What Frustrates & Confuses Many Buyers About Brokers

I want to continue discussing some of the misconceptions and misunderstandings that transpire between business buyers and brokers. I also want to thank you for the great feedback to last week’s post.

In Diomo's publishing business, we receive over 2000 emails a month from business buyers. A number of recurring questions and comments come up from buyers regarding business brokers

Hopefully, any brokers reading this column will be able to provide some additional feedback which I know will prove to be a great help to many buyers.

Keep in mind that in addition to my publishing company, I do business brokerage and so I clearly understand the challenges that brokers face but I am very sensitive to the buyer’s point of view. When issues are raised time and time again, one can only surmise that these buyer challenges are reasonably widespread.

Why Don’t Business Brokers Share Their Listings Like They Do in Residential Real Estate?

One of the most obvious yet confusing practices is that not all business brokers will share their listings and co-broker deals. This typically differs from state to state. For buyers who are used to dealing with real estate agents, the practice doesn’t make sense. To be frank, I don’t get it either.

In Florida, where I do my business brokerage work, there is co-brokering on listings. While there may be a few shortcomings in the system, on the whole it works incredibly well. I personally endorse the practice with great conviction.

It is a mystery to me why this is not done in every state. I can understand not doing so with out of state brokers and their buyers, but unless I am missing something, it really does seem counter productive.

There are five obvious conclusions one could arrive at why a listing broker would not be willing to cooperate with other brokers:

They do not believe cooperating brokers will share the workload

They lack confidence in the general business brokerage populace

They do not want to share commissions

They feel other brokers will not adequately pre-qualify buyers

It will simply be more work and not result in any additional sold listings.

Maybe there are some additional reasons and I welcome any feedback. I certainly know that buyers are eager to learn why this is the case in many states.

One has to think that the chances of selling a business would rise when your colleagues can offer these listings to their pool of buyers as well. I have always believed that the business brokerage industry is steeped too deeply in legacy. Old traditions are accepted and not challenged.

According to some industry resources only one in four listed businesses ever sell. That's craziness. What is more unbelievable is the statistic is accepted and there does not seem to be any effort to understand why.

The logical conclusion is there are either too many listings, or at least too many poor ones being taken by business brokers. One thing is certain; there is no shortage of buyers. Granted, not all are serious, but the critical mass does exist on the buy side.

I have to believe that every broker wants to sell more of their listings. Is it possible that working with other brokers would improve the statistics? I don't know for certain but on the most basic level one has to believe it would. The math alone would dictate so: if more brokers are "showing" the same listing to more buyers, the numbers have to improve.

Is the feeling that buyers will see the listings anyways so why share the deal with another broker?

If there's a concern about the other broker's contribution, then perhaps the commission split should not be equal in all cases. What do you think?

I'm curious to learn if there is a fundamental belief within the business brokerage community that there are simply too many business brokers who cannot bring enough benefits to the transaction that would warrant shared listings? What are your thoughts?

Why Is There Such a Gap in Competency Levels and Procedures Between Business Brokers?

Most brokers will agree that buyers need to be better educated. Your feedback on prior posts is clear. However, there is a general consensus amongst buyers that many business brokers do not contribute positively to the buying process. Maybe I’m being politically correct – the feeling is they are often an impediment. I am not casting judgment either way but perception is reality to most people.

Would the industry be better served if there were specific certifications that business brokers must possess? Or perhaps an educational curriculum they must undergo? Is a Series - 7 type licensing process for new business brokers a reasonable idea? Would that remove the fringe players?

The International Business Broker Association has some excellent continuing education programs and surely they could play a significant role in laying out a national curriculum. Perhaps, it would it make sense for every broker to have to complete a certain number of hours of continuing education or obtain a CBI designation within a certain number of years to retain their license of designation as a business broker.

The comments I have received from brokers is that buyers generally need to be better educated. Does the same hold true for brokers? The buyers seem to think so.

As a both a business buyer and broker, I have met a full spectrum of brokers. While there are some absolutely tremendous people in the field, I must admit that there are far too many who are poorly trained, do not add any value to the deal, and work too hard to sell the deal rather than to facilitate the transaction between the parties.

Additionally, the out dated legacy of retaining a quantity rather than a quality of listings simply does not work. Percentage-wise, there are no more business sales today than twenty years ago. This alone could be part of the reasons for no co-brokering, but again, the issue is why aren't newcomers better trained and maybe even regulated to some degree?

In some states, one must possess a valid and current real estate salesperson's license to work as a business broker. There's no doubt that this alone is insignificant and in fact, it may make the situation worse. After all, if you only need to hold a real estate license to sell a business, it may invite many more incompetent people into the field. My own experience dictates otherwise but the case can be made.

