They know how to connect with the right buyers and negotiate well. On the other hand, a bad or inexperienced broker can cause problems and waste your time and money. Usually, you sign a contract with a broker for a year, so it’s important to talk to a few brokers and choose the right one carefully. This article is a quick guide to finding and picking the right business broker to sell your business.
Things to Consider When Choosing a Broker
There are a few things to consider when choosing a business broker to sell your business:
- Who to choose
- How to choose
- How to qualify
- What to expect
- What is the cost?
Who to Choose: The market is broken down into several sectors, mostly by size, with some consideration of the type of business.
Small businesses, with sales under $1.5M are quite often handled by business brokers or Real Estate Brokers (many provinces/states require a Business Broker to be a licensed Real Estate Broker).
How to Choose: Start by researching potential brokers online, asking for recommendations from other business owners, and reviewing their credentials. Arrange initial meetings to gauge their communication skills and compatibility with your goals.
How to Qualify: Qualifying a broker involves checking their credentials, licenses, and client references. Ensure they are properly licensed and inquire about their past deals to assess their competency.
What to Expect: Your chosen broker should provide a clear plan outlining how they will market your business, find potential buyers, and handle negotiations. They should also give you a realistic timeline for the sale.
What Is the Cost: Brokers typically charge a commission based on the sale price of your business. Discuss their fees upfront and make sure you understand how and when you’ll be expected to pay them. This transparency is essential to avoid surprises during the selling process.
Know Your Market
Next comes what is commonly known as the mid-market, broken down into three size segments:
- The lower middle market, revenues from $2M to $15M;
- The mid-market, revenues from $10m to $50M; and
- The upper middle market, higher than $25M
These markets are served by many different professionals, some great, some good, and many not very good. How do you differentiate between the great and not very good? That is the question asked by many, and answered by few. The most common answer is that someone knows a Business Broker, and provides a referral. A simple referral is not enough to go on. So, you must dig deeper. Continue reading to learn how to identify a reputable and reliable business broker.
Look at Their Experience & Qualifications
It’s really important to check if the business broker has worked with businesses like yours before. A broker who knows your type of business can better understand the unique things about it. They know what’s tough and what’s good about it.
Every business has problems, like rules to follow or how to make customers happy. A broker who knows your industry can help you solve problems because they know what to expect. They also know where to find these people and how to get them interested.
Knowing how much your business is worth is also super important. A broker who understands your industry can figure out the right price based on what other businesses like yours have sold for.
When it’s time to talk about the sale, a broker with industry knowledge can explain why your business is valuable to buyers, helping you get a better deal.
Obtain At Least Four References
Seeking at least four references when evaluating a potential business broker is a critical step in making an informed decision. These references should come from trusted sources like previous clients, lawyers, accountants, and bankers who have worked closely with the broker in the past. Relying solely on written references may not provide the complete picture, so it’s essential to request the opportunity to speak directly with these individuals. During these conversations, be prepared with a list of pertinent questions to gain valuable insights. Questions like “Could you describe your experience with the broker?” or “Were you kept informed during the sales process?” help you understand their interactions and effectiveness while ensuring transparency and a smooth partnership.
Also, it’s wise to ask about any challenges encountered during the process to gauge the broker’s problem-solving abilities. To further validate their track record, ask for specific examples or case studies of businesses they’ve previously sold. These references and case studies provide a real-world assessment of the broker’s capabilities and can guide your decision-making process, ensuring you choose the right professional to sell your business.
How Large Is Their Support System?
Evaluating the size and composition of a business broker’s support team is a crucial aspect of assessing their capability to handle the sale of your business. First and foremost, it’s essential to know whether they have a backup plan in place for situations when they might be unavailable due to illness or other reasons. This ensures that the sales process doesn’t stall in their absence, providing you with continuity and peace of mind.
Additionally, understanding the presence of an in-house research team is beneficial. Such a team can gather market data, industry trends, and buyer information, enhancing the broker’s ability to make informed decisions and effectively market your business.
Having a dedicated business analyst or valuator on staff is also an advantage. They can accurately assess the value of your business, ensuring that it is priced competitively and fairly, which is crucial for attracting serious buyers.
How Large Is Their Network?
Understanding the size of a business broker’s network is vital. A big network means more potential buyers for your business. Also, check if they can introduce you to specialists like tax advisors, lawyers, HR professionals, or real estate experts if needed. These experts can help with important aspects of the sale. Moreover, it’s great if your broker can connect with support experts all over North America. They might have associations or networks that can bring in the right help no matter where you are. This ensures you get the best guidance and support during your business sale, making the process smoother and more successful.
