King & King Business Advisors

What Do Business Brokers Do? (excerpted from Volume 8, Issue 13, IBBA Weekly Communication for April 8, 2008)

Shari Bayne, CBB, CBI
Vanguard Resource Group, San Diego CA
Over the years, I’ve run into many women who are intimidated by the fact that the majority of business brokers are male. They seem to think that just because they are female, they are at a disadvantage in business brokerage. As a result of this widespread point of view, “Women’s Forums” have been formed in both IBBA and CABB; forums created, I guess, to help us poor, disadvantaged female brokers compete with the vast army of bullying male business brokers.

Enough of this nonsense. Is business brokerage really different for women than for men? I’ve given this much thought, and after looking back at my experiences in this industry, I’ve come to the conclusion that women actually possess more innate skills for successful business brokerage than men do.

I’ve been asked by many people, what it takes to be a successful business broker. We all know there’s no college degree that you can obtain for this career, so what does it take to be successful? By looking at what we do every day, we can get insight into what it takes to be successful. Here’s my list of what a business broker does:

Prospects for listings

Presents brokerage services to business owners

Assists the business owner with appropriate pricing

Lists the business for sale

Prepares a professional offering package to marketplace

Interviews and qualifyies potential buyers

Presents the business to potential buyers

Assists with an offer to purchase

Helps the business owner to evaluate offers

Organizes the due diligence process

Follows through to a success closing and transfer

To sell a business, the broker must first find a business owner who wants to sell; convince the owner that they have the ability to assist them; help the owner price the business; prepare the marketing package; and, then market the business to prospective buyers. When a buyer has been identified, the broker should be able to assist the buyer and seller in the negotiation of a purchase contract and assist both parties in the due diligence and closing procedures. All of this can be done successfully if the broker has the ability to listen to and understand the motivation of both the seller and the buyer. And ladies, let’s face it, we are the communication experts. While our male counterparts may be able to grunt and groan out the latest scores in the NFL better than we can, we are the masters of person-to-person talk.

So, since we know we’re the best communicators out there, let’s look at the entire skill set needed for business brokerage to see if we lack anything in other areas. Here’s my list of needed skills:

Sales and marketing skills

Persistence

People skills (communication, empathy and listening)

Problem solving

Honesty and trustworthiness

Organization skills and attention to details

Life experiences and a willingness to learn

Every broker should implement a marketing plan to target potential business sellers, and persistence in required; the phone won’t ring simply because you have made the choice to become a business broker. If there are problems with the business, the broker should be able to understand them fully to ascertain whether or not these problems can be overcome. The broker should possess the quality of honesty, and use it to confront issues and resolve them. And, finally, all successful business brokers must have organizational skills and be able to pay close attention to the details of any deal.

No offense, men, but I think that the typical woman in business excels in persistence, honesty and organizational skills.

It’s also certainly true that a successful business broker should have a background in business ownership, business management, business financial management and/or business sales and marketing. Fortunately, our society has given us women many opportunities to gain these business skills over the years. And, in addition, there numerous opportunities for anyone - male or female - to get training in key areas of business brokerage through CABB and IBBA. So, if you are a woman who might has excellent sales and marketing skills, but don’t know much about business financials or business management, the doors are open for you to get training.

So in closing, I have just this to say: Ladies, start your engines! Let’s go out and show the industry how good we are at being successful business brokers.

This article was excerpted from the blog ran by Richard Parker of Diomo Corporation. It makes a great deal of sense.

You can send Richard your questions or otherwise contact him by visiting the Diomo Corporation website and clicking on “Contact”.

Using - The B.O.S.S. Theory - to Quickly Evaluate a Business
It is often difficult in the early stages of reviewing a potential opportunity (especially for first-timer business buyers) to really determine if it is a good business. There may so much information to digest in some cases that it becomes overwhelming, while with other listings, the complete lack of any comprehensive detail makes the task almost impossible.

Having purchased ten businesses, I have developed a regimented set of guidelines (’The B.O.S.S. Theory’) that I follow that allows me to quickly access any opportunity. While my rules may not be completely applicable to you, they will, nevertheless, provide you with an excellent idea of how to go about the review process.

Before going into the specifics, it is important that any buyer understands that you must divide your evaluation in two distinct compartments. The first is the undeniable data, or what I like to call the ‘deal facts’. These are all of the parts that are black and white.

For example, the financials of a business fall into this category. Although there may be some discussion or debate regarding add-backs, numbers don’t lie. It is plain old mathematics. There’s no gray area, or shouldn’t be. Another example would be licensing: if the business requires a specific skill-related license that you must hold (i.e. engineering degree, general contractor license, etc.), or having a government license of sorts, then these are again black and white issues that are simple to evaluate.

The second compartment is actually the bigger issues that come into play in all of the gray areas where ‘The B.O.S.S. Theory’ can helpful. When I look for a business, here’s what I want in place amongst the less than obvious attributes:

Bland – Means it ‘flies under the radar’ and is less vulnerable to mass competition
Operationally Sound – Fundamentals in place (not a turnaround)
Sustainable – No looming threats that could impact the historical financials
Scalable – Identifiable growth opportunities.

Here are the more descriptive points of each:

Bland

I am not a fancy guy. I like plain vanilla businesses. The more bland, boring and un-sexy it is, the happier I am. These businesses generally attract less attention (competition and otherwise) and you can plod along with great results and effectively build them while nobody is looking. Further, they generally slip by the average business-buyer who tends to look for ‘hot’ industries or glamorous businesses. I have always subscribed to the notion that I don’t need the fame; I need the money.

Operationally Sound

One of the greatest aspects to buying a good existing business is that you will immediately benefit from having all of the necessary fundamentals in place. Ideally, you should get the keys on Monday and take a paycheck on Friday. With a good existing business, the infrastructure is in place. There are trained employees, functioning systems, reliable suppliers and a stable of customers. The phone will ring as soon you open the doors and the business is already humming. In other words, it is the complete opposite of a start-up and that is precisely what you want.

Sustainable

When you buy a good existing business, a great part of the allure is being able to count on the continuation of the past historical financial activity and profitability. That is exactly why the purchase price will be a multiple of that figure. You want to be certain that there are no known looming threats that can adversely impact the numbers. You want them to continue at least at the recent levels and definitely not decline.

Common examples that can influence the past financials can be customer concentration issues where a disproportionate amount of volume rests in the hands a few clients or a business that relies heavily on location to drive its revenues yet there is a short lease that cannot be extended.

In the former example, if one or two of the customers stop buying, the business can face a massive and potentially unrecoverable situation. Likewise with the premises, if you can’t continue to occupy a location long-term that drives customers through the door, you may be out of business very quickly after getting into it.

Scalable

While it is crucial to have a sustainable business model to build upon, you want to identify and exploit realistic growth opportunities. These are not the ‘pie-in-the sky’ ideas that many delusional business buyers imagine. You want to be satisfied that there are concrete initiatives you can take to grow. For example, opening up a second location, expanding the product line, or acquiring other complimentary businesses. These are real objectives.

Do not get lulled into believing all of the wonderful recommendations the seller presents that may make it seem easy to grow. They may suggest you hire more salespeople, attend trade shows, advertise more or other ‘brilliant’ ideas. While some may be good, the truth is they have likely attempted most of these things or if they are so easy why haven’t they done it? It may very well be that growing the business is not as simple as they may articulate.

On the other hand, if you subscribe to ‘The BOSS Theory’, then identifying and acquiring a good business that can become great with you as the owner, is a lot less difficult that you may imagine. You can send Richard your questions or otherwise contact him by visiting the Diomo Corporation website and clicking on “Contact”.