Has anyone used a business broker to buy a small business?
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Has anyone used a business broker to buy a small business?
I was wondering if anyone used a business broker to buy a small business?
What were your experiences?
What were your experiences?
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Re: Has anyone used a business broker to buy a small business?
Can you define small for the purposes of the thread?
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Re: Has anyone used a business broker to buy a small business?
Questions for you:manatee2005 wrote: ↑Sun Jan 16, 2022 10:31 pm I was wondering if anyone used a business broker to buy a small business?
What were your experiences?
Why would you need a business broker to buy a small business?
Does the "business broker" earn a commission?
Is the "business broker" a R/E sales person?
What is the nature of the business?
a) R/E commercial business, supermarket, store. . ?
b) Franchise. . . IE: pizza, Subways, etc?
c) R/E residential income property?
d) laundromat, muffler shop, nightclub, bar, etc?
e) shopping mall?
f) factory?
j
Re: Has anyone used a business broker to buy a small business?
Yes. I have found that having a broker as middleman does a lot of very good things that add value. Do they just want to introduce you to a seller or do they plan to actually help close the deal? Get references and call them.
Do you plan to be the 'operator' or are you relying on existing management? How are they compensated? Is the seller's family involved in the management? What happens if any of them leave? Are they real employees? Will they go away if you want and how will that impact the company. There are a lot more questions but start with these.
It is hard to know if a seller is ready or really even truly interested in selling. Some sellers just really want to be told how wonderful their company is but are not 'really' going to sell. This can waste a lot of people's time. By 'ready' I mean, have they addressed a lot of the items above so that it would be possible (nothing is easy) for an outsider to buy the company. There are always tough issues for any company that you'll find in due diligence. A broker has all the incentive to help you and the seller find acceptable solutions to those issues. They can also help you iron out areas of disagreement in the Purchase Agreement without the emotion that would be present if buyer and seller were talking directly.
Bottom line: I have been in the PE business buying and ultimately selling small businesses (sub $5mm EBIT) since the 80's and have ALWAYS found brokers to be helpful even if I was the seller and I had a very good idea who the buyer might be. They earn their fee if they know how to do their job (see references comment above). Buying a company is fraught with risk. Plug and play is not how it works with companies.
Do you plan to be the 'operator' or are you relying on existing management? How are they compensated? Is the seller's family involved in the management? What happens if any of them leave? Are they real employees? Will they go away if you want and how will that impact the company. There are a lot more questions but start with these.
It is hard to know if a seller is ready or really even truly interested in selling. Some sellers just really want to be told how wonderful their company is but are not 'really' going to sell. This can waste a lot of people's time. By 'ready' I mean, have they addressed a lot of the items above so that it would be possible (nothing is easy) for an outsider to buy the company. There are always tough issues for any company that you'll find in due diligence. A broker has all the incentive to help you and the seller find acceptable solutions to those issues. They can also help you iron out areas of disagreement in the Purchase Agreement without the emotion that would be present if buyer and seller were talking directly.
Bottom line: I have been in the PE business buying and ultimately selling small businesses (sub $5mm EBIT) since the 80's and have ALWAYS found brokers to be helpful even if I was the seller and I had a very good idea who the buyer might be. They earn their fee if they know how to do their job (see references comment above). Buying a company is fraught with risk. Plug and play is not how it works with companies.
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Re: Has anyone used a business broker to buy a small business?
Let’s say the profit of the business is in the 50k-100k range per year.
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Re: Has anyone used a business broker to buy a small business?
I’ve been looking at a few different types of businesses and I know if I specify the type of business the discussion will be derailed into saying why that type of business is badSandtrap wrote: ↑Mon Jan 17, 2022 10:14 amQuestions for you:manatee2005 wrote: ↑Sun Jan 16, 2022 10:31 pm I was wondering if anyone used a business broker to buy a small business?
What were your experiences?
Why would you need a business broker to buy a small business?
Does the "business broker" earn a commission?
Is the "business broker" a R/E sales person?
