Introduction

Darren: Welcome to Commercial Real Estate Pro Network’s CRE PN Radio. Thanks for joining us. My name is J. Darren Gross, and this is the podcast focused on commercial real estate investment and risk management strategies. Each week, we talk with commercial real estate investors and professionals who share their experience and insight to help you grow your real estate portfolio.

Today, my guest is Gregory Kovsky, president and CEO of International Business Associates, a regional business brokerage and commercial real estate firm. We’re going to talk with Gregory about why it’s prudent to have a real estate-licensed mergers and acquisitions broker facilitate the sale of your business. Gregory, welcome to CRE PN Radio.

Greg: It’s an honor to be here, Darren. Thank you.

Greg’s Background

Darren: I’m glad you’re here, and I’m looking forward to our conversation. Before we get started, could you take a minute to share a little about your background with our listeners?

Greg: Certainly. I’m a Portland boy. I grew up in the great state of Oregon, then left, spread my wings, and flew to the University of Texas. After getting a degree in investment finance and accounting, I pursued my first career. I missed the Northwest and returned in 1994. I joined IBA as a business broker and commercial real estate broker working for the founder of the firm, and I emerged as one of the company’s top salespeople. I succeeded him as owner in 2000 through an internal acquisition of the company, and 26 years later, I’m still running the firm, with 10 offices spread throughout Oregon and Washington.

Darren: That’s an interesting turn of events. You go from selling businesses to applying your skills to buying the business you’re part of.

Greg: Exactly. I was a bit of a favored son, and I’d been mentored by a wonderful individual, Bill Osavski. He was looking to retire, and we didn’t want to disrupt the ecosystem for the staff, because many of them were approaching retirement or had kids in college. Like at any real estate company, they could scatter to the four corners if they didn’t like the transition. So often in the real estate world, an internal transition makes sense to maintain team chemistry and continuity.

Darren: I’m happy to hear that. It’s not always the case these days, but an internal transition is nice.

Real Estate vs. Operating Businesses

Darren: We mentioned that you’re a commercial real estate broker and a business broker. Can you describe and compare the two, real estate versus an operating business?

Greg: Certainly. They’re two different asset classes with different return-on-investment profiles.

Commercial real estate is more asset-based, although obviously the income it generates plays a role in valuation. Throughout the Northwest, you can see cap rates of 5% to 10%, depending on the property segment, the location, and a variety of other factors.

With businesses, the interesting thing is that the best businesses are more intangible assets than tangible ones, because people buy businesses for return on investment and for appreciation potential and opportunity. Our return on investment in that space generally starts at 15% but can go up to 50%, depending on the risk of the business model.

Here’s a classic example. On the low end of the range, at about 15%, you have a gas station, which is all location, location, location. You don’t even need to interact with employees. You pull up, fill your car, put your credit card in, and drive away. Maybe you go into the convenience store, but whether the bathroom is clean won’t affect your purchase.

On the other end, you’d have something like a beauty salon. It could be beautiful, with porcelain sinks and wonderful decor. But I can tell you that with my wife, if her hair stylist leaves, she’s more likely to ask one of her girlfriends for a referral than to give the new owner a chance. So transitioning a business model like that carries higher risk and warrants a much higher return.

Darren: Got it. So I assume the risk and return also dictate the sale price.

Greg: They do. In both real estate and business, you take the income generated, which is EBITDA in a business, and you multiply it. Say a property generates $300,000 a year. Maybe you multiply that by eight, and you’re talking about a $2.4 million to $2.5 million value for the property. For a business, that same $300,000 might get a multiple of three to five, so you’re at $1 million to $1.5 million in value.

That’s because the one thing we can’t sell is the executive and management ability of the owner. The new owner will be better or worse than the old owner, never exactly the same. They could excel, and the business could turn out to have been a bargain at the price they paid when you look back five years later. Or they could drive it into a wall and kill the business. We’ve all seen a business we like change ownership, and then product quality and customer service decline, employees leave, and it doesn’t survive.

Darren: That’s true.

Industries, Territory, and Deal Size

Darren: You’ve mentioned a couple of examples of types of businesses, the hair salon and the gas station. Are there any types of businesses you don’t or wouldn’t sell?

