Choosing the Right Business Brokers

Whether you’re buying or selling a business, having a broker on your side can make the difference between a successful outcome and a nightmare. However, not all business brokers will be suitable for your specific situation. Use the tips below to choose the right broker for your needs.

Start by asking for referrals from your inner circle of business advisers and colleagues. Have any used a business broker in the past? Were they satisfied? Does the broker handle the type of transaction you have in mind?

You may need to widen your net to find a pool of qualified business brokers that specialize in brokering deals such as yours. Once you have several potential brokers, it’s time to get down to business and narrow the field down. Below are several key factors to consider:

– Is the individual or firm professional? Professionalism shows in numerous ways including personal appearance, the presentation of marketing materials, website, language, mannerisms, and expertise. Use both objectivity and your gut instinct. Remember, the broker you choose will be representing your business so make sure you’re fully comfortable with the person and firm you choose.

– Does the broker have experience working with businesses like yours? While it’s not necessary for the business broker to have specific experience in your exact niche, it’s helpful for the broker to understand the nature of your business and have experience brokering deals with similar characteristics. For example, if you run a family-owned microbrewery, a broker with a successful track record brokering deals for small wineries, family-owned specialty food manufacturers, or small brewpubs may not know the finer points of brewing beers but could be an excellent choice thanks to experience with similar businesses.

– What qualifications does the broker have? Look for licensing, education, certification, experience, and membership in professional associations.

– Is the broker well prepared? In other words, did the business broker do his or her research prior to your initial meeting? Brokers use comparable sales, business and industry reports, and other tools to price businesses. Your business broker should be able to support any suggested listing prices, which should be presented in writing, with documentation.

– If you are selling your business, find out how the broker intends to market your business. Brokers have many marketing tools available to market their business listings. However, some prefer to use specific marketing techniques over others. Make sure to ask the broker to present a detailed marketing plan.

– What type of businesses does the broker work with? For example, if your business has annual revenues in the $50 million range, you’ll need a special type of buyer making it important to choose a business broker capable of attracting those high net worth individuals and investors.

– Check references. No matter how professional, personable, experienced, qualified, and prepared potential broker appear, cover your bases by checking references. Ideally, the broker should give you references from businesses with similarities to yours.

Choosing the right broker to sell your business or help you find a business to buy is a process. Do your part to ensure a successful outcome by choosing wisely.

Some Resources For Finding a Business Broker

Before we talk about resources for finding a business broker, let us first understand who is a business broker. Business broker resembles very much to the real estate agent. The job of the business broker is to bridge the gap between the buyer of the business and the seller of the business. If you wisely choose the right business broker, you can save a lot of money in the business transactions taking place through him. Here are some resources for finding a business broker for you.

Ask the People Whom You Already Know For Referrals:
Whenever we look for something that is new to us and we are not familiar with it, we try to gather information from the people we already know, and have faith in them that they would not misguide us. Same procedure we can apply when we look for the resources for finding a business broker. Take the advice of your business associates, accountants, lawyer and other associations of the industry to get the names of business brokers. If a reliable person gives the reference of any business broker then there is no harm in considering him for hiring his services.

IBBA:
Another very good resource for finding a business broker is the International Business Brokers Association or IBBA. This is an institute of business brokers working on non-profit basis. There are approximately one thousand three hundred members of this association.

Go Through the Advertisements in Newspapers:
One very good resource for finding a business broker is newspaper. Look for the advertisements under the business opportunities. You should check local, regional and national all types of newspapers for this purpose. You will observe several businesses for sell in these advertisements. Although, these advertisements are intended to attract prospective buyers yet you can check them to find out the names of the people who are managing these deals.

Yellow Pages:
Another resource for finding a business broker is to look in the yellow pages. However, do not get confused with the real estate agents and look specifically for the brokers who have experience in the selling of businesses. Any broker who just lists the name of your business on the multiple listing services is of no use to you. These kinds of brokers do not give required time to make such business deals.

Sign an Agreement After You Have Selected the Business Broker:
After your search for finding a business broker ends and you succeed in finding the right business broker, sign an agreement with him. State clearly in the agreement that what type of marketing strategy the business broker will adopt to sell your business. Do not forget to mention that any such advertisement must not carry the name of your business.

What Separates the Good Business Broker From the Bad?

Over the years, I’ve heard a million horror stories from business owners about their experiences with some of the “fly by night” business brokers out there. It’s always the same names and it always makes me wonder, “How did you get hooked up with these people? Why did you hire them?” I mean, I’ve seen some of their work and it’s TERRIBLE!

