Welcome to Day 1 of our 30-day journey towards becoming a better business broker. Today, we embark on this path by understanding the Top 5 Mistakes That Business Brokers Make.
Since we have another 29 days to talk about ways to improve our brokerages, we thought it was best to start with a bit of self-reflection, examining the common pitfalls many brokers fall into.
With that out pre-ramble of the way, let's rip the band-aid off and dive right in!
Mistake 1: Letting Your Ego Kill Deals
This one might sting… for some of you.
Unfortunately, while a business broker is very important to a successful transaction, we should not view ourselves as vital (we've used italics to point-out nuance). Instead, brokers should develop the self awareness to know when to 'stay in their lane' and when they need to involve themselves in a deal to creatively problem-solve, kick down doors, free hostages- oh wait that's the SWAT team.
Joking aside, I often hear advice from senior brokers suggesting that brokers need to be the ultimate gatekeeper of information. Not allowing a buyer, seller, or dare-say lawyer communicate amongst themselves without their knowledge! After all, these people could be scheming to take away our commission!
Now, we're being pretty harsh, but we have a pass because the writer of this article is a broker and he has done this himself! After catching himself copying & pasting emails back and forth between various parties on a transaction he had a sudden realization - a new email thread! The actual insight here is that having direct communication between your buyer & seller is not only more efficient - but we would argue the only way for a deal to actually get completed. By allowing buyers and sellers to connect directly (sometimes without you even present) you are creating a different type of goodwill - the relationship between buyer and seller. A strong buyer <> seller relationship is so important in overcoming inevitable hurdles that will come-up in due diligence (don't worry, there will be an article on bankers and land lords during this series).
This is one of the #1 complaints we hear from buyers - particularly from sophisticated buyers that understand the acquisition process - so make sure to leave your ego at the door and avoid this mistake.
Mistake 2: Rushing the Listing Process
This one is a silent killer - shooting off a deal to your buyer list before it's ready.
Maybe...MAAAYBE... this will work out but, in most cases, trying to connect that buyer and seller match that you think are a perfect fit will end in disaster unless you check the following boxes:
- Their P&Ls match their tax returns
- You have calculated SDE and/or EBITDA (with confidence)
- You have spoken with the seller about price expectations
- A high-level 'deal killer' list has been double-checked (ability to transfer the lease, owner training/transition, key employee + contract renewals, etc.)
Ideally, you should also have a CIM prepared (after all, it only takes 6-minutes to create one with DealBuilder).
Being prepared brings a lot of confidence to a buyer, reducing the amount of initial questions. We're also in the camp that you should get all the irritating questions/requests out of the way with your seller early (while stakes are the lowest) rather than have the seller kill a deal with a buyer because they feel interrogated because you failed to present the business properly.
Making buyer <> seller introductions is one of the most fun parts of this job - but this is your regular reminder to not rush your sell-side client to the marketplace before they're ready.
Mistake 3: Setting Aspirational Asking Prices
As a Canadian company, we're a big fan of Wayne Gretzky's quote, "You miss 100% of the shots you don't take."
In spite of this mentality, you will miss 100% of offers with too high of an asking price.
Unfortunately, we can't put an astronomically high asking price on a deal and hope the buyer will submit an LOI that 'meets us in the middle'. Even worse, the longer the deal 'sits on the market' the more your client will get frustrated at you and cancel the listing agreement.
But I know what you're saying, "it's not that I over-price the deals, it's my client that has a particular goal and won't budge on price."
In this case, you have 2 options:
- Decline to take on sellers that are unrealistic about their business valuation
- Use data-driven valuations tools (*cough* DealBuilder *cough*) allowing you to make the tool the 'bad cop' and show a seller that their business value just doesn't match-up with their expectations.
We see this mistake a lot and it is one of the biggest inhibitors of deal success for brokers today.
Mistake 4: Overlooking the Emotional Aspects of Business Sales
We spoke to a broker the other day who had a seller break down into tears during a buyer <> seller meeting.
No, it wasn't because the buyer demanded a 100% VTB deal over 6 years. Rather, it had to do with the fact the owner was exhausted from managing both her business and her household (plus all the craziness of being a business owner during COVID-19).
A wise business broker once said, "as much as selling a business is a business decision, it's more a life decision."
Just remember to lead your deal-making with empathy and always try and place yourself in the shoes of your buyers and sellers.
Mistake 5: Failing to Adapt to Technology
This is a big one - most brokers we work with do not use technology to their best advantage.
Ignoring the tools and technologies available to business brokers is a significant oversight. From CRM systems that manage client interactions to online platforms for listing businesses, such as DealBuilder, technology can streamline operations, enhance marketing efforts, and improve client satisfaction. Resistance to adopting new technologies can leave brokers at a competitive disadvantage.
Even worse, we've heard rumours there are brokers out there that still require a wet signature for all their NDAs - when digital signatures have been out for nearly a decade. Just like those jean shorts, it's time to upgrade your style and start adopting technologies that will improve the experience of your buyers (don't forget they're clients too).
Wrapping Up
Becoming a better broker means avoiding these common mistakes:
- Don't Gatekeep: Stay in your lane and don't become a barrier between a buyer and seller. Allow them to develop a good relationship and molehills in due diligence won't be made into mountains.
- Being Prepared: Don't skip steps in the process to get the deal to market faster, as you will just get burnt.
- Business Valuation: ASSuming a buyer will submit an offer for your aspirational listing price is going to make an as- well you know the rest.
- Deal Empathy: remember you are potentially working on the biggest transaction of a buyer and seller's life - they are human (emotional) so you should lead with empathetic deal-making.
- Adopt Technology: technology is moving faster than ever with AI - sticking your head in the sand will only result in you being left behind.
But don't worry, this article is going to be the hardest to read for the next 29 days. Now that we have the elephant out of the room - we can focus on streamlining your business brokerage to focus on ways to help you close more deals with less work.
Understanding these responsibilities and learning from common mistakes are the first steps in your journey to becoming a better business broker. Join us tomorrow as we dive into the Art of Business Valuation.
If you want to learn more about automating your business brokerage with DealBuilder, please visit our site or book a demo here.
