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Still frustrated by brokers and owners

How can you list cash flow as 150k and then call on it, sign a disclosure, etc. and then find out the owner is making 1k per month and the cash flow listed was based on "if you controlled costs, fired some employees and did more promotions, you should make this." This has nothing to do with due dilligence, it is just brokers making up fantasy numbers. Seriously, If the owner is making 1000 a month, don't say he is making12k per month. Don't waste my time. An owner did this to me also. he said he was making 2500 a week and is now admitting to 1000k a week. This is getting old.

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Answers (27)
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How to Buy a Business
WA

There's now a Linkedin group *just* for business buyers to share information on the business buying process. Please note the emphasis on the word "just." Link below. http://www.linkedin.com/e/vgh/2272010

Sep 11, 2009
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That has happened to me also Ron. To keep it fair I still have problems with owners also. This one guy wouldn't tell me what he was making but he wanted more than FFE for an asking price. If you are going to have a cash business that is ok with me but i still need to know what you are making.

Sep 11, 2009
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Since we are "broker bashing" let me add another item to this list. I can't tell you how many times I have responded to an add, filled out NDAs and profile only to get no response, no return calls, no emails. I have to beg these brokers to call me back and follow up. What is with that? I start thinking I should become a broker because I can do their job 10x better! It really should not be this hard. This industry is in bad shape with lack of professionalism.

Sep 11, 2009
tamir ribak
ceo
Los Angeles County, CA

don't buy verbal word check the peppers or see the and of the day minus the over had
that way you find out the real price

Sep 8, 2009
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The BAF Group LLC
MD

Ron, as a Broker, you can see my historical comments to this thread. Unfortunately, it is the Brokers who should be demonstrating the Cash Flow, many times in cooperation with the Sellers' Accountants, not the Sellers. Many times, we present realistic Cash Flow, and the Seller comes back with unrealistic Price demands, in the face of the Cash Flow we represent. But that is a different problem. The Cash Flow itself should (in my humble opinion) rarely be a surprise to the Broker.

Obviously, we can be fooled by dishonest Sellers, although that is a rarity, in my experiences. The only time we are caught with routinely questionable numbers is with businesses that receive a lot of their Revenue in cash. If the Seller is not reporting the numbers, who knows what the real story is? And for that reason, we take a relatively small number of such listings.

But if a Broker is off by the numbers you suggest, that guy or gal is part of a scheme that is, at the very least, highly questionable. For the Broker to be off that much...well, there is really no excuse. He/she is either negligent, does not know what the hell he/she is doing, or is simply aiding in skewing numbers to almost a fraudulent level.

My guess, talking to many of the Brokers I do, literally across the Country, is that many of them simply have no idea what they are doing, on a day-to-day basis. They are simply unskilled, uneducated and unexperienced people, throwing spit against the wall to see what sticks, thinking this is an easy way to make a living. Thank God, most of them wash out relatively quickly; unfortunately, more take their place.

Being a responsible Business Broker is a tough way to make a living. But you gotta do it right, in order to make that claim!

So much for your comment that you hope some Brokers read this and take note. Your points are well taken.

Sep 6, 2009
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John, I have no answer....I simply agree with you 100%!! I have been looking for a business for sometime now....I see ads with $200,000 'cash flow' and upon all the wasted time to get to the 'meat and potatoes' I find out an owner is drawing $50,000 or $60,000 a year. Can someone 'fudge the numbers' a little bit....sure. Can someone 'fudge the numbers' to the tune of 300% or 400%.....I doubt and if they were that dishonest.....would you really want to buy a business from them.

I SURE HOPE A FEW BUSINESS BROKERS OUT THERE READ THIS AND TAKE NOTE!!!!! MAKE YOUR CLIENTS REPRESENT THE REAL NUMBERS....NOT FANTASY NUMBERS!!!!

