, i.e. organically increasing retained earnings from the business and the business isn’t growing just from fresh capital

8. Is the share price fairly valued?

For a financial asset company, I figured P/E and EV/EBITDA multiples and Discounted Cash Flow Method aren’t really going to work. For MBC, I looked at the Price to Book Value (or Net Asset Value in this case). My go-to place to look up general current trading multiples by industry is Professor Damodaran’s page. The closest industries’ P/BV multiples are:

  • Financial Services (Non-Bank & Insurance): 2.20x
  • REIT: 2.05x
  • Real Estate (Development): 1.60x
  • Investments & Asset Management: 2.12x

There is no multiple for the exact niche we’re looking for; i.e. hard money lending business, but looking at the proxy industries above, the average P/BV that we should be comparing MBC’s valuation to is about 2.0x.

So, looking at the latest quarterly report ending March 31, 2018, its net asset value/book value is:

Assets $46.856m


Intangibles ($0)

Liabilities ($23.635m)

Net Asset Value $23.230m

The company is currently trading at a market cap of $60m. So, the P/NAV (or P/BV) is 2.58x, which is a lot richer than the average industry comparables for P/BV; i.e. MBC’s stock price is quite overpriced at the moment.

The stock could be trading higher as investors are expecting a higher earning and growth in its June quarterly report that’s coming out soon (since today is June 27th, 2018) and a bit of rallying to this point. Also, investors may be buying to meet the shareholder record date in order to meet the ex-dividend date. You must own by July 10, 2018 to be paid on July 16, 2018. The stock price may decline after the ex-dividend date, but I’m greedy and I want a piece of the dividend pie. 

9. Any sign of pump & dump?

Three things to look for to detect any sign of pump & dump for a microcap stock is 1) is there a lot of hype around the company? And the answer is no, I haven’t found it online; 2) does the company keep changing names and the direction? And the answer here is no; and 3) are there periods of stock momentum for no reason? There has been an instance of this but really, the company has been reporting higher earnings every quarter, so I would expect it to be attributed to that rather than a pump & dump.

10. Short high interest debt on their balance sheet?

Normally, I don’t like debt but for a hard money lender whose assets are money, using leverage to lend rather than issuing new capital at a high cost of equity is effective as long as the cost of debt is lower. At an average of 6% cost of debt, it’s not too risky to hold debt on its balance sheet.

Additional Rationale to Buy the Stock:

  • Requires the borrower to have equity participation
  • Requires strong financials of the borrower
  • Loans have never defaulted
  • Collateral is good – first lien on all real estate developments in New York metropolitan area which is not a market that’s declining anytime soon
  • Pays a dividend, which has been steadily increasing

Potential Risks:

  • Downturn in the metropolitan New York real estate market
  • Loan defaults
  • Bad collateral in the case of loan defaults
  • Decreasing interest rate

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Summary of Analysis

A simple business as a hard money lender. Focuses on the New York metropolitan area which is a hot market and will be for a long time. The CEO and founder has 30% of the stock and he has been with the company through thick and thin since founding it almost 30 years ago. The CEO is scrappy; pivoted the business when he saw a more profitable opportunity. Board members have been with the company for over a decade on average.

The stock is overvalued but on the flip side, is seeing momentum because of consistently reporting higher earnings and growth. The stock also pays a dividend that’s been increasing steadily every quarter, so it’s a nice income stream and diversification to your portfolio. I wrote this post on June 27th at night so am buying on June 28th at a slightly higher price. Damn it. 

How to Hire a PR Firm and What to Expect

It turns out a PR firm isn’t always beneficial to your business. The biggest lesson is that you need to craft your own story about your business. You know more than anyone else. It’s also very expensive, so if you can learn to do some of it on your own, like hiring a freelance writer to help you write a story and then you pitch it to journalists, then that will save you a heck of a lot of money. Another disadvantage is that they do their job of booking media coverage, but that doesn’t necessarily mean you’ll get more customer as a result.

Having said that, there are certain instances when hiring a PR firm is beneficial. Read on to help you decide:

  1. When a PR firm is beneficial for your business
  2. How to hire a PR firm if you decide to do so
  3. When not to hire a PR firm if you can help it

