EP 112: Seeing a Business's Future with Adam Hoeksema

Ed Mysogland  0:20  
Welcome to another episode of defenders business value. I'm your host, Ed Mysogland. And this week, we're talking to Adam Hooks, and he is the president and founder of projection hub. And you're probably sitting there going, I wonder what why this guy? Well, there's, I mean, I've known this guy, since he's, he was in banking, you know, and he, he ran a micro loan practice up north of where I'm, where I'm located. And, you know, he, he has seen so many different types of businesses. And, and he launched this projection up, and I've been seeing more and more of it. And projection hub is just what the way it sounds, they, they have a service that helps buyers and sellers, and professional advisors like me, determine forecasts, forecasts, performance, whichever terminology you want to use. And so I wanted to talk to him a little bit about what makes a great for forecast, you know, how do you how do you do that? What, and, and why. And one of the most important things we had to do with working capital, you know, the working capital is a huge, huge part of any acquisition. And and you don't want to botch that one up. So we had, it was great to catch up with him. And he truly has a wonderful service that he's offering. And I'm certain you're going to learn a lot on this on this episode. So I'm certain you'll enjoy my conversation with Adam Hooks him up from projection up. Adam, welcome to the show. It's great to have you here.

Adam Hoeksema  2:07  
Thanks, Ed. Glad to be here.

Ed Mysogland  2:09  
Well, before you came on, I always do my inner my introductions of you and and the work you do, but I never and I say this every time I don't do it justice. So can you talk a little bit about where you came from? Because I've known you for a long time. And now you've got projection hub. So I'm just curious to give us the overview of of Adam. Yeah,

Adam Hoeksema  2:31  
so I studied accounting, and undergrad and audit internship and tax internship and pretty clearly realized I did not want to be an accountant. So I ended up wanting to be more entrepreneurial. So I, I got a job at a business incubator in Anderson called the flagship Enterprise Center out of out of undergrad, and they hired me to run this microloan program that they were just starting. And so I, I became the Executive Director of SBA micro lender called bankable and was in that role for about a decade. In 2012, I kind of started this this side business, projection hub. And really, it's been that it's been that long. Yeah, so I was initially, you know, I was I was trying to help our clients or bankable clients with we were asking them for projections. And I remember

Ed Mysogland  3:36  
that how much work you were putting into those into those people? I just can't, I'm embarrassed that it's been that long. Keep going. I'm sorry. Yeah,

Adam Hoeksema  3:44  
yeah, no, I so we, we, initially, you know, I was working on my personal taxes using TurboTax. And I thought there's got to be like a TurboTax like solution for projections. And so my, my brother was going to be studying software engineering. And so I asked him, Hey, you wanna, you're gonna build this tool for me? Let's, let's try to build it together. So that's kind of how the business started. And, yeah, we wanted to be a monthly recurring revenue type of, you know, timely, because of course, right, that's what we all want. So I fought that fight for a long time, probably about seven years and, and was still have the day job, and and then eventually kind of took I'm a slow learner. So eventually kind of realized, you know, people don't want to pay for projections monthly, number one, and number two, Excel is still pretty good. And so we kind of pivoted the business to today, we primarily sell Excel spreadsheet templates for about 100 different industries. And then we've got a CPA on If we do custom financial modeling, and yeah, so that's, that's fast forward into today.

Ed Mysogland  5:05  
Rock on Well, well, I owe you an apology. And, you know, I have always been, I have always advised ourselves side clients that, you know, what you do not want to put earnings claims your future earnings claims in our sim. And and. And it seems as though that that may have been the case years ago, but it seems as though you know, that's almost expected now like, here's, here's, you know, what we think this thing's going to do. And if you have any, any confidence in your business whatsoever, you should be able to put together some sort of a limited forecast that that you can stand behind. So I do apologize. I, I I, I have, I have not been the best advocate for for that, but but the Alexa times are changing. So I appreciate the forgiveness. So, so let's talk about projections. There's, you know, what's the difference between a forecast projection and pro forma? And and I guess, you know, from both from both sides of the table? I mean, yeah. I think listeners know, inherently what it means. But I guess from a from an expert doing it, what does it mean?

