Question:
One of the most frequent questions I am asked by prospective business buyers is whether or not they should hire a business broker. My initial response is always: “yes…but”. The “but” is that you should “use” one, not “hire” one. A business broker can have a very specific and important role in the buying process. The “but” is related to understanding what that role is.
Answer:
Business brokers almost always represent the seller. The seller pays their commission and even if they are assisting you in the process, they have a fiduciary duty to the seller. This is not to say that they won’t provide you with helpful advice.
Why then, you may ask, should you use a broker?
In the past thirteen years, I have personally purchased ten businesses. I have used a business broker in nearly every transaction. Even though I would consider myself a very savvy buyer, there are three things that a business broker can do that are very helpful.
Business For Sale Listings
They can provide you with access to business for sale listings and details about the business that you may not discover on your own. Although the majority of businesses sold in the U.S. are not done through brokers, some states have a multiple listing service of businesses for sale, similar to residential real estate. In states that do not offer this, brokers will often only show you their own listings. In those cases, you’d have to work with several brokers just to see a variety. You may want to search for your states, “business broker association” and see if such a service exists.
Always Good To Have A Buffer Between You and The Seller
They can be a conduit to help deliver bad news to the seller. There may be instances where you have to retract or modify an offer and certainly times where you’ll need to adopt an aggressive negotiating position. Since you’ll most likely need the seller to train you after the purchase, it’s not a good idea to aggravate them too severely. As such, let the business broker deliver the bad news.
The Paperwork Is Astounding
A business purchase, no matter how small, requires a tremendous amount of coordination and document chasing. The data you’ll need from a seller to evaluate a business, the documentation required to close a deal and the overall chasing that must be done between buyer/seller and their professional advisors, can be astounding. A good broker will be an enormous help putting all of it together.
Using The Right One
In addition to being frequently asked by readers of my book about brokers, I also receive the greatest number of complaints from readers, about brokers. While many of these complaints are justified, equal amounts are due to a basic misunderstanding of what a broker can or cannot do.
A business broker cannot help you buy the right business. They can assist you, but ultimately, it is up to you to make that decision. A business broker cannot afford to spend countless unpaid hours searching for the right business for you. The search is something that you must do. They’ll provide you with the tools to do it, but it’s your responsibility to get the ball rolling. A business broker cannot conduct the investigation for you. They may suggest common things to look for, but they won’t be your detective. A business broker cannot negotiate the best deal for you. Most will certainly attempt to bring all parties to a point of understanding, but if you want the best deal, then you must realize that nobody cares more about your investment than you do.
Meet with several until you find one who makes you feel comfortable. In my course, How To Buy A Good Business At A Great Price, there is an entire chapter devoted to hiring and using the right broker, however, here are a few questions you should ask them including:
- How experienced are they?
- How many transactions have they been involved with?
- Have they ever owned their own business?
- Do they specialize in a particular business type?
- What references can they provide?
- How many clients are they working with presently?
- How many agents work in their office?
- Of the total number of businesses they’ve sold in the past year, how many were their own listings and how many belonged to other agents? (This will indicate their willingness to suggest businesses to you based upon your needs not simply because it’s their listing.)
Your Presentation Will Determine Everything
Don’t just call or email a broker inquiring about a particular listing. The point of your contact is to first determine how effectively they communicate and how eager they are for good buyer prospects. If they do not reply to your email or return your call within 24 hours, forget them (unless of course their voice mail indicates they’re out of town). I’ve heard some brokers say they’re too busy to return buyer emails. Some only reply after they get a second or third inquiry from a buyer.
I don’t care how flooded the market may be with buyers, or how inundated they are with buyer emails, there is no excuse for not getting back to people in a timely manner.
Help Them To Help You
Once you begin to speak with a broker, if you feel good about their attitude, follow up and commentary, arrange to meet them. Keep in mind that you want them to keep an eye out for the hottest listings for you. To accomplish that you must convey several things to them:
- Show them you’re serious. A business broker wants to be sure that if the right opportunity comes along; you’ll be ready to buy!
- Prepare a laundry list of the types of businesses you’re interested in purchasing.
- Present them with your personal financial statement.
- Tell them precisely how much money you have to invest.
- Ask them for suggestions as to how you should conduct your search.
- Ask them to show you how to best navigate the Internet.
- Call them regularly, at least once a week.
- For the first couple of businesses that you locate on your own, ask them to check them out. See how long it takes for them to give you data or follow up with you. If it’s more than a couple of days, use someone else.
Much of this information may be confusing to a first time buyer. It’s logical to think that brokers should be falling all over to get your business. Unfortunately, this is not the case. I have always found this a little bizarre. Typically, this is not the philosophy employed by most brokers. This is an inventory business. Brokers make money by having good listings. A lot can be said for that but, let’s remember that every seller needs a buyer. If not, no deal!
Business brokers have a role to play. Use them effectively and they can be a solid asset to help you complete the deal. Likewise, if they do not demonstrate a serious commitment to follow up on your requests, then get another broker.
But remember, no matter how effective a broker is, when all is said and done, the task of buying the right business is ultimately, entirely in your hands!