Business Buying Best Practices

September 24, 2009 11:48 AM

I'm a potential small business buyer. I'm unsure about the protocol of dealing with business brokers.

I've been browsing listings on various business brokerage websites to get a feel for what's out there, but the different listings all list different brokers. These brokers have been hired by the seller, so I am not obliged to pay any fees during the process -- is it therefore ok to contact a variety of different brokers in searching for a buying opportunity?

I'm looking for a specific type of business, which I think complicates things. It'd be easy to contact one broker for a certain type of business and another broker for another type of business, but within the same industry, based on my dealings with territorial apartment brokers, I'm worried about creating a mess.

Any personal experiences? Advice?

posted by undercoverhuwaaah to human relations (4 comments total)

Everything in writing, including offers, counter-offers and your deal with any potential broker. Don't use E-mail or the phone. Fax the offers if possible
posted by Ironmouth at 11:57 AM on September 24

I have a relative who is a business broker. He says that it is ok to contact more than one. Just like buying a house, the sellers are often repped by different agents. My relative represents both buys and sellers. If you have a specific type of business you want he will discreetly contact owners in that industry to see if they are selling. He has sold, strip joints, truck stops, card stores, a whole range of small businesses. He told me the best way for a buyer to value it is not to look at the tax filings or books, but to sit with the owner for a few days and follow the cash. See what expenses are run through the business. THe net profit might only be $40k at the end of the year, but $100k of expenses were run through. Often they will pay family members, company cars, etc.
posted by JohnnyGunn at 11:59 AM on September 24

Never trust any numbers that come from a broker. If he is giving you figures, estimates, and projections, then those numbers are based on data that has been made available to him. Always insist to see the original data yourself.
posted by jefficator at 12:33 PM on September 24

I bought a business. The owner, who was out of the country, was represented by a broker. Broker was pretty useless, but made sure he got his cut. I sold the business. I talked to some brokers. They were not knowledgeable or helpful.

Don't just buy a business. Decide where it should be, what kind of business, then go look for that business, and see if it's for sale. Use the Small Business Administration, in whatever form they exist in your area. If you want to buy an ice cream store, go to ice cream makers and ask if they know of a store for sale, or an under-served area. Subscribe to Ice Cream Parlor Monthly, or whatever trade magazine exists. If you can find any sales reps who visit ice cream shops, they'll know all sorts of useful info, and sales reps can be talkative, even gossipy, as all get out.

No matter what a broker says about a formula for pricing a business, it's false. There are way too many variables.

In my estimation, a good accountant and tax planner is way more useful than a business broker. In fact, I'll bet accountants have a pretty good idea what businesses are for sale.
posted by theora55 at 1:59 PM on September 24