BizQuest's Business for Sale Blog

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.

Separate Yourself From the Crowd

I get way too many emails from prospective business buyers expressing frustrations about business brokers. While many have valid points, often the confusion comes from misunderstanding their role. Most brokers are besieged with inquiries for their listings. I haven't seen too many who know how to separate a good lead from a bad one and so only a few get any attention. If you really want to buy a business then you need to separate yourself from the crowd.

The first step comes on your first point of contact. When you send in a reply to an ad, online or otherwise, all you want to do is state: "I am interested in this business. I am serious about buying a business and I have the financial capability to do so. Please send me the necessary disclosure documents to execute at your earliest convenience.". That's it...nothing more. If you don't get a reply within 2 days, call them. On this note, given they get tons of inquiries, if you have their full contact information then call them instead of emailing the first time.

Also, you may have to provide them with a profile and financial statement. This is a good thing. It's how they can help you. You are not compromising any negotiating position if they know how much cash you have. You will dictate the offer on a business not them but if they know you have the financial strength then they will let the seller know you can execute the deal. This is especially true if there are competing buyers in the mix.

In today's market when good business fly off the shelf, you need to distinguish yourself from other buyers. Anything you can do to show you are really ready to buy will pay huge dividends. Being prepared, having the right information, asking the right questions, and knowing how the process works are all simple things you can do to separate yourself from the pack.

Using a Business Broker to Sell Your Business - Brokers can help tremendously, just be certain you hire the right one.

Question:
I have decided to sell my successful business. I am leaning towards selling it on my own. I see all these websites available to list businesses and my inquiries to my accountant and attorney have not been favorable about business brokers. What do you think?

Answer:
In the past sixteen years I have personally purchased ten businesses and sold nine. Except in the few cases where I put together a deal with a competitor or someone who approached me either to buy or sell, I have always used a business broker on the sell side. I also do intermediary work and so I understand all sides to your question.

Although I appreciate the comments you received from your attorney and CPA, I am not certain that they really know the full extent of what is involved in a business sale. I have always felt that even if the broker does less than a brilliant job, at the very least I can let them handle all of the running, organizing of the documents, being a buffer or messenger on difficult issues and above all, I can remain focused on running my business while they deal with inquiries.

It is certainly true that any seller can utilize the Internet to advertise their business but the real work begins once there's a potential buyer. You cannot even imagine the amount of detail involved. In this regard a business broker can help significantly.

Unfortunately, like any other profession, there are good and bad business brokers. I have heard plenty of stories from sellers that simply felt the broker did "nothing" and then begrudged or disputed the commission. This is true in any field and so it is ultra important that if you truly want to get value from your broker relationship to engage one who you feel will go above and beyond the norm to make a deal happen. A few things you will want to know are:

• How are they planning to promote the business? Will they just put up ads on the Internet? (you can do that)
• How will they package the business – how detailed will the profile be that they will write up for prospective buyers (be realistic in that a small restaurant will not necessitate a 30-page Offering Memorandum)
• What is the nature of their relationship to you? Is it a fiduciary duty? Are they strictly acting in a transactional capacity? Who do they really represent, if anyone? You need to clarify this early on so there's no mistaking to whom their allegiance, legal or otherwise, belongs.
• What will they do to bring you qualified prospects?
• What process do they go through to conduct their valuation?
• Are they successful?
• How many business listings do they carry?
• Did they come equipped to the meeting with a list of referrals for you to contact?

Two small things I have found to be a good test at the first meeting are:

1. Do they really dig down to learn your business, asking you a lot of solid, probing questions, or do they just push for a listing?
2. Give them a task or two to follow up and see how quickly they respond after the meeting (one thing can be to get a list of referrals or a sample profile they've done).

All of this aside, there are no hard rules for whether or not to engage a business broker. I personally feel that the right business broker can be a huge asset and when they do their job right, you will pay them their commission and thank them because they'll have earned every cent. Just be certain you hire the right one.

How to Get Brokers to Take You Seriously - Hint: Show Me The Money!

