Don’t hire the wrong business broker. It’s easy to do, and common.
About 2 years ago a man and his wife called me about selling their business. I answered the phone and we began to talk, I answered several of their questions and I told them exactly what I would need from them in order to help them.
The very first thing that we need to do is to understand what the business is worth in today’s market. We don’t need to decide if it’s time to sell yet, we don’t need to talk about how the employees won’t find out that we are selling the business, we don’t need to talk about the company history or where it’s been what we really no kidding need to do is— figure out what the business is worth in today’s market. It is the first step.
I told the wife, who did the books, in order to figure out what the business is worth I needed the last 3 years of tax returns and she sent them to me via email.
After analyzing their previous 3 years of tax returns, I calculated a market value and called her to let her know exactly what the business was worth in today’s market. I could tell you how the phone call went, but the bottom line is they didn’t agree with the valuation.
This is Very Common and a Big Mistake
After I informed them of the target valuation, they told me they would “get back to me”. I didn’t hear from them for almost 2 years…then they called me back.
“Chad can you help us? We hired a business broker to sell our business, and we have been at this for over a year and the business isn’t sold and we really need to sell it.”
I kindly asked “Why did you hire another broker?” She said “Because we thought that we could get more money and this broker told us that we should ask for more money as well.” I gave her very candid and frank advice, like we do with all our clients and told her that she made a huge mistake: “If you go to the market with too high of a price tag the banks won’t finance the buyer. Not to mention the prospective buyers had no real value in buying your business because the debt service payment due to the bank is so high, the way your old business broker priced it out, the buyer would be paying an exorbitant amount of money to the bank loan in order to acquire your business. A good business broker should not have led you down that path!”
Her and her husband are worn out and now they have even more health problems they really don’t want to be running that business and because the broker had them distracted for a year, the profits are down and the one buyer that they had could not qualify, but not because he didn’t have the money, rather because of what the broker allowed the buyer to do…..
The Wrong Business Broker Will Hurt Your Sale
This particular business would not have been approved at the bank unless it was a semi-absentee owner situation where the business was relatively easy to run with management in place, so the owner was not so heavily involved day to day. In other words, the bank was not going to underwrite this loan unless this guy kept his day job. The wrong business broker encouraged the buyer to go ahead and quit his day job because the deal was going to go through, and coincidentally that was the one thing that the underwriters did not like about the deal and they ultimately turned the deal down.
The broker went to the market with an inflated price! More than likely in order to appease the sellers, he also told the buyer to quit his job before the deal even happened, the bank wouldn’t get behind the deal because they didn’t like a now jobless wishful business owner, and the company need’s a full-time operator to run the operation in lieu of a good management system in place.
The buyer and the seller are not the problem in this scenario. The culprit in the failure of this acquisition was the broker.
Now I have to tell the sellers that the price of their businesses even lower now because they took their eyes off the ball and the numbers went down and you can see the passion has dwindled and so has the profit.
Businesses should be sold at a fair price for both buyer and seller in order for a bank to get behind it and fund the deal, and a good broker should have managed all of this and coached the buyer and the seller towards the right goals in order to accomplish the Acquisition.
If you hire the wrong business broker you are signing up for a lot of headache and no result and Brokers do this all the time, because they’re literally is no downside for them it’s all potential upside on a commission-based sale of which the broker may or may not care about the fundamental principles that it takes to get a deal done.
Unfortunately the sellers do have consequences over a year of stress and panic trying to get their business sold, now they have no prospects to buy it and now the bank denied it once, it lands in my hands and the numbers are even worse and now I have to find a buyer that will be a good candidate and I must coach everyone to a success. The sellers are tired, wind taken out of their sails, and are bitter because this other broker didn’t know what he was doing and cost them a year of their life and a lot of frustration and a valuable buyer that could be running the business today, rather than them starting from scratch trying to sell their business again. Time lost is money lost.
If you hire the wrong business broker EXPECT headaches, no sale, and the WIN you could have had to move on with plenty of money in your pocket is now just a former dream you more than likely will give up pursuing again.
We won’t let this happen to you, make Peterson Acquisitions part of your success strategy today.