Lance Hood:               Richard, let's talk about the fundamentals on an undervalued business.

Richard Parker:           Sure.

Lance Hood:               How can someone find these undervalued businesses?

Richard Parker:           Well first of all I could tell you lots of them exist. And the simple answer to that is you've got to look, and that happens in a number of ways. We've talked about if you search for existing business, but there is a wealth of resources that are available to anybody which include the Internet, classifieds, speaking to accountants, attorneys, and bankers, and networking. What I have found is while there's no magic pill, I can't say to someone, "Here's only the one thing you have to do and you're going to find a wealth of these undervalued businesses." The underlying strategy to all of this is you've got to look. You've got to ask questions. You've got to get the word out to people that you're looking to buy a business.

                                    Now there are 23 million businesses in the United States of which - small businesses of which I think the most resent numbers in the cape that there's about 13 million that are work from home businesses, or one employee and less. So let's assume that we're talking about 10 million businesses. Okay? So obviously there's no shortage of businesses that are available. The key is to get out there and get in front of business owners and talk to people in the community and in the business community about businesses. Get a grip on what type of businesses that may or may not be right for you and start your research.

                                    Now the fundamentals of determining that it is an undervalued business we can talk about as well, but the idea that these businesses are available and exist, I mean there's no website that called undervaluedbusinesses.com. So I mean it would be nice but it's not out there. It's a matter of once you understand what the fundamentals are to an undervalued business and the various resources that are available they become quite easy to identify.

Lance Hood:               Right. Well then does undervalued mean affordable?

Richard Parker:           Absolutely not. It actually means in some regards the opposite, but what I like to tell people is that it's okay to pay a fair price for a good business, but a bad business you could never have the right price no matter how inexpensive it is.

                                    Affordable and everything is relative. We show people how to leverage seller financing and so that's sort of rules out what "becomes affordable," but undervalued absolutely does not mean just affordable. What it means basically is you have a business where there are inherent assets to the business. And I don't want to sound like an economist and I don't want some people to say assets thinking that that's machinery and equipment. Assets of a business to me are what can drive the revenue of that business and take a business from being good or undervalued, to great and of high value.

                                    And so what you find is you have many cases where the foundation of the business is in place and that's why we buy an existing business, but the owners either got tired or they haven't driven the business successfully. How many times have you gone into a local business or start doing business with someone and realized these people are making money in spite of themselves. They're not getting up everyday to think about, "How do I make this business bigger, better, and faster?" They're not serving the customers properly. They're not looking everyday to figure out, "How do I grow this business and add value to the business?" And those are what the criteria or the ingredients to an undervalued business. A business that you can take over that's good, that's got key components in place but through your skill set and hard work you're going to take that business from good to making it great.

Lance Hood:               Okay, so then how does someone go from buying an undervalued business to owning a valuable business?

Richard Parker:           The simplest way is to grow the business. Here's what happens which is pretty neat - let's paint some general parameters related to business valuations. You have the profitability or what in small business is referred to "owner benefits," the total package that an owner of money and benefits that an owner puts into his or her pocket every year. Businesses are typically going to trade one to three times that number.

                                    Now obviously we show people how to get businesses at great prices and so you're paying a lower multiple, but here's the thing that's critical. As you build value, assuming that that multiple is two times or three times just for point of discussion, as you build the value of that business the multiple for which that business will sell down the future will increase as well.

                                    So if you buy a business that's selling at one-and-a-half times the owner benefit and it's making $100,000, well once you get that number up to $200 or $250, that'll trade at two, two-and-a-half, three times or more times that number. So right off the bat by increasing the business you're going to be increasing the value exponentially.

                                    Now, having said that, the ways to grow an undervalued business is to look at some of the components which are readily available. What you find very often is a lot of owners who have run the business for X number of year and they've just become bored. Where they've put the business on cruise control and we just talked about that before. They don't get up every morning with the same vigor to drive the business, to make it bigger, better, and faster. And some of the gems that you typically look at for example are in the marketing of the business. Or they haven't done anything new.

                                    I mean, I meet business owners all the time when you talk about their marketing say, "We have an ad in the Yellow Pages." "Well when was the last time you changed it?" "Oh no. We've had the ad for years." "And how does it convert? How many phone calls do you get? How many phone calls do you get from that particular ad that translates into business? Do you run a second ad to compare them?" I'm usually met with this blank stare. Right? And it's the stare that tells me, "You know, what you're telling me makes perfect sense. Why the hell am I not doing that?"

                                    So when you look in the marketing, in the advertising and the sales, in the distribution of the product, and the product or services that you're offering. And most people keep thinking about selling those customers the same products and services over and over and over again. And I can tell you from firsthand experience in businesses that I've owned my "secret" if you will has been to have this tremendous customer base as I view as a pipeline and just figure out what I can keep selling to that customer base, more products or services to generate more revenue with the same customers.

                                    Our current publishing model is substantially different and we're not backend sellers, but in basic and general businesses that's what we've already done. And if you take a look an example related to a drycleaner. There's two of them near of my house. One of them is, pretty high end. The other one across the street is more middle of the road.

When you look at the more high end one and it makes a phenomenal amount of money. The only reason why I know that is because at one point they asked me to do some consulting work for them. And you look at the money that they make it's exponentially more than the average drycleaner and it's clearly I know just based on the traffic. A heck of a lot more than the guy's who located right across the street. But the way they built their business is real simple. They've just continually added services.

The perception is that they are a better cleaner because when you go in there, you get a shirt done it's all wrapped up with tissue individually. The people will carry stuff out to the car for you. I had a problem once remember with a stain on an expensive shirt and they sent it to the Institute of Dry Cleaning for analysis at no charge. They have full alterations. They will do alterations immediately if need be. No matter when you go in there if you tell them you are rushed for something they will get it done.

                                    Now those are all typical enhancements to a business that anybody could make. But you take a look at the guy across the street, he hasn't made them. And you'd think at some point you'd say, "Hey. I got this guy who's my direct competitor right across the street. Why are people coming in and out of that place all day long paying 15, 20, 30% more for the same cleaning and yet I'm not able to do that?" Well part of the reason, he hasn't tried. But the other thing he hasn't looked at why are they able to accomplish that?

                                    And so you look at this customer base, they look at their people who come through the door as a lifetime value of a customer, but as someone who is a captive audience and they can sell them more stuff or at least provide them with more products or services that they need.

                                    So I mean it's a very simple way to build value. Most business owners don't do it. So they don't do it related to marketing. They don't do it with advertising and testing different ads. They don't do it with adding products or services. And they're things that can easily be done once you get into an existing business and you get the guts of the business in your belly. If you wakeup every morning, like I do and, have your own mantra that I need to figure figure out, "How am I going to make my business bigger, better, and faster every single day?" That's the question I ask before I start my work day and it works.

Lance Hood:               I don't know how it couldn't. Richard I am completely impressed by the quality of the information that you're giving out and to be honest, about how well you know the subject.