Adam Hoeksema  6:35  
Yeah, I mean, and, and I think what we primarily end up doing in terms of that acquisition space, we are usually working with the buyer side, and oftentimes, it's, they've been provided a set of financials, and they're working, they're trying to get financing, right. And so they are, they're taking the existing financials, getting it into a template format, and then our, you know, our acquisition template, for example, helps you kind of say, Okay, what's gonna change to here's the last few years, we're going to reuse those as our baseline. Now, okay, buyer, what are you going to bring in to do better? You know, and why, or what, what expenses? Are you going to get rid of? Or how you get increased revenue and, and model that out? And then ultimately, I think the maybe the big thing is just making sure then, based on those assumptions that you can cash flow the, if you're getting a loan for the acquisition, that's what we're usually working on is like, Can you can you cashflow this loan that you're trying to try to get? So

Ed Mysogland  7:43  
do you? So then do you dive into returns, like cash on cash returns? You know, your, your, your normal? You know, now, let's just say your whole period, seven years? And what what is your your future exit total return on investment? I mean, do you dive that deep? Or is it? Or is it more peripheral that I hear, here's, here's your leverage, here's what you got to make. Here's the existing components of the business. And then let's see if we can build something out that this is the most you can afford, given, given these constraints on the on the criteria?

Adam Hoeksema  8:23  
Yeah, yeah. So I would say, most of what we're asked to do on the acquisition side, I think it really, again, tends to be for the lender, and it's like, and not so much about what are the returns gonna look like? Now, I would say we do real estate, financial modeling, and that often is like, Okay, we've got, you know, we're going to buy this building, or we're going to build where I were a developer, we're going to build this building, they want to know, what are those returns look like after a seven year hold period, or whatever that measure? So that's where I more often get asked to do that kind of modeling. Sure. But

Ed Mysogland  9:06  
well, you know, at the same time, I mean, buyers aren't, you know, a lot of unsophisticated because that's not what I mean, I think generally, a lot of the buyers are more cannot can this business pay me and cannot service my debt? And then way down on the list is, you know, can it get a return on my investment so I, I'm, I'm with you. But let's let's focus on on on the big on the big rocks before we start working on, on all the minutia and the returns, although, you know, as I as I see, it seems as though more and more buyers are becoming more sophisticated and, and, and are, you know, layering on, you know, here's the returns, especially if they have You know, a sponsor for down payments and and as we move into it like said, it just seems though, that the buyer pool is just improving as far as their analytics for for lack of a better word that, that they're making better decisions and they're they're using more tools like yours, you know to come alongside them or support their their position with the with sellers and yeah, people like me Yeah,

Adam Hoeksema  10:27  
it's a good point, I think it's probably something we should out we have in our real estate model, we have this tab that's like the investor distribution and what they would make a lot of sense to add that to our acquisition template so that you can see that too. We, you know, certainly doable. What

Ed Mysogland  10:44  
there was a, there's a fella by the name of Mike Adhikari out of out of Chicago, and he had, I know, you're an Excel junkie, and I am to your remember, solver,

Adam Hoeksema  10:56  
do you ever have you ever heard the term solver? I've heard of that, but Okay,

Ed Mysogland  11:01  
so, So, long story short, you can put a Monte Carlo simulation, so you can put in different criteria, and it will churn every, you know, all of the all of these attributes or all of these all this data, you know, if you say I want to maximize return, it's going to build you a deal, that it that it looks like, you know, if I want a 45% return on my investment, and I have a seven year hold, what's it what do I how much can I pay? Or how much should I pay in order to make it work? And, and I love that program that the I got away from when I went to Mac. They don't support Mac? And yeah, and I'm not willing to do that. It's a it's a it's a real interesting deal making software, you get a chance to or if you want the introduction, let me know he's Yeah, super, super good. Super good guy. Yeah. Mike Adhikari I wanted to, like, from a pre sale standpoint, I want to talk about, you know, what, when you're doing projections, if I'm a seller, what are what am I putting in there? I mean, am I consolidating my income statement? You know, to, you know, just, you know, grouping them, and forecast, you know, grouping the expense, you know, the expenses? Or do I have all 40 of my operating expenses and forecast accordingly? You know, what is a what, what are you including in your forecast and be what's the best presentation? Yeah,

