Before the Tax Return is Done
Before the Tax Return is Done: Time to Meet with your Business Broker
Time to Meet with your Business Broker
When preparing your tax returns, you are once again reminded that it's time to decide: do you want to continue your business, or do you want to sell? If you plan to sell within the next few years, is there anything you should do right now?
Who do you call? Which business broker? Where do you begin? For most prospective business sellers, this business selling exercise is a confusing, first-time experience.
Prospective sellers are best advised to form a team. Starting with a business broker, your team will later include your lawyer, accountant, and maybe others to whom you look for advice. Other advisors may be your banker, appraiser, perhaps a family member or even a key employee.
It is wise to begin slowly. Business brokers don't charge by the hour, so it costs nothing to get their initial advice first. A one-hour meeting can be very productive.
First Meeting with the Broker
At your first interview, we business brokers expect you to ask us what your business is worth. We may offer a quick, free estimate of your potential business value if we can review the last few years of tax returns or financial statements.
Confidentiality is important and business brokers understand this. The material you give to business brokers is treated as highly confidential.
Your business broker will have many more detailed analytical questions about your business when you commit to proceed with a sales offering.
Don't Wait for the Tax Return
You need to contact your business broker before your business tax return is finished. There are often critical adjustments in the current tax return that can help in the sales effort.
The first quarter - January to March - is an ideal time to start the process. It takes time to plan and begin an effective marketing campaign.
A business broker is the advisor you will spend the most time with when you finally decide to sell. Your business broker must be an experienced financial analyst, a skilled business valuator, an effective planner, a savvy sales professional and a seasoned negotiator. These are the traits to look for.
Going to a business broker's office allows you to judge how the firm works. All brokers will agree to come to you first, but you may want to reverse that order. A second meeting can be set for the tour of your business.
Questions to Ask
Many people have suggested useful questions to ask a business broker at the first meeting. A good list comes from freelance writer Carole Matthews in her October 2001 article at Inc.com, the website for Inc. magazine.
Here are the six questions she suggests asking your business broker:
1What is your background and experience? Matthews quotes prominent Texas business broker Jeff Jones as pointing out that the average business broker is 55 years old, and for good reason. Experience counts! "It takes time," Jones says, "to understand the nuances of business. A competent broker needs to know about valuation, accounting, law, and salesmanship. Also patience!" Don't be shy about asking your broker what experience they have in these areas.
2 What services do you provide? Matthews urges sellers to carefully review the services offered by various business brokers. Two mistakes often made are: 1) to equate business brokers with real estate brokers, and 2) to over-estimate the capabilities of so-called "national brokers" in comparison with local brokers.
Real estate brokers and business brokers are not the same. Real estate brokers generally don't have systems to protect a business seller's confidentiality. They often represent buyers, which has additional complications in a business sale. They usually don't understand the nuances of a business sale, particularly the valuation and sale of intangible assets.
A skilled local business broker can also offer much better service than the current crop of "national brokers."
Many, if not most, of today's business brokers who claim to be national are, in fact, merely producers of seminars intended to solicit high appraisal fees and retainers, with very few actual business sales.
A seller should be able to get plenty of specific answers from a competent business broker. When in doubt, check references before agreeing to list your business.
3 Are you a member of a professional association? Matthews points out that business brokers should have the right connections. Business brokers have a national professional association, the International Business Brokers Association (IBBA). Most serious brokerage firms are IBBA members.
In addition to trade association memberships, business brokers also need to belong to the various websites that feature business opportunities. The best is BizBuySell.com. Other major sites include Bizquest.com, MergerNetwork.com and BusinessesForSale.com.
4 Can I talk to the owner? In the world of business brokerage, this question only concerns the larger firms. In Maine the largest local firm is Maine Business Brokers, with ten brokers. The nearest "national broker" is in Boston. Others are in North Carolina, Texas and California. We would guess that you won't be able to find the "owners" of these firms.
IBBA founder Tom West is right when he gives the advice in the Inc.com article to "cross that firm off your list," if you can't talk to the owner. Every legitimate business brokerage firm in the country has an owner who is actively engaged in the field and who will talk directly to any potential client.
5 How do you screen and pre-qualify buyers? The Internet has recently made the world a much smaller and more dangerous place for business sellers. The difficult part is not how to get buyer prospects to respond, but how to manage them after they do.
Managing "buyer flow" to protect a seller's confidentiality requires a system. Sellers need to know whom they are dealing with. Prospects need to be screened and pre-qualified. When a buyer prospect is uncooperative, brokers need to have the procedures in place to stop the process until the proper information is obtained.
Only 1 in 40 business buyer prospects who respond to ads ever actually buy a business! That means, on average, to get one real buyer, you need to eliminate 39 others! This is why it takes a system.
6 How will you market my business? At your first meeting with any business broker, you can feel comfortable asking for details about how they work. They should have printed materials that explain this as well as samples of past business sales and references.
"Discovering what tools a firm has in its marketing arsenal will help you determine just how committed they are to selling," according to Matthews.
For complete texts of the original Carole Matthews' articles, call us. We can direct you to the specific sub-sections of the Inc.com website where you can still find these articles.
Consistent profitability. Well trained staff and a variety of e-commerce clients.
The cyclical nature of the economy can add uncertainty to the timing of an acquisition, or an exit from a business. However, unlike the clarity of an improving economy or the risks inherent in a downturn, buying or selling at a market high creates a unique set of challenges.