Tom’s Rules for Success

Tom’s Rules for Success

I recently saw a query from a business broker on one of the various web sites asking what his office could do to create income on a regular basis until the deals started flowing. I assumed form the question that it was not a start-up office, but one where the deal flow was more than slow.

I don’t have the answer to this query, but I always get concerned when business brokers stray from what they do best – listing and selling businesses.

Valuation Reports?

I have no issue with brokers providing valuation reports for business owners. However, I would be concerned if the opinion of value (a better term for what most business brokers supply) is created for legal or IRS situations. The brokers are then entering dangerous ground. In those situations, a broker is better off recommending one of the various third party valuation services available.

FF&E Valuations?

I’m also comfortable with business brokers providing opinions of value for business fixtures and equipment. These opinions of value services go hand-in-hand with listing and selling businesses. I am concerned, however, when a business broker’s  conversation with a business owner goes something like this:

“Well, if you don’t want to sell your business, how about a valuation of your FF&E or even your business?”

“No?  Well, we also have a line of pens that can be printed with your business name on them, or how about….etc., etc.”

The Core of Business Brokerage

Business brokerage is and should be listing and selling businesses for owners who need or want to sell their business to people who have a deep desire to be their own boss. First, I think business brokers have to go back to their roots – small business. Too many are trying to sell “middle market,” whatever that is for them. A recent email from one of the major web site listing services claimed that the average price for businesses sold through their site was approximately $250,000. That isn’t middle market! Over 85 percent of all businesses have less than nine employees – with most having four employees or less.

The “Old Pro” always said that the quickest way to fail in business brokerage was to go after the “big ticket” business. So, if we know that the average price is about $250,000, why go for the million dollar business? Here are my rules for success in business brokerage that I tell every newcomer to the business.

1. Don’t list a business more than a half hours drive from you office.

2. Don’t list any business over $500,000 in price (and that’s pretty high)

3. Keep in mind that the vast majority of potential buyers are first timers. Focus in the beginning on businesses they would be comfortable buying.

4. If the business can’t supply a living wage, chances are it won’t sell.

5. The key ingredient is the reason for sale:

  • If the seller does not have a serious reason, forget it;
  • If the seller is very serious about selling, the price only has to be halfway in the ballpark or they need to have excellent terms with seller financing – you can always work on the seller to improve the price and/or the terms.

6. Contact 20 possible sellers every day via personal visit, telephone, email or mail.

  • In this 20, you can include calls or visits to existing sellers to try to improve their listings.

7. Food & drink type businesses still sell – sandwich shops, quick food, small bars, quick prints, c-stores, small retail, the list goes on.
8. Try to stop into a few businesses every day and tell the owner what you do. The same is true for your dry cleaner, favorite food place or retail shop.