Adam Hoeksema  12:54  
that's a good question. So the way our, our acquisition template, for example, works is it would allow you to put it, you could put in all 40 Of those, you know, individual expenses, but then there's a box next to it, that's going to ask you from a drop down to categorize it. And you can, I think we give you like maybe 15 expense categories. So that that way, you got to get those 40 into into 15 overarching categories. So the presentation of the financial statements, or the projected financial statements is not 40 rows long. It's a little cleaner, I guess. So we typically do.

Ed Mysogland  13:32  
So, but from a presentation standpoint, the fewer the fewer, the better. And, and again, I I know enough about projection hub to to make me dangerous. One of the one of the things that I always, I always cringe on and it's not necessarily a reflection of you, it's just the tuition I paid. So there years ago, there was per business valuation, there was a program and I was I was a I was on the development team. And so we were out as a beta tester, and I used it for a personal expert witness work. And, and so this attorney goes up to me, he goes, Just tell me where you got that number. And he's pointing down, he's like, just tell me this number right here. And, and I couldn't I N, he gave me time. And I still couldn't, I still couldn't find it. And I went back. And I mean, it was it was a flaw in the program. Alright, and so where I'm going with that is like, can you override your your projection of templates, or are they locked down?

Adam Hoeksema  14:51  
Yeah, so you can we have them unlocked and we do we hide tab. Like we we have calculation tabs that's like, this one you probably shouldn't mess with, but but it is. Yeah, it's fully editable. So if you want to get fancy with it, and you can get in there and change everything, but yeah, maybe at your own, at your own risk

Ed Mysogland  15:19  
your own peril. Right, right. Well, like I said, I have to let eat, but each time I, you know, each time, like as a practitioner, you know, it's kind of like, you know, if something's going wrong or something doesn't look right. I know where to look. You know what I mean? Yeah, it's like, yeah, and I speak in spreadsheet. So I'm, I'm, I'm big into that. But I, but I do know that, that this projection stuff is so important. And that's more where my next question is. And that has more to do with, with working capital, I'm really interested to hear how you're forecasting working capital, because you know, every every deal, two checks, first ones to buy it. Second one's the to fund the working capital. So anyway, we hope to get a better working capital number is a real big thing for for buyers and sellers. So So tell me a little bit about how you're doing that.

Adam Hoeksema  16:22  
Yeah, I mean, so I guess, I don't know if it's the most sophisticated approach or not. But basically, we have an assumption that allows you to say, on, you know, on average, what's your day sales outstanding? Or how long does it take you to collect receivables? So, you're, you're gonna make an assumption on that if you say, you know, 30 days, and then, you know, anything you sell month one, you're not going to see that cash until MONTH two in the in the projection, right. And then same thing on the accounts payable side, we let you put in a number of days. And so it's really kind of the, the, the difference between those two, and it makes a huge, it makes a huge difference. Yeah, I mean, it really does. I think we've seen that recently, where it's like, why do I need so much more cash? And it's like, well, you put in, that is gonna take you 30 days? To get Yeah.

Ed Mysogland  17:24  
Yeah, I was at a, I was at a holiday party. And we're recording this in the middle of December, but I was at a holiday party, and one of the one of the people, because we're talking about working capital, like, know, what all you do is take two months of expenses. And there's your working capital. I'm like, I mean, this is coming from, you know, a fairly sophisticated, you know, operation, I'm like, Really, that's how you calculate working capital. And he's like, Well, yeah, how do you do it? And I'm, and I'm with I'm with you, Adam. I'm like, No, this is we got to we got to be more definitive and be and be able to, you know, have some sensitivity. No criteria on what's going to happen is, I don't know what the hell you're talking about. Why? Why would you do that? Good night. Yeah. So, Eddie, right. So what are your what are some of the metrics and ratios that that you're that you're following? And because we're geeking out a little bit, what what's, what's your your number one and number two metrics that we need to pay attention to?

