Good afternoon everyone and welcome to this press conference from the annual meeting of the World Economic Forum 2016 here in Davos as the subtle branding in the back has given away already probably You're joining the press conference that is dedicated to the launch of the humanitarian impact bond and I'm particularly pleased for the World Economic Forum to be joined by two wonderful experts and Important voices in this in this conversation. Let me quickly introduce the panel to you We're joined by Peter Maurer the president of the International Committee of the Red Cross ICRC and By Alexander DeGrohe the deputy prime minister of Belgium and also minister for development Thank you for being here and without further due Peter Maurer over to you. What is the humanitarian impact bond and what are you trying to achieve with it? Thank you very much and thanks for your your interest. Let me just Broadly make only two introductory point one to contextualize and one to describe What it is as you as you ask to contextualize? Let me say that you have followed the development of Enormous needs due to conflict and violence Worldwide and the huge gap that we Humanitarian organizations are witnessing between What we can do because we have the money to do it and what we should do because there are enormous needs May I also recall that a couple of days ago? the high-level panel on the financing of humanitarian Assistance presided over by the vice president of the European Commission Kristalina Georgieva has published its report and recommendation on how to close that gap between Needs and possibilities as we witnessed today this report has been launched with recommendations to invest into fragility to bridge the gap between humanitarian and development agencies but also to foster much more prominently The private sector and channel private sector money into those needs So this is the landscape with which we are confronted today Let me also say when I'm a traveling into fragile context into violent stricken countries and regions One thing strikes me has struck me for the last couple of years disabled people are those Triple which experience triple disadvantage. They are very often in the poorest context. They are experiencing violence Have experienced violence which has destroyed part of their physical ability to work and They are often excluded from society So the humanitarian impact bond is basically a special fund which we through which we try to raise money by social investors against a obligation and promise To for ICRC as an executing agencies Within five years to use that money to create centers for disabilities in fragile in fragile context. We want to raise 35 million Swiss francs in order to create Somehow between eight or ten disability center which would considerably scale up our ability to service populations in need and We do measure over five years The impact of this money and after five years a Outcome funder most of the time Governments would pay back the social investors and of course we would hope that the social investor would then again reinvest into another loop of Social investment of those centers. Why is it so important to create that loop and to scale up today? We have 90 million people with disabilities Worldwide in fragile context only 10 percent of those people get help and amongst those 10 percent ICRC is the largest provider of prosthesis and Physical disability services reintegration training courses through disability center We think we should close that gap between the 10 percent who receive Services and the 90 million who are still waiting for important Social services disability services to create what would we do with the money exactly? We would the first two years create centers train most of the time people who have experienced who are experiencing physical disabilities to Be employed in those centers to run those Centers and then also to attend to populations in need and hopefully after five years We can have a clear indicator and indication of those who have been Recycled into the work into Productive work into the into the economy many countries lose as much as 0.75 percent BDP because of the unproductivity of Disabled people who are not able anymore to do any Any work and not to be part of a normal Work life. So this is what the concept is. We are launching it today the Belgian government Alexander de Croix is the first government who has been ready to jump on board and both of us Alexander and myself we will over the next couple of weeks and month try to have Come social investors and outcome funders together the preparations for launching the centers are well-advanced If we do get the money together within the next couple of weeks, we can immediately start to build three Three centers who are which are shovel ready and four or five others Which are far advanced in the planning and which would come on board Thank you deputy prime minister. So your your government is showing leadership and joining this initiative. Tell us why Well, first of all, if you I think Peter explained very well the huge humanitarian needs that we have that we have today Belgian development policy last year the budget for humanitarian aid was the highest we have ever had This year we will increase it even even further By far this is not this is not enough and and we are convinced that Capital exists especially in Western Europe the capital is there and people are willing to invest in Things which have a social social outcome. So our first objective is to attract other types of financing The second objective is to make sure that the humanitarian interventions We do that we maximize the quality that we maximize the impact And I think this is the balance of the of the new of this innovation that we have here You attract another type of of financing and in exchange for that the operator being the ICRC here Commits to achieving a certain level of quality and of having having an impact I think that is the reason why we're We're investing in in this because it's it's a new way of structuring things and it's It's much more committal than it used to be in the past Now we don't say that because we're not happy with what the ICRC was doing up to now I think we've had a great relationship over the last over the last years, but I think that's the direction that Funding for a humanitarian Interventions should go and we're really very very proud and grateful that the ICRC is Jumping on this and it's taking leadership role in this Can I maybe just make a last point because rightly so Alexander has mentioned the impact as The critical issue here part of this launch of a humanitarian impact bond Is also that we have organized for an independent evaluator so the criteria that we propose to use as numbers of Of proteases and or thesis delivered and number of people recycled into productive economy that all these Numbers will be measured independently by independent evaluators and of course to give credibility to this important issue politically that we We have investment for impact Which is delivered and measured independently? Thank you very much Let me let me ask you so you have the first commitment here from from the public sector We have about 1500 business leaders here in Davos What's your sense? Is the awareness high enough for the issue there or should we should we maybe? Sound a call for action here for our 1500 business leaders in Davos Well, we all hope this press conference is going to be the start of a lot of conversations with the private sector on this What we've understood is that Investors are interested in this first of all because it's a combination of a social impact But also a financial return But also because there is definitely a certain risk for the private investor in this but this risk is actually For example for insurance firms. It's an interesting risk in the sense that this risk is completely Uncorrelated with the risk for example on the capital markets So it's a very good way of diversifying the risk in the financial in the financial sector And that is definitely one advantage beside the fact that of course we've understood over the last days That the business community is completely aware of the fact that they have a role to play and that the role to play is also To our societal impact. I have been rather encouraged by the first reactions that we have Already seen informally and I hope that more reactions will Will coming forward to from from the business sector. I think There is one critical issue. I wanted to highlight here I think there is and will remain a general expectation from the private sector that with regard to Urgent crisis response in natural disaster or conflict governments will remain in the lead of Supporting humanitarian organizations We have taken out of this part the urgent immediate part. We have taken out the more structural long-term almost systemic aspect of a humanitarian assistance program which is assisting the disabled people who have been disabled through violent and conflict and we build a financial product around a Specific area of work, which is much more long-term than short immediate response, which will remain a dependent on Funding by the public sector by the public sector in the future. So I Wanted just to offer this as an additional explanation Thank you very much So it looks like much work is to be done But we do have the the model in place and we do have the tools to do this Maybe just to add this is it's a premiere. I mean, it's the first time that a multi-country humanitarian impact bond is created and we're very proud to be both pioneers in in this and If if we get this interaction, I'm convinced that this this is going to work This is really changing the way humanitarian interventions will be financed and and I hope one day we can look back on today We have a question here from the floor. Let's open up We have a microphone if you could state your name and organization for the sake of our online audience, please Thank you. Hello, but I can work for the Belgian business daily the date Could you explain how this will work this new system who will emit the bond? How will it be repaid and under what conditions? Well, of course the details of the Manager of the bond and the repayment has to be negotiated with though with the social investors What we have created is now the outline the the structure and As soon as we have social investors and a company we Have possibilities then to decide about the fund manager we will decide on the fund manager and But at the present moment, this is too premature Yet to say who will manage and under what exactly conditions we have an idea on what the Impact baseline is for ICRC what we can reasonably achieve as an ambitious impact over five years because we have been in disability for 30 years and because we are Have seen all all continents and all situations. We have a relatively good idea What a realistic impact Impact is and we have formulated the sort of average of last 10 years That with achievable and we have added some Additional ambitious features in that because of we hope that we get better and faster as we As we move forward. So this is the baseline and and then we will see about the fund manager and the exact conditions of repayment Thank you very much. And we have a question from the gentleman in the back there But I'm a stringer courier de la sera newspaper