GENERAL OBSERVATIONS ON BUSINESS BROKER TACTICS:

Ideally, a broker should function as a facilitator of a transaction between the seller and the buyer of a business. But few brokers actually “facilitate” anything much. Instead, you should best regard them as pressure salespeople who work for and are responsible only to the seller.

If you have read the first few paragraphs of “Be Informed”, you are aware that a newcomer to the laundromat business must be very careful not to overpay when purchasing a business. Frequently, there are problems with the business that justifiably disaffect its value to experienced laundromat owners, yet go undetected by those without experience. Experienced brokers presume that there are problems with the business (frequently, that’s why it is for sale), and the more information available to the buyer, the greater the opportunity for the buyer to identify problem issues. Problem identification tends to suppress buyer enthusiasm, which leads to lower or no offers. Accordingly, many brokers attempt to frustrate buyer drill-downs by using tactics that discourage “due diligence”, and encourage a buyer to act impulsively. Examples include: assisting sellers to “dress the place up” on “fact sheets”; talking the place up, while demanding “offers” or financial or legal commitments before “full” information on the business will be released; or perhaps suggesting that another buyer is prepared to act if you do not. (Known in the trade as the “take away”.)

Now, as the utility bills are the back-door to an accurate determination as to how much business the place is actually doing, they are the key drill-down item for a coin-laundry – and both sellers and business brokers are very much aware of it. This being the case, business brokers do not want copies of the utility-bills  to get out there for a prospective buyer who may have engaged me to study them. This is the reason I tell you to do your homework and come across as a serious and able buyer of the business whom they will lose as a potential buyer unless the utility bills are produced – and provided they do not know you have employed me, you will have a much better chance of getting them without having to encumber yourself with a so called “Letter of Intent”. If you make push come to shove, they will likely surrender the utility bills before they watch you (and their commission) walk out of the door.

AN HONEST “CONSULTANT” WILL  SERVE ONLY AS AN ANALYST AND NEVER TRY TO INTRODUCE YOU TO A DEAL:

How can a “consultant” who is engaged by the prospective buyer of a business develop a “conflict of interest”? By placing himself in a situation that would enable1 him to act in his own favor or that of the seller, rather than his buyer client.

Such a conflict of interest is typically found between a “buyer’s broker” and his buyer client. As it involves at least part of a brokerage commission going to the “buyer’s broker” (if and when the deal closes), it is never a good position for a buyer to place himself in because the “buyer’s broker” will have both a financial self-interest in getting the deal to close and a disincentive to get the lowest price for the buyer. (Lower price to buyer typically leads to the brokers sharing a lower brokerage commission.)

As I refer to elsewhere herein, unless your counter-parties are of the impression that you are both serious and able, it can be a struggle to get reliable information on a business – and brokers in particular will rarely do much to assist. Instead, they prefer to just speak of the business in accolades and beat the drum for you to take a plunge. (Sometimes, they succeed!)

Beware the “buyer’s broker”– whom you will often find masquerading as a “consultant”. Deluding the buyer by posing as a team player, the “consultant” will embrace the buyer (“sizing him up” in the process) and then attempt to steer the buyer to a deal from which the “consultant” can profit from brokerage commissions. By then he will have reached out to either a seller or a “seller’s broker” for a deal that might fit his buyer and he will introduce the buyer to the deal in exchange for his participation in a brokerage commission. This will often be promoted as being “brokerage commission free” to the buyer, however, the conflict of interest involved can easily work to significantly reduce buyer value.

Now in the course of searching for a business, a prospective buyer may need to deal with a business broker. Provided a business broker represents only a seller, he does not have a conflicting self-interest with the buyer of a business. However, buyers must remember that as the broker is working for the seller, his legal and ethical obligations are strictly to the seller rather than the buyer. In fact, a broker has no obligation to inform the buyer, or the buyer’s representatives of anything. This being the case, a buyer should not trust a broker2.

Except for me, all of the laundromat “consultants” out there maintain either a backroom business broker or “finders fee” (getting kick-backs for making referrals) operation. (Some will deny any of this – at least initially.) Why the back-room? Primarily to disarm you – people are far more inclined to trust a “consultant” than a “broker”. As I have set forth above, you might then be steered towards a purchase in which the “consultant” stands to make huge brokerage commissions or considerable “finders fees” rather than, or perhaps in addition to, “consultant” fees.

Just bear in mind: I am paid my modest fee up front. From that point on my sole self-interest is preservation of my reputation (won over the course of three decades) – and the key to that is getting the very best deals for my clients. I do exactly that and I even guarantee it.

You need the genuine consultant who serves only one master: you.

Gary Ruff

1 It is sufficient to be in a position to do it. A “conflict of interest” is not necessarily about an act which might further the broker’s self
interest over his client’s; instead, it is about being in a position to take such action. It then remains only for human nature to take its
course.

2 This is an absolute necessity. For over three decades I’ve studied and verified thousands of “fact sheets”, and I can tell you that
revenues are commonly overstated, expenses are almost always understated, and some categories of expense are even omitted. My
skill in identifying these issues is the reason I can offer my conditional money back guarantee (see my site).