Better yet, I think the lesson here may be that either direct business experience, or a designation and educational requirement focused entirely upon the business broker's role is warranted for the industry.

Would this work? Is it necessary? Or, does the industry keep doing the same old thing and let the poor performers stay in for a while and then drop out in time?

Buyers Are Frustrated - Brokers Are Overwhelmed. What's The Answer?

It's no secret that business buyers often air the comment that brokers are unresponsive. Much of this has to do with buyers being unprepared and brokers being inundated with emails and calls for their listings. What's the answer?

When a buyer sends you an inquiry, what do you do? Do you answer every email? Do they receive an auto reply? Do you return all buyer calls? Is there a format or procedure you ask them to follow?

I have seen many cases where a broker office replies with a request for the buyer to complete profile or NDA and the response rates I’m told are negligible. If so, what alternate strategies have you implemented to counter this apathy and non-response from the buyer’s side?

To the buyer I ask: what prevents you from completing a Non Disclosure and Personal Profile for the broker? The NDA is a must and the profile can only help. Why aren’t you doing it?

There’s no doubt that inexperienced buyers will send in requests with the wrong expectations. There are thousands of buyers out there firing off emails and calling business brokers about listings without the right information. Lots of them are not qualified but many are. How do you separate the two groups?

There Is So Much Information But Not Necessarily What Is Needed

In my opinion, the Internet has been the greatest blessing and the worst curse for all stakeholders in the business buying process.

For buyers, it has allowed many more people to consider the prospect of, and begin the process to investigate buying a business. That's both good and bad news. Perhaps it has become too easy for a buyer to simply view listings and submit inquiries without much thought.

For brokers, the Internet has provided a medium to load all of their offerings at a reasonable cost in databases that have become the supreme aggregators for the process. The result is that a broker will generate infinitely more activity than a tiny, yet expensive three line advertisement in the Sunday paper did not too long ago.

For sellers, the benefit has been to "show" their business to many more people. On the other hand, are they potentially missing other potential buyers because it is too easy to just throw a listing online rather than having to conduct a rigid buyer solicitation process?

This leads to the next issue regarding information: the financial data that buyers expect to review. Buyers become terribly frustrated with the information they receive, or lack thereof. I certainly understand any broker refusing to disseminate a seller's financials until such time as the buyer proves their ability to execute a deal.

Even though I receive a lot of email complaints about this practice, I categorically endorse the broker's position when a buyer is not financially able to pre-qualify or refuses to do so.

However, what I cannot comprehend is the practice whereby a broker would insist upon receiving a bona fide offer prior to providing any detailed financials on the business even from those buyers they have labeled as "qualified". I'm told there is one significant group of business brokers that will not, under any conditions whatsoever, release anything other than a one page generic financial summary unless there is a detailed and executed Offer to Purchase Agreement in place. Financials are released in due diligence and that’s their policy. To me, this simply provides a wide open invitation for any deal to fall apart.

The common statistic in the brokerage industry is that fifty percent of all deals fall apart in due diligence. It’s no surprise. This awful statistic is equally absurd to the number of listed businesses that don't sell. One would think that this statistic should be dissected and challenged and not accepted.

Nonetheless, it stands to reason that at least half of the deals should die if the parties do not go into an offer let alone the due diligence stage, without adequate information. What I find especially bizarre is a broker’s only real asset is their time. Why waste it? Why would any broker want to even go through the process of soliciting and negotiating offers if the buyers and their advisors have not received adequate information to be reasonably confident that the numbers will be validated?

The other aspect to the Internet is that people expect to have access to volumes of information at the click of a mouse. This leads to buyers going listing to listing without much thought and simply sending in emails. Or, a buyer submits an inquiry and believes that reams of useful data will be returned to them. This is something that the medium itself has created. It has also led to a decline in the pre-qualification steps that a buyer should go through to get information. By not receiving any meaningful data from an inquiring party, how can any broker determine who is on the other end of the email? Some may say it is part of a broker's job is to find out. To others, the feeling is they cannot effectively weed through all the noise.

I am really curious to know from anyone who has been in business brokerage for over ten years if percentage-wise, based on the number of listings they carry, they personally sell any more businesses today than they did ten or fifteen years ago.

I know from my own experience when I began buying businesses in 1990, the first step was usually a phone conversation or an in person meeting with a broker. They got to know me, they could ask me some the key questions, get a read on my level of interest, and could make a valid determination on whether I was a real buyer and specifically how they could help steer me to the right business. I could do the same with them. That valuable part of the process seems to have disappeared.