As facilitators of expertise, we created the Robbinex Cooperative Network as a platform for connecting trusted professional advisors and business consultants in varying specialties. Our network has 100+ members that share our values and support the Robbinex mission statement.
What Industry Associations do they belong to?
Examining a business broker’s affiliation with industry associations can provide valuable insights into their credibility and expertise. For instance, prominent organizations like the International Business Brokers Association (IBBA) hold significant recognition in the M&A (Mergers and Acquisitions) industry. To make an informed decision, inquire about which associations the broker belongs to and the duration of their membership with each. A longer membership duration often indicates a sustained commitment to professional development and ethical standards.
Furthermore, it’s beneficial to know if the broker actively participates in these associations. Active involvement, such as holding leadership positions or attending industry events, demonstrates a dedication to staying current with industry trends and a willingness to network with other professionals. Being part of reputable associations and actively engaging within them can enhance your confidence in the broker’s ability to navigate your business sale successfully.
What Accreditations do they have?
It’s vital to check if your business broker has special certifications or accreditations, which show that they’ve completed important training and are experts in their field. For example, the International Business Brokers Association (IBBA) offers the CBI designation, which stands for Certified Business Intermediary. The M&A Source gives out the M&AMI, which means Merger & Acquisition Master Intermediary. The Alliance of Merger & Acquisition Advisors (AM&AA) provides the CM&AA, which stands for Certified Mergers & Acquisitions Advisor. These certifications are like badges of expertise and can give you confidence in your broker’s abilities to handle your business sale effectively.
Are They A Good Communicator?
Being a good communicator is super important when choosing a business broker. You want someone who talks to you in a way you can understand, not with fancy words you’ve never heard. A good broker will take the time to explain everything about selling your business, step by step, so you know what’s going on. They should also understand what you want and what your goals are. You must understand the whole process before you begin, so don’t hesitate to ask questions until you’re clear about what’s happening. A good broker will be patient and ensure you’re comfortable with the process.
Know The Cost In Advance Of Engaging A Business Broker
Before you team up with a business broker, try to know the costs upfront. You should ask them about their fees and the details of any contracts. Usually, brokers get paid a percentage of the final sale price when the deal is done. Some may have upfront fees, but these might be deducted from the final commission or success fee later. It’s important that you feel okay with these fees and understand how they work before you agree to anything. So, always make sure the financial terms are clear and comfortable for you before signing any agreements.
Is The Proposed Business Broker/Intermediary A Professional Such As A Lawyer Or Accountant?
When considering a business broker, it’s important to assess their professional background. Ideally, you want a broker who specializes in selling businesses full-time rather than someone who does it on the side. Some brokers may also have backgrounds as lawyers or accountants, which can be beneficial. However, ensure that their primary focus is business brokerage.
A full-time business broker is dedicated to your sale, offering undivided attention and expertise. They are well-versed in the intricacies of the market, negotiations, and the entire sales process. On the other hand, someone who only dabbles in business brokerage part-time may not have the same level of commitment or experience, potentially impacting the success of your business sale. Therefore, choosing a professional who is 100% focused on selling your business is a wise decision for a smoother and more successful transaction.
To summarize, there are many business brokers out there, but you have to take the time to screen out the inexperienced.
Check their credentials – do they maintain a proper license with the governing body for selling a business in your jurisdiction? Check to make sure there are no complaints or disciplinary actions against them. Are they in good standing with the local Chamber of Commerce?
Do not settle on the first business broker you talk to. Interview several and compare their qualifications, processes, and even personalities. What is their experience and track record?
What type of businesses do they specialize in? For example, if they specialize in Software as a Service (SaaS) and you have a metal fabrication company ask yourself if they are really the right business broker for you. Would they understand your business? The process of hiring a business broker is not much different than hiring a mid-level employee, do your due diligence and check references.
You are going to be working closely with the business broker during the entire transition period, you need to be able to have a trusting relationship.
Partner with Robbinex
Remember choosing the right business broker is fundamental for the successful sale of your business. Selling your business is usually a once-in-a-lifetime event, take your time, do the research, and choose a business broker that has a track record of successfully closing transactions in either your industry or location.
Robbinex has accumulated knowledge based on almost five decades of experience and approximately 450 closed transactions. Factors we believe are successful to the sale of a business include:
- Fully understanding the goals of our clients
- Proper preparation of a business for sale
- Comprehensive preparation of the information required by investors
- Effective execution of a transaction, supported by the proven Robbinex
- Three-Phase Process™ for selling a business