In my last post I talked about the need for trust between all parties in a business deal for it to be successful.

I also mentioned that Business Brokerage is a lot more complex than straight real estate brokerage. There is a considerable difference in the methodology and practices of the two types of activity.

The general public is being educated by consumer advocates and by real estate firms that they need to be represented by brokers working for them if they are buying real estate. I have no complaint about that. As a matter of fact I support it. Also in real estate brokerage many companies and agents represent buyers all the time and make a living doing it. Partly that is possible because a very high percentage of customers actually make a purchase.

In Business brokerage only about one percent of our customers ever buy anything. There are a lot of reasons for that, and one of them is the level of complexity of the deals we do. Probably the main reason for that low percentage is that so many customers are not prepared to, or can not afford to, buy a business, but they have to go through the process of looking at several potential purchases to get educated to that fact. We understand and accept that as part of what we do. We work hard at educating customers about the process and trying to help them be successful and part of the 1%.

When qualified customers do decide to make an offer on a business they are more frequently now demanding to be represented by a buyers broker. The parties involved in a business transaction usually include, in addition to the buyers and sellers, lawyers for each party, and accountants for each party, and a sellers broker (our role). It is really important that if an additional party representing the buyer is going to be involved that they be competent and understand the roles of everyone on the team. It is also important that they understand how Business Brokerage works, as well as being able to counsel the buyers on finding deal making lawyers who will properly support the process.

Real Estate brokers with no business brokerage experience have on several occasions recently demonstrated that they do not have the proper training and skill to do that.

Customers really need to find representation that understands the process they are involved in and is qualified to help them. That is true of course for their lawyer and accountant, and especially true if they decide to inject a buyers broker into the situation. There are commercial real estate agents who also have experience in business brokerage, and who can handle the job. But it is not appropriate for a buyer to hire an inexperienced real estate agent to help them and provide that agent with an on the job training opportunity.

Also the commission sharing process is considerably different in our business than it is in real estate transactions. We expect buyers to pay their representation if they inject buyers brokers into the process after they have started working with us, just like they have to pay their lawyers and accountants. Also we do not routinely offer to share our commissions on a 50/50 basis, particularly with real estate agents who have not earned our trust.

The bottom line - if you are trying to buy a business and want a buyers broker to help you, make sure you find one that has successful experience as a BUSINESS BROKER.

We have had a couple of situations lately that have been really bothersome, because we couldn’t work with folks who wouldn’t level with us about their financial strength.

We understand that some of our customers are going to be sensitive about sharing financial information with us. We also understand that some customers think that if they tell us what they have for resources that we will try to push them to make more of a down payment than they are comfortable making. We all have to get over those fears if we are going to work together.

For our point of view we are representing, and protecting, our clients. We represent people bringing their businesses to market, and in order to price them properly and market them we have to have access to tax returns and other sensitive financial and operational information. In order to help customers make intelligent choices we also have to share our clients information with them. We have to assume that if you won’t tell us how you are going to come up with the down payment that you are not going to be able to, and we can’t work with you.

It is not appropriate for us to share the financials for a company priced at $1,000,000 with a customer who is looking for 100% seller financing and has no money to put down on the deal.

We use the information requested in our online confidentiality agreement as part of our process of finding out what customers have to work with. If the forms are not made out properly we have to get on the phone and ask customers what they have for liquid assets to work with. If the customers can’t trust us enough to share that information we are not going to be able to work with them.

We very frequently get messages from customers that they don’t know what they have for a down payment. Or even worse they tell us that they have less than $50,000 to work with but want to have an income of $150,000. We can’t really work with either situation.

There is a large education component to our work. For example we help people who have resources figure out how to use home equity for a down payment, or how to use a 401K to set up an investment in a company they want to purchase. We also have to explain to folks who don’t have sufficient funds for a down payment that the are not going to be able to support a very high income level without a whole lot more to put down.

My plea is that you have to trust us, just like we have to trust you, to get a deal done. One of the reasons that the Code of Ethics of the International Business Brokers Association is such a big part of our orientation of new Associates is that we don’t tolerate anyone on our team who is not going to earn that trust.

Business Brokerage is different than real estate brokerage. We are dealing with a lot more sensitive information, a lot more complex factors, and their has to be a whole lot more trust on the part of all parties to make a deal work.