Josh Klassen likes to say that instead of getting a business and entrepreneurship college degree, he should’ve gone to school for psychology. In his line of work, he gets plenty of practice.
Klassen, the business advisor for Transworld Business Advisors in Minnesota and Des Moines, is a business broker. The franchise he works for is the largest business brokerage in the world.
As he’s connecting business buyers and sellers, Klassen finds himself talking long-time, now retiring, business owners through the emotions involved with shifting their ownership to a buyer.
“It’s not a knock toward business owners,” he said. “They have blood, sweat and tears, and many, many years spent in shaping their business. It’s very emotional.”
“We understand that. There is some hand holding involved, in a good way. There’s always emotions but also always a solution. Some sellers have invested 60 years into their business.”
The world of business sales is different than the housing market, whereby buyers can go online and find out what’s available for sale in their community. Klassen’s chief goal is to “confidentially” sell small- to mid-sized businesses. Discretion is required as, often, sellers aren’t quite ready to announce the sale to employees or to the community where they’re toiling.
Currently his firm has as many as 60 to 70 businesses throughout Minnesota and Iowa for sale. The most attractive businesses to buyers are those with “positive cash flow,” Klassen said.
“You’ll hear this time and time again,” he remarked. “Every buyer who comes through our door is looking for a business with a good history. That might be good Google reviews, or a good standing in their community. Rochester is a big, small town. If the business has a rough name in a community sometimes that makes it more difficult to sell. There’s a lot of factors that go into it. Any business that has a good quality cash flow, let’s say $200,000 or higher, will get activity.”
At present hot commodities in the business brokerage world are manufacturing businesses, service-based businesses such as HVAC, plumbing and electrical. Popularity of construction firms tends to ebb and flow, Klassen said, with them being very hot a few years ago.
“Now, with the economy, it’s a little bit less sought after, but there’s still good business out there,” he said. A recent listing for his brokerage is a southeastern Minnesota lawn care and snow removal company, which Klassen said is currently listed for $1.6 million. It comes with a hefty supply of equipment and the enticement of lucrative contracts in place.
Harder to unload are bars and restaurants, which have the highest turn-over rate in the industry. “But who doesn’t want to own a bar?” Klassen asked.
And here too, if cash flow is positive, he’ll find buyers for those businesses.
He also enjoys connecting people, such as the retirees selling a Wisconsin credit card processing company, with the new, younger buyers in their 30s taking over. “They’re looking at good growth and are very excited for the future of the company,” Klassen said.
All in all, the state of business brokerages is healthy, he said, with many businesses rebounding from the Covid-19 era. “It’s not so much about how they got hit, but how they came out of it,” he said. “How did they recover and how did they do in 2021 and 2022?”
Interest rates may be rising and the cost of debt is increasing as well, but there’s still a “huge amount of money out in the market,” he said. “Whether that’s private equity investment funds or individuals looking to diversify their business portfolio.”
“I continue to be surprised with the amount of activity we have,” Klassen said. “We get plenty of inquiries on businesses we list confidentially, and, if there is good cash flow the buyers are there. So we continue to see a strong market. There’s a lot of work on our end to make sure, when pricing the business, that we’re still getting that buyer inquiry to create a successful sale.”