CHOOSING THE RIGHT BUSINESS BROKER

January 05, 2016

With the expected increase in retiring business owners, there is certainly a need for experienced and competent business brokers. For an owner that has a substantial amount of their wealth tied up in the business, maximizing the sale in price, terms and taxation is critical. Selling a business requires more than a salesman; a qualified business broker provides a professional service not unlike a lawyer or CPA. If you decide to engage a business broker you’ll need to choose the right one. You’ll probably want to hear a broker quote a high price for your business and a short time to sell—who doesn’t! But guess what? Those are the two things that NO broker can guarantee. As you are reviewing potential brokers ask yourself these questions:

1. Do they understand my business, and can they demonstrate that? Do they ask the right questions and identify key issues? How can a broker explain your business to a buyer if they don’t understand it themselves? Finding synergistic buyers or thinking “outside the box” to find a unique buyer requires a broker who understands businesses—not just sales systems.
2. Can they explain and identify the potential buyer market? Who does the broker see as the potential buyer? How do they define the buyer pool? Keep in mind that no broker can say definitively that they have a specific buyer for your business: it just doesn’t work that way. If you are contacted by a broker who tells you they have a “buyer in hand” request a one-off listing agreement that only covers that one particular buyer. A one-off listing protects the broker if they really do have a buyer, but if not you aren’t tied up in a broader listing agreement with an unscrupulous agent.
3. What do they see as selling points, what do they see as negatives? Your broker should be honest about the positives and negatives of your business and how those might affect the sales process. You may not want to hear the bad points, but selling a business will take trust between you and a broker. A good broker should be able to identify the parts of your business that can be fixed prior to the sale.
4. Can they explain the selling process and answer your questions clearly? Has the broker explained their methods for selling your business? Understanding how your broker does their job helps prepare you for the ups and downs of the process.
5. Can the broker explain the possible tax consequences of the sale? A competent broker will negotiate and structure a deal to minimize risk and your taxable event. Make sure they understand, and help you understand, how a possible deal structure will work.
6. Who do they represent? Unlike real estate transactions, it’s unusual for a business broker or brokerage firm to represent both sides of a deal. The conflict between negotiating a low price for the buyer and high price for the seller should immediately raise concerns about fiduciary duty. These brokerage firms are trying to generate income from “both sides of the table” or control the deal to the detriment of one party or another.

 

In the end, choosing a business broker to sell your business is similar to choosing a defense lawyer to go to trial. A lawyer can’t guarantee a result but you can choose the best one for the job. Business brokers can’t guarantee a price or a quick sale but you can increase your chances of a well-structured deal and successful closing by choosing the right one. Avoid making a decision based on "what you want to hear": many brokers will inflate their valuation, tell you they have a buyer or promise a quick sale to get the listing. Selling a business is difficult, takes time and can be stressful! Choose a competent broker who you can trust to represent your best interests.