BUYER AND BROKER RELATIONSHIP

Richard Parker,
Diomo Corp

Buyers vs Brokers. There appears to be two drastically different opinions between the two groups. Buyers slamming business brokers and brokers claiming the buyers are all wrong. Guess what – you’re both right and both wrong! Although I never like to draw any general conclusions, there is clearly a miscommunication here of grand proportions.
First, let me state I’ve seen the business buying space from all sides. I’ve purchased ten businesses myself, sold nine of them, written seven books on the subject, I’ve worked as a buyer’s representative and I still do mid market business brokerage.

Personally, I don’t agree all of the philosophies or methodologies that I hear some business brokers practice but I don’t care. Neither should you. It just doesn’t matter. This is where I think some business buyers completely miss the mark.

Buyers get too hung up on the broker’s role and forget what their goal is in the process.

The business buying process has plenty of blemishes, of that there is no doubt. Anyone who disagrees has their head in the sand. However, I am convinced that a fundamental misunderstanding of how this process is “supposed” to work is at the core of what causes the friction and lack of communication between buyers and brokers.

Let me first address prospective business buyers and provide you with some insight to business brokers. I will touch on a few points that are basic yet fundamental reasons that cause a lot of wasted time and misunderstanding. I am also going to discuss some issues related to business brokers and their world in the next newsletter which will clearly serve to help you in this process as well.

First, most business buyers begin the process thinking that business brokers operate like residential estate sales people. You figure they’ll respond to every inquiry with rapid fire speed, they’ll show you tons of businesses and take as much time as you need to find the “perfect” business. Unfortunately, that’s not the way it works.

The only common thread between business brokers and real estate agents is that they are both paid on commission – end of story. Real estate sales people will generally work more favorably with buyers and there are a number of perfectly good reasons why this happens.

I once read a statistic that said any individual or couple that contacts a real estate person will likely purchase a property within twelve months, seventy percent of the time. Contrast that to a prospective business buyer whereas over ninety percent will never buy a business. That alone could cause some business brokers to proceed cautiously before becoming too involved with any buyer. I know I do. Wouldn’t you agree?

To further complicate matters, the market is absolutely flooded with buyers; always is; always will be. Unless you separate yourself from the crowd, you are simply in a pool of tons of others who, in the minds of sellers and brokers will probably never buy. Since business brokers are not going to take you to see countless businesses for sale listings, a good part of the search falls to you. Now, this does not mean there’s any excuse for a broker to not return your calls or emails when you inquire about a business (a frequent complaint) and I know how aggravating that can be. On the other hand, if you are able to search more effectively, and ask the right questions (especially in the first contact) you will be miles ahead of the other buyers. Business brokers are not going to do your work. Don’t expect them to.

Second, the misconception exists that banks have their vaults open ready to lend money to small business buyers – not true! And so, many inexperienced buyers who simply do not have the financial resources to complete a transaction go down the wrong path thinking that every business listed for sale is within their reach. Unfortunately, that is not the case.

Financing a business is not as simple as getting a mortgage on a home. While there are many options available to finance a business, you certainly want to understand these early on so that you don’t chase the wrong deals. If not, the only result will be wasted time and frustration. If you do not have the financial resources to execute a sale, a business broker is not going to indiscriminately distribute a company’s financials to you. The lesson is simple – learn what you can afford. Be prepared to share your financial information with a broker and provide them with the proof they need to deem you qualified for a particular listing.

Third, learn the business buying process. If you’re really serious about buying a business, then don’t become a “looker”. Hone into a few businesses, present yourself properly, ask the right questions, and be prepared to make offers. That is the only way to get any deal done.

I know these few points sound relatively simple, and perhaps even obvious. I also know and hear first-hand how frustrating it can be to work with an uncooperative business broker. Yes, those situations do arise. Yet, one thing is certain: every single business broker wants to sell you a business. If not, they don’t eat. They will help you. They will move the deal along. But they are not going to do your work nor will they spend time with you on listings they know you cannot execute.

The business buying process is not perfect; far from it. However; the blame can not rest solely with brokers. I know there are plenty in the profession who should not be there. Chances are that they won’t be in twelve months. Nevertheless, you cannot possibly rely on a business broker to dictate your success and whether or not you complete a transaction.

Brokers have their role but deals get done between buyers and sellers. Placing your destiny in this process in the hands of a broker and then becoming discouraged or worse yet, aborting the project because of their inefficiencies simply does not make sense. That would be like you deciding to take the bus and not buy a car because you did not like the salesman at a particular dealership.

The bottom line here is that business brokers will not pay any attention whatsoever to unqualified buyers. I’m not saying that their methods for qualifying a buyer are always right by any means. However, if you truly want to get the level of cooperation you believe that should be bestowed upon you by a business broker, then you need only follow a few simple steps.

Come to grips with whether you have a real need to buy a business or you are just looking. When you arrive at the former, you’ll be successful.

Get a handle on how much you are prepared to invest of your own money. Buying a business is not like the “no money down” real estate infomercials. Be willing to share this information with business brokers. They will help steer you to businesses they know you will be able to purchase.

Be prepared. I don’t care how smart you are, or what your prior business experience may be, those are attributes that will help you AFTER you buy a business. You absolutely need to educate yourself. In my publishing business where we offer how-to guides on buying a business ( www.diomo.com ), I like to ask prospective clients the following questions (think about this for a second): If you are going to invest your money to buy a business, and especially if you have never bought one before, shouldn’t you first learn how to buy the right one?

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream of buying a business. Want to find out more about business buying strategies that really work, then look no further than http://www.diomo.com