Business Brokers – How to Choose the Right One

The vast majority of small businesses are sold without the assistance of business brokers.

But if you do decide the hire a broker, here are some suggestions on how to pick the right one and how to structure the agreement in your favor.

What Business Is The Broker Actually In?

In many states there is no training or certification needed to become a business broker. In other states, brokers are required to hold a real estate license.

In these states it’s common to find real estate agents that do business brokering as a side business. If you deal with a broker who is also a real estate agent, make sure that being a business broker is more than just his hobby.

You will pay a pretty penny for the broker’s expertise and experience – you should make sure they have that experience when it comes to selling businesses and not just experience selling houses.

Questions To Ask

If you hire a broker you will be working with them closely for months to come; they will have access to your most confidential business records; the amount of money you put in your pocket at closing will be influenced heavily by the quality of work they do.

Therefore, you absolutely must check them out.

Here are some questions you should ask any prospective broker before hiring him:

1. How long have you been a broker?
2. Have you ever owned a business?
3. How many businesses similar to mine have you helped sell?
4. Can I see a blank version of your Listing Agreement?
5. What percentage of you income comes from brokering and how much from real estate (If applicable)

Ask them to provide you with references from previous clients. Then, I suggest you do something very unusual: Actually call the broker’s references!
I know a lot of people ask for references just to see how the person will react when asked (and to see if they actuality have any). But you can learn a lot about the broker’s reliability and professionalism by talking to people who dealt with that broker when they were in the exact same spot you are in.

Business Broker Fees

There are two benefits a broker can provide the business seller. First, he can locate potential buyers while maintaining the seller’s confidentiality. And second, a broker will qualify these potential business buyers so the seller saves time by not having to deal with weak prospects.

The big negative of dealing with a business broker is his fee, which averages 10-12% of the sale price. This fee is charged to the seller.

There is also a minimum fee. A very small business will pay a flat amount, typically $8-$10,000, instead of the commission. For a business worth $50,000 this minimum fee actually works out to be a higher percentage than the 10-12% industry average. But as a matter of practice, brokers usually won’t be interested in your business unless the asking price is above $100,000.

These fees are the reason most business owners choose to sell their business themselves and rely on their lawyers and accountants for the professional assistance they need.

The Broker Agreement

If you decide to use a broker you’ll be asked to sign a broker agreement which will detail the his fees. If possible, have your agreement include the following clauses:

Timing of Payments – Have it written into the agreement that the broker’s fee will be paid at the time you receive the purchase price – not at the time the sale is closed. This way, if you finance part of the sale price over a number of years, you pay the business broker as you get the money, not all up front.

Length Of Agreement – Your listing agreement should be for a limited time. If the broker locates the buyer within that time he gets paid. Be careful of lengthy agreements that lock you in with one business broker for more than 6 months. If he doesn’t produce, you want to be able to try other options. A 6 month business broker agreement is the longest you should allow. However, because selling a business can be a lengthy process, 3 months is usually too little time for the broker to find the right buyer. Try to settle on something between 3 and 6 months. If after six months, you haven’t closed the deal but you think the broker has done a good job, you’re always free to extend the agreement. But you want to be free to decide on an extension 6 months from now, not today.

Broker’s Guarantee – Include a paragraph stating that if you find the buyer, you don’t have to pay the commission. Without this clause, the broker is usually paid no matter who locates the buyer. Before signing any listing agreement, it is best to have your attorney review it to make sure your interests are protected.

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How Important Is a Business Broker to Buyers and Sellers?

Establishments and companies change ownership at some point. As such, the services of business brokers prove to be highly valuable for both the seller and the buyer. An aspiring entrepreneur needs to evaluate a target business establishment, and this is where a professional business broker can offer valuable assistance. The seller also will find it rewarding to seek the assistance of a business for sale broker for the advertising and the negotiation facilitation with prospect buyers.

Benefits of Hiring Business Brokers

Selling a business can be a demanding and tiresome process. This can take up a lot of time and can even affect the value of the business, as you spend more time on its sale process rather than on the daily operations of the business. This is where the services of business brokers come in handy.

