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Selecting A Business Broker To Sell My Business: What Should I Look For?



Posted By: Peter Siegel MBA: BizBen Founder, Lead Advisor.   What should your business broker do for you to successfully sell your small to mid-sized business? Well, there's many things that a qualified business broker can and should be doing for you. Multiple ProIntermediaries and ProAdvisors give suggestions and tips to sellers in this BizBen Discussion.

What should your business broker do for you to successfully sell your small to mid-sized business? Well, there's many things that a qualified business broker can and should be doing for you. Besides keeping you in the loop during the entire process, the broker or agent needs to make sure your interests come first and foremost.

Here are a few key points brokers should be doing for you when you sell your business:

Keep a Secret: Your broker should be good at keeping a secret. Keeping a sale confidential is essential to your success. A business broker should ensure all safeguards are in place to protect your company. One word to your suppliers, employees, or customers that you are selling the company can have repercussions on your business operations.

Make sure your Broker is Cooperating with other Brokers & Agents on your listing: 70% of California Business Brokers don't cooperate with other Brokers and agents - make sure your representative does! If they aren't they are not reaching over 50% of the California marketplace. It's unfortunate that Intermediaries don't cooperate - they have their reasons - you just don't want to be a statistic (failure to sell)!

Deliver an Effective Marketing Plan: Just because a business is for sale doesn't mean it's going to sell itself. Selling your business is all about the right marketing. Properly positioning the sale of your company to attract and motivate as many business buyers as possible should be your goal.

Allow You to Avoid the Pressure: Selling a business is not an easy decision and once that decision has been made the process doesn't get any easier. A Business Broker should assist you and let you take the time to learn and clarify all uncertainties to avoid the pressure you may feel in a complex transaction.

Keep Costs Low with No Heavy Front Fee: Business broker fees typically range from 10 to 12% commission of the sales price OR a flat fee of $8-$15,000 if the business sale price is less than $100-$150,000. Avoid any broker asking you for a large, upfront fee to assess your business value or start an application process.

Curious to see what other ProIntermediaries and ProAdvisors feel about this topic, - please get in touch with me if you would like to contribute to this topic!

If I were a buyer, I would ask the business broker if they had experience selling my type of business and do they have those types of businesses currently in their inventory. When the business brokers gets calls from buyers, they are the ones who really have to sell your business, especially to first time buyers, and it's important that they understand the complexities and nuances of the business. Often times, many business brokers were past business owners themselves, and find that they enjoy selling business types that they once owned, because that's what they know. In regards to having an inventory filled with common types of businesses, it's note worthy that often these businesses play off each other when a broker receives a call from a buyer. Many times I've gotten a call on one business, but have also sent the buyer on another, and that's what they ended up buying.

If I were a buyer, I would ask the business broker if they had experience selling my type of business and do they have those types of businesses currently in their inventory. When the business brokers gets calls from buyers, they are the ones who really have to sell your business, especially to first time buyers, and it's important that they understand the complexities and nuances of the business. Often times, many business brokers were past business owners themselves, and find that they enjoy selling business types that they once owned, because that's what they know. In regards to having an inventory filled with common types of businesses, it's note worthy that often these businesses play off each other when a broker receives a call from a buyer. Many times I've gotten a call on one business, but have also sent the buyer on another, and that's what they ended up buying.
Contributor: Due Diligence, Valuations Advisor
I can agree (almost) with much of what has been previously said here but would like to add a few insights from my personal experiences. There are huge differences in the quality of products and services offered. I have previously sold an accounting practice and paid a fee of 10% of the sales price to a broker who's contribution to the process did not extend much beyond maintaining a website.

On the other hand if the business you are selling is in the middle market paying for an independent business valuation as well as a professionally produced business review can make sense. The broker is in a conflict of interest situation in the valuation process.

I have also seen confidential business review products purchased at fees in excess of $10,000 (non refundable ) that failed to correctly identify the name of the business or properly recast earnings. Ask for examples of work product.

When talking to broker get a sense of their background beyond business brokerage... If they have previously sold houses, or toasters that should give you pause. Business brokering (at least as I see it) has little to do with selling and much to do with analysis and positioning of the business. Education matters and quite frankly is lacking in the industry.

Find out if you are in fact dealing with the broker or a salesperson. Visit their office. It should be reasonably local to you or that in itself is problematic.

I can agree (almost) with much of what has been previously said here but would like to add a few insights from my personal experiences. There are huge differences in the quality of products and services offered. I have previously sold an accounting practice and paid a fee of 10% of the sales price to a broker who's contribution to the process did not extend much beyond maintaining a website.

