For some, we have been writing a blog about BUYING businesses.  It has been fairly well received, and the proof of that is:  (A) We have not been thrown off of the Web Site – yet…  And (B), we have received a number of very positive comments from around the USA and even the World, both on the Blog site itself, and even more, privately.

So, now we turn to business Owners, or potential Sellers.  Yes, we are Business Brokers.  No, this is not a shameless attempt to get you to list with us.  (If you wish to do so, GREAT!)  This has more to do with the state of the marketplace, whether it is time to sell, how to get ready and so forth.  Some will deal with Brokers – but in a generic sense.  Other posts with have absolutely nothing to do with Business Brokers, we promise!!!

And the first issue is:  Do you need a Business Broker, in order to sell your business?

As self-serving Brokers, obviously our answer would be an unqualified, YES!  But that is not always true…

There was one business in particular where we sold the man a small Retail business, and in two (2) years, he grew it by an enormous amount.  The local residents noted the improvements and one day, one of them walked up to the Owner and offered to buy it for cash, right then and there!  The Owner was tired of the business and accepted on the spot.  Then called us and asked for us to find him another business.

He avoided the Broker Commissions and made a handsome profit.  But in retrospect, after we looked at his books, we noted that he probably sold at about a 25% discount, below what he could have commanded in the open, competitive market – far more than the commission we would have charged him.

And that is part of the key.  One of the things we, as Brokers attempt to do is to ideally provide for a maximum pricing presentation, and promote it in a competitive arena.  Competition can only exist if there are two or more parties in the mix.  Someone that walks up to you and simply offers money is frequently – not always, but frequently a “bottom feeder”, who is looking to sneak in and buy at a discount, without anyone like a Broker to push the pricing envelope.

Some Brokers are better than others, at this.  NO QUESTION!  There are some really bad Brokers out there, who would sell their souls for fifty cents; and they would push you to take the fastest deal, no matter how bad it might be for you, in order for them to get their commissions quickly.

But there are good and bad Doctors.  Good and bad Attorneys.  (In all of our transactions, we have only had two Buyers lose their deposits, and in BOTH circumstances, it was their Attorneys that were the cause of the losses!)  In your businesses, it is certain that there are good operators, and bad operators, among your competition. Certainly, all Brokers are not created equally, either.

The key for you is to take a critical look at the Brokers you are considering.  And one way of doing that is to ask them for references.  Another is to ask them for their ideas on pricing.  Many unprincipled Brokers will do one of two things, to get you to sign with them.  The first is, “I have a Buyer for your Business!”  The connotation is that they have a SPECIFIC Buyer for your SPECIFIC business.  A more truthful statement might be: “We have a couple of Buyers looking for your KIND of business.”  That is a statement that does not guarantee you anything, (which is why they do not say it that way,) but it is a far more honest statement, and probably far, far closer to the truth.

We know of one Broker in Maryland who told a business Owner that he had A BUYER for her business, and she offered him a commission agreement for that one Buyer.  But the Broker never put the name of that specific Buyer in the agreement, tying her up for months until she extricated herself from the threat of owing this Broker a commission, for every Buyer that came through other sources.  She was terrified that if she took any other Buyer’s offer, from any other source, this first Broker would suddenly show up and say, “I brought that Buyer to you, first; he was my original Buyer.  You owe me a commission!”  When she finally contacted us, we put her in contact with an Attorney, who sent a brief note to the original Broker, severing his agreement.  That agreement was a voidable one, and it put her in a safer position.

The second way that unscrupulous Brokers try to generate listings, is to promise you huge amounts for your business, that are way out of line from reality.  One Owner called us and said he had something like a $1 million business he wanted to sell.  When we reviewed his books, it was obvious that his business was properly priced at closer to $350,000!  We asked where he got the idea it was worth more, and he said it was from another Broker.  When we asked why he did not list with the other Broker, he responded that the other Broker wanted $5,000 for the final report and an up-front listing fee.

Obviously, that other Broker was not really selling businesses; he was selling pricing reports.

The difference from the service we provide and the example of the Seller we cited above is that our Broker Price Estimates show how the suggested Price is a rational one: It shows the Seller a Cash Flow Analysis, demonstrating how a lender could accept such a price.  With the previous example, when we performed our own Cash Analysis and Broker Price Estimate, the $1 million price would suggest the Buyer would lose a substantial amount of money every month, before he/she ever took a dollar out, for him/herself!

This is the kind of analysis you, as a prospective Seller, have to keep in mind when pricing your business, whether you work with a Broker or not.  If the business cannot carry the note payments, if there is an insufficient Return On Investment, the price is generally speaking, too high!!!

So, do you need a Broker?  Not necessarily, but you better know what you are doing.  Do you do your own colonoscopy?  Would you represent yourself in court, if you were accused of murder?  Ideally, in any technically-oriented scenario, you put the issue in the hands of the expert.

The question becomes, is the Broker you are looking to list with:

  • Experienced?
  • Well regarded in the community and referenced?
  • Does he/she understand business?  (Someone that has never run his/her own business may not be your best bet; do they really understand business ownership/management, and can they effectively communicate with you and the Buyer about those issues?)
  • Does he/she even understand how to read (and therefore explain) a P&L?  You would be surprised at how many do not!
  • Is his/her judgment sound, such as in the area of pricing?
  • Does he/she understand what to say and, sometimes more importantly, NOT to say in a negotiation?  (This is where most Business Owners, themselves fail.)
  • Does he/she understand the variety of advertising and promotion instruments that might be best for your business?
  • Does he/she cooperate with other Business Brokers?  (Not many do, in most areas of the Country, unfortunately.  This is to your disadvantage!)
  • Does he/she understand financing?  It does you little good to get a great offer, and the Buyer has no way to finance the deal.

Not all Brokers are created equal.  But a good Broker will generate more in Price, than what you pay him/her in commission.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

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