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Follow on TwitterRecently my brother and I have been discussing the possibility of going into business together again and one option we’re seriously considering is buying an existing business which we can grow. We’ve therefore spent a while going through various business for sale websites picking out businesses that meet our criteria; an established business with positive cash flow, that has growth potential and can be left to the (existing) staff to manage (we want to work on the business, not in it).
Having drawn up a shortlist of businesses for sale I set about contacting the vendor / vendors agents to ask for details of the business and a set of basic financial information (fixed costs, gross profit margin, net profit and turnover for the last couple of years) to enable us to determine which, if any, are worth us seriously looking at. I was gobsmacked to find that the majority of agents have refused to do so. Some are insisting that we enter serious negotiations before we are allowed to see such information, which is ridiculous. Sure I appreciate that the businesses may be worried about disclosing detailed financial information to a potential competitor (although in the case of most small businesses I doubt this is a realistic concern). Brief summary details however aren’t enough to provide a competitor with any advantage so why lose a potential buyer over it?
One reason for this seems to be the fact that many business transfer agents (when did they stop being called business brokers?) are really estate agents – several have suggested that the business "doesn’t matter" as I should focus on the property. Sure the property matters, but if they are also asking £50-£250K for "goodwill and assets" then you need to have an understanding of the value of the goodwill and assets, because if the goodwill and assets aren’t worth the price, then even allowing for fitting, it’s a heck of a lot cheaper just to lease an empty commercial property and start from scratch.
All most business transfer agents seem to do is list the business for sale on a number of websites and in the odd publication. I don’t really see the value to using them, better to save your money (between 10% and 20% of the price you get for your business) and do it yourself. Obviously there’s a business opportunity here too, if you can provide a better service for sellers, it seems the market is there to be had.
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This blog is about business opportunities and ideas that I spot, think of or hear about and think are useful and interesting. It is intended to provide ideas and inspriation for you to help you find the right business idea for you to then grow it into a successful business.
I agree completely. I became a business broker here in CT because I was seeking a business and was treated in a very similar fashion.
The fact is a good business broker or business transfer agent can add a lot of value to both sides, the business owner and the business buyer. But, it is very difficult to find a competent one for businesses in the lower price range. There are good organizations out there, such as the IBBA which I would recommend looking through as you go to choose a broker.
Ken
Most commercial realtors like residential realtors are no better than grunts. They do not understand business and just know how to list and advertise real property. So they offer little added value and really do onot deserve the commission they are paid by the seller (really the buyer since it is factored into the selling price.
I think it may be appropriate to point out to all of you that Business Transfer Agents act UNDER CONTRACT FOR THE VENDOR.
This is to ensure that timewasters and dreamers are filtered out from the sales process. Now that may not be what you want to hear, but many agents – and we have been in business over 35 years – have a vast amount of experience when it comes to negotiating the best price. As for loosing a buyer – well surely if the buyer is genuine then he or she will not object to answering a few questions to satisfy the seller of this fact? Unless of course the ‘Buyer’ is just dreaming.
Ceri,
I’m well aware who you work for and as I said in the post I don’t believe that many business transfer agents provide value for money to the vendor.
I do agree however that a serious buyer won’t mind answering a few questions, however making any level of commitment without any basic information is unreasonable. Having said that several agents asked for information that I wouldn’t give them either – as you note you act on behalf of the vendor and aim to negotiate the best price for them – so I certainly won’t tell you the details of my business’s acquisition budget as, should we enter into negotiations it limits my options and gives you an advantage.
In this day and age business transfer agents need to provide more value. We’re now just using Google, Google Local and Google Maps to find businesses that meet our criteria then contacting them directly to see if they are open to being acquired – which leads to some very interesting opportunities.
John,
I totally agree with your comments.
However, you are writing from the perspective of a potential buyer, and, as you say in your last paragraph,”We’re now just using Google, Google Local and Google Maps to find businesses that meet our criteria then contacting them directly to see if they are open to being acquired” – How long then should a person who wants to sell his business wait for you to get around to him via Google and the like? After all there are more than a million small businesses in the UK alone. Also a direct approach can often unsettle a business owner as they have no way of knowing the true intentions of the so called buyer.
I am sure you are genuine and know what you are doing, and further, wish you every success, but this Blog is titled – ‘Selling A Business: Don’t Waste Your Money On Business Transfer Agents’. If they want, or need to sell, people simply cannot wait until you happen to stumble upon their oppertunity, do you not agree?
Business transfer agents are not perfect, and in common with ALL businesses these days, if they are to survive and be more successful they must offer better value and be more innovative.
Considering your comments about the release of information by a buyer which may put him at a disadvantage in any negotiations, I can asure you that a good agent will understand this point and will not require you to expose yourself beyond reasonabe assurance that you are genuinly interested. After all – we really do want to sell businesses.
There are always going to be shrewd. business minded and confident vendors who will do a good job for themselves and will not instruct an agent. There will always be shrewd, business minded and experienced buyers (like yourself perhaps)who will dislike the efforts of agents to manipulate the negotiations to the advantage of thier client. But the reason we exist is that we are able to act for a person who has succesfully run a family business but who does not have the necessary marketing or negotiating skills to get the best result from a sale of his business. After all anyone can sell a business if you are prepared to give it away – it takes skill, experience and rescources to get the best price.
Ceri,
Thanks for the interesting comments. I think we are largely in agreement and I’ve emailed you and I hope you will accept the offer to write a guest post.
With regards to: “this Blog is titled – ‘Selling A Business: Don’t Waste Your Money On Business Transfer Agents’. ”
I would argue that the message is: not to waste your money on *bad* agents. The point of the post is really that there are a lot of bad agents out there who should be avoided. Secondly (and as this is a blog about business opportunities) there is an opportunity for good agents / new players to capture some of the market share by being better.
Perhaps I could have been clearer.
This is a great discussion, and I don’t think anyone is wrong.
In my opinion, and I am a business broker, there is a great need for a broker for a typical business purchase. It is incredibly dangerous for the average business person to got to Google Maps to find a business for sale, or for the vast majority of business owner to simply put a business on a list somewhere. Most have never done this before, and there are dozens of pitfalls that can cost a fortune, if not prove to be fatal for the business. I know I am not completely objective, but I can assure you we more than make up for our fees in $value we provide our clients.
With that said, an unskilled or unprofessional business broker can make the problem worse. You can get to the same place, only it cost you more money to get there.
The idea is to do your due diligence to find the right broker. Check with their former clients, look at their history, etc. There are enough to choose from that if something makes you uneasy, you can go to the next one. I would admit that the majority are probably not adding value to the process comensarate to the fee they charge.
Ken
Princeton Capital Strategies, LLC
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With regards to the fear the seller may feel about giving away useful information to competitors, why not simply have everyone sign an NDA? Surely the broker would be happy to set one up from the outset.. it protects everyone’s interests and to some extent filters out the ‘dreamers’.
Because they are almost impossible to enforce.
By registering on almost all BTA websites you are required to read and accept the T&C’s. This will mean, in effect, that you have signed an NDA. The acceptance of any sales particulars will also constitute a contract with the term of your acceptance of NDA clause.
A good agent will be able to prove that they supplied details with an NDA clause, therefore enforcement should be unwelcome but not impossible.