Business Buyers and Brokers Have Very Different Views

As expected, last week's column generated some pretty heated perspectives from business buyers and brokers. I'm not at all surprised - every time I wrote about either one of these, I get some interesting comments.

My objective last week was to bring to the table the issues that have plagued this whole space since for the last 19 years I have been involved in it, and so I assume it has gone on since the beginning. Until the process is standardized, it will remain a broken, inefficient model.

A few things are very clear and some of these were brought up in the wonderful comments received from both sides. The issue of qualified personnel on both sides of the table is problematic. Buyers have scathing reviews of brokers, and brokers clearly articulate and identify the problem of unqualified buyers being at the forefront. So it appears we're looked into a dual of perception.

It reminds me of the great Oscar Wilde quote: "It's not whether you win or lose, it's how you place the blame."

There is no doubt that the business brokerage industry has too many players that should find another career. The emphasis in brokerage has always tilted towards quantity. Send out x number of postcards, get y number of listings, and sell z number of businesses. While success in sales related industries is almost always a "numbers game, I could never understand why anyone would want to devote time to handling listings that simply won't sell. The old adage of "there's a buyer for every business" is sheer nonsense. If that were true, every listing would sell instead of the twenty percent or so that do.

Similarly, I completely understand the brokerage perspective on the majority of buyers who inquire about their listings. I can say this from my own past experiences as a business broker. The average buyer is simply not prepared for the buying process. Of course some are, but that does not represent the majority. I see it in my publishing business. We get tons of emails with the most basic of questions from business buyers, and rather than spending a bit of time and a few bucks to purchase reference resources that will make them smarter immediately, they just try to take shortcuts.

I won't digress to cite war stories and examples of incompetence that I have seen from buyers and brokers, but somehow these issues are intertwined. If the brokerage industry rid itself of the incompetent players it has, and truly serious business buyers took the time to prepare themselves for this process, the frustrations on both sides would dissipate immeasurably. Of that, I have zero doubt. Furthermore, buyers have to realize that aside from the few tangible components in this process, they are dealing exclusively with different personalities at every step. Trying to predict or control human behavior in an industry with no standard rules, and where emotions play an enormous role in most decisions made by inexperienced buyers and sellers, is simply an exercise in futility.

Yes indeed, there are some deceitful sellers and awful brokers, plenty of them. But there are some highly competent folks in this field who take their job seriously. They understand the process. Surely one can understand that if nine out of ten people who contacts them will never buy a business, and furthermore this ninety percent generally has no clue what the heck they're doing, it can become frustrating for brokers as well. That is not necessarily an adequate defense of some of the issues buyers raise, but again, it plays to the theory of a buyer being able to have the acumen to deal with different challenges and personalities inherent at every step of this process.

One thing is certain, the vast majority of brokers overwhelmingly welcome, cater to, and provide the necessary documentation about their listings to the buyers they deem to be qualified.

Having gone through a few rounds of this "he said - she said" nonsense, I truly can only suggest a few realistic solutions.

Buyers aren't going to change brokers. When the brokerage industry as a whole takes a collective stance to pursue quality listings, has regulation in place that forces brokers to obtain their Certified Business Intermediary (CBI) designation, standardizes most of the language of Non-Disclosure Agreements, and implements pre-qualifying documents they need from buyers (i.e. financial statements), then there will be an enormous improvement. I look only to the fact that business brokers in most states do not share listings between each other. That alone indicates the complete lack of faith brokers have with others in their own industry. If they were all working at the same level of competence, with standard policies, procedures, and levels of aptitude, that industry would flourish.

Industry-wide consistency would force prospective buyers to follow the procedures and would completely eliminate the ridiculous obstacles buyers face from one brokerage office to the next.

Conversely, buyers have to realize they are in the process for a limited time. Hopefully, the industry will change - eventually. Getting hung up on what's wrong is not the way to buy a business that's right for you. Yes, you will encounter brokers that make you want to tear your hair out. Yes, there will be sellers who can't prove their numbers. Yes, there will be business listed for sale that expired months ago. Yes, there will be last minute surprises that come up that force you to walk from deals. Yes, there will be brokers give you the car salesman pitch about other offers are on the table. So yes indeed, this is a very broken process, but if you truly want to take control of your destiny, then take control of the process.

