Business Brokers Work on Q.T.

They move stealthily through the business community, sworn to secrecy as they suss out people needing their specialized services.

These under-the-radar figures are business brokers, who match people looking to sell their business with those wanting to buy one.

With the oldest baby boomers turning 65 this year and starting to retire, and younger boomers being downsized and looking to become self-employed, business brokers are finding their services much in demand.

“We’re kind of the special forces out there,” said Carl Grimes, owner of CBI-Sunbelt, a business brokerage firm based in Lowell. “Very few people do what we do, and we do it in the dark of night.”

He’s only partially joking about the latter.

He points to a photo of the company’s Springfield, Mo., office staff taken several years ago for an ad. Just before the photo was snapped, Grimes said, one of the brokers questioned whether it would be wise to show their faces.

“I said, ‘OK, turn around,’” Grimes said.

The ad photo shows the staff standing with their backs to the camera. An explanatory headline below states: “Confidentially protecting your business.”

That ad “went over like gangbusters,” Grimes said.

Confidentiality is crucial, he explained, because owners face considerable risk if word gets out that they’re thinking of selling their business.

Banks may call their loans, which Grimes said happens a lot these days. Employees may leave and vendors might change their terms.

Besides keeping potential deals on the down low, a business broker walks the seller — and buyer — through all the steps that ensure a successful transaction for both parties.

Larry Lee, former owner of Northwest Arkansas Pool and Spa in Rogers, turned to CBI-Sunbelt when he needed to sell the company after 18 years. A family member had lost a lot of money selling his own business, and Lee wanted to make sure that didn’t happen to him.

He said Grimes assured him that by going through the proper channels, including using a closing attorney, he would be protected.

And a little more than a year after selling his business in September 2010, Lee said he still feels he’s protected.

“It was a great experience,” he said.

 

Wealth Transfer

While people may think of wealth in terms of real estate or stocks and bonds, “the truth of the matter is most wealth in America is controlled by small businesses,” Grimes said. Citing books such as “The $12 Trillion Opportunity” and “The Millionaire Next Door,” Grimes said this wealth is conservatively estimated at $12 trillion.

Small businesses, or those with fewer than 500 employees, create two of every three new jobs, and more than half of working Americans either own or work for a small business, according to the U.S. Small Business Administration.

And as baby boomers, many of whom are small-business owners, retire over the next 10 years or so, the wealth held in those businesses is changing hands.

“The greatest transfer of wealth in the history of the world is taking place right now,” Grimes said.

But the wannabe retirees face the problem of accessing the liquidity of their business, he said. They need to convert the value of their business into retirement income.

Those who plan to pass the business to their children may find the kids don’t want it. After all, they grew up watching Mom and Dad work hard to run it.

That leaves basically two options, Grimes said.

One is closing the business and selling its assets — inventory, furniture, fixtures and equipment. But those bring just pennies on the dollar, he said, and shutting down puts more folks out of work.

“The smart [owners] will explore the opportunity of selling their businesses to a third party,” Grimes said.

 

Seller Annuities

A third-party transaction provides sellers with some cash up front, and with owner financing, they’ll also get monthly income.

“We call that a seller annuity,” Grimes said. “An annuity to me is getting paid for something you don’t have to do anymore.”

Owner financing may be the best way to sell a business in a stagnant economy, according to the International Business Brokers Association Inc., a Chicago-based trade group to which CBI-Sunbelt belongs.

The IBBA’s website lists several benefits of seller financing: faster sale; flexibility in setting up payment schedules, interest rates and loan periods; tax breaks; and protections such as asking the buyer to provide information like profit and loss statements or inventory levels along with the monthly payments.

Lee, who sold his business under an owner-financing agreement, had some initial reservations because of his relative’s bad experience.

But he was won over by the fact the closing attorney tied the promissory note for the business and the property together so that if one defaults, both will go back to him. He could then run the business again until he found another buyer.

Owner financing had other benefits, Lee found.

Since there’s no large, lump-sum payment, “you don’t have to worry about reinvesting the whole thing right away to keep it from Uncle Sam,” he said.

Plus, “it’s steady income, and they worked out a higher interest rate for me than anything I could get right now anywhere else.”

Lee works part time for the new owners, Jeff and Missy Whitham, and says it’s the best of both worlds.

“I get to do what I like to do, I’m not working as hard as I used to, and I don’t have to deal with the business side of things,” he said.

Michael McNamara, who just bought Boar’s Nest BBQ in Fayetteville with Stephen Parker, has purchased seven businesses through CBI-Sunbelt, including Bariola’s Pizza and Wood Re New.

McNamara said an owner’s willingness to finance the sale shows the owner believes in the business and its continued profitability.

“Also, the last three years, [owner financing] is about the only way to buy a business,” he said, “because banks don’t want to loan money for business purchases. Bank loans are asset-based, so it’s become a necessity to do the owner finance.”

He said he can’t imagine buying a business without going through a brokerage.

“They take you through all the steps,” he said. Because they’ve vetted the business, “you don’t come up with any hidden ghosts like liens” or other unpleasant surprises.

“You know what you’re getting.”

 

Growing Field

So how does one conduct business when the nature of that business requires going incognito?

“There are techniques we’ve perfected over 17 years that other folks just don’t know about and we’re not telling them,” Grimes said. “But we work really hard to sell businesses and it’s not easy.”

The company now has more than 4,000 buyers registered in its database, he said.

“When somebody lists a business with us, the first thing we do is go into our own database and look for buyers there. That’s why we sell some of them so quickly.”

A former newspaper publisher, Grimes has been in the business brokerage field since 1994. Starting with his own company, he bought the Northwest Arkansas franchise of South Carolina-based Sunbelt Business Brokers in 1995.

He now has offices in Fort Smith, Joplin, Mo., and Springfield, Mo., plus the Lowell headquarters.

Grimes added CBI, which stands for Confidential Business Intermediaries, to his company’s name in 2009, representing its ability to handle mid-market mergers and acquisitions.

CBI-Sunbelt currently has six brokers in Lowell, three in Fort Smith, two in Joplin and three in Springfield.

“And we are actively recruiting for brokers at all of our offices,” Grimes said.

Ed Pendarvis, whom Grimes called one of the “founding fathers” of the business brokerage industry, founded Sunbelt Business Brokers in 1978.

The biggest advantage of buying an ongoing, successful business is it has already proven itself in the marketplace, Pendarvis said.

“You’ve got a customer base and trained employees,” he said. “It’s easier to continue a business than to start up and grow a new business.”

Finding that “an educated buyer is more likely to buy a business,” Pendarvis wrote a “how-to” book titled “Buying a Business to Secure Your Financial Future” that was published by McGraw-Hill in 2005.

He’s also written an e-book titled “The Secrets of Buying the Right Business (for You) Right.”

“The best way to provide for your job security is to buy a business for yourself,” he said.