Question:
I've been having a hard time getting brokers to respond to my inquiries on their listings, and I think it's because I am very young (22) and have never bought a business before. But I am very serious about buying a business and confident I will be able to come up with the money through my family. My question is: how can I present myself better to get the brokers I'm talking with to take me seriously and recognize that I am committed to buying a business?

Answer:
I believe that the issue here is far less related to your age than it is to the financial aspect. Business brokers are typically inundated with inquiries for good businesses. Moreover, the vast majority of people who look to buy a business never do so, for many reasons. That is why it is imperative that you distinguish yourself from the crowd, and your age is not the problem here. Imagine if you were a business broker and received your inquiry. If they do not get a sense that you have the financial ability to complete a transaction, you could not expect them to spend time with you. Whether you subscribe to this philosophy or not, it's reality. Therefore, your best strategy is to take a step back and secure the necessary financing before you dive into this process.

Now, you may be saying: how can I get financing lined up if I don't have a business? And here I am telling you that you probably can't secure a business, or get sellers or brokers to take you seriously, until you get financing. While this may sound like a vicious circle, rest assured that it's not. Wherever you intend to obtain financing, you can "pre-arrange" it in effect. If, for example, you are planning to get the money through personal relationships, then have those individuals provide you with a letter from their CPA attesting to their net worth, along with a letter confirming that should you secure a business opportunity that meets their criteria, they will be prepared to provide you with up to X dollars in financing. You should be prepared to present this documentation to brokers/sellers when the subject of how you will be able to finance the deal comes up, and it always will.

Furthermore, it simply makes sense from your own perspective to know what you will be able to secure so as to not waste your own time on potential businesses you can't afford. Or worse, to spend your valuable time looking at businesses only to learn that the people you anticipated lending you the money are no longer willing to do so.

I work with many buyers as well as sellers in my business brokerage career, and the two things that I need to understand from the buyers before we get busy are:

1. Their strengths, weaknesses, and experiences in order to assist them in finding the right business.
2. How much they have available to invest. This point is one that I really drill down to because the last thing I want to do is to invest my time only to learn that they cannot execute the transaction financially.

While I appreciate your initial comments that you are confident about getting the money, it just makes good sense on every front to know going in what you may have available and being able to prove that will immediately remove any apathy on the part of any business broker. They want to deal with serious buyers as badly as you want to convey that you are one.

Cannot Get Any Information from Brokers - Miffed buyer doesn't understand why brokers won't email full financials right away

Question:
I have been looking to buy a business for about 8 months now and very seriously in the last 2-3 months. I have sent in at least ten inquiries to business brokers recently and some owner sellers, and can't even get a reply. In every email I have been so clear. All I have asked is that they forward me the financials to back up what they have put on these websites before we even go to step two? I would think they'd want to get the financials to as many people as possible if they really want to sell the business. What am I missing here?

Answer:
Sorry, but step one is not about asking for financials…it's not even step two in this process. It may not even be step three.

Step One: The first thing to do in your initial contact, whether dealing with a business broker or seller directly, is to execute a non disclosure agreement. Your communication with them should outline this, and nothing else. For example, your email can be: "I am interested in this business. Can you please forward me the necessary confidentiality agreement (or Non Disclosure Agreement) so that we can discuss it further." By the way, these agreements are almost all standard and straightforward. As long as you keep the information confidential, and do not circumvent the broker, there's nothing to worry about. If you'd like, have them viewed by an attorney.

Step Two: After signing the NDA have a casual conversation with the broker or seller to discuss the business in general terms, get a good overview of the business, and ask your initial questions.

Step Three: Digest the information, do your initial research, set up a face to face meeting to go through the business in greater detail and ask any additional questions.

Step Four (may be Step 3 in some cases): Review the preliminary numbers.
Although the process may be slightly different in some cases, the stages of the business buying timelines will generally follow a specific path. One of the biggest reasons why reviewing the financials at the first stage does not make sense in addition to the confidentiality issue, is because you absolutely need to know first and foremost what is the actual business, how it operates, how long it's been in business, is it growing, does it fit your strengths, and a whole host of other questions. The initial financial review will take care of itself. Numbers don't lie and making sure that the business you buy fits your skill-set is actually more important than the financials. To put it another way, if the numbers are great but you're the wrong owner, the numbers will be heading downhill pretty fast. If you focus all of your attention on the past numbers, you are sure to bypass the business that ultimately is right for you; and that should be your top priority! On the other hand, if you find a business that fits your greatest strengths, then the financials will become part of the equation, but not the entire basis for your ultimate decision whether to buy it or not.

