Selling Your Business – Pros and Cons of Working With a Business Broker

Selling your business is something that most business owners do only once in a lifetime. So how do you make sure everything goes well? Many business owners consider working with a business broker, an expert in selling businesses, to make sure they maximize the sell price of their business. Is this always a good idea? Lets look at the pros and cons of working with a broker:

Why you should work with a business broker when selling your business

1) A broker has (hopefully!) sold many businesses for prior clients, and you can use that expertise to learn the basics of the process and avoid making careless mistakes.

2) They can act as a facilitator to the transaction, making sure that negotiations go smoothly, the transaction proceeds at the right pace, and that the business is ultimately sold with all parties satisfied.

3) A broker may reduce your upfront costs of selling the business, as many brokers will pay for creating sales collateral and advertising the business at their own expense in exchange for a fee when the business sells. They also may have insights as to what advertising mechanisms deliver the best “bang for the buck” to make sure as many potential buyers as possible are exposed to your business.

4) They can provide expert advise related to market conditions and can help evaluate potential offers to buy your business. For example, a business broker will typically provide a free initial estimate of the sales price of your business, and can provide information on what similar businesses may have recently sold for in your area.

5) A business broker can help preserve the confidentiality of the sale. By having a third party involved, buyers can interact with the broker instead of the business owner, making it easier to protect the identity of the business for sale.

With so many good reasons why a broker can help sell a business, no wonder that most businesses that are sold ultimately involve a business broker. However, there are downsides to working with a broker that a prudent business owner should consider.

Why you should NOT work with a business broker when selling your business

1) Business brokers may charge a large commission. The amount of commission varies based on many factors, such as the ultimate sales price, geographic location, and the skills of the broker. For a “main street” style business selling for less than a million dollars, it would not be unusual to see between a 10% to 20% commission fee. Some brokers will also have a guaranteed minimum, on the order of $10,000 or $15,000. You should only hire a business broker if you believe that the time and effort involved justifies this price, or if you believe they will raise the selling price by more than the amount of their commission.

2) A great broker is worth their weight in gold, but a bad (or even mediocre) broker costs far more than they are worth. In many cases, the sale will be lost due to incompetence on the part of the business broker. If you are not confidant that the business broker can not only increase the transaction value, but can also increase the chances of actually getting the business sold, then you are probably better of managing the sale on your own.

3) Do not work with a business broker if you go into the transaction not knowing what you want out of it. Many times business brokers will contact you proactively, letting you know that there are buyers interested in buying your business. Selling a business is a big decision, and one that you should enter into with a great deal of care. Make sure that you are talking to a broker because YOU made the decision to sell, and that you have properly educated yourself about the process and the ultimate consequences of your decision.

Working with a business broker, when done properly and for the right reasons, can be a great benefit to selling your business. By educating yourself about the different factors involved, you have taken an important first step towards getting your business sold. Best of luck!

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Business Brokers: Who They Are And What They Do

Since business brokers operate under the radar, many people don’t know who they are and what they do. If you are curious to know, business brokers are intermediaries who work with both buyers and sellers in order to facilitate the sale of small and medium size privately owned businesses.

For you to be a business broker you need to have the right level of education. For example, you must have a business background. You must also have attained business brokerage training from a recognized professional body such as the American Business Brokers Association.

Functions of business brokers

The brokers perform many duties such as:

  • Valuing a business
  • Marketing a business that needs to be sold. While they advertise the business, they maintain strict confidentiality. For example, they don’t mention the exact business that is being sold. They also don’t mention the owner of the business.
  • They introduce prospective buyers to the business
  • Facilitate meetings between buyers and sellers
  • Handle negotiations between the buyer and the seller after an offer has been made
  • Schedule and facilitate the closing of a transaction
  • Draft a confidential business review. The document is very important and is provided to prospects after they have signed a confidentiality agreement.

How brokers work

The professionals usually work with commissions. This means that they get a commission after selling a business. In most of the cases, the commission ranges from 8 to 12%. Most of the brokers charge a 10% commission; however, when the business being sold is small, the commission is usually higher.

How to work with a business broker

The first thing you need to do is to ensure that you hire the right broker. This calls for you to do a lot of research in order to identify a reputable one. Some of the things that you should look for when hiring include: experience, professionalism and specialization.

Once you have found the right professional you should give him/her all the details that he/she needs to work. For example, if you are interested in buying a business, you should give the broker a list of all the types of businesses that you are interested in. You should also mention the amount of money that you are ready to invest.

