Brokers are responsible for me wasting thousands of hours over the years. They want to sell businesses and I want to buy businesses. Perfect match, wouldn’t you say? But welcome to my alternate universe!
I’m going to discuss the different types of brokers I’ve come across over the years. I’ve divided them into a five types and explained how they frustrate buyers and prevent deals happening.
If you’re a business seller, the chances are you won’t recognise any of these brokers! You get to see a different side to the broker – the professional, experienced and trustworthy face, the face they need to put on to get you to sign the contract. You’ll get a reassuring chap who seems to know what he’s talking about, someone whom you can rely on to sell your business expertly and efficiently.
Good luck with that. But I think you sellers would benefit from the article as well as you’ll get a peek at the “other side” and know what potential buyers - people who are looking to invest in your business - typically experience.
How buyers find businesses to buy
If you’re looking to buy a business and are deal sourcing through brokers, here’s the first impression you’ll get: No broker has any intention of selling any business! Dealing with them is hard work and it’s not like a car showroom where the bloke is eager to sell you a car. No, sir, not with brokers. You’re a bit of an annoyance and an interruption to their main job (of signing up new clients and collecting sign-up fees).
There are five types of time wasting brokers you’re going to come across, son, and I’m going to tell you how they play.
Like many buyers you’ll start with listings at one of the listing sites where businesses are advertised for sale. Fair enough. You’ll scroll through the listings, spend many hours going through the large volume of clutter, debris and sewage – start ups posing as established businesses, non-viable business “ideas” being sold as businesses, franchise marketers with their listings of (often) fictitious businesses, one man bands that can’t survive without that specific one man but still looking for a buyer etc. - and you’ll pick out one listing as promising. This is where the fun begins.
You’ll contact the relevant broker to ask for their NDA (Non-Disclosure Agreement) which is the first step you need to complete before they’ll share with you a copy of the Information Memorandum / Sale Prospectus with details of the business. You’ll generally contact the broker using the contact form on the listing site.
You’ll wait for the broker to reply. And wait. And wait. Nothing. Maybe they didn’t like what you said in the contact form. Or they weren’t impressed that you didn’t attach bank statements to prove finance. But, unknown to you, it’s nothing of the kind.
A few weeks pass and you phone the brokers. You’ve just reached what I’ll call Broker Type Number One, as this is the most common type of broker you’ll come across. In my experience, these brokers account for about 40-50% of the market.
A lovely young lady called Susan answers the phone. Or maybe it’s Tracy. Or Maria. Or Something. She’ll swear they didn’t get your NDA request! Must be something wrong with the form on the listing site. Drat! OK, that’s technology for you. But you’re dealing directly with the broker now and Susan is being most helpful. She takes your details and promises to send the NDA.
You get tired of waiting and phone the broker again and ask for Susan. “Susan? Who’s Susan?” They’ve never heard of Susan. Are you sure you had the right number the last time you called? But, not to worry, you’re talking with Jake and he understands your frustration. He apologises profusely. “I’ve no idea how you got a Susan, we’ve never had a Susan here, but I’m really, really sorry for the inconvenience.” He’s apologised for something that’s not his fault. He sounds like a really nice guy. Jake’s going to send you the NDA immediately. And he does. Wow! We’re cooking with gas now (for you young ones, that’s an old expression, but you need not worry too much about it).
You are completing the NDA and get stuck on a few bits. For example, you may have forgotten the unique number relating to this listing and you have to trawl through the aforementioned sewage and debris all over again. But it’s worth it because you’ve now got Jake and you know he means business. You send the completed NDA over.
And that’s the last you hear from Jake. Or Susan. Or anyone else. Emails go unanswered. You get the occasional spam message to your inbox about another great business opportunity this broker has taken on. But no response to your NDA.
What’s going on here?
My guess: A whole bunch of brokers exist to list businesses, not sell them. Perhaps they’re working on a fixed fee system and have no incentive to push the sale. Or maybe they get their fees when the business owner gives up selling the business and tries to get out of the contract! Or there’s something else going on.
So who the heck were Susan and Jake?
Here’s the surprise: They aren’t employees of the broker, they are call centre staff or they work for a virtual secretarial / PA service to handle calls on behalf of brokers. Each time you call you’ll probably get a different person none of whom know much about this specific broker as they answer the phone for a hundred different businesses. Don’t be surprised if you turn up at the broker’s office and find there’s no office there, that it’s just an accommodation address. If there’s an office and you can spend some time in it you’ll notice that 99% of the activity, maybe even 100%, is on getting new sellers through the door. Nobody is interested in talking to buyers or otherwise helping a deal happen! Huh?
The irrationally optimistic broker is, as the name suggests, optimistic about everything. This time next year he's going to be a millionaire. You know the type!
His infectious optimism is as persistent as his smile is charming. He signed his client up in the first place because he was so optimistic about being able to sell the business...and so optimistic about the price he could get. The client liked that. The reality is that a three legged donkey has more chances of winning the Grand National than this broker has of selling this business. But he told the client the business is worth a million quid and he's sticking to his story.
So he advertises it as a business that could make £xx million over the next two years, that it has "a lot of potential", that it is "on the verge of exponential growth" etc etc. He’ll quote turnover rather than profit (because it’s a bigger number, ain’t it?) and talk about the business’ future, not past.