in Italy. I just didn't get one point. Sorry You said that you are going to repay the bond in five years With what money you get the money from the government you are invest in within whose country you're investing in is that right? So the how it works is is at the start the intervention is financed by the private sector If the objectives are achieved There is a repayment to the private sector with a certain premium And that is coming from the donor countries and Belgium is one of the donor countries Right. This is this is how it functions now. You could say why as a donor country Why would you step in such such such a construction? Well a few reasons first of all as Peter indicated the Level of quality and of impact of the intervention is higher than it than it than it used to be that is because we count on a lot of innovation and creativity in achieving the goals that are actually much stricter than in a regular situation second element for a donor country is spreading the risk because if the goals are not achieved then as a donor country the payout is actually lower and This is a way of spreading the risk between the private sector and a government owner The investments of the fund are going to be made in which country We will certainly the donor countries or in other no no no not in Belgium not in Belgium The investments will be made in the fragile context to give you an example. I mean we as I mentioned beforehand we have planned to be able to start as soon as first social investments are coming in and that's the reason why in countries like Central African Republic or Or Afghanistan Yemen we have already shovel ready new Disabilities center which we can start immediately as soon as Social investment is coming forward and as soon as we have the matching outcome funding from from governments. So This will the preparations is all Conflict and fragile societies and is in basically in the logic of ICRC's Priorities and once again the importance here is again to To have for a part a specific part of humanitarian work Offering it to the private sector to fund while other parts will be will have Be taken over still by public finance Thank you very much. We have time for one last question here in the middle, please There is this Matt from the Belgian newspaper the standard a question This is not something you invent out of the blue. So where did the ID originally came from? well Social impact bonds of course are not new. There's examples for example in In reintegration of people who are in prison in the in the UK even in Belgium There's been a social social impact bond of course in those impact bonds the return is basically coming from a Lowering of the expenses in the social security for example That's in the in the fragile states where we work is is not a form of payouts that is that is possible So we had to Elaborate another another system and the system here is that actually a donor is in that is put in that in that situation? the impact bond offers itself as Quite an attractive idea to respond to what I would consider and ICRC has experienced as a big transformation in Private donor activity if I look back ten years Private donor activity would have been Hand out handouts or additions to public money to a program which was defined and Negotiate it with the government Today, I think There is a lot of private money Ready to be invested, but the private sector wants to see an impact Wants to have a stake In this project, and I think this is the whole difference that here we are proposing We are proposing a format of finance which Gives the satisfaction of impact and the transparency of impact measurement to the social investor, and I think Because you asked me how we had the idea it was basically our experience of a of a transformation of the private donor landscape together with Mechanics of social Bonds which have been developed in certain European countries the UK Belgium as you mentioned Alexander Which have on which we have modeled around This idea of a humanitarian impact bond Thank you very much. I'm afraid we're out of time. Thank you very much for being here today for watching and special Thank you to our panel. Thank you. Thank you


Welcome viewers to thinktechhawaii.com. This show is the will of the people, and I am your host, Martha E. Randolph. Today we'll be discussing the proposed tax amendment to the state constitution, also known as CON-AM, which would allow the legislature to add a tax to investment properties in order to fund public education in Hawaii. This could affect the income and taxing powers of the various counties. My guest today is Cory Rosally, he is president of the Hawaii State Teachers Association. He is a teacher with 20 years in the public school system and has been an activist for improving conditions in the classrooms for teachers and students. I feel very lucky that he could make it today to discuss this hot button issue for the upcoming elections. Thank you, Cory, for coming in today. And if you don't mind, I'd like to start right off the bat with a little background on this amendment. This getting it on the ballot is a big deal, and the people may not know why it's such a big deal. So let's tell them how long this has been in the works and some of the obstacles you faced. Well, for the last three years we've had a campaign called the schools our keiki deserve, and we were trying to find a way to improve our schools. And one of the big problems we have in Hawaii is our schools just are not well funded. When you adjust for cost of living, we're 45th in the nation and per pupil expenditures, and we're last in the country in teacher pay, which means that this year, for the first time in Hawaii's history, we actually surpassed 1,000 classrooms that did not have a teacher. So by our estimate, every day, about a third of Hawaii's public school students go to school and at least one of their teachers is not qualified. And so we have been pushing to try to get additional funding so that we could pay our teachers better, lower class sizes, make sure that our special needs students get the services they do, and so many of the other things that require funding. Yeah. And so how long has this been going on? I think this almost made it to the ballot box a short time ago and was past every hurdle except one, a specific individual who used their political power to stop it, which does not to me reflect the will of the people or their representatives. I leave you to say as much about that or as little as you want to. So for decades, we haven't funded our schools. And like there's consequences I shared before. So the question is, how do we do it? But three years ago, we actually tried to do a 1% increase in the GT. And the reason why we picked that is, is that if you compare ourselves to other districts with similar cost of living, they spend on average about $6,000 more per pupil than we do. And if you put the number, we have about 180,000 students in our public school system, that's about a billion dollars. So 1% of the increase of the GT would have brought us close to $800 million dollars. That the legislature is we're not going to do. And then we went to the solution we've been trying for the last two years. Hawaii is actually the only state in the entire country that is not used property taxes among schools, the only one in the entire country. We actually have the lowest property tax rate in the country. And the reason why is we don't fund their schools. So we've been trying for two years to correct the social wrong that has happened. And I'll just show you the story. So the question is, why don't we use property taxes to fund our schools? And you have to go back about 100 years ago. At that time, there was only a few wealthy landowners in Hawaii. Right. And just like today, those wealthy landowners didn't want to pay to fund the children of the plantation workers. They said, if you educate them beyond the sixth grade, they become a menace. Which I believe was in the response article in this past Sunday's inside, in response to the negative comments from the other side. Go ahead. And so now you have very wealthy landowners who are again trying to make sure we don't fund our schools this way. It feels like things haven't changed in 100 years. You have a very wealthy class that is trying to make sure that children of the middle class and the working class don't have that opportunity to get an education and to move up themselves. Well, certainly, and we've seen it with the current federal government as well, an undereducated electorate is the best one to manipulate and to lie to because they don't have the knowledge base or the skills of thinking to challenge. And this would seem to be something similar, although I'll give them credit. I have a feeling that real estate people are just wanting money. I don't think they're even thinking about the kids or keeping them in their place. They just want to make more money. But I was wondering if you would like to address some of the key arguments that were raised in the article in that insight section of this past Sunday's paper, only the most important ones. There were comments about the Board of Education. There were comments about teacher qualities, and they did not use the important term adjusted for the cost of living in any of their assessments. So if you'd like to address any of those, let's do it right now. So the article that came out in the Sunday's paper had many wrong facts. The first thing is that we're 17th in the nation and per people expenditures. Well, that sounds great until you adjust for cost of living. And then we dropped to 45th. The argument they made is don't give the DOE any money. It's any more wasteful. Well, even if the DOE was 100% efficient, we'd still be 45th in the nation and per people expenditures. Their biggest argument is don't ever give the education more money. And that's a way to make sure that we don't educate our children. I think the other argument they were trying to make is I love this one. There's nothing to suggest that if you pay teachers better, it's going to increase the performance of teachers now. And I'll tell you as a teacher, that was the most insulting argument because the argument is not that if you pay us better, we're going to somehow work hard. We're already working hard. It's an insult to believe that teachers are not working hard. The idea is why we need to pay our teachers better is because right now our teachers are leaving. In the last six years, we have seen the amount of teachers from Hawaii leaving to go teach in the mainland increased by 84%. This is insane. Okay. It is insane. And wouldn't you also say that I mean, I, every teacher I know, did not get into the profession because it was a great moneymaker. And most of them spend an extraordinary extra amount of time on extracurricular events for their students, which are not usually subsidized or paid for. And many of them spend their own money to help give the students the tools they need. And it's just recently that Governor E. Gay was able to get a lot more air conditioning into classrooms, but that problem has been going on forever and it is inexcusable. So if it takes more money, we've got this thing on the ballot, let's vote now. And for those people who say, yes, but it's too vague, which we will admit the house removed certain restrictions, which I think