Business Brokers Poised for Entrepreneurial Bonanza : Sales: Proliferation of small companies has created a lucrative opportunity for firms like O.C.’s VR Business Brokers.
Bob Philpott hated traveling, but his work demanded lots of it.
So he quit his job selling industrial safety devices and, with his life’s savings in hand, went shopping for a small business that would keep him close to home.
His first step was to hire a business broker who pitched him several small companies, including one specializing in direct mail.
“I didn’t want to get involved in selling coupons,” the 49-year-old Philpott said. “I guess I had an ego. But my broker kept pestering me to look at the numbers. After I did, I thought, ‘Well, maybe I could sell coupons.’ ”
He eventually purchased a Laguna Hills franchise that was part of Yellow Jacket Direct Mail and, just six weeks ago, bought the entire company of 15 franchises with combined annual sales of $3 million.
“Now,” he said, “I’m the junk-mail king.”
“I’m so glad I hired a business broker. I didn’t know what I wanted, and my broker helped define that.”
Stockbrokers, real estate brokers and even insurance brokers are well-known to the public, but business brokers make up a less visible industry. Though Americans have been buying and selling small businesses for years, the specialized profession of business brokering is relatively new. And, because of rising interest in entrepreneurship, it is a profession poised for growth.
According to the U.S. Small Business Administration, there were 21.3 million small businesses in the nation in 1992, compared to 14.4 million in 1982. The agency defines a small business as one employing no more than 100 people.
Business brokers see in those figures a multimillion-dollar opportunity as entrepreneurs sell their companies to each other.
Business brokers, for a fee, will price and market those companies. They help owners get the word out discreetly that a company is for sale, and they advise people looking to buy going concerns.
There are at least 3,000 business brokers in the United States, with California counting at least 400--more than any other state, according to International Business Brokers Assn., an industry trade group based in Concord, Mass.
Some brokers work out of specialty one- or two-person shops that sell only one type of business, such as accounting or computer firms. Others are part of larger companies--VR Business Brokers in Newport Beach, for example, has 62 franchise operations nationwide, including the one that helped Philpott find his niche in direct mail.
The owner of VR Business Brokers is Don Taylor, who made a name for himself as the founder of Help-U-Sell. Taylor started that company, which for a small fee teaches people how to sell their own homes without a real estate broker, in Anaheim in 1976.
“I thought, ‘Look at all these houses being built. Someday people will want to sell them,’ ” Taylor said.
Today, Taylor said, “It’s the same with businesses. . . . I think we’re at the point real estate brokers were in the 1950s.”
After Mutual Benefit Life Insurance bought Help-U-Sell in 1986 for more than $4 million, Taylor used the proceeds to buy VR Business Brokers, now one of the nation’s largest firms of its type. He and partner Les Duryea, an Orange County lawyer, together invested $500,000 in the company, created a franchise structure and devised a marketing strategy to take advantage of what they hope is a booming market in small businesses.
“This is the era of the entrepreneur,” Taylor said. “We’ve got all the growth in the economy coming from small businesses, and at the same time we’ve got baby boomers growing older, executives who have lost their jobs because of corporate downsizing and a steady influx of immigrants trying to put their families to work.”
“We want to add a professional element to this business and turn it into a profession like real estate brokers,” Taylor said.
A multinational company can turn to an investment banker for advice on finding a buyer, but an entrepreneur faces special challenges.
The first issue is confidentiality. Small-business sellers like to keep their negotiations quiet because they don’t want their employees, suppliers or competitors to know that they are seeking a buyer.
Setting a value for a small company is another thorny issue, especially if the firm is built on personal relationships that would be threatened if the owner left.
The final hurdle--usually the highest one--is finding a potential buyer who can get the necessary financing. Banks and conventional lenders are now much more reluctant than in the past to lend money for new endeavors.
Taylor, who envisions VR Brokers becoming the Century 21 of business brokering, said that, while the stagnant economy is forcing buyers, too, to be more cautious than in the past, many are also more sophisticated. Many of today’s budding entrepreneurs, he said, are refugees from some of America’s largest corporations and come armed with MBAs and extensive business experience.
“The buyers of today’s businesses are very sharp, very computer savvy,” Taylor said. “Rather than selling to the blue-collar buyer of the past, we’re selling to the white-collar buyer.”
VR Business Brokers is projecting sales about 1,500 small businesses this year and even more in 1994.
Tom West, one of the founders of VR in 1979, thinks the new owners have a chance of hitting their projections.
“I think their timing is pretty good because the market has bottomed out and there seems to be a turnaround,” said West, who is executive director of the 800-member International Business Brokers Assn. Primarily an educational organization, the group promotes a code of ethics for business brokers and also provides referrals.
“Buyer activity is increasing,” West said, “and the folks at VR have a strong sense of marketing.”
West sees a growing need for brokers specializing in complicated businesses such a computer companies. “Someone with the contacts, who speaks the industry language can be a real force in the marketplace,” he said.
