7 Ways Business Brokers Can Increase Deal-Flow

November 24, 2020

Deal-flow is either an accelerant or a barrier for your business. This is true of any industry, but especially that of Business Brokerage. As poor deal-flow may result in low commissions, bad clients, starvation, and/or death.

A bit over-dramatic, but this is how important deal-flow is to our industry. Like compound interest, those who understand deal-flow benefit from it. Those that do not, pay for it.

This is true whether you are an emerging or established Broker. A common misconception is that more experience = better deal-flow. When in reality, it is not that simple. As there are plenty of tenured Brokers whose marketing strategy is their reputation. This can be effective for referrals, but ineffective for inbound inquiries. Further, relying only on referrals can get you 'stuck' within a specific industry or deal size. The best way to avoid this is to build many different sources of deal-flow. In this article, we will explore 7 different ways we have found successful.

Creating Multi-Channel Deal-Flow

It is time to practice what we preach. How often do we discover that our clients have zero sales & marketing budget? Like our clients, we leave money on the table by not investing in ways to acquire more clients. 

When it comes to marketing most experts talk about paid growth (buying ads) or organic growth (referrals). But we like to think about marketing as being either time expensive or time inexpensive. This framework is more useful for services business, like Business Brokerages. Since our maximum revenue we can generate is a function of our available time. This makes the best deal-flow channels the ones that take the least amount of our time/effort. 

What does this mean? Let's compare:

Time Expensive Channels: Going to networking events, hosting webinars, etc.

  • Events are time expensive because for each event/webinar you may get 1-3 quality leads (if lucky). The problem is that you physically need to attend each event and there are only so many events each year. These are channels that don't scale.

Time Inexpensive Channels: Referrals, writing an article, recording a podcast, etc.

  • Inexpensive Channels allow you to benefit multiple times from each marketing effort. While these channels still require some effort, you only need to complete this work once. A single article may take several hours to write, but thousands of business owners can read it. These are channels that scale.

Thus, the more deal-flow you can generate from time inexpensive channels the better. The problem? Not all your potential clients are accessible through these channels, so you will need to have a mix of both.

Below is a mix of 7different ways to increase deal-flow for your Brokerage.

1) Become a Paratus Intermediary

We are a bit bias, but the best deal-flow is free and works in your sleep. This is what we have developed with our Paratus Intermediary Network. 

The Paratus Intermediary Network makes it easy to receive business-for-sale leads

As a part of the network, you receive for-sale-by-owner (FSBO) listings offering a commission. Better yet, these owners have used our DealBuilder software to prepare the sale of their business. DealBuilder provides business owners with both an accurate business value and high-quality CIM. All you have to do is forward the presentation link to your buyers.

Paratus Intermediaries are able to easily review deals on their Intermediary Dashboard

To find out more about becoming a Paratus Intermediary click here.

2) Specialize Your Brokerage Practice 

There pros and cons of becoming a specialized broker:

Pros:

  • Opportunity to become the 'go-to' Broker for that industry
  • Clear differentiator from generalist Brokers/Realtors
  • Being a specialist builds trust, even before your first meeting

Cons:

  • Limits what type of clients you can work with 
  • Owners may not seek out a specialist and will use a generalist Broker anyway
  • Your market may be too small to specialize in one industry

Common Mistake: Brokers often think their local market is too small to specialize. This is sometimes true, but COVID-19 has shown virtual deal making is possible. We now need to reconsider the geographic constraints we imposed on ourselves. For example, it is much easier for a specialist Broker in Denver to work with a client in Los Angeles. 

3) Scout Program

Time Inexpensive

Scout Programs are popular with Venture Capital firms in Silicon Valley. They work by enabling non-employees of the firm (Scouts) to share in the upside of deals. Meaning, that if a Scout refers a possible investment, they get a % of the future return. This is a great way to generate incentive-aligned deal-flow.

A similar model could work with Business Brokerage firms. There are many college students interested in M&A and would consider sourcing deals for a 10% Finder’s Fee. 10% of a $20,000 commission is not very exciting for most deal professionals, but $2,000 for a college student is significant. 

4) Referrals

Time Inexpensive

For most practices, referrals are their biggest source of deal flow. Relationships with lawyers, accountants, and bankers are the best source for deal flow. These are 'Centres of Influence (COIs)' that have already earned their trust. This should save you a lot of time in signing an engagement.

Common Mistake: Not educating your network on what is a good vs. bad referral. Referrals waste your time if they are not a good fit. You can save yourself a lot of time by outlining some rough criteria for your referral network (min.revenue, employee count, etc.)

5) Events/Webinars

Time Expensive

Before COVID-19, physical events were a great way to meet people in your community (whether as a host or attendee). Physical events being on pause may actually be for the best. Since it has always been challenging to keep in-person events confidential.

This is one of the great benefits of digital events. As you can now set-up a Zoom meeting where the attendees are not shown. You could even run a Q&A session where attendees type-in their questions - masking their identity.

While time expensive, events are still a great way to judge how close a business owner is to selling. As most business owners won't go out of their way to attend a 'How to Sell Your Business' webinar. Well-run webinars are a great way to make a lasting first impression.

Common Mistake: Putting on a half-baked event. Brokers are often disappointed when only 4 attendees show up to their event/webinar. When you ask them what they did to advertise the webinar they will say, "I posted about it on LinkedIn last week". This is not enough. As most of your time should involve signing-up registrants, not the actual presentation.

6) Digital Marketing

Time Inexpensive

Digital marketing is very under utilized among Business Brokers. A Broker's previous failures at digital marketing is usually the reason why. But writing-off digital marketing is a mistake, given the value of each sell-side engagement.

Consider the margins of a t-shirt manufacturer who sell shirts for $25. Now try and profitability sell that $25 t-shirt to a customer using Facebook ads. Experts will tell you this isn't easy. Whereas for Brokers, a single client can produce $50,000+ in profit. This gives us a lot of margin we can spend on acquiring a single customer.

Common Mistake: Simplistic, 'Looking to sell your business?' ads are not going to work here. A better strategy is to target businesses of a specific region or industry. Here's one way to do it. After selling a coffee shop - advertise that successful sale to all the other shops in the Province/State. The owners of these coffee shops will see that your firm's involvement in the sale. They will understand your firm may have a list of eligible buyers for their business.

7) Buy-Side Engagements

Time Inexpensive

Buy-side Engagements take a lot of effort and time - but you are getting paid for that time. This makes them time inexpensive.

During a buy-side engagement you will reach out to many business owners. 99% of them your client will not buy. Whether the owner decided it was not a good fit, the right time, or right valuation. 

We have found that if you treat these owners with respect they will remember you.On occasion, these owners have come back to us to sell their business years after our initial reach-out.

Important Note: when engaged under a buy-side engagement your first priority is to your client. A buy-side engagement is not a marketing exercise for your practice.

It takes time to build a consistent stream of quality deal-flow. By having the proper mix of marketing channels, you will never need to make a cold call ever again.

Join the Paratus Intermediary Network for free.

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