So, you have made the decision to become a business broker. Now for the next decision – how are you going to get started? Below are the most common options for becoming a business broker:
- Go to work for an established business brokerage firm.
- Purchase a business brokerage franchise.
- Join a business brokerage network.
- Start a business brokerage firm with training and mentoring.
Each option has advantages and disadvantages. The best option depends on what is best for you, your short-term and long-term goals, where you want to practice, what types of businesses you want to sell, and most important – how much money you have to invest in your startup, and personal expenses until you start earning money.
Let’s take a closer look at each option. These points and questions, of course, are not a complete analysis as there are too many variables to consider. However, this information should get you thinking, point out additional areas of research (and soul searching) you should do before making your final decision.
Option One: Go to work for an established business brokerage firm.
Joining an established business brokerage firm that has earned a great reputation and years of success can be a good way to start your career as a new business broker. Research the business brokerage firms in your area and seek meetings with those you might be interested in joining. Some basic information that you should learn in vetting each firm.
- How long has the firm been in business?
- What market area does the firm serve?
- What types and size businesses do the current business brokers represent?
- How many business brokers work for the firm? Moreover, what is the turnover rate per year?
- There is a lot to learn to become a successful business broker, so training is one of the most important things for a new business broker. What type of training does the firm provide initially and ongoing? Does the firm have a formal training program or is it limited to watching some videos and tagging along with another broker on a few calls? Quality training or the lack of – can make or break a business brokerage career.
- What is the commission split on closed transactions? As you gain experience, will the commission split change? If brokers co-broke (share listings) in-house and with brokers from other firms, what is the commission split?
- What expenses are paid by the firm and what expenses will you need to pay?
- Will you be required to sign a non-compete agreement, and for how long?
- Will you be required to obtain a real estate license?
- Will you be required to join certain business brokerage associations or local business associations?
Although joining an established business brokerage firm can be a quick start to a business brokerage career, there are also some disadvantages. The most common disadvantages include little or no training, commission splits that make it difficult to earn a high income, and non-compete agreements that may prevent you from continuing to practice business brokerage should you choose to leave the firm. Each state regulates non-compete agreements. However, common terms are two to three years within the firm’s entire market area which can be very large. If you become unhappy working for the firm, you may find that the non-compete agreement prevents you from opening a firm or working for another business brokerage firm for a period and within a certain market area.
Option Two: Purchase a business brokerage franchise.
The franchising of business brokerage is not new. The first business brokerage franchises appeared decades ago. Like many franchise concepts, some business brokerage franchises have only sold a few franchise units while some have sold 50 to 300 franchise units. Some overtime, have lost a substantial number of franchisees. Every year, at least two or three new business brokerage franchise concepts are announced.
Business Brokerage franchises, like all franchised businesses, have a common value statement “in business for yourself but not by yourself.” The purpose of franchising is to provide a proven system, with proven products or services that almost anyone can be trained to operate. Franchises are often referred to as a “business in a box.” This is not meant to be a derogatory comment, but an affirmative statement meaning the franchise package should provide everything necessary to get started and by following a proven system become successful. Having a proven system to follow can have an enormous impact on success.
Other than which business brokerage franchise would be the best to purchase, the most important question is…are you franchise material? As a franchisee, you will be expected to follow the system, and often have limited ability to make changes based on personal desires or business experience. The franchise system’s success depends on everyone following the system/rules. Franchisees not following the system, “doing their own thing” without regulation by the franchisor is a sign of a failing or soon to fail franchise system. Remember the consumer expects the Big Mac they buy in Reno while on vacation to taste like the Big Mac they buy in their hometown. Systems and duplication are the keys to franchising.
During the startup phase, the franchisee is very dependent on the franchisor to provide training, support, and guidance After being in business for a couple of years, the franchisee may no longer rely upon the franchisor. Moreover, unless the franchisor is continuing to add value (training, business development, new products or services), the franchisee may begin to question what value he or she is receiving for their monthly royalty payments and other mandated payments to the franchisor.
As a business broker, you will be contacted by many franchisees looking to sell their business. The three most common reasons are – they have learned “they do not make a good franchisee,” they do not enjoy being part of a franchise system, and they do not feel they are receiving value from the franchisor equivalent to the ongoing fees.
Things to consider when evaluating a business brokerage franchise:
- Are you “franchise material?” If you cannot see yourself fitting into a system and following a plan and rules created by others – the franchisor, you should not buy a franchise.
- Some established business brokerage franchises have limited territory availability. Are you willing to move to purchase a territory?
- All franchises offer training – some more comprehensive and higher quality than others. What initial training and support are provided and what about ongoing training and support?
- Will your territory be protected from other franchisees within the system? Remember another independent business brokerage firm or business brokerage franchise concept can open in your market at any time.
- Do you have to produce a certain level of sales (royalties) to maintain your protected market area?
- Are there any limitations on selling your franchise? Will you be required to pay a percentage of the sales price to the franchisor, a transfer fee, a new training fee or any other fees should you decide to sell.
