Building and selling a small business can be personally rewarding and profitable. However, finding the right buyer, coordinating a sale, and negotiating the best price requires skill and experience. Small business owners often hire business brokers who can handle every aspect of transactions. Brokers also represent buyers and help them find the best investments.
Choosing honest and reliable business brokers is essential for business owners. There are thousands of companies providing brokerage services, and not all of them have clients’ best interests at heart. Fortunately, there are ways to identify the best brokers.
The Benefits of Working with a Business Broker
Buying or selling a business is complex, and deals can fall through if they are not handled professionally. It’s crucial that clients understand what a trustworthy business broker can do for them. A broker accurately values each business and then skillfully creates a marketing plan that becomes an auction for the company’s assets.
Selling a Business
According to INC., established business brokers bring invaluable experience and expertise to the selling process. They appreciably improve a seller’s ability to attract prospects, resolve hurdles, negotiate, and close deals.
Buying a Business
Brokers locate companies that are a good fit for purchasers. A business broker can accurately value businesses for sale and help buyers weigh the pros and cons of buying a business vs. starting a new one. Most new businesses fail within the first year, so savvy investors who want to buy a business often trust a broker to find established companies with proven track records.
Choosing Honest and Reliable Business Brokers
Per Investopedia, anyone wanting to buy or sell a company can find business brokers through accountants, attorneys, and associations, such as the International Business Brokers Association (IBBA).
The challenge is to locate a reputable broker who is a good fit for your needs. It pays to interview every broker you consider and ensure they can answer all your questions satisfactorily.
Check the Broker’s Credentials
It is critical that you verify each broker’s qualifications and credentials. Trustworthy professionals are members of the International Business Brokers Association (IBBA) or other state broker associations. In addition, a select few business brokers have the Chartered Financial Analyst (CFA) charter, which is given once educational requirements and high ethical standards are met via testing through the CFA Institute.
Use a broker with a successful background in your industry. A business broker specializing in another industry might not have the information and contacts needed to represent your interests.
Determine How Your Business Will Be Marketed
A primary reason business owners use brokers is to benefit from professional marketing. Ask how each brokerage markets businesses, aside from listing them on their site.
You can ask to see the selling book brokers prepare for clients. That will give you an idea of what caliber documents the firm presents to buyers.
Find Out What You Will Get for Your Money
Business brokers charge sellers a fee, much like real estate agents, and the amount can vary widely. Because you want the best possible return on your investment, it’s vital to understand precisely what the fee includes. Reputable firms provide the details.
Look for a brokerage that breaks down all costs and fees. For instance, they might provide a detailed memorandum outlining how they plan to advertise your company, target buyers, and contact them. They will let you know precisely what you get for your fee.
Established brokers also provide an honest estimate of the timeline for selling a business. Research from the IBBA shows that nearly half of owners surveyed expected a sale to take less than five months. However, most brokers stated that six to 11 months is more realistic.
Ask How Brokers Screen Prospects
Selling a business generally involves interviewing multiple potential buyers, which can be time-consuming for an owner. It could also create a confidentiality breach that leads to rumors among employees, suppliers, and customers.
Experienced, reliable brokerage companies have proven, discrete methods of culling serious buyers from those who just claim to be interested. A good business broker meets with prospective buyers and has a long conversation before going further in the sale process.
Review Brokers’ Listings
Information about a broker’s list can tell you about their success, management style, and chances of selling your business. Make sure to inquire about each broker’s list-to-sell ratio.
Reputable firms have high list-to-sell ratios, meaning they sell a healthy percentage of listed companies. If they can’t provide the information or don’t have a great success rate, steer clear; they might simply collect a fee and never sell the business.
It’s also essential to ask how many listings each broker is managing. A small list could signal an inexperienced or unmotivated broker. If the list is extensive, there’s a chance your business will not get the attention needed for a profitable sale.
Brokers often carry 15-20 business listings at one time and may sell ten or more companies annually. An excellent way to gauge their success rate is to ask how many businesses their firm sold the previous year.
Also, be aware that not every company offering to sell your company is committed to business brokerage. For example, residential real estate professionals may also sell businesses as a sideline. Choose a firm that specializes in valuing and selling small businesses.
Avoid Operations That Appear Unprofessional
There are plenty of one-person business brokers, and many do great work. However, if you consider a small broker that isn’t a well-known and respected firm, be careful to check their background. Note whether they seem professional and have invested in the technology needed for their work.
Be wary of disorganized or unreliable firms since they probably won’t succeed in selling your business. Look for ethical, reliable business brokers who are professional, open, honest with clients, and transparent in their business dealings.
Business brokers help owners sell their businesses as efficiently and profitably as possible. Brokers market companies, deal with prospective buyers, and handle the paperwork. It is critical to use an honest, reliable broker. Before deciding on a brokerage, check the company’s background, ask about their credentials, listings, fee structure, marketing process, and buyer-screening process. Avoid brokers who appear in any way unprofessional. Choosing honest and reliable business brokers is a must when business owners want to sell their businesses.