Advantages of Local Business Brokers

Business owners are often better off using a local business broker within close geographic proximity when listing their business. Experienced local business brokers have unique insights into the local economy and business activities within their town, city, or county. Knowledge gained through the experience of selling local businesses is often key to pricing a business correctly and navigating a business deal through closing. In South Florida, business owners are often better served by using a local business broker familiar with the challenges and benefits of doing business in this local marketplace. Unique advantages of local business brokers include pricing a business properly compared to other businesses in its local market, understanding customs of local landlords, and knowing how local business trends affects business valuations.

Local Business Sales Expertise

A major advantage of local business broker is pricing a business properly by using local ‘comparable sales’ data. The term ‘comparable sales’ (or ‘comps’) refers to benchmarking a valuation multiple for a business against similar business within the same industry. For example, auto shops in Florida generally receive a median valuation multiple of 2.15 x annual adjusted owner benefit (or cash flow). Because of their local expertise, however, local business brokers may benchmark a valuation for a business against local business sales. Although purchase prices of businesses are not publicly available, local business brokers with their eyes and ears on the ground may still uncover the median valuation multiples for local industries. Local ‘comps’ in South Florida for auto shops may reveal median valuation multiples of 3-4 x annual adjusted owner benefit rather than the state-wide 2.15 x multiple.

Example of Pricing Business Using Local Comps

Let us suppose that Bob is consulting with a local business broker about the potential sale of his auto repair shop in Palm Beach County.
The business broker and Bob determine that Bob’s annual adjusted owner benefit (or adjusted economic profits) is $450K.
Applying the median valuation multiple (of 2.15) for auto shops in Florida, the starting point in valuing Bob’s auto shop is $967,500 (or 2.15 x $450K).
This method of valuation, however, ignores how the local marketplace for auto shop sales in Palm Beach County may differ from auto shops in Florida or elsewhere.
At the time Bob is trying to sell his auto shop, the median valuation multiple for auto shops in Palm Beach County may be 3-4 x annual adjusted owner benefit.
Reasons for the disparity include local zoning restrictions that inhibit new auto shops from being licensed, new housing developments being built in the surrounding areas resulting in an influx of new residents (and new customers for auto shops), and stronger pricing power for local auto shops in Palm Beach County because of the dearth of new competitors.
In fact, Bob’s local business broker is likely to have recently sold local auto shops in Palm Beach County, and hence has direct knowledge of the valuation multiple that buyers are willing to pay in order to enter this growing and attractive market.
Local business brokers frequently use valuation multiples accorded to businesses within their local market which may significantly differ from valuation multiples assigned by business brokers lacking local experience and expertise.
Using the more relevant local ‘comps’ for auto shops in Palm Beach County, a better asking price for Bob’s Auto Shop may be $1.35M-$1.8M (3-4 x $450K).

Dealing with Local Landlords

Landlords frequently influence business sales by virtue of the commercial lease they hold with the business being sold. This is especially true for retail businesses where the location and lease of a business are of paramount importance. The buyer’s assumption of the seller’s lease is invariably a contingency to close, meaning an uncooperative landlord may stymie a business sale. For example, some landlords require the seller to pay unreasonable ‘transfer fees’ while others may simply delay the lease transfer process so that they do not have to deal with a new tenant. Local business brokers often get to know local landlords within their local community by repeatedly listing and selling businesses within the same commercial plaza. This experience allows local business brokers to anticipate the requirements that landlords impose on new tenants and to ensure the lease transfer process is handled fairly according to local customs.

Knowledge of Local Business Trends

Local business brokers are uniquely situated to understand how local business trends – especially the seasonal nature of some local businesses – affect the business sales process. Local business trends often have significant consequences for certain industries. In South Florida, for example, the post-Covid real estate and housing boom has significantly enhanced the business prospects of construction-related and home services industries. This in turn has increased the amount of buyers seeking to enter these favored industries in the South Florida market, which has increased their business valuations. Likewise, businesses within healthcare industries in South Florida are expected to continue their secular growth due to the increasing populations of seniors in the area.

Seasonal Businesses Trends

Within a local business market, some businesses have seasonal trends or business fluctuations according to local traditions and economic conditions. Local business brokers in South Florida are aware how many business which cater to “snowbirds” (who go up north for the summer) experience seasonality in their business. Seasonal businesses in South Florida often have significantly lower sales in the summer months, but tend to more than make up for it in the busier winter months. More buyers are likely to be found for seasonal businesses during the winter months when business activity is stronger. Conversely, it is often more difficult to find buyers willing to buy a seasonal business at the start of the summer when business is slowest.

Business owners should take advantage of the experience of a local business broker when selling their business. Local business brokers are more likely to have expertise of local economic conditions, local ‘comparable sales’, and local business trends which all significantly affect the business sales process.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.