How Not to Fail as a Business Broker
By Lou Vescio, CBI, M&AMI, Managing Partner, Coastal Business Intermediaries & Agency Brokerage Consultants
2017 Chairman of the IBBA, Fellow of the IBBA, Fellow of The M&A Source
Having been part of the Business Broker or Business Advisor Profession for about 16 years, I have seen many new Brokers come and go! I have also seen many grow their practice into very lucrative and profitable enterprises. Why do some Brokers succeed and prosper, while others give up in six months to two years? Having participating in several professions in the past fifty years, from flying jets in the Air Force, to a 15 year career with a Fortune 500 company, to building a couple computer training businesses and selling them, and finally becoming a Business Broker, I believe I have identified a few traits that make the great Brokers great and why some Brokers fail.
Perseverance – If you have ever read anything about Navy Seals, they never give up! The Basic Underwater Demolition/SEAL (BUD/S) school includes some of the most difficult training that exists, and most participants drop out due to the physical and mental stress. Perseverance is the key to their success.
This is not to say that becoming a great Business Broker comes close to becoming a Navy Seal, but all successful Business Brokers that I know exhibit the “failure is not an option” mentality. The Business Brokers workday is not a “9 to 5” type of day; it’s an “I will do whatever work I need to do, whenever I need to do it” type of day!
Education – Great Business Brokers are always learning more about their profession. Education obviously includes taking IBBA and M&A Source courses and workshops attending professional conferences sponsored by associations like the GABB, but it also includes reading everything available that is pertinent to the profession. Great Business Brokers also network with other great Brokers across the country and even across the world. Every business is different, every deal is different, and sharing and networking with other professionals offers new and fresh ideas and concepts.
Learn to say “No” – One of the Brokers I admire is Jim Afinowich, Managing Partner with IBG Fox & Fin in Scottsdale, AZ. Many years ago, he taught a workshop on saying “no” to bad listings. New Brokers tend to take almost any listing just so they have something to sell, but statistics tell us that 75% to 90% of businesses listed by Business Brokers do not sell! On the other hand, great Brokers sell 80% to 95% of their listings. Learning to price businesses properly (that Education thing above), properly analyzing good businesses when writing a great CIM (again that education thing), and walking away from unreasonable sellers by “just saying no” (in a nice way of course) are a few keys to success.
Marketing – While we all like to receive great referrals, most Brokers would go out of business if they did not market their services. Without going into the details of what kind of marketing a Broker should undertake, the key is marketing costs money and it is a requirement to succeed. The IBBA offers courses, workshops and webinars on every type of marketing, and the costs can vary from hundreds of dollars to tens of thousands of dollars. Fifty years ago, Tom West, author of The Complete Guide to Business Brokerage, suggested mailing a hundred letters a week and calling that same hundred business owners a week later. That is probably the bare minimum and may still be one of the most effective tools. Marketing is one of those “just do it” activities, and do as much as you can afford!
Salesmanship – While many people may disagree with me, we are saleswomen and salesmen. If we do not sell, we don’t make money! Some Brokers like to refer to themselves as advisors, consultants, or intermediaries, but in the end, we are still salespeople! More precisely, we engage in consultative selling, meaning we focus on creating value and trust with the prospect and exploring their needs before offering a solution. Our first objective is building a relationship, and then we provide the right solution to the problem. There are many courses and books on how to sell everything under the sun, but one of the best sales books a Broker can read is How to Win Friends and Influence People by Dale Carnegie (1936). It is more about getting people to like you, and that is the first step in selling. You can download and read it here for free.
Find a Mentor – Having a mentor when starting out as a Business Broker is a big plus, and joining a professional association like the GABB can help with this. Having an experienced and trusted adviser who will assist in training can shorten the timeline from “Start” to “Success!” It is also advisable to work in a successful brokerage when starting out to avoid many costly and time-consuming mistakes. Whether it be a franchised brokerage or an independent brokerage, find a mentor that meets the following criteria: 1) knows how to make a lot of money selling good businesses, 2) promotes IBBA education and certification, 3) assists in valuing and critiquing potential listings and 4) assists in negotiating difficult transactions.
Become an IBBA Contributor – One of the best ways to enhance your IBBA experience is to actively participate in the annual conferences, courses and workshops and share your experiences with others. Join a committee or two and be active. The friends you make and the experiences you share with others will enhance your Business Brokerage experience. (Note, the GABB also offers conferences, committees and monthly meetings.)
