Seven years ago, I considered buying a practice. I offered a gentleman what I thought was a good deal: the payments would be made by the broker-dealer; all he had to do was keep his license going for four or five years (assuming the BD required that he be licensed). He would have received payments as follows, based on his book of business and assuming a 90 percent concession payout to me:
Year 1: 70 percent to him; 20 percent to me
Year 2: 70 percent to him; 20 percent to me
Year 3: 50 percent to him; 40 percent to me
Year 4: 40 percent to him; 50 percent to me
Year 5: 20 percent to him; 70 percent to me
That was 250 percent over five years and would have given him income on increases, too, assuming the assets grew and/or his customers added money to accounts. So, it might have, overall, gotten close to maybe 300 percent in total. Had he said he needed more, I would have probably upped the ante some as to percentages, but he didn’t say he needed more.
He turned the deal down. Why? No front money. When he said there had to be front money, I thought his must be a bad book of business. Why did he need front money? I have a deal regarding my practice — if I get hit by a falling meteor, my purchaser will pay my family income over a number of years. Initially, the purchaser assumed I needed front money, but why? I took a deal with no front money. I believe I have a good practice, that the purchaser will take care of my customers, and that few, if any, will leave the practice.