Role of Business Brokers in Selling Your Business

There is a role for a business broker in selling your business. Basically they will make it happen quicker and often at a better price than you could have received on your own.

There are many reasons to use a business broker when selling your business. The most basic reason is they are in the business of selling businesses. They will market your business and help to get prospective buyers to look at your deal. They will help in setting an asking price based on their knowledge and experience. If they have gone through the certification program their price would be considered expert testimony and therefore is given a great deal of creditability. Keeping the owner from underselling their business or over pricing their company is part of their legitimate function to their client. Since they know how to find buyers who are qualified and ready to deal on a business of their liking, they can help to cut down the time a business has to be on the market. Consistently a business broker will move a business quicker and usually at a very fair price.

What does a business broker do

They can help the seller get the information needed by the buyer to make a decision on buying the business. This role is critical as nothing happens until a price is established and the business facts are known. Presenting the facts in a professional form is another common service that a business broker will give a client. This service can be the difference between a seller making a deal and the deal going south. Professional presentation of pertinent facts about a business is necessary in order to attract potential buyers. It is this factual information that helps buyers make intelligent decisions about such a purchase. Since the business broker does this type of work year round, the information is shown in its most positive form. Practice does make perfect in this case.

The business broker is also the go-between for passage of information between the buyer and the seller. This enables better communication and cooperation between the buyer and the seller. The role of a disinterested third party is effective in letting the business broker move the dealing along on the sale of the business. The business broker must treat both sides fairly as his next clients are given existing clients as references for his work. It is imperative that the fairness issue is communicated to the next client. Since all aspects of the sale pass through the broker, this neutrality is important and also the advice given to both sides of the deal.

Marketing the business

Without a broker, the seller would have to market the property and would not have access to a pool of potential buyers. The buyer would not have access to the pool of sellers the broker has available. This need by both parties is the reason that most businesses are sold with the help of a business broker. Their expertise in helping to set the selling price cannot be overstated. A busy broker over time helps to sell many types of businesses and this real time experience is invaluable to the process coming to completion. A competent broker will also know the legal requirements for many types of businesses that the brokers in a geographical area. This prevents problems that can be prevented from taking place and decisions being made without all of the facts.

If he is not a certified broker as to setting a selling price, he will have referrals to brokers or CPAs that do have this credential. The advantage to the seller is the business will be set at a selling price that can be logically defended when questioned about how the price was set. It is not just a price that the seller picked from thin air of a wish list price.

Broker assisted negotiation

Since the broker will usually know what the buyer is willing to pay and what the seller is willing to accept, the broker can lead both sides to a price that is somewhere in the area that both are willing to live with. Without this outside force, either party may never approach this price.

A broker has another ability to deliver that makes their service worth the cost. Maybe the business is a one of a kind business and not one that comes to market every day. Businesses like this are hard to evaluate as to their market value and even more importantly there may be a need to come up with a unique marketing plan to sell the business. A good brokerage firm can do both and solve the problem with a greater chance of success than the owners of the business could do by themselves. They have access to a network of brokers who handle all types of businesses that are for sale.

The business may be unique in the geographic area it is located in, but there could well be one in another part of the country that was successfully marketed by a broker in that area. Use of the network is exclusive to the broker community and private individuals will not have access to the information that can be obtained from the network. Information is power, and this kind of help may be the only way the business could be successfully marketed. How other brokers sold a similar business can lead the broker in question to come up with a plan that has a good chance to work. This service to the seller is priceless and could make the difference between no-sale and sold. The seller could have wasted a great deal of time and money on an approach that would not work. Ferreting out potential buyers is the name of the game. The wrong approach could easily come up empty. All of this is sufficient reason to employ and expert when selling a business.

Conclusions

The fact that they will actively market your business is plus. The current owner does not have the time or knowledge to find buyers and set a fair price. They will usually set their price too high or too low. If they have a hard time coming up with any buyers, this can bring on frustration and an unneeded reduction of the selling price. It the wrong buyers are seeing the ad for your business, then only a bargain will attract their attention. A buyer who understood your business would readily see the value in a fairly priced offer. This is tricky and the result can be dramatically influenced by hiring a pro to help with the sale.

Another reason for the use of a pro is they can talk the language of professional people the buyers bring into the sale negotiation. If the terms that they communicate in are not understood, the buyer’s advisors will not be impressed and may kill the sale. Hiring the professional business broker can prevent lack of intelligent conversation. He will know the terms and their meanings and be able to give the needed answers to move the sale along. This knowledge and expertise is the reason that such a person should be hired to help you make the sale of your business. Their ability to use previous sales and how they were completed is a facet of their knowledge base. There is no way the current owner could bring that to the negotiating table.

Selling Your Business – Pros and Cons of Working With a Business Broker

Selling your business is something that most business owners do only once in a lifetime. So how do you make sure everything goes well? Many business owners consider working with a business broker, an expert in selling businesses, to make sure they maximize the sell price of their business. Is this always a good idea? Lets look at the pros and cons of working with a broker:

Why you should work with a business broker when selling your business

1) A broker has (hopefully!) sold many businesses for prior clients, and you can use that expertise to learn the basics of the process and avoid making careless mistakes.