you put in, which had to do with properties over a million dollars and a certain specific percentage of tax, they remove that and left it open. But you guys have in your responses always said our intention is so how is Hista going to fight to make sure the legislature keeps it on point and what can we do as voting citizens to help you make sure that they don't abuse these funds if they get them, that they don't shift them to other places. So by our estimates, only about 3.8% of people actually or 3% 80% of homes or second homes over a million dollars and vast majority of these are owned by outside foreign investors that are profiting off of what is I know. They can't win this question. Unless they convince renters that it's going to go after them. So they're going to spend millions of dollars trying to get people to vote against their own self interest, to vote against their own kids. Exactly. And they're going to do that by scaring them. No one in two years has suggested that we're going to tax everyone. We've only the only conversation has been second homes over a million dollars. Yeah. And the reason it's in the Constitution was taken out was because constitutional language is supposed to be brought. But that doesn't mean next year everyone's going to go in with a very clear bill to tax second homes over a million dollars that can only be used for education. And all that fear, all that fear is just doing so that people will support the outside investors rather than the cake. Let's clarify then there is a difference between an amendment and a bill. Now what we're doing now is an amendment to the state constitution to allow you to even have a bill proposed that will be more specific. Am I correct? Absolutely. OK, so this has to come first or there will be no bills that will help us specify where these funds come from and where they're going. So don't be fooled by the stories that are out there. Will the counties suffer? Not if the bill that comes after it is properly written and there's lots of battles that will happen with that as we both know. And that's one of the things too is the counties are trying to scream we're taking away the money and to be very clear we are not taking one dollar away from the counties. This is a surcharge and the best way to describe it is when you pump your gas you pay a local, a state and a federal tax and each one is a surcharge and it's independent of each other. So the same thing happens here. So the fear again that we're taking counting money is wrong. And on the other side the idea is this these counties are the only ones that are not funding education in the entire country. And because of that that's why our schools are underfunded. So we're not trying to tax commercial businesses. We're not going after Kuliana lands. We're not going after you know renters. Right. Second homes over a million dollars to fund our schools and to do it in a way that has done every other place in this entire country except for Hawaii. Right. And so like I said there are things that have to come first before you can do anything else. Now one other question that was raised was had to do with the way in which the board of education hires additional teachers. Now I have been aware of substitute teaching for a while. Personally I'd love to get in on it. I have got myself a master's degree and I'm a good teacher. The problem is it's not in education specifically and the rules would keep changing whenever I went to the board of education website. You need a 30 hour course then you don't need a 30 hour course. You different things for different people. Not to mention there was a big brew ha ha about substitute teachers not being paid according to the standards that were set. And there is a great deal of back pay owed which we are pretty sure is never going to get paid because that money is also not there. What do you have to say to the comments about the standards by the board of education when we both know that in a desperate pinch there are people coming into teach who don't even have the minimum qualifications way less than I have certainly to get out there and do my thing. So it's very easy to be a bad teacher and what I mean by that is this you can put any adult into the classroom but being a successful teacher is very difficult. We have been consistently lowering the bar in order to make sure they're teaching the classroom. And the biggest example right now is this about the beginning of the year we have about 1600 openings and we're only getting about 400 from our local universities and that number has decreased by over 20 percent in the last five six years. So we keep on we get 400 students we go to the mainland and grab another five or six hundred more then we run out of qualified teachers. Then what we do is have emergency hires. OK. These people lack some qualification.  So last year there were six hundred and fifty classrooms that had substitutes in them. And then they start running out of substitutes. So now the bar is this. All you have to do is have a high school diploma and you can teach in our classrooms. And so people without college degrees certification are teaching these classrooms. Now my daughter has done this. My daughter is a freshman at she's a sophomore sophomore at Campbell High School. But when she was at the Lima Intermediate she had four subs in two years. And one of them was for an entire semester because they could not find a teacher. I'll give you this example too. Can a sub can a sub then be hired as a permanent teacher if they're good and they're willing so a substitute can they teach for longer than 90 days. They become an emergency hire. OK. OK. And then they are given those benefits. The problem is is that after three years they have to get a degree. OK. And substitutes many substitutes do not want to be emergency hires. And the emergency hires are not getting their degrees. So we keep on lowering the bar but I'll give you this example. So last year in Nanakuli Waianae Compact Area. Can we just I'd like to pick this up. I need to go to break. OK. But let's let's not drop this. We're going to pick it up right here about the emergency hires and the substitutes and what we can do. So ladies and gentlemen we'll take a short break here and we'll be right back and continue this conversation with Corey from the teachers union the president of the teachers union. I'm sorry I blanked I'm so into the conversation. Let's go to break. This is Think Tech Hawaii raising public awareness. You can be the greatest. You can be the best. You can be the king come playing now your chest. You can be. You to talk story with John Wahee every other Monday here at Think Tech Hawaii. And we have special guests like Professor Colin Moore from the University of Hawaii who joins us from time to time who talk about the political happenings in this state. Please join us every other Monday. Hi this is Martha Randolph on the show The Will of the People and my guest today is Corey Rosenley the president of the Hawaii State Teachers Association and we are talking about why it is important in this election year for you to get out and vote for the amendment that will allow the legislature to tax second investment properties in order to fund public education. Please understand we've already established if you do not pass this amendment then no subsequent bills which may qualify and otherwise control what properties get taxed how much of the percentages are they can't even be introduced. And the intention has always been to do this for properties that are million dollars or more only second hand homes or investment properties only and the percentage is not that high and the earlier part of the show explain that however when we went to break we were Corey was about to tell us the exciting story of special education needs and the problem that teachers who do want to teach or even substitute or even willing to be emergency hires will have getting from their home wherever they are to some of the locations where the teachers are most desperately needed so take it away Corey so last year they had 19 openings for special education teachers and on the Cooley why not complex area and they can only find one qualified teacher which means that they had a higher 18 people that were not qualified in special education in the last three years they've had 65 openings in the 255 teachers. So when we talk about the teacher shortage the reality is is that it may not affect some kids and for other kids every single year that they go to school they don't have a qualified teacher. Teaching is difficult it is hard. Yes. And people think that anyone can do it go try to manage 30 you know eight year olds and try to do it in a way that you can be able to individualize teach all of them and help them improve and that is a very hard skill. It is very hard and as a woman who just recently got higher degrees in college not all professors who are experts in their field have any knowledge of what it means to communicate information. And that's why sometimes you know they talk about well why can't have someone as an experienced engineer come in and teach math at a school and there's a difference between knowing your subject and trying to educate a bunch of 16 year olds at 8am in the morning and make it interesting enough that they're going to be you know learning a subject. It's a very difficult skill and so for some of our kids there's a 2015 equity report that came out again I was looking at schools and it said this that if you're native Hawaiian you're more likely to have an unqualified out of field inexperienced teacher and somewhere between it can be somewhere between 30 to 40 percent of the teachers that are nonically Hawaiian I close that's the problem that they have. How can we justify that some children because of where they live or how much they their parents make don't get the same opportunity as other children. That is discrimination. That is our current school system. That's why we're trying to ask even in the system if we were to raise these taxes we are not making these people pay more than their fair share. Because right now in Hawaii because of our low property taxes the poor actually pay a higher percentage of their income than the wealthy do. Absolutely this would make it equal so all we're trying to do is asking these wealthiest among us to pay their fair share. Yeah I think I think this is absolutely true and necessary I also would like to raise the question of without these additional raises and salaries teachers cannot live in these areas where they are needed because the accommodations are few where they do exist they're not as affordable as they are supposed to be and there's a shortage out these areas there's lots of buildings going up here in town and not a whole lot of housing going up in these other areas at an affordable price and you you're just not going to get a lot of teachers who want to drive 45 minutes or an hour out to a long distance place to do their teaching unless they are committed to this profession which they're definitely committed individuals yes. And so you know when we are a contract you know two years ago we put in provisions let's pay the teachers better to go to work in hardest staff areas yeah and we were told no money we had 17 pages of proposals of how to fund a special education no money and that's why you know we had