The Hardest Conversation in Business Broking

A business owner has spent 20 or 30 years building a company. They have a number in mind for what it's worth. The broker has looked at the financials and arrived at a different one.

What happens next can shape the entire sale.

In interviews with Bsale this year, brokers from in New South Wales kept returning to the same point. The easiest way to win a listing is to tell the vendor what they want to hear. The best way to sell a business is to tell them the truth.

 

The Number Nobody Wants to Hear

 

Mark Jason, who runs LINK Business Brokers NSW, understands why these conversations are difficult. Owners who have spent decades building a company often tie their own worth to the value of the business. Telling someone it's worth half what they expected is an emotional conversation as well as a commercial one.

"You have to be part lawyer, part accountant, part salesperson, part psychologist," Mark said.

He sees the broker as a matchmaker, helping each side understand the other's reality. Sometimes that means telling an owner something about their business they may not want to hear.

In one transaction involving a business valued in the $50 million range, Mark identified that too much responsibility sat with the owner. That created risk and affected the multiple buyers would apply. His initial advice was to restructure the management team and hire six or seven people into different roles.

"I think it was a bit too much for the owner to undertake," Mark recalled.

Instead, he found a private equity group prepared to buy 20 per cent of the business. Once the owner moved out of day-to-day operations and onto the board, a second transaction followed, allowing him to sell more of the business.

In Albury, Daniel McDonald of McDonald Hospitality Brokers sees that honesty as one of the defining tests of the job.

"I believe that one of the greatest challenges of being a business broker is having the courage to be transparent and tell it how it is with your client base," he said.

For Dan, that means working from the numbers and not getting carried away during an appraisal simply because a vendor wants a particular outcome. "Daring to be evidence-based is one of the challenges," he said.

He credits his decade as a youth worker with preparing him for this part of broking. "I learned to listen and empathise as well as how to deliver good and bad news. I also learned to discuss pathways with clients that aren't always the most attractive option."

 

Saying No to the Listing

 

Roy Levy of Core Business Brokers has spent more than 30 years in the industry, and he is blunt about the temptation to overquote.

He recalled a recent business he valued at between $1.1 million and $1.2 million. The owners wanted to market it at $1.6 million. Roy warned them it was a mistake but agreed to test the market. The result eventually supported his original assessment.

For Roy, there is a line he won't cross, and he tells vendors so directly.

"I say to them, 'I don't believe that you're going to get that in the market for these reasons. If that's your minimum expectation, I can't legally or morally sign our agency agreement as I've got to insert my opinion of the realistic price range'."

It's a stance that may cost him a listing, but Roy believes a broker has to be prepared to say no when expectations are unrealistic.

 

Preparation Before Price

 

For Anthony Papas, founder of ABBA Group, honesty starts well before a business reaches the market.

ABBA Group works on transactions generally between $2 million and $40 million, and may spend up to five months with an owner before listing. That includes checking whether the financials are in order and whether the expected price is realistic.

"We believe the better you prepare, the higher the success rate," Anthony said.

The firm reports a success rate of more than 85 per cent from businesses listed to businesses sold, which Anthony attributes to being selective about what it takes on. In one recent sale, the firm achieved $3.5 million more than its initial market-value assessment.

But he is clear that preparation also means preparing the vendor for news they may not like. "You need to have honest conversations with vendors when a result falls short of expectations. If you don't build that relationship up front, it has a negative effect at the end."

Sukhdeep Mangat of LINK Business Brokers in Sydney takes the same line when a vendor wants to rush to market.

"No, no, no. We need to do the appraisal first," she said. "Everything starts with doing a right appraisal. That means understanding the buyer as well as the vendor."

She sees the frustration on the other side, too. Vendors often struggle to understand why a business they have built over 10 or 20 years can't be sold quickly, particularly while buyers are active but cautious and asking for detailed financial information.

 

 

Keeping the Vendor in the Loop

 

Honesty doesn't stop once the business is listed. Roy keeps vendors updated at least once a week, even when there is little to report.

"'I've got no inquiries this week; I'm going to try this' can be enough," he said. "The important thing is that the vendor knows I am working on the assignment."

For Dan, who estimates he can have up to 100 phone calls a day with 50 different clients, consistency is just as important. Each client's circumstances matter, whether it's the first call of the day or the 50th, and he works on the principle of under-promising and over-delivering.

 

Honesty Works Both Ways

 

The same directness applies to buyers.

Sukhdeep, who ran a 7-Eleven for 20 years before moving into broking, sees more buyers looking for businesses that can run under management with little involvement. Her answer is simple: "There's no business like that which runs on its own."

Even under management, she believes an owner still needs to stay involved and keep an eye on what is happening. For new buyers without industry experience, she may recommend a franchise as a way to learn the fundamentals before moving into an independent business.

Her advice to anyone considering a purchase is to work through the practical questions first: how much money is available, how many hours they can commit and how much family time they can realistically invest.

 

The Long Game

 

None of these brokers pretend the honest approach is the easy one. It can mean turning down listings, disappointing vendors and spending months on preparation before a business ever reaches the market.

But across different regions, sectors and deal sizes, their view is consistent. A realistic price, a well-prepared business and a buyer who knows what they're getting into are what get deals across the line.

As Sukhdeep put it, "As a broker also, you just be honest and do the right thing, and you're successful."

Tags: business brokers selling a business

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