Greg: As a firm, we represent about 20 different verticals. We do a lot of manufacturing, industrial, construction, education, technology, auto and transportation, retail, hospitality, and so on. We don’t do much with law practices or CPA practices. Those are areas where IBA doesn’t do many transactions.

Darren: And you mentioned your territory is primarily Oregon and Washington. Is that correct?

Greg: Yes. About 90% of our transactions are in those two states, and I’d include Idaho and Alaska with them. We’re active in the marine industry, and we’ve sold a number of companies in the Alaska fishing industry. In Idaho right now, we’re representing a custom home builder.

Darren: As far as the size of the businesses you represent, is there a range you’d identify as your sweet spot?

Greg: We actually cover quite a range. We want businesses where the owner is working on the business, not in it. We don’t do buy-a-job situations, where someone works 70 hours a week to earn $85,000 a year. There’s a market for those, but it’s not what we do.

We generally start at about $150,000 in owner income, or approximately half a million dollars in enterprise value, and go up to $5 million or $6 million in EBITDA, or $25 million to $30 million in transaction value. So we cover quite a range with my 20 intermediaries. I have small business specialists and more investment banking-style M&A specialists.

Darren: When it comes to valuation and sales, do you ever look at employee count as a determining factor, or is it more about sales and value?

Greg: Good question. When we screen potential clients, we traditionally ask a few questions. First, how long have you been in business? We’d like a business that has been around more than five years. Second, how many employees do you have? We prefer double-digit employee counts, but we’d consider five to 10 for the right business model. Third, what are your gross revenues, and is it a successful model? In most businesses we represent, 10% to 20% falls to the bottom line after all expenses. So if you’re doing a million dollars in sales, you start getting to $100,000 to $200,000 for the owner.

Darren: Is that fairly uniform? That’s an easy back-of-the-napkin calculation if it is.

Greg: It’s a starting point. And since we’re talking about commercial real estate, if you’re a brick-and-mortar location, you’ll have higher occupancy costs, whereas a service business may be more virtual. So that can be one of the variables: what are your fixed occupancy costs?

Seller Financing and SBA Loans

Darren: For a business being sold and a buyer looking to buy, what percentage of these purchases involve seller carry?

Greg: For us, a very low percentage of our deals have a large amount of seller carry. About 10% is very common, and the reason it exists is to address trailing liabilities that may come out of the woodwork. Obviously, the buyer doesn’t want to cover issues tied to the previous owner’s activity.

Say we’re selling a plumbing company, and we do a lot in the trades. If someone did a plumbing repair a week before the sale and, for whatever reason, needs to go back and adjust something, the new owner shouldn’t be out of pocket for that expense, because the old owner was paid for the work. A seller note gives the buyer leverage: if the seller disappears to Jamaica and can’t be found, the buyer can still be made whole for out-of-pocket expenses tied to the previous owner’s tenure.

Other reasons are to make sure the seller provides the transition training and consulting they agreed to, so they don’t put up the “gone fishing” sign two days after the sale when they said they’d be around for a couple of months, and to enforce the non-compete, so they don’t open a competing business.

The reason we can keep seller carry to 10% is that America is unique in having SBA lending programs, which are similar to FHA programs in residential real estate. Banks that lend on business acquisitions can have 70% or more of that debt guaranteed by the government in a default. That means that if the borrower pays for, say, two years, the bank is whole. And when you have a 10% equity element from a seller note at the start, plus, say, another 10% from the buyer’s capital injection, the loan covers only 80% of the business value.

What often happens, and this may be getting into the weeds, but it may be of interest, is that we’ll sell a business that turns out not to be the right fit. I’ve had people leave the corporate world to pursue their dream of owning a business, and after three to five years, they decide they like having an HR department and an accounting department. They don’t want to be in charge of everything, so they turn around and sell. The business may not have gone up in value. It may be about the same, or it may even have gone down. But SBA loans have 10-year terms, so if there are five years left, even if they sell at 80% of what they paid, they can retire the SBA loan, make the bank whole, and move on to their next thing.

