Hey Buyers and Brokers - Can't You Guys Get Along?

The the last few weeks I have received an unusually high volume of comments from business buyers and brokers. I thank you for all of your comments; that is what makes a great online community.

Nevertheless, I am disturbed by what appears to be two drastically different opinions between the two groups. Buyers slamming business brokers and brokers claiming the buyers are all wrong. Guess what - you're both right and both wrong! Although I never like to draw any general conclusions, there is clearly a miscommunication here of grand proportions.

I am certain that my comments today will please some and irritate others. I welcome any constructive comments.

First, let me state I’ve seen the business buying space from all sides. I’ve purchased ten businesses myself, sold nine of them, written seven books on the subject, I’ve worked as a buyer’s representative and I still do mid market business brokerage.

I remain astounded by the sheer numbers of emails I get from business buyers that literally trash the business brokerage community. I am not going to defend brokers. I will say though that over the years I have met, worked with and spoken to hundreds of terrific brokers. They are smart, successful, know how to get a deal done and they take countless courses to improve. However; just like any other professions that survive strictly on performance, there are always going to be good ones and bad ones. Unfortunately, like other "similar" fields (real estate, insurance) with thousands of brokers, the numbers of true professionals may be the smaller of the two groups. I also know that it is understandable that after dealing with vast numbers of prospects that never buy, it is easy (but not right) for any business broker to become disenfranchised.

Personally, I don’t agree all of the philosophies or methodologies that I hear some business brokers practice but as a buyer you really should not pay too much attention to it. It just doesn’t matter. This is where I think some business buyers completely miss the mark.

Buyers get too hung up on the broker’s role and forget what their goal is in the process.

The business buying process has plenty of blemishes, of that there is no doubt. Anyone who disagrees has their head in the sand. However, I am convinced that a fundamental misunderstanding of how this process is "supposed" to work is at the core of what causes the friction and lack of communication between buyers and brokers.

Let me first address prospective business buyers and provide you with some insight to business brokers. I will touch on a few points that are basic yet fundamental reasons that cause a lot of wasted time and misunderstanding. I am also going to discuss some issues related to business brokers and their world in the next newsletter which will clearly help anyone who is buying a business understand this process better.

First, most business buyers begin the process thinking that business brokers operate like residential estate sales people. You figure they’ll respond to every inquiry with rapid fire speed, they’ll show you tons of businesses and take as much time as you need to find the "perfect" business. Unfortunately, that’s not the way it works.

The only common thread between business brokers and real estate agents is that they are both paid on commission – end of story. Real estate sales people will generally work more favorably with buyers and there are a number of perfectly good reasons why this happens.

I once read a statistic that said any individual or couple that contacts a real estate person will likely purchase a property within twelve months, seventy percent of the time. Contrast that to a prospective business buyer whereas over ninety percent will never buy a business. That alone could cause some business brokers to proceed cautiously before becoming too involved with any buyer. I know I do. Wouldn’t you agree?

To further complicate matters, the market is absolutely flooded with buyers; always is; always will be. Unless you separate yourself from the crowd, you are simply in a pool of tons of others who, in the minds of sellers and brokers will probably never buy. Here’s a great article on how to separate yourself from the crowd .

Since business brokers are not going to take you to see countless businesses for sale listings, a good part of the search falls to you. Now, this does not mean there’s any excuse for a broker to not return your calls or emails when you inquire about a business (a frequent complaint) and I know how aggravating that can be. On the other hand, if you are able to search more effectively, and ask the right questions (especially in the first contact) you will be miles ahead of the other buyers. Business brokers are not going to do your work. Don't expect them to.

Second, the misconception exists that banks have their vaults open ready to lend money to small business buyers – not true! And so, many inexperienced buyers who simply do not have the financial resources to complete a transaction go down the wrong path thinking that every business listed for sale is within their reach. Unfortunately, that is not the case.

Financing a business is not as simple as getting a mortgage on a home. While there are many options available to finance a business, you certainly want to understand these early on so that you don’t chase the wrong deals. If not, the only result will be wasted time and frustration. If you do not have the financial resources to execute a sale, a business broker is not going to indiscriminately distribute a company’s financials to you. The lesson is simple - know what you can afford. Be prepared to share your financial information with a broker and provide them with the proof they need to deem you qualified for a particular listing.

Third, learn the business buying process. If you’re really serious about buying a business, then don’t become a "looker". Educate yourself, hone into a few businesses, present yourself properly, ask the right questions, do your research, and be prepared to make offers. It's quite simple and the only way to get any deal done.

I know these few points sound relatively simple, and perhaps even obvious. I also know and hear first-hand how frustrating it can be to work with an uncooperative business broker. Yes, those situations do arise. Yet, one thing is certain: every single business broker wants to sell you a business. If not, they don’t eat. They will help you. They will move the deal along. But they are not going to do your work nor will they spend time with you on listings they know you cannot execute.

