Introduction

Elaine: Hi, and welcome to another episode of Main Street Matters, America’s small business megaphone. I’m Elaine Parker, president of the Job Creators Network Foundation.

Jamie: And I’m Jamie Bowers, executive producer of the Main Street Matters podcast, filling in for Alfredo Ortiz.

Elaine: Today we’re joined by Greg Kovsky, president and CEO of International Business Associates. IBA was established in 1975 by a group of business brokerage professionals who believed they could provide better customer service, market knowledge, transactional experience, and professional representation, while maintaining confidentiality, than what was then available in the Pacific Northwest.

Greg, welcome to Main Street Matters, America’s small business megaphone.

Greg: Thank you very much. I appreciate the opportunity.

About IBA

Elaine: Absolutely. Tell us a little about International Business Associates and what you do.

Greg: Certainly. International Business Associates, commonly known as IBA, is the oldest business brokerage firm in the Pacific Northwest. We’ve been selling privately held companies and family-owned businesses since 1975 in Oregon, Washington, Idaho, and Alaska.

How COVID Changed the Market

Jamie: I imagine the last few years have been very interesting, with COVID and the struggles small businesses have had. What has it looked like from your perspective, both for people selling their businesses and for people leaving their jobs? A lot of people have said, “I want to be in control of my own destiny. I don’t want to work at a firm.” How did COVID affect your business and the selling of businesses?

Greg: It’s kind of the good, the bad, and the ugly. Some sectors did really well during COVID: home improvement, construction, fitness equipment. In a variety of industries, if you were in the right place at the right time, you did very well and benefited.

COVID also changed the dynamics of getting employees to come to work. Even when you had business, getting people to operate the way they did before 2020 was a problem.

There was also some downsizing, which you touched on. We’ve always found that our business tends to do well in recessionary periods. Many times, people in their 50s or 60s who have moved up into management get replaced by two younger, harder-working people. But if you’re asked to take early retirement at 55, or you’re laid off, you generally don’t have the money to retire, figuring a life expectancy of 85 or whatever number you want to pick. So many times, people buy a business as a bridge. They work another seven to 10 years until they’re eligible for Social Security, then retire and sell the business.

The wonderful thing about owning a business versus having a job is that you can sell it for an equity event when you choose to retire. You can’t sell a job with an employer.

Financing a Business Purchase in a High-Rate Environment

Elaine: Over the last year and a half or so, we’ve seen the Fed take some pretty aggressive action raising interest rates. Our members tell us they’re having trouble getting credit, and when they can, it’s extremely expensive. We’re seeing interest rates at levels we haven’t seen in 20 or 25 years. What are you hearing about getting credit to buy these businesses? Are you seeing sellers have to offer owner financing?

Greg: Great question, and it’s multilayered. First of all, I’ve been doing this for 29 years, and these are the highest interest rates I’ve experienced in that time. We do a fair number of deals with SBA loans, and their rates are now in the double digits, which is a high cost of capital.

That’s forcing more seller participation in deals. Commonly, a seller will carry back 10% to 20%, subordinate to the bank, to help get the deal done. Part of that is just good business in an acquisition, because you don’t know what skeletons are in the closet, like unpaid taxes or liabilities, so a bank or a buyer will want some leverage against the seller. So it’s not a bad thing, but it is becoming more necessary, because it comes down to the percentage of capital injection the bank wants and to debt service coverage ratios. Banks now want to see about 1.5 debt service coverage. In other words, if you’re paying $100,000 a year in debt service, the bank will want to see $150,000 available to pay that loan after paying a fair salary for the owner’s executive role.

The other side of the coin is that the people I work with, who you both interact with too, are comfortable with risk. Take a $1 million loan as an example, because the numbers are easy. At 7%, the interest would be $70,000 a year, which is tax deductible. At 10%, it’s $100,000. So the difference is really $30,000 more in debt service. And if they grow the business and increase its value through appreciation, that’s just part of being an entrepreneur. I have yet to meet an entrepreneur who doesn’t put more chips on the table than someone who is an employee.

Entrepreneurs Are Cut From the Same Cloth

Jamie: I bet it’s interesting from a personality standpoint. People who own a business and are selling it, and people who want to buy one, are probably cut from the same cloth. Have you found it’s an interesting personality type to deal with? How does that DNA play into the way you structure deals?

Greg: It’s the most wonderful group of people to work with. I’ve made so many friends during my career. I’ve sold over 300 businesses personally, and IBA has sold over 4,300 in its history. These are people who have lived the American dream, and they come from all different backgrounds. I’ve worked with first-generation immigrants from Europe, Africa, South America, and Asia. They come here because no other country gives you the same freedom and opportunity to grow.