Am I dealing with an incompetent broker? - Unmotivated or uncooperative sellers can make even good brokers look bad.

Question:
How can you get past a bad, or just plain incompetent, broker? The latest example is waiting for more than 3 weeks for any kind of financial paperwork for a business we were interested in. The broker always has an excuse handy - usually it is the seller's fault - for the delay. We have to go through the broker since the business is listed through them. Since this particular business was already in a decline due to the owner opening another, this delay has killed the deal.

Answer:
I can certainly understand and sense your frustration. While I know you have pinpointed this on the broker, and there's no doubt that like all industries there are good and bad ones, it just seems bizarre why any broker representing a seller would deliberately delay providing information to a prospective buyer.

There are really only three possibilities here:

1. The broker may be incompetent
2. The seller is lax in providing information
3. The broker does not believe you are a serious prospect.

While it is possible that the broker is not competent, keep in mind that their entire compensation is performance based so it simply does not make sense for them to not provide any additional information that is reasonable. In my experience the seller or broker may not always be willing to part with certain financial information unless an offer is on the table. If this is the case then at the very least they should let you know.

If however the seller is being lax in getting data to the broker then the broker's hands are tied.

Having said all this, what do you do with this deal or future opportunities when you encounter this situation? My recommendation is that you need to have more direct involvement with the seller. This does not mean circumventing the broker; not at all! In fact, just the opposite may be true. If the seller or broker is not cooperating then arrange a face to face meeting (or conference call if necessary) with the seller and broker and let them know point blank what information you expect and question these delays.

It's useless to sit idly by while an opportunity evaporates. However, my gut tells me that in this particular instance, you're simply dealing with an unmotivated seller and perhaps a broker who has not put his seller to the wall in explaining how critical it is to provide enough meaningful data for any prospective buyer to make a decision on the business.

Paying an Upfront Fee to a Business Buyer Representative

Q: I want to buy a business that manufactures accessories for trucks/SUV's in the $2-10 Million revenue range. Have not had much luck approaching potential companies that are not on the market. A business buyer representative says he can do this, but charges an upfront fee. I understand the need to do this as he says he will not take on an assignment without a client commitment. Minimum is $5,000 and goes up according to price of acquisition with a success fee as well. Any thoughts on doing this?

A: I have several specific opinions on your questions. First, I can certainly understand any intermediary requiring upfront money to perform this function. It requires a significant investment of time and money for them to collate the list, solicit the businesses, qualify potential prospects, arrange visits, and put the deal together. Keep in mind, that they can do all of this and should you change your mind about buying a business, they are no further ahead. In fact, it has cost them a lot of money. As such, paying them a fee for the solicitation portion of this service is justified, and $5,000 is not out of line compared to similar companies. What I do not agree with is a tiered fee structure for the solicitation portion dependent upon the deal size. It does not cost them any more or less to solicit a $2 million company than it does a $10 million one.

On the other hand, I am always concerned about what they will deliver if anything at all. You have two financial obligations to this process. The solicitation cost, and then the success fee. It is clear what they are expected to do for the solicitation part, but then what? Are they YOUR advisor? You need to clearly understand what their role may be and also to be absolutely certain that they are only compensated by you. Conversely, if you do not feel that they can contribute to helping you negotiate a better deal, or putting the deal together, then you need to discuss this with them and arrange a lower success fee, or perhaps just a higher fee for locating the business.

In my experience, these arrangements turn sour because the buyer has unrealistic expectations about what the "advisor" will deliver. That's why it critical that you do the following:

• Document precisely what they will be doing to earn all of their fees and the time in which they will do it (i.e. 4 weeks to put together the target list, prepare the letters; follow with phone calls, etc.).
• Have them provide you with several references and contact information of people whom they have worked for in a similar capacity. These individuals will surely be able to shed light on their performance, good or bad.
• Lastly, you need a documented mechanism to terminate the relationship if they are not delivering upon what they have agreed to do.