What is the nature of the business?
a) R/E commercial business, supermarket, store. . ?
b) Franchise. . . IE: pizza, Subways, etc?
c) R/E residential income property?
d) laundromat, muffler shop, nightclub, bar, etc?
e) shopping mall?
f) factory?
j
Let’s say a small brick and mortar business that leases the building.
I’d need a business broker because I’ve never bought a small business before and just like realtors they can help you not get fleeced.
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Re: Has anyone used a business broker to buy a small business?
For context, I spent (so far) about 15 years of my 32 year career working for PE firms as the person running various businesses, so have done both buy and sell side before (usually deals were ~ $10MM in revenue on the low end when buying) and have evaluated a couple dozen deals. Just a few comments on the specifics of your ask and also general observations;
- Brokers add value in terms of creating introductions to deal flows and hopefully different options.
- Most of the brokers (you engage) for deals of this size will be expensive on a relative basis to the business revenues
- Most brokers will not be able to provide guidance as you go through the financials in detail and you will need to hire an accountant and a lawyer
- There are sell-side brokers and companies who specialize in smaller end deals who represent the seller, make sure your broker does not
- A business with profit of $50k - $100k is marginal in that it doesn't take much to get to a loss if something happens with a key client, product, etc.
- Unless you think you have the ability to leverage the business and dramatically improve the earnings and cash flow, you should ask your self if you need to "pay" to generate the return of an average 9-5 job. Even if the answer is yes, it always takes more cash than you expect to grow a business.
I'm happy to answer any specifics via PM if you'd like.
- Brokers add value in terms of creating introductions to deal flows and hopefully different options.
- Most of the brokers (you engage) for deals of this size will be expensive on a relative basis to the business revenues
- Most brokers will not be able to provide guidance as you go through the financials in detail and you will need to hire an accountant and a lawyer
- There are sell-side brokers and companies who specialize in smaller end deals who represent the seller, make sure your broker does not
- A business with profit of $50k - $100k is marginal in that it doesn't take much to get to a loss if something happens with a key client, product, etc.
- Unless you think you have the ability to leverage the business and dramatically improve the earnings and cash flow, you should ask your self if you need to "pay" to generate the return of an average 9-5 job. Even if the answer is yes, it always takes more cash than you expect to grow a business.
I'm happy to answer any specifics via PM if you'd like.
Re: Has anyone used a business broker to buy a small business?
How does one go about finding a reputable business broker?
- Sandtrap
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Re: Has anyone used a business broker to buy a small business?
Brokers n salesman are helpful as go between stores deal and also get all the data you need to evaluate the viability of what you’re buying.manatee2005 wrote: ↑Mon Jan 17, 2022 12:00 pmI’ve been looking at a few different types of businesses and I know if I specify the type of business the discussion will be derailed into saying why that type of business is badSandtrap wrote: ↑Mon Jan 17, 2022 10:14 amQuestions for you:manatee2005 wrote: ↑Sun Jan 16, 2022 10:31 pm I was wondering if anyone used a business broker to buy a small business?
What were your experiences?
Why would you need a business broker to buy a small business?
Does the "business broker" earn a commission?
Is the "business broker" a R/E sales person?
What is the nature of the business?
a) R/E commercial business, supermarket, store. . ?
b) Franchise. . . IE: pizza, Subways, etc?
c) R/E residential income property?
d) laundromat, muffler shop, nightclub, bar, etc?
e) shopping mall?
f) factory?
j
Let’s say a small brick and mortar business that leases the building.
I’d need a business broker because I’ve never bought a small business before and just like realtors they can help you not get fleeced.
That, only you can, and should, ascertain especially as a sole owner with your dollars and future on the line vs doing it for a company with their money and your job on the line.
Your purchase will be legal and “by the book” with a well seasoned broker. But again, though you may not get fleeced on the deal per se, there’s no guarantee that you paid a fair price or that the business will succeed. The motivation of the broker is to make the sale and try to keep both buyer and seller content until the deal is closed and checks cashed so to speak.
You find a reputable seasoned broker through seasoned business owners who do this for a living.
Etc.
Hope this is helpful to you.
PM me as you wish.
j
Dis laimer: lots of ways and opinonions to do things.
