SOME FACTS ON ONE OF THE 21ST CENTURIES MOST UP AND COMING CAREERS! BUSINESS BROKERAGE!
WHAT IS A BUSINESS BROKER OR INTERMEDIARY?
Business Brokers help people buy and sell businesses. They assist in valuing, packaging and marketing a business for sale. They earn an income from fees and commissions. They are an important part of a team that helps an owner exit their business with a sale. They partner with a transaction attorney, a CPA and even a financial planner to help an owner to retire or enter into some other new phase of their professional life. It can be a very rewarding career both financially and from the satisfaction you can receive in guiding an owner through this difficult time.
WHY CONSIDER BECOMING A BUSINESS BROKER OR BUSINESS INTERMEDIARY?
- First of all it is estimated that about ten trillion dollars worth of business wealth will transfer ownership in the next decade or so. Even though much of this transfer may not go through business brokers, there is still a lot of money to be made and a lot of folks who will need your help.
- Freedom! Freedom to name your own hours and once you get good at this, to focus on the type and size of businesses that you enjoy the most. This in turn will help you decide on the income you would like to earn. Larger companies mean larger commissions. Commissions, from what I see, seem to be in the ten percent area on Main Street deals (under a million dollar value) and somewhat lower on M&A deals (deals over a million dollars).
WHAT ARE THE SKILLS NEEDED TO BE A BUSINESS BROKER OR BUSINESS INTERMEDIARY?
- Many business brokers have owned their own business in the past and therefore understand a sale from a business owner’s perspective. They have “walked in the business owner’s shoes” and can empathize and share experiences related to owning and running a business. This is a great place to start.
- Sales ability/experience and or previous sales training are also good core competencies for a business broker. After all, the business broker is in charge of “selling” the business he or she represents.
- While many say an MBA or Business undergraduate degree is a must, I believe they can be a big help. With that said, I have seen many folks succeed in this profession who have a good understanding of a P&L and balance sheet (basic Quick Books ) and a willingness to learn more about business finances.
- Perseverance is a very important quality in a business broker. It can take one to two years to develop a strong pipeline when starting from ground zero. Some well-established Business Brokerage firms will have special training and multiple streams of income that can help shorten that time line. It is best to be able to last six months to one year on savings when you enter this profession.
- Integrity and the ability to manage your time well. Tough to succeed in any sales position without these skills. They are both important in business brokerage.
- In Many states, a Real Estate License is needed. About 25% of deals that I see do involve real estate, and it is a great way to make extra commission on a deal, even if your state does not require a real estate license to sell just the business. I strongly recommend you test and obtain at least a real estate sales person’s license early in your career.
WHAT IS THE PRICE OF THE AVERAGE BUSINESS SOLD?
The industry estimates the average business sale price to be about $350,000. This does not include Real Estate, but does include all equipment and most often inventory. These are “Main Street” deals. “Main Street Business Brokers” focus on businesses usually valued at under a million dollars. Many Brokers, often referred to as Intermediaries, focus on the lower middle market. These are businesses that sell from about a million dollars to about $25,000,000.
This market is under-served by Investment Banking houses and is a fertile ground for a well-trained Broker/Intermediary. A word of advice would be to focus on your strengths and areas of knowledge. Are you a former restaurant owner? Focus there. A former employee or owner of a service business? Focus in that area, etc. Money can be made from satisfied clients in either Main Street or lower middle market sales. Brokers often start in Main Street sized deals and transition into larger deals as they gain experience.
WHERE DO I GET CLIENTS?
According to a recent Market Pulse Survey conducted by and with full credit to the International Business Brokers Association, referrals are the best way to get business…
In Q4 2015, most advisers report that their best client arrived by referral, followed by targeted mailers at a distant second. As for referral sources, almost half (43%) came from past clients, followed by accountants and attorneys. Above chart from the Market Pulse Survey conducted by The International Business Brokers Association for Q4 2015.
Referral Groups that meet regularly are available in most locals. Best to find a group or groups to join that have strong CPA firms, financial planners and law firms as members. They can not only help your clients, but you can receive referrals from them as well. Check out several groups before making a decision to join.
HOW DOES ONE BECOME A BUSINESS BROKER OR BUSINESS INTERMEDIARY?
