Author: dadgorda

I learned this lesson the hard way, and it cost me about six weeks of my life I will never get back.

A few years ago I listed a property that I was sure would move fast. Nice lot, fair price, solid bones. The calls came in hot and heavy. One guy in particular was so enthusiastic. Called me three times in a day. Told me he could already picture his kids in the backyard. He wanted to walk the property that weekend. Then next weekend. Then a third time, this time with his brother-in-law who “knows a thing or two about foundations.” Six weeks of this. Six weeks of me rearranging my schedule, answering late night texts, and turning away other lookers because I figured we were practically at the closing table.

When it came time to actually make an offer, the man went quiet. Radio silence. Then a text: “Working on getting the down payment together.” Translation? He never had it. He was window shopping with my time. I felt like a guy who spent three hours spotting someone at the gym only to watch them load the bar with the same weight they warmed up with. Frustrating does not even cover it.

That is when I became a believer in proof of funds. Not as a weapon. As a filter. Here is why this one simple gate matters more than almost anything else you do early in a deal.

What Proof of Funds Actually Means

Proof of funds is straightforward. It is documentation showing a buyer has the money available to close. Think:

• A recent bank statement (usually 30 to 60 days old)

• A letter from a lender confirming a pre approval

• A statement from a brokerage or investment account

Notice what it is not: a promise, a maybe, or a story about a rich uncle who is “totally good for it.” Those are nice. They are also worth exactly nothing when the deadline hits.

The Gate Does the Hard Work for You

Here is the part people miss. Asking for proof of funds is not about being suspicious of everyone. It is about being respectful of your own calendar. Think of it like a bouncer at a club. The bouncer is not your enemy. He is the reason the dance floor is not crammed with people who did not pay.

Once I started requiring it upfront, a funny thing happened. The tire kickers vanished. The serious buyers? Most of them had their paperwork ready before I even asked. They appreciated it. Real buyers want to know you are not wasting their time either.

Three quick benefits:

1. It cuts the dead weight immediately

2. It signals you run a professional process

3. It shortens the timeline from first call to closing

How to Ask Without Being a Jerk

You do not need to come in with a clipboard and a scowl. Keep it light. Something like: “Happy to set up a walkthrough. Before we do, can you send over a quick proof of funds? Just keeps things moving for both of us.” Nine times out of ten, nobody blinks. The one who gets offended? That was your answer, friend. That was always your answer.

Bottom line: this gate is not fancy. It is not glamorous. It just works. Protect your time like you protect your training days. Both are limited, and both are yours.

Let me tell you something I’ve learned from decades of training: numbers don’t lie, but they don’t tell the whole story either. Same goes for valuing a Main Street business. You can’t just eyeball it and hope for the best. I’ve seen too many folks make that mistake, and it stings worse than a missed rep on max-out day.

So let’s talk about Seller’s Discretionary Earnings multiples. Real talk, no fluff.

What SDE Actually Means (And Why It Matters)

Think of SDE as the true earning power of a small business. It’s the number you get when you take net income, add back the owner’s salary, toss in some non-cash expenses like depreciation, and adjust for those one-time costs nobody talks about. The stuff that makes the business look leaner or fatter than it really is.

Here’s the deal:

1. Start with net income

2. Add back owner compensation

3. Add non-cash expenses (depreciation, amortization)

4. Adjust for personal expenses run through the business

5. Strip out one-time gains or losses

Sounds simple, right? It’s not. That’s the trap.

The Multiple Itself: Where Things Get Interesting

Main Street businesses usually trade between 2x and 4x SDE. That’s your starting range. But here’s what nobody tells you at the seminars: the multiple is a moving target. It flexes based on things you can’t always quantify.

Ask yourself these questions:

• Does the business run without the owner chained to the register?

• Are the customers loyal or just convenient?

• What’s the growth trajectory, not just the historical average?

• How transferable are the skills and relationships?

I once watched a guy pay 4.5x for a business that looked golden on paper. Six months later, half the clients walked because they were loyal to the seller, not the shop. That multiple cratered faster than my ego after a bad posing routine. Lesson learned the hard way.

A Practical Walkthrough: Crunching the Numbers

Let’s say a local hardware store shows $180,000 net income. Owner takes $60,000 salary. Depreciation sits at $15,000. There’s a one-time legal expense of $5,000 from last year.

