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5 Questions to Ask a Business Broker when Selecting Representation

5 Questions to Ask a Business Broker when Selecting Representation

Zig Ziglar famously said, “If people like you, they will listen to you, but if they trust you, they’ll do business with you.”

The decision to sell their business is a life changing decision for an entrepreneur.  Once the decision is emotionally & mentally made, the next step for many business owners is to select professional representation with the knowledge, experience, and professional skill set to guide them successfully through the sophisticated, nuanced business sale process.

Most metropolitan areas have a spectrum of individuals representing entrepreneurs in the sale of their businesses ranging from real estate agents who dabble in business opportunity sales to franchised business brokerage firms employing a “by the book” approach for systemized business sales to highly skilled mergers & acquisitions intermediaries with professional skill sets equal to attorneys and CPA’s.  Selecting the right individual for representation generally starts with an introductory meeting where the business broker provides an overview of the sale process, their background, and the firm & executive management providing support behind them.  This introductory meeting provides an excellent opportunity for an entrepreneur to ask questions and evaluate the knowledge & experience behind a rehearsed sales pitch.

The following are five questions every entrepreneur should ask a business broker before engaging their services:

  1. How many businesses have you sold?  Every new business broker fears this question.  As a general rule it takes five successfully completed transactions before a business broker understands all elements of selling a business.  It can take a decade in the profession before a business broker has experienced a majority of the nuances associated with selling a privately held company or family business.  I have personally facilitated over 300 transactions in my 24 years as a professional business broker with IBA.  Annually, I experience legal, accounting, and banking elements of transactions that are new or reflect evolutions in law or strategy.  In the last year alone, the Tax Cuts & Jobs Act of 2017 and new Small Business Administration loan policies & procedures for 2018 changed the landscape of numerous elements relevant to business brokerage.  It takes time, knowledge, and experience to comprehend changes and articulate them to a client. A business owner is purchasing knowledge & experience when they hire a business broker. Caveat Emptor “Buyer Beware” if you select a business broker with limited knowledge, experience, and skill to represent you in the sale of one of your most valuable assets.

 

  1. Have you sold a business like mine? Business sales have many common elements regardless of the industry involved.  Professional business sales also require specific industry knowledge to achieve the highest possible market value and employ “best practices” throughout the sale process.  All business sales start with a valuation of the business to determine its asking price.  A valuable tool in business valuation is sold market comparables.  A business broker that has experience in a specific industry will always have superior market knowledge to one who has not facilitated a transaction in the industry.  Licensing requirements vary from industry to industry.  It is beneficial to have a business broker facilitate a transaction who has knowledge & experience transitioning or applying for industry specific licenses.  It is prudent to hire a mechanic to work on your vehicle that has experience & knowledge with the make & model.  It is equally wise to hire a business broker that has successfully sold a business in your industry.

 

  1. How are you paid? Two dominant business models exist in the business brokerage industry.   One business model charges their clients retainers & administrative fees upfront to start the sale process and a success fee upon completion of the transaction.  The second business model is 100% performance based with payment only made to the business broker if they successfully complete the transaction.   It has been my experience that the most successful, experienced business brokers employ the second business model.  A professional salesperson who believes in their ability never fears being paid 100% on commission.   Parties that perform sporadically need retainers & administrative fees to stay in business.  IBA, the oldest business brokerage firm in the Pacific Northwest, has always operated with a 100% performance based compensation model.  Our business brokers consistently sell more businesses than any other firm in the region.

 

  1. How do you market businesses for sale? Most business brokerage firms will employ marketing tools like BizBuySell.com online to locate potential buyers.  However, tiers of advertising exist online in most venues in terms of exposure.  It is prudent for a business owner to ask questions regarding which advertising venues are employed by a business brokerage firm and what level of ads will be used to advertise their business.   Superior to the business brokerage firms that start looking for a buyer online when a business is listed for sale are the business brokerage firms that are proactively contacted by business buyers looking for acquisitions in a specific area and/or industry.  The best of these firms maintain buyer databases and proactively contact potential buyers when they list a new business for sale.  IBA, as the premier business brokerage firm in the Pacific Northwest, maintains a buyer database program where parties are classified by industry, geographic area, and financial capability.   20 – 25% of the businesses IBA sells annually sell to participants in our buyer database program.

 

  1. Can you source money to support a buyer’s acquisition of my business? A majority of business acquisitions are completed with support of a bank loan.   Underwriting & credit approval policies and procedures vary from bank to bank.   Often the difference between getting a business acquisition loan and not getting one are the bank and banker involved in the transaction.  An experienced, knowledgeable business broker will have the ability to connect business buyers with vice-president level banking professionals with the knowledge, experience, and skill to navigate the underwriting process in a timely manner to fund business acquisitions.  Nothing is worse than having a willing buyer & seller ready to complete a transaction and the funds not being available to complete the transaction.

One of the favorite expressions of the founder of IBA, Bill Ososke, was “No one listens themselves out of deal”.  My recommendation to anyone thinking about selling a business is to interview multiple business brokers and ask questions.   If you are thinking of selling a business in 2018, IBA would welcome the opportunity to audition for the job of being your business broker.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.