…or are they all devils trying to deceive you? Do certain brokers tend to scam route buyers by selling bad routes?
First off, there are two sides to observe a broker: 1) From the sellers perspective and 2) From the buyers perspective. I’m only going to be discussing the buy-side perspective, since the questions above are some popular questions I’ve had and wanted to explain a bit more about them and their role in this whole process.
I’ve seen countless routes over several years and seen brokers come and go. Lately, I’ve watched the flood of newbie brokers enter the market trying to make some easy commissions from route sales. And with that, each route bundle gets prepared a little differently than the next in regards to documentation, presentation, and that broker’s ease to work with in regards to getting proper due diligence materials.
These are the gate keepers, and they’re often a necessary gear in this industry. Understanding them a bit better helps in regards to working with them to get a deal to completion.
Here’s a few important things you need to know about brokers:
1) They’re not inherently evil…but it doesn’t matter.
I had someone tell me that they didn’t trust a certain popular broker in the industry. When I asked why, they said many of their routes they had presented had inaccurate financial data, or were being sold in such a way that they were likely to fail (yes, FedEx routes fail – not from lack of packages, but from the way some of them are simply structured). Now everyone knows I’ve ranted about my distaste for brokers back in the article “why your broker probably sucks”, however, you’ll notice that one of the reasons that was never mentioned was that a broker presented a ‘bad’ route.
It’s always the buyers responsibility 100% to perform due diligence.
The broker doesn’t help with your due diligence. And some will help explain a thing or two, but it likely is not thorough enough and also it’s not the broker’s responsibility. The broker is simply presenting what he has been told by the seller. If the seller’s financial books are garbage (which they often are), or if the seller is exaggerating his earnings (also common, the question is just by how much), the broker won’t likely know.
His job is to market the routes as quickly as possible, get people excited and interested in the routes, and get people to pull the trigger. Therefore, some very solid and excellent brokers will often present routes that are absolutely awful.
But it’s not their fault.
2) Brokers need zero qualifications to become a broker.
Some brokers are experienced business professionals that I know and respect. Others are people that have never sold anything in their life before, or maybe sold a couple routes squeaking by without really knowing what they were doing.
Some don’t understand proper escrow procedures or deposits.
Some don’t understand legal issues with transfers (asset transfers vs stock purchase agreements, aka SPAs).
Some have never even owned routes or fully understand what they’re selling.
There are no licenses, qualifications, or certifications for being a broker.
This doesn’t mean all of them are incompetent or evil.
But it does mean that you need to know what is typical in the industry to understand what could be fishy or what is perfectly legit. The biggest problem with zero qualifications is simply the complete differences in procedures each one wants to go through. The fact that a broker may not have owned a route ever doesn’t mean they’re not a good broker (we shouldn’t expect brokers to have owned the business they’re selling anyway), but many people reasonably expect the salesman of an item to also be an expert on what they’re selling. Again, this leads back to the idea that broker can somehow validate all the info presented in a route…
Most can’t, don’t, or won’t validate information from the seller.
So while I often jump into a rant when I talk about brokers and the things they do (eg. not call you back, take several days to reply to your emails, put up catch-22 road blocks, or simply act mean / rude), one of the things that they do get an undeserved reputation for is the quality of routes coming out the door, because it’s really not their fault.
A broker is rated on their ability to professionally sell a route, not provide all the due diligence for you.
Think about who’s posting testimonials for a broker; is the buyer or the seller? Hint: It’s the seller.
A brokers job is to market a route and get a route sold for a seller. It’s our job to perform the correct due diligence. If you’re interested in getting trained on how to perform the due diligence on a route you’re considering, regardless of the broker, I’d love to start working with you.