1. How a PR firm can help your business

  • HELP YOU ESTABLISH A STORY THAT ELICITS EMOTION: Your company’s core story should address the problem that you’re aiming to solve and explaining why it matters. It should include where the idea first came from too. Pull on some heartstrings. Expose the problem or opportunity for an improved life that your audience may not realize it needed. If you don’t have this, you need it, and PR agents can be helpful in identifying this central “so, what?” of your brand. (Medium article)
  • LEVERAGE THEIR LOCAL NETWORK: There are times when a PR professional can be of value to you: For example, if you run a small business that is based in a specific city, and you will only be dealing with local and regional press. In that case, there may be a few key reporters and editors who cover your relevant beat. Therefore, hiring a flack with local knowledge and strong local connections could certainly be useful. As your company and budgets grow, when you can afford to bring in a full-time PR and communications pro, whose job it is to always keep pitching and look for media opportunities, do it. But until then, keep media management within your own realm. (Fastcompany article)
  • REVITALIZE A PRODUCT OR SERVICE: Sometimes even the best in-house PR mavens can run out of good ideas. Just as in a re-brand or website redo bringing an outside agency to revitalize your PR can pay huge dividends. Good PR agencies know how to look at a product, service, or company and see something new – something buzz worthy. Something that you think is dead or tired can quickly be taken to a new market or a new outlet and quickly gain legs. Using a PR firm that can quickly dial up their contacts and test new ideas can spring to life a fading product or business. Remember though, even the best PR can’t revive a dying product, make sure there is something there and be honest with your agency about past successes and failures so they can provide proper strategy. (Martech article)
  • DRAW INVESTORS TO YOUR BUSINESS: In marketing your new business, utilizing PR can attract investors to your brand, which is especially beneficial when you’re just starting out. A carefully planned PR strategy can generate positive media coverage, giving you a better negotiating position with potential investors. Additionally, well-executed PR makes your business appear larger and more established, which can help you secure partnerships and funding (Walkersands article).

2. How to hire a PR firm

  • DEFINE YOUR GOAL FIRST BEFORE LOOKING FOR A PR FIRM: As with all PR and marketing programs, I always advise defining goals before getting too far into making decisions about retaining an agency. We must recognize that strategy is the first step to success and leads to tactical execution. I am a firm believer that good strategy starts with goals. As you look to hire a PR firm, decide what you are trying to achieve. A few great examples are: brand awareness, thought leadership, attention for a specific product or program, etc. (Meltwater article)
  • LOOK FOR A PR FIRM WITH A TRACK RECORD OF SUCCESS: Before you choose a firm, be sure to look at their current and previous clients — which is often displayed on their homepage — and to check that they have worked with companies in the same industry as yours. The next step is to schedule a strategy call with the firm to get an idea of how qualified they are, what ideas they have for your upcoming campaign and what publications they suggest would be most suitable for your announcement. If it doesn’t offer a structured onboarding process before any payment is made, keep on walking. (Entrepreneur article)
  • THEY SHOULD’VE DONE THEIR HOMEWORK AND BRING CREATIVE IDEAS: In the pitch meetings, if the PR firms have done their homework and prepared properly, they will present a few different PR campaign ideas based on your RFP (request for proposal) requirements. I generally take these ideas with a grain of salt, after all these PR firms are not fully on-boarded and have limited knowledge of your brand. That said, at least one of the ideas should be out-of-the-box and cool enough to get you excited! (Meltwater article)

  • CHECK TO SEE THAT THEY ARE RESPONSIVE: For an additional test, during the pitch and courtship period, send them an email during non-office hours and see how quickly they respond. Too many times I’ve dealt with PR professionals who didn’t respond to emails for hours, sometimes days, which baffles me. (Venturebeat article)
  • THEY MUST HAVE KNOWLEDGE AND EXPERIENCE IN YOUR INDUSTRY: Depending on your needs, make sure you find a public relations firm that is knowledgeable about your startup’s market or adjacent ones. Assess its track record and expertise with strategic positioning and communications. A good PR firm will have skills that include positioning, articulating your message, conducting market research and refining your audience—in addition to getting media and industry influencers to communicate your message. Ask the firm to show you what metrics they will use to measure the success of their work for you and to introduce you to the individuals who will work on your account. Make sure you are satisfied with what you learn. (Marsdd article)