to put these ideas out there of how are we going to increase additional revenue in order to fund our schools. The opponent to this they have no suggestions of how to improve our schools you know really a lot of times their ideas are not thought out and so if this proposal dies what we're really saying is we're not going to invest in our cakey. And look at look at what the two sides are on this debate you literally have you know Trump towers they were able to sell out $700 million worth of property in one day. And if they could do that I'm sure that they could spend a little more money to invest in our schools. Absolutely they certainly can and this has been a chronic problem I think in the state of Hawaii and in the government of Hawaii that they simply will not all unite even though we're all democratic this is what I find very interesting the democratic party has taken a very firm stand as to what they feel is important in Hawaii to do and they are not holding their legislators accountable to follow the party position as it is voted on by Democrats in the party who come to their conventions and meet and vote on what they want. So there are many people who need to do the job that they've been leaving hanging by the way there are also many innovative actions that have been taken in education I know that in Hawaii University we have the philosophy for children program which I have studied with the professors over there and it is very exciting what they have been able to do in schools where the principles invite them in as part of an experimental program. Better grades all the way along better thinking and we need the students to know how to think. So my question is are there any other initiatives that the teachers union are taking to help improve the way in which education is delivered in schools if we are fortunate enough to get some money. So first of all when we talk about the underfunding of our schools people say we're trying to bash our current teachers and talking about that it can be the absolute opposite. We have amazing teachers. I am a public school product. My daughter is in public schools. We have great teachers doing great things across the entire state. So one of the things we're trying to say is this funding our education system is like two wheels of a car. You know you're not going to fix everything only with funding. If you increase teacher salaries but they're still not feeling empowered at their schools you're not going to improve the environment. If only we're working on high stakes testing and not going to creative authentic assessments that won't change anything either. So one of the things we've been trying to pursue is this project based learning is one of the best things for students. Right now ever since the no child left behind act of the George Bush era the idea was test kids make them take a standardized bubble test and that's going to improve our schools. And so basically our schools became test factories and now with a new change under the Every Student Succeeds Act we're trying to move away from that and we're trying to do something called authentic assessments project based learning higher level thinking. And so we're excited that the Department of Education in Hawaii is actually looking to apply to be one of the seven states in the entire country that can start to use authentic assessments. And that's a good thing that's going on. That is fantastic and I'm very interested to note that none of those subjects were raised by the people who are opposed to this. That the Board of Education is really doing some things that they did not note down. So all I can do is ask the public I'm going to ask you public right now please get out and vote. Please come to the voting. Make sure you pass this amendment so that we can have the bills that will address these issues in the future more specifically. I remind you that the reason we are dealing with a rail situation in the first place is because when it came up for a vote the people who did get out to vote and it was a very small percentage decided to say yes to it. If you want to get the job done you have to raise your opinion. You have to put it on paper, go and vote, get a mailing list, go early, do whatever you have to. But make sure you read what is there and be sure to vote because if you don't then you are just as responsible for what you get as those who voted for it or against it. All right that's the end of my lecture. Corey if there's anything else you'd like to add go ahead because we actually powered through this subject and now I leave it to you to decide what else. I think teachers making it more accessible telling more people that you are open to hiring people to do teaching as substitutes or emergency hires who are qualified. People like myself who are seniors who have the degrees but haven't filled a 30 hour program or something else who might say I'm a good teacher I just don't know about all the paperwork you want me to do. Help me do that. Find me someone who will help me how to do that and let me do the thing I do best. Can I get out there into the public or is the downtown Honolulu area so saturated with plenty of teachers that where you need me to go is where I can't go which is out in Wineye Coast. So let's take the first thing you're talking about because the biggest concern that people have been brought up is well the language doesn't say a million dollars therefore let's be against this First of all the Constitution is supposed to be broad as a teacher put it best in me the Constitution doesn't say where he's supposed to put stop signs and that's a good way of putting it but it's also paramount is doing this that when the Constitutional Amendment passes we've got to also make sure that we push our legislators to do a right. Absolutely. And we don't give up our right as democracy and we just vote and that's it there's a you know we do have to pursue this. So if they try to switch the money somewhere else or change the percentages we have to support you we have to get out there and go into the legislature and say no no no you don't do that. And it has to be paramount to our public that we have to demand good public schools. You know one of the saddest parts we've been discussing this thing about taxation but countries around the world they understand that investing in education is one of the best things a society can do. It improves the economy when we talk about businesses it makes sure you have better workers in your businesses it lowers social costs. I remember there was a point a couple weeks ago in the newspaper at the same time they're talking about the constitutional amendment and people were against some of it they were trying to do an article spending four hundred million dollars for a new prison. You know wouldn't it be great if we were actually invested in our kids and so they didn't have to you know drop out of school and we're going to prison. I love or feel helpless helpless and hopeless and therefore maybe getting out there not knowing what they're going to do because they don't have an education that gave them options so they turn to their local drugs or whatever. Despair is one of the worst enemies humanity faces. So if you look at Hawaii statistics and ask is there an impact on having a thousand teacher shortage it is actually Hawaii ranks third worst in the nation and what's called the ninth grade of college pipeline. Somewhere between 70 about twenty to thirty percent of our students will drop out of high school. Of the ones that actually graduate high school only half will go to college and the ones that go to college only half will graduate. Right. And so the thing is is every single level the statistics are very clear the more schooling you get and whether that's going to college or vocational school or getting a trade. Exactly. Any of those is going to help your future earnings and the problem is every single time we deny that access and ability it's shooting ourselves in our foot. Absolutely. And I remember that I was talking to a legislator one time and he said you know what we can't find our schools anymore because we have to build more prisons and we have a homeless population. And I was sitting there thinking do you really not see the problem. Right. Invest in kids early and maybe you don't have to spend so much on the back end. Exactly. So Cori I want to ask you that in 2019 once we get through this I'd like to ask you to come back for a follow up whether it passes or not let's talk more about this because people need to be informed and everyone I want to thank you for tuning in today. We will follow up and do more on education. If you have comments please let them know let us know what they are so we can put those in our follow up. Thank you for joining me today on the will of the people with Mr. Cori who is addressing Vote yes on the constitutional amendment and then we can fix everything else. Bye bye.


Hey, good afternoon everybody Tom Stewart here. I'm with Liz Trotter and this is smart business moves. Our guest today is judge Doug Eintzema He's a financial planner does strategic planning and is very active in the M&A world Does a lot of work with franchises. We're lucky to have him here today. Hey Doug. How are you? Great. Thanks for having me. I appreciate it This is gonna be fun. We're gonna learn we're gonna a lot of things that are of interest to Cleaning business owners for sure, especially in 2022 going into a new year. It's always nice to have some ideas to what your business might be worth in the event that You know, you have an eliquidating opportunity as they say or or need Question you said M&A. What's M&A? mergers and acquisitions I'm and a ah, okay. I got you All right. I don't know why I First I heard you say M&A, but Doug really does not look like Before we jump into that now Liz, do you know what today is Joel's report? It is Yeah I don't know. I just trying to keep track of this stuff now Something that you would look at since you're thinking about all the time Evaluation is this do you ever look at the Joel's report? I am not familiar with that Well, you will be after today Tom. Let's do this little thing. Okay. I'm just trying to figure out how to make my computer work How's that?  