Darren: So, as I understood it, SBA loans aren’t transferable. Is that right?

Greg: They’re not. But a new buyer can readily get one. It’s a robust marketplace, and it’s actually one of the most profitable lending environments for banks, because they’re generally getting 2% to 3% above prime, which is a pretty good return with a government guarantee.

Darren: That makes sense.

Preparing a Business for Sale

Darren: When someone is looking to sell, how much preparation should they expect before they’re ready to list? What timeline should someone plan on to get their financials in good shape and their house in order, so the business is attractive to a buyer and brings top dollar?

Greg: Excellent question. Our process, like most business brokerage processes, starts with a business valuation, which lets owners learn what their business is worth today.

About 70% of our clients are retirement sales, and they’ll often take that number to their wealth advisor and ask, “Do I have enough to retire if I add this asset to the basket?” You need to answer that question, because a business is an annuity. Let’s say you’re earning $1 million a year running your company, on $10 million in revenue with 10% to the bottom line. Say you need $7 million from the sale, and a five multiple applies, which is a 20% return on investment. You could get $5 million for the company, so you may need to run it another two or three years to get to the $7 million you need to retire. You need to know your exit value to start planning strategically.

Some of our clients see the value, are ready to go, and we proceed straight down the path to a sale. Others learn how valuation works at that point and take actions to enhance the value.

To use a residential example, people know you generally get more bang for your buck by updating the kitchen and bathrooms in a house. So if you don’t need to sell today, you might update your countertops and cabinets to make the kitchen shine at the time of sale, rather than keeping your 1983 kitchen, which worked fine for the family but won’t resonate with the market.

You can do the same kinds of things in a business. Maybe you stop running personal expenses through the business. Those reduce reported profit. Using my five multiple, if you ran $50,000 of expenses through the business that couldn’t be documented under scrutiny, five times $50,000 is $250,000. Why not run it clean for a year and capture that?

Darren: That’s what I was wondering about with small businesses: whether they have the systems in place and, from an outsider’s inspection standpoint, whether they’ll attract a bigger number, and what they can do to tidy things up.

What Buyers Should Expect

Darren: For someone looking to buy a business, can you describe the parameters they should have in place, or expect to be asked about?

Greg: Certainly. An interesting thing about our world is that a buyer traditionally isn’t represented by another broker. It’s a bit of too many cooks in the kitchen for communication, and entrepreneurs generally want to control their own negotiation rather than delegate it.

But buyers are represented by a CPA who helps with valuation and due diligence. Due diligence is like a real estate inspection: you bring in an expert to make sure there’s no dry rot in the kids’ bathroom. Do the numbers work? Do the bank deposits reconcile with the revenue presented? Those sorts of things.

Then you want legal counsel to deal with trailing liability issues, because a business is a living, breathing thing, and you want to make sure you don’t take on responsibility for what the previous owner did if they acted inappropriately or took risks you wouldn’t take.

You’re in the insurance business, and here’s an interesting example. Say we’re selling an HVAC company with a fleet of vehicles. Most insurance policies will repair chipped or cracked windshields at minimal cost to the business owner, because it’s a safety issue. If you do it under the existing policy, it can be taken care of before the sale. If the buyer takes the vehicle as-is with a cracked windshield, the new insurance company isn’t as excited to pay for something that happened before it insured the business.

Darren: That’s a good example. Definitely lean on the policy you’re going to be canceling anyway once the sale is complete.

AI and the Current Market

Darren: We’re recording this in June 2026. Is there anything on the horizon that points to better or lesser opportunities for business transitions right now?

Greg: I think it’s a robust environment for opportunity with AI. There’s automation and efficiency coming, and business owners who can take advantage of it will benefit.

What I think can happen is that you may need less clerical staff crunching numbers in the future, and you can shift those dollars to more business development and sales staff and improve your business model, because you only have so many dollars to spend on payroll. The skill sets businesses need are going to change, but I think it will create opportunities to grow businesses and reallocate resources. Think of an auto repair business. If you no longer need as large a clerical staff and you can put another technician in your shop, what does that do for your income?

Darren: Now you’ve done two things: lowered your costs and increased your capacity.