3. But wait, why you should NOT hire a PR firm

  • EXPENSIVE : PR agencies charging retainers of $3,000 to $10,000 per month. But here’s the deal: As a former journalist myself, with more than two decades of experience in TV, radio, print and web, I can assure you that pitching your story is not rocket science. Journalists and producers need fresh, interesting and topical content. All you have to do is learn to package your brand’s message in a way that’s mediagenic, then get organized about following up. Because the benefits of doing it yourself extend past the cash savings. (Entrepreneur article)
  • MEDIA COVERAGE DOES NOT TRANSLATE TO SALES: Your PR person is not your Director of Sales. This is the number one reason most agencies get fired: clients are unhappy that the placements didn’t generate  a massive uptick in sales. The role of a publicist is to formulate stories that get the media’s attention and result in a placement. If a publicist is getting you consistent placements, then they are doing what you hired them to do. The problem is when clients start complaining, “I know you got me a three-page spread, but it didn’t translate into new business.” That is the equivalent of saying to your dentist, “I know you filled my cavity, but you didn’t fix the pain in my jaw. The pain in your jaw should be seen by a doctor, not your dentist, and it’s not the dentist’s responsibility. The same goes for sales and PR. (Observer article)
  • YOU CAN DO IT YOURSELF: Michael Seibel (founder of says he wasted $150,000 (£93,000) on PR firms in the early days of “People think they need to hire someone to do their PR, but 99 percent of PR in the early stages is stuff you can do yourself. It’s just like business development — there’s the warm-up intro, followup to build relationships, then add something of value.” Make sure you have a story to bring journalists — a significant hire, or something else newsworthy, rather than just expecting a profile piece. (Wired article)
  • PR FIRMS OVER-PROMISE EVERYTIME: PR firms seem to take the inverse approach and promise things they can’t guarantee, like media coverage on national shows or in major daily papers. They also start with grandiose plans but produce a press release and a million excuses. I literally can’t count the number of times clients have asked me to quickly create something their PR firm failed to deliver. They end up paying twice to get the job done. (Roundpegg article)
  • PR FIRMS DON’T HAVE ALIGNED LONG-TERM GOALS: PR firms won’t think long-termA deadline a month away is not on the radar in PR because news media moves at lighting speed and staff is focused on the “right now.” Good luck getting your PR firm to attend to a project three weeks out – they’ll likely get to it with 24 hours to go. And at 2:00 AM. Short term results don’t matter as much as long term results. A PR firm will hand you a report showing the ‘pickup’ from your press release blast. It’s a listing of all the websites that supposedly ran your press release verbatim last week. Doesn’t mean anybody read it. Doesn’t mean that it exerted any influence. Influence is built over time, with a strategic approach. You need your PR agency to leverage relationships with influencers, to connect you with industry analysts who will quote you in their next report, and to coach you into thought leadership. The big stuff like that gets the bigger results. (Roundpegg article / Redcup article)

I hope the reading the above has helped you determine whether hiring a PR firm is right for you at this stage of your business. If you decide that it’s not the right time for you now, there are 40+ other ways to increase customers.

If you’re a PR specialist, I would love to hear from you!

How to Hire a Salesperson (A Collection of PRACTICAL Advice)

how to hire a salesperson | hiring a salesperson | hiring the right salesperson

Hiring a motivated, driven, likeable, and experienced salesperson who is the right fit is not an easy task. Follow the steps below to find the right salesperson for your business.

1. WHERE to look for a salesperson

  • “Forget job boards. When recruiting outside of your personal network, start with businesses in your market who are a couple years ahead of you. Find one with an established and successful sales team and reach out to one of their junior reps.”

2. WHAT to look for in a salesperson

  • “Instead of looking for sales experience, look for sales talent. Here are some of the key characteristics of successful startup hustlers:
    • A compassionate and competitive nature
    • Excellent communication skills
    • A high tolerance for rejection
    • Charisma and charm
    • Shamelessness

The best place to find people with those traits? Your immediate network.”

3. HOW to turn the salesperson you hired into a superstar

There is a common misconception that the output of the hiring process is the identification of a great salesperson. It’s not. The output is a salesperson with the potential to be great in a specific sales role for the company. That potential is only recognized when a bridge program is put in place that connects the salesperson’s knowledge and skills with proficiency in the role.

Most executives begin the sales onboarding development project by inviting a bunch of colleagues to a meeting where the discussion focuses on one question: “What are we going to include in the program?” In other words, they start the initiative by considering curriculum. The two issues with that approach are: 1) Curriculum can be added for an eternity; and 2)There’s no way to gauge if the program serves its purpose.

The best place to start is at the finish line – by identifying expectations. Imagine you had a salesperson who is described as having successfully completed the onboarding program. What are those expectations?

  • What is she expected to KNOW (i.e., product knowledge)?
  • What should she be able to DO (i.e., conduct a sales call)?
  • What should she be able to USE (i.e., CRM)?”

4. HOW much to pay them

  • “More than just about any other position, salespeople are incredibly talented when it comes to figuring out how to maximize their overall compensation. That’s a good thing…as long as their compensation program drives the behaviors and results which are good for your business. Compensation, especially variable compensation, should focus a salesperson’s efforts on selling business that represents a high return to an employer.

  • I remember inheriting a sales team that was compensated for total dollars sold without considering the relative profitability of what was sold. $1,000 of sales of 20% gross margin items was compensated the same as $1,000 of sales of 60% gross margin items. Thus a million dollar salesperson who delivered $600,000 in gross margin was paid the same as the a million dollar salesperson bringing in just $200,000 in gross margin. Not good! Key takeaway: review the comp plan to make certain it drives sales behaviors that produce good results for your company.”
  • Most companies compensate between 60% commission / 40% salary and 80% commission / 20% salary

5. EXPECTATION from them and from you

  • “Just hiring someone and leaving them to it is a recipe for disaster. Unless you find someone who lives for selling then you are going to have to monitor his or her every move. There are 101 things to do that are easier than selling, such as checking email, planning the next sale, cleaning up the sales database, writing letters, designing promotional literature – the list goes on. Create a reporting structure (use customer relationship management (CRM) software) that allows you to see how many calls they have made weekly and what their closing rate is. Meet with them at least once a week and review their progress.”

