Business Brokers: Advising New Clients
2 October 2023: Business Brokers: Advising New Clients
If you’re discussing the possible sale of a business with that business’ owner, what does that first meeting look like?
Real estate agents that try to pass themselves off as business brokers – as well as many new or improperly trained business brokers – often handle that initial meeting as they would handle the first meeting with a home owner considering selling their house.
They meet the owner at the business in question to get shown through the facility as if the light fixtures or color of the carpet were important.
The business owner may usher the broker into their big office to show off their oversized mahogany desk or into the conference room with a dramatic array of audio-visual equipment. Perhaps the tour will include the technologically impressive manufacturing or marketing center or extensive warehouse with tens of thousands of dollar of inventory. This proverbial dog-and-pony show might include stepping through a rear door and out into the business’ highly secure staging area where the broker will be treated to a pitch about the investment the owner made in a fleet of trucks or tractors or some other rolling stock.
We offer a comprehensive coaching program – both group coaching in our Brokers’ Roundtable℠ community as well as one-on-one coaching – tailored to Realtors, business owners, buyers and anyone interested in valuing, buying or selling a business.
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All of this could certainly be awe-inspiring but none of it is meaningful or worth the time spent on the tour – at least at this point. After all, a buyer is, first and foremost, interested the answer to the question, “How much money will this business put in my pocket at the end of a year?”
The visual appeal, the size of the owner’s desk or the current level of inventory are all secondary considerations – if they’re to be considered at all. If the business isn’t making much money, that mahogany desk or inventory of widgets will do little to entice a buyer.
Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
So, what’s the purpose of that initial meeting? In our case, it’s meant to educate our potential client.
This education consists of two distinct categories: First, there are the internal considerations that must be addressed before making the “sell” decision. Then, there’s the process that the decision to sell will trigger.
Managing the client’s expectations properly and from the outset is the surest way to ensure the smooth working relationship that is needed for a successful brokerage engagement. Few business owners have been through this process previously and they need to be prepared for the often arduous process of selling. We can’t tell an owner that their business is worth $3.7 million, for example, without first explaining what it’s going to take to realize that at sale.
So here’s a roundup of the two distinct education categories that comprise our initial client meeting.
Our first order of business is to ask some questions about the owner – what’s motivating them to sell – and to try to determine if they’re actually ready – or can be readied – to sell. This segment generally consists of five discussion topics:
- Is the owner ready to sell? If the owner has made a snap decision to sell, there’s a reasonable chance that he or she will have a change of heart at some point during the process. We want to find out what’s driving the decision to sell and what the seller’s goals are for the sale?
- What’s the business worth? The owner has to understand the importance of knowing the value of their business. Business owners generally have an exaggerated opinion of the value of their business and a price expectation greater than the business’ value is one of the top three reasons business don’t sell.
- Who is the likely buyer? Having a description of the likely buyer will, all other things being equal, generally result in a shorter time on market, more focused marketing and a smoother transition.
- What talent is needed? Knowing what professional talent should be involved and when that talent is needed.
- What’s the plan for life post-closing? Seller remorse is a real thing and can stem from multiple sources. Having a concrete plan for life after closing will go a long way toward mitigating this. And one of the most important aspects of this planning is a visit back to #2, above; will the value of the business and the ultimate sale at some number related to that value be enough to fund what the answer to this #5 is?
Addressing internal considerations up front, when they should be addressed, will often illustrate to the business owner that they might want to put the sale off for a while. Figuring out that such a delay might be the correct course is not something you want to discover three weeks before the scheduled closing.
The second topic of discussion that takes place at our initial meeting is the process that selling a business involves.
Again, few owners have done this before and a sale is likely to be the most significant financial decision of their life. That combination is bound to result in fraught relations if the seller in not prepared. From the length of time it might take to find a buyer and what to expect during due diligence, to how the deal might be structured, preparing our client upfront for this oftentimes arduous process can make all the difference in our client’s tolerance of the challenges of the selling process and their appreciation of our efforts as the closing is taking place.
We don’t start this process unless and until our potential client becomes and actual client. But we go over this process, often in some detail, during our initial meeting.
- Preparation. Preparing a business for sale is more than a simple checklist – though that’s how it starts out. The seller has to understand what is needed, from financial documents to physical appearances, to market the business. But preparation also refers to preparing the sellers themselves.
- Listing and Marketing. Does the seller have some concerns about marketing? Confidentiality is a given, of course, but our client might want to restrict some exposure.
- The Offer or LOI. What are some of the possible terms and conditions that might be expected in an offer or letter of intent?
- Due Diligence. This could be an extremely invasive process and many sellers are ill-prepared for how deep a potential buyer will go to ensure they know exactly what they’re getting into.
- Deal Structure. How the buyer might want to structure the deal and why.
- The Closing. What to expect as the xSelling a Business Part 6: The Closing – and what to expect in the immediate aftermath.
The Bottom Line
The initial meeting with a potential selling client will set the tone for all subsequent interactions. This, in turn, will determine to a certain degree the seller’s attitude toward any potential buyer, the level of seller responsiveness and even their attitude to their own broker. And that will ultimately impact the level of comity and cooperation the deal enjoys.
As an added bonus, it seems that few brokers – or broker-wannabes – take the time to educate their potential clients and it has been our experience that a broker making this effort comes across as more professional and, because many of the downsides are placed on the table at the very beginning, honest.
I’d like to hear from you. What topics would you like me to cover? How can we tailor these posts to be more useful to you and your business. Let me know in the comments box, below, or email me at jo*@Wo*******************.com.
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 600 in the world. He can be reached at jo*@Wo*******************.com