Sep 6, 2009
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Robert E. Bruhl.com
FL

John, I would encourage you find to find the right broker. What i mean, a broker who is street smart, doesn't try to sell everything he has, can produce real facts when asked without the stories, makes good eye contact etc. Most brokers today couldn't operate a profitable vending machine let alone know what its worth. However that being said, over the past thirty years i have worked and continue to have a great working relationship around the country and parts of the world with some very professional brokers who i respect highly. I buy or sell at least six to eight businesses a year this process can work.........Robert E. Bruhl

Sep 6, 2009
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SCA Inc
Pres
Westmoreland County, PA

John
What kind of business do you have in Pgh? Is it for sale? I have owned 10 businesses and I know exactly what you are talking about! email me @
brett@steelcityauto.com

Aug 24, 2009
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I have bought businesses before. This time is different. i am looking for a business in a beach community. We live in Pittsburgh so I have to make sure the biz is legit. If I was looking for a local biz then I could see through the bs and it wouldn't be a big deal. I don't want to take time off my business and spend travel money on a bad biz. The one thing I would want on listings is that cash flow/ owner benfit be listed as what the owner is currently making the way they are running the biz NOW (of course allowances could be made like in Don's post below) not based on potential. Potential, somebody told me once, is you aren't worth a damn now.
If I wanted a biz that was floundering I would start up my own from scratch.
BTW, cash doesn't bother me. 99% of mom and pops are at least some cash and at least 50% of franchises are hiding something. It is the nature of the industry.(Bar/restaurants.)

Aug 18, 2009
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Cook County, IL

John, I realize it can be very frustrating to purchase a business, especially if you have never done so before. But, frankly, I'd like to talk about the flip side of this issue.

If you only knew how many "business buyers", I've had to deal with that have no idea as to how much they can afford, let alone what purchasing and running a business entails.

They get angry because I tried to qualify or screen them before giving financial information regarding a business without signing a non disclosure form. I will only give some general information. Some have had the gall to say they wanted to see software, customers lists, suppliers lists before they would sign one. Why doesn't the seller just tell you all their trade secrets and show you how to start your own business. Get real! This does not include the "buyers" who don't want to sign an LOI or give a substantial downpayment along with it. And, just for the record, $50 is not a substantial downpayment. You can't expect the seller to take all the risks or wait around to "see if you can get financing". It's just a waste of everyone's time for those who are not serious in purchasing, but, just looking or trying to get ideas.

So, you see there are many sides to this arrangement between broker, seller and buyer. Don't assume the broker is the bad guy/gal trying to screw you out of your money. They are just trying to help everyone get a win/win situation. They will be the ones remembered for either a good or bad experience.

Thanks for letting me vent on the other side of this issue.

Aug 17, 2009
Andrew Rogerson
Rogerson Business Services
Certified Business Broker
Sacramento County, CA
Premium Broker

Don - I like your suggestion of having a drink. :0)

You're not going to find a perfect system but I would guarantee your chances of success much greater if you find a CBI that is a current member of IBBA.

If that's not enough, ask a few qualifying questions of the broker such as how many deals they have done, how many businesses they have owned, some referrals from past customers and you're on your way. A broker who doesn't know what their talking about is not hard to spot.

And for a little more thought - as a matter of course I co-broker with other agents as long as they demonstrate that they know what they are doing. If I get a call from a buyer or broker wanting to see the tax returns of the business before they go any further, they obviously don't understand these come during due diligence and that there are protocols to follow. My ultimate responsibility is to protect the interests of the seller; which is why they hired me in the first place.

Buying or selling a business is intriguing. It brings out so many different personalities; often from the same person. :)

Try to embrace the big picture and put yourself in the shoes of the other party - that way it can be a bit more fun and tolerable.

Cheers.

Aug 17, 2009
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Sharp Business Opportunities
San Diego County, CA

John, I can empathize with you. I work in a business brokerage of 30 agents. I prefer to sell my own listings because each time I research someone else’s listing I run into a bunch of BS too. I often say that “a lot of sellers tell brokers what they wish they were making instead of what they are actually making”. It is unfortunate that some sellers are not honest and their businesses will most likely NOT sell as a result. I have sold businesses that were not profitable and loosing money. I was able to sell the business because I had all the facts. The sellers were honest and the buyers knew what they were buying. It is easy to see what is wrong with a business so I can’t imagine how anyone can sell something through misrepresentation. It is just a big waist of time.