First off, a professional broker can give you confidentiality, and can assure you that only the prospective buyers you approve will be contacted. A trustworthy and experienced broker can save you time in screening prospective buyers in advance. Brokers can already check if a prospect buyer has good financial resources to buy your business. They will also ask buyers to sign a confidentiality and non-disclosure contracts. If you attempt to sell your business openly or independently, you would most likely damage your staff’s morale. You would also give your competitors the opportunity to spread damaging rumors about you and steal your valued customers. When you hire a business for sale broker, he can work anonymously, ensuring the protection of your business.

Moreover, selling your business all by yourself can be inefficient, especially if you lack the experience. A business broker generally has more experience, resources, and tools to effectively reach potential buyers faster and easier. However, reaching target buyers is just one part of a broker’s job; getting the best price for your business is his other important job. A professional broker should have the capacity to advertise your company in such a way that it can attract serious and financially stable buyers. This would definitely increase your benefits and advantages in selling your business.

Finally, business brokers can name the value of your business. This process involves more than just revenue or profit, thus, you may undervalue or overvalue your company, and these mistakes bear indicative consequences. For an experienced business broker, there is a rare chance to commit such mistakes.

From a business buyer’s perspective, a business for sale broker brings a lot of advantages as well. If you are a buyer and asked the assistance of a broker, you will be able to have access to opportunities that you won’t likely find on your own. If you do not have enough knowledge regarding the industry you chose, you can get helpful advice and useful insights from a good business broker. Your broker can also facilitate other essential tasks such as researching recent market conditions, current prices, and reasonable financing.

Trusting only Certified Business Brokers

With the increasing number of sale brokers out there, you may face challenges identifying which ones are trustworthy and which ones are bogus. To resolve this dilemma, all you need to do is check their certifications and experiences. The main organization that provides business broker certification opportunities is the International Association of Business Brokers (IBBA). A certified business broker should have at least one of these designations:

- Accredited in Business Valuation (ABV)

- Certified Business Appraiser (CBA)

- Accredited Senior Appraiser in Business Valuation (ASA-BV)

- Certified Valuation Analyst (CVA)

Although a certification may be a good sign that a business broker is legitimate and trustworthy, it does not fully guarantee his competence in the field. The broker’s practical experience is also an important aspect to consider in choosing which one to trust. Do some research or ask around for the number of transactions that your prospect broker has successfully closed, as well as some positive feedback regarding his experience in the industry. An insightful business broker can benefit a lot from his or her experiences, such as building significant relationships within the industry and learning from past mistakes. Certification cannot match such benefits and advantages.

While certification is a vital requirement in establishing a broker’s credibility, you should always take into account the experience of a business for sale broker before making a decision. Choose one who has the knowledge and experience that you will not get anywhere else. Don’t you agree that the role and importance of business brokers is essential to both business sellers and buyers?

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Choosing the Right Business Brokers

Whether you’re buying or selling a business, having a broker on your side can make the difference between a successful outcome and a nightmare. However, not all business brokers will be suitable for your specific situation. Use the tips below to choose the right broker for your needs.

Start by asking for referrals from your inner circle of business advisers and colleagues. Have any used a business broker in the past? Were they satisfied? Does the broker handle the type of transaction you have in mind?

You may need to widen your net to find a pool of qualified business brokers that specialize in brokering deals such as yours. Once you have several potential brokers, it’s time to get down to business and narrow the field down. Below are several key factors to consider:

- Is the individual or firm professional? Professionalism shows in numerous ways including personal appearance, the presentation of marketing materials, website, language, mannerisms, and expertise. Use both objectivity and your gut instinct. Remember, the broker you choose will be representing your business so make sure you’re fully comfortable with the person and firm you choose.

- Does the broker have experience working with businesses like yours? While it’s not necessary for the business broker to have specific experience in your exact niche, it’s helpful for the broker to understand the nature of your business and have experience brokering deals with similar characteristics. For example, if you run a family-owned microbrewery, a broker with a successful track record brokering deals for small wineries, family-owned specialty food manufacturers, or small brewpubs may not know the finer points of brewing beers but could be an excellent choice thanks to experience with similar businesses.

- What qualifications does the broker have? Look for licensing, education, certification, experience, and membership in professional associations.

