12 Keys to Success for Main Street Business Brokerage Practices

By Len Krick, MBA, CBI, M&AMI | Principal Broker, United Business Brokers of Nevada
The Sunbelt Business Brokers Franchisee in Las Vegas
Contact Len Krick, MBA, CBI, M&AMI | About The Author

Objectives:

Identify key success factors
Increase efficiency
Increase commissions
Decrease liability
Increase broker retention

When I started in this business almost six years ago, I just couldn't accept some of the ways that some of the industry practitioners were doing things. I tried most of them, but, whether it was my market or just my background, the methods just seemed so unsophisticated and inefficient, that I started to reinvent/invent my own practice standards.

Here are a few of my main street business sale philosophies:

Don't take the listing if:

You wouldn't buy it.
Their asking price is outside of reality and cannot provide cash flow sufficiency.
They refuse to sign the Sellers Disclosure Statement.
They aren't sufficiently motivated to sell (unless you have some fully qualified Buyers asking for that type of business.)
The business has a fatal flaw (losing their lease next month, etc.)
The Seller is a jerk, who will kill the deal due to his ego, etc.

You have to be able to answer the following four universal Buyer questions:

If this business is so good, how come they're selling it?
How much money does it make?
What's the upside potential if I buy it?
Where the heck did you get that price?

Of course there is a "B" list of important questions, which include:

Will the seller carry a note?
Do the assets go home with the seller every night?
Are there trained employees who will stay with the business?
What is the condition of the lease?
Does the business have a vendor concentration issue?
Does the business have a customer concentration issue?

In my office, we answer those and other questions in writing, in a formal (Bound/ PDF) Business Summary. Last year we sold over 80 percent of our main street listings and our clients received over 90 percent of the asking price. Three received considerably more than asking price! I attribute that level of performance to the following dozen rules:

Prescreen your seller prospects. I use an actual interview form. If the Seller doesn't meet your minimum acceptable standards, stop. We turn down at least five for every listing we take. Do not take the listing if they refuse to sign a Seller's Disclosure Statement; obviously, they are hiding something or misrepresenting if they refuse to make representations about all material aspects of the business (pending litigation, unresolved insurance claims, etc.) there is no use exposing yourself to litigation needlessly. Remind your seller prospect that they are only going to sell their business once, they better chose their broker wisely if they want to maximize their after-tax proceeds.
Do the valuation before you take the listing. That way, you see what the buyers are going to see during due diligence, and you set the price properly. Remember, the difference between the fair market value of the hard assets and the selling price is the value of the intangible assets. The buyer pays for the past and buys for the future. The value of the business is today's implied value of the future cash flow that the business is likely to generate for the buyer.

Perform some basic calculations from the buyer's viewpoint. All Buyers need to receive three things from the deal, or they will not purchase it: (a) Sufficient cash flow to service any debt incurred to purchase the busi

About The Author

Len Krick, MBA, is the Managing Member and Principal Broker of United Business Brokers of Nevada, LLC; a nine-member office based in Las Vegas, NV, which concentrates on businesses with EBITDA less than $1 million annually. He is also Managing Director of United Mergers & Acquisitions; an eleven-member team based in Salt Lake City, UT, which concentrates on businesses with EBITDA over $1 million annually.

Len has over twenty-five years' experience with both privately held and publicly traded companies, which includes: consulting, negotiating, turnarounds, bond and initial public offerings, operations, development, general business brokerage, and small and mid-cap mergers and acquisitions. Mr. Krick has exceptional expertise in operational analysis, business planning, and packaging businesses for sale. Len frequently serves as a moderator and speaker at the International Business Brokers Association conventions. He is a Certified Business Intermediary ("CBI"), Merger & Acquisition Master Intermediary (M&AMI"), Certified Machinery and Equipment Appraiser ("CMEA"), and is the Sunbelt Business Brokers franchisee for Clark County, NV.

United Business Brokers' website is www.unitedbusinessbrokers.com. United Mergers & Acquisitions' website is www.unitedmanda.com. Mr. Krick can be reached at 702.364.2589 or len@unitedbusinessbrokers.com.

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