Things to Consider Before Working With a Business Broker
Just like in real estate sales, business brokers are usually paid by sellers. That’s an important thing to bear in mind if you’re a buyer.
Just like in real estate sales, business brokers are usually paid by sellers. That’s an important thing to bear in mind if you’re a buyer. While buyers can use a broker to help narrow their search, brokers typically work for the seller to help support and navigate the sale process.
The decision to purchase or sell a business is one of the biggest you’ll ever make. It’s important to go into the process with your eyes open. Here’s what you need to know.
Most brokers work for sellers, though some buyers hire brokers to help find the right fit. It’s important to know whom the broker works for, and to set clear requirements form the outset. Discuss fees from the very beginning, and know that the person who pays the fees is likely the person to whom the broker will be loyal.
Interviewing the Broker
Both buyers and sellers should interview several brokers, and ask clear, specific questions, including:
- How long have you been a business broker?
- Do you have experience with the type of business I am selling or buying?
- Are you a full or part-time business broker?
- Do you have a real estate license?
Some other factors to look at include:
- The quality of the broker’s web presence. While not every broker has a beautiful website, the site should be functional, since many brokers find leads through these sites.
- The broker’s current database. Ask the broker how many qualified buyers they have in their current database.
- The broker’s track record. The broker should have a demonstrated track record of success. Ask how many businesses they have recently sold, at what value, and how long their typical listing remains on the market before selling.
- How the broker markets listings. The primary benefit of hiring a broker is increased visibility for your business—or increased access to businesses for sale. Ask what listing services the broker uses, whether they place classified listings, and what their specific strategy is for marketing each business.
- What recent clients think of the service. Ask for references so you can assess the quality of service the broker has provided.
- Fees. What does the broker charge, and how are fees structured. A success fee encourages a broker to sell the business, but a flat upfront fee ensures that the broker will choose the right sale. Some combination of the two is often best for both parties.
- Pricing. How does the broker determine value and price the business? How successful has the broker been over the last year at getting the value they assign to the business?
- Assistance without a listing. The best brokers are willing to help clients even when the client has not listed their business. Ask if you can work with the broker for an agreed upon fee. This can help you get your business ready for sale—or prepare to look for a business for sale—and may confer significant extra value on the transaction you ultimately agree to.