Since almost every broker is in a “eat what you kill” commission-based job, telling your client that they should not go through with it takes enormous risk. And a strong stomach.
Larry Jacoby is a business broker in the Northeast. He has been a broker for over a decade. And he has killed (or watched die) more deals than he has closed, he says.
“There comes a point – and it’s usually with the buyer rather than the seller – where you say, ‘This is wrong. This is bad. Don’t do it.’ It might be because you realize the business is not worth what your client is paying. It might be because the business is not even a real business, which you figure out during due diligence. Whatever the reason, let’s just say, mentally eliminating a four- or five-figure commission from your future earnings does not help your sleep patterns.”
Larry says that he does the right thing not just because he wants to be honest (“That whole sleep thing I was talking about before”). He also does it because he believes in creating long-term relationships with clients that will pay off in the future.
“This guy might not buy the warehouse we were working on for three months, but he wants to buy a warehouse business. I’ll find him one. it’ll just take time. And in the meantime, he’ll refer me to friends and colleagues as a literal ‘honest Broker’ who will not put my interest in front of theirs.”
Sellers’ Brokers Kill Deals Too
It is not just buyers whom brokers encourage to terminate deals. Josh Factor says he knows of many business owners whose brokers tell them to walk away.
“In my experience, it’s usually when the buyer starts asking for more and more,” explains the owner of Vertica CRM, a company that specialized in building software platform for business Brokers and M&A professionals. “You have a deal, and suddenly the buyer wants a lower price and/or a longer-term of payments and/or more training time. If it gets to be that the owner is being taken advantage of, I know that the best brokers will tell them, “Enough.”
Josh thinks that brokers who tell their clients to not do a deal are those “in it for the long-haul; they want to make it their careers.” He says they are mature and sincere individuals whose consciences will not allow them to move forward on a closing that is unjust.
When Larry reads what Josh has said, he agrees.
“Look, I’m a broker. That’s what I do. It’s my sole source of income and it’s my profession. I simply will not allow a client to make a mistake that can ruin theirs and their family’s lives. Buying or selling a business is a huge milestone. I’m the guy they call when they want to sell the business they bought five years ago. I wouldn’t be that guy if I had been thinking short-term – and selfishly.”
Walking away or actively killing a deal can be difficult—especially if you have worked incredibly hard to prospect, cultivate a relationship, or have put in a ton of time. Understanding the warning signs and knowing which red flags to look for can help you cut down on wasted energies and focus your efforts in the right direction. By focusing on your personal long-term goals, you will be highly successful in the long run.
You can call it Karma, but if your true focus is on your clients benefit, they will see that very clearly and your going to win in the end.
Joshua Factor is the founder of Vertica CRM. A software company dedicated to helping Business Brokers and M&A professionals work more efficiently through technology. For more information about their main product, Business Brokers CRM, visit www.BusinessBrokersCRM.com or call +1 212 381 4994 in the USA or +61 385 184 759 in Australia.