Questions to Ask Before Hiring a Business Broker
The New Year is upon us, and along with it comes numerous resolutions/goals individuals make. For some, 2017 might be the year they finally start their own business. Others are at the other end of that cycle and are ready to sell their business in the New Year. For the latter group, it is important to prepare for the sale well ahead of time.
Many sellers find greater success working with a business broker, rather than selling the business on their own. This is because most sellers lack the time and/or expertise to market to the right buyers. Not all business intermediaries are alike, however; and before choosing one, you need to ask them some questions to make sure they are the right fit for you.
Here are five important questions to ask a business broker before hiring them to list your business for sale:
Are you a full-time business intermediary: The first question is the most basic. Before going any further, you want to know if you are dealing with a full-time broker, or a “weekend warrior” who does this part-time while holding down another full-time job during the week. While being part-time does not necessarily mean the broker is not competent, it does indicate a stronger likelihood that he/she will not be able to dedicate the time and effort necessary to sell your business.
What is your business valuation method: Most small business valuations are complex, and the methodology used is based on a number of factors, many of them unique to the particular business and industry. So if a business broker gives you a standard formula before he/she knows much about your individual business, this can be a big red flag. There is no “one size fits all” formula for every business, and if a broker gives you a standard formula, it indicates that they may not have the level of experience you want representing you during the sale.
How do you keep the sale of my business confidential: In almost every industry, it is not good for customers/clients, employees and competitors to find out that the business is up for sale. Customers/clients may take the sale as a sign the business is in trouble, employees may feel like their jobs are in jeopardy, and competitors may sense weakness. Ask the broker what methods and safeguards they have in place to keep the sale confidential while simultaneously attracting the largest possible pool of qualified buyers.
How many listings do you currently have: Knowing how many other businesses a broker has listed for sale will give you a good indication of how much time they are able and willing to put into selling yours. For example, some brokers have a very large number of listings, which indicates that their approach might be more of a “numbers game”, where they take pretty much any listing they can get their hands on and hope to sell a certain percentage of them. Other brokers are more discriminating, taking a smaller number of listings, or better yet, focusing their efforts on a few select industries in which they have in-depth experience. Which brings us to our last question…
How much experience do you have selling businesses in my industry: While there is nothing inherently wrong with a “general” business broker, it is only natural that a broker who specializes in certain industries will likely be better suited to handle your business if it happens to fall into one of his/her areas of focus. This is because business models are vastly different from industry to industry. For example, selling an eCommerce website is not nearly the same as selling a CPA firm. Not only do they have different business models, they also have a different target market, and most importantly from the standpoint of choosing a broker, a much different target buyer. So at the end of the day, all other factors being equal, it is always best to work with a business intermediary that has specific experience with the purchase and sale of businesses within your industry.