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  • Should I Hire an Established, Independent or Franchised Business Brokerage Firm to Sell My Business?

    Jul 16, 2019

    In the Pacific Northwest when I desire a quality steak, I traditionally go to Daniel’s Broiler in Bellevue, Washington and the Ringside Steakhouse in Portland, Oregon. Both are locally owned businesses with reputations for product quality and superior customer service. I have never left either disappointed with my dining experience. The top franchised steak restaurants in the United States are Golden Corral and Quaker Steak & Lube. Both can offer satisfactory dining experiences. Neither is a place generally selected for dinner on a special occasion or with an important business client.

    The differences between an established, independent, business brokerage and a franchised business brokerage are similar to the differences between an iconic locally owned steakhouse and a franchised restaurant.

    The most important employees at a fine dining restaurant are the executive chef and sous-chef. It is their job to ensure that the correct ingredients are selected, preparation is executed to the highest possible standards, and meals are presented to maximize presentation and dining experience. It takes significant knowledge, experience, and skill to obtain the position of sous chef de cuisine and even more to run a kitchen as an executive chef.

    The same is true for becoming a senior, professional mergers & acquisitions intermediary. Business brokers at established, independent business brokerage firms traditionally are mentored and supported by senior intermediaries with years of relevant experience, a deep level of knowledge, and dozens, if not hundreds, of successfully facilitated transactions. As the President & CEO of IBA, the Pacific Northwest’s oldest business brokerage firm, I have personally facilitated over 300 transactions during the last 25 years. My brokerage team and IBA’s clients benefit daily from this executive, leadership knowledge & experience. Quality also attracts quality. The best business lawyers in a city traditionally work for the largest firms. The firms with the best attorneys traditionally have the top companies as clients. The same is true with professional mergers & acquisitions intermediary firms. The top regional firms traditionally have the largest and most talented staff and by referral from attorneys, CPA’s, past clients or through market presence and reviews online a steady client base of business owners wishing to sell their companies for premium values in professionally facilitated transactions. Business brokers showing talent & ability as intermediaries also as a career progression often seek positions at large regional M&A firms to work on bigger deals and be part of a larger, more professional team. IBA’s VP of Business Development, Curt Maier, got his introduction to business brokerage facilitating transactions for a franchised business brokerage before electing to join the oldest intermediary firm in the region. He has indicated many times that the level of knowledge, skill, and support at IBA is significantly greater than the national franchised business brokerage firm he learned the trade at in his early years.

    In comparison, I have seen many entrepreneurs buy business brokerage franchises and open operations since I entered the business in 1994. Traditionally, they operate as one-man shops with a few having the management skill to build and retain a team of brokers. The business brokerage franchises operated in IBA’s service area of Washington, Oregon, & Alaska have included VR Business Brokers, Empire Business Brokers, Murphy Business Brokers, Sunbelt Business Brokers, and Transworld Business Advisors. Some franchised locations have been in operation for a number of years, some have just opened their doors for business, and others have opened with enthusiasm only to close due to the lack of production or a poor reputation in the business community, only to reemerge in the future when the territory was sold to another entrepreneur attracted to the profession of selling businesses. In each situation where a business brokerage franchise was purchased, the franchise owner was provided a short training period at the corporate headquarters for the company, written, online, and telephone resources to reference, and a tool set to use. The goal for the franchisor is to have each franchise generate revenue and royalties as quickly as possible so an emphasis on marketing occurs in the training program. The revenue can come in the form of upfront retainers & administrative fees, ancillary services like equipment appraisals, or through success fees generated from business sales. The franchisor in general does not care how the dollars are generated, as long as dollars are flowing back to corporate from the sale of new franchised locations and royalties out of the business storefronts. The new business owner also is motivated to generate revenue and will often take any project or perform any task, especially if it involves collection of an upfront fee, while they are going through their multiple year “baptism by fire” using business owners as guinea pigs as they learn the profession. This can result in over valuation of businesses, under valuation of businesses, unidentified areas for negotiation in transactions, trailing liabilities for clients post transaction, and worst of all in business sales the failure to have a motivated seller & buyer reach agreement in negotiations because the intermediary does not have the knowledge, experience, and skill to get the parties to “yes”.

    In contrast, a local, independent business brokerage firm with a steady stream of clients and a track record of successfully completing sales of privately held companies and family businesses has the ability to be selective in its business sale projects and have a performance-based fee structure. It has been my experience that the top business brokerage firms in the United States are paid success fees at completion of transactions and collect no up-front fees or retainers. IBA, as one of the top performing business brokerage firms in the Pacific Northwest, employs this business model, only collecting payment from satisfied customers when the business sale is completed. It is our belief that any salesperson who needs a retainer or upfront fee doubts their ability to complete the transaction.

    Another differentiation point between an independent, established intermediary firm and a franchised business brokerage is the amount of local knowledge possessed by professionals. The knowledge & experience for a franchised business brokerage firm is national and generic in nature. There is no way for a franchisor to know all relevant information for every geographic area where they have sold a franchise. An established, independent business brokerage firm will through the successful facilitation of 100’s of transactions have built a resource library of knowledge relevant to the purchase and sale of businesses in the relevant city, county, or state. The sale of a business is a sophisticated, nuanced transaction requiring knowledge of local taxes, licensing, market conditions, legal precedents, and transaction support professionals (lawyers, accountants, bankers, etc.). Most business sellers are not interested in financing a significant portion or any of a transaction. Knowledge of which banks are providing acquisition capital to buyers in a local market for specific industries can be the difference between completing a transaction and having it fail.

    Business sales can be completed by business brokers working for independent and franchised business brokerage firms. There are good people with different levels of experience, knowledge, and skill working for both in the United States. It is my recommendation that when selecting professional representation to facilitate a sale of a business that, like hiring an executive chef to prepare dinner, that a business owner strongly vet the business broker’s knowledge, experience, and the depth and level of support behind them from corporate headquarters. It is my hope that both parties leave a successfully completed transaction happy & satisfied like when they have enjoyed a high-quality steak in a restaurant with great ambiance and a superior waitstaff. If this has not occurred, it is likely that the wrong chef was selected to prepare the meal.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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