Brokers: Some are glorified salesmen that will say anything

June 05, 2023

by a searcher from Harvard University - Harvard Business School in Houston, TX, USA

Warning: Rant below.

Recently a broker took my call, refused to give me info on some of the businesses I inquired about, and steered me towards diligencing a specific business that was "the hottest one he has hitting the market right now." I played along, negotiated a CA and received the confidential info.

When I submitted the first round of diligence questions the broker called me immediately and said "Your list of questions is beautiful" and "I don't give out financials" and "we can do diligence questions till we're blue in the face but if you're not the right buyer this will just be a waste of time" (how else am I supposed get comfortable enough to transact?). He had also previously said "buyers have to be fearless in this game" and a few condescending statements to try to gain the upper hand in our conversation. Fed up, I said "the only thing I'd say is: you might not be doing your duty for your client if you're going to turn away a qualified buyer who is just asking diligence questions." He grumbled something angrily and hung up and never made contact again. Good riddance.

I later contacted another broker at the same firm who happened to mention (unprompted) that the first broker had listed that business (the biggest one he's moving) more than once and it hadn't sold... So, turns out the guy is out there literally trying to find a naive buyer who he can manipulate into buying a business no one wants, but happens to represent the biggest commission he could make across his set of businesses.

This second broker was much nicer and didn't deploy a "used car salesman" skillset to get me to look at what he wanted. Thank goodness.

Some brokers will pull out all the stops to steer you towards a bad deal. Always be tough and don't accept what you didn't ask for.

Reply by an intermediary
from The University of Michigan in Bonita Springs, FL, USA

Every broker has a different set of experience and qualifications. It is very important for sellers and buyers to vet their broker to make sure they have the appropriate experience and qualifications to help guide them through the transaction. That said, I tend to lump brokers into three buckets: The first bucket is brokers who sign up with a franchise to sell businesses. I called this “pay to play”. Not all players are created equal. You never quite know what you are going to get. Franchise brokerages are in the business of selling franchises and their training programs leave a lot to be desired. I have found that there is a mix of very good brokers and very bad brokers within the franchises. It all depends on the experience and qualifications they have when they enter into the business and whether or not they've made the effort to build on their experience and qualifications over time. The second bucket is commercial or residential real estate agents who are asked to sell businesses Because sellers and buyers are not aware of the brokerage in industry and believe this is the way you get deals done. In almost every case I have encountered, they are woefully unqualified to sell a business and often inflict irreparable harm on buyers and sellers. I know that sounds harsh, but it is my experience. The third bucket is former business owners who have been through the process of buying and selling businesses prior to entering into brokerage. For the most part, these brokers have the experience and qualifications, i.e., they have been through the process themselves. Therefore, they understand it. They also benefit from the fact they have walked in buyers’ and sellers’ shoes developing the required empathy, care, and concern to do the right thing by buyers and sellers. These are the brokers I would seek out to work with. If anyone would like a copy of my “Ultimate Guide to Selecting a Business Broker”, it can be found here: https://www.edisonba.com/pages/selecting-a-broker

Reply by a searcher
from University of North Texas in San Antonio, TX, USA

My 2 cemts on my experiences thus far in dealing with business brokers and emphasize the importance of finding reliable and well-prepared professionals in our pursuit of investment opportunities. I believe it is essential to learn and grow through these experiences while developing our business acumen. While I have encountered various situations, one thing I have refused to do is compromise my integrity. However, this does not mean that I am a pushover. I am selective in choosing whom I engage with and how I lead. Engaging in tough conversations comes naturally to me, but one aspect that greatly bothers me is wasting precious time. If a broker is unwilling or unprepared to provide the requested information even after signing a Non-Disclosure Agreement (NDA), I have made the decision to pass on such opportunities. Time is a valuable resource, and I firmly believe in utilizing it wisely. On a side note, it is worth keeping in mind that the first few letters of the word "broker" spell "BROKE," and there is a reason for that association. While it may be a lighthearted observation, it underscores the need for diligence when choosing business brokers who are financially stable and capable of delivering the services we expect. In our collective pursuit of investment success, I encourage each of you to consider these points and approach engagements with business brokers with a discerning mindset. By working with reliable professionals who value our time and are adequately prepared, we can maximize our chances of finding lucrative investment opportunities. If anyone has recommendations for business brokers who exemplify these qualities, I would greatly appreciate your insights and suggestions. Together, we can build a network of trusted connections and navigate the investment landscape more effectively.

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