When it comes to buying and selling businesses, it's definitely a seller's market these days. And that has brought business brokers out of the woodwork, eager to cash in on the trend. It's a situation in which the old saying "Let the buyer beware" should be extended to include the seller as well.
"It's a fairly chaotic, unregulated industry," says Raymond Thill in a bit of understatement about the business of business brokerage. Thill, president of the International Business Brokers Association, explains that anybody can hang out a shingle to buy and sell businesses. The one catch is that a real estate license might be needed if the property the business is on is also being sold. Thill says there are many reasons why, as the number of business brokers goes up, membership in his association goes down. One of them is that "associations tend to compile statistics, to ask questions about sales volumes, commissions, and so forth."
As for Jim Howard, he's a business broker who prefers to call himself an acquisition and management consultant. Howard's firm, Symbax Business Services, in New York City, represents companies in the $2-million-to-$40-million range. "Business broker," he says, "has a bad connotation. A lot of well-meaning people who fail to see the job as more than that of a traffic cop -- bringing buyer to seller and collecting a tariff -- often get in over their heads." Which says nothing about the havoc the not-so-well-meaning can wreak.
How, then, can a business owner looking for a broker separate the good from the bad? "Selling a business that's over $1 million requires legal, financial, investing, tax, and market-research expertise," advises David Hoods, president of Geneva Marketing Services, in Rolling Hill Estates, Calif. Howard agrees."You'll know a good broker if he's got broad capabilities," he says. "He should evaluate your business, do a prospectus, analyze the flow of money in and out of the company. In small -- $300,000 to $500,000 -- companies, you don't need all these things, but you need the same conceptual approach.And," he adds, "you might want to reference-check your broker to find out what's happened to other businesses he's helped to sell."