The benefits of using a business broker: managing the closing.
Many business owners think of brokerage services in terms of sales abilities: pricing the business, marketing the business, identifying a buyer and securing an acceptable offer. And it’s true than many business brokerage firms build their systems around these core functions. For inexperienced brokers or firms that dabble in business brokerage services, a “sales model” brokerage can work by allowing them to hire and develop brokers quickly from any industry and maintain basic client service levels. Unfortunately, the “sales” portion of brokerage that results in an acceptable offer is still the first step in a long and complicated process. It’s this ongoing effort, “managing the closing”, that separates proven brokers from inexperienced or unqualified brokers. It’s not acceptable to pass the responsibility of closing to the respective party’s lawyers.
Knowledgeable business brokers and sophisticated brokerage firms offer much more than basic sales services, and these skills give clients a much better chance at a successful closing. In our industry we say that “a deal will die several times before closing”, and good brokers can help keep the closing process on track despite the inevitable complications. “Managing the closing” can entail the following:
- Coordinating the team and stakeholders. Good brokers need to work closely with both the buyers and sellers professional teams: lawyers, accountants, FA’s, consultants and in house staff. Both parties need to be responsive to due diligence issues, questions regarding the transition and ongoing financing issues. Each professional will be responsible for some portion of the close, but brokers can act as coordinators between the various groups and professionals.
- Negotiating third party consents. Negotiation doesn’t end with a Letter of Intent. Often third party consents: landlords, leasing companies, vendors etc., are required to close the deal. Many key contracts may contain “change of ownership” clauses and equipment leasing companies may require financial review and approval of a new owner. Securing these consents may be critical to achieving a timely closing.
- Updated financial reports. Once terms are agreed, buyers and financers will require a regular update on the ongoing performance of the business.
- Proration. Complex businesses can have prepaid expenses, WIP, deposits and other assets that need to be identified and explained to the buyer. These current assets can add up to real money and should be addressed early in the process to give the buyer time to adjust their closing costs and/or operating capital requirements.
- Disclosures. Disclosing a pending sale to employees, customers and trade partners can be stressful. Sellers don’t want to disclose too soon in case the deal cannot close, but they may need to involve key employees in the pending transition. Brokers can help Sellers manage the disclosure to avoid workplace disruption.
- Timing. Once an agreement is reached, most buyers and sellers want to move quickly to a closing. Unfortunately bank financing approvals, licensing applications, third party consents, or buyer contingencies can drag on and create “deal fatigue”. Lawyers and accountants do not have a financial stake in a successful closing so brokers are needed to keep a deal on track despite delays or roadblocks.
Experienced and skilled brokers are a crucial element in your professional services team. Accepting an offer is just the first step in selling your business and you’ll want an experienced business broker to help you navigate the process. If you’re considering using a broker make sure they are more than just a salesperson; the successful sale of your business could depend upon it.