Using a Database to Source Potential Customers

Searching databases for new sales leads is better suited for business-to-business (B2B). The benefit of searching a database to identify and pursue potential customers is that you’re not putting word out there about your company and just waiting. You know exactly who you’re going after and who you have to talk to in order to win accounts, even if cold calling sucks.

But at least cold calling gives you the advantage of building rapport with your potential customer, which opens up the pathway for a future deal or you learn what similar customers you’re targeting are truly looking for which you can use to tweak your sales pitch and offerings to other potential customers.

Since cold calling potential customers is a numbers game and therefore is a long and arduous process, the one thing you don’t want to waste time on is going through pages and pages of google search results to look for potential customers; not to mention, the hard part is knowing the keywords to search on google in the first place. This is when leveraging a database can save you time and more importantly, help you find customers that have more likelihood of saying yes to your sales pitch.

What you need to know:

  1. Which database should you go with and how much does it cost?
  2. How do you use the database to identify your potential customers?
  3. You have a list of contacts – now what? How do you cold call and convert leads into customers?

Let’s explore each question.

1. Which database is right for you and how much does it cost?

Make sure that the database you subscribe to specializes in your industry. I talked to a few database customer representatives while assessing which database suited my line of work, and unfortunately, what they advertise is not 100% accurate.

Look at the cost for each database listed below and choose the one that fits your budget.

Next, call or live chat the database and ask which industries they specialize in. Describe the industry and type of customer you’re looking for and find out how many leads they have in their database that match that profile.

Below is a list of all the reputable and sizeable databases to consider for your business and how much each costs:

    • Boasts 40 million contacts across 10 countries
    • $1,800/year per user
    • Specializes in “all” industries
    • Focus on IT sector
    • $20,000 per year + additional user license for $1,500
    • In depth information about the target leads
    • Acquired another database, Rainking, so increasing data size
    • Has 250+ “researches” that call and confirm and update the contact details in their database every 60 days
    • Clearly lays out the industries they specialize in, which are: IT, Software, Advertising, Merchant Services, Commercial Cleaning, Education and Training, Research and Consulting, Hospitality, Logistics, Healthcare, Financial Services, Manufacturing & Distribution
    • Provides additional software add-ons to convert leads into customers and to maintain relationships with customers
    • Reviews are very polarized – on Yelp, on Trustlink
    • ~$15,000 for 3 months
    • 40 million leads across 300 sectors
    • Starting at $9/lead
    • Mostly public company data, limited private company data
    • Screening allows you to search for a variety of mix and match criteria
    • Used mainly by Finance professionals but is not limited to Finance folks
    • ~$24,000 + ~$5,000/additional user
    • Backed by the largest commercial database, Dun & Bradstreet, has over 100 million contacts in 1,000+ industries
    • Subscription includes access to private company information
    • ~1.20/lead
    • 20 million business contacts in “just about every industry”
    • Markets themselves as the affordable alternative to Hoovers
    • Pricing ranges from $49/month for 200 – $129/month for 2500 (or enterprise level), which is $0.25 – $0.05/lead, respectively
    • Global contacts in various industries
    • [Waiting for pricing info]
    • Sourced from US & Canada yellowpages and other repositories (doesn’t seem to have contact person info; just businesses)
    • Starting at $99/month
    • Specializes in email list (not phone numbers)
    • Ranges from $0.25/lead to $0.05/lead based on package size or you can get the total list by industry – pricing varies depending on size of data by industry
    • Boasts “unmatched accuracy” of emails
    • Markets themselves as the affordable alternative to
    • Starting at $999/month
  • Linkedin Sales Navigator
    • $800/year/user
    • $100/month/user for 100 contacts
    • 91 million contacts worldwide
    • ~$2,000 for 1,000 contacts; i.e. $2/lead (which it sounds like you can negotiate down the price of)
    • 32 million contacts worldwide
    • $99/month/user

2. How to use the database to turn leads into customers

The first thing to do after you sign up for a database is to look on the website for a guided tour/video of how to use it. If you can’t locate it, call their customer representative and ask to walk you through how to use it.

That’s the easy part.

You don’t want to spend all your time prospecting leads. You should know exactly the profile of your target customers. Your customer profile should include the following characteristics:

  • Industry
  • Service/Product offering
  • Size, i.e. average revenue
  • Geography
  • Online or offline
  • How your product or service fits with their needs

Example 1) Steel OEM manufacturing company that revenues $10 million/year on the West Coast of North America that would need specialty paint from my company.