Adam Hoeksema  18:33  
Yeah, I guess, I guess, again, for me, since I'm usually working on the buyer side, and they're trying to figure out what they, you know, what, what they can cashflow what they think they can get approved. For. From a lender's perspective. It's usually that that debt service coverage ratio. And so, you know, that can that can do a lot to kind of facilitate, you know, how much can I borrow, which kind of feeds into how much can I pay for the business? Right? So I'd say that's the, that's the number one thing. And then beyond that, you know, usually when I'm like reviewing a set of projections, for somebody that, you know, they've done it on their own, and then I'm just they want to send it to me to give it a sniff test. You know, I'm just looking at the, the bottom line really, and saying, you know, you're saying you're in the coffee shop business and, and your profit margin is 43%. Like, you know, there is projected to be 43% like Starbucks is that, you know, I don't know, Starbucks is the best operator in the world and they're at whatever they're 18% So are you gonna, are you gonna do that? So that's usually where I can where I look to point out problems.

Ed Mysogland  19:55  
And I guess as far from a sniff test goes, I get used Um, so when you, when we're when we're looking at you know, at doing a projection, I was telling you this before, we're just getting before we hit record, and I want to revisit it, of quality of earnings. So when you're basing your projections, you know, I, I'm just curious to know. Because, you know, if you if you put, if you have bad information going in, you're gonna have bad forecasts coming out. So. So tell me a little bit more about how, you know, the sniff test should, excuse me the sniff test that you're doing before you start down the path of trying to foresee the future?

Adam Hoeksema  20:45  
Yeah. And again, a lot of it is just, you know, usually when people are asking us for is not to determine the quality of earnings, either we're not really we're not doing that. So we are taking what they what they give us, but But yeah, I mean, I think I always, you know, in lending, I would always say like, I want to, I want to look at what the tax return, says not what the internal financials, say, at the very least. Because that's, that's what the owners been what the seller has been paying taxes on. And so they've, if they lied on that, there's, there's some gruesome problems there. So

Ed Mysogland  21:29  
no, we did the same thing that's along those same lines, we have the, you know, I'm always if I have to pick and choose, I'm going with your tax return. Yeah, yep. And so is every lender. But from growth, let's talk growth, because I mean, that's, that's ultimately what's driving the at least the valuation from a from a forecast. So business valuations based on earnings growth and expectation, or earnings growth and risk. So where are you coming up with growth? When you're doing that? I mean, is that just interviewing with the, with the buyer? Or are you going into IBIS World and looking at the industry? Where's, where's that data coming from? For you?

Adam Hoeksema  22:19  
Yeah, I mean, usually, it is going to be an interview with the buyer. And saying, you know, I can take your historical numbers that you provide, and say, This is what it's been growing. But, you know, usually, the buyer seems to have an opinion about like, no, no, we're gonna, you know, I we're gonna grow 25%. And so that's usually where that's coming from. In the later years, a lot of times, what I'll suggest is like, you have some specific plans, that you want to make changes year one, and you think this is going to result and growth. So your one growth rate, we might apply, you're 25, or whatever it is you want. After that, then I'm going to go to IBISWorld or look for what's the industry just growing at, generically and try to get it so that five years, if we do a five year projection, usually, so by year three, four and five, like hopefully, we're just, we're not assuming you're gonna grow at 25% forever. So