So, of course I feel bad for the business owner and I begin to question my ability to market my business brokerage services. If only I had been there first. If only these folks knew to call me or one of the other good credible brokers out there rather than the yahoo they ended up using. Yes, you heard me right; there are a lot of good credible business brokers out there. The problem is, there are a lot of bad, unqualified brokers out there as well. I’m in the business so it’s easy for me to tell the difference. But how can you, as the business owner, tell the difference?

Well, that’s a tough question to answer but I’ve been giving it some from thought and I’ve decided that the most important factors that separate the good business brokers from the bad are:

1. Ethics – most horror stories I hear are a result of a lack of ethics by the broker. This is unfortunate and disgraceful in my opinion. Unfortunately, there’s no easy way to test a broker’s ethics. My best recommendation is to make sure they’ve achieved their CBI (Certified Business Intermediary) designation from the IBBA (International Business Brokers Association). All CBI’s agree to adhere to the IBBA’s Standards of Professional Conduct and the Code of Ethics. I know acceptance of a code doesn’t guarantee anything, but it’s a good start. The second thing I would recommend is to check references. This can be tricky. Like any good job applicant, when you ask for references you will get handed the happiest and most satisfied clients that the broker is confident will put in a good word. So, to me this is a waste of time. Instead, why not call the other professionals in your area. It takes more than just the broker to do a deal. It’s takes an accountant and attorney as well. Call your accountant, have your friends call their accountants, same with your attorney and their attorneys. Not all accountants and attorneys will be close to the transaction marketplace (they tend to specialize) but they will ask around. Chances are they probably work with, know of, or went to school with another accountant or attorney that is involved in transactions. If you’re willing to put some time into checking credentials, sooner or later you will find your answers.

2. Candor / Honesty – Again, this can be difficult to judge for the untrained eye. But, what does your gut tell you? Are you receiving vague answers to your questions? Or, is the business broker you’re interviewing willing to sit down with you and answer every question that you have to the best of their ability, sometimes going above and beyond? If this is the case, usually it’s because they have nothing to hide. And, as a result, don’t have to tiptoe around your questions.

3. Pricing Ability – Being open, honest and ethical is only part of the game. It’s equally as important that the business broker be educated on matters of business valuation. One of the most important factors in selling a business is pricing it right. A mispriced business will either never sell (if overpriced) or fly off the market (if underpriced). Both situations are bad news for you as the business seller. If it’s overpriced it will sit on the market, get stigmatized and be difficult to sell even with a different broker. If it’s underpriced you will not maximize your retirement money. Make sure you ask the business broker you are interviewing if they know how to price a business. Moreover, make them prove it. Ask them to explain the three different approaches to value (Asset, Income and Market). If they don’t know what you’re talking about, RUN!! Ask for samples of the broker’s pricing analyses. Don’t settle for a broker that answers, “I can’t provide that it’s confidential”. Every broker can cleanse some samples and make them generic. Take them home. Review them, see if you would buy the business they present to you. Show it to your accountant and your attorney. Get their thoughts. If you’re not sure whether you’re looking at quality work or not, chances are your accountant or attorney will.

4. Marketing Ability – Remember at the end of the day, your small business is a non-marketable entity. You can’t go online, click a button and get rid of it. Someone has to actively create a market for your business. Ask the broker you are interviewing, “How do you plan to market my business?” Sit back and listen. If all they say is, “I’m going to post it on the internet,” RUN!! You can post it on the internet. For the fee the broker is taking, make sure they’re adding value. Dig deep on this subject. You won’t need to be a marketing guru to determine if the broker has a developed process that works.

5. Reputation – Part of investigating the reputation of the broker is requesting references. Not only client references but asking around for input and insight from other professionals about what business brokers they know and what they know about them. Also, go to the broker’s website; go to industry sites such as http://www.ibba.org. Look up the broker; see what other people are saying about them. Do the TV, newspaper, radio and trade publications value the broker’s opinion? It’s not easy to get quoted in articles, written about in papers, invited to be a guest on TV or radio shows. Professional media outlets do their homework. They can’t afford to put their name next to a non-credible source. A business broker that is taken serious and considered a credible source by mainstream media deserves consideration. Credibility is not bought, it is earned.