My wife is originally from Germany, and I’m very familiar with that environment. Honestly, it’s very difficult for small businesses to get started and succeed there. The first rung on the ladder is almost out of reach, whereas ours goes all the way to the ground. Anyone in their kitchen or garage can start a business, and if you have vision, ability, and execution, you can do anything in America.

Barriers to Entry for Small Businesses

Jamie: You’ve been doing this for 29 years. One thing our small business owners tell us is that regulations, whether local, state, or federal, have made it harder and harder to start and get off the ground. Clearly people still do it, and your company helps people navigate that minefield. But have you seen those barriers to entry grow over time?

Greg: Most certainly. The obstacles to entrepreneurship are significant. One is raising the minimum wage. It may work fine for the U.S. Postal Service, which has deep pockets, or is losing money every year anyway. But for your neighborhood flower shop that wants to hire a high school student part time after school, being forced to pay them at a fully productive labor value rather than a learning-and-mentorship labor value is an obstacle.

Jamie: You’re right, that’s a huge obstacle. There are so many benefits to that first job, and setting the wage at a level meant to pay for an apartment and support a family doesn’t make sense.

Greg: To me, the minimum wage was always an entry point into the economy. It’s where you learn a trade and gain valuable experience. It might be a part-time job to save for a vacation. It was never supposed to be a living wage. To me, wages should be based on experience and ability.

We work a lot with the service trades: plumbers, electricians, and HVAC. I can tell you that if someone wants to work in those trades, they can enter the profession and earn a very good income at a very young age. We need more people in the trades.

Jamie: For sure.

What Buyers Want Right Now

Elaine: Are there particular businesses or industries that are selling more right now, or that people want to buy, given the economic climate?

Greg: It mirrors other parts of the economy. People love technology-based businesses, whether e-commerce or services. We’re just bringing on an online education platform that lets parents supplement the education their kids are getting in school, to make sure they’re progressing at the level the parents want. The best teachers are always parents at home, and they’re the ones who will advocate most for their kids. So the education sector has been thriving post-COVID, because people are looking for additional resources to help their kids catch up and be prepared for life.

What Every High School Student Should Learn

Jamie: Speaking of education, you’re dealing with people who are trying to start businesses and become entrepreneurs, or who have come to the end of their entrepreneurial path and are trying to sell. I’ve often thought our high schools don’t teach enough financial literacy or entrepreneurship to give people a good foundation for starting their own business. Junior Achievement does great work, but if you could wave a magic wand and create a class every high school student had to take, what would be in it?

Greg: When we went to school, we were required to take personal finance, or at least I was. So managing a personal budget is the start, realizing that you have limited capital to work with.

Then, I believe sales cures all ills. So learn to speak publicly, sell yourself, and make a persuasive argument. It doesn’t matter whether you’re in the private sector with your own business, working for someone else, or working at a publicly traded company. You need to be able to communicate effectively in writing and verbally. Those basic skill sets are fundamental to success.

Franchises as a Path to Ownership

Elaine: It looks like you also help people buy franchises. What have you noticed about the franchise community? Job Creators Network has often battled the NLRB over its efforts to make franchisees and franchisors joint employers, which would increase liability and make it harder to get a franchise. How have you seen franchises serve as a vehicle for people to start their own business?

Greg: Thank you. IBA is unique as a business brokerage firm in that we also have a franchise brokerage division. We added it because many people want to own a business in their community, and if you’re waiting for a business to come on the market in your small town, it could be years. The beauty of a franchise is that you can pick an industry you like and bring it where you want, whereas when you buy an existing business, you generally have to go where it’s located. So we added that division to help solve that problem.

We can’t order inventory in our marketplace. Throughout my history with IBA, there have always been more buyers than sellers, because sellers are making money doing what they enjoy. There’s no urgency to sell unless a life event happens: they want to retire, they have a health issue, or something else comes up. That limits supply, and franchises expand it.

Franchises also offer a good middle ground for a first-time entrepreneur, or someone leaving the corporate world who wants some infrastructure and support. They come with a help desk. When you buy a privately held company or family business, the owner is frequently gone after a couple of months, and you don’t have that ongoing support.

How IBA Is Paid

Elaine: Does IBA represent buyers or sellers, or do you act as a transaction agent? How does IBA make money?

Greg: We almost exclusively represent sellers in transactions. Our business model is very simple, similar to a Realtor’s: we don’t ask for a penny of compensation until we perform and complete the sale, whether it’s a six-, seven-, or eight-figure transaction. I strongly believe the best salespeople in the world don’t need retainers. My whole team is paid 100% on performance, and my 16 brokers in the field do well in their profession.