He's also likely to explain to you that if you "just put some money into marketing the business the business could make ten times more profit than it's making now".
These are all lines spun by only the most immature, first time business sellers and not worthy of a professional. But he needs to keep upbeat and sound positive and exude exciting opportunity… so he’ll give you all the seediest lines, and then some.
The hilarious bit is that he probably believes all the nonsense he spouts! Bless him.
It's quite a struggle to get the Irrationally Optimistic past the hot air and into the real figures. He doesn't want to disclose facts & figures because he knows that these paint an ugly picture. So he keeps churning out the bull manure and keeps evading answers to questions. He wants you to stick to what he's telling you about the business and its’ prospects, not the reality of what's probably a severely distressed firm on the verge of insolvency.
I normally give up with the Irrationally Optimistic broker as soon as he starts giving me opinions about the business. Any broker who keeps pressing his opinions on potential buyers is a fool who doesn't realise that buyers want facts and they are more than capable of reaching their own conclusions, thank you very much.
Not as in slug that goes into a rifle and whizzes out at 150 mph. No, it's the other type of slug - the one that meanders its way from A to B, and sometimes changes its mind on the way and goes to C instead, deciding in its wisdom to leave B for another day.
Don't get me wrong, the world of finance doesn't operate at breakneck speed. As someone with a background in accountancy, I know that we finance people prefer to do things slowly and make fewer mistakes. But this broker isn't slow because he's being careful, he's slow because he has a thousand other businesses he's taken on and can't really afford to spend too much time trying to sell any individual business. He's a pile 'em high and sell 'em cheap merchant … and most of his businesses never actually get sold despite the low price.
As a buyer, I'd rather pay less than more so I quite like the sell 'em cheap bit. It's the pile 'em high that I have a problem with. Pile 'em high means the broker doesn't have time to answer my questions about the business, send me documents I've requested etc. I have to chase and chase and chase. And the more time I spend chasing the more expensive it's becoming for me because my time, unlike his, is worth more than £10 or £20 an hour.
He's probably a really nice guy who helps cats across the road and pays for his own hair-adornment straws, but he's frustrating to deal with nonetheless because he has no idea what he's doing. And he has no idea that he has no idea.
Nice but dim Tim is sometimes highly educated. But he was absent the day his school covered basic business terminology. Ask for the net profit and he'll give you the turnover figure. Ask when the company's year ends and he'll tell you that yes, it has. Ask what sector the business is in and he'll confidently reply that it's 3/4. "That's about 75% to you and me. Give or take."
Arrgh! It's like speaking with my grandmother when she's mistakenly put her false teeth over her left ear and is desperately feeling around it looking for the volume control.
As a buyer I need the data / basic info right at the start so I can decide whether to pursue the deal or move on to the next business. Most opportunities I investigate will turn out to be duds. The quicker I can eliminate a business, the better. I can't work with Tim because when I ask for "A" he sends "B".
This is a funny old dance, sure, but if I have to dance this tango I'd rather do it with Darcey Bussell than Diana Abbott.
OK, as a business buyer, this type really annoys me. Probably more than all the others because at least the others are trying to sell businesses.
This is how the Deluded Doughnut operates. He puts out a listing which advertises, for example, a “logistics company” or an “international transportation business”. As a buyer I don’t have much information on the company till I complete the NDA. So I fill the form and chase the broker and eventually get information about the company.
But it’s not a company being sold, it’s only the assets of the company.
Which is fair enough in some cases. In fact, many business buyers want to buy just the assets of the business and not the shares of the Ltd company. Buying the shares is risky in that you are taking on any hidden liabilities and may end up paying the price for the business seller’s “past crimes”. So asset sales are fine. I’m okay with buying assets.
Except that there aren’t assets as such. There’s just one asset.
OK, so now I’ve spent a fair amount of time and am getting frustrated. I want to know what this asset is that the broker thinks will be of interest to business buyers.
Then, finally, he reveals that the asset is an almost new Mercedez van.
And it dawns on me that this numpty has confused the business listings site with AutoTrader.co.uk! I’m not in the market for a van, I’m in the market for a business and I’ve just wasted several hours because of a muppet who deluded himself into thinking an empty van with half a tank of gas and an overflowing ashtray is a fully fledged logistics business.
Sometimes he’s trying to sell a container of overstocked dining tables … as a furniture business, or a Tesco’s reject consignment of cabbages … as a grocery business.
This type of broker gets blackballed immediately because he’s not really a business broker.
Should this broker ever take on and list a good business … that business will never come to the attention of buyers like me as we’ve auto-blocked this broker’s listings.
While it’s easy to poke fun, I appreciate that selling a business is a lot more difficult (than poking fun at brokers). However, for the money the broker gets when selling a business – often 10% of what the business is worth – I expect them to put in a lot more effort.
That said, I have on occasion had the pleasure of working with some fantastic brokers both in the US and in the UK and when I find one I keep them close. I drop them the occasional email, meet up with them if I’m in their neck of the woods, send them cards at Christmas. When they take on a business that’s a perfect match for me, I want them to remember me and get in touch.
So it’s not all doom and gloom. If you’re a buyer, here’s a piece of advice: in the early days put more effort into finding good brokers than in finding good businesses. It’s the best game plan for the longer term. If you're a seller and not happy with the service you're getting from your broker, get in touch with me.