I still can't see anyone. Oh my goodness, okay There we go. Yeah Now we can see so basically With this is telling us the number of job openings month over month, so You know from an employer perspective in the residential cleaning industry, you know, we've been talking about being supply constrained for As long as I can remember You know, there's been a been a labor shortage and too much demand not enough labor and This is one of the metrics that we look at that The thinking is the fewer job openings. There are the better chances There are that somebody looking for a job will take the job that you have so The number and they're always a month behind so they just released the October number numbers today and it's 10.3 million down from 10.6. It was over 11 million a year ago And the other part of this is the unemployment number how many people are looking for a job and that's around six or so six million the last time I looked and Job numbers are gonna be coming out Friday for it for November. So Just still like over one and a half jobs out there for everybody looking for a job, which It's moving in the right direction, but it's not In an awesome place yet. You go down here to like leisure and hospitality Which could be a market that that we'd be drawing from Food service could be another The jobs actually openings actually went up in food service. They actually are flat Leisure and hospitality. So while the job openings are going down in some industries Maybe not necessarily in the industries that would mean the most to us Yeah, they are all of them are down over last year though same time Yes, yes, they are which is good. That's good news Better than them being off Yeah, the complaints from the hiring standpoint with sellers is is definitely starting to turn around a year ago It was it was really that was the number one reason people wanted to to sell their businesses They were just tired of a labor market Oh, wow So that seems to be improving surprising should it And no last year was tough Yeah So Doug Introduce yourself to our audience and just tell us a little bit about yourself and what you do Sure. I'm a business broker and what that means is I help Buyers and sellers come together on business opportunities And I've been doing it for quite a while and kind of fell into a specialty of franchise resales. So I'm working with owners of businesses to Help them prepare for sale and then Mark at the business. It's a little different than a non Franchise business as far as you're having to Not only find a buyer for the business and put that deal together, but you also have to get them approved to be part of the franchise So there is a little bit of Expertise in that area. We work with a lot of the major brands and and typically we'll have quite a few for sale throughout the country And because we have a lot of them for sale, we we get to talk to a lot of buyers. So It's helpful for us to really understand that market.  Uh, you know, you don't have the hassles with Calls in the middle of the night and having to have retail and Inventory and you know all the different things that can go along with with different franchises Um, and you really don't need to be a brain surgeon. I'm sure your viewers probably feel differently, but it's it's not a complicated business. It's really Keep your employees happy. Keep them staffed. Keep the houses clean and you're gonna have great reoccurring revenue I've I've sold businesses that I've had customers for over 20 years Is that the pitch you give perspective buyers? I do I do because uh a lot of times they think I don't want to clean a house You know, I I don't want to do that but in a lot of them the franchises That's not what you're doing You have you know teams that go out and clean and you're really recruiting and and handling the business and You know, you get them out in the morning and you bring them back in at night And it's really uh, I have a lot of people that will work 20 30 40 hours a week Uh owning their own business and be still be able to take time off because of the of the staff So it's a it's a pretty easy business to get into Um, I think the franchising part of it helps. I don't know how many people in your audience are independents, but When somebody's going to let someone into their home, they feel a little more comfortable with a with a national brand Yeah, we have a mix. I mean there's independent companies and there's franchise Brands both that are very active in the industry and you know, watch our show as well You know, it's it's interesting that that you mentioned the the nuances of of Doing, you know, brokering uh sales with it with a franchise brand because the perspective buyer I guess has to meet the criteria of the Franchisee that's selling the business as well as the franchise or so there's A longer approval process. I would assume there is and We find that a lot the brands that we mean mainly work with Validate very well and what we mean by validate is you don't want a buyer to be excited about the numbers But scared to death because they hear horror stories about the brand Um, and that's that's part of of the value of your business is Being part of a brand that has been around for a while has a good track record It's going to validate while they're going to be able to talk to other owners and for the most part We don't run into a lot of problems with that because of the the industry. It's not a super complicated complicated industry So it really comes down to that they feel that the paying the royalties are going to be worth it to be Part of that brand and get that assistance That usually helps helps put the deal together. It's not just about the numbers I'm curious. Who do you typically see wanting to buy? cleaning businesses It's pretty large spectrum Most of the time it's people that want to leave corporate world or they don't like their job And they want to be self-employed We get a lot of people who are later in their careers, you know early 50s And don't want to put in another 10 or 15 years into working for someone else Potentially want to work with a spouse or a partner in growing something and they're attracted to this type of business because When you buy a new franchise you have to take the time to build that up and you know There's not only the investment for the franchise, but then you have to go out and and build your teams and everything And when you're when you're buying an existing franchise, you're going to have that immediate cash flow So on day one If you have 200 houses that you clean every week that that's going to be cleaning that same week So if you come in, you know upset the apple cart, you're going to have a nice steady cash flow So people are looking to replace their income and be able to to earn a good living and sometimes their turnaround situations a little bit more for a variety of reasons including health and That's when someone like me comes in and Talks up the brand and has them talk to other owners that are successful within the brand Or in the industry to just talk to them and and have them better understand what the potential is So if i'm hearing you correctly you're selling for example a mary maids franchise, right and they're struggling to the the buyer is Nervous for whatever reason and then you would have them speak to other mary maids franchise owners. Is that correct? Yep, so we go through the franchise disclosure document and we go through the discovery process with corporate But we also look at the industry as a whole and look at You know where they should be fitting in that range Franchise disclosure document. I don't know if people are familiar with that But there's there's different fees that are associated with the responsibility of the franchisor is And they also have earnings claims and you want to go, you know that those it's a legal document And people are really scared of legal documents And they're sometimes not that well done So you really want to you the first question anybody asks when they're looking to buy a business It's how much am I going to make? Yeah, how much am I going to make how much am I going to make? And we can't give guarantees on that nobody can because who knows how that operator is going to be So what we do is we try to look at the the data that's available and show them the potential and the other part about buying and existing businesses There's a cake recipe and if you follow the recipe if they're successful Just follow that recipe don't come in and and upset everything and change everything, you know If if a seller of a business is doing well Then do that if they're not doing well then talk to the brand on what they need to do and other owners to find out What they're doing to be successful and then copy that I'm just writing my little questions down here No problem All right, so I I have a bunch of questions actually So Let's say that somebody wants to know how you know, how much money am I going to make? And do Do like what are some of the typical answers that you would expect look at so here's here's why i'm asking this question So many times when I have seen people buy businesses or we ourselves bought businesses that You lose a good chunk Of that you can expect to lose a good chunk of those clients Over the course of time. Do you run into that situation when you're dealing with franchises? um, so We try to look at a three-year financial history And it's not just the tax returns what we look at are the overall owner benefits So we take the profits of the business along with the salary That the owner owners are taking if we would have to replace one of those owners if somebody came in We'd have to make replacement wages for that We add back in amortization depreciation One-time expenses that may come up that aren't ongoing to try to really create a picture like Okay, they're average sellers discretionary earnings and typically what I see um our businesses Our average sale is is you know, probably around 150. I'd say is kind of what what they are. I've had cleaning franchises sell that are Way higher than that on earnings and you know, we get some distressed ones where they're making 50 Yeah And and you you you were describing is is owner benefit some of the value that the the Fee paid for them for the business would be some multiple of That owner benefit. Exactly. So we we get that three-year average and we say here's Where we are and then we can look at the fdd averages and say are you in? Bottom third right in the middle or the top third I'm sorry. What type of average the ftd? Yeah, the from the fdd. There's earning claims in there so Disclosure documenting got it Or just in general if it's not a franchise We we look at that three-year average to decide where you are what the upside potential is And then what is it going to take what sort of investment would be required to get there? And then that helps you decide what how to structure and offer but typically cleaning franchises will sell Anywhere from one to four times that seller's discretionary earnings depending on a lot of factors including location brand Whether the sales are going up or going down or whether there's an easy explanation as to what happened Maybe the seller got sick or lost a key employee or something happened So we do our best to really dig into the financials to be able to tell the story to buyers You mentioned brand. I mean, I'm not going to ask you to like give me names or anything, but Are all the numbers being equal or just some brands? Demand a higher multiple than others just based on the the the name Mmm There's there are better brands than others But that's not really as much of a factor is the trajectory of the sales Okay, um in and things like locations. So I'm getting Uh, the heart of the labor market some of the states that had bigger bigger covid shutdowns and things like that If there's high regulation areas people get a little bit more nervous than Um, if it's in a state that might be a little bit easier to do business in so This is california. Oh, yeah, so And then we get into minimum wage and you know every everything else that goes with it I mean, it's not a surprise with with cleaning companies Um with labor, um, it's always a it's always an issue and one of the interesting things We've seen and I don't know if you've noticed this But we had a lot of sellers that were extremely nervous about increasing their rates Um, because they didn't want to lose the the the customers Um, and we found out that we got very little