3 Times to Hire a Business Broker
Working with an experienced business broker can help many small business owners achieve the best outcome from their business sale. Acting as an intermediary, business brokers work on behalf of sellers to find a buyer and manage the sale process.
The broker’s compensation is usually set as a percentage of the deal size, typically around 10%, but can vary depending on the firm, deal size, location, or industry. For this fee, they will assist in many aspects of the sale, including:
- Valuing the business and setting an asking price
- Helping prepare materials to market the business
- Assist in preparation of deal related documents
- Prospect for and negotiate with potential buyers
- Coordinate with relevant parties to close the deal
Many business brokers are former small business owners who have gone through the sale process themselves. Therefore, they can also play a valuable role in guiding sellers through the emotional aspects of selling their business.
For a business owner looking to sell, deciding whether to use a business broker is a big decision. Here are three times to use a business broker, as well as tips to finding the right broker for your situation.
The Business is Complex
The more complex the business, the more helpful a business broker can be. Unfortunately, there is no hard rule as to what makes a business complex or not. A good rule of thumb, however, is that a broker may add more value if the business meets many of the following criteria:
- Is more than 2 years old
- Operates from outside the home, especially if from multiple locations
- Has multiple employees
- Generates more than $50,000 per year in net income
- Is a lesser-known brand
- Operates in a niche industry
These more complex businesses tend to be harder to sell to a friend, employee, vendor, or other business acquaintance. As businesses get larger and more complex, they tend to carry higher purchase prices and take more work to understand and operate. This is where a business broker can add a lot of value.
The business broker will not only help market the business to source potential buyers but can also help qualify potential buyers. The last thing a seller wants is to spend a significant amount of time with a potential buyer who doesn’t have the capital to complete the purchase.
Also, businesses of higher complexity are likely to be of interest to more experienced buyers. A seasoned broker can help bridge any knowledge gap and manage the larger deal team of lawyers and accountants the buyer is likely to have.
The Owner is Also the Day-To-Day Manager
Selling a business is a time-consuming process that can frequently take six-to-nine months or more. Therefore, it can be difficult for owners that are actively operating and managing the business on a day-to-day basis to also run the sale process.
The owner will still play an important role in the process even with a broker. This will be mainly answering diligence questions from would-be buyers, gathering supporting information, and reviewing transaction documents such as the purchase agreement.
However, hiring a business broker can help reduce the pressure by managing the day-to-day of the sale process. This is especially true when it comes to coordinating the marketing effort through various channels, qualifying potential buyers, and managing the due diligence process. Experienced business brokers can also be a big help when difficult situations arise by helping to keep deals on track and sharing their valuable perspective.
Existence of External Conflicts
While many business owners get to choose when they exit their business, sometimes life gets in the way. When business owners are suddenly forced to leave the business, managing a deal process is often the last thing on their mind.
In fact, when there is a decline in health, family issues, or a loss of a business partner, many decide to simply shut the business down. But this is often a costly mistake, especially when there is a strong, cash-flowing business that could be sold.
Turning to a business broker in situations like these can help owners achieve a better outcome. Owners can potentially receive what could be a much-needed financial benefit from the sale. And an experienced business broker can often take the lead throughout most of the process, allowing the owner to focus his or her attention elsewhere.
Finding a Business Broker
For those considering whether to work with a business broker, explore organizations like the International Business Broker Association (https://www.ibba.org). There you can search for business brokers or learn more about the services they offer. You can also try searching for business brokers on business listing sites like FirmExchange.com.
When evaluating potential brokers, here are a few questions to ask a potential business broker:
- How many brokers are in your office?
- How many other listings do you manage currently?
- What experience do you have selling businesses similar to mine?
- What type of selling information do you prepare for potential buyers?
- How long does it typically take for you to sell a business?
- What is your typical fee and length of engagement?
Lastly, when conducting a search, speak with several different business brokers. The best brokers will ask engaging questions and not just give a sales pitch. Brokers that show interest in learning all they can about a business will be best positioned to answer buyer questions and get the business sold.
DISCLAIMER: The information contained in this article is for informational and discussion purposes only, and should not be relied upon without seeking your own professional advice. The Firm Exchange, LLC is not a law firm, accounting firm or professional services firm, and accordingly it disclaims any liability for any reliance on the contents of this article. As each situation is unique, you are encouraged to discuss your specific situation with a qualified attorney, accountant and/or other relevant professional services provider.