Behind the scenes, business brokers bring buyers and sellers together
“House for sale” signs decorate front lawns everywhere you look, and “Sold” stickers inform everyone when the deal is done. But selling or buying a business is a much quieter and more complicated operation.
Sellers are secretive and buyers don’t know how to compare prices. Sellers can be emotional because the business might represent their life’s work, or at least an awful lot of time and effort. Many buyers drag emotion to the negotiating table, too, because they just got downsized, they’re burned out on their careers, or they just can’t wait any longer to become independent.
This is the world of the business broker, where good money can be made with the right assortment of talents: If you keep your ears open constantly, learn how to match buyers with sellers, patiently iron out problems and keep your ego in check, you can earn a nice commission on deals worth hundreds of thousands or millions of dollars.
Different Central Iowa business brokers have carved out distinct niches in the industry. Here’s a look at three of them.
MOM AND POP FRANCHISES
Roger Hutson has owned, bought and sold businesses all of his adult life, so five years ago he decided to take that experience and broker deals for others. Instead of going it alone, he became part of a 350-office international business brokerage, Sunbelt Business Brokers.
Sometimes that connection brings customers who live in Florida or Arizona and want to get back to their home state of Iowa. But most of his buyers and sellers live not too many miles from his office at 110 S.E. Grant St. in Ankeny, and most of them are “mom-and-pop” or “Main Street” business types.
Hutson, a native of Cambridge, Ia., often deals with business buyers who have $50,000 to $100,000 to use as leverage toward the purchase. Often the prospect is a middle manager who has been downsized from a company. And 90 percent of the buyers have never owned a business and “have no idea what they want to do,” Hutson said.
His first step is to educate the would-be buyer about what this step will take, and then he sets about finding a suitable match.
Hutson and his small staff deal with existing businesses and a Sunbelt stable of 15 to 20 franchises. “Our office has been pro-franchise,” Hutson said “Franchises are a good fit for a lot of people, especially those coming from the corporate world. A lot of them have good skills but aren’t real entrepreneurial. They make good franchise buyers.”
Selling an existing privately owned business tends to be trickier. “It’s harder to get out of business than in,” Hutson said. “The owner has put years of work into it, has a lot of assets, and we have to find the right person who wants the business, has the money and has the skills and interests that fit.”
Most of the time, the broker also has to answer one classic question: If this business is so good, why is it for sale? The answer might involve health issues, boredom, divorce, retirement or poor management.
Deals over $5 million are referred to Sunbelt’s mergers and acquisitions office in Chicago, which has the necessary teams of lawyers and accountants in place.
At Hutson’s office, a few sale prices have gone as low as about $20,000. “The real small ones are harder than the others,” Hutson said. “It’s hard to get financing for something that doesn’t throw off much money, and sometimes you’re dealing with shoebox accounting.”
KEEPING TRACK OF 3,000 POTENTIAL DEALS
Tell Joy Jones today that you might be interested in selling your business five years from now, and she will enter your name and information into her computer. Five years from now, her computer will emit a “ding” and she will pick up her telephone to call you.
Jones estimates that she has helped sell about 200 businesses in the Des Moines area in her 20 years as a broker, and currently keeps a database of 3,000 potential buyers and sellers.
Her transactions tend to be for between $200,000 and $500,000, and she works on them all by herself. She employs one part-timer and calls on the accounting assistance of her husband, Larry, a CPA who shares the office space at 6989 University Ave. in Windsor Heights.
She’s willing to work with a business anywhere in Iowa if it’s a manufacturing or distribution company, “but not for a bar or a restaurant. Businesses in smaller towns are a little harder to sell.”
On the buyers’ side, she said, “I tend to see a lot of people in their 40s or 50s who have been making $100,000 to $200,000 in a corporation. Maybe they’re burned out on traveling and want to spend more time with their family, and they know they’re not going to make that kind of money anywhere else. So they’re looking to buy a job.”
Jones said she sees fewer businesses on the market now than 20 years ago. “A lot of people are waiting to see if the economy turns around,” she said. “They want to make the company more profitable before selling.”
Jones, who grew up in Trinidad, is working shorter hours and taking more vacation time now. And there’s one other benefit to spending your life as a business broker.
“From working with all of these businesses, you know how they make ice cream, you know how they make a key, you know how much water pressure it takes to wash a car,” she said. “It’s very educational. It has been a fun business to be in.”
FISHING FOR ONE TROPHY CATCH AT A TIME
Dave Nelson has made just one deal in the first six months of 2004, and that’s fine with him. If the deals are big enough, you don’t need to slap very many together to make a good living.
Nelson perches patiently in an office at 100 Court Ave., working alone and focusing on deals that involve purchase prices “in the scores of millions,” he said.
If two or three of his current projects work out over the next six months, he figures he will have had an excellent year.
A native of Cherokee, Nelson majored in English at Harvard University, then followed that with two years at the New York University graduate school of business administration and two years at Harvard Business School. After two years as a banker in New York City, he made his way back to Iowa.
Helping to put together an acquisition for Iowa Paint Manufacturing Co. Inc. whetted his appetite for business brokerage, and he went into business for himself in 1978.
“Business brokerage is a very inefficient business,” Nelson said. “It can take months or years to do a deal.” He’s still working on one he became involved with seven years ago.
People are referred to him, or he seeks out acquisition prospects for investors. “That’s unusual for this industry, but it’s now the main thrust of my business,” he said.
For a small transaction, Nelson collects a fee equal to 9 percent of the purchase price. He gets just over 1 percent on the more massive deals.
But when young people ask for his advice about becoming a business broker, Nelson said, “I usually try to discourage them. It’s so hard to get established, and it’s so long between paychecks.”