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December 2, 2010 / Tony Arena

Avoiding business broking pitfalls

Eight common mistakes made by business agents and how to avoid them. By Tony Arena

Business brokers come to the profession from different walks of life – real estate, accounting, small business or large business. Their background usually determines what sort of business broker they will be.

As with most professions, the more experienced you are, the more you realise you don’t know. Here are some common mistakes.

1. Not analysing the figures well enough. Most business brokers are salesmen, so there is a tendency to take the last year’s profit and loss, and base the profit on that. You should look at earlier years’ profit, not to do an averaging exercise but to fully understand where the business has been and where it might be going. You should also find out how the business is trading now and present the current picture to a buyer, especially in a market as dynamic as this one.

2. Focusing too much on the figures. Once you have analysed the figures enough to gain a picture of the business from a financial point of view, it is time to step back and concentrate on the non-financial aspects. See the business from an internal and external perspective: What impact does the current economy have? How is it placed within its own industry? What is the future of this business? How important is the current owner to the business and what systems are in operation? The key to the sale of a business is transferability. The valuable broker understands this and spends a good part of his or her time investigating transferability on behalf of potential buyers.

3. Not spending enough time to understand the buyer. Brokers act for the seller and hence we are preoccupied with the vendor and their problems. Spending time with a buyer, however, may unlock important information that will help you clinch this deal or find them something else to suit. Understanding buyer personality and motivation is crucial for the accomplished business broker.

4. Not staying in touch with the seller when inquiry drops off. It is easy to talk to a seller when you are getting plenty of inquiry. But when inquiry dies down, that is when it is tough to make the call. What most brokers don’t realise is that the vendor is often as embarrassed as the broker that the business hasn’t sold. During this ‘grind’ period, the broker must maintain regular contact and seek suggestions from the seller on how to best offer the opportunity.

5. Not selling yourself. A business broker has the skills, abilities, contacts and toughness to get a business sold. Combining the knowledge that a salesman, lawyer, accountant, finance broker, adviser, mentor and marketing expert must have, the broker (in an ideal scenario) achieves a result that makes a buyer and seller happy. We as brokers don’t spell this out enough to buyers.

6. Not appreciating the value of their database. The cheapest client to get is an old one. We spend so much time chasing new clients but fail to realise that there are so many people we have spoken to that could probably become a client if we make further contact. The database is gold!

7. Not having sales targets. It’s OK to have listing targets, but business brokers get paid on sales. A broker should have a sales and commission target set for each year, broken up into quarters. A listing shouldn’t be taken unless the broker actually believes there is a good to very good chance of sale.

8. Not spending enough time on the preparation. Get all the documents you need in advance of the business going on the market. Compile all the information, create a good selling document and ask the vendor to pay for this. A dollar spent before the sale will mean two or more dollars to the vendor on sale.

Tony Arena is an REINSW member and Managing Director of Business Connection International, a Business Broking company based in Sydney.


 

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