Knowledge is power when it comes to choosing the right business broker to help sell your company for fair market value. In this review, we discuss 7 factors you should consider when you choose a business broker to help plan and execute your exit strategy.
Let’s first start with the valuation. All too often sellers choose the broker who provides the highest valuation. Unfortunately, this often leads to the business not selling as the asking price cannot be justified and is too high. In many cases, these same brokers who provide unjustifiably high valuations are also paid upfront, and there is no contingency that they must sell the company in order to be paid. This is a common scam that business owners should be aware exists.
Rather than choose a broker that provides the highest valuation. Instead, choose a broker that sees the full value of your company and will work hard to maximize your value on the market, but that also is realistic about your company’s market value and is willing to tell you the problems buyers will find in your company.
First and foremost, you want to choose a broker with experience selling businesses. After all, your business is too valuable to place the sale in the hands of a rookie broker or a real estate agent who offers business brokerage services. Therefore, the first step you should take is to ensure all brokers on your shortlist are identified as business brokerages that have successfully sold businesses for fair market value. Of course, experience alone is not enough to ensure you choose the right broker, but it is a necessary starting point as you begin to narrow down your list.
Some business brokers may have a fair amount of experience, but they may not have a proven track record. It is important to verify the success of the business broker before you work with them. There are several ways to do this. Your broker may be able to provide reliable case studies that show how they have helped previous clients sell for fair market value. They may also provide testimonials or even allow you to contact recent clients directly as references.
Certifications and Licenses
Another great way to qualify potential business brokers is to ask about their certifications and licenses. Keep in mind, there is no federal “business broker license,” but many states require a real estate license. There are also certifications brokers may obtain to show that they are knowledgeable and qualified as business brokers. Specifically, ask any brokers you consider about the following certifications and licenses:
- A Certified Business Intermediary (CBI) status from the International Business Brokers Association (IBBA)
- A real estate license (this is important if your state requires a real estate license for business brokers or if real estate property is included in the sale)
- State certifications (for example, a Texas-based business broker may obtain certification from the Texas Association of Business Brokers (TABB)
Sales Strategy and Confidentiality Plan
It is important for you to be on board with your broker’s sales plan as well. Otherwise, you may set yourself up for disagreements with your broker down the road. During a consultation, have each broker you consider lay out their sales strategy and ask any questions and voice any concerns you have. If you are comfortable and confident in the sales approach, then they may be a good fit. If not, then you should keep searching.
Confidentiality is also of the utmost importance when it comes to the sales process for business owners. You want to ensure your broker has a plan to protect the privacy of your company during the sales journey. For instance, brokers should utilize non-disclosure agreements (NDAs) and confidential memorandums that hide your business name and precise location. We do not recommend working with any brokers who do not clearly lay out a plan to maintain the confidentiality of the sale.
Success Fee Basis
Now, let’s talk about payment. There are two ways a business broker gets paid — upfront fees and success fees (also known as contingency fees). An upfront fee, as the name suggests, means the client pays before the business broker finds a buyer. This naturally reduces the motivation of the business broker to sell the company as they are already paid and will be paid regardless.
With success fees, the client pays the broker once the sale is complete. If the company does not sell, then the client does not owe the broker anything. There is essentially no financial risk with this model for the client. Additionally, the broker is more motivated to find a buyer for a high sale price as they are only paid if they are able to do so. Consequently, we recommend finding a business broker who works on a success fee basis.
The fact is cookie-cutter, one size fits all approaches to selling businesses do not work. Here are numerous complexities involved with the sales process, many of which may be specifically unique to your company. A broker with a client-focused approach (and experience) will know how to navigate the obstacles you face and help ensure you remain on track and close the sale.
Unfortunately, far too many brokers do not take the time to learn the intricacies of your business and industry. This leads to poor sales performance. Instead, choose a broker who is client-focused. In doing so, pay attention to the types of questions they ask during your consultation. For instance, a business broker who takes the time to learn your reason for selling and your unique goals is more likely to have a client-focused approach. In other words, a broker who takes the time to learn about yourself and your company and puts together a personalized sales plan is more likely to have success.
Plan Your Exit Strategy With Sigma Mergers and Acquisitions
Here at Sigma Mergers, you only pay once your business is sold. We also have 19 years of experience and have helped more than 600 businesses sell for fair market value. If you would like to get started with a free personalized business valuation, then contact us today.