SELECTING A BROKER
You have one opportunity to sell your business
You will want to hire the most qualified individual possible to assist you. This guide asks nine very important questions all business owners should ask when hiring a business broker. The profession is known for its lack of competence as it often attracts unqualified individuals who may mean well, but lack the necessary temperament and skills to complete a successful transaction.
Make the right choice
It will benefit you
|1. What are your qualifications, experience, and certifications?
Experience and creativity matter
It is important your broker has been selling businesses for at least several years. Selling a business is incredibly difficult. You need a broker who has the experience and creative skills needed to keep your deal together. Former business owners make the best brokers. A broker who has operated, bought, and/or sold their own business is better prepared to understand your emotional needs and financial goals while guiding you through the process.
Certified Business Intermediary
If your business is below $1M in EBITDA, make sure your broker is an active Certified Business Intermediary (CBI) registered with the International Business Brokers Association (IBBA). A broker who has obtained the CBI designation has met the stringent education requirements and high ethical standards of the IBBA for main street business sales. It is important your broker is an active CBI. To maintain active status, the IBBA requires continual membership and education.
Certified Merger & Acquisition Master Intermediary or Professional
If your business is above $1M in EBITDA, make sure your broker is a Certified Mergers & Acquisitions Master Intermediary or Professional (M&AMI or CM&AP). The M&AMI and CM&AP require achieving in-depth knowledge of the specialized approach required to successfully prepare and execute lower-middle-market mergers and acquisitions.
in preparing and selling your
2. What business broker associations do you belong to?
Associations such as the International Business Brokers Association (IBBA) and state/regional associations such as the Business Brokers of Florida (BBF) provide not only excellent marketing and networking benefits, they also provide training to stay on top of the latest processes, methods, and tools for selling businesses. Members of associations are better trained and equipped to sell businesses.
International Business Brokers Association
As of June 2017, the IBBA has over 900 members. Roughly half of the members have earned the prestigious CBI designation. For more information on the IBBA, visit their website at www.ibba.org.
State and regional associations
Florida is the most organized state when it comes to business brokerage. Our association, the Business Brokers of Florida (BBF), has over 1,200 members and promotes co-broking. California and Texas are also well organized. For more information on the Business Brokers of Florida, visit their website at www.bbfmls.com.
3. Are you willing to co-broke?
Co-broking is helpful as it maximizes your business’s exposure to buyers. With the exception of BBF members in Florida, very few associations require co-broking with other business brokers. Financial planners, CPAs, and business attorneys are often great resources for finding buyers and sellers. Where allowed by law, referral fees can entice other professionals to refer buyers and sellers to your broker. Your broker’s focus should be on selling your business to the first qualified buyer and not on earning 100% of the commission. Ask your broker how they plan to cooperate with other brokers.
Realtors Are Not Business Brokers
Many residential and
4. Do you sell businesses full-time?
Your broker should be 100% dedicated to business transactions. If your broker’s time is split between selling houses, commercial properties, or other side-jobs, they will have less time to commit to learning the nuances required to sell a business and to you. You deserve a broker who is an expert at selling businesses and available when you or a prospective buyer needs them to keep your deal together.
Expect to pay a success fee of 10% at the time of sale for a business transacting under $1M, $10,000 for a business transacting under $100K, and Double Lehman for transactions over $1M. Some brokers want to charge 12% or 15%. If you have a good, solid, and profitable business, demand 10%. If your business is struggling or the broker believes you may be difficult to work with, 12% or 15% may be fair.
Some brokers will charge an up-front fee to list your business for sale, perform specific marketing programs, or complete a valuation. Ensure any up-front fee is discounted against the commissions upon the sale of your business. A broker asking for significant sums of money up-front, e.g., $5,000 or more to list your business, will likely to be less motivated to sell your business than a broker who earns their fee upon the successful sale of your business.
