How to become a broker of small businesses.
Boston — Tom West wants to make it as easy to find the hardware store or restaurant you have always dreamed of owning as it is to locate a three-bedroom ranch house.
Until recently, buying or selling a small business - one with sales of less than $100,000 a year - has not been nearly as orderly a process as purchasing a home. Potential buyers usually had to hear about businesses for sale through word of mouth. As a result, many small companies could not be sold.
''There was no market,'' explains William Ardiff, a business lawyer with the Danvers, Mass., firm of Ardiff, Ardiff & Morse. ''The businesses were merely liquidated or sold for inventory or real estate value.''
But now one company is launching a nationwide chain of offices that will focus on selling small companies. Two-year-old VR Business Brokers Inc. is setting up a franchised network of small-business brokerages. VR is selling franchises ''at a 10-a-month rate,'' says Mr. West, who is the company's president.
A nationwide grid of such offices could make it easier for sellers to get a price that values their business as an ongoing operation rather than as a pile of equipment or plot of land to be auctioned off. Since most sales offices will be linked by computerized information retrieval systems, the brokerage network could help buyers get a more comprehensive picture of the kinds of businesses that are on the market and their asking prices.
The emergence of a national business brokerage network ''should bring a little order and rationality to the marketplace which does not exist today,'' notes Richard C. Reese, a Harvard Business School lecturer.
It will be some time before franchised business brokers are as common as Century 21 real estate offices. But the chairman of VR, George Naddaff, predicts that ''by Christmas we will have 200 units sold, by next year it will be 400, and by some time the following year it will be 600 offices, all in major markets.''
And the idea of establishing national networks seems to be catching on. United Business Investments Inc., which has 37 company-owned brokerage offices in California, Florida, and six other Southern and Western states, will franchise starting in 1982, UBI president William Ososke says. ''We are now in the process of selling our existing offices to their managers.''
The strategy for business brokerage franchisers resembles what companies like Century 21 have done with franchised real estate. For example, for a $22,500 franchise fee VR sells the use of its name and certain operating assistance. Local franchise holders then seek businessmen who want to sell their firms and investors who want to buy a small company.
For putting buyer and seller together, a VR franchisee typically charges a commission of 12 percent of the sales price. Of his total commission, 6 percent is sent to VR headquarters in Needham, Mass., as a royalty fee and another 2 percent is mailed off to support national advertising.
The concept of business brokerage is not new. ''There have always been brokers available,'' notes John McNally, Boston district director of the Small Business Administration. Real estate agents, lawyers, and accountants also occasionally function to bring together small-business buyers and sellers.
Most brokers, however, have focused on businesses with price tags of $250,000 or more. The sale of these higher-ticket concerns brings in more commission income than selling a ''mom and pop'' convenience store. ''I have not seen any transactions from (small business) brokers'' recently, notes Robert MacAlear, vice-president of New England Merchants Bank.
While full-time small business brokers are relatively rare in most parts of the country, numerous such brokers can be found in Orange County, Calif., and retirement areas of Florida. Brokers in these two states serve a thriving small business market. Business opportunities ''are thicker on the ground in Florida than in the rest of the country,'' explains A. Q. Smith, executive vice-president of Sherwood International, a Sarasota-based small business brokerage firm with 22 offices in Florida.
One reason these brokers have prospered in the Sunbelt is that buyers there have often sold assets before moving to warmer climes and have cash on hand. ''They have a U-Haul (trailer) behind them and come out liguid,'' notes Mr. West of VR Brokers. He has experience with the Sunbelt market, having run UBI in California before moving to VR in Massachusetts.
Strange as it may seem, the current recession may prove to be a good time to launch a network like this. True, with lendable funds scarce, banks are not likely to provide purchase funds to buyers. But ''sellers do most of the financing anyway,'' notes Mr. Ososke, the UBI president.
And in some ways the rising unemployment a recession brings may help small business sales. Mr. Reese at Harvard notes that a lot of purchasers ''are buying themselves a job.''