Here it is folks, the truth about business brokers... in a nutshell!
Before I start, did you know that a broker only sells 2 in 20 businesses?
Typically a business seller will approach a business sales broker when they are looking to sell a company or vice versa!
This is usually how it goes...
1 - Broker will overvalue the business to excite the seller at probably 5 X the EBITDA.
2 - The broker over-promises that they will have no problem finding a buyer.
3 - The vendor has already spent the proceeds in their head. They have already bought the house, holiday and the car.
4 - The broker upsells a nice big shiny sales and marketing package and the vendor signs
5 - Broker receives a lump sum upon signing and usually a hefty monthly case management fee.
6 - The broker will filter out small buyers by asking intimidating and various pre-qualifying questions like proof of funds etc. What the broker is looking to do is find an institutional buyer or buyer who will pay the asking price. The broker must be seen in maintaining their promises to the vendor.
NOTE, NEVER DECLARE YOUR CARDS TO THE BROKER. IF THEY ASK YOU A QUESTION LIKE "HAVE YOU EXPERIENCE IN THIS INDUSTRY, HAVE YOU BOUGHT A BUSINESS LIKE THIS BEFORE" YOU COULD SIMPLY RESPOND BY SAYING "HAVE YOU EXPERIENCE IN SELLING A BUSINESS IN THIS NICHE, HOW MANY BUSINESSES HAVE YOU SOLD BEFORE". TELLING THE BROKER HOW MUCH MONEY IS IN YOUR BANK ACCOUNT IS JUST LIKE SHOWING YOUR DECK OF CARDS AT A POKER TOURNAMENT! DON'T DO IT AS IT WEAKENS YOUR NEGOTIATING POSITION!
7 - The vendor will be constantly asking the broker if they have any meetings lined up for the business, the broker will usually respond with some bullshit!
8 - As the months go on, the expectations of the vendor decrease and they start to accept the fact that they will not get what the broker valued the business at.
9 - In contrast, the broker is now getting a little fed up with being asked many times from the seller the same question and giving the same answer.
By month 10 - 12 is the best time to approach a broker. By this time the seller is motivated to sell as they have started to accept the reality of the situation, the broker is fed up nurturing the client plus they have exhausted the maximum revenue they can out this client. So, in a nutshell, everybody is motivated to get the deal moving, and at a sensible price usually with the terms favourable to the buyer like for example seller finance at 100%.
I hope this helps paint the reality of the situation out there guys.
Here's to your first deal!
Your friend