pushback on that people were really pretty much, uh Understanding that cost of labor went up and we didn't see the drop off of people just saying i'm not paying that increase So it was a pleasant surprise of the industry. I think have you seen that? Yes, are you talking about like this year? 15 months. Yeah. Yeah, absolutely. Absolutely So that's kind of helped the the bottom line, you know, it was kind of a year ago It was kind of going a little squirrely in in august of last year You know, we were getting a lot of calls that I can't get anybody to show up because they're walking across the street and getting a higher wage And yeah, some of those have have kind of started to wash out a little bit and you know, it's it's always been a need And um, I think it's going to continue to be And i'm surprised by the demographics of the age of the customers that are You know, we're getting a lot of From our from the discussions with our with our sellers that they're finding a lot of the younger people with families Even are paying the paying the dollars to to get their house clean professionally twice twice a month or once a month Yeah, um, but on a regular basis. So I think once those you know, you get somebody in their 30s Or 20s that are having a cleaning service. Are they all of a sudden going to change their mind and decide to do it themselves? So even more reoccurring revenue for for down the road so Good industry We're just talking about that on a call yesterday That if if you're having a lot of customers that are telling you that It's that they have to cancel service because of money. You need to hit those people hard because Nobody that's had their house cleaned for the last year is going back to clean in their house themselves Whether they think they will or not, right? Exactly. They believe what they're saying. That's not happening and I had a one brand sell and She was she was a very very sharp operator, but when she bought she bought an existing franchise brand and raised the rates like a lot And she said i'm not going after Everything I want to be able to pay my employees more than anything else for their time And if we get fewer customers it'll wash out in the end and It was this it was amazing what her numbers actually grew to and she's since resold the business, but um It it wasn't a deterrent So you sometimes think the best business model is to have the best prices And sometimes it's not always the case now. She was in and she had a demographic that had a large supply of more wealthy people, but she kind of Said I'm not the cheapest when they'd call, you know, she was calling him it was and it worked out. So The other thing about franchising is you can kind of network with other owners and understand what they're doing Yeah, I mean it's it's it's a calculation, you know, if you're doing a rate increase of a certain percent and You can estimate what percent attrition you're going to have off of existing customers and You know if you do it, right you wind up making more money and cleaning fewer homes doing it, right? That's really the sweet spot Yeah, you know, it's it's all really about she was very good at Coaching and mentoring um, the workers There's a franchise brand out there It's in the jump calling space, but they we do a lot of resales for them too and it's um That's a similar labor pool Uh getting people who want to pick up junk and and throw Their back outlifting furniture. It's it's a high turnover industry um, but they've developed a very good program with Having a very clear path and in the seller That did very well on her resale Did the same thing she had when they came in to interview. This is your first step Then you're going to go to the you're going to be a team leader Then you can go to this and she had a path and then she paid very well with bonuses For recruiting family and friends and then she paid them retention bonuses so if that employee stayed for A certain amount of time that person got a spiff and the employee got a spiff and And her you know, I was shocked at her tenure of Employees she had something that were there 10 years, you know stayed on after she bought it um, so there's always creative ways to go about it But those those are the kind of things that When you look to sell it's it's the it's the cash the number of contracts and the quality of your employees in the That they're buying future cash flow So the more we can assure them that it's a really well run franchise the higher multiple So It's the owner benefit That is kind of the heart of it, but other metrics. I guess such as employee turnover, maybe customer churn You know, what is the growth rate been over the last few years? There's a lot of other numbers that go into as well. So If I'm thinking about selling my business and some of this would translate into an independently owned business as opposed to a franchise as well I guess you probably need to start planning for that A couple years in advance. You just want to wake up one morning and say I think I'm going to sell my business Yes, so you never know what the economy is going to do um, and I think education is very important and some of the brands We do exit planning webinar similar to this they can Show the people that are thinking about selling But some of the key things to to look at is steady financials and growth and then understand that How how valuation takes place in what we add back And then from there if you if you just use the very simple metric of three times that So, you know, you might be a little bit less depending on what's going on Or it might be a little bit higher But I'll have people call and they say I want to retire and I want $850,000 for my business And I'll say okay, you know, what do you think your seller's discretionary earnings? So we walk through a process to to calculate that and they'll say 150 That business is closer to 450 than 800. So if they want to get to 800 They're gonna have to get another hundred thousand to that bottom line And that, you know, isn't always what they want to hear Because they want to they want to cash out, but that that's pretty much the reality. So If someone's thinking about Exiting it's frustrating for them when they're making 150,000 a year to say I could make that in three years. Why would why would I sell that? And I say well, that's good. Keep it another three years then But don't burn yourself out and start making 100,000 because then you're only going to get 300 and you lost 150 and had it for a longer time So that's where it gets interesting our particular program We are month-to-month contracts So we sometimes have a valuation that comes in a little lower than the people we're hoping for And we go through the valuation process and give them an idea and then we can go to market And if we're not getting the offers they want in two years, they can pull that back And then In a year or two when they're ready, we just have to update everything and we can jump right back on the market again But it's a nice way to test it And not get stuck in In having to sell Because nothing speaks More than than how many offers you're going to get right? So Sometimes we'll we'll tell our valuations I think are better than a lot of Just asking your accountant Because your accountant isn't talking to buyers You know, I I talk to buyers every day and I know what they're thinking and what they're concerned about And it's not a magic three times Your sellers discretionary earnings, which a lot of accountants and valuation people If the sellers I really want to get 800. They'll say, oh, yeah, I think you can get that You know, they don't care So our valuations come in We were at 86 percent last year within the high medium and low range On the on the businesses we sold What does that mean? So when we give a valuation We give them a high medium and low range and we suggest the medium Okay And it feels that closed we were within that range Oh 86 percent Many times out of 10 Okay So it's it's valuable for sellers to really understand How the selling process works And what we're going to get for it Can you explain a little bit better about you had said that you're going to kind of use the the three times just A benchmark but you had said earlier that it could be anywhere between one and four times What How do you what what would be the difference between one? Somebody that's getting one time and somebody that's getting four times so um The the multipliers are always considering debt free and um no cash So no money in the bank or anything like that So we're straighting we're starting just on what is the what is the likelihood the person's going to make every year? so some of the some of the reasons that we have a lower one is illness Where they're they're sick their employees are gone. They've gone from 300 houses to 80 And they can't they can't do anything and and they tell me I need to get this sold in 30 days or 60 days Or i'm going to be closing the doors and get nothing Then we try to make it as attractively priced as possible if it's a distressed sale It almost comes down to an asset sale and a lot of times distressed sales like that will sell for less than what somebody would start a new one for but People are apprehensive because the sellers will say well the the territory alone is worth 75 The territory alone is not worth 75 if you only making $15,000 a year. Yeah We're buying the cash flow. They're not buying What it would cost to start over so there's a different mindset that people have to get into um, but things that can drive the value closer to the four are Solid numbers earnings, you know where it's better than a job earnings because people want if they're going to spend the high dollar on A multiplier they want a very good return for that extra investment and some brands have autos some don't So if you have a fleet of 15 Toyota Corolla's out there that are already all branded and everything you're you're gonna have a little bit more value Add it on to that multiplier than if you don't sometimes we'll have real estate involved Where I want to sell my building too And then that that definitely will dramatically increase them Those are it's it's really difficult to ever say This is the average because there's so many circumstances that Can fall in if you're if you're a passive owner Um, you're working five hours a day or a five hours a week Just kind of doing payroll and checking in and you're spending six months in florida Yeah, you're going to probably get a three or four times multiplier because everybody wants that Right If I could make a hundred grand a year paying a manager and only working 20 dollars a month Yeah, I'll pay extra for that So it's it's a lot of circumstantial with each business to to really kind of hone it in So you're talking about deals that you know can be multiple hundreds of thousands of dollars, you know Oh, yeah, I guess there's some buyers out there who Have access to that type of cash and they can just show up and do that, but I imagine you have other buyers who want to own A franchise cleaning business, but they need some sort of financing to help them do that So could you speak to a little bit how? Financing what financing options there are in in some of the transactions that you do sure to be happy to Um This gets back a little bit into the multiplier question Uh the sba, which is backs a lot of small business