Sellers make huge mistakes by deciding to sell their business on their own. They also make a huge mistake by choosing the wrong business broker to handle the sale of their business.
When you choose to hire a business broker to sell your business, congratulations you’ve made a very good and sound decision. However, like any industry, there are good and bad business brokers. You need to make sure you are choosing a great business broker with tremendous experience to handle the sale of your business. Great business brokers can maximize value in the sale of your business. A bad business broker will cause your business to stay on the market too long and will not maximize value while costing you money.
I have listed the top twenty questions that you should ask when interviewing business brokers. In addition, I am providing you with additional things you should ask for and review before you hire a broker.
1. How many years have you been selling businesses?
It is imperative to hire a business broker or business brokerage firm that has years of experience in selling businesses. Some business brokerage firms will have agents that might not have as many years of experience. However, if that agent works for a business broker that has years of experience in selling businesses, then interview that owner to make sure that the owner will be working with the agent during the entire process of selling your business. If the owner of the firm does not have very much experience in selling businesses, then do not hire that firm. There are some owners that have never sold a business before and have agents with very little experience in selling businesses. In that case, you should keep interviewing firms.
2. How long have you been with or owned your firm?
You should ask the agent how long they have been with the firm. That will provide you with further insight regarding the agent’s experience level.
3. Do you work from home or have an office?
There is nothing wrong with hiring an agent or broker that works from home. Although, why are they working from home? Is it because they are new in the industry and cannot afford an office? Or have they been in the business for years and are scaling back?
4. How many brokerage offices do you have or are you affiliated with?
This is a very important question to ask as well. Not all brokers will agree to co-broker on the sale of your business. So if they don’t co-broker, are they part of a national business brokers alliance, and therefore they can co-broker within their own organization?
5. How many businesses have you sold?
The more businesses they have sold then the more experience they will have at putting deals together. Be very careful of hiring a broker that has not sold very many businesses. There is a reason they have not sold many businesses and you do not want them to practice on selling your business.
6. How many businesses do you sell a year?
The average business broker will sell eight to ten businesses a year. If they only sell one or two is it because they sell larger businesses or is it because they are not motivated to sell more or not good enough at selling more businesses per year? Which is it? The answer will be important in making your decision.
7. What industries have you sold businesses in?
If you are selling a multimillion dollar car dealership and the business broker does not have any experience in selling car dealerships, then you could run into problems throughout the process. It is not imperative for the broker to have industry experience; however, it is very helpful in maximizing values and ensuring a smooth transition.
8. How many listings do you have?
The average business broker will have 15-20 listings at any given time. If they have less than the average, it might be important to know why they have fewer listing than other brokers. Is it because they are not motivated to obtain more listings? Are they new and that is why they don’t have more listings? Is it because they are not good at obtaining listings. Or are they good at selling their listings and that is why they have fewer listings? Some sellers are concerned that a broker may have too many listings. That is never an issue as long as the broker has an administrative assistant and a good support staff in place. Therefore, you should ask the broker if they have support.
9. Do you co-broker?
We mentioned this earlier. If the broker does not agree to co-broker (and many of them don’t) then your buying pool will be limited to that brokerage firm only or their affiliated offices. I would suggest that you keep interviewing and hire a business brokerage firm that does co-broker. The broker should have a fiduciary duty to their seller to sell their business in the quickest amount of time as possible for the highest possible price. They should not have a fiduciary duty to their bank account!
10. Do you have a database of buyers, if so how many?
Most business brokerage firms do not utilize a contact management system properly. They attempt to keep a paper trail of signed NDAs and notebooks. They do not have a proper system in which to sort and maintain buyers. You should hire a business brokerage firm that has a database of buyers. Professional, experienced business brokers will run a query of all their buyers in their buyer databases that could be a good fit for your business. If the broker has a buyer database, then they could actually sell your business much quicker than a broker that does not have a database of buyers in a contact management software program. These brokers will have to sort through paper to find a buyer or start from scratch and advertise for buyers.
11. Do you have testimonials?
Any professional, experienced business broker should have testimonials and references that you should be able to call. My firm has numerous testimonials. However, please keep in mind that all business sales are confidential and a business broker cannot disclose the information on any sold businesses without the seller’s permission.
12. What is your closing ratio?
Many of my competitors close less than 40% of all offers they write. Those are horrible odds and statistics. These odds are no better than trying to sell the business on your own. My firm closes 98% of all offers we write.