Example 2) A company of realtors that specialize in first time home buyers in downtown San Diego that make a total pooled revenue of $3 million/year that need an online CRM tool that my company offers.

Once you have the customer profile, use this to screen for your leads.

3. How to convert your leads into customers (How to cold call)

Once you have your prospects’ contact details, begin cold calling. Remember that it’s okay to sound like an idiot. You only get better by trying over and over again. Know that going in you’ll have a lot of No’s before you hear a Yes, but the ones that separate the successful entrepreneurs from the rest are that they keep trying and don’t stop until they see their vision come to life.

So, I’ve curated the following posts that are punchy and to the point but have substance that can teach you a thing or two about crafting the sales pitch and how to cold call effectively:


If you need to read more, then by all means, search for them yourself. But I’d suggest at this point, enough reading and preparing, start calling!


  1. Find the database that fits within your budget and one that has a sizeable database of contacts in your industry. Do a free trial.
  2. Profile your customer and identify the prospective leads and their contact details from the database.
  3. Craft the sales pitch and have an online or physical information pack that you can provide them.
  4. Cold call or email. Schedule to meet in person.
  5. Track them and follow up.

How to Organize Financial Statements to Sell Your Business [Download Model]

If your company has an account, better yet, if your company’s financials get audited every year, then what you need to gather to prepare for the sale of your business should be easy. If your company has unorganized financials, then it’ll be a bit more work, which will be covered in a future post. If your business is profitable but your financial statements are unorganized, this alone will bring down the value of your company, which will cost you in the transaction price. I’ve provided the spreadsheet you can download to organize your company’s financials. Remember that you also need to provide supporting material such as the monthly/quarterly/annual financial statements or management accounts that you prepared each period.

Listed below are key financial statement items that the potential buyer and their broker will ask for:

  1. Last 5 years of P&L (profit & loss, aka income statement)
  2. Last Twelve Months (LTM) P&L or Year-to-Date (YTD) P&L
  3. Last 5 years of B/S (balance sheet)
  4. 5 year forecast (including capital expenditure and working capital)

Now I’ll get into key traits for each item above that will value your company higher.

Scroll to the bottom to download the spreadsheet that you can use to organize your company’s financials.

1. Last 5 Years of Profit & Loss Statement

Each company’s P&L will look different because of line items that are relevant to one company that are not relevant to another. But the basic items of a P&L (or aka income statement) are:

P&L | Profit and loss | income statement

  • What you need to show:
    • Revenue for the last 5 years should show a growth each year (at least 3%)
    • Breakdown of revenue build-up – group the largest sales accounts and show prices and quantity
    • Customer list – for B2B businesses, show customer contracts with key accounts
    • Cost of goods sold % of revenue should be stable each year
    • Operating expenses and SG&A cost breakdown in a separate schedule – to show that your business doesn’t have egregiously high spending
    • EBITDA margin should be stable each year and growing – to show that the company has been scaling up and efficiency has improved
    • Interest expense should not be higher than 5% of revenue otherwise it will be a red flag because the company has too much debt
    • Nonoperating and nonrecurring expenses should not be occurring each year and the reason for them should be reasonable in the context of the business – for example, a new machine had to be replaced or there was a natural disaster that destroyed the plant and had to be repaired

2. LTM or YTD P&L

If your company’s financial statements fiscal year is from April 1 – March 31 and the period you’re valuing the company is August, then you need to show the last twelve months or the year-to-date P&L. This is to show that you’re not selling the company now because you suffered serious losses this past year or had some unknown adverse circumstance affect your business, such as the largest key account leaving you for a competitor.

If that is the case for why you’re selling, then you should reconsider and try to build the business back up before you sell or accept that you will receive a much lower price for your business than you originally anticipated.

3. Last 5 Years of Balance Sheet

Unlike a P&L, a balance sheet shows numbers in accounts and ledgers at a point in time, not for a period of time. So it may not make sense to show historical 5 years worth of balance sheet, but actually, analyzing historical balance sheet over the last 5 years shows a lot of useful information. A general grouped items on a balance sheet looks like this:

free balance sheet download | financial statements for selling a company

  • What you need to show:
    • Over the last 5 years, your business had a healthy float of cash
    • Accounts receivable has not been increasing every year as it indicates that you’re not able to collect the cash from your customers and that signals bad debts that are never paid by your customers
    • Inventories are not increasing each year and that it’s at a stable level
    • Property, plant & equipment level is stable each year and makes sense for your company with respect to the industry it operates in (for example, if you’re a service-based business, then the PP&E should be almost nothing, whereas if you’re a heavy-machinery company, then PP&E is expected to be high)
    • Accounts payable is stable and is not growing or too high as this indicates you owe a lot of money still to your suppliers
    • Debt is minimal – there is a healthy level of debt that your business can keep on the balance sheet, but lower the better

4. 5 Year Forecast

Now this is the exciting part. This is where you get to show how awesome your business is going to be in the future based on what you’ve built up to now. And these numbers are the crutch of what the valuation will be based on. But a forecast is only as good as the assumptions, and the assumptions are built off the historical numbers. So, you can’t bullsh#% these numbers.

