Role of Business Brokers in Selling Your Business

There is a role for a business broker in selling your business. Basically they will make it happen quicker and often at a better price than you could have received on your own.

There are many reasons to use a business broker when selling your business. The most basic reason is they are in the business of selling businesses. They will market your business and help to get prospective buyers to look at your deal. They will help in setting an asking price based on their knowledge and experience. If they have gone through the certification program their price would be considered expert testimony and therefore is given a great deal of creditability. Keeping the owner from underselling their business or over pricing their company is part of their legitimate function to their client. Since they know how to find buyers who are qualified and ready to deal on a business of their liking, they can help to cut down the time a business has to be on the market. Consistently a business broker will move a business quicker and usually at a very fair price.

What does a business broker do

They can help the seller get the information needed by the buyer to make a decision on buying the business. This role is critical as nothing happens until a price is established and the business facts are known. Presenting the facts in a professional form is another common service that a business broker will give a client. This service can be the difference between a seller making a deal and the deal going south. Professional presentation of pertinent facts about a business is necessary in order to attract potential buyers. It is this factual information that helps buyers make intelligent decisions about such a purchase. Since the business broker does this type of work year round, the information is shown in its most positive form. Practice does make perfect in this case.

The business broker is also the go-between for passage of information between the buyer and the seller. This enables better communication and cooperation between the buyer and the seller. The role of a disinterested third party is effective in letting the business broker move the dealing along on the sale of the business. The business broker must treat both sides fairly as his next clients are given existing clients as references for his work. It is imperative that the fairness issue is communicated to the next client. Since all aspects of the sale pass through the broker, this neutrality is important and also the advice given to both sides of the deal.

Marketing the business

Without a broker, the seller would have to market the property and would not have access to a pool of potential buyers. The buyer would not have access to the pool of sellers the broker has available. This need by both parties is the reason that most businesses are sold with the help of a business broker. Their expertise in helping to set the selling price cannot be overstated. A busy broker over time helps to sell many types of businesses and this real time experience is invaluable to the process coming to completion. A competent broker will also know the legal requirements for many types of businesses that the brokers in a geographical area. This prevents problems that can be prevented from taking place and decisions being made without all of the facts.

If he is not a certified broker as to setting a selling price, he will have referrals to brokers or CPAs that do have this credential. The advantage to the seller is the business will be set at a selling price that can be logically defended when questioned about how the price was set. It is not just a price that the seller picked from thin air of a wish list price.

Broker assisted negotiation

Since the broker will usually know what the buyer is willing to pay and what the seller is willing to accept, the broker can lead both sides to a price that is somewhere in the area that both are willing to live with. Without this outside force, either party may never approach this price.

A broker has another ability to deliver that makes their service worth the cost. Maybe the business is a one of a kind business and not one that comes to market every day. Businesses like this are hard to evaluate as to their market value and even more importantly there may be a need to come up with a unique marketing plan to sell the business. A good brokerage firm can do both and solve the problem with a greater chance of success than the owners of the business could do by themselves. They have access to a network of brokers who handle all types of businesses that are for sale.

The business may be unique in the geographic area it is located in, but there could well be one in another part of the country that was successfully marketed by a broker in that area. Use of the network is exclusive to the broker community and private individuals will not have access to the information that can be obtained from the network. Information is power, and this kind of help may be the only way the business could be successfully marketed. How other brokers sold a similar business can lead the broker in question to come up with a plan that has a good chance to work. This service to the seller is priceless and could make the difference between no-sale and sold. The seller could have wasted a great deal of time and money on an approach that would not work. Ferreting out potential buyers is the name of the game. The wrong approach could easily come up empty. All of this is sufficient reason to employ and expert when selling a business.

Conclusions

The fact that they will actively market your business is plus. The current owner does not have the time or knowledge to find buyers and set a fair price. They will usually set their price too high or too low. If they have a hard time coming up with any buyers, this can bring on frustration and an unneeded reduction of the selling price. It the wrong buyers are seeing the ad for your business, then only a bargain will attract their attention. A buyer who understood your business would readily see the value in a fairly priced offer. This is tricky and the result can be dramatically influenced by hiring a pro to help with the sale.

Another reason for the use of a pro is they can talk the language of professional people the buyers bring into the sale negotiation. If the terms that they communicate in are not understood, the buyer’s advisors will not be impressed and may kill the sale. Hiring the professional business broker can prevent lack of intelligent conversation. He will know the terms and their meanings and be able to give the needed answers to move the sale along. This knowledge and expertise is the reason that such a person should be hired to help you make the sale of your business. Their ability to use previous sales and how they were completed is a facet of their knowledge base. There is no way the current owner could bring that to the negotiating table.

Selling Your Business – Pros and Cons of Working With a Business Broker

Selling your business is something that most business owners do only once in a lifetime. So how do you make sure everything goes well? Many business owners consider working with a business broker, an expert in selling businesses, to make sure they maximize the sell price of their business. Is this always a good idea? Lets look at the pros and cons of working with a broker:

Why you should work with a business broker when selling your business

1) A broker has (hopefully!) sold many businesses for prior clients, and you can use that expertise to learn the basics of the process and avoid making careless mistakes.

