Role of business brokers in buying a business is very important. In fact, buying a business is more popularly called buying process. This entails that buying a business requires several steps to be performed, particularly if this is your first experience of this kind. Buying a business is not a small decision and you cannot take it lightly.

Only 10 % of People Complete the Process:
Importance of the role of business broker in buying a business further increases with the fact that 90 % of the people who start their search for buying a business give up without making the final deal. The biggest reason seems to be that people do not understand in advance that this process is so much involving. Most of these people who leave the task without completing it are the first time buyers. Frustration because of making one after one crucial decisions force them to abandon the project.

Hiring a professional Business Broker is always Useful:
Buying a business is a rare opportunity for the most of the people in their lives. It is always useful to hire the services of an experienced and professional business broker who can help you to go through the overall process of buying a business smoothly. Here are some examples of how a business broker can help you.

A business broker with his experience of the industry is right person to tell you that how much amount of money you can afford for this purpose. By having a proper understanding of your financial goals he can guide you that which type of business will be best suitable for you. Moreover, a business broker is the best person to guide you about the geographical location. He can provide you the names of the businesses that are available for sale in addition to gathering the and also evaluating the information regarding these businesses. Role of the business broker in buying a business is not only limited up to all this. He can structure the offer for purchase, manage finances for you and can close the deal.

Most of the business brokers prefer talking personally to the people. So in the very first meeting with your business broker, let him know what is the period you have set for completing the deal. Also tell him about your expectations from the business in question. Tell him clearly about the availability of the finds and how much cash is readily available. Role of a business broker does not end here. It can also help you in managing the finance from third party if need be.

Individuals looking to franchise their business should start the process by building a realistic financial model. This article provides a blueprint for franchising a business with an emphasis on the importance of using a realistic and conservative financial model.

Each day untold business owners consider the possibility of converting their business to a franchise. The benefits of franchising can be rewarding for business owners that seek growth and increased profitability. However, there is that all important caveat: The business must have the attributes to successfully operate as a franchise. There are important questions to consider when considering franchising. Here are a few of the more important ones:

· The market size for the product or service
· Quality of the company operation
· Ease of operating the business
· Ability to package or “cookie-cut” to a franchise operation
· Management acumen of the company
· Competitive climate
· Projected franchise investment
· Amount of owners capital available to invest in franchising the business
· The projected profitability and ROI for a franchise operation

The last item on this list is where your in-depth franchise analysis should begin. This is not to say that the previous questions aren’t important, because they are. Rather, the ability of a franchisee to be financially successful is the critical piece of the equation and the one so often missed by potential franchisors. It’s instinctive for the business owner to focus on product, sales and operations.The Financial Model

Step 1

The first step in the process is to construct a pro-forma financial statement for a franchise operation.You should construct the pro-forma based upon the financial results of one of your actual locations. Use a spreadsheet format so that you see various financial models. If you don’t know how to use a spreadsheet program find a family member or friend who can assist you. The advantage of using a spreadsheet is that you can change the entries to show various results. Known as sensitivity analysis multiple pro-forma’s allow you to depict different financial scenarios.Adjust the financials for the following:

1. Take out any unusual expenses that a franchisee would not have to incur.

2. Include salaries for employees who devote their efforts to the franchise operation and not for other business activities, such as the bookkeeper or the owner.

3. If there is more than one company location and collective expenses are recorded on one location you need to use an average of these
expenses for your pro-forma. An example would be advertising or supplies.

4. Make sure that the sales figure is realistic. It makes little sense to use a sales figure for a location that’s been open for several years since a franchisee must start from zero. Adjust to reflect sales for a first year operation. Don’t expect a franchisee to achieve the same level of sales that the current business is at.

5. Add owner income, amortization, depreciation, interest, owner perks and non-productive salaries to the pre-tax income.

6. Be sure that the gross margin per-cent is realistic. If you’re going to adjust err on the conservative side.

7. Calculate the pre-tax income.

8. Use 7% -10% of sales as an estimate of royalty and advertising fund fees. Deduct this amount from the pre-tax income.The result should be an estimated income for a franchise operation.

Step 2

Estimate the investment required to start up a new location. You’ll need to include the costs to open the business and market the products or sales. Include six months of working capital.

The pre-tax income from the franchise should range from a minimum of 30% to a high of 50% of the total investment. This would reflect an ROI of 15-20% and the additional income for the franchisee’s time and effort in running the new franchise location. If your pro-forma has these results you’ve passed a critical test in the process. On the other hand, if your results do not reach these benchmarks but are close consider how increased sales and/or lower expenses can be accomplished to increase earnings.

Building a financial model for a proposed franchise operation is a critical step in the process of franchising an existing business. If the financial
model is realistic and based upon reasonable expectations then you’re ready to proceed to a more detailed analysis of the market, operation
and competition.

There are some experts who represent their field with professionalism and many others who are less than competent. It is important to get to know your broker and his/her experience, communication style and strengths. In short, you and your broker should ‘fit’ as a team working toward the goal of selling your business at acceptable price and terms.

Here are some steps you can take to make sure you are working with someone that will guide you through the process of selling your business:

1. Check the broker’s experience and ask specific questions about theit last few successful transactions. Does the broker tend to work with the buyer or seller? What went right and what went wrong during their last similar-sized transaction? Can you talk to his/her last business owner customer as a reference? How long has your broker been selling businesses in the local area on a full-time basis? And don’t just look at the name of the brokerage company – many larger firms are successful based on the work of just a few agents. The rest of the agents tend to wash through an organization in less than a year.

2. Check the broker’s website and marketing collateral. How are their brochure and website? If the broker does not have a website, they are far behind the times. The internet has become the broker’s primary method of finding prospective buyers for your business. Is the site well written, attractive and easy to navigate or is a ‘do-it-yourself’ job? If a brokerage hasn’t invested in a decent website and professional brochures, they will not invest their own ongoing education or the advertising necessary to attract a buyer for your company.

3. Ask about the broker’s membership in professional business sales organizations and his/her state licenses as needed to market businesses for sale. A membership an appropriate local or national professional association means the broker was committed enough to this profession that he/she spent the time and money to maintain his membership. Having a real estate license is required in many states for business brokerage, and although important legally, it does not mean the broker’s focus is the sale of businesses. Do your homework to be sure the broker specializes in business sales and not residential or commercial real estate.

4. Agree on the listing price before you sign the marketing agreement. Your broker should be able to explain the most customary valuation techniques for your industry and have data on comparative sales for your review. A good broker will give you an opinion of value before asking for a marketing agreement.

5. Don’t fall for the ‘broker tricks of the trade’. If a broker tells you he/she has a buyer for your business without first really getting to know your firm, be wary. If a broker tells you he/she can get your asking price or more on after a brief meeting, be skeptical. And if a broker requires any upfront payment, be afraid.