- Talking with current franchisees is a good thing to do. However, most franchisors will often refer you to their most successful and happy franchisees. There is often limited ability to speak with former franchisees. Usually, as a condition of being allowed to leave a franchise system and cancel the agreement, the former franchisee must sign a “non-disparaging” agreement. Meaning they promise not speak ill of the franchise nor disclose any information about their previous ownership.
- The purchase of a franchise usually requires several types of fees – initial franchise fee, a fee for the territory purchased, training fees, marketing fees, royalties, requirements to attend annual conferences or association memberships and requirements to purchase certain products or services. The average business brokerage franchise may require a $75,000 to $100,000 or greater initial investment. This fee does not usually include expenses associated with opening an office – office space lease expenses, space design and build-out, furniture, equipment, and other business startup costs. Some business brokerage franchises require a minimum monthly payment to the franchisor for royalties, marketing, or technology fees. Also, a percent of all commissions/revenues generated by the sale of businesses and other professional services is often paid to the franchisor.
- How many businesses, and at what sales price, will need to be sold to pay the ongoing fees and how long will it take to recoup your initial investment to purchase the franchise? Make sure your assumptions and revenue projections are realistic. Industry surveys and business for sale listing sites statistics should be used to guide you in your estimates. In general, new business brokers sell three to five businesses during their first year or so. For many years, BizBuySell has reported the average small business sold price at just under $200,000. Sure, you will hope to sell larger businesses, but owners of larger businesses are more likely to seek the assistance of an experienced business broker. You will gain the necessary skills, knowledge, and experience to work on larger businesses after achieving a track record for successfully selling several smaller businesses.
Whether it is a fast food franchise or a business brokerage franchise the key is the value you will receive as a franchisee. Will the initial value and ongoing value of being part of a franchise system exceed the fees?
Option Three: Join a business brokerage network.
There are a few business brokerage networks. Like franchises, some have come and gone. The groups may refer to themselves as a network or affiliates. Most offer an opportunity to join a group of other business brokers practicing across the country. The cost can range from a few hundred dollars to more twenty thousand dollars. Some networks charge ongoing fees for marketing, technology fees and continued membership in the network.
Some networks provide limited or no training while others offer two or three days of training with additional training at yearly network conferences. Many of these networks emphasize that their members can earn money from various activities – business evaluations, equipment appraisals, franchise sales, franchise development, business consulting and other services in addition to selling businesses and co-brokering with other members of the network.
As with any business opportunity, you should thoroughly invest the level of training and support provided, to what extent does the network have structured programs in place for the revenue centers promoted, and what value will you receive initially and ongoing should you join the network. Moreover, can you create the revenue centers promoted on your own? For instance, one revenue center might be charging business owners a fee for a business evaluation. The business evaluation is provided by an individual or company that specializes in creating such reports. Your fee for the report will be marked up to the business owner yielding a profit to you. Should you wish to provide evaluation reports to the business owners in your market area, there are several companies/individuals that you can work with directly without the necessity of joining a network (or franchise) to have access to evaluation reports.
As with a business brokerage franchise, will the initial value and ongoing value of being part of a business broker network exceed the fees?
Option Four: Start a business brokerage firm with training and mentoring.
Like many individuals, you may prefer to start your own business brokerage firm. Have you dreamed of owning a business or have previous business ownership? Are you an entrepreneur and want the autonomy of owning your own business brokerage firm? Do you understand the difference between being “boss” and being “bossed.” You understand the risks, but for you, the risks are offset by having the ability to make the decisions. Decisions like – how the firm will operate, what businesses will be represented, what brokers (if any) will be selected to join the firm, fee structures, to co-broke or not, and many other important decisions.
The key to successfully starting and building a business brokerage firm is quality training and mentoring. The initial business brokerage training must be comprehensive enough to provide a solid framework in which to get started. Then, at least for the first year, the support of an experienced mentor. Having the ability to receive ongoing support and guidance from an experienced mentor will decrease mistakes and help you reach a higher level of success more efficiently in less time.
By putting these proven ingredients into place – quality business brokerage training experienced mentorship, along with a written business and marketing plan will help you enjoy high levels of success in business brokerage for many years.
You may decide to keep your firm small and work alone or hire only one or two other business brokers. Moreover, after gaining some experience, you may go on to build a large brokerage firm in a single or multiple locations. Building a large business brokerage firm can mean more income for you the business broker-owner plus the ability to reap additional financial rewards when you sell your business brokerage firm.
Advantages of starting your own business brokerage firm:
- The cost to start your own business brokerage firm should be substantially less than purchasing a franchise or joining a business broker network – no franchise fee, or no territory to purchase.
- You can determine your territory (market) and not be limited by territory boundaries of a franchise.
- No ongoing royalties or other fees determined by the franchisor or network.
- You control how you will operate your business brokerage firm because you are not locked into a franchise system.
Disadvantages of starting your own business brokerage firm:
- Since you will not be handed a “business in a box,” you will need to spend more time during the startup phase pulling everything together. However, many business brokers feel owning an independent business brokerage firm is worth the extra time and effort – initially and for years to come.
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