Immigrant Entrepreneurs and the American Dream

Jamie: I noticed your firm has the ability to help non-English speakers and immigrants. How do you see the immigrant community embracing entrepreneurship, and franchises in particular, as a way to achieve the American dream?

Greg: The immigrant community is a robust part of the buyer side of the equation. Using Seattle as an example, when someone immigrates to the United States and settles in Seattle, it’s much harder for them to get a job at Boeing or Microsoft than to open or buy a small business. And frequently these people come with very good business experience and capital they’ve accumulated over their lives.

I’ll give you two examples from our history that moved me. One set of buyers I met with were Coptic Christians from Egypt who left the country because they were persecuted and came to the United States. They were two doctors, but they couldn’t pass the U.S. medical exams, so they ended up buying a business through IBA.

The other has more recent relevance. A construction company owner from Ukraine sat in my conference room and told me, “The future isn’t right for me building apartment buildings in Ukraine. I want to come to America, do what I do, and build.” You see world events translate into immigrants who come to this country and see the opportunities here.

The Story Behind the Name

Elaine: You’re International Business Associates. What international work do you do, and how do things look different outside the United States when it comes to buying a small business?

Greg: The “International” in our name came from our founder, Bill Osavski, who founded the firm many years ago. We don’t actually have much international reach.

But to circle back to your previous question, we do emphasize being able to speak with clients in their native languages, because issues like tax and finance can be hard to translate. I have native speakers of Spanish, Russian, Chinese, and several Indian languages on my team who can work with those communities and answer questions in a way the buyer may be more receptive to. Or it may be sellers: first-generation immigrants who opened a restaurant specializing in their ethnic cuisine. They may not have gone to college, probably don’t have an MBA, and are dealing with issues where they need to rely on professional advisors.

Where to Learn More

Elaine: Greg, how can people find out more about IBA if they’re looking to sell or buy a business?

Greg: Thank you. The easiest place to go is our website, ibainc.com. I’ll highlight two parts of the site people may find interesting.

The first is a very robust blog that we developed as a library resource for the entrepreneurial community. We’ve had over 100 guest authors, and people can go there, whether they use us or not, to learn about all aspects of buying and selling businesses.

The other, which I’m proud of, is a series of stories. We have a couple of writers who tell our clients’ stories, from starting a business to selling it, in what we call the American Dream Achieved series. Our goal is to show the broad range of entrepreneurs in America, whether male or female, of different ethnic heritages, and in different industries. When people think about entrepreneurship, many think of restaurants, but there are so many other colors to entrepreneurship, and people don’t think as broadly as the reality.

To give you an idea, of the last three deals I was personally involved in, one was a chain of hunting and fishing stores, the second was a geothermal energy company, and the third provided data and video communications for correctional facilities.

Jamie: That’s a really diverse group.

Niche Businesses Everywhere

Greg: And that’s a day in the life, every year, here at IBA. We’re always approached by businesses we never even knew existed, but there are so many needs in society. Just think about the types of products, foods, and services you like and need. Jamie, you and I have probably never had a manicure, but I suspect that’s a service Elaine has used at least once in her life. So at a very basic level, half the population is inclined toward one service, and half is not.

Jamie: I know for a fact that Elaine gets mani-pedis all the time.

Elaine: All the time. I recently learned about a new niche business, and I’m not sure I could see it being sold, but maybe you have some input. I’m in Florida, and in South Florida, when it gets very cold, iguanas fall out of the trees because they can’t handle the cold. So we have these falling iguanas. I came across a business created by a college student at a South Florida school to clean up the falling iguanas, which then grew into iguana meat products. It’s a completely niche business. He has no competition, but there’s a great need for it in South Florida.

Greg: That’s entrepreneurship. He’s addressing a need, and if he gets enough customers, even if it’s limited to South Florida, it could create a great lifestyle. We’ve dealt with businesses where people go to homes to scoop the dog droppings in the backyard. That’s not far off. Certain people will delegate and hire services, with once-a-week routes run by multiple trucks. If people have the extra money and the desire to hire someone, someone will generally fill the need.

Jamie: I used to see a little school bus going through the neighborhood, and it wasn’t picking up children. It was picking up dogs for doggy daycare. People could afford not only doggy daycare, but also to have their dogs picked up and brought home.

Greg: And that circles back to what we talked about earlier with industries. A lot of people got COVID pets, so the pet industry in all its forms is doing quite well right now.

Elaine: Yes, all the pet products too, like skin care. I’ve come across some interesting ones. What’s your website again, Greg? Give it to our listeners one more time.

Greg: It’s ibainc.com.

Elaine: Excellent. Greg, thank you so much for taking the time to join us on Main Street Matters, America’s small business megaphone.