One thing I know without question from my experiences as a buyer, seller, broker, buyer's consultant, and from authoring eight guides on buying businesses, writing over one hundred articles, having countless interactions with business buyers through seminars and media interviews, and from the 300,000 buyers who visit my website each year: qualified buyers get through the maze. They have the mindset of "needing" to buy a business. Sure, they come across all the BS that others do but they have the drive to overcome obstacles, and they do not let these little bugs on the windshield of life deter them from getting to the finish line. Above all, every successful buyer shares one common trait -they prepare themselves first, and then they take on the challenges.

Most buyers want to enter the marathon but think they're ready simply because they own a pair of sneakers. If you are not willing to invest the time to first learn what's involved, get your finances in order, understand how to value a business, negotiate the deal, investigate and analyze the business, then you're not going to get anywhere. If you want to shift the blame to others then so be it.

While there are very specific strategies to effectively overcome the "typical" buyer challenges, you have to know the solutions to these obstacles before you begin your search or contact any brokers/sellers. If you try to figure things out on the fly, you will waste a lot of time and like many others, you will become terribly frustrated with your lack of progress and probably never complete a deal.

Buyers can hurl as many indiscretions at brokers as they want, and yes indeed, many are true. But just as business brokerage hasn't evolved and should probably be called "business brokenage", neither have the majority of buyers caught on to what it takes to be successful. No matter what obstacles are in the way, a well prepared and knowledgeable buyer will always successfully navigate their way through the business buying process like a hot knife through butter. So for both brokers and buyers, when you try to guess your way ahead, your lack of acumen is obvious to everyone, except you.

Have a great week and buyers remember to visit my website where you'll learn a ton of helpful tips and proven strategies about buying a business

Comments

[Don Wilson]

Richard:

In your article you described the difference between those that need it vs those that think they might some day want to own a business.

"They have the mindset of "needing" to buy a business."

Prior to my first brick n mortor store front retail business I was a financial services broker who spent most of my time recruiting agents to sell financial products. Over a ten year time span I personally recruited over 400 agents. Out of all those agents and all those years my numbers never changed...85/13/2 Out of every 100 folks 85% won't work out, they will quit at the first hint of rejection! Thirteen (13%) will stick around with your organization and write maybe one policy every other month or so and will be nice to have around. But two (2%)will be your studs and will produce 80% of all the business volume in your organization!

In fact I would venture to say that the numbers are probably pretty much the same in the business buying process...85% that start the process will not make it past looking at listings on the internet! 13% will get derailed somewhere in the process and will never buy a business. But the last 2% are the ones that will run the gauntlet, climb the mountain, go to hell and back and will close on the right business for them!

You must "NEED" to buy a business, not because you got laid off and have no money. Not because you hate your job. And surely not because you want to turn a hobby into a business!

No you must get the mindset that you "NEED" to buy a business because you are a 2%er in the game of life. Its so worth it to be a 2%er, a good business owner...a winner!

See ya at the top,

Don Wilson

FROM RICHARD: Amen Don! I know how much success you have enjoyed in business and there's no doubt in my mind that you have the perfect combination of a great work ethin and a "can't fail" attitude. I just love reading your posts!!!!

[Don Rice]

I believe there is a buyer for every business, Sometimes it isn't practical to continue to look for them. Nor does the sell cooperate in financing when we find a prospect! When the Seller Say's "I'm not a bank", I reply, Nor am I a Magician."

[Ward Adams]

Richard, how true how true. We are a very small brokerage firm and up until this year, we could boast a listing to sale ratio of 83%. While I can't say that until this moment I had read any of your books or articles, we practice what you are preaching and it pays off. One world of caution. Standardization is good to a point but we have been involved in a couple of residential real estate deals for our clients. That side of the house is so standardized it is almost impossible to get anything done and the people who make their living in residential....OMG!

Thanks for the unintentional reinforcement.

Ward Adams
Designated Broker
Havelock-Adams LLC

[Steve Sharp]

I would like to only have quality listings to sell. You say, "I could never understand why anyone would want to devote time to handling listings that simply won't sell." It is because we never know what will sell. Businesses that I have thought were great with good numbers and impeccable books may not sell; on the other hand, businesses that I think will not sell because of a list of reasons do surprise me and sell.