The forecast needs to have legitimacy by showing evidence from the historicals, new sales contracts, evidence of improvement in operation efficiency, etc. A forecast model will look like this:

forecast model | financial statements | selling your business

  • What you need to show:
    • Revenue build up – why do you believe in year 1-5, the revenue will grow by x%?
    • Customer list and forecast of sales by customers or groups of customers (note any contracts with customers in place)
    • Existing customers and targeted customer acquisitions
    • Projected price increases
    • Evidence of operating efficiency improvement plans
    • Sales & marketing plans and budgeted
    • Cost of goods sold and operating costs should also be broken down and each sub item should be explained why it will be x% of revenue
    • Any capital expenditures to add to or replace fixed assets like machinery or trucks
    • Incremental working capital, which is the net change in cash required to put into the business each year


The more supporting evidence you have for your assumptions the better. If your financial statements historically and forecasts are organized, it shows that you know your business inside out and that your business is in good shape. Moreover, you need to show that your top line has been growing because it proves that once taken over by the buyers, the business will continue to generate healthy and growing level of sales. Margins also have to show enough profitability that the buyer can benefit from the profit from the first year. How the buyer improves the efficiency of the business to increase the margins is up to them, but the business needs to have a good foundation to start with.

40+ Ways to Get More Customers

There are many ways to generate new leads, get more customers, increase customer base, however you want to put it. Some methods will work better for your business than others depending on the customer profile you’re targeting and the value that your business provides. For instance, if your company is a local food delivery service on a college campus accessed via an app, then you’d want to employ online advertising on websites and social media groups where local college kids hang out. If your business sells coffins, you might do traditional advertising via direct mail in neighborhoods with an aging population or build relationships with senior homes in your area.

Below is a list of 36 ways you can increase customers, either offline or online. If there are methods missing in the list, please comment below or send me a message and I will add them to the list.

Click on each method below for practical step-by-step instructions on how you can use the method to get new customers:

  1. Search database for customers and cold call

    • $5k – $10k/year
  2. Hire a salesperson

    • $60k in salary + commission (40/60 to 20/80 salary/commission)
  3. Launch a PR campaign with a PR firm

    • $5k – $15k/month
  4. Attend conferences and tradeshows

    • $2k – $5k as an exhibitor per conference
    • $500 – $1,500 as an attendee per conference
  5. Send direct mail to potential customers

    • $0.50 – $3 per package; total of ~$5,000 per round of sending direct mail
  6. Print advertising in a newspaper or magazine

    • $500 for a local newspaper, $20k – $100k for national coverage
  7. Buy/rent a contact list and cold call

    • $0.40 – $1 / contact
  8. Attend business networking meetup groups

    • Free – $2,000/year membership
  9. Create a customer referral affiliate program

    • $20/new customer
  10. Create an employee referral affiliate program

    • $20/new customer
  11. Give free samples/trials to targeted customers

    • Variable cost
  12. Host and teach in-person workshops

    • Free
  13. Add a live chat on your business website

    • $20/month
  14. Co-promote your product with another business

    • Free
  15. Buy/rent a mailing list and email  blast

    • $200 – $500 per thousand emails (ideally send to 1k to 5k targeted customers at a time)
  16. Create free and useful content on your website

    • Free
  17. Create a lead magnet on your website

    • Free
  18. Use SEO to promote your website

    • $100/month for subscription to SEO website or $1k-$2k for SEO services
  19. Facebook advertising

    • $0.15 – $3 per 1,000 impressions
  20. Google adwords or other advertising platforms

    • $1 – $3 per 1,000 impressions
  21. Sponsor an influencer (blogger or YouTuber)

    • $5,000 – $10,000
  22. Send your product to an influencer to review it

    • Cost of your product
  23. Comment and write on blogs

    • Free
  24. Answer questions on Quora

    • Free
  25. Write consistently about your industry on Medium

    • Free
  26. Be a guest blogger

    • Free
  27. Ask an influencer to write a guest post on your blog

    • Free – $500
  28. Hire a content writer

    • $50-$100/post
  29. Upload a useful presentation on Slideshare

    • Free
  30. Make YouTube videos

    • Free
  31. Use Twitter

    • Free
  32. Use Pinterest

    • Free
  33. Use Instagram

    • Free
  34. Actively engage in Facebook groups

    • Free
  35. Write consistently on LinkedIn

    • Free
  36. Actively engage in LinkedIn groups

    • Free
  37. Write an ebook

    • Free
  38. Create infographics

    • Free
  39. Host webinars

    • Free
  40. Create online courses

    • Free
  41. Post an engaging and useful video on your website

    • Free
  42. Increase positive reviews on Google and Yelp

    • Free
  43. Publish a press release

    • $250 – $500 per press release

Missing something above? I would be grateful if you let me know so I can add it to the list.