- Join an established firm with a solid training program. The benefits here are, or should be, strong support and guidance with good training and an established reputation and marketing plans. Often E&O coverage and other important items are already in place at an established firm. The negative? Just that you will be sharing your commission with the house. This can be similar to how a real estate brokerage might work. Be sure the firm offers a strong introductory training course.
- Join a firm as a franchisee or under a licensing agreement. The benefit here is that you should still get some solid support. You should be able to get good training from the parent company. You should receive all the documents (and there are many of them) necessary to work in the business as well as a place to go to buy the other services you will need and to get some helpful advice. These include listing website memberships, listing posting services, website development and management, E&O insurance and other must haves. Many of these firms have an established name and established systems to help you succeed. They will often have other services you can offer (sell) to help stabilize your cash flow. These services may include business valuations (an import one), new franchise sales, consulting and others. The negatives? You will generally pay a fee to buy in, and a royalty fee or licensing fee on deals you close. Some of these firms may have territorial and other controls in place. Read the fine print.
- Start on your own. There are great training courses available from groups such as the IBBA (International Business Brokerage Association), The M&A Source and others. Still this can be a very long road and is my least recommended path into the profession.
HOW MUCH ANNUAL INCOME CAN A BUSINESS BROKER EXPECT TO EARN?
This depends on whether you work for yourself or for a firm that gets a share of the commission (and takes on a good share of the expenses as well). If you assume the average sale is $350,000 and the average commission is $35,000 and a business broker does 10 sales per year at a 50/50 split the earnings could be from $175,000 on up. With that said, I myself have done deals where my portion of the commission on one deal was more than $175,000. First decide where your strengths lie. What size businesses would you be good at selling? For most brokers it is best to start in the main street arena and move up. Starting with a firm that has training and a division that does bigger deals can be a good way to go to increase your earnings (and deal size) quickly. Babson College did a study, according to on line sources, that estimated a business broker’s income at $253,000 from commissions plus $60,000 in fees. The study is somewhat dated but seems to be a good indicator of what to expect. Best to talk to brokers in the office or system you will be joining to firm up income expectations.
ANY OTHER CHALLENGES AND HURDLES I MIGHT FACE IN THIS PROFESSION?
First of all I love this profession and I have been lucky enough to be very successful in it. Many are successful, but like any other profession, it has some difficult challenges.
Startup time – It takes on average 9 month to close a deal. So the ramp-up to earning a living can take some time. You will first need to get listings (or join an office or system that has some you can sell right away). This can also take several months at first. You should plan on not making a lot in your first year. You should make more in the second year and even more in the third and beyond. Do not under estimate the ramp-up time. I cannot tell you how many folks start out thinking they can do it in a few months, only to find out they couldn’t.
Cash flow – One month I close 7 million dollars’ worth of businesses, the next month, nothing! You need to plan for this and are best off joining an office or organization that has additional services such as valuation, consulting, buyer representation etc. for you to smooth out your cash flow.
Staying motivated – Working on your own can require a special kind of person. You will need to be self-motivated and driven to succeed.
WHY THIS PROFESSION IS THE BEST JOB I HAVE EVER HAD!
I started, managed and sold several service companies with many employees in my career. Employees can mean problems and issues. For more than a decade now, I wake up every morning excited to go to the office or my first appointment. Clients trust me and need my services. Best of all I have very little competition. I seldom “compete” against another business broker. I am referred in to a client by their CPA or lawyer or a former client as a trusted professional. I name my own hours, work with people I like, and decide what assignments to take or not take and in general act as my own boss. I can even decide how much money I want to earn based on how hard I want to work.
It is always exciting when you are in the midst of a deal. True… deals crash and you can be disappointed. It happens. But the thrill of completing a transaction and seeing a happy client makes it all worthwhile.
In closing, now is a great time to join the profession of business brokerage. Baby boomers are getting older and their businesses are performing well, which means they can attain a good value on sale. There are many buyers with cash in the marketplace and the banks are lending on business acquisitions with the support of the SBA. This is a profession that is different and presents different challenges every day. This is why I love what I do. So with all the difficulties taken into consideration, it is a great profession and a way to make a great income!