Monday, February 22, 2010

Business #3½, brokerage

So, as my car business was coming to a slow and painful death, I was attempting to get into the world of brokering. It's a fairly simple idea. You basically connect two ends together. One end is somone who needs something and the other end is someone who has something that the other end needs.

I knew there was a lot of potential with brokering because I had seen it work before my very eyes. If you pay attention, you can see this pattern all over the place in business. The best example to wrap your head around is the idea of a mortgage broker. If Joe Schmo wants to buy a home, but doesn't want to apply to bank after bank and finance company after finance company, he would go to a mortgage broker. So we have Joe Schmo who needs something; financing for his new home. Then Mr. Broker, who is typically already in relations with financial entities who have lots of money to loan out, will contact his people who then bid for the chance to loan their money out. These guys are the end that has something that the other end wants.

The broker sits in the middle and scrapes his piece of the money out of the deal and then he is out of the picture. After the deal is done, Joe owes the financial entity... not the broker.

As you may know, mortgage is not the only thing that is brokered. Just about anything can be brokered. Just fit the pieces of the puzzle together and the broker gets their fee for hooking the deal ends together.

Simple right?

No, not really. It does take a bit of a skill with people and a will to dig for the people who need something and the ends that have something. For some this is a breeze. The money making potential is very much worth the hard work though. Especially if you already have or are willing to attain the skills needed to pull it off.

I love brokerage. My first jump into it was very unsuccessful. Mostly because I went at it a little too broadly. I was looking to broker any and everything. The bad thing was though, it meant I had no real focus and therefore no clear path forward. So, while I was very willing and already had some skill, my hazy efforts were fruitless. I still do brokering today, but I was out of the game for quite a while. I deal in two main types of brokering. I broker real estate notes and factoring of accounts receivables. Real estate notes are basically an agreement that one person will pay a certain amount of money regularly over a period of time. Sometimes the people holding the notes don't mind the small chunks of money rolling in a regular intervals. Sometimes, though, the person who holds the note needs the money sooner rather than later. That is where a notes broker steps in. The notes broker can find someone who is willing to pay for the note at a discount. In this way, the original note holder gets most of the money and he is free to use that money for what ever he needs or wants. The note buyer will benefit by earning more money than was spent on the note, but over a period of time.

The factoring brokering is basically the same. A company may have invoices that they are owed on. These are also known as accounts receivables. Many times one company will buy from another company, but they won't have to pay until 30 to 120 days on that purchase. Imagine a nursing home. Grandpa Skippy has medicaid which pays for his needs at the nursing home. However, medicaid doesn't pay right when the bill is created. They don't have to pay out for sometimes several months. This is all good and well unless the facility needs to make repairs or pay their staff or expand. One thing they can do is sell their accounts receivables at a discount to a factor (a person or company with money to spend on such items). The factoring broker can put this deal together by finding one or more willing entities to purchase the discounted invoices. For this, the broker gets a cut and is then out of the picture.

In both cases, it is possible to go straight to the source of the money, but this in itself is time consuming and can actually end up costing money. It is much easier to go through a broker who will often times have access to mass amounts of money and generally can find more than one entity to bid for the purchase. This means the deal gets better for the seller of the invoices.

I have worked in the customer service field for quite some time and in doing so have developed communication skills and a vast knowledge of business to business relations. This is a good fit for this type of business.

If you are looking to get into something and would like to be able to make big bucks for relatively simple work, I suggest brokering of some kind. Especially large ticket items such as real estate or accounts receivables. It is very common to make thousands per deal. Sometimes these deals are on-going.

As always, research what you are getting into and pay as much attention to the little details that you can. It is the details that will both save and grave you.

Until next time.... have a good one.

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