IBA Blog

Home· Blog· Guest Post· Red Flags to Watch Out for When Choosing a Business Brokerage

Red Flags to Watch Out for When Choosing a Business Brokerage

Red Flags to Watch Out for When Choosing a Business Brokerage

IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities.  Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses.  The following blog has been provided by Hannah Evans of Wise Marketing (letsgetwise.com):

Red Flags to Watch Out for When Choosing a Business Brokerage

While running a business you built from the ground up is an exciting endeavor for an entrepreneur, there is much to be gained from selling a business, too. A marketing expert from Entrepreneur lists some of the reasons you might choose to sell your business, which include financial gain and a need for change, among other things. Whatever your reason may be, choosing the right business brokerage service is crucial to this process. Read on to find out the red flags you shouldn’t observe when deciding which business brokerage company to trust:

Lack of Confidentiality

Confidentiality is an important part of selling a business, as you wouldn’t want the information to leak before the sale is done. Inc. points out how news that a business is for sale can cause unwanted negative reactions from customers, stakeholders, and employees. It’s not a good sign if the brokerage firm doesn’t put a premium on confidentiality, or barely even mentions it in your meetings.

Too Much on Their Plate

While big brokerage companies that have impressive portfolios are an attractive option, be wary about how much they currently have on their plate at any point in time. If the broker assigned to you is constantly taking phone calls from other clients when sitting down with you, it may be best to find someone else who is less occupied and can allot time for your business. Having a dedicated broker that can focus on the needs of just a few clients will lead to a higher chance of you getting a good sale.

Blanket Marketing Strategy

When you look through a business brokerage company’s portfolio, be sure to ask what marketing strategies were employed for a variety of clients. Where did they post the listing? Which buyers did they target? Ask these same questions for different kinds of businesses — from stationary shops to manpower agencies. This is so you can observe if they approach each client’s business in a unique way. After all, legal consultants Special Counsel highlight the importance of veering away from a one-size-fits-all approach, choosing instead to provide personalized solutions. This can be especially useful for businesses in niche, competitive areas like technology and law that require more specificity than most.

Unclear Valuation Method

If you’re a first-time seller, hearing a high valuation for your business can be thrilling, especially if it’s way above what you were expecting. However, this situation is precisely when you should worry, as a high valuation after a quick meeting likely didn’t come from a thorough analysis. If the brokerage firm can’t explain how they got to that valuation in a way that you can understand it, it’s probably because it wasn’t thought out thoroughly enough.

Conversely, lowballing you on the first meeting is a major red flag, as it shows that the company didn’t put in any effort in going through a thorough valuation. Furthermore, our correspondent Gregory Kovsky recommends asking potential brokerage firms if they have the capacity to source funding for a buyer. Experienced and trustworthy brokerage companies have the capacity to provide funding through knowledge of loaning processes and connections with high-ranking banking professionals.

Excessive Optimism

Finally, be wary of overzealous brokerage companies who promise you they can sell within the week, or boast too much about their long list of exclusive buyers. If they can make these commitments without even doing any research about what you’re selling, they’re most likely making false promises in an attempt to get your business.

If you have questions relating to the content of this article, Hannah Evans, Wise Marketing, would welcome inquiries. Ms. Evans can be reached at hannah.evans@wise-marketing.co.uk.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities 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”.

Leave a Reply