Is Your Business Broker a Stud or a Dud?
When it's time to sell your business, there's a good chance you'll hire a business broker. Brokers can be especially helpful in the sale of a small business because they handle a wide variety of tasks including business valuation, advertising or marketing, prospect interviews, negotiation, due diligence and other critical aspects of the sale.
Could you sell your business on your own, without the services of a business broker? Probably. Many owners list their businesses on their own using business-for-sale sites and successfully find a buyer.
More often than not, however, successful business sales that maximize the selling price and minimize the time to close are accomplished with the assistance of a qualified intermediary. This allows the owner to focus on running the business and increasing its value while the broker handles the details of the complex transaction.
The process of choosing a quality broker involves a lot more than thumbing through the phone book or online broker directories. Although there are many great brokers available, as in any industry there are others whose skills and business ethics may be questionable.
Choosing the right broker for you can mean the difference between a successful business exit and a long, painful and costly relationship. Whether you are choosing a new broker or questioning whether your current broker is getting the job done, here are some issues you should address:
Brokers aren't regulated by the government in every state so certifications and licensing credentials won't always be relevant in your search. However, many brokers voluntarily belong to associations that are committed to upholding ethical standards of conduct and professionalism. Look for memberships with the IBBA (International Business Broker Association), a state brokerage association or other types of trade organizations. In addition, some brokers are designated with the accreditation as a CBI, or Certified Business Intermediary. These brokers have been through extensive training on the finer points of business for sale transactions that can benefit you and, most importantly, your profit from a business sale.
Relevant Experience & Track Record
Although past success is important, it won't mean much unless your broker also has experience selling businesses in your specific industry and/or local area. Every industry has its own unique traits and characteristics. Unless your broker understands the nuances of that industry, it's unlikely he will be able to accurately represent your interests to buyers. Even more, it is questionable that he or she has the industry contacts to connect with the right buyers.
In general, you want a broker who has been around the block--but not one who hasn't made the trip in a while. The best brokers constantly adapt their strategy to market conditions and create new industry contacts. If a broker can't demonstrate a recent track record of success, it could be a red flag that he has fallen off his or her game and will be unable to sell your small business for the highest possible price. Find out how many businesses like yours the broker has sold in the last 12 and 24 months, and compare that number across a variety of brokers you are considering.
A good broker can make the process of preparing your small business for sale a lot easier. Ideally, your broker should walk you through a systematic preparation process that removes potential hurdles and maximizes the value of your business--even if it means delaying the listing for a few months. Top brokers will provide you with a list of things that you should be doing to maximize your chances of success; things like preparing recent tax returns, customer and vendor lists, and important improvements to the physical elements of the business that will help attract qualified buyers. Never settle for a broker who isn't concerned about preparations or appears willing to rush the preparation process. A great broker has successfully ushered other people through this process and will have examples or templates of documents at the ready.
It's common for a seller to ask the broker to give a preliminary value before signing the listing agreement. As the seller, it is especially important that you understand and agree with the broker's valuation method. Insist the broker explain exactly why the business should be listed at the suggested asking price, and ask to see the sold business comps that the broker is using to establish an appropriate listing price for your business. Experienced brokers know that valuing your business too low just to get a deal done quickly can cost you money in the long run. On the other hand, businesses that are priced too high can remain on the market for years.
Marketing & Prospect Identification
It takes skill to market a small business to qualified prospects, i.e. buyers with the desire and capacity to actually make an offer. Your broker's marketing strategy should begin with a compilation of materials that will be distributed to serious prospects and should continue with creative, aggressive marketing ideas that specifically target individuals who have the ability to purchase the business. In addition, you should discuss the confidentiality of your business sale with your broker. Many business owners want to keep their sale private in order to prevent competitors and employees from finding about the potential sale. A broker's marketing plan should include plans that can maintain this confidentiality if it is important to you. Additionally, once qualified prospects are identified, the broker can handle the time-consuming process of introducing those buyer prospects to your business with minimal distraction to you and the ongoing operations of the business. This will allow you to focus on keeping the business running successfully, which is paramount leading up to a sale.
Finally, the best advice for sellers is to build personal rapport with their broker and trust their expertise. Communication is an essential element of the selling process and it's not unreasonable to ask your broker how often you can expect to hear from them, and via what method. If a broker has a reputation for carrying a large client load, the likelihood of a close business relationship drops dramatically. A good broker is one you can feel comfortable speaking to and asking questions of on a regular basis.
Overall, the right broker can help sell your business at the high end of the market while the wrong one may be unable to complete a sale at all. Since there is so much at stake, I recommend talking to at least three brokers before making a decision. With just a little effort, you'll find a broker who is able to sell your business in a timely manner--and at a great price.