I wonder though if the business brokerage community has ineffectively leveraged a lot of the great technology we have available and have simply given themselves more work without the corresponding dividends. With email, Blackberrys, cell phones and the Internet you’re always connected. But are you really connecting with the right buyers?

Maybe the answer lies in providing better tools and information to all stakeholders in the business buying process so everyone can navigate their way more effectively.

Perhaps the answer is even simpler: better educated buyers and brokers may mean more closed deals for sellers. Then, everybody wins.

I eagerly await your comments.

Comments

[Don Busby]

Concerning the question of why there isn't a larger number of businesses sold than 10 years ago: Too many businesses are being listed for sale that are "junk". Brokers feel compelled, based upon teachings from the "old school" brokers they should list anything that walks. Not only does this take up a lot of time answering inquiries, but they usually can't be sold, i.e. they aren't making enough money or they are overpriced.

I have found if I am more selective in my listings I have much more free time to network and my percentage of sales increase significantly.

Further concerning buyers: We can obtain the necessary information about their ability to purchase without obtaining a full financial statement at the outset of the process. Have them sign a form with significant background information and the amount of funds they have to invest coupled with a statement they will agree to provide a credit report if requested. When you reach the point where they want to see company financials or make an offer then is the time to request their financial statement.

[Joe Davis]

I'm in the business for the money and that's why I don't do much cobroking. But also, my sellers don't want me passing around their business info at some Tuesday morning breakfast to a bunch of yahoos... they want the availability of their company kept confidential and that's one reason they list with me.

There's not much reason to cobroke. In Phoenix we are overwhelmed with demand and a lot of us have the same buyers anyway. Buyers are the easy part, getting a good $1MM to 3MM listing is the hard part... the survivors in this business are good listers. Guys saying "I've got a buyer" are a dime a dozen, and so what, we all have buyers. I'm not about to hand over a prime listing I've worked 2 years on to some rookie from Century 21. I feel an obligation to contact my buyers who have contacted me for help and left their qualifications and contact info and said, "Joe, if you ever get a widget company be sure and let me know." I don't have much use for brokers who get a good listing and spend the next 2 days on the phone calling other brokers hoping they'll sell it for them. That makes no sense; I'd be calling buyers.

Joe Davis

[George A. Richardson]

Biz Broker & Biz Buyer - A Love-Hate relationship!

Just finished reading your excellent article. I am a thoroughly-qualified bisiness broker (Survived & prospered through 18 years of headaches, frustration, disappointments and overall joy. I hold nine professional designations, including an MBA from Kellog School-Northwestern Univ., a GRI, CCIM, CBI, IBA, and others. I have had as many as 13 "brokers" under my supervision (Bad Mistake!). Here's my answers to some of the questions you raised in the last blog on Buyer & Broker expectations:

I truly believe that the only valid reason for the unwillingness of most business brokers to offer co-brokerage is "the total and absolute loss of control of confidental information given by the listing broker to the prospective selling broker and subsequently released to a prospective buyer" The prospective selling broker may not be nearly as cautious and careful to prequalify a prospect as he/she should be. All experienced business brokers know full well that our Sellers are totally paranoid about confidentiality- scared stiff of any accidental disclosure of info to employees, supplier, and competitors - if highly confidential company info gets out to any prospect that has not been carefully "vetted", it will always be the Listing Broker who will be blamed, because he/she was trusted to control desemination of info.

Obviously, over the past 18 years of my practice, I have been involved with, or knowlegable about, many other so-called business brokers who should have been aluminum-siding salesmen- sorry to say but they represent 80-90% of those in the business; two national companies that I know about teach their new salespeople to "get listings at whatever price, terms and conditions are dictated by the Seller, and then let the market activity- or lack therof--teach the Seller what the business is worth; the idea being, of course, that the more listing you "control", the more inquiries you'll get,and ultimately, the more deals you'll do! No wonder many prospective buyers get skimpy,or worse, incorrect info and so no offer is made, or the deal comes apart during the due dilignce period.

I certainly agree with your comments about Broker Internet listing practices, and prospective Buyer "Shotgun" inquiries. I firmly believe that Buyers who refuse to provide Personal Profiles and CA's should be "blown off" quickly by Brokers- "No Tickee-No Washee". If the business has been properly investigated, valued, and listed by the Broker, and an informative critical "Executive Summary" prepared by the Listing Broker, the business WILL "SELL" quickly, although Closing may take months to complete.

I have co-broked about a dozen businesses over 18 years, and have found that I did 80-90% of the work when I was the Liasting Broker, and 20-25% of the work when I was the Selling Broker. As a result, I sincerely believe the fee should be split unequally-- probably on a 60/40 or even a 75/25 percent basis.