Ed Mysogland  23:26  
well, I am like, so especially when we do by side work, and and the buyers coming along. And yeah, and they have those aggressive ideas to me. Yeah, I, it causes me to pause, because I think I think from a, I think it overstates the value, you know, when you start layering, you know, like you said, you got 25% growth, and you do any kind of income, you know, let's just talk business value firm, and you start doing, you know, a discount of future earnings, you know, and that, that first year is a big one. And then year five, is also a big determining factors for the terminal value. Right? So I sit there and I'm like, and I always try to steer clear from the income approach. I just, I just, you know, I for me, I do know okay, you're gonna we're gonna grow with inflation, that's the most concern if I'm on the sell side, that's the most conservative way to go and let's let's evaluate risk and you know, yeah, let's look at a normal holding period and the normal Exit Multiple and that probably, that that should get the job done. But But I bet from a buy side, entirely different conversation because now on the sell side, you've got an entire pool of buyers when you're doing valuation right. This is You know, you've got different buyers that have different levels of risk. And all those buyers are going to have a different perception of value, given all things being equal. On when you have an individual buyer and you say, Look, you know, I, I need, this is my hurdle rate, you know, this is the number, this is what I'm willing to pay, you know, let's, let's start talking about building out a model that that makes this thing make sense. So that's, that's kind of where I was heading with it with with your, like, for me for presale versus post sale projection? mean, how close are you? Because I, I often wonder, when down the road, you know, most people are pissed at me, you know, they normally, you know, we normally have a pretty good track record with, as far as, you know, the the value guidance that we provide, but, but I, but I often wondered how close we were to the projections, you know, down the road, how do you track that? Or do you have any idea?

Adam Hoeksema  26:07  
Yeah, I, you know, I don't I don't really know, I, you know, it's like, yeah, I mean, I think I think a lot of good, good writer and different. You know, just, I think most people what I found when they're asking for projections as real as for the, it's for the lender, like they, they don't, they don't want to look at it again. You know, it's like they do it for this exercise. It's like, it's funny. So it's like I, you know, I don't think they're, I don't know, I think that's why we've realized it was like, it was hard to get people even if you should, you know, send us projections, look at them every month, see how you're doing compared to projections. That was like the original idea, the business and that monthly recurring fee, but nobody wanted that. Just wanted it for the point in time.

Ed Mysogland  26:57  
Interesting. So do you see where I'm at to ask you? Where do you get your business? Where words are coming from? Um, yes. I mean, you're you're a well known guy in this community. So we're, I mean, you're a good practitioner, where, but where? Where's most of the business come from? Yeah,

Adam Hoeksema  27:14  
it's mostly Google organic search and YouTube search. So interesting.

Ed Mysogland  27:21  
Have you? Have you thought about, like, Upwork. And posting there? Are you familiar with it?

Adam Hoeksema  27:27  
Yeah, yeah, I've tried. I've tried that a bit. You know, there's interesting, there's competition there. Like, it's like, I let the let the business come to us when the buyers are ready, like we so we don't do much in terms of, you know, having to sell somebody, it's like, they come to the site, they read what we have, they watch a video on how our template works. And they make a purchase decision. And and then if they need help customizing or filling it out, that's where we're doing our

Ed Mysogland  27:58  
consulting work. What's the most popular template?

Adam Hoeksema  28:02  
So from $1 perspective, our acquisition template is actually our highest revenue January, but it is industry agnostic, so it kind of works for any any industry. But if you look at just, we have about 100 different industry specific, right, so those are, those are more for, you know, tend to be more for startups, where you're kind of you don't have historical financials, and you're just like, hey, I've got I've got a trucking business, how many trucks have I got on the road? What's my rate per mile? So building those base level assumptions? Sorry, I think our most popular like, in terms of just raw numbers of templates sold is our tracking template actually real? Because every like, owner operator that wants a loan for a truck, the banks asking for projections. And so there's just a lot, a lot of those.

Ed Mysogland  29:00  
Now, that's awesome. Yeah, I was just I was curious to know, whether Was there something that you saw, you saw a lot of and I was just curious to know, whether or not didn't tie to, you know, the the number of businesses that are are being sold or the composition of the businesses that are being sold that you're, you're you're positively correlated to biz by sells insight report on what company what types of companies are being sold. So, yeah. All right. So, sudden, put your forecast hat on and so what tools and resources should should buyers be be utilizing or considering in order to, to either use you or build their own forecast? What what should they be? Is there a here here's everything in my toolbox that i i Always or would I I'd say, You at least need to explore.

