For Richer, for Broker
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Brokering the sale of a business is a lot like brokering real estate, except for one major difference: Selling a business is generally tougher. That's because the seller of an ongoing business faces an interesting conundrum. On one hand, the seller would like all qualified buyers to know the business is for sale. On the other hand, if a potential seller's competitors, customers and employees learn of this intent, the ensuing drama could ruin the business before it can be sold. So rather than putting a "for sale" sign in the front yard, many sellers turn to VR Business Brokers, the franchise chain that holds the top spot in the "Business Brokerage" category in Entrepreneur's 2001 Franchise 500Â® and whose logo claims it "has sold more businesses in North America than anyone."
VR Business Brokers brings business owners and potential buyers together, but, ironically, the concept itself has been sold to more than its share of franchisors, changing owners three times since it started brokering business sales in 1979. The most recent in this string of owners, which includes one bankruptcy in 1991, bought the rights to manage and franchise the chain in June 1999.
The latest CEO, Richard Brinkley, and his team purchased the company for only $725,000-$300,000 in cash and a note for the balance. The note has a balloon payment of $213,600 due in 2003, which is followed by another balloon payment of $195,500 in 2004. During fiscal 1999, the franchisor lost $131,841 on total revenue of $553,947.
It would be inappropriate to form any conclusions from these facts, but if I were going to join VR Business Brokers as a franchisee, I'd like to know how it plans to remain solvent over the next few years. Regardless of ownership turmoil, franchisees Connie and Bill Womack in Arlington, Texas, say they've been able to make a good living in the system. Connie, who has been involved with VR Business Brokers as a franchisee, master franchisee or employee since the beginning, says the key to the franchise's success is adaptability. For example, though most of the Womacks' business currently comes from referrals, VR Business Brokers' strong Web presence has changed the way buyers and sellers find each other.
Operations at VR Business Brokers centers have changed as well. In past years, the franchisor promoted the idea of large offices with a number of sales associates. Now many franchisees are working in solo offices. Smaller is a trend throughout the franchise system as a whole. In the late '80s, about 300 franchisees were in the system; today, that number is down to only 60 operating locations in North America (though more locations are slated to open).
Avoid the tunnel vision of focusing only on million-dollar businesses. In fact, most of the businesses sold by VR Business Brokers are valued at less than $500,000-$150,000 per transaction is a rough average for the system. Even at these levels, the potential is intriguing, as franchisees typically retain an 8 to 14 percent commission on the sale of any given business. Smaller sales are subject to a minimum fee determined by each franchisee.
VR Business Brokers offers a number of benefits unavailable to anyone trying to broker businesses on his or her own-most notable is Today's Business Owner, a magazine containing information on businesses listed with the franchisees. In addition, the franchisor provides all the necessary forms, marketing materials, ongoing training and Web presence that facilitates a professional appearance and operation. Assuming the franchisor has staying power and you have the patience to build a referral network of small-business owners, this franchise could be intellectually and financially rewarding for years to come.
The estimated initial investment for this franchise includes opening and operating the business for the first three months, but it doesn't account for any salaries.
Todd D. Maddocks is a franchise attorney and small-business consultant who is presently the CEO of The Worldlink Group. You can reach him at TMaddocks@aol.com.