Insights from a business broker

Thinking of buying or selling your business?

Karen Dorfling, director of Businesses4Sale SA, talks about her business journey and the lessons she has learnt as a business broker.      

What is the market like for business brokering companies, and what is your competitive edge?

Businesses4Sale SA assists the business owner in preparing the business for sale. A professionally prepared information memorandum is a strong marketing tool in the sale of a business.

We take extra care and effort in preparing a true representation of the business, to reduce the involvement of the business owner in the initial meetings with potential buyers.

We have a large database of serious, qualified cash buyers. We often sell a business to a buyer on our database before it even formally goes on the market.

We focus on maintaining confidentiality throughout the whole process.

The market is highly competitive. That said, we are one of the few brokerages that comply with the legal requirements to operate as a business broker. All our brokers hold a valid FFC (Fidelity Fund Certificate).  

What did you do before you started Businesses4Sale?

I started my career as a business broker 11 years ago and have been involved with LINK Business Broking for the past seven years – the last three as co-shareholder in the LINK SA Master Franchise.

Why did you start your own brokering company in November last year?

Link International (Pty) Ltd based in New Zealand, who was the franchisor for LINK South Africa, decided to withdraw from the South African market in 2018.

Business brokering is my passion and since I had the experience and knowledge, starting a new brand supported by an excellent team of dedicated, loyal business brokers, looked more exciting than joining another company.     

Where did you get the funding to start your own business?

On a daily basis, we, as business brokers, see how the cost of financing can influence a business negatively. So I decided to fund the business development myself, out of my savings.

The first four months were tough, as we needed to grow a strong sales base to match the well-established buyer base we have built over the years. Establishing a new brand is hard work, and it affected our sales during this period.  

How did you grow your sales offering?

When we started Businesses4Sale SA, we had a database of both business owners looking to sell, and investors looking for business opportunities. We used an industry-specific CRM (client relationship management system) to help us manage this data and database.

We had a new website designed, and found both the sellers and buyers through our various extensive online marketing platforms.

Did you ever feel like giving up?

The thought crossed my mind once or twice, but I had the support of a dedicated team and my family, and was determined to make a success of the new business.  

How does your business model work?

Businesses4Sale SA earns a facilitation fee on successful sales. I have a core team of independently operating business brokers who work on a commission basis, one licensee in the Eastern Cape, and we are looking to possibly expand licensing opportunities nationally.

Licence holders will be selected carefully to make sure we get the right people on board.   

What were some of the biggest challenges when starting the company?

To come up with the right trade name. I was looking for a name that would tell people exactly what we did when they saw the name.

Thereafter, the challenge was to get a good logo and proper corporate brand designed. It was important for me to have a brand with a strong identity.

Developing a strong website was another challenge, as I needed a platform that would be representative of our services and could grow with us.

We worked closely with an excellent web developer and SEO (search engine optimisation) specialist, whose expertise managed to get our website top ranking within a few months.

How did your past experiences influence where you are today?

I think everything I have done in my career has helped to prepare me for where I am today. My psychology background has helped me develop empathy with both business owners and buyers.

Experience has taught me to truly listen to people. Better understanding the needs of clients allows me to negotiate better outcomes for all the parties involved.

How has the company grown since starting up?

We have more than 200 businesses for sale and a database of over 13 000 qualified buyers. We were blessed with several successful transactions since starting the business, with some more transactions lined up from September this year.   

What do typical buyers in the current market look like?

A large percentage of buyers are in search of a better quality of life. They might want to relocate to the Western Cape and Garden Route because of the perception that these regions have lower crime rates.

We also have quite a few buyers who are looking for opportunities to return to South Africa after spending time abroad.

Then, of course, there are the ones that are retrenched and who have to buy an income. Also, existing businesses looking to expand business operations or diversify into other industries.

We find that buyers mostly look at purchasing a business within their financial means, in other words, they use the cash they have available instead of financing to purchase a business.

What are some of the biggest mistakes buyers make when buying a business?

Buyers don’t gather enough information about the business. They end up with a poor picture of what they are getting themselves into.

A restaurant business, for example, might be bought lock stock and barrel, but without a stipulated inventory the buyer might find the stock to be nothing more than two cans of coke.

Other mistakes include buying into a business or industry they know nothing about and not checking the figures properly. One of our prerequisites is that a buyer should do a due diligence before purchasing a business.

The previous business owner also has to spend at least a month with the new owner to ensure a smooth transition.    

Who are your typical sellers?

People usually sell when they want to retire – and these businesses are always in high demand because they usually have a good track record. Other sellers might be looking for a career or lifestyle change.

Many restaurant owners, for example, get tired of the long hours. There has also been an increase in the number of owners who are selling because they want to emigrate.

What should sellers be aware of when putting their business onto the market?

Small business owners often keep poor business and financial records, making it difficult to value the business. They may also lack formal systems and do not keep a record of or declare all income. It is important that buyers can verify all financial information.

Besides this, sellers often place an emotional value on their business, which is not in sync with market expectations.

How do you value a business?

Prescribed models exist for determining the value of supermarkets and filling stations, but with other industries, we take several factors into account.

These include the asset value, how long the business has been operating, the risk profile of the business and industry, the location and, of course, the net profit.

What are the important challenges that entrepreneurs currently experience?

Labour-related issues are probably the biggest challenge for most business owners. Another issue is funding for entrepreneurs.

Application processes and red tape need to be addressed to make funds more accessible.

Some people say it is better to start your own business than buy a business. What do you think?

I think there is room for both, and it generally depends on the entrepreneur. Starting a new business can be much more expensive and riskier than buying into a business that is already generating an income and has an existing client base.

You also know that the location of the business is working, which is a large gamble when you start something from scratch.

Do you have a business role model?

Richard Branson, because of his tenacity. His life is such an example of going out to get what you want, even when it looks as if the odds are against you.

What are your plans for the future?

Growing our footprint nationally and internationally. We would like to continue working in association with LINK International Business Broking to ensure we can give our sellers maximum exposure to the buyers’ market.

We would also like to grow our team of professional brokers with a specific focus on the Western Cape over the next 12 months.

This article originally appeared in the 25 July edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.