On the other hand if the business you are selling is in the middle market paying for an independent business valuation as well as a professionally produced business review can make sense. The broker is in a conflict of interest situation in the valuation process.

I have also seen confidential business review products purchased at fees in excess of $10,000 (non refundable ) that failed to correctly identify the name of the business or properly recast earnings. Ask for examples of work product.

When talking to broker get a sense of their background beyond business brokerage... If they have previously sold houses, or toasters that should give you pause. Business brokering (at least as I see it) has little to do with selling and much to do with analysis and positioning of the business. Education matters and quite frankly is lacking in the industry.

Find out if you are in fact dealing with the broker or a salesperson. Visit their office. It should be reasonably local to you or that in itself is problematic.
Peter is absolutely right about what a professional business broker should be doing for the seller. In addition, An Iron-Clad, No-Ambiguities Non-Disclosure Agreement ("NDA"); In order to assure that the confidentiality requirement has some teeth in it, make sure that the broker's NDA is clear, unambiguous, and strict.

Tips in Building the Value of the Business: A business broker with experience as a business owner and expertise in business development can assist a business owner in short-term "tweaks" that can significantly improve the actual and perceived value of the business for sale. Be sure to ask.

Services with No Upfront Fee: As Peter pointed out above, there are still some business brokers who charge a "set-up fee" or "non-refundable retainer" of thousands and tens of thousands of dollars (plus an eventual "success fee" commission) to do what reputable brokers will do at no cost, for the opportunity to earn a commission if and when the business sells. Even worse are those brokers who charge a monthly "working fee" for as long as the business is on the market, plus a commission at the end. What incentive do they have to sell the business? While this arrangement might be acceptable for investment bankers handling deals in the tens of millions of dollars, it is not appropriate for the under-$10-million small business market. Wouldn't we all like to be paid in advance with no promise or guarantee of success! But, a true professional will have enough confidence in the competence of his/her services to be paid only upon successful completion of the sale.

A Realistic and Supportable Valuation: The same "bait and switch" happens in residential and commercial real estate sales - the broker suggests a high and unrealistic listing price with no rationale behind it in order to entice the business owner into listing with that broker. I regularly provide business sellers with a sensible and realistic opinion about the range of prices the market is likely to support; but, many factors affect an offer price, including the type of buyer submitting it. Together, the seller and I decide on a price supported by a rationale--a certain return on investment (ROI), or a multiple of SDE, or a percentage of gross revenues, etc. - that is supported by comparable sales, economic viability, and common sense. Don't be fooled by the broker who tells you your $300,000 business is worth a half million dollars and, then a month into the contract will tell you to lower it to $250,000. Any seller who would like an objective and realistic assessment of the current market value of their business is more than welcome to consult with me without obligation.

Peter is absolutely right about what a professional business broker should be doing for the seller. In addition, An Iron-Clad, No-Ambiguities Non-Disclosure Agreement ("NDA"); In order to assure that the confidentiality requirement has some teeth in it, make sure that the broker's NDA is clear, unambiguous, and strict.

Tips in Building the Value of the Business: A business broker with experience as a business owner and expertise in business development can assist a business owner in short-term "tweaks" that can significantly improve the actual and perceived value of the business for sale. Be sure to ask.

Services with No Upfront Fee: As Peter pointed out above, there are still some business brokers who charge a "set-up fee" or "non-refundable retainer" of thousands and tens of thousands of dollars (plus an eventual "success fee" commission) to do what reputable brokers will do at no cost, for the opportunity to earn a commission if and when the business sells. Even worse are those brokers who charge a monthly "working fee" for as long as the business is on the market, plus a commission at the end. What incentive do they have to sell the business? While this arrangement might be acceptable for investment bankers handling deals in the tens of millions of dollars, it is not appropriate for the under-$10-million small business market. Wouldn't we all like to be paid in advance with no promise or guarantee of success! But, a true professional will have enough confidence in the competence of his/her services to be paid only upon successful completion of the sale.

A Realistic and Supportable Valuation: The same "bait and switch" happens in residential and commercial real estate sales - the broker suggests a high and unrealistic listing price with no rationale behind it in order to entice the business owner into listing with that broker. I regularly provide business sellers with a sensible and realistic opinion about the range of prices the market is likely to support; but, many factors affect an offer price, including the type of buyer submitting it. Together, the seller and I decide on a price supported by a rationale--a certain return on investment (ROI), or a multiple of SDE, or a percentage of gross revenues, etc. - that is supported by comparable sales, economic viability, and common sense. Don't be fooled by the broker who tells you your $300,000 business is worth a half million dollars and, then a month into the contract will tell you to lower it to $250,000. Any seller who would like an objective and realistic assessment of the current market value of their business is more than welcome to consult with me without obligation.

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