loans. They underwrite them for banks that write the loans um If if a company is losing money or not making making very much money, they won't lend So when you take the the ability to get a mortgage out or a loan out of this scenario You're down to cash and that can that can force people down to that lower multiplier also if you are Very good cash flow and we can service the debt So remember our our calculation of seller's discretionary earnings does not include debt Okay, so if you currently are paying a loan on your business That's something that we add back into that seller's discretionary earnings because we don't know what the buyer's loan is going to look like And then we do what's called recast it with the bank. So if you're making let's say a hundred and fifty thousand Without any debt and you're now going to have a $30,000 a year payment now you're making a hundred and twenty thousand a year So the cash flow has to be there and if the cash if the numbers work out like that There's it's very easy to get lending the other way to buy a business is Using retirement funds Which a lot of people will do because then they don't have that debt service and they have increased income right away And the other way is to do a combination of cash down Some loan and then maybe seller financing And people get very nervous about seller financing initially But I always tell people to keep an open mind about it because you're doing the buyer a favor And when you do somebody a favor you're going to get a higher price You are taking on a little bit more risk, but you'll be getting some interest income on that and Potentially spread capital gains out over a period of time which can be advantageous And look you're going to get to know the buyer during the process So somebody comes along and says I want to I want you to carry 20 or 30 or 40 percent as a seller known over three years And you meet them and you think they're going to run them into the ground You don't have to do it But if you meet them and say this person is perfect corporate loves them I think they're going to be awesome. Then you're much more willing to do that So there's lots of different ways to finance A business most buyers will want to come in with as little down as they possibly can There are net worth requirements from some franchisees that they have to meet and we pre-qualify those So we're we work very closely with the brands And we know what their requirements are and and when we're pre-qualifying the buyers we we talk to them And it's the same with independence. There are a lot of people out there who don't want a franchise We advertise our our listings blind, which means it'll just say Cleaning business for sale and whatever state Here's the earnings. Here's the asking price And sometimes a buyer will fill out a non-disclosure agreement to get the information and they'll say sorry I don't want to franchise. You know, those are independently minded people So there are people that you know, if you're if if you aren't part of a franchise and you're thinking about selling Um, there are people that are looking for those types of businesses. They don't want to be part of the franchise Could you speak to that a little bit because I always Find that topic interesting. You mentioned that, you know, the franchisor has a as I say in this process as well and You you mentioned that there's financial requirements some objective things that they're looking at is there more of a A psychographic component of this as well where they're trying to figure out if From a values and in a motivator standpoint that this Candidate would would would be a good franchisee in our our system yeah, yeah, and um We coach the buyers as well as the sellers um They're being interviewed to become a franchisee So don't just go to the franchise and say where do I sign or what do I have to do or get me this or? I don't like these terms because they can say no It's a relationship. You're going to be with that franchise or for a long period of time and Yeah, you have to get approved by the franchise or but They all you know the franchisee also has to be comfortable with with them So when when we introduce people we give them tips on on Which question what questions to ask and then also to present themselves in the best light because You know if you come in and you say I want to run the business five You know completely passive and I don't have the net worth requirements And you have to give it to me that that doesn't go over well with the with the with the brand so um You know, there's a little bit of coaching that has to happen on both ends to make sure that everybody's doing what They need to continue the process do their due diligence, but get it over the finish line And let's face it some people are abrasive You know, you know, they're not you know, they're not going to be good when you interview them. Nobody's going to work for him or her Yeah So the franchisee say no and it could be it could be upsetting to stop or the franchisor say no that And that could be upsetting to sellers because they feel like they got stabbed in the back by the franchisor You know here. I had a buyer and I was finally going to be able to retire and they got in a way Oh, yeah, I didn't even think about So the franchisee is protecting their brand. Yeah, that's why dealing with uh, you know, it's a shame really that There's not more education done by the franchisors on how to exit Um, it's just not their focus and I I don't know why Um, I think it's a selling point when somebody buys a new franchise is to tell them Run this business for five or ten years and you're building a valuable asset that you can sell Um, it's a reason to buy that franchisee and for whatever reason When somebody says they want to sell and they call it these franchise orders the franchise orders just say We'll find a broker and let us know when a buyer comes and they're not Legally allowed to do a lot of Valuation calls and things like that. So I understand part of it but it puts the franchisees in a bad situation where they You know google business broker near me And find a guy in their town or a girl in her town That's a sales that you know as a business broker and they don't They may sell car washes and Restaurants and a million other things They don't understand franchise resales So find someone who knows franchise resales All right, most of our people are not going to be hey germ wizards Uh are not going to be um franchises, but Definitely still want someone to understand the business right understand the industry, right? Yeah All right, so it's um, you're speaking to one of my questions here Is if somebody is thinking that they want to sell Their business, what are some of the things that they need know that you know? They need to do or to get into place That they need to be thinking about before they call a broker um, we have Website um and I can give you the url later, but it's called the franchise readiness assessment Yeah Now it's just the link on our website, but it's a series of questions that It's like real quick and tom will look it up. He'll post it real quick the um our our website is smallbusinessdeal.com Okay, um, but once we talk to someone that's when we send them this this questionnaire There's no cost for it, but it gets them thinking about what how buyers are going to look at their business Okay, with the planning tool And it asks Some things about the upside and the in the downside Um, you know this our website. We have a very large mergers and acquisitions. So I focus on the um franchise resales, but we have a lot of different businesses that we represent um But the idea behind that assessment is to get them to understand the process So first of all understand what they need to do and one of the the biggest things they can do is have very good financials um and Know what their expenses are Be able to document them a lot of people will do will do owner benefit things like cars, but they'll Look it in with the other cars or they'll have travel um, or they're you know buying home supplies and stuff that can potentially be a valuable owner benefit but they're not separated clearly in the financials and uh If financials are are hard to understand and justify It causes doubt in the buyer's mind and in the lender's mind on what the actual cash flow is So number one take away of anybody who's thinking about selling is Keep extremely good profit and loss statements and when a buyer calls and says what is this bill for You have to know what it was for and then we can decide if it's going to be an ongoing expense or not So we need clean numbers So somebody's thinking about it. Just make sure that they're working with an accountant to keep everything very clean and Be ready to be able to provide those numbers the the higher multiply business is the ones that sell for the most are They have clean tax returns that match their profit and loss and so many times I'll get a tax return that shows negative 15 thousand dollars because they wrote every single thing off But they're telling me they made a hundred thousand Um, and I'm not saying that you shouldn't take away tax advantages It's just clearly show what those tax advantages are and how they're not going to be a new ongoing expense For the or a continuing ongoing expense for the owner So clean financials is one um Thing that they should do the other is to go through the valuation step where they are now Um to get an idea of what they think it might be worth And then if they have a number in mind that they want to sell for We can tell them What they're going to need to do what kind of numbers they're going to have to hit to be able to get that multiplier um That those are the two most important things is to to Under have very clean financials and sometimes we got to do a lot of cleaning up before we can go to market Because it's just there's too much too much doubt In and you mentioned earlier Doug sometimes the deals that you do with the lowest multiples are The stress sales so you know I'm sure you you you see that more than than anybody would want to and would you See there's a lesson to be learned there that you None of us are going to be running our businesses forever And we really don't know when a day might pop up that we need to sell our business. So Do you recommend that we're always thinking about keeping these records and Keep it as clean as you can because it doesn't you never know what's going to happen And The number one cause for a business not selling or selling Extremely low is bad record keeping So if you think you do your next 10 years still keep the records clean Because the longer you can show steady cash flow the better and I mean I We could do a whole other hour on on the chicanery that owners get up to with in their in their books But when there's a big surprise you might be might be going down the road and They're gonna they're gonna they're gonna uncover you know different things that people might be trying to to Add back let's say so I had an owner for instance. He put his Child support payments in as something else and wanted to add those back in And how did we know how much they were actually spending in advertising when he's saying that he spent $36,000 of the advertising budget was for The child support payments. So, you know, he wanted to add those back in Yeah, and then he didn't have