Why can't I find one reason why starting a business brokerage is a bad idea

July 07, 2022

by an intermediary from University of Georgia in New York, NY, USA

First post!! There are obvious industry tailwinds right now with boomers retiring + more people wanting to own their own business, a lack of quality brokers, 40-year-old brokerages that dominate the field, and it frankly seems like a fun opp with a ton of upside. What am I missing though?? Why aren't there more business brokers out there? Is it really hard to source quality deals? Is the sales cycle painfully slow? Is it just a well kept secret?? Any insight you can share would be super helpful.

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Reply by a searcher
from The University of Chicago in Chicago, IL, USA

Many sellers I speak to have been bombarded with emails from business brokers looking to represent them, so you need to find a way to stand out among a crowded field. Then, you've got to filter through to find the truly serious sellers. Without a retainer, you risk spending a lot of time representing an owner who is just testing the waters. Especially in the smaller end of the market, you may be dealing with flaky, unsophisticated buyers, so expect a more challenging transaction process. Lots of things can kill these types of transactions (messy financials, tax issues, financing falling through, unscrupulous buyers/sellers, etc.), so lots of potential for putting in work with no reward.

That said, I've met a few brokers whose approach I admire. The most successful I've seen have a narrower industry niche (e.g. dental practices, legal technology). That helps for a few reasons: (1) stand out relative to other brokers, (2) more efficient at compiling pitch materials, and (3) better ability to create a network of qualified repeat buyers.

Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA

I transitioned to this business from investment banking M&A, and then COO role, for the very reasons you state. Not to mention no two days are ever the same and the challenge and fun of solving problems and helping new entrepreneurs realize their dream of business ownership, and the retiring entrepreneur realize their dream of an exit strategy. But, as the saying goes (credit Jesse Stone), "It's a great business if you want to build net worth, not so good if you need monthly cash flow to cover mortgage and expenses." And as noted in posts above, 6-12 months to your first closing, if you get going out of the gate, then it's about a creating a steady pipeline, but know it will be lumpy. And you need a good source for all the training and support needed to differentiate yourself as one of the "quality brokers".

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