Adam Hoeksema  30:05  
Yeah, so one of the, if there's any, like physical retail, you know, physical location aspect to the, to the business, I use a tool called adven research, which is a foot traffic tool, there's a couple other ones out there too, that seem pretty good. But you can, you know, put in an address for, you know, the location you're buying, or you can put an address of a competitor. And it gives you an estimate of foot traffic, you know, you've probably, like accepted some terms and service on your phone so that other tracks so they can track you and put you in a foot traffic report. But, but I found those to be pretty, pretty useful. Like I was mentioning, a gas station. Guy on the plot of land was going to build a gas station on it. Well, I could find a foot traffic report for the gas station across, like across the interstate on the other side. And you can even see how many people came to the gas station property, but also who like how many went into the convenience store? Really? So you could get some estimates on? I was gonna say, sales and gas sales.

Ed Mysogland  31:27  
Yeah, no, that's a that's a hero comment. I mean, you could really help somebody, like, avoid or, or, or make a great decision based on that kind of information. Right. So, so add ban, I What else is in the secret toolbox? Nope. That you can share? Um, yeah, you've got?

Adam Hoeksema  31:48  
Yeah, and so those are physical. I like that for the physical businesses for things that are more website, you know, driven, or I often use a H refs? Sure. Which is a web. Yeah. So I can, you know, put in any website in there and get a an idea of how much organic foot or that foot traffic organic website traffic they're getting to their, their site. And so what I like to do with both of those is, it's the, it's the sniff test of, okay, if I think I need, you know, I need to have 1000 unit sales a month. And I think, you know, I'm an E commerce and I think my conversion rate is going to be best, you know, at 3%, I can kind of back into how much traffic I'm going to need. So then I could look at some competitors. Or look at some, you know, look at the website, I'm considering buying and saying, okay, in my close to what, what kind of traffic, are we if I if I need to have my best competitor has less traffic than that? Boy, how am I gonna make this work? And, yeah, so

Ed Mysogland  33:05  
I'll tell you one of the one of the things that I that I think is a totally under utilized resource that, that I, in 20, after the pandemic, I mean, is, is your public library are, you know, I do, I do some teaching at Butler, and you probably knew that, but I'm telling you what, the access to some tools and periodicals and some industry research that otherwise would be pretty cost prohibitive. I mean, if you're in a particular space, it's one thing but when, you know, in our practice, I mean, we've got different silos, you know, but generally speaking, we're a generalist. So being able to bob and weave and pick, pick things up from different industries. You know, we go, Alexa, we go through the public library, and especially, you know, where I live, you know, the, whether it be the Indianapolis Public Library or the Carmel library. I mean, those are some robust operation. So, yeah, I think I would add those to the shortlist. Yeah, that's

Adam Hoeksema  34:12  
a good idea.

Ed Mysogland  34:16  
All right. I wanted to talk to you about an article you you recently authored or post that you put on LinkedIn about, about the future of business sales. You want to talk a little bit about what what prompted you, you a projection guy to start writing about business sales?

Adam Hoeksema  34:34  
Yeah. So I was, you know, I been hearing on LinkedIn and Twitter about everyone talking about, you know, the silver tsunami and all these people that are going to be retiring and sell sell their business. And so I was just curious, I'd seen some reports from like biz by sale, about the number of businesses sold on there. They're on their platform. And I. And then I had also I read, there was a report done by Live Oak Bank, that they had surveyed a bunch of businesses and, you know, estimated, I think it was in like 2.2 million businesses that they thought wanted to transition in the next five years. So I just did some math, if you just divided 2.2 million by 60 months, it was like 38,000 businesses that needed to be sold every in our transition every month. And so I was trying to find a source and maybe, you know, have a source, but I'm trying to find a source, like how many businesses sell from all all sources in a given month, I looked at Best Buy So, and I looked at the SBA loan data, to see how many businesses were sold with an SBA loan, and it was like 7500 a year? I mean, it's not very much, right. So the total between those two and the sources I found is like, maybe 20,000 20,000 a year. And you need to be at 38,000 a month pace. So, so that just kind of brought me to this like, is there's what am I missing? Or? Yeah,