any of the records to show how that was and then You know, I'll it just can get really Really complicated for buyers and lenders and You you have to be able to show what that future cash flow is going to be in a very clear way to get the highest result so if you're planning just Take the extra time to make sure that Everything is clearly separated. Don't lump everything into one thing. Don't You know, I'll have people that will put ask my accountant And they'll have a a box of those and then we can pull those up and and look but Don't have three categories payroll Advertising and maintenance Because it's you really need to know well if you have 130,000 in maintenance. What is that for? And if you have to dig through and and You know really try to figure out which ones which and it's it makes it very complicated It's part of what we do in the initial valuation stage as we go through and we try to look for things that are going to be questioned And we get the answers ready before we go to market. So when a buyer asks the questions, we know the answer So So this is a little bit different question one of the things that we talk about a lot with the Business owners that we work with they always want to know Where their money should go When they're filling out their you know How do they classify their money the money that they take from the business? and what we usually tell them is If you are working in your business and you are are actually Filling a job like if you're acting as the general manager, for example, then the amount of money that you take For that job should be included as part of the expenses, but it should be Approximately the same amount that you would pay a general manager So if you're pay if you're taking $300,000 a year, but you know that you would only pay a general manager maybe $110,000 We usually tell them take put the 110 as expenses and take the other couple hundred from your From your not profit. Is that wise? Yeah, yeah, and I'm not an accountant. So I don't want to I don't want to Always always double check what everybody says but um, what we see typically is uh Lower payroll salary and then a lot of our Companies are escorts and there's a lot of tax advantages to be in an escort And then you can have that pass through income. So you're not paying Social security on that um, the other thing that is good about having it priced Approximately to what the replacement manager is is it's easier to calculate What the income is going to be if you if you take that out of the equation So one of the things with the seller's discretionary earnings is You take the earnings of the business and the payroll and combine those along with some other things to get the seller's discretionary earning Is it's real easy to say I'm paying myself 110, but we think you could get somebody to be a manager for 80 Yeah, we would only add back in that 30 000 dollar difference to the to the earnings and then the expectation would be That they're going to have an employee in there and that would alter the cash flow a little bit And if they want to be the manager and continue to take 110 then so be it Then they'll learn more and they might be willing to pay more for it Okay, that makes sense, but cream books valuation um steady employee steady sales one of the things that happens with People who aren't prepared or thinking about it and they do get an illness. It's probably the number one distress type thing or a divorce happens um Or the economy turns and you have to you have to get rid of it um If you don't have clean books and you don't have an idea of of what your business is actually work It creates a lot of doubt and fear in people and then they don't decide to move forward and list it And then it just continues to deteriorate. I can't tell you how many times I've talked to owners that Had really nice businesses, but didn't like the valuation we were giving them and then Their situation just continued to to to get worse whatever the situation may be whether it's employees or market forces or or what have you and then unfortunately, they They end up not making Can you speak to COVID has impact because um, so many people are you know, everybody's record's like different right now because they're getting PPP loans and you know, they're just they lost business. They were shut down for six weeks or whatever How is that impacting things? so the banks are We have to take PPP money out of the cash flow Um, so if you if you got a PPP loan, we have to take that out But what we try to do is normalize it and we're through the pandemic now and what we like to see and what lenders like to see is 2018 the sales were here 2019 the sales were here 2020 they were here and now 2020 they were back up pre-covid That's a very good. That's a very good sign. So then they'll they'll take that 2020 and say more than likely Since 1718 and 1921 are all similar or they're heading the right way We won't wait as 2020 as much um If you have 2020 and you had a terrible year don't think that it's gonna it's gonna completely hurt you as long as you rebounded I had a lot of people You know in different industries that have not Been able to get back to pre-covid numbers Um, I would say that was the case for a while in the cleaning business But in the last six months the I've seen that Uh, the numbers returning a little bit more steady I think people are more comfortable having people in and out of their house again As the industry and as a whole You know covet in the long run might have helped because people are more conscientious of keeping their houses clean Um, a lot of people work from home now and want to have it cleaner You know sort of they're more So yeah, 2020 and covet did impact the industry, but we're coming out of that So as long as your numbers are trending in the right way, you're gonna be I Like people are kind of giving a pass to 2020 Yeah, they are now But it was it was scary for for buyers For a while there because you know really frustrating for sellers because You just didn't know what was going to happen um, but overall the the sector is bounced back very nicely and um, there's certainly demand For cleaning especially, I don't know if you guys get into janitorial stuff, but those are They'll sell very quickly. So how is the MNA market for residential cleaning companies compared to you know, maybe 2019 2018 is What can you say to this the supply and demand for for cleaning businesses? um I think due to the reoccurring revenue feature of it, um, the only real Negative that people are concerned about and you touched it on at the very beginning is is employees Um, and as that improves, I think the overall demand is going to continue to Stay strong. It's it's probably towards the top of Our franchise resale demand we get a lot of A lot of uh requests about it because you can have so many different people Get involved. It's not like you have to have a real special background um And the hours are good, you know and when somebody's looking at a restaurant franchise You better know what's happening and be able to run it because restaurants can go sideways quickly um, this is a business that you can get into and You know have some assurance of what your cash flow is going to look like They're not one-offs. You're not constantly hunting the next sale You know you once you get a client you can count on that so Because of that feature, um, it's very attractive. So there's there's good demand For the the industry right now for sure So do you when you're doing the valuation then dug? Do you separate out the recurring revenue from the Like the one-time revenue or do you even?  You should be able to check Cleaning companies if you go up. Well, just let's just stop on one here. Let's There's one right there profitable west Michigan cleaning company if you click on that Read more. Yep So if you go to the right there, and I don't know if it's too small but up on the right You'll see what they're asking and then what the cash flow is on it that cash flow is the seller's discretionary earnings so they're they're taking home a hundred and nine and They're they work the business quite a bit themselves So the revenue is 289 they're asking 225 and it hasn't flown off the shelf Anything that has right around that hundred or less cash flow are a little trickier to sell than if you're north of 150 There's a little bit more room for error And still be able to pay your bills when you have higher cash flow So those those tend to be a little bit more but this is a typical ad that we have This is a really small one um But that's that's normally what people are going to see when they're looking at business brokerage sites And it doesn't take long for a business buyer to to do start doing the math Oh, oh, this is a hundred grand and they're asking 225. It's a little over a two times multiplier If they if they see the same ad here and it says i'm going to make a hundred and they're going to be $400,000 they want they're going to say oh, that's not as good and they're going to just move on And that's where those there's some stickiness to that that right around two to three range We are at the top of the hour. So We've taken your you are around and we've dropped it in chat if anybody He wants to know more about your services, you know, would would you be willing just to have a conversation with somebody? Yeah, that's what I do So, um, I don't know if you want to put my contact information in there too They can they can give myself on a call or shoot me an email and i'm happy to You know give them we usually talk to someone before they we go through the the resale program or the resale assessment tool But that is free. Um, so if they reach out to me, they can they can get a hold of me there too That's our that's our corporate number. My my cell phone is probably the best way to get me. That's a direct line Okay, what is that? It's 616 2 9 9 0 222 And the uh, my email address is dug at small business deal dot com Okay And yeah, we I I have a way to book book calls and we can talk about it and if it's just planning or just questions Um, it's a long process. We don't you know push anybody to make any quick decisions on this, but Um, it's if they do have individual questions and and want to learn more about the process. I'm happy to help them out awesome Okay, Doug. Thank you so much for Thank you. Appreciate it with us. You know your knowledge and expertise in this area I think this is the first time we've been doing this for a few years This is the first time we actually had somebody on our show that Isn't the business of of of doing m&a and the residential cleaning space. So It's part of uh owning the business. You're you know, the the days of the kids taking it over are gone. So You know, you have to you have to have that as part of the equation and I find that You know owners of cleaning businesses are usually pretty organized People and like to plan. So don't be afraid to start thinking about things like that For retirement. It's a valuable asset. It really is So it's not something to take lightly when you're Someday I'll sell it, you know, you want to you want to put yourself in the best position to to get the highest price Start today. No matter when you plan on selling boxes Folks, yeah Okay, thank you again We'll be back next wednesday five o'clock eastern till then everybody take care. Bye. Bye y'all