Getting Clients for Business Brokers: The Conversation

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Getting Clients: The Conversation

There are many ways of getting clients for your business brokers practice. In fact, there are quite a few outlined in our course, The Basic “How To” of Becoming a Business Broker”. But because it just happened, the story behind this post is not yet in the course but you’ll see how effective it is.

My lovely bride and I traveled to the New England region of the U.S. this past weekend for a family wedding. The daughter of one of my many brothers got married and a family reunion was part of the weekend’s festivities. As such, we flew in a day early so we would have some time to catch up with everyone before we got down to the serious business of matrimony. We arrived on Friday.

How the Conversation Started

On Saturday morning, we went down to the hotel’s lovely garden area for breakfast. My bride being FAR more sociable than I, we got into a friendly conversation with the couple at the next table. As it always seems to do, the talk eventually turned to business.

As it happens, they both owned businesses. She was an event planner; corporate retreats, significant anniversaries, weddings, etc. (though she was not involved in the planning for the one we were attending). His business owned a dozen franchised restaurants.

She had been building her business for about 30 years. She had no direct employees; because she hires only the specific talent she needs for the specific event in question, everyone is a contract vendor.

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Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to become a professional business broker.

Become a Professional Business Broker…

Her business was based in New York City and had a bunch of A-list and B-list clients. I asked what her plans were for the business and she said she would probably close it in a couple of years as they were approaching retirement.

What an opening for a business broker!!

I asked why she didn’t considering selling it. Her response? “I’m not sure I have anything to sell.”

“If this is a legitimate business,” I said, “with revenue, tax returns, client lists, vendor lists, intellectual property such as a website and social media pages; if the business is providing the means to live handsomely, as it appears to be doing, you’ve absolutely got something to sell.”

I proceeded to tell her that selling businesses is what we do. Our conversation continued for another 15 minutes or so as I explained the process. She asked for my business card and I expect to get “the call” eventually.

But that’s not the end of this story. Her husband was listening and appear quite interested. He asked about how we establish a value for someone’s business.

You know the drill!

I discussed the process of determining a business’ discretionary earnings – what a business really makes; the owner’s benefits, not what’s shown on the tax returns, factoring in extraordinary expenses; assessing risks specific to the business; determining the real earning power of a business.

He asked about “cap rates” and “NOI”. He knew that NOI was Net Operating Income but not how it was applied to business valuation. He was unfamiliar with the term “cap rate.”

This gave me the opportunity to explain that a business’ NOI – at least is shown on the profit and loss statements and tax returns – is generally NOT a true illustration of the business’ earning power and that a process called recasting the earnings should be done to determine what the business really earns for the owner; the discretionary earnings. It also gave me the opportunity to explain cap rates, how they are calculated and how they pertain to businesses.

Well, as it turns out, his business, also based in the New York area, had recently been approached by a Left Coast private equity group (“PEG”) interested in buying it.

He described a fairly disturbing scenario in that the PEG wanted to know the NOI and the cap rate. Fortunately, because he was unfamiliar with cap rates, all he disclosed was the NOI. But by disclosing the NOI, he was probably short-changing his business’ value because there is a strong likelihood that certain expenses were “owner’s benefits” rather than actual costs to operate the business. I hope I convinced him that he needed a professional valuation to determine what the discretionary earnings are so that he’ll be able to get the highest value.

But cap rates are another story – and no less important to calculate, particularly if you are dealing with businesses in the Middle Market – between, say, $2 million and $25 million – because many buyers of such businesses – especially PEGs and family offices – consider the cap rate of an opportunity an important metric when considering an acquisition. But this is a post about the potential for random conversations with strangers to lead to clients. Next week’s post will focus on cap rates.

The Bottom Line

Like you, as I’ve met people over the years, the conversation usually gets around to business – as in “what do you do?” People are generally interested – and they show that interest – in learning about other people. I’ve always found what most people do for a living very interesting and, because I read a lot of business news, generally have some knowledge of what’s happening in their industry. This allows me to engage with them on a deeper, more professional level. And I find that very enjoyable.

Of course, only a handful of the people I speak with are business owners or trying to find a business to buy but when I find myself in a situation like the one I describe above, I have the opportunity to explain why someone should use a professional business broker or M&A advisor and, by the time I finish my little outline, my listeners know that I know what I’m talking about!
Always be ready to talk about what you do and how professionally you do it… and ALWAYS carry business cards.

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Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to become a professional business broker.

Become a Professional Business Broker…

If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. Put them in the Comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.

I’ll be back with you again next Monday. In the meantime, I hope you have a profitable week!

Joe

#business #businessacquisition #sellabusiness #becomeabusinessbroker #businessbrokering #businessvaluation #MergersandAcquisitions

The author is the founder of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 600 in the world. He can be reached at joe@WorldwideBusinessBlog.com

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