Managing Expectations

One of the hardest things we do

One of the hardest things we do as Business Brokers is manage expectations.

Sure, it’s a challenge in other professions, too. Accountants have to tell you that you owe thousands of hard earned dollars to the IRS. Lawyers might tell you your case is weak and some time  and/or fees may have to be had. Doctors report the cancer is stage 4 and the future is not bright. Although no one likes hearing it, people often expect it and accept it.

Why is it different in Business Brokerage? Why are business brokers often hired like a gun slinger to do a job, but hired to do it the owner’s way, and at the owner’s price? Additionally, why is it not in the owner’s best interest?

The first part of the issue is it’s the nature of the beast, the nature of entrepreneurs and business owners. These people I admire and respect make up the backbone of the American economy. They tend to be control freaks, strong personalities, decisive, hard driven, sure of themselves, and strong negotiators. The success of their business often depends on these and other traits.

Now that I’ve taken a swing at our clients and customers, it’s maybe not the brightest thing I’ve ever done. I think the biggest reason is because of our industry, and we brokers have a lot to do with it.

Let’s talk about pricing a business. The business owner more than likely invested more hours into their business than with their family. The owner has had sleepless nights worrying about making payroll and a myriad of other issues. Business owners occasionally are the last to be paid and have their house and assets tied up for personal guarantees on loans and leases. To say they are invested is an understatement. The emotional investment is huge. The success of their business is their personal image, alter ego and standing in the community. Another factor is that owners feel entitled to be paid for all of the hard work that they have put into their business and a big final pay day is the reward or justification for all that work.

Is pricing and selling a business science or is it art? Doctors rely on lab tests, x-rays, and other high tech scientific based tools and research, so their diagnoses have a strong element of science. Business brokers offer “an opinion of value”. Although it is based on training, experience, formulas, research and expertise, it is still a mix between science and art. It is an opinion, not a fact. In addition, the market is not overly precise, so it’s easy to see why business owners and buyers challenge brokers. This is a challenge based on little training, experience and applied science, but who said life is fair?

Lastly, success fees, or commission compensation are other reasons. Most professionals get paid by the hour or assignment based on time and expertise. Although this is changing, a business broker’s opinion of value, negotiation skills, and marketing is mostly speculative, done in advance of payment at the end of the deal only. The opinion’s effectiveness is never known until all the work is done, when a buyer is found, deal negotiated, financed, and the deal closed. Trust and relationships need to be formed from the beginning of the process before the results are in.

I have one final closing thought: If you select correctly, you should work with your broker like any other trusted advisor. The process of getting the job done on their part can be somewhat routine, so the real value is in the judgment and advice they give you. Bring their training, experience and expertise to bear on the opportunity at hand. Why would you pay well for the job well done and not take advantage of that advice along the way?

Call our team at Magnusson Balfour today at 207-774-7715.