The business buying process is not perfect; far from it. However; the blame can not rest solely with brokers. I know there are plenty in the profession who should not be there. Chances are that they won’t be in twelve months. Nevertheless, you cannot possibly rely on a business broker to dictate your success and whether or not you complete a transaction.

Brokers have their role but deals get done between buyers and sellers. Placing your destiny in this process in the hands of a broker and then becoming discouraged or worse yet, aborting the project because of their inefficiencies simply does not make sense. That would be like you deciding to take the bus and not buy a car because you did not like the salesman at a particular dealership.

The bottom line here is that business brokers will not pay any attention whatsoever to unqualified buyers. I’m not saying that their methods for qualifying a buyer are always right by any means. However, if you truly want to get the level of cooperation you believe that should be bestowed upon you by a business broker, then you need only follow a few simple steps.

Come to grips with whether you have a real need to buy a business or you are just looking. When you arrive at the former, you’ll be successful.

Get a handle on how much you are prepared to invest of your own money. Buying a business is not like the "no money down" real estate infomercials. Be willing to share this information with business brokers. They will help steer you to businesses they know you will be able to purchase.

Be prepared. I don’t care how smart you are, or what your prior business experience may be, those are attributes that will help you AFTER you buy a business. You absolutely need to educate yourself. In my publishing business where we offer how-to guides on buying a business ( www.diomo.com ), I like to ask prospective clients the following questions (think about this for a second): If you are going to invest your money to buy a business, and especially if you have never bought one before, shouldn’t you first learn how to buy the right one? If not, that would be like your college bound child telling you that they want to become a doctor but they aren’t going to buy any of the books or even attend most of their classes. How would you respond? Buying a good business is well within your reach. We are not talking about sending men to the moon. However, if you fail to prepare; prepare to fail.

So here’s your homework:

1. Compile your personal financial statement and be prepared to provide it to brokers.

2. On your next inquiry to a business broker follow the steps we discussed in the article separate yourself from the crowd .

3. Commit to buying and not looking.

4. Get hold of the materials you need to learn how to become a savvy buyer

5. If you can’t make headway with a certain broker, move to the next one.

Good luck and please send me your thoughts.

Richard Parker

Comments

[Bill Grunau, Broker/Owner, VR Business Brokers, Brea CA office]

Well said and dead on. As a broker and office owner I also routinely have prospective buyers (note they aren't a buyer unless they actually buy something) call our office expecting our associates or myself to drop everything and "search for businesses for them", let them know about any "great deals", and to spend 45 minutes discussing a business they are "interested in". As you said, there is not enough time in the day, week or month to provide this level of service to every prospective buyer that calls in. We do our best to return calls and emails promptly. We do manage our time with prospective buyers until we know they are serious and qualified.

I also agree with you that there are a great many brokers that do not respond to phone calls and emails promptly, sometimes never at all, and this is a problem in the industry in general. This is not unique to Business Brokers, commercial real estate brokers operate much the same way and face the same issues, if you doubt this place a call to a commercial broker asking general questions and wait for a call back.

As you said, if a buyer is serious about buying business they must get educated about the process, be totally committed, take responsibility for doing their homework and follow up, and yes, they will have to sell themselves to the broker to demonstrate they are serious and qualified or the broker will just move on to the next prospect.

Buying a business can be a positive process, buyers, and brokers get what they put into it.

[Brad Welborn, CCIM RE/MAX Realty Group, Fort Myers, Fl]

Richard, Thanks for an excellent article here and on Bizquest (Hey Buyers and Brokers - Can't You Guys Get Along?) which led me here. I have been a business broker for over 20 years and dealt with thousands of buyers. Believe me, there is nothing better that a Buyer who is QUALIFIED and READY to buy. That's how we make our money. Buyers need to be open and forthcoming with what their goals and needs are, so we can advise them. Not only can we suggest other types of businesses they have not considered, but we can also lead them to other sources for help (CPA, Attorney, SBA, SCORE, state licensing requirements, small business help groups, etc.). Many states have different licensing requirements for business brokers and different laws as to representations. The buyer needs to ask how the broker will be representing him or her.

[Leon Parker]

Richard - as usual your comments are right on. One of my big complaints about the business brokerage business (been in it over 20 years)is the unrealistic expectations of customers who think they want to be buyers. Your description of how to deal with us is excellent. I have printed it out and will be sharing it (with attribution) with some of my customers who don't understand that they need to figure out how to work with us.

(At the same time the arrogant conduct of some brokers is also beyond belief.)

[Richard Parker]

Great feedback everyone - thank you. By the way, Leon and I are not related.