13. How do you evaluate what my business is worth?
Unfortunately there are a lot of order takers out their versus professional business brokers. A professional, experienced business broker will evaluate your business based upon all the things we discussed in Chapter 8. Professional experienced business brokers will not take the listing if the seller’s expectations are not in line with the broker’s evaluation. Oder takers will ask the seller what they want for the business and the broker will write up the listing with the seller’s dream price without running numbers, pulling industry standards, looking at business comps and properly evaluating the business for what it is actually worth. You can have a high price on your business and let it sit on the market for years and it will never sell. Or you can hire a professional experienced business broker to properly evaluate your business, put it on the market for the best and highest possible selling price, and sell it within a reasonable time.
14. What resources will you utilize to evaluate my business?
This is key, because a business broker, not order taker, will evaluate your business for what it is truly worth, not tell you what you want to hear. Ask them if they will show you industry standards on your particular industry and business comps to support their evaluation.
15. Do you assist with creative financing?
Let’s face it; we are living in a whole new era. Due to the recession and financial debacle, banks are not lending unless the perfect storm has occurred. The perfect storm means that the seller has to have perfect books and records; the buyer has to have near perfect credit, twenty five to thirty percent down, collateral to secure the loan, and industry experience. Typical financing is not so typical anymore and deals are not getting done the old-fashioned way. Therefore, you need to hire a business broker that understands this and has experience in creative financing. Otherwise your business is not going to sell. My firm specializes in creative financing and has been offering alternative solutions for years, even before the financial debacle.
16. What marketing material will you provide to prospective buyers on my business?
This is a key step as well. Most business brokers do not create an offering memorandum on your business. Most of them do not write any paper except for the listing that goes on the internet. Some will write a one page BLI (business listing information) sheet; very few brokers actually put together a full blown prospectus. It is imperative to utilize a business broker that will write a complete prospectus on your business.
17. How and to whom will you market my business?
You need to make sure that you choose a business broker that puts together a creative marketing plan. Most brokers will stick the listing up on multiple websites and that is the extent of their marketing. You need to select a broker that has a buyer database, and does strategic marketing, not just internet marketing.
18. Who determines when and if you will spend money on marketing my business?
Agents have no voice in how the owner of the business brokerage firm spends their money. Agents do not spend any advertising money on their listings; it is solely up to the firm’s owners to determine which listings they spend money on. If you are dealing with the agent and not the owner, then get clarification on how much marketing and what type of marketing they are going to do on your business.
19. How do you qualify buyers?
I have seen many brokers not qualify buyers. The buyer signs an NDA and the broker gives them information, including financials on your business, without ever qualifying the buyer. In my firm, we have all buyers fill out a buyer package which includes a financial statement. If the buyer is not willing to provide his/her financials and we have no other way to verify their financials, then we do not provide the buyer with any information whatsoever on our sellers’ businesses.
20. Do you have relationships with lenders, attorneys, and tax specialists?
One of the number one reasons that deals fall apart is because of loss of control over other professionals that are involved in the deal or the buyer’s/seller’s problems are not being solved in order to finalize the sale. The more relationships that the broker has with attorneys, CPAs, and lenders, then the fewer problems they will have in that particular deal. I have said it many times; attorneys, CPAs and lenders kill deals. It is invaluable for a broker to have attorneys that they use to prepare the closing documents and close on the businesses. It is imperative for the broker to have relationships with CPAs that they can refer to first-time buyers in order to assist the buyer in the buying process. It is also imperative to have relationships with tax specialists to assist with structuring the deal so we can assist the seller in minimizing their tax liability before the business changes hands. If you wait till afterwards to minimize tax liability, then it becomes too late. If the buyer is obtaining their own specialists and the seller has their own specialists, then the deal will become very chaotic because no one is controlling all the players and keeping them focused on one common goal. My firm has relationships with CPAs and we refer our buyers to them in order to assist them and provide a comfort level regarding evaluations, setting up their business entity, structuring offers, and assisting with due diligence items. We have law firms that we work with to represent the transaction and prepare closing documents and close on the sale of the business. We also work with all our sellers to minimize their tax liability. The more relationships a business brokerage firms has, then the more control they will have over the deal and their success rate will increase tremendously in their ability to sell your business, solve problems, and ensure a smooth transition. Do not choose business brokers that tell you that they prepare the closing documents and handle the close. Business Brokers are not attorneys and have absolutely no business in preparing closing documents! This is a sure fire way to give up protection and perhaps get sued by the buyer. My firm does not prepare any closing documents whatsoever. All closings should be handled by an experienced closing attorney only!