Aug 17, 2009
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The BAF Group LLC
MD

This IS a terrific topic line. And in spite of my cautions and negative commentary, I believe Business Brokers to be a vital and important tool for any Seller to contemplate using. Buyers - not as much, frankly. I believe there is a place for us (Brokers) to be used by Buyers, but that use is much more limited and less vital to the process.

But as one example of our potential benefit to a Seller, we were once contacted by a CPA whose Client needed to sell for health reasons. The Seller was in his 70s and had no idea how salable his business was. He owned a Deli in a public marketplace, in Baltimore. He was going to simply hand in his keys to the Landlord and walk away.

The CPA asked us to come to the office immediately, and talk the Client out of doing so. After looking at his books, we said we thought we could to a great job of representing him, if he could just give us some time. He gave us a limited listing agreement, and shortly afterward, we got him $750,000.

And it was all based on traceable Cash Flow. There was more Cash than was showing up on the Tax Return, but we would only deal with the traceable amounts.

Moreover, the Buyer's Accountant was from out of State; we helped show him how the transfer taxes could be minimized for his Client (the Buyer), as well. And this was at no detriment to the Seller, so we did not compromise our responsibility to him, either.

And the Seller complained like hell about our fee! It's not all roses...

Aug 17, 2009
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The BAF Group LLC
MD

Andrew, the IBBA is not the guarnator of ethics and good practice - it is a voluntary organization with terrific ideals. But there is no bite or enforcement capability, and therefore no oversight or disciplinary actions that provide any real security for Buyers and Sellers.

Julie Barnes is absolutely right on, with her comments. And Peter Ireland's statements are absolutely aligned with my own, except that I do believe many Buyers will end up paying for Buyer Broker representation, because of the lack of cooperative commissioning by the majority of Business Brokers.

I hate to be the cynic in the group, and I truly apologize to one and all for being so. But I do believe that John's original premise is correct, in many cases. I think that the lack of real professionalism, a lack of training and an economic cycle that screams of desperation in many people - Sellers and Brokers alike - foster this kind of situation.

And many Brokers are just that: Brokers! They have never been business people; they have never owned their own businesses; they have never dealt with cost-containment, employee relations or P&L analysis. So, what do they really know about explaining the pros and cons of buying and selling a business? This is why you have Brokers who are so willing to sell on potential, rather than cash flow.

John, I apologize to you, as well. I underestimated the problem. But with the current round of conversations I am having with Brokers across the Country, (we are representing three companies as Buyer's Representatives,) I am astounded at the problems I am encountering. Our fees are being paid by the Buyer, so the Listing Broker has nothing to lose, in dealing with us. Yet, we are still treated like lepers, and we are getting similar garbage, in terms of qualifying the pricing that John complained about.

But the ultimate key is referrals. Ask others who have had successful transactions to give you the names of the Brokers that impressed them. Interviewing them is great, but past history is critical.

Maybe I should drink more...then I might be a nicer person...

Aug 17, 2009
Andrew Rogerson
Rogerson Business Services
Certified Business Broker
Sacramento County, CA
Premium Broker

This is a great thread of discussion.

Some of the suggestions are to work with a qualified broker who knows what he's doing and doesn't want to waste his time. If you are looking for a qualified broker go the website for the International Business Brokers Association - www.ibba.org and do a search for a couple of local brokers in your area. If the broker is qualified as a CBI - Certified Business Intermediary he wants to professionally help and use his time wisely. In the interests of full disclosure, I am a business broker, an advertiser on BizBuySell.com, member of IBBA and a CBI. IBBA is a non profit organization that promotes the ethics and education of the business broker community.

Aug 17, 2009
Julie A. Barnes, CPA
Small Business Exchange, Inc.
Travis County, TX

Hi John,

I reconcile tax returns to book on every one of my listings. Admittedly, I am a CPA and this doesn't usually require a huge investment of my time but I cannot imagine representing a seller whose financials were not evidenced by some kind of solid documentation. I mean, it's pretty rare for a seller to overstate their income on a tax return. The only problem with this method are the sellers who are not reporting cash but that's the nature of a double edged sword.