Finally, to all you Great Business Brokers out there, make friends with a new member at the next IBBA Conference and offer yourself as a mentor. You will find it very rewarding!
Reprinted with the permission of the International Business Brokers Association.
Federal Reserve V.P. To Discuss Economy at Nov. 19 GABB Meeting
Rebecca Gunn, Vice President and Regional Executive of the Federal Reserve Bank of Atlanta, will speak about economic issues during the Tuesday, Nov. 19, meeting of the Georgia Association of Business Brokers. The GABB is the state’s largest association of professionals dedicated to buying and selling businesses and franchises.
The GABB meets at the Georgia Association of Realtors at 6065 Barfield Road, Sandy Springs, GA, 30328, and the meeting will last from 10:30 a.m. to noon preceded by a free networking session at 9:45 a.m. GABB Affiliate Bob Smith, a health and life insurance advisor for North American Health Plans, will sponsor breakfast. GABB meetings are free and open to the public; guests should register at the form below.
In Ms. Gunn’s role at the Federal Reserve, she provides strategic support for the Regional Economic Information Network throughout Georgia, working with other regional executives to provide targeted economic intelligence. She also provides support for public outreach, economic education, and corporate citizenship.
Since 2013, Ms. Gunn has served as assistant vice president and corporate secretary as well as assistant to the president and first vice president. In this role she oversaw governance, planning, reporting, and administrative support for the long-term plans regarding director recruiting across the District. She also provided support to the Bank’s Board of Directors’ Search Committee for the Atlanta Bank presidential search process.
Ms. Gunn joined the Atlanta Fed in 1996 as an analyst in the planning and control department. She was promoted to supervisor shortly afterward and then to senior auditor. In 2005, she transferred to the Retail Payments Office, where she held positions of increasing responsibility, including financial product coordinator and portfolio manager. In 2011, she joined the Human Resources department as a business liaison providing strategic support and guidance to business areas throughout the Bank.
A native of Birmingham, Alabama, Ms. Gunn earned a bachelor’s degree in management from the Georgia Institute of Technology. She is the Atlanta Community Group Leader for the Marfan Foundation and a member of the Foundation’s Patient & Program Services Committee. She also serves on the Finance Committee of Camp Twin Lakes.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or dean@b3brokers.com, or GABB Executive Director Diane Loupe at diane@gabb.org or 404-374-3990.
If you are not a GABB member and wish to attend the meeting, please fill out this form. GABB meetings are free and open to the public.
Read MoreBuying and Selling Businesses Better By Keeping the Pipeline Full
Entrepreneur Scott Ward has been on both sides of the negotiating table, both as a business buyer and a business seller. He discussed better ways to work with prospective business sellers, to prepare a business to sell and other insights at the Sept. 24 meeting of the Georgia Association of Business Brokers.
Ward said business brokers “enable people to succeed and bring in hard earned assets and turn it into cash.”
He said in the middle of negotiating a deal, sometimes he feels as though his client needs a marketing officer, a human resources officer, a financial analyst or even a psychiatrist, trying to work through some complex business and personal relationships.
“You’re so much more than just a business broker,” Ward told the members of GABB, the state’s largest professional organization dedicated to buying and selling Georgia businesses and franchises.
The key is for business brokers to build long-term relationships with business owners, what he called keeping your pipeline full.
“The number one thing with filling your pipeline and getting more people to think about you —because you guys have a long pipeline– you’re building relationships that sometimes take years before someone actually says, ‘You know I think I’m ready to sell this business,’ or ‘I’m ready to quit my corporate job.’ ” Ward said.
Watch the full presentation on the GABB’s YouTube Channel.
Scott is a long time multistore franchisee of Winmark Corporation, the franchisor for brands Play It Again Sports, Plato’s Closet Once Upon A Child, Music Go Round and Style Encore. After 28 years as a franchisee, Scott recently sold his last Play It Again Sports location and will speak about his strategic five year plan he executed to enhance value, create potential buyers and market to sell for a premium. Scott worked with and without brokers during this process.
Ward earned a grass roots MBA as a successful business owner for more than 20 years with proven ability to rapidly grow and profit despite enduring three recessions. He was a dedicated leader who mentored five employees to successfully own their own franchise businesses. He is especially skilled at gaining insight into stakeholders weaknesses and strengths through communication.
