Sleazy Brokers – Why won’t he give my bid to the seller?.

As a business consultant, I often receive requests to assist with due dilligence, locating, and otherwise general business purchasing and negotiations. The other day I received a call requesting assistance dealing with an unruly broker. The person, let’s call him Sam wanted to buy a business for $3.3 million. He wanted to offer the full asking price so what’s the problem? The broker wouldn’t present his offer. What?! Yup. That’s right. Don’t fear. I will explain what happened.

Broker’s get their commission say 6% in this case.

Let’s look at this scenario:

Scenario A: Receives offer of $3.0 million, which buyer is willing to accept.

Scenario B: Receives offer of $3.3 million, which buyer never receives because broker doesn’t present it.

Now you must be asking yourself a question. Doesn’t the broker make more commission with the $3.3 million offer? Well yes and no. Normally when everything is black and white, Yes. When there are “creative” businessmen involved, No.

Let’s present the offers from another angle – the Grey Area

Scenario A: Bidder offers $3.0 million + $40K cash to the broker if his offer gets accepted.

Scenario B: Bidder offers $3.3 million

You see how it taints the bidding? In scenario A, the broker makes $220K commission. In scenario B, the broker makes $198K. Now its clear! We are operating in the grey area of business. As you gain more business experience, you’ll find this grey area around every corner.

Don’t beat yourself up when this happens to you. You can be aggressive and locate the seller directly or you can walk away. In this particular case, I found some things out that wouldn’t have made this a good deal at all at any price. This cost the bidder $600 in my consulting time. $600 saved him potentially hundreds of thousands of dollars of painful ownership of a business that would’ve drained him financially and emotionally.

Don’t be afraid to pay professionals.

You are paying for their specialized experience, experience you can’t duplicate. It is the same for Financial planners. Would you rather earn 15% after paying a 2% management fee to a top-notch management team? Or would you rather risk your assets and go it alone. You might make 15% if you’re lucky, maybe more. Odds are you’ll probably make some money, but sooner or later risk will catch up to you and you’ll lose a good amount. Don’t make expensive mistakes. Leverage other people’s knowledge when appropriate.

If you have a business or financial planning question, leave a comment. You might get some professional advice for free!