I don't want to go on and on, but I do think you deserve thoughtful feedback on your excellent article-- hope to read addional comments by other brokers.

G. Richardson

[Lawn Care Business]

I agree that the hold up on more businesses being sold than 10 years ago is because a lot are not worth a penny. Whether its a lawn care business or a vending business or whatever, a lot of owners just haven't added enough value to justify the sale. They are overpriced with too much risk. And with many brokers taking on whatever comes their way, the time to filter out the good from the bad is not there. Brokers need to be more selective which will in turn produces much more profit. Picky is profits in this business.

[Jim Reinarz]

As a seller of a few businesses over my business career i would like to state a few things.
I am now in the position with a major company to do acquisitions. I search listings that would appeal to us - they are all over the US which means I deal with a lot of different brokers.
I can't get information. Brokers won't deal with me because I am not a broker - don't want to share the information - even after I tell them I am not after their commissions.I will sign the NDA but they still won't share the limited information that I request.
If in the future I again sell a business I will make sure that the broker I am dealing with doesn't miss any opportunity - none.

[Kent]

I've been looking for a business for over 3 years now. Given I've done close to 50 businesses corporate deals (easy when it's not your money, right?), I'm adapt at identifying and valuing businesses.

Candidly, the business broker industry is ripe for change. I've worked with 8-10 brokers and their agents. Some were no better than bad used car salesmen. Most were merely middlemen...no idea how to value a business other than a simple multiple. Even when I had one do a search, about all he could do was mail the letters and take some phone calls. We stated his job was to 'set up the meeting and get out of the way'...I call these 'useful' folks the 'doughnut buyers'...about all the value they bring. In the end, both buyers AND sellers are pretty ignorant and these guys prey on it, EXACTLY like home buyers. But like home buying, technology and information will transform this industry. It's coming....

[Larry Germono]

Hi Richard, On your comment buyers that retired in Florida just want the apperance of acting busy looking for a business and pretty much wasting time for broker with really no intention of buying. what do you suggest if any? Thanks Larry

[Roberto Chong]

Richard, I enjoy your articles very much. The issue of having a certification as a Business Broker, I do not believe it should be a requirement. It is truly up to every individual and corporation to do what they believe is best for their company, their brokers and their clients. At the end of the day success is defined by the results and what the market impression of your services. We know that tens of thousands take courses and licenses in many industries and do nothing with them and still do not have the necessary ethics in dealing with clients. Clients always find their way to the client oriented environment where they feel comfortable with their broker.

[Kenneth Young]

Richard,
Great article, interesting points of view from the comments. I believe in co-brokering with those Business Brokers that are as serious as we are, I want to know that they are enforcing a policy of making a Buyer sign an NDA and Net worth statement, then reviewing it to see what the Buyer is actually qualified to buy before releasing any info that we have on a business. Our rate of success is about 85-90% in selling a business mainly because we screen our listings and price them right, we do go over their books, corporate records, lease , equipment, etc. before we list them. Additionally, we train our new "Brokers" for at least a month before we even let them tell anyone what kind of profession they are entering. Would like to add that persons like yourself and George Richardson are exactly the kind of Business Brokers that we WILL co-broker with.

[Website Business Broker]

Richard,
my company specializes in selling Internet based businesses only. We do offer cobrokering to other brokers, however they are not expected to do anything other than bring a qualified buyer to the table - we still maintain control over the negotiations and closing. We haven't worked with a lot of brokers because of their lack of knowledge or understanding with website businesses verses Brick and Mortar. I think it makes a lot of sense to offer co-broker fees - ultimately we are working to serve our client, the seller, so we want to get a deal done and sell their business. There is plenty to go around.
As per the discussion over quality verses quantity - I agree that we have had to become far more stringent with accepting clients unless they meet our criteria. Even over the last 6 months we have continued to raise the bar - most of our sites are selling within 4-6 months because they have solid fundamentals and are attractive businesses to purchase. Consequently we attract a high caliber of prospects and buyers that opt -in to our website business email alerts because they trust that we are not representing lousy deals.
david Fairley
Websiteproperties.com

[Jan Fowler]

We are happy to cobroke with brokers in our association, the BBF, Business Brokers of Florida. That is our MLS service and I am glad we have it. It not only helps us provide more buyers for our clients, but gives us reciprocal opportunities to have their listing inventory at our disposal as well.
Though it is much more effort to be a listing broker than a selling broker, our bylaws require a 50/50 split. But I have seen that it all evens out.
Jan Fowler
www.acquisitions-unlimited.com