Re: Has anyone used a business broker to buy a small business?
You may want a CPA that specializes in auditing business's review the books of this business you are looking at and give you his/her opinion.
Dave
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
- Sandtrap
- Posts: 19591
- Joined: Sat Nov 26, 2016 5:32 pm
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Re: Has anyone used a business broker to buy a small business?
+1
Great point!
3-5 years incl: P/L, etc etc etc.annual and breakdown
(No pseudo pro forma)
J
Re: Has anyone used a business broker to buy a small business?
You may also want to use the CPA to help you do other due diligence. As Jim stated above, the broker is only concerned about his own interests, not yours.
Dave
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
Re: Has anyone used a business broker to buy a small business?
OP, you're disclosing very few details, and with so few details, you're unlikely to get much constructive advice either on the specific question (using a biz broker) or other issues that might be important to you, in looking to take over an established small business.
An important issue is whether the $50-100K profit you're looking for is true profit for a mostly hands-off business, or total owner comp, where the owner is expected to work on the business more or less full time. If the latter, then you're basically buying a job, and a potentially low paying one at that.
$50K/year, for instance, is about $25/hour as a full time wage, and it seems pretty easy to find jobs paying close to, or above that, in many parts of the country, without much required in the way of special skills. So the asking price for a business generating that much as ~comp for full time work should, frankly, be close to zero. And I doubt business brokers get too involved in selling businesses with values close to zero, as there be little room for them to make a decent commission on such a situation.
An important issue is whether the $50-100K profit you're looking for is true profit for a mostly hands-off business, or total owner comp, where the owner is expected to work on the business more or less full time. If the latter, then you're basically buying a job, and a potentially low paying one at that.
$50K/year, for instance, is about $25/hour as a full time wage, and it seems pretty easy to find jobs paying close to, or above that, in many parts of the country, without much required in the way of special skills. So the asking price for a business generating that much as ~comp for full time work should, frankly, be close to zero. And I doubt business brokers get too involved in selling businesses with values close to zero, as there be little room for them to make a decent commission on such a situation.
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Re: Has anyone used a business broker to buy a small business?
The reason why I’m not giving details about the business is because I know how online forums work and the discussion will be derailed into trashing the type of business I specify by people who have never owned a business.psteinx wrote: ↑Mon Jan 17, 2022 5:04 pm OP, you're disclosing very few details, and with so few details, you're unlikely to get much constructive advice either on the specific question (using a biz broker) or other issues that might be important to you, in looking to take over an established small business.
An important issue is whether the $50-100K profit you're looking for is true profit for a mostly hands-off business, or total owner comp, where the owner is expected to work on the business more or less full time. If the latter, then you're basically buying a job, and a potentially low paying one at that.
$50K/year, for instance, is about $25/hour as a full time wage, and it seems pretty easy to find jobs paying close to, or above that, in many parts of the country, without much required in the way of special skills. So the asking price for a business generating that much as ~comp for full time work should, frankly, be close to zero. And I doubt business brokers get too involved in selling businesses with values close to zero, as there be little room for them to make a decent commission on such a situation.
My question is simple, have you ever used a business broker?
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Re: Has anyone used a business broker to buy a small business?
This blog post may be helpful: https://coyoteblog.com/coyote_blog/2004 ... ompay.html
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Re: Has anyone used a business broker to buy a small business?
Personally, I’d take advantage of learning from some of these smart people the answers to the questions you might not have consideredmanatee2005 wrote: ↑Wed Jan 19, 2022 6:44 pmThe reason why I’m not giving details about the business is because I know how online forums work and the discussion will be derailed into trashing the type of business I specify by people who have never owned a business.psteinx wrote: ↑Mon Jan 17, 2022 5:04 pm OP, you're disclosing very few details, and with so few details, you're unlikely to get much constructive advice either on the specific question (using a biz broker) or other issues that might be important to you, in looking to take over an established small business.
An important issue is whether the $50-100K profit you're looking for is true profit for a mostly hands-off business, or total owner comp, where the owner is expected to work on the business more or less full time. If the latter, then you're basically buying a job, and a potentially low paying one at that.