Ed Mysogland  36:21  
you're right. So and this to begin with? So one thing I don't want to dog on, on Best Buy, Sell, but I will, I mean, yeah, they, yeah, they list between 50 and 60,000 businesses a year. Okay. And if you pay attention to the Insight reports, I mean, they only sell about 10,000. So I mean, you can see, you know, the dismal, the dismal return. And that's what, you know, why, why I'm, you know, working on launching, you know, big sale by owner, you know, the self directed business sale platform, because I think a lot of people, just, they need more that because all those all those 60,000 businesses aren't represented, you know, they somebody needs to come alongside, like, like you on the bicep. This is how you do forecasts. Now, let me show you let me help you. And I think that, that there's a lot of myths, you know, value guidance, challenges and different things like that. But to answer your question, so I did, I did some analysis to and I'll send this to you that, you know, there's 12 12 million business owners that are businesses that are owned by baby boomers. Right. 78% intend to fund their retirement, right? 60 to 100% of their retirement. All right, and it's 18 years, alright, 18 years, is the average retirement, and you'll have to write down because I'm gonna

Adam Hoeksema  37:57  
get Yeah, this is great stuff, I'm not ready to do so.

Ed Mysogland  38:01  
So eight, eight, and I'll give you the outside sources, but 8 million will go to market, I, if you use the 20% success or sell ratio, that's 1.6 million businesses will sell. Alright, 1.1 will simply close the doors. And then 5.3 Are, are hanging out there. I and they may not sell and and here is the value or the the reasons and again, I'm and for those of you listening, I mean, this is a mixing and matching some data, but it's the best data that we have. All right, so So 10% You know, just weird things happen in deals, that's why it won't close 10% There's no market 11% It's because of the lack of capital. Another 11% is insufficient cash flow 12% fail because of economic uncertainty. 20% Because of unreasonable demands and 26% is value gap. That's kind of the donut of why the 5.3 million won't sell. And so and then out of those 12 million again, we've got 4 million that will attempt to transfer to two family members. So that's the data and like I said, I haven't cited the information I just quoted was from Pepperdine private capital markets survey. So I will I will get that to you. Yeah, it's great. Well, you know, but but to for our conversation, you know, I guess I'm curious to note, I mean, you've been in banking, you been in accounting, and now you're, you're doing projection. I mean, where do you see this thing going?

Adam Hoeksema  39:56  
Yeah, I mean, my my I thought in that post, and what I've kind of been trying to think through is that it seems like there's an opportunity for on the on the buyer side to, you know, be more creative. And you know, and like, because there's going to be a lot of a lot of supply, there should be a lot of supply and businesses that would be interested in selling. And so I guess I've been thinking and I did a little looking at Google, I like to look at Google search trends. And I noticed like seller note, it doesn't have a ton of volume, but it's, it's, it's going out there. It's going upside, like, you know, is that is that end up? What happens, you know, people try to sell it, they can't, then eventually they're like, Okay, I'll just do a seller note for a big chunk of this.

Ed Mysogland  40:53  
Well, it's funny you said so. So, the other side is that the seller note is bridging the gap is serving as almost the mez debt for, for the deal. So when you got 11 or 12% cost of capital on SBA loans, you've got to have some means, you know, if you want your value, you're gonna have you know, there's only so much borrowing power. So let's put that that note, either a self cancelling note or some some something that that might might get that business or to, to a premium. But I'm with you there, the creative, the creative side of deals, I think it's even gonna get even more creative. I think there's a lot, especially with like, like I said, I do some teaching at Butler. And I mean, there's a lot of kids that want to sidestep getting jobs and go right into to owning a business, which is, you know, yeah, like, I have two daughters. One is 21. And one's 18. And I'm, I'm sitting there gone. Can I see my 22 year old saying, Dad, you know, I'm gonna go run a business. I'm like, How do you know that? From a from a deal? Guy? Yeah, Heck, yeah, let's go do that from the, from a, you know, chances are the sponsor of the acquisition. That might, I might be a little rough. Yeah. But I but at the same time, a lot of these kids are sitting here saying, you know, what, this business doesn't have a website. Imagine what I can do layering some tech on top of it? And yeah,