- Is the broker well prepared? In other words, did the business broker do his or her research prior to your initial meeting? Brokers use comparable sales, business and industry reports, and other tools to price businesses. Your business broker should be able to support any suggested listing prices, which should be presented in writing, with documentation.

- If you are selling your business, find out how the broker intends to market your business. Brokers have many marketing tools available to market their business listings. However, some prefer to use specific marketing techniques over others. Make sure to ask the broker to present a detailed marketing plan.

- What type of businesses does the broker work with? For example, if your business has annual revenues in the $50 million range, you’ll need a special type of buyer making it important to choose a business broker capable of attracting those high net worth individuals and investors.

- Check references. No matter how professional, personable, experienced, qualified, and prepared potential broker appear, cover your bases by checking references. Ideally, the broker should give you references from businesses with similarities to yours.

Choosing the right broker to sell your business or help you find a business to buy is a process. Do your part to ensure a successful outcome by choosing wisely.

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Why Should I Use A Business Broker?

You’ve come to the decision that buying a business or selling your business is the path that you want to take. The best piece of advice, although biased, I can offer is to retain the services of a business broker or business transfer adviser. Although business brokers usually work on behalf of the seller, there are sell-side business brokers and buy-side advisers. Even if you’re a buyer and you decide not to retain the services of a business broker or transfer adviser, you’ll receive the benefits because a business broker is working with the seller.

The broker is sort of like a clamp that holds things together as the business buyer and seller progress through the business transaction. Below I’m going to explain to you how both business seller and business buyer can and will benefit from the services of a business broker:

Let’s meet-

The good thing about the business broker is, the profession requires face to face meetings. Even though the broker is getting paid by the business seller, the buyer has to meet with the broker in order to view the business as well as so the broker can determine if the buyer is a compatible buyer for the business.

The meeting will be an interview style meeting. Some of the questions that will be asked by the broker are:

1- Can you go into detail about your background?

2- Have you ever purchased a business

3- Do you have easy access to the cash to buy a business?

4- Can you show proof of proceeds on a recent bank statement?

5- How soon are you willing to make a purchase?

In addition to the question and answer portion, you’ll also be given a personal financial statement to fill out and return. Be sure you return this information as soon as possible.

What usually takes place after this meeting is, the business broker will than present compatible business to the buyer. So come prepared with a recent bank statement showing the cash. Time is of great importance. Strike while the fire is hot and move with swiftness.

Expect for the broker to ask you to sign a non-disclosure agreement. The business seller wants to ensure that the word about the business being for sale is kept quite.

As the buyer, you’ll get to see very general financial information about the business of interest and others in the business broker has other businesses available. If you decide that you have serious interest in any of the businesses that are presented, the broker will provide you with more in-depth financial date and also arrange for you to see the business in person.

The broker will act of the best point of contact for the buyer. Any questions or concerns that the buyer may have, the broker can answer all questions concerning the business.

How the business broker helps the seller-

If you’re the owner of a business and you’ve decided to sell, one of the best services that you can retain are the services of a business broker. The broker will oversee the entire process while you continue to run your business.

The business broker will interview all of the buyers. This service by itself is worth the broker fee. Business brokers usually have access to a database of buyers that they’ve acquired over the years. These are buyers that have identified themselves are compatible and financially capable of buying a business. Having access to a list of buyers will speed up the process and help get the business sold while it’s still “hot.”

The business broker will especially prepare a marketing plan for the business in question. A sales prospectus will take time to prepare but your broker will provide you with this required document. In addition, the broker will structure the deal as well as assist the completion of the paper work.

Many owners don’t know how much their business is worth, therefore the broker can assist you with pricing your business. Te pricing of the business is just a starting point. The buyer will get an official appraisal. Between the 2 numbers, the negotiations will start there. Also, you want to ensure that your business is properly priced. You don’t want it to be overpriced not under priced A business that is priced right WILL SELL. The ultimate price of the business will be determined by what it sells for or as brokers like to say-the marketplace.

The business broker is one of the most important advisers that a seller can have on their transaction team. This broker will bring their years of experience to the table. This will help both buyer and seller and ensure both parties walk away happy.

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