Is 100%, immediate, brutal honesty what you want from your business broker?
Without question you need to be able to trust your business broker. After all you’re hiring them to help guide you through what is likely the biggest financial transaction of your life. And honesty is either 100% or nothing . . . right?
Maybe, but let’s ask the question in real life, and start by defining a few terms.
- A lie of commission: I knowingly tell you something that I recognize is not true. I do it with the intent to deceive you.
Let’s be clear, your broker should never lie by commission. You should expect that what your broker tells you will be true, even if they think it’s in your best interest to tell you otherwise. If you ask a question you should be able to trust the answer. If you can’t, it’s time to find a new broker.
This should be an easy one for you, and for your broker. Your broker should be professionally and ethically bound to not lie by commission.
- A lie of omission: Wikipedia says that lying by omission is “also known as a continuing misrepresentation, occurs when an important fact is left out in order to foster a misconception. Lying by omission includes the failure to correct pre-existing misconceptions.”
Business owners set-up brokers to lie by omission all the time.
For example: let’s say that a business owner sets an initial meeting with a broker to talk about the sale of a business. The owner is hesitant, anxious, worried and that’s all understandable – selling a business is a big deal.
The broker arrives and in the first 5 minutes of the conversation the owner nervously and energetically stresses 4 things they expect from a deal.
They tell the broker they demand:
- A minimum of a 5X earnings multiple for the business. (the broker knows that for this type of business 2.5 is likely)
- To cash out entirely at closing. (the broker knows this will dramatically decrease the chance of selling).
- To close the deal in the next 3-6 months. (the broker knows that the average is 12-18 months).
- To have absolutely nothing to do with the business after they sell. (the broker knows this will terrify potential buyers).
Now, what should the business broker say?
“I promise I can get you all those things.”
This is a clear lie, and a lie of commission no less. The broker wants the listing and doesn’t really care what they need to do to get it. It’s unethical; it shouldn’t happen, and every business owner should expect more.
“All your expectations are all impossible to achieve.”
This is the 100% honest answer. It’s right in your face and immediately confronts all the owner’s fears. This is what we want our business broker to do, right? 100% honesty, right away.
What if this is what we got from all business brokers? What if they met us with immediate, 100%, brutal honesty in the first five minutes of the first meeting? What if they pulled no punches and told us all the bare-knuckled truth? Some of us would take the hit, but many of us would simply meet with other brokers until we found the one willing to lie like in the #1 response above. That's the broker that can give us what we want, and we want what we want when we want it.
If this is what you want from your broker, tell them up front, right away. “I want 100% brutal honesty.” But ask yourself if this approach is going to help you learn, or help you sell your business.
“Listen, there’s a lot for us to talk about, and we’ll get to all of it over time, but first let’s start by learning more about your business”.
Seem reasonable? This is a broker that knows how to connect with a business owner beyond their fears and unrealistic expectations. This is a broker that knows they need to learn about your business, why you want to sell it, and what your goals are before they help you determine a path or possibilities. This is a broker who intends to share all the truth of the #2 answer above, but to do it in a way and in a time frame that helps the owner really learn the realities of exiting their business.
I would argue that this is what you should want your business broker to do for you. You want them to engage you honestly and professionally, but realistically. You want them to understand where you are and help you move forward to accomplish your goals.
However, this response clearly qualifies as a lie of omission – “lying by omission includes the failure to correct pre-existing misconceptions.” What if they use the first meeting to correct only two of your faulty assumptions? They know it's a lot to process and they want to help you move forward. Seems reasonable, but this response has led to more than a few business owners, red faced, screaming something like “I told you very clearly in our first meeting what I wanted . . . and now its our third meeting and you’re telling me that . . .. “
It’s Your Own Fault
In most cases, the reason that business owners find themselves in the situation described above is they haven’t educated themselves about the sale of their business before approaching a broker. They don’t know even the basics. This uninformed (but very demanding) owner forces the broker to become a teacher – and we know good teachers don’t try to teach us 100% of everything right away.
Teaching is a process that takes time. But a process that takes time also allows for “the failure to correct pre-existing misconceptions.”
What if the owner approached the meeting above with questions instead of declarative demands? What if the owner knew the multiple average for their industry, or the benefits of seller financing, etc.? All other points aside, an educated owner is much harder to lie to, by commission or omission. (Are you an owner who wants to learn?)
I am not advocating for business brokers to be dishonest. And let’s acknowledge that we are all on a slippery slope when we stop using answer #2 above as the standard by which we judge honesty. But if the business owner in the example above truly learns about the problems with their “four requirements” in three meetings over a 6-week period from a thoughtful broker/teacher, aren’t they better off than the business owner that receives the quick, shock and awe, knee-jerk response and learns nothing?
I know this is a sticky one, and I’ve intentionally pushed a few buttons above hoping to trigger some discussion.
What are your thoughts? Is it in the owner’s best interest for the broker to commit the occasional lie of omission?
Brokers: How would you handle the situation described above?