When to Call the Business Broker? (Hint: Not the Day You Need One)

‚ÄčThe Job 4 Me | May 2016 | By Laura French

 

Dan Bauer was in the car wash industry for 12 years. When he worked with a broker to sell his businesses, he found his passion. He made the shift to being a business broker 18 years ago, spending 14 years with a downtown brokerage before becoming Managing Partner of Murphy Business of Minnesota.

 

“As a business owner, how do you know what your business is worth? That’s a service we provide up front,” Bauer said. There might be “three or four different types of valuations depending on the industry and the cash flow. The biggest thing is educating the seller. They’ve been working hard their whole life. They don’t have that understanding: How do you find a buyer, keeping it confidential without letting vendors or employees know you’re selling? That’s a very important part—you want to keep it confidential until the new buyer walks in.”

 

The biggest challenge, Bauer said, is that “people just wake up one morning and say, ‘Okay, I’m done.’ Ninety-nine percent of business owners call the day they want to sell. They don’t think about calling me three years in advance. It doesn’t happen. It just doesn’t.”

 

Bauer said, “It’s fine if you have a seller who doesn’t have to sell today. We can help them look at different parts of the company. I can say, ‘Let’s do a valuation. Let’s see where the business is at and where we can make it better.’ When it’s a nice company, tuned, we’re ready to go forward.”

 

What’s involved in “tuning” a company for sale depends on its size and the industry, Bauer said. The ultimate goal is improved cash flow, which has “a huge effect on valuation.

 

Too often, Bauer said, the owner starts with, “This is what I need out of it.” A business owner recently told Bauer, “I have to have $300,000.” The problem, Bauer said: “It values at about $205,000.” In this case, fortunately, the owner is not in a hurry. Bauer provided some options for building the business and suggested that they talk again in six months.

 

Bauer said the number one skill required of a business broker is listening. “They have to tell the story. I’ve been at showings with other brokers—they can’t keep their mouth shut. You never learn anything that way.” Bauer said he tells his agents, “Don’t worry about the money—if you do the job, it will be there. I want them working because they want to help another business owner. I travel the whole state—40,000 miles a year. Sometimes I drive back from a meeting, and I know nothing’s going to happen immediately, but I helped them, and when they are ready I hope they call me. You don’t get paid for everything you do. You have to accept that. It all averages out.”

 

After 14 years with a local brokerage, Bauer opened the Murphy office four years ago because of “the outreach they have of finding buyers. We have 190 offices around the U.S. with 400 brokers, 36 websites and publications. Smaller firms don’t have that access. I just sold an engineering firm—the buyer came from Wichita. Most of the buyers were not in Minnesota.”

 

The best route into business brokerage, Bauer said, is through being a business owner. The company that first hired him was “looking for somebody that had business ownership experience. They didn’t care after that.” Similarly, Bauer said, “My agents are ex-business owners. They’ve been there. They know what it’s like to deal with vendors or clients, know the financial part, tax returns, P&L. We do a lot of training, so if they’re not up on a lot of that, they will be.”

 

What he can’t teach, Bauer said, is “to want to help. If that’s not in your DNA, you shouldn’t be doing this.” He recalled a meeting three months ago with buyers who told him up front that they had already spoken to another broker. Bauer told them, “That’s fine. You should get two or three options.” He spent 45 minutes with the buyers. “They both said, ‘We decided to go with you after the first 5 minutes.’” When Bauer asked why, they said the other broker made it “all about him, his commission, how it was structured.”

 

Bauer said if a broker wants to charge for an initial meeting that should be a red flag. “Unless you’re going in and need a valuation for legal purposes—that’s different. You have to pay for that up front. But for somebody to charge you to come talk about your business, don’t pay for that. Sit down and talk for a couple hours. Maybe you’ll find out you’re not ready. That’s okay—at least now you know,” Bauer said.

 

The bottom line for business owners: “Don’t wait for the day you get up in the morning and get mad at the world. Step back. If you talk to a broker that’s trying to help you, they’ll tell you, ‘Don’t sell.’ If they can get through this year and get another full year in, they can get things straightened out.”

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Changing Trends in Business Ownership

‚ÄčThe Job 4 Me | May 2016 | By Laura French

 

Business ownership is changing, according Dan Bauer, Managing Partner of Murphy Business of Minnesota. “From 2009 to 2012, it was pretty tough,” he recalled. “The bankers weren’t talking, a lot of buyers couldn’t buy because there wasn’t any money. I think the trend really changed.” Bauer said that prior to 2009, the time to complete a sale was three to five months. “Now it’s eleven to thirteen months. There are fewer buyers out there. There’s more work to do on the financing side. We work with a lot of different banks around the Twin Cities. We can help buyers with all that.”

 

There’s also a shortage of good businesses on the market for sale, Bauer said. “People wanted to sell back in 2008-2009. Retirement got pushed off about five years, or even longer. They have to rebuild and have at least three good years. Some people have been pushed out eight years.”

 

Eventually, Bauer said, “All this is going to catch up with us. We’ll have a lot more businesses on the market.” Still, the demographics of buyers are likely to change. “The people who are buying are older,” Bauer said. “They know they’re going to be working until they’re seventy-plus. It’s not so much the money. They’ve watched the past generation retire at 62, and that person doesn’t last very long.”

 

The older buyers “might not be working 60 hours a week. They’re buying a business where they can work 20 to 30 hours,” Bauer said. “There are small distribution companies where you set up management so you don’t have to be there 50 or 60 hours a week. There are ways of changing businesses. Just because people ran it one way doesn’t mean you have to run it that way. If you can’t see past the person who owns it, how they run it, you probably shouldn’t buy it.”

 

On the other hand, Bauer said, “The younger generation is not looking to be business owners. There’s a lot of talk about that. That generation, they want to work for somebody, they want their nine-to-five job. The attitude isn’t what it was thirty years ago.”

 

Trends aside, Bauer said, today’s buyers range from “the late 30’s all the way up,” and buy for a range of reasons. “Some are managers for other companies, corporate people tired of the corporate world, people who want to add onto their current business. That hasn’t really changed. We’re still bringing in people from all different segments.”

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