Adam Hoeksema  42:34  
yeah. I have a question along these lines. I'm curious your take on so I've been as I've been researching this, it seems like that the vast majority of like, on bizbuysell, I think it was like 84% of the businesses sold were for less than for a million dollars or less. And, and, as I've been kind of thinking through the the math on selling a really small business, it's, it's tough to probably make the math work a lot of times, which maybe that's part of your, for sale by owner or, you know, business sale by owner is because it's hard to hard to afford a brokerage fee, or whatever it is for $200,000 business. It

Ed Mysogland  43:20  
Yeah. 100% that that as I mean, there's, there's a number of different reasons why somebody wants to do a self directed sale. And, you know, one is economic two is ego, like, screw that I haven't, I haven't, so I could sell this thing all day long, and they might be able to do it. But at the same time, I think that there is a lot of people that especially on the small side, you know, there's a family associated with that, that business and there may be only one employee and that employee has a family and the end, somebody the risk associated with closing down. I just, like, you know, I've been doing this so long, and I and I guess I'm to the point of, I want to contribute to the industry that there needs to be some marketplace, somehow, some way that can facilitate the self perpetuation of entrepreneurship. And that guy with the two, you know, the $200,000 businesses just as important as the 20 million, you know, and where you're going to have a cadre of of advisers and circling that that business owner I just want you know, I want the same LSA the same attention but the same access to best in class advice. Yeah, at the at the small level. But, but yeah, I think it's gonna be I think it's gonna it's gonna be a slog to to turn the deal making industry That way, you know, I, I just don't I don't want to see small businesses evaporate. No, but yeah, that's alright, I'm I need I need something to worry about I'll keep doing it. Um, so my last question is, you know, I, I asked this of every one of our of our guests or my guess that, you know, if you had one piece of advice that you could give them that would have the greatest impact on value or scalability? What would it be?

Adam Hoeksema  45:37  
Hmm, yeah, I, you know, I feel like, I'm coming at this from I'm not sold. Chuck business myself. So, you know, yeah. But I think from from the perspective that I'm seeing, you know, I think that we see a lot of the small business owners, you know, they're just trying to not pay a lot of taxes. I'm trying to, and I see that a lot saw that a lot of bankable to where it was like, someone was trying to get a loan, the buyers trying to get a loan, and they say, well, here's what the sellers tax return said. But we think actually, it does better than this. And it's like, yeah, sure it does. That's, like tough. We can't, you know, what, what can we do with that? So I think I think that's the, you know, I feel that I feel the tax side is the business owner, it's like, okay, what expenses can I cram in here, and then, you know, the last 15 days of the year, you know, and reduce my taxes. But if I ever want to sell the thing, I'm shooting myself in the foot. So

Ed Mysogland  46:51  
So trans transparency and clarity of taxes, pay your taxes, and you're gonna reap the reward on the back end, right. Yeah. I get it. So, so my friend, where can people find you? Yeah,

Adam Hoeksema  47:05  
so our website is projection hub.com. And I'm, yeah, I've been posting more on LinkedIn lately, trying to try to diversify a little bit away from all of our eggs in the Google and YouTube basket. So yeah, well,

Ed Mysogland  47:22  
I will, I will have access or I will have everything connected to the show notes, so people can find you. So you know what I I'm sorry. It's taken us this long to reconnect that but I sure have enjoyed our time together. Yeah. Thanks,

Adam Hoeksema  47:38  
Ed. All right.