Eddie Pampalian, general manager at brokerage firm Network Infinity, had been the owner of 13 businesses before deciding to become a business broker.
“I got into brokerage because I had a few bad experiences with brokers myself when buying and selling my businesses,” he says. “I realised I could provide a better service!”
However, owning a brokerage isn’t easy. In fact, Pampalian says it’s downright ‘tough’ and recommends that anyone thinking about buying “needs to carry out detailed research and have a good understanding of the market.”
Franchise or go it alone?
One of the first decisions you need to make is whether to go it alone or join a franchise network like Network Infinity.
“If you want to go it alone, you need to weigh up the costs. Fixed costs can be three to four times higher if you do it on your own, so although you’re not paying a royalty, the overheads are higher,” says Pampalian.
You’ll also get training and support from the franchisor. There’s an obligation to adhere to the brand’s business model – a positive insofar as it should be a winning formula (assuming you’ve carefully chosen a reputable franchisor), a negative in the sense that you won’t have complete entrepreneurial freedom.
Nevertheless, this is, above all, a relationship business and having effective systems in place with support from HQ will free you up to focus on both clients and prospective clients.
Choosing the right brokerage
So what should you look for when appraising business brokerages for sale? Pampalian believes the fact that many brokerages have no employees is a factor to bear in mind, along with the level of repeat custom.
“For example, if the business brokerage is a one-man band and most of their business is made up of new business as opposed to repeat business, it would affect the overall value [negatively].”
It’s worth asking the seller for ways in which the business is differentiated from its competitors.
“If it’s an established business with a specialised niche in the market, they’ve probably got systems in place with a valuable customer database, and it could be a high-value business,” says Pampalian.
You could also look at their market share and what kind of clients they have. Ideally, you’re looking for a business with a significant client base that is loyal to the brokerage. It will provide a steady stream of business right from the start.
Loyalty: A precarious asset
The success of a brokerage is built on relationships within the industry and with clients. However, this can work against a buyer if the business you’re about to buy is entirely dependent on the reputation of the outgoing owner – often a major concern with one-man bands.
It’s worth trying to ascertain whether any clients could disappear once they realise their favourite broker is leaving.
But if you’re reading this with aspirations of becoming a business broker, then make sure you have what it takes to thrive in this trade before you start applying for jobs or training, let alone buying a brokerage.
Start by looking through business brokerages that are for sale so that you can start deciding what will be right for you.