When all is said and done, given that you're looking at a business in the $2-$10 million range, should they be able to find you the right business, and help you negotiate and close the deal, then their fees are probably insignificant relative to the business you will own.

Can a Business Broker Represent Buyer and Seller?

Q: The business broker I've been using is also representing the seller. Is this a normal situation and am I responsible for all or part of her commission?

A: This situation does happen quite often but you may need to rephrase your question as the business broker may not be "representing" you at all. Business brokers almost always represent the seller (or the deal if they're in the capacity of a transitional broker). Their fees are paid by the seller so you must have the broker clarify what their role is specifically in this transaction.

If their fiduciary duty is to the seller, they may provide you with some advice/guidance but they will not jeopardize their relationship with the seller. Their mandate is to sell the business for the best price and terms possible, on behalf of the seller. You cannot expect the business broker to be 100% in your corner and while you may not have to be overly concerned that there's just one broker in the deal, ultimately, YOU need to possess the knowledge to negotiate a favorable deal. 

Do Brokers Share Listings?

Q: I thought business brokers work like real estate agents and gladly share and cooperate with listings. I'm located in San Diego and brokers tell me they don't work together. Any suggestions? Do I really need a business broker?

A: Seems ridiculous I know, but not all states have shared listings between brokers. Where I live in Florida, co-brokered deals are the norm and for the most part it leads to just one result: more business sales. Since you won't be able to use a single broker to access all local listings, you should contact several of them and get as many listings as possible from each to compile a solid list of prospects.

You may also want to consider making contact with the brokerages that have the most independent agents working there because they will often work together on inter-office listings. One of the broker's main roles is to provide you with listings. Insofar as "needing" a broker it's always a good idea to have one to do the grunt work and chasing for you.

Many brokers have trained their customers (the sellers) not deal directly with buyers (at least at the beginning although the course shows you how to overcome this) so in the initial stages get the broker to chase the seller for information, financials and other data you may need.

Working With Business Brokers When Buying a Business - Brokers can help you find businesses you wouldn't find on your own

It's highly recommended that you enlist the aid of a business broker during the buying process. Keep in mind that a broker generally represents the seller in these transactions, even if you've effectively "hired" them. The two most effective manners in which a broker can be of assistance to a prospective business buyer is to provide you with access to businesses for sale that you may not find on your own and to deliver bad news to the seller.

Business brokers are besieged with buyers; the market is flooded with them. In order for you to get a broker to return your calls, show you businesses and dedicate time to you, you will need to demonstrate to them that you are serious about buying. Nine out of ten "buyers" whom they encounter, never buy a business. Show them that you're committed to this process. How? First, educate yourself about the business buying process. Read the necessary materials to learn what it takes to buy the right business.

Next, prepare a personal listing of the type(s) of business(es) that you're looking for, how much you are prepared to invest, what your time frame is, your background, credit history, etc. The more you tell them about yourself and what you're looking for, the greater their ability to help you. Business brokers are not fortunetellers. They need you to steer them towards the businesses that make sense for you.

As it relates to their input, their role should be to act as a liaison to the seller for you. You'll have to work with a seller for training after the purchase so if there's any bad news to deliver to the seller during the negotiations; let the broker do the dirty work.

Broker roles vary widely depending upon location. Many areas have a multiple listing of businesses for sale, while others do not. Where an MLS is in place, you can use one or a limited number of business brokers to identify businesses that are "on the market". If there is no such service within your region, then you'll more that like need to utilize multiple brokers since they may have a tendency to only show you listings that they have or are part of their office.

It is recommended that you contact the regional business broker association in your state or country. Ask them how brokers work within that region and whether or not they share listings.

Remember: A business broker can help you but they cannot do your work. This is your money, your future and your potential business. Don't shift the responsibility for your success to any third parties. Use a broker to help you but help them out by making certain that you are well prepared, educated and highly committed to this process

Business Brokers -- Do You Need One? - The pros and cons of how a broker can help or hurt you in the buying or selling process

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!