By the way, I do not require any upfront fees or a contract - I simply reserve the right to decline a listing if I feel that an owner is being less than honest with me or that their selling price is wildly out of line with their financials. There are many honest, professional brokers out there and it really does not take a lengthy conversation with them to determine their caliber.

Good Luck!
Julie A. Barnes, CPA
www.AustinBusinessesForSaleBlog.com

Aug 17, 2009
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How to Buy a Business
WA

In almost all cases you will pay nothing for this and you will have the benefit of an experienced BS detector.

---

I have yet to meet a broker who has so much time and money that he can afford to work for free for "alleged buyers." Most brokers prefer to work with sellers because then they have something solid: a listing agreement. In contrast, almost everyone at some point in their lives spends a day, week, or a month pretending to be a business buyer. Most are not really serious about it but they convince themselves for a brief period that they are. Maybe one in 100 ends up buying a business while the other 99 turn out to be window-shoppers who just eat up the broker's time.

This is why so few brokers work the buy-side without some upfront compensation.

Aug 17, 2009
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The BAF Group LLC
MD

Doug, I don't know where you are from, but I can tell you that in my experience - doing Buyer Broker scenarios literally throughout the Country - the majority of Business Brokers will not co-op on their listings. It is the single, most vulgar characteristic of this business, from my perspective as a Broker. John needs to carefully determine the culture in his area from that perspective. This kind of situation could result in his being badgered by his Buying Broker with an invoice, because the Broker could otherwise end up doing a lot of work for nothing.

That's not to say your suggestion does not have merit! But knowing John's market is crucial, in that area.

Aug 17, 2009
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John,
You are correct but I think you are taking the wrong approach. Why not go out and find a Broker that you feel comfortable with. Interview him and tell him all of the things that you are looking for. You will also need to give him information about your financial situation and your experience. When you run across a listing that interests you contact your broker and let him sift thru the info to see if the listing meets your criteria. In almost all cases you will pay nothing for this and you will have the benefit of an experienced BS detector.

Aug 17, 2009
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I have a business listed on here For Sale By Owner in the Midwest. I promise to provide all financial information, be honest on everything I know about the business along with our income, expenditures, and Owner Benefit. I tried to list with a broker but found him to be un-trustworthy when we tried to buy one of his other listings. Check out my listing if you are interested: #467068 :>)

Aug 13, 2009
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Also would like to point out Don as a great poster.
Now it just isn't brokers. If I had a dollar for everytime I talked to an owner who wanted 185k for a place that was losing money I could buy us all lunch. I love the old , " I'm not really making any money now, but......."

Aug 12, 2009
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How to Buy a Business
WA

I just want to put in a good word for Don Barrick as well as he's a real asset to this community. What I appreciate about him is that he takes the time to actually answer people's question.

All too often what looks like an answer is little more than a thinly disguised sales pitch for a franchise or some dog of business that can't find a buyer.

Don doesn't do this.

Aug 12, 2009
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Corporate Raiders Guide
Adams County, CO

A-men!
I've been through the same things many times. What's even worse is when you like the business, explain to the seller and broker that no sane person would pay the price based on "blue sky," and they still want to hold fast to their price! No wonder only 20 % of businesses ever sell! I've found this is especially true of web based businesses.
www.corporateraidersguide.com

Aug 11, 2009
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I have to agree with John. Many deceitful brokers out there; and I can give personal examples like John. Not sure what the criteria is to be a Business Broker from state to state, but having dealt with them in about 15 diffrent states it is safe to say most are just not capable of understanding an income statement or a balance sheet.
And don't even ask them to discuss the business tax returns of the business they are representing. Less than 10% of business brokers can adequately explain their listings (in my opinion and experiences).
Just had a broker in Atlanta representing an established restaurant, which we were about to purchase. Had an LOI on the business and had pulled teeth to get due diligence documents from seller. The 'claimed' SDCF was misrepresented and not even a believeable pro-forma amount. So once we backed out - poof, the business closed down in less than a week. Now what does that tell you? Clearly the broker was aching to pocket a quick 10% commission without any consideration towards the longevity of the business he ahd listed. had they been forth-coming that it was a FIRE SALE or GOB sale, then perhaps I would have gone ahead and bought it.
Stay wise John and you will be okay. Some brokers will gladly sucker in a first-time buyer. But if you can read P&L's and do a bit of research on the history of said business, the broker will bail out if it is a scam; or, he will be impressed with your approach and indicate to the seller that there is a knowledgable prospect.
My hat is off to Don Barrick for his comments here. He seems to be a straight-shooter with an ethical approach.