As the owner-operator of Play It Again Sports franchises, now publicly traded under Winmark Corporation, Ward maintained business growth through three recessions and contributed to the eventual stability of what is now one of the oldest and largest sporting goods entities in North America. He successfully sold his business for full valuation and continued to menter the new owner. Elected to the Winmark Corporation Franchise Advisory Council, he also was chosen chairman for seven years. He teaches speech writing, evaluation and idea generation for Toastmasters.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or dean@b3brokers.com, or GABB Executive Director Diane Loupe at georgiabusinessbrokers@gmail.com or 404-374-3990.
Learn Simple, Effective Marketing Success Secrets on Aug. 21
Find out how you can harness a simple, effective marketing strategy to grow your business when internationally known author, marketing and business strategist Diane Conklin speaks on Wednesday, Aug. 21, to the Georgia Association of Business Brokers. The GABB is the state’s largest association of professionals dedicated to buying and selling businesses and franchises.
Diane’s topic, “Marketing Success Secrets: How To Grow Your Business & Attract More Ideal Clients With Simple, Effective Marketing Strategies,” will include tips specifically aimed at business brokers and their clients.
The GABB meets at the Georgia Association of Realtors at 6065 Barfield Road, Sandy Springs, GA, 30328, and the meeting will last from 10:30 a.m. to noon preceded by a free light breakfast networking session at 9:45 a.m. Rob Tamburri, CPA PFS, managing partner of Balog + Tamburri, CPAs, is the sponsor of the meeting.
Diane is a direct response marketing expert who specializes in showing business owners how to turn their businesses into money making machines using rapid profit acceleration, leveraged business growth and strategic implementation by integrating their online and offline marketing strategies, media and methods, to get maximum results from their marketing dollars with Complete Marketing Systems.
For more than 25 years Diane has been leading small businesses to bigger profits through her coaching, consulting, marketing funnels, systems, live events and by providing done-for-you services to clients all over the world. As the founder of Complete Marketing Systems, Diane has been involved in many campaigns grossing over $1,000,000.00 several times in her career, and she routinely helps people grow businesses to six figures, and beyond. Diane was voted Glazer-Kennedy Marketer of the Year for her innovative marketing strategies and campaigns and was nominated for Atlanta Business Woman of the Year.
The monthly meeting begins at 10:30 a.m. and is preceded at 9:45 a.m. by a free light breakfast and networking session. There is networking with coffee and pastries from about 9:45 to 10:30 and the meeting will last from about 10:30 to somewhere between 11:30 and noon.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or dean@b3brokers.com, or GABB Executive Director Diane Loupe at diane@gabb.org or 404-374-3990.
Cannabis Industry Investment Is Risky, Expensive, CPA tells GABB members
The cannabis industry might be one of the largest industries in the next decade, but right now, it’s risky, expensive and faces uncertain legal and tax hurdles, says an accountant who specializes in the cannabis industry.
Matthew Foster CPA, a partner with Frazier & Deeter, LLC and the firm’s National Practice Leader for the Cannabis Industry, spoke about accounting and the cannabis industry earlier this year at the Georgia Association of Business Brokers.
“This is not an industry for the faint of heart,” warned Foster. “If you have a very low risk tolerance, I would just advise you to stop right now and wait until the feds open it up in about five or six years, possibly longer.”
The biggest risk? The whole industry is illegal in the eyes of the federal government.
“From a federal perspective, every one of these companies that are in cannabis are lawless citizens of the U.S.,” said Foster. “They’re all breaking the law.” Federal officials could “come in at any moment and break them up if they wanted to.”
If the company is in one of the many states that has legalized cannabis, most assume that federal officials won’t intervene, “unless they do something really out of line,” Foster said.
Georgia’s Cannabis industry
Georgia’s cannabis industry is poised for growth because the state recently passed a law legalizing the production and manufacturing of low THC CBD oil, defined as anything with a THC content of 5% or less. That’s just strong enough for medicinal use, and not strong enough for intoxication. The new law allows up to six licenses for growing medical marijuana, plus licenses to the University of Georgia and Fort Valley State University for research.
Of the six private licenses, two will be for large productions, up to 100,000 square feet, and four for up to 50,000 square feet. There’s a $25,000 non-refundable application fee for a large license, along with an initial $200,000 licensing fee and $100,000 annual renewal fee. The smaller licenses carry a $5,000 non-refundable application fee, along with an initial $100,000 licensing fee and $50,000 annual renewal fee.