6. Courtesy / People Skills – Take the time to interview the broker in person. Never hire a business broker without meeting them. If they’re not willing to take the time to meet with you, chances are they won’t put much effort into selling your business either. Once they’re in front of you, see how they interact with you. Are they personable? Do you trust them? Are they friendly? Are they educated about your business and the business brokerage industry? Make no mistake, this is a people business. People buy from people they like. If you don’t like the person you’re interviewing, chances are neither will a potential buyer for your business.

7. Education / Experience – Business brokers are professional service providers, like accountants, attorney, financial planners, etc. Make sure the person you hire to sell your business (or help you buy one) continually invests in their own education and professional development. Would you hire an attorney that doesn’t keep up with current laws? Would you hire an account that isn’t updated on the tax code? Your business is the largest and most valuable asset that you own. Make sure the person you hire to turn it into cash is someone that stays current on industry trends, government regulations, new pricing methodologies, marketing strategies, etc. Business brokerage is a full time profession. If your broker doesn’t invest in their own professional development, chances are there’s someone else out there that does and will do a better job at selling your business for the highest possible price.

The suggestions above are not fool proof but, they will get you pointed in the right direction. Don’t take the sale of your business lightly. Make sure you do your homework. If you do, the wheat will quickly separate from the chaff.

Business Brokers – How to Choose the Right One

The vast majority of small businesses are sold without the assistance of business brokers.

But if you do decide the hire a broker, here are some suggestions on how to pick the right one and how to structure the agreement in your favor.

What Business Is The Broker Actually In?

In many states there is no training or certification needed to become a business broker. In other states, brokers are required to hold a real estate license.

In these states it’s common to find real estate agents that do business brokering as a side business. If you deal with a broker who is also a real estate agent, make sure that being a business broker is more than just his hobby.

You will pay a pretty penny for the broker’s expertise and experience – you should make sure they have that experience when it comes to selling businesses and not just experience selling houses.

Questions To Ask

If you hire a broker you will be working with them closely for months to come; they will have access to your most confidential business records; the amount of money you put in your pocket at closing will be influenced heavily by the quality of work they do.

Therefore, you absolutely must check them out.

Here are some questions you should ask any prospective broker before hiring him:

1. How long have you been a broker?
2. Have you ever owned a business?
3. How many businesses similar to mine have you helped sell?
4. Can I see a blank version of your Listing Agreement?
5. What percentage of you income comes from brokering and how much from real estate (If applicable)

Ask them to provide you with references from previous clients. Then, I suggest you do something very unusual: Actually call the broker’s references!
I know a lot of people ask for references just to see how the person will react when asked (and to see if they actuality have any). But you can learn a lot about the broker’s reliability and professionalism by talking to people who dealt with that broker when they were in the exact same spot you are in.

Business Broker Fees

There are two benefits a broker can provide the business seller. First, he can locate potential buyers while maintaining the seller’s confidentiality. And second, a broker will qualify these potential business buyers so the seller saves time by not having to deal with weak prospects.

The big negative of dealing with a business broker is his fee, which averages 10-12% of the sale price. This fee is charged to the seller.

There is also a minimum fee. A very small business will pay a flat amount, typically $8-$10,000, instead of the commission. For a business worth $50,000 this minimum fee actually works out to be a higher percentage than the 10-12% industry average. But as a matter of practice, brokers usually won’t be interested in your business unless the asking price is above $100,000.

These fees are the reason most business owners choose to sell their business themselves and rely on their lawyers and accountants for the professional assistance they need.

The Broker Agreement

If you decide to use a broker you’ll be asked to sign a broker agreement which will detail the his fees. If possible, have your agreement include the following clauses:

Timing of Payments – Have it written into the agreement that the broker’s fee will be paid at the time you receive the purchase price – not at the time the sale is closed. This way, if you finance part of the sale price over a number of years, you pay the business broker as you get the money, not all up front.

Length Of Agreement – Your listing agreement should be for a limited time. If the broker locates the buyer within that time he gets paid. Be careful of lengthy agreements that lock you in with one business broker for more than 6 months. If he doesn’t produce, you want to be able to try other options. A 6 month business broker agreement is the longest you should allow. However, because selling a business can be a lengthy process, 3 months is usually too little time for the broker to find the right buyer. Try to settle on something between 3 and 6 months. If after six months, you haven’t closed the deal but you think the broker has done a good job, you’re always free to extend the agreement. But you want to be free to decide on an extension 6 months from now, not today.

Broker’s Guarantee – Include a paragraph stating that if you find the buyer, you don’t have to pay the commission. Without this clause, the broker is usually paid no matter who locates the buyer. Before signing any listing agreement, it is best to have your attorney review it to make sure your interests are protected.