7. How do you value and price a business?
Having a thorough understanding of analyzing and recasting financial statements is critical when valuing and pricing a business. Trust can be broken and deals can fall apart if the initial recast by the broker is inaccurate.
In general, there are three approaches to valuing a business, i.e., Market Approach, Income Approach, and Asset Approach. Combined these approaches have eight methods for valuing a business, e.g., Direct Market Data Method, Multiple of Discretionary Earnings, Excess Earnings Method, etc.. Your broker should know the appropriate valuation approach and methods to select when valuing your business.
Competent brokers have access to many valuation tools; specifically, sold databases and valuation software. Sold databases include DealStats, BizComps, PeerComps, and BBF MLS. Valuation software is offered by BizComps, PeerComps, and a number of other sources. These tools are used to calculate a Most Probable Selling Price (MPSP). Your broker should make adjustments to the MPSP based on value factors that can affect the riskiness of the business, e.g., reliance on the owner and/or key employees, concentration of sales, age and quality of assets, and lack of diversification in product selection or geographic areas served. Other important value factors include the state of the industry, the stage of the business life cycle, and susceptibility to changes in laws and regulations that affect the business. Finally, your broker should make certain the adjusted MPSP will allow the buyer to pay themselves a fair compensation, adequately cover their debt, and provide a strong ROI.
Pricing is dependent upon supply and demand of your business type, your willingness to offer seller financing, and in rare cases interest from strategic or synergistic buyers. If your broker lets you set the price, or simply uses “rules-of-thumb,” they are not doing their job and the chance of selling your business is diminished.
8. What is your marketing process?
Anyone can post a listing on BizBuySell and BizQuest and wait for emails and phone calls. Does your broker re-enter listings periodically to move them back to the top? What other listing websites do they utilize? Do they have an active buyer email list and how many qualified buyers are on it? How often are they in contact with these buyers? How active are they on social media, especially LinkedIn? Will they do targeted marketing campaigns based on an agreement with you?
Confidential Business Review
Ask your broker for a recent Confidential Business Review (CBR). The CBR should answer the basic questions a buyer will ask to determine if the business is a good fit or not. Sadly, many brokers are lazy and only provide marked up P&Ls or tax returns. Laziness wastes a ton of time for buyers and sellers. Most buyers will simply skip over a business not properly prepared for sale. Others will demand a meeting with the seller only to ask very basic questions that if answered in a CBR, would have led the buyer to realize the business is not a fit.
In some instances, it is helpful for the CBR to include industry market, trend, and benchmarking information to better understand your companies position in your industry. This information can be obtained from databases such as BizMiner and IbisWorld. Ask your broker what industry databases they use to help position your business.
If your business generates more than $2M in EBITDA, BizBuySell and BizQuest are not the best marketing tools for finding buyers. In fact, placing it in public listing forums and/or putting a price on the business is a sure sign of your broker's incompetence in handling a business your size. These businesses need to be placed in lower-middle-market deal rooms such as Axial, DealNexus, BankerBay, etc. where private equity groups and large private or public investors search for acquisitions. Sophisticated investors will have their own process for valuing a business; therefore, sometimes establishing a price sets an upper limit on what a buyer may be willing to pay.
9. How do you ensure confidentiality and qualify buyers?
Keeping the sale of your business confidential is very important. It can be detrimental if customers, employees, competitors, or suppliers become aware you are selling. Ask what policies are in place to keep the details of your sale confidential. Every prospect should be required to sign a non-disclosure agreement (NDA).
Personal financial statements and skillset
If your business is priced over $100K, make sure your broker demands a financial statement from each prospect and takes the time to learn a little bit about their qualifications to operate your business. The last thing you want is to waste your time with a prospect who does not financially qualify to purchase or have the right skill set to operate your business.
Offers and Closing
Main Street and Lower-Middle-Market Businesses
- CORPORATE OFFICE
- 8891 Brighton Lane, Suite 105
- Bonita Springs, Florida 34135