“So you need a lot of capital just to hold the license in Georgia,” Foster said. “That’s before you even start with the production and the costing and everything else.”
Recently Flourish, an Atlanta-based supply chain management startup that helps cannabis companies monitor logistics, raised $2.1 million in a seed round led by 7thirty Opportunity Fund, the Atlanta Business Chronicle reported.
Georgia has made cannabis companies ineligible for any state tax incentives. “You are going to pay tax on every single dollar that you make here in Georgia,” Foster said.
Bummer, right?
Which means that companies in the cannabis industry right now must be highly capitalized. “You have to have a lot of money at your disposal to weather the storm until the feds open it up,” said Foster.
Frazier & Deeter works with clients to set up inventory methodologies that will move as many expenses as they can under current tax law from their overhead into the cost of inventory.
Banking Obstacles
Another obstacle for the industry is banking. Under current laws, federally insured banks are not allowed to do business with cannabis companies.
“These companies can bank with state-sponsored banks, with credit unions, if those banks decide they want to work with this industry. But they can’t bank with FDIC-insured banking institutions, your Wells Fargo, your Bank of America, your Chase, because they are federally regulated,” Foster said.
Cannabis industry investors are lobbying legislators to pass a law that would make cannabis similar to hemp, which would open up a more traditional taxation and banking.
Foster predicted that Congress will act on banking before legalization because right now, the federal government is losing lots of potential tax revenue from the industry.
Cannabis VS Industrial Hemp
Cannabis and industrial hemp represent different segments of the market. For example, industrial hemp is becoming a very attractive option for people to invest in thanks to last November’s farm bill. The farm bill, in essence, descheduled industrial hemp, defined as a product with a less than 0.3% THC content per gram. Hemp fiber and oilseed can be used in variety of industrial and consumer products. What the bill did was deschedule hemp, meaning it’s still illegal at the federal level, unless you are producing and working in a state that has legalized industrial hemp.
Cannabis is still illegal from a federal standpoint, despite being legal for medicinal uses in 33 states and the District of Columbia, and in 11 states and D.C. for recreational uses. Because cannabis is included in Schedule I of the Controlled Substances Act, it falls under section 280E of the IRS code. “That means cannabis businesses cannot deduct any necessary or ordinary business expenses for federal income tax purposes, nor can they claim any Federal credits,” Foster said.
“You can deduct your cost of goods sold, but everything else in your return is non-deductible,” Foster said. “You can’t have R&D credits, you can’t have business credits, and you can’t have jobs credits. Take your revenues, deduct your cost of goods sold, get your gross profit, and that’s your taxable income: your gross profit.”
But companies with shrewd accountants can take advantage of certain sections of the IRS code that allow companies to capitalize their overhead, which would allow them to deduct some of the expenses for rents, utilities, property taxes, salaries, depreciation, etc.
Managing Cannabis Finances
Foster recommends that their traditional cannabis clients do full financial statement audits which allows for an opinion on what’s capitalized into the cost of inventory and what’s being deducted as cost of goods sold. If the IRS does come in and audit, “we have a lot of support for the position that we have taken.”
Cannabis companies should NOT use the name of the plant in their company name, Foster recommended, to try to minimize the red flags that the IRS will see on these companies.
“First and foremost, the words cannabis, hemp, and marijuana should not appear on your tax return, anywhere,” said Foster.
Also, these companies should not get creative in taking deductions, Foster said. If you go that way, “start putting money aside because you’re going to get audited.”
He also recommends that anybody in this space should operate as a C Corp, mainly because it’s the lowest tax rate that you can find on federal level right now. Also a C Corp allows a company to “put up a corporate wall around your investors.”
If the IRS starts attacking the company, the investors are only out what they put into the company. It won’t be able to go after their personal assets. He also recommends portioning off different sections of the business into separate entities for real estate, equipment or intellectual property.
Potential Profits Huge
Returns on investment are a mystifying 10 to 30 multiples on revenue streams in the industry. “I haven’t quite figured out what’s going on in this space,” Foster said. “This must be Toad’s Wild Ride for investors.” But last year, a lot of people made a lot of money.
“So, it depends on when you get in, what you get in to, and how long you’re willing to ride this roller coaster,” Foster said.
Big U.S. companies are awaiting new banking regulations that will ease investment into this industry. Foster said “They’re either waiting to go public, or they’re waiting for big pharma, big tobacco, or big alcohol to come in and buy them up.”
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