I work well with business brokers (sometimes called intermediaries). Every couple of years, though, I run into someone who is—how can I say this… less than professional.
Selling a business is really, really difficult. If you have the wrong resource, the process becomes a financial and emotional drain. Anyone can stick your business on “Biz Buy Sell,” but a good broker does so much more—that’s why you need to choose your broker carefully. So today, I’m providing tips on hiring a good broker. Next time, we will dive into avoiding certain pitfalls in a broker contract. And yes, you CAN and SHOULD negotiate it.
Let’s start with broker basics here.
In Arizona, business brokers need a real estate license…that’s it (lawyers can also sell businesses, but that’s not the focus of this blog series). Excellent business brokers seek out extra training and often have an entrepreneurial, consulting, or financial background. Selling real estate and selling a business are two very different things. And even if you have owner-occupied real estate to sell with your business, the business sale, not the real estate, should be driving the deal, and they should be papered SEPARATELY.
So, how do you find a good broker? I suggest you interview three. Yes, really. Here are five solid tips to work through the process:
1. Referrals, Credentials, and Experience: Look for a broker with a solid track record and experience in your specific industry. I am pro-Google generally, BUT it’s better first to seek referrals from your business attorney, CPA, or others you know who have sold a business and network. Certifications from recognized organizations, like the International Business Brokers Association (IBBA), are very helpful.
2. Assess Their Marketing Strategy: A competent broker should have a clear and effective marketing strategy for selling your business. Get granular: Who do they plan to market your business to, and how? Understand the platforms they use, the network they tap into, and any specific tools or technologies they employ to reach potential buyers. Ask to see previous examples of marketing packages. In my experience, business owners will hire a business broker because they believe there is a secret to marketing. There isn’t, and sometimes the broker’s marketing efforts aren’t great.
3. Check References and Reviews: Ask for references from the broker’s past clients who have sold similar businesses through the broker and actually call them. Online reviews can also provide insights into the broker’s reputation and reliability.
4. Understand the Fee Structure: Brokers typically charge a commission based on the sale price of the business, which can vary. The smaller the business, the higher the percentage is generally. Ensure there are no hidden fees and clarify what services are included in their commission. This transparency will help prevent disputes related to fees later.
5. Evaluate Communication and Compatibility: Apply the Lifeboat Test. If you are stuck in a lifeboat with the broker for 24 hours, are you throwing them over or jumping in the drink yourself? If either answer is yes, move on. In your initial discussions, assess how well the broker understands your business and your goals for the sale. Do they listen? Are they proactive? Finally, and most importantly, look for someone who is telling you what you need to hear, not necessarily what you want to hear. We’ve talked before about purchase price and market conditions but if your broker isn’t upfront from the beginning, your likelihood of a successful sale dims.
Bottom line—if you put time and effort into diligence and carefully selecting a broker, you are less likely to have a disappointing experience. Look out for Part 2 of this blog series on business brokers. Next time, we will talk about broker contracts.