When the Seller Owns the Real Estate

Darren: Comparing real estate and business sales, when the seller owns the real estate, what percentage of them want to sell the real estate too, versus keeping it for an income stream?

Greg: Probably 15% to 20% of our transactions include the real estate, and this gets into why there are advantages to having a business broker with real estate experience.

We always have that discussion when the owner owns the real estate, because single-tenant buildings carry risk. Many people thought they had a great tenant in Sears. Sears ended up not being a great tenant, and those spaces are still being filled around the country.

So I’ll often tell my clients it may be better to sell the real estate and diversify through a 1031 exchange into a less risky investment that doesn’t depend on one owner. Maybe you go from owning a 20,000-square-foot single-tenant manufacturing building to owning a couple of duplexes, and your risk gets diversified. Or you can go into a Delaware statutory trust, or other vehicles that are more passive and not dependent on one tenant. The single-tenant situation sounds great until it isn’t.

Darren: Vacancy doesn’t pay well.

Franchise Resales and New Franchises

Darren: Do you deal in franchises at all, or more in owner-operator businesses?

Greg: We definitely deal in franchises, in two capacities. First, we resell franchises as businesses. I sold an eight-location chain of Arby’s for an owner in the Seattle metro area who was ready to retire.

Second, IBA uniquely has a franchise brokerage department, so we can sell new franchises. The nice thing about buying a new franchise versus an existing business is that you can put it wherever you want. If you live in Oregon City, or in Marysville, Washington, and your kids are in school there and you don’t want a big commute, you can go through a vetted list of franchises, find one in an industry you like, locate it in your hometown, and build it from there. That option often resonates with buyers who want a specific location, because with franchises, we can effectively order inventory. In some towns with populations under 25,000, it could be years between quality opportunities coming on the market.

Darren: That’s true, and it’s nice to have the flexibility to locate where you already are, rather than having to relocate to where an existing business is.

The Biggest Risk

Darren: Gregory, I’d like to shift gears for a second. As I mentioned earlier, by day I’m an insurance broker, and I work with my clients to assess risk and decide what to do about it. We typically consider three strategies. First, we see whether we can avoid the risk. When that’s not an option, we see whether we can minimize it. And if we can’t avoid or minimize it, we see whether we can transfer it. That’s what an insurance policy is: a risk transfer vehicle.

So I like to ask my guests to look at their own situation, whether it’s the lending environment, the political environment, or the general business environment, and tell me what they consider the biggest risk. To clarify, while I’m an insurance broker, I’m not necessarily looking for an insurance-related answer. So, Gregory Kovsky, what is the biggest risk?

Greg: I believe uncertainty in the economy is the biggest risk. I believe people can play successfully on the field when they know the environment. You can win a football game in the sun, the rain, or the snow if you can plan for it and develop a strategy to execute in those conditions. I believe the same is true in business.

But recently, you’ve seen tariffs change, COVID roll through the economy, high interest rates, and changing tax environments in states that make them more or less attractive for entrepreneurs. To me, those kinds of things make it harder for people to commit capital, invest, and act in the economy. So you end up with people on the sidelines, waiting for more certainty.

Darren: I think there’s pretty broad recognition of that in what we’re seeing, and it makes a lot of sense.

Where to Find Gregory

Darren: Gregory, where can listeners go if they’d like to learn more or connect with you?

Greg: I’d first steer them to our website, ibainc.com. My mother was a schoolteacher, and we lean into education. Within the website, I’d point people to our blog, which has had over 200 guest authors and has been published for over a decade. Probably everything you’d ever want to know about buying and selling a business, or entrepreneurship, has been covered there. Our video page also posts podcasts like this one, and yours will be shared there in the future, Darren. People can gain knowledge there, because I believe the best decisions are made from a foundation of knowledge. People can also call me at our corporate headquarters at 425-454-3052.

Darren: Gregory Kovsky, I can’t thank you enough for taking the time to talk. I’ve enjoyed it, learned a lot, and look forward to doing it again soon.

Greg: Thank you.

Darren: And to our listeners, if you liked this episode, don’t forget to like, share, and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Network’s CRE PN Radio.