$50K/year, for instance, is about $25/hour as a full time wage, and it seems pretty easy to find jobs paying close to, or above that, in many parts of the country, without much required in the way of special skills. So the asking price for a business generating that much as ~comp for full time work should, frankly, be close to zero. And I doubt business brokers get too involved in selling businesses with values close to zero, as there be little room for them to make a decent commission on such a situation.
My question is simple, have you ever used a business broker?
- Sandtrap
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Re: Has anyone used a business broker to buy a small business?
+1makingmistakes wrote: ↑Thu Jan 20, 2022 6:34 pmPersonally, I’d take advantage of learning from some of these smart people the answers to the questions you might not have consideredmanatee2005 wrote: ↑Wed Jan 19, 2022 6:44 pmThe reason why I’m not giving details about the business is because I know how online forums work and the discussion will be derailed into trashing the type of business I specify by people who have never owned a business.psteinx wrote: ↑Mon Jan 17, 2022 5:04 pm OP, you're disclosing very few details, and with so few details, you're unlikely to get much constructive advice either on the specific question (using a biz broker) or other issues that might be important to you, in looking to take over an established small business.
An important issue is whether the $50-100K profit you're looking for is true profit for a mostly hands-off business, or total owner comp, where the owner is expected to work on the business more or less full time. If the latter, then you're basically buying a job, and a potentially low paying one at that.
$50K/year, for instance, is about $25/hour as a full time wage, and it seems pretty easy to find jobs paying close to, or above that, in many parts of the country, without much required in the way of special skills. So the asking price for a business generating that much as ~comp for full time work should, frankly, be close to zero. And I doubt business brokers get too involved in selling businesses with values close to zero, as there be little room for them to make a decent commission on such a situation.
My question is simple, have you ever used a business broker?
Great point.
Well said.
I have used a business broker, R/E brokerage head broker and associate broker, etc, and no broker with legal counsel.
i have had businesses for nearly 40 years.
j
Re: Has anyone used a business broker to buy a small business?
Yes - we have used a business broker on both a buy side and sell side for a small business. We have also bought and sold without a business broker involved.manatee2005 wrote: ↑Wed Jan 19, 2022 6:44 pmThe reason why I’m not giving details about the business is because I know how online forums work and the discussion will be derailed into trashing the type of business I specify by people who have never owned a business.psteinx wrote: ↑Mon Jan 17, 2022 5:04 pm OP, you're disclosing very few details, and with so few details, you're unlikely to get much constructive advice either on the specific question (using a biz broker) or other issues that might be important to you, in looking to take over an established small business.
An important issue is whether the $50-100K profit you're looking for is true profit for a mostly hands-off business, or total owner comp, where the owner is expected to work on the business more or less full time. If the latter, then you're basically buying a job, and a potentially low paying one at that.
$50K/year, for instance, is about $25/hour as a full time wage, and it seems pretty easy to find jobs paying close to, or above that, in many parts of the country, without much required in the way of special skills. So the asking price for a business generating that much as ~comp for full time work should, frankly, be close to zero. And I doubt business brokers get too involved in selling businesses with values close to zero, as there be little room for them to make a decent commission on such a situation.
My question is simple, have you ever used a business broker?
Although psteinx advice is much more valuable than my reply
Re: Has anyone used a business broker to buy a small business?
I've seen someone use a broker to buy a business - I believe they paid them a flat fee of $10k-$15k in the year ~2000. I forget a lot of the details about the size of the company they acquired but it was probably around the size of the company you're looking at. If you don't have experience buying companies, I think they could bring a lot of value particularly in determining the appropriate purchase price. If they have accounting due diligence experience, too, even better ---if they don't they should know someone who does. And I agree with others that it would be worth a few thousand $ to have someone look over the books and tax records. Have your attorney, with experience handling small business sales, draft all the legal docs. If the sellers have any problems with these requests, it could be a red flag.
Make sure there's no conflict of interest between your legal, acctg, and broker and the target company owners.
Make sure there's no conflict of interest between your legal, acctg, and broker and the target company owners.