The Energy Equation: Sabrina Xia's Recipe for Success as a Business Broker
The Energy Equation: Sabrina Xia's Recipe for Success as a Business Broker
After gaining valuable experiences, first as an accountant and then as a small business owner, Sabrina Xia regards these experiences as being the foundations to her success as a business broker.
Having gained a Masters's Degree in Commerce from UNSW and worked as an accountant, her financial knowledge is invaluable as she assesses her clients businesses.
As winner of LINK Business Broker of the Year in 2021 and membership of the LINK Chairman’s Club in 2022 and 2023, Sabrina’s success is well established.
Keys to Success
“I believe there are four keys to success as a business broker. These are persistence, patience, professionalism, and finally, knowledge. Knowledge is important, but the others are too.”
Sabrina explained, “Being a business broker is an energy business; the more energy you put in, the more success you will achieve.” She invests her energy in persistent activity, building trust, rapport, and credibility with clients and potential clients, recognising that it’s a long-term journey. “A broker looking for overnight success will have little chance of achieving it. Persistence is required.”
Coupled with persistence is the need for patience according to Sabrina, who identified that trying to push clients will often lead to failure. “You need to be generous with your time to give your client confidence, hope, and help.” She acknowledged that being patient can be frustrating for the broker, but in her experience, patience pays off eventually.
Maintaining professionalism is also critical for success. Basic requirements include fully understanding the vendor’s business, the industry, and the general economic climate.
Being open and honest with clients may be difficult, but it is necessary for a successful outcome. “You must be transparent with your vendor; otherwise, they will have false hope, expecting you to deliver unrealistic outcomes. You are then wasting their time and yours,” explained Sabrina.
Her professionalism also extends to potential buyers. Sabrina considers matching the business to suitable buyers to be crucial to a successful transaction. “Being in business is not for everyone,” she commented.
“A buyer needs to understand the risks of being in business generally and the risks of that particular business. So, if the buyer understands the risks, has the knowledge and experience needed for this business, and the courage to handle failure, it may be a match.”
Sabrina insists that all potential buyers meet these criteria before an introduction to a vendor.
What should a buyer look for?
Sabrina lists these as “must consider” items for a buyer (and, conversely, for a vendor keen to present the business in the best possible light).
A potential buyer should have an accountant, a lawyer, and possibly a finance broker ready to go before considering any business purchase. “Sometimes a buyer will need to make a quick decision, so having advisers available will help,” Sabrina commented.
These advisers will ensure the buyer has an appropriate business structure in place to avoid delays in contract preparation. Depending on the buyer’s expertise, the advisers will also review the financial viability of the proposed purchase and scrutinise all legal documents.
Clear Financial Statements
“You can’t predict the future, but the financial statements give you a picture of the past performance and the current trends, explained Sabrina. She recommends considering at least the last three years to provide information regarding trends. “Buyers should be looking for well-established businesses which are trading profitability.”
A buyer also needs to consider the difference between profit and cash flow, as this will determine the business's working capital requirements in the future. An accountant will be able to advise here.
Sabrina’s experience as a small business owner operating a successful business in a shopping centre taught her the traps that can be “hidden” in leases. “Even if you run a successful business, it doesn’t necessarily mean you can sell it,” Sabrina reflected.
Buyers will typically favour a longer lease term as this provides more security for the buyer. However, a shorter term may be preferred if the buyer plans to amalgamate the purchased business into another existing business or to relocate to an alternate location.
The adage that if you aren’t growing, you are going backward applies to all businesses. Sabrina warns buyers, “You don’t want to be buying a sunset business. You must consider the impact of online and local competitors and industry trends.”
She also highlights the impact of the current labour shortage. “If the business relies on the availability of particular skills, you must ensure that these skills are available in sufficient numbers to maintain the business.”
Reliance on Systems
Sabrina emphasised that the business must have established, documented operating systems to ensure the business does not rely on any individual to operate. “You don’t buy a hero business whether the hero is the current owner or any other individual. The risk is that, when that individual isn’t there, the business disappears because the hero isn’t there to keep everything running.”
She noted that a business under management will usually sell for a premium because the risk of reliance is far lower.
Sabrina recommends that buyers look for a business broker with a professional team to assist them in finding the right business to buy. She emphasises the comfort a buyer can gain from engaging a business broker with the right contacts and resources.
Is Finance Challenging to Obtain?
The rapid rise in interest rates and inflation over the last year has affected business valuations and profitability. Despite this, Sabrina is not experiencing noticeable challenges for buyers seeking finance. She referred to her criteria for a suitable buyer, “If the potential buyer has the experience, knowledge, and passion and the business is sufficiently profitable, a lender will be interested in assisting the purchase.”
Sufficient equity to support the finance is also critical for a successful application. She explained that a lender might hesitate if the business will constitute most of the buyer’s assets. “If all your eggs are in this one basket, it could end badly for you (and the lender).”
Sabrina summarised this by saying, “If the buyer lacks experience, knowledge, passion or equity, there will always be frustrations with finance. We make sure we know the buyer's overall financial situation to assess the chances of success if finance is needed.”
Any Favourite Industries?
Like many business brokers, Sabrina initially focused on hospitality businesses as this aligned with her small business experience, “Hospitality is the bread and butter of the business broking industry where you can gain valuable broking experience.”
However, as COVID was decimating hospitality businesses, Sabrina needed to reorientate her focus to an industry with greater stability. She identified education as an industry constantly in demand and receiving government support. She decided that childcare centres would be her niche.
Sabrina commented, “Even in remote areas, there is a high level of interest from buyers.”
Although childcare center occupancy was also adversely affected by COVID, she achieved her first sale during the early stage of the pandemic. As if to demonstrate buyer interest in these businesses, Sabrina shared, “I sold that business in the first week of listing it!”
Since then, Sabrina has developed that specialty with her usual drive and enthusiasm.
And Your Final Words of Wisdom?
Sabrina shared, “I remind everyone about the need for patience and persistence. I’ve experienced the four seasons, including winter: the miserable times, the rejections and failures that bring stress and even financial hardship. Have faith in your ability and act with consistency and passion.”
“Find an industry you are passionate about and develop your expertise and knowledge to become the go-to specialist.”
The four pillars of persistence, patience, professionalism, and knowledge underpin Sabrina’s success. Her ability to apply her expertise and adapt while overcoming adversity ensures she can relate to vendors and buyers, a critical advantage for any business broker.