Who Can I Sell My Business To?

You’ve built your business from the ground up, putting in sweat equity like no one else will understand and appreciate. For that reason, it’s hard to let go of your baby because you think it’s worth more than what others are willing to pay for it and you can’t trust anyone to run it like you. These are all considerations in finding the right buyer for your business, but trust that if you put in the right preparation, you can find the right person to sell it to that will leave you feeling glad and relieved that you made the right decision.

Part of exit planning is to know who the potential buyers are. The more interested buyers of your business there are, the more competitive and higher your selling price will be and you’ll be in a position to choose who will run the legacy of your business after you. The top mistake business owners make is that they don’t do their homework, so they end up exiting too early at a low selling price or they go with the first broker on their google search whose goals aren’t exactly aligned with yours. Avoid regret by following the steps below to identify the right buyer.

How to find a buyer:

  1. Find a broker
  2. List your business in a market place
  3. Identify potential buyers and cold call or warm call

More on each below.

1. Find a broker

Finding a broker might be the easiest and hardest method. It’s easy because you can google local business brokers and you’ll get hundreds of hits. It’s hard because you have to then sift through the list and vet the right one to work with. If you don’t consider yourself financially savvy and would rather not hustle your way to finding a buyer, it’s most prudent to go with a broker.

Do remember that brokers can be expensive. They will usually charge a retainer fee of between $15,000 – $30,000 for a business under $5m and a retainer fee of between $30,000 – $80,000 for a business over $5m plus somewhere between 3% – 8% of the transaction fee, depending on the size of your business. For example, if your business has $10m in revenue, $2m in EBITDA and sells for $8m, then you will pay the broker ~$400,000, so you will actually receive $7.6m from the buyer after broker fees. Note that fees vary regionally and by industry, so these numbers are not the standard for every business.

Considering that brokers are expensive, you need to make sure to pick the right one. A good broker will possess the following:

  • Understand the reason for you selling the company and advise strategically how you can maximize the selling price; for example,
    • Timing – urgent to sell it asap or is there flexibility to maximize value?
    • Tender received – receive all cash upfront or part equity, vendor take-back loan with interest, royalty?
    • Asks and understands if you’re willing to stay on board as an employee for several years to successfully transition the business to new owners.
    • Asks about qualitative questions about who you would ideally want to sell for – for example, would you be okay if a private equity firm bought your business and tore it apart into pieces as long as you can exit in a timely manner or do you want to sell it only to another dedicated hard worker who will see through running the business even if you don’t get paid the purchase price all up front?

  • In the second time you meet or speak, they should have done their homework and identified a rough list of potential companies that might be interested buyers (even if these companies don’t come to fruition, it shows that they’re dedicated and do their homework and want your business)
  • Also, in the second time you meet or speak, they should have an idea of how much similar companies have sold/selling for – what were precedent transaction multiples?
  • Do they work alone/small team or are they partners of the company who delegate everything to minions and only talk high-level? As you can tell, I’m not a fan of the latter. I’ve seen first hand how disconnected these partners are and get briefed 10 minutes before a meeting.
  • Are they responsive and available? Selling a business you’ve built over the years is very personal so they need to be there to support you. Also importantly, when the buyer is doing due diligence on your company, their contact person will be the broker. If the broker isn’t responsive, the due diligence will get delayed and the buyer may lose patience.
  • What is their track record – ask and find out if they have the capability to successfully close the deals and how long their past deals have taken from engagement.
  • Are they financially capable themselves (rather than delegating the financial valuation to their team members)?
  • Do they have a good network? Check their LinkedIn – do they have recommendations given? Are they professional with colleagues and other stakeholders?
  • Most importantly, you need to feel comfortable with them – if they’re dismissive and unfriendly, you will feel intimidated or hesitant to reach out to them with any question. You should feel free and comfortable to ask them any question pertaining to the business transaction.

Googling the brokers may take forever. I would advise starting here (International Business Brokers Association):

2. List your business in a marketplace

If your business is in a specialized industry, google “[your industry] businesses for sale in [your city]” and look at where people who are looking to buy or sell businesses in your industry are gathering.

If your business is in a broad industry, you’ll have to rely on big market places that have a lot of traffic – not just where sellers are going to list, but where a lot of serious prospective buyers are going. The most well-known online marketplace to list your business is

3. Proactively identify potential buyers and cold call them

Sounds daunting and is a huge task at hand, but this could provide the most payoff with respect to:

  • higher selling price
  • an opportunity to work with them in the future
  • creative terms of the sale
  • personally rewarding
  • personally vet the new potential buyer
  • avoid broker fee
  • more control of timing
  • since it’s a numbers game, round up more interested buyers to gain leverage when selling

The payoff from this approach comes from targeting and selling to buyers who strategically need your business. No matter how dedicated your business broker is, they won’t put in as much devotion as you will to find the best potential buyer.

