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"Starting from scratch would have been a lot of hard work because, in these kinds of businesses, 90 percent of your clientele is ex-pats, so you can't start this kind of business just anywhere," Dhillon says. "The existing owner already did his homework and opened in a place where there were already British people."

Dhillon bought the 20-year-old Campbell-based grocery chain from the original owner, who was retiring but stayed on for a few months to smooth the transition.

Dhillon credits business brokers for helping him sort through the documents, contracts and small business loans that make buying a business so complex.

The benefit of buying an established business is that it offers a market profile more detailed than any projection could. The seller shares detailed information about expenses, revenue and historical data, as well as relationships with customers and suppliers.

For that service, brokers take about 12 percent of the transaction, with a typical minimum between $12,000 and $15,000.

There are an estimated 800 business brokers in California, says Julie Gordon-White, director of the California Association of Business Brokers. Brokers have the same requirements and licensing as real estate agents but with extra training. No state organization tracks their ranks.

That's why it's hard to say how business brokerage is faring at any given time, but numbers released from the San Francisco-based online broker BizBuySell.com show San Jose-area sellers got slightly less than they were for businesses a few months ago.

The median asking price for businesses was $250,000 in the fourth quarter of 2007, down from $265,000 in the third quarter. Nationally, business valuations increased from $250,000 to $255,000 in the same period.

"It's tough to say why San Jose valuations appear to be dropping. It may very well be related to an increasing supply of businesses for sale that is resulting from baby boomers who are retiring and selling their businesses," says Mike Handelsman, general manager of BizBuySell.com.

But Dhillon is already looking for a third business to add to his portfolio.

Because the grocery chain was so successful, Dhillon and broker Joe Schneider began looking for other unique businesses. Bogie's Discount Pet Foods and Supplies was listed by another broker, so Schneider and Dhillon worked with him to purchase the 14-year-old, 6,500 square-foot store in 2006 for $550,000.

The process took a couple months -- "even faster than before because we already has our relationships built up with the bank," Dhillon says -- and Dhillon took over from an owner moving out of state.

"That's what I look for," Dhillon says. "It's like buying a used car. You don't want too many drivers. [If it's] changing hands too many times, there might be something wrong with it, but someone being there 14 years and retiring is a pretty good sign that it's a business you want to get into."

Campbell-based broker Mel Weisblatt says he hasn't seen the market soften during the last quarter but expects baby boomers to create a more fluid market in the next two to five years, as some sell to retire and others buy after retiring.

The CABB estimates that 65 percent of small and medium-sized U.S. businesses will be sold during the next 10 years.

But for now, the San Jose-area market is fairly evenly split between buyers and sellers, says Weisblatt, who owns Probus Business Sales.

His business listings average about six months to sell. The market is fairly stable, with the majority of offerings being profitable businesses, says Weisblatt, a broker for 20 years who has served on the board of directors of the CABB.

The CABB's Gordon-White says "Main Street businesses" -- those that sell for about $250,000 -- are often paid for with a downpayment secured by an equity line of credit on a home. The housing crunch in the second half of 2007 could have affected buyers' ability to pay the asking price, and sellers might have been more motivated to sell because of the economic uncertainty, Gordon-White says.

That's a scenario that's likely to stick around for a couple more years, she says.

The San Jose-area market is unique because of the rents, which are much higher than in most markets. Also, people tend to have more money to invest because of stock options from the booming tech industry, she says.

The biggest factor making Silicon Valley unique for the business-sales market is the number of immigrants from countries where the culture encourages them to own businesses, such as in the Asian Rim or India, Weisblatt says.

Weisblatt estimates 80 percent of his clients are first-time buyers, with most selling for $200,000 to $500,000. Overwhelmingly they are individual buyers, with many older than 40 and planning to work the businesses themselves.

Bobby Haralampos bought automotive repair shop Campbell Motor Center for about $100,000 in January 2007 through a broker after being frustrated while looking by himself in newspapers.

Haralampos, who had never owned a business, now has four employees and hopes to keep the shop for 10 to 15 years. He's already seen a 15 percent increase in business because of his additional advertising and shop improvements.

"I was looking to pay less, but I saw a lot of potential in what we found," says Haralampos, who was an automotive technician before buying the business. "I was tired of working for other people, and I knew I could do better."

Copyright © 2008. Silicon Valley / San Jose Business Journal.