Conclusion

From the above information, it’s evident that business brokers have a role to play in the buying and selling of businesses. To ensure that you are on the same page with the broker, you should regularly communicate with him/her.

7 Tips on Picking the Best Business Broker

Thinking of selling your small business? Are you one of those fearless entrepreneurs who think they can market, negotiate and close a deal by themselves or are you going to take the more logical route of working with a business broker? If sanity prevails and you are going to work with a pro, here are a few things to look for to find the best business broker.

1. Get recent references

Ignore all the hype a brokerage firm places in their literature and ask for recent references and then follow up and actually check them out. If you’re dealing with a larger business brokerage, get references from the broker you will be working with. Big offices will always have rookies and you want to insure that the broker you get knows his or her stuff.

2. Work with certified brokers

Many states require that business brokers hold a real estate license but just having that license does not mean that the broker necessarily knows anything about buying or selling a business. In fact a number of realtors turn “business brokers” when the real estate market gets slow. What you should be looking for is certification from the International Business Brokers Association who grants a certificate as Certified Business Intermediary (CBI) after completion of an extensive educational course.

3. Don’t be fooled

If the reason that you are considering selling is because you received a letter or email from a broker with the message “We have a buyer for you” then think again. This is one of the most common marketing ploys used in this business. Without question these brokers probably have people interested in buying a business but not necessarily yours.

4. Don’t rush to a decision

Selling your business is a big deal and one you want to be sure you do right. In your conversation with brokers ask them if now is a good time to sell. Ask for an opinion of value. Coming up with this could take a bit of time and if the broker is reputable, he or she may advise you not to put the business on the market but rather make suggestions on what to do to improve the value. A broker who makes this suggestion is looking to make both of you a bigger buck by making the business more attractive.

5. Pick a brokerage with experience in your industry

Look at current listings that the broker has. Check out both the size and types of industries to insure that he or she has experience in your market place. Again, don’t rely on marketing material find out the facts yourself.

6. How does the broker market

Ask what the broker’s marketing plans are and ask to see samples. If he simply puts an ad in the paper or posts it to a single website you probably aren’t getting the exposure you deserve. Good brokers have networks they can tap to find interested and qualified buyers.

7. Avoid packaged services

At some point in the sales process you are going to need the services of an attorney and a qualified accountant. Your broker will probably offer those services but in most cases what he or she is doing is outsourcing to someone else. If you have your own attorney and CPA just stick with them. Otherwise it may be less expensive to find and deal direct with those professionals rather than getting them through the broker.

Finding the best business broker isn’t really that difficult it simply requires some time and effort on your part. However, getting the best broker makes a huge difference in how the experience plays out and the total value of the deal.

How to Find a Business Broker and Why Referrals Are Best

When it comes to how to find a business broker you have to ask; how do brokers find clients? 7 times out of 10 it was from a referral. Many business owners and budding entrepreneurs aren’t sure where to look for a broker. The first thing you should do is simply ask a broker to refer you to someone with the time, know-how and determination to bring you the best deal.

Refer business right out the door? Is that crazy talk? Why would a business broker refer business that they could take? Small businesses aren’t closing very often these days. When you are working with an experienced broker that builds their business model around the connection of a specialized, well-qualified, pre-screened broker, screened for both expertise and location but also the available time they have to devote to you and your transaction, you get the best brokers to choose from. You are getting to pick from the cherry picked by experienced and knowledgeable broker’s that are motivated to have you in the best hands, those that will deliver you the best results in price and convenience.

Firms willing to refer you to a broker outside of their firm are hard to come by. The referral firm only gets a fraction of the commission received from the broker you work with and only get paid if your broker closes the transaction. How to find a business broker that offers to refer you to the best broker, not just the broker in their firm that is currently available, is completely free to you but an enormous value since you don’t buy or sell a business very often and want it to go smoothly. It’s also worthy to note that if you are a buyer the representation by your broker is typically free to you since the broker usually gets paid by the seller’s broker with a split of the commission fee paid by the seller.

How to find a business broker is simple, simply ask a broker willing to refer you to the best available broker of all brokers. The most important thing you should have when you are buying or selling a business is a team of great professionals. An attorney, an accountant, possibly a tax adviser and most definitely the best business broker so that you get the best price in the quickest time. Speak to the owner of the firm; ask if they refer deals outside the firm. I think you will find few that will.