By Chris Spenner
“Hello! I am excited to tell you we have a buyer for your business, but you have to act fast!”
Sadly, the number of small and online business owners that hear and fall victim to this line each and every day is increasing due to the rising number of brokerage scams. And, unfortunately, these scams by deceptive organizations are ruining the reputation of trustworthy business brokers who actually do help small business owners.
Brokerage scams take advantage of small business owners in multiple ways:
They do not have an actual buyer for the business.
Organizations calling businesses with the promise of a buyer do not, in fact, have an actual buyer for the specific business. Instead, they have a list of potential buyers that do technically have an interest in buying a business. However, telling an owner they have a buyer is very misleading and even fraudulent.
They charge a fee under the pretense of having a buyer.
In addition to telling the owner they have a buyer, these scammers charge the business a fee (typically $500-$700, with some much higher) to reveal the buyer’s identity. Once an owner pays the fee, they do not receive the name and contact information of a specific buyer for their business, because the scammer does not have a specific buyer. Instead, the business owner will receive a list of “contacts” that might have an interest in buying the business.
They create a bad name for business brokers, despite most being trustworthy.
These organizations calling around and promising the world to business owners are ruining the reputations of brokers everywhere – and that harms owners. After one bad experience, owners no longer trust other brokers and avoid interaction with them at all costs. However, most business brokers have good intentions and offer valuable services. Legitimate brokers help companies successfully transition from one owner to the next, while providing reputable, trustworthy expertise to their communities. Unfortunately, these scams have made owners so wary that they ultimately sacrifice business value by missing the worthwhile advice of experienced brokers.
As a business owner, take precautions to protect yourself from these scams.
One of the most important things to note regarding these scams is that if a broker has a potential buyer for your business, they have no right to withhold that buyer’s name and information from you. Therefore, if you are approached by someone who promises a buyer but refuses to provide that information without you paying a fee, pay attention to that big red flag!
Business brokers should follow best practices to protect the reputation of their brokerage.
Legitimate brokers need to set themselves apart from these scams through solid business practices and processes. First and foremost, a broker should not push or entice any owner into selling their business before they are actually ready emotionally. Chances are, any prospective deal would go sour because the owner would stall when negotiating the price or back out of the sale at the last minute. A reputable broker’s primary goal should be to help business owners sell their businesses – but only when the owners are good and ready. Likewise, brokers should never promise owners a big payday that is not justified by an objective business valuation. Providing ethical, honest advice and services to business owners who are prepared to leave their businesses will result in mutual benefits for the seller, buyer, and broker.
Of course, there are times even respectable brokers need to take a more “aggressive” approach. Making a direct ask, following up a few extra times, or asking satisfied clients for leads and referrals are examples of appropriately assertive behavior. The most successful sales happen when owners have realistically considered their options and are 100% ready to sell mentally. Brokers find that the best prospective clients approach the task of selling their business willingly, not being dragged through the process.
Business owners need to be vigilant, and ethical brokers need to deliberately rebuild the reputation of the M&A industry to stop the damage caused by deceptive shams.
Chris Spenner is a strategic business consultant with Metro Business Advisors, a business brokerage,
valuation and succession/exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Chris at cspenner@MetroBusinessAdvisors.com or (314) 221-4378. www.MetroBusinessAdvisors.com