Job Description: A business broker matches buyers and sellers of small and medium-size businesses. • Potential first-year earnings: $100,000 + • Breakeven time from initial investment:        - rapid (one year)       • Excellent home-based business • No staffing required

"It’s an amazing thing, most of the people that get into business brokerage never leave to enter any other business.” The secret attraction, according to business brokers, is that “You can make a lot of money as a business transfer consultant, and, unlike a hardware store or manufacturing business you don’t pay a million dollars for inventory and equipment. However, large fees are earned when it’s sold.”


fast-track Americans are an antsy lot: One out of every four U.S. businesses changes hands every five years. Enter a new breed of expeditor to match buyers and sellers of small and, increasingly medium-size business, ranging from card shops to used car dealerships.

As a field, business brokerage has been around since the mid-1970s and is still tiny in comparison to its related sibling, real estate, which boasts 150,000 offices nationwide. Tom West, former president of International Business Brokers Association, estimates fewer than 3,400 full-time brokers hang their shingles across the country.

Compared with real estate, which counts $250 billion in annual sales, all business transfers (including those not sold through brokers) generate $300 billion. Estimates on the number of brokered businesses vary widely, but Tom West guesses between 25 and 50 percent of company sales are handled by brokers.

And another thing: Business brokers command 10 to 12 percent commissions, compared to 6 to 7 percent real estate agent fees. They still occupy a relatively new niche, however,

One of the biggest negatives we face is people not knowing what business brokerage is.

HALF A MILLION

On the upside, the top solo brokerages draw annual commissions in $250,000 to $500,000 ballpark, says Tom West, who founded United Business Investments a generation ago. That a top-of-the-line brokerage might split commissions fifty-fifty with salespeople and deduct overhead of about $5,000 a month. That leaves the boss $190,000 as profit --- more if he or she brokers some sales personally.

While the majority of brokerages are two-or-three people shops, there is a trend toward multiple offices. Regardless of the number of storefronts, the owner collects half of all fees, so expansion is a nice plan for those who can manage from afar.

THE BIG ONE

Tom West calls the business brokerage field seductive. Even when prospects seem low, brokers stay in business for the same reason people fish: There’s always the possibility they’ll hook the big one . . . the deal just around the corner with a $400,000 commission.

CHARACTER

Good brokers generally share certain character traits. Chief among them:

• They understand numbers and the laws as they apply to business sales. “You have to be able to read a P & L statement --- and know that it stands for ‘Pretend & Lie,’ not‘ Profit and Loss.’”

• They are good salespeople. Much of a broker’s time revolves around selling buyers on the merits of particular business --- and convincing owners to sell.

• Brokers are good negotiators. “You have to deal forcefully with attorneys, accountants, buyers, and sellers,”.

•They are empathetic. “Somebody wrote a list of the ten most traumatic events in life, and retirement ranked second”.

IT COMES DOWN TO SELLING

Clients fall into two groups: buyers and sellers. Referrals from attorneys and accountants and past customers make up sizable portions of both, but you’ll spend a great deal of effort coming up with prospects. To track down sellers, “walk, talk, knock, and sell”. Although he sees a trend toward telemarketing, Tom West agrees “there’s nothing like going to talk to the small-business community. When it’s snowing outside, that business owner remembers you when he thinks about chucking it all and moving to Florida.”

Lure buyers aboard the easy way: Simply advertise the businesses you have to sell. If the particular convenience store they targeted doesn’t work out, chances are you have another prospect that might. In less formal arrangements, brokers who provide leads to colleagues generally split fees.

Most charge 10 to 12 percent commissions: payable by the seller, with $4,000 to $10,000 minimums for smaller transactions. The average sale involves a $200,000 business. Additionally, many brokers handle deals worth millions. “We call them mergers and acquisitions, but it’s really the same thing”.

There’s truth to the old argument. ‘There’s no more work in putting together a big deal than a small one,’ says West. And a solid, larger business with better records may be an easier sale. But the best part: The commissions are higher.

THE PERFECT FIT

According to Tom West, 90 percent of buyers who use brokers are first-time owners with zero idea of what particular business they want. The broker becomes an analyst who delves into buyer’s personality in order to find the perfect fit. “People make decisions emotionally,” says West, based on the type of lifestyle and environment they want rather than on how much money they can make.

For example, because you like gardening, you might prefer a flower shop even though you could make more money in a computer-repair business. West recalls the client who answered an ad for a liquor store. “The business broker found he had six dogs and sold him two pet stores instead.”

Some brokers profile buyers by using interview forms made up of fifteen to twenty questions. “You ask why they want to buy a business, who will run it, what are their interests and how much money do they have to invest.” The best way to handle sales is through seller financing. The buyer puts 25 to 40 percent down, and the seller takes the rest in monthly installments that the buyer meets through his new business’s cash flow. Buyers like seller financing because they can afford better deals. “The seller makes a lot of money, because he is paid interest.”  Continue on...

American Business Brokers

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