Real Estate Agents Bringing Offers
20 September 2021: Real Estate Agents
Real estate agents, as a rule, are a group of mostly professional individuals that know how to sell houses like they know how to find their way home. But they can be the bane of the existence of other professionals when they try to involve themselves in something they know nothing about. Like selling timber or Facebook ads or bulk oil… or businesses.
The Latest Challenge
Our office received an offer last month from a buyer represented by a real estate agent. Not surprisingly, because the agent is accustomed to – and probably very proficient at – selling houses rather than businesses, none of the subsequent contacts, communications, documentation or discussions made any sense whatsoever. Capital gains taxes, allotment of purchase price, due diligence, inventory valuation, aging receivables, environmental issues… NONE of this was addressed anywhere in the offer to purchase. There was, needless to say, no Letter of Intent. The buyer – presumably with the agent’s advice – went right to contract. The business in question was, admittedly, rather small; valued at a hair under $1 million. But the issues involved in business transfers are no different in the Main Street Market than they are in the Middle Market. And those issues impact both buyer and seller. The real estate agent, being unschooled in selling businesses – or even in commercial real estate, as it turned out – used a form prepared by the regional association of Realtors that she was a member of; a form for the sale of real estate. A simple fill-in-the-blanks document that addresses the disposition of chandeliers, homeowner association dues, sexual predator databases, title insurance and a dozen other things having absolutely nothing to do with a business. But much worse, it also omitted dozens of aspects of a business sale that could land the buyer in BIG trouble – which was the case in this particular instance.The Best Way to Handle This
Anyone who has followed this blog for any period of time knows of the epic problems dealing with real estate agents when selling business entail and that the only real way to get anything done is to advise the agent to refer their buyer to us, get out of the way and enjoy a handsome referral fee once the deal is done.
Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to value and sell businesses.
Become a Professional Business Broker…
First off, the business in question has roughly $300,000 in inventory, a sum that would put the transaction value at something north of $1.25 million. Some of that – 15%? 25%? Who knows? – is surely outdated or obsolete. Without considering that likelihood and without knowing how to handle such inventory, the buyer is likely to end up paying dollar-for-dollar for $75,000 worth of inventory that has zero value. Next is environmental. Knowledgeable buyers – and those represented by professional business brokers – will require some sort of environmental survey. In the United States, the most basic such survey is referred to as a Phase 1 study. A Phase 1 will let the buyer know if there might be something to worry about and whether a more in depth study should be commissioned. Remember, in the U.S. an environmental problem attaches to the land – specifically, to the owner of the land when the problem is discovered.

We’ve launched a coaching program specifically tailored to Realtors that want to sell businesses, business owners and to anyone that wants to become a business broker.
If you’d like to learn more, email me at joe@WorldwideBusinessBlog.com
Accounting
What about receivables?
The Bottom Line

Searching
This week the inquiry we received is similar to last week’s “Searching” item. As with many recent inquiries, it came from a small private equity fund looking for industrial service/contractors (in field or in plant, infrastructure, municipal/utility, maintenance driven) or value-add industrial distribution companies with $4mm or more in Discretionary Earnings. If any of you know of something that might fit, please let me know and I’ll put you in touch with the buyers.I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe

The author is the founder 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 1,000 in the world. He can be reached at joe@WorldwideBusinessBlog.com