Someone called the other day and after discussing buying a business for a bit, the real reason for his call came out. He asked, “By the way, how do you become a business broker?” We talked a while, but I thought I would write down more thoughts here. I didn’t remember his name, but maybe he’ll find this here.
There are a few key ingredients in becoming a good business intermediary. There is so much to it, so many different aspects, that I think it is impossible to learn everything on the job. You need to have an education and background that eliminates at least some of the learning. I think that is one reason why there is such a high wash-out rate for new brokers. There is a lot to it, and there can also be a lengthy time before you get paid anything (it is entirely based on success fees).
The key ingredients, in my opinion:
- Business ownership experience helps greatly, as you can empathize with the owner
- An MBA degree is helpful, but at least some finance and accounting is needed to understand P&Ls, balance sheets and tax returns
- The ability to speak and communicate easily and comfortably with business owners
- The ability to multi-task: spreadsheeting one minute, negotiating the next
- A true self-starter that can manage their time
- Integrity and an intense sense of fairness
- Did I mention that Business ownership experience helps greatly?
I was uniquely qualified for it, with an MBA, having started and sold companies, and having worked in mergers and acquisitions. But when I started in being an intermediary I was lost on a few areas that I hadn’t dealt with before.
So, given that you have the necessary qualifications, where do you start? The easiest is to link up with a larger brokerage or M&A firm. Business brokers = smaller businesses under around $1 million in sales. M&A = larger businesses, over $1 million.
Business brokers operate in the real-estate model, with a broker managing the office and sales agents below him. The good ones offer a training program, mentoring, or at least somewhere to turn when you are stuck. Be aware, that like the real estate office, you are expected to do most of your own marketing. Like any business, marketing is key and many business brokers don’t understand that.
M&A firms are typically a little different, but the same issues apply – what kind of support, if any, does a larger company bring? Some M&A firms do very little for their “deal makers”, although just the fact there is a larger organization helps land deals. Some help a lot by doing back office work like writing the sales prospectus, financial analysis, marketing, etc.
You can go out on your own, and many try that and just limp along or fail. Some make it, but you really must know what you are doing to be out there alone. For example, over half the businesses that list don’t sell. Usually it is the inexperienced or struggling broker that takes weak or mis-priced listings, and then beat themselves up trying to sell something that can’t be sold. It can take a year to sell a company, so you could work hard for a year – and then end up with zip.