The challenges are that:

  • you have to sell the qualifications of your business such that the buyer sees why strategically it’s the perfect fit
  • it’s a numbers game to cold call your list of identified potential buyers and get an interest
  • the buyer may need more conviction that you are a credible seller
  • you have to be available for questions and push through any delay or bottlenecks in the sales process
  • you have to be financially savvy

If you’re ready to take on this challenge to reap high reward, the first step is to make a list of potential buyers. These are the types of buyers you want to search for in your industry and your region:

  • private equity
  • search fund
  • competitor
  • bigger company in your industry
  • bigger company in an adjacent industry
  • employee
  • startup that could benefit with your business’s assets

This method of identifying potential buyers and cold calling them is not for the faint of heart. You need thick skin, you need drive, motivation, and a kick-ass hustle mentality. You also need to have your business groomed in terms of historical financials, supporting basis for growth in your forecasts, supporting build-up of revenue, costs and operating expenses, and other areas of improving your business to the highest value.

What stage are you in your business? Are you ready to sell now or do you have some flexibility to improve your business, educate yourself in whom you can sell to and which of the above method you want to go with?

Describe your business below or contact us to get an assessment of where you are in the business cycle and what areas you need to improve in order to prepare your business for a successful sale.

How To Calculate Selling Price Of Small Business

If you want to sell your business, there are several technical valuation methods to determine the right selling price. You can hire a business valuator and spend thousands of dollars to publish a report IF you need a qualified valuator’s stamp of approval. But you may not need that and it’s good to educate yourself on how to calculate the selling price of a small business yourself first.

So, before you go onto any more steps and spend money on hiring a business valuator, follow these steps:

  1. First, estimate roughly how much you can sell your business for (below)
  2. Then, improve certain areas of your business to maximize the selling price
  3. Now employ the technical valuation methods to fine-tune the estimation of selling price

This strategy works for real estate, so why not for selling your business? For example, you may first get an estimate of how much houses on your block are sold for. Then you invest $80,000 to renovate your house or condo. That raises the value of your house by $150,000, so ultimately, the selling price goes up. Same method can be applied for selling your business.

1. How Much Do You Sell Your Business For?

The rough ballpark of your business’s selling price is to multiply your company’s EBITDA by 4. (EBITDA = earnings before interest, tax, depreciation & amortization)

For example, let’s say your business’s financials look something like this:

Revenue                      $3.5 million

Cost of Goods Sold    $1.0 million

Gross Profit                 $2.5 million

Operating Cost           $1.8 million

EBITDA                       $0.7 million

Multiply $0.7m by 4x. Therefore, a reasonable expectation of how much you can receive for your business is $2.8 million. Again, this is just a rough estimate of the selling price, but you need to know this as a starting point.

In reality, the number that you multiply to your EBITDA is typically somewhere between 2 and 6, which means that you can sell a small, private business that has been steady and stable for the past 5 years for somewhere between $1.4 million and $4.2 million.

That’s a big range, so how do you get the selling price closer to $4.2 million? Now that you know the starting point, let’s go through the factors that will get you to the highest selling price.

2. How to maximize the selling price

Maximizing the selling price depends on a multitude of factors, some with higher weighting than others. 

The most important base factors your business should possess before you decide to sell your business are:

  • Business has been established for more than 5 years
  • Revenue has been steady and growing at least 1% yoy the last 5 years
  • After-tax cash flow is/has been positive the last 5 years (i.e. profitable business)
  • EBITDA margin (EBITDA as a % of Revenue) is/has been steady at 20% or above the last 5 years

Other factors that affect the selling price are listed below. Scroll down to download the calculator.

how to sell your business | selling your business | selling price of your business

At this point in your business where you’re considering selling your business but you aren’t in a rush, the most prudent way is to find out what the rough selling price would be for your business and grow your business’s valuation by targeting improvement in certain areas of your business. 
The list can go on but the truth is, there’s no such thing as the perfect selling price. In my days working for a fund, we followed 8-factor investment criteria that the companies had to meet in order for us to consider investing in. Some people rely on a “gut” feeling and others will do a full-blown 100-page research & analysis report.

Scroll down for the link to download the spreadsheet to find out how much you can sell your business for.

3. Valuation methods

Once you’ve successfully improved your company’s performance to maximize the selling price, the following are the technical valuation methods that your business valuation report should include:

  • Discounted cash flow method
  • Comparable public company multiple
  • Precedent transaction multiple
  • Net book value

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