Your SDE math:

• Net income: $180,000

• Owner salary: +$60,000

• Depreciation: +$15,000

• One-time legal: +$5,000

• SDE: $260,000

Now apply a 3x multiple. You’re looking at $780,000. At 2.5x, it drops to $650,000. See how the range shifts? That’s why you never lock in one number and call it a day.

Red Flags That Mess With Your Multiple

• Customer concentration. If one client is 40% of revenue, you’ve got a problem.

• Declining foot traffic. Location matters more than ever.

• Owner dependency. If the business falls apart when the owner takes a vacation, you’re buying a job, not a business.

• Outdated systems. Manual bookkeeping in this day and age? Yikes.

Wrapping It Up

Valuing a Main Street business isn’t glamorous. It’s grunt work. But get it right and you build something solid. Get it wrong and you’ll feel it for years.

Do the homework. Ask the ugly questions. Trust the math but verify the story behind it. That’s how you win in this game.

I once watched a deal die at month seven. Seven months of inspections, environmental reports, lease reviews, and enough paperwork to choke a copy machine. The buyer swore up and down that financing was locked. Spoiler alert: it was not. The bank pulled the plug two weeks before closing, and I was left standing in an empty parking lot wondering where my summer went.

That experience taught me a lesson I now treat like gospel in commercial real estate. Before you invest serious time with any buyer, verify they can actually get SBA financing. Not “pre-qualified.” Not “the bank loves them.” Verified. Here is how I do it now, and how you can save yourself months of pain.

Why SBA Deals Stall Out (And Why It Hurts the Seller)

SBA loans are fantastic tools for buyers. They are also unforgiving on eligibility. The Small Business Administration has strict rules on business size, owner occupancy, credit history, and cash injection. A buyer can look rock solid on the surface and still get bounced for reasons nobody checked upfront.

Here is the ugly truth from my side of the table:

1. SBA lenders take 60 to 90 days to underwrite, sometimes longer

2. Buyers often confuse “pre-qualification” with an actual commitment

3. One credit blemish or undocumented income source can sink the whole file

4. Sellers who wait find out too late that the buyer was never viable

Step One: Ask for a Lender Pre-Approval Letter (Not a Pre-Qual)

There is a big difference between these two documents. A pre-qualification is basically a lender saying “sure, you seem nice.” A pre-approval means the lender reviewed credit, financials, and tax returns. Ask for the letter directly from an SBA-approved lender. If the buyer cannot produce one, hit pause immediately.

Step Two: Confirm the Buyer’s SBA Eligibility Basics

You do not need to run a full audit, but you should confirm the big items:

• Business size standards: Does the buyer’s business fall under SBA size caps for the industry?

• Owner occupancy: For real estate deals, the buyer typically must occupy at least 51 percent of the property

• Cash injection: Most SBA 7(a) deals require a 10 percent down payment from the buyer’s own funds

• Credit and character: Lenders pull personal credit and review criminal and financial history

A quick conversation with the buyer’s lender can confirm all of this in about fifteen minutes. Do it early.

Step Three: Talk to the Lender Directly

This step feels a little bold, but it works. Ask the buyer for permission to speak with their loan officer. Then ask three questions:

1. Has this buyer submitted a complete application yet?

2. What conditions remain open on the file?

3. What is the realistic timeline to a commitment letter?

If the loan officer hesitates on any of these, treat it as a red flag. Pros answer directly.

Step Four: Require a Financing Contingency With Teeth

Put a deadline in the purchase agreement. Something like 45 days for the buyer to deliver a written loan commitment. No commitment, no deal, and the earnest money stays put. This one clause has saved me more headaches than any other tool in my kit. It forces the buyer to move with urgency and protects you if they cannot deliver.

Step Five: Watch for These Warning Signs

• Buyer avoids sharing financial statements or tax returns

• Lender name changes every time you ask

• Timeline keeps slipping with vague excuses

• Down payment “will come together later”

• Buyer cannot explain basic SBA terms like guaranty or debenture

Trust your gut. If something feels off, it probably is.

The Bottom Line

Time is the most expensive thing you own in a deal. Protect it. Verify financing early, verify it in writing, and verify it with the lender directly. Do that, and you will never again spend seven months babysitting a deal that was never going to close.