Aug 11, 2009
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The BAF Group LLC
MD

Again John, I can't argue with you. But anyone that is giving you that many conditions to qualify the Cash Flow is full of it - and that stinks! (Pun intended, as well.) Because you should be paying on the basis of tangible Cash Flow and assets, not potential. There is no such thing as valuing potential in small businesses. If you want to bank on potential, you don't buy a mature business and pay a premium; you do a start-up. The only exceptions to that rule might be when intellectual property is involved, such as a novel software program, which is then protected by either patents or copyrights, and then that protection becomes effectively a tangible asset.

Brokers do legitimately adjust Cash Flow for items that are one-time expenditures, write offs that are found on Tax Returns but do not represent ongoing expenses in current terms (like depreciation), and expenses that would be retired at closing, such as loans the Seller has on the business. (If I am being too simplistic, I apologize.) As an example, if you look at the Tax Return and see a $5,000 loss, but the Seller has paid $150,000 per year in loans, that means a $145,000 positive Cash Flow. The Buyer will probably have his own loan to deal with, but the positive Cash Flow gives him the information he needs to determine whether he thinks the business is a good deal, given the price being asked.

Whether the Brokers you are dealing with are willfully misleading the public is not for me to say; you know more about what you have gone through than I. But I can tell you for a fact that a fair number of Brokers with which I have dealt, have no idea how to read a P&L or Tax Return for the information we are discussing. They have never owned and operated their own businesses. And I have argued until I am blue in the face that what they are asking for a given business is insane. But, since they have no ideal what Debt Service is all about, they are absolutely convinced about their positions in their pricing.

We also turn away about 70% of the businesses we are asked to list. We can't promise home runs on each thing we sell; but we try to make certain that it at least has a fighting change, the numbers are seemingly valid and we can justify the Seller's price expectations. That last one is the toughest, some times. And I have seen Brokers who don't know better simply take the Seller's price and try to make the best of it. I just gave up a $1.4 million listing because the Seller was...how to put it...smoking something funny, if he thought he was getting was he was asking for a restaurant!

If you want to write me at combroker@bafgroup.com and tell me where you are looking, maybe I can find you a good Broker with whom I have dealt. If you are in an area I don't know, I will tell you.

And for crying out loud - DON'T GET A JOB!!!

Aug 11, 2009
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Don, the thing is, I think brokers do know what they are doing. My above scenario was actually from a situation yesterday and I can honetly say without embellishment that more listings are false than true from my experience. I can only imagine the frustration from the brokers end but from my end , it stinks (pun intended ,lol.)
I have 200k (cash) to spend on a business. For 200k I want to be able to earn a living.
Just to clarify, this has nothing to do with due dilligence, just listings with false info from the beginning. The broker told me yesterday that the owner was making 1k month after I asked him point blank if the cash flow was accurate. He gave me such a list of conditions to make150k that I expected the next thing for him to say was, "IF you get Jesus to come down from Heaven and do autograph signings, you SHOULD make......"
It is to the point that I am thinking of just moving to the beach, and *gasp*, get a job!!!!!

Aug 11, 2009
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The BAF Group LLC
MD

John, as a Broker, you will get no argument from me. It is a lousy situation, fostered by Sellers who are either greedy or desperate, and Brokers who frequently don't know what the hell they are doing. I also get tired of Buyers who have ten cents in their pockets and want to buy a million dollar business; or people who want me to show them the Seller's Tax Returns, but don't want to give me their telephone number or address.

But there are good ones on all sides, as well.

Aug 10, 2009

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