2) They can act as a facilitator to the transaction, making sure that negotiations go smoothly, the transaction proceeds at the right pace, and that the business is ultimately sold with all parties satisfied.

3) A broker may reduce your upfront costs of selling the business, as many brokers will pay for creating sales collateral and advertising the business at their own expense in exchange for a fee when the business sells. They also may have insights as to what advertising mechanisms deliver the best “bang for the buck” to make sure as many potential buyers as possible are exposed to your business.

4) They can provide expert advise related to market conditions and can help evaluate potential offers to buy your business. For example, a business broker will typically provide a free initial estimate of the sales price of your business, and can provide information on what similar businesses may have recently sold for in your area.

5) A business broker can help preserve the confidentiality of the sale. By having a third party involved, buyers can interact with the broker instead of the business owner, making it easier to protect the identity of the business for sale.

With so many good reasons why a broker can help sell a business, no wonder that most businesses that are sold ultimately involve a business broker. However, there are downsides to working with a broker that a prudent business owner should consider.

Why you should NOT work with a business broker when selling your business

1) Business brokers may charge a large commission. The amount of commission varies based on many factors, such as the ultimate sales price, geographic location, and the skills of the broker. For a “main street” style business selling for less than a million dollars, it would not be unusual to see between a 10% to 20% commission fee. Some brokers will also have a guaranteed minimum, on the order of $10,000 or $15,000. You should only hire a business broker if you believe that the time and effort involved justifies this price, or if you believe they will raise the selling price by more than the amount of their commission.

2) A great broker is worth their weight in gold, but a bad (or even mediocre) broker costs far more than they are worth. In many cases, the sale will be lost due to incompetence on the part of the business broker. If you are not confidant that the business broker can not only increase the transaction value, but can also increase the chances of actually getting the business sold, then you are probably better of managing the sale on your own.

3) Do not work with a business broker if you go into the transaction not knowing what you want out of it. Many times business brokers will contact you proactively, letting you know that there are buyers interested in buying your business. Selling a business is a big decision, and one that you should enter into with a great deal of care. Make sure that you are talking to a broker because YOU made the decision to sell, and that you have properly educated yourself about the process and the ultimate consequences of your decision.

Working with a business broker, when done properly and for the right reasons, can be a great benefit to selling your business. By educating yourself about the different factors involved, you have taken an important first step towards getting your business sold. Best of luck!

7 Tips on Picking the Best Business Broker

Thinking of selling your small business? Are you one of those fearless entrepreneurs who think they can market, negotiate and close a deal by themselves or are you going to take the more logical route of working with a business broker? If sanity prevails and you are going to work with a pro, here are a few things to look for to find the best business broker.

1. Get recent references

Ignore all the hype a brokerage firm places in their literature and ask for recent references and then follow up and actually check them out. If you’re dealing with a larger business brokerage, get references from the broker you will be working with. Big offices will always have rookies and you want to insure that the broker you get knows his or her stuff.

2. Work with certified brokers

Many states require that business brokers hold a real estate license but just having that license does not mean that the broker necessarily knows anything about buying or selling a business. In fact a number of realtors turn “business brokers” when the real estate market gets slow. What you should be looking for is certification from the International Business Brokers Association who grants a certificate as Certified Business Intermediary (CBI) after completion of an extensive educational course.

3. Don’t be fooled

If the reason that you are considering selling is because you received a letter or email from a broker with the message “We have a buyer for you” then think again. This is one of the most common marketing ploys used in this business. Without question these brokers probably have people interested in buying a business but not necessarily yours.

4. Don’t rush to a decision

Selling your business is a big deal and one you want to be sure you do right. In your conversation with brokers ask them if now is a good time to sell. Ask for an opinion of value. Coming up with this could take a bit of time and if the broker is reputable, he or she may advise you not to put the business on the market but rather make suggestions on what to do to improve the value. A broker who makes this suggestion is looking to make both of you a bigger buck by making the business more attractive.

5. Pick a brokerage with experience in your industry

Look at current listings that the broker has. Check out both the size and types of industries to insure that he or she has experience in your market place. Again, don’t rely on marketing material find out the facts yourself.

6. How does the broker market

Ask what the broker’s marketing plans are and ask to see samples. If he simply puts an ad in the paper or posts it to a single website you probably aren’t getting the exposure you deserve. Good brokers have networks they can tap to find interested and qualified buyers.

7. Avoid packaged services

At some point in the sales process you are going to need the services of an attorney and a qualified accountant. Your broker will probably offer those services but in most cases what he or she is doing is outsourcing to someone else. If you have your own attorney and CPA just stick with them. Otherwise it may be less expensive to find and deal direct with those professionals rather than getting them through the broker.

Finding the best business broker isn’t really that difficult it simply requires some time and effort on your part. However, getting the best broker makes a huge difference in how the experience plays out and the total value of the deal.