2) They can act as a facilitator to the transaction, making sure that negotiations go smoothly, the transaction proceeds at the right pace, and that the business is ultimately sold with all parties satisfied.

3) A broker may reduce your upfront costs of selling the business, as many brokers will pay for creating sales collateral and advertising the business at their own expense in exchange for a fee when the business sells. They also may have insights as to what advertising mechanisms deliver the best “bang for the buck” to make sure as many potential buyers as possible are exposed to your business.

4) They can provide expert advise related to market conditions and can help evaluate potential offers to buy your business. For example, a business broker will typically provide a free initial estimate of the sales price of your business, and can provide information on what similar businesses may have recently sold for in your area.

5) A business broker can help preserve the confidentiality of the sale. By having a third party involved, buyers can interact with the broker instead of the business owner, making it easier to protect the identity of the business for sale.

With so many good reasons why a broker can help sell a business, no wonder that most businesses that are sold ultimately involve a business broker. However, there are downsides to working with a broker that a prudent business owner should consider.

Why you should NOT work with a business broker when selling your business

1) Business brokers may charge a large commission. The amount of commission varies based on many factors, such as the ultimate sales price, geographic location, and the skills of the broker. For a “main street” style business selling for less than a million dollars, it would not be unusual to see between a 10% to 20% commission fee. Some brokers will also have a guaranteed minimum, on the order of $10,000 or $15,000. You should only hire a business broker if you believe that the time and effort involved justifies this price, or if you believe they will raise the selling price by more than the amount of their commission.

2) A great broker is worth their weight in gold, but a bad (or even mediocre) broker costs far more than they are worth. In many cases, the sale will be lost due to incompetence on the part of the business broker. If you are not confidant that the business broker can not only increase the transaction value, but can also increase the chances of actually getting the business sold, then you are probably better of managing the sale on your own.

3) Do not work with a business broker if you go into the transaction not knowing what you want out of it. Many times business brokers will contact you proactively, letting you know that there are buyers interested in buying your business. Selling a business is a big decision, and one that you should enter into with a great deal of care. Make sure that you are talking to a broker because YOU made the decision to sell, and that you have properly educated yourself about the process and the ultimate consequences of your decision.

Working with a business broker, when done properly and for the right reasons, can be a great benefit to selling your business. By educating yourself about the different factors involved, you have taken an important first step towards getting your business sold. Best of luck!

Using Business Broker In the Franchising Industry for Franchise Sales

Franchising companies often use Business Broker to help attain sales goals. Here is an interesting fact. Most large Business Broker Chains promote franchises and charge franchises money to join their network and programs. Not chump change either. Then the Broker Network takes all the logos and prominently displays them in ads and websites, and titles, meta tags and key words those pages. So as to attract customers, franchise buyers. But when a franchise buyer calls up, they are sent to the local business broker who secretly hates franchises?

Why? Low success rate? No, high success rates, the broker cannot resell it in the future when it goes South, because it never does. Then he cannot get money to appraise it and put it back on the market and sell it again. In many places the same broker sells the same small business or company over and over again. Yep. That’s right, who wins? The business broker’s buddies in the Community Service Club, the attorney helping the deal along, the accountants doing the books and of course the broker who has an appraisal certificate and of course the appraisals happen to come out where? At the exact price for a quick sale and fat commission.

How fat? Fat enough for the FTC to regulate the pills and ads of such that the broker takes. $20,000 plus. But the broker will say it is hard work? Really? Selling the same company twice, three even sometimes four times is hard work? BS. But of course with franchises, the franchise fee is used to help offset costs from the franchisor’s administration costs so normally the broker can only get $10,000 to 15,000 commission. Gee Whiz whose business is he going to push first? The one with the highest commission, just like a stock broker or financial planner tries to sell insurance annuities first, the commissions are much higher, why, because they are not as good and are harder to sell?

The Business Brokers, they are on their own team, not the buyer who they swear to help or the business seller who they listed the business. Nope, and then there is the franchisor. He/She has given them use of their brand name to use on a website and they take that and use that Federal trademark to attract buyers and then switch the buyer to a higher commission. And what about the franchisors who are only willing to pay a reasonable sum such as $4,000-$6,000 commission (actually finders fee) on a $20,000 franchise fee? Well those good franchisors businesses never get promoted and never get sold, yet they are being the most true to their team and systems by keeping commissions low and saving money to in turn better their franchise system. So the business brokers charge the franchisors lots of money, bait and switch call ins for a particular franchise for a dry cleaners or a car wash or something they can turn a huge commission and quick buck on.

And they can give earnings claims since they are simply a finders fee player, if you do not believe this happens check out a recent FTC opinion on business brokers. Then the business brokers knowing the tough nature of the franchising industry tell buyers that the franchises are no good and to ask how much income the buyer will make and if the franchisor cannot answer don’t buy it. But in franchising we have laws about earnings claims where as business brokers do not. They have accounting and books to show the buyers of businesses who come into the business brokers offices.

But alas, everyone knows when the original owners of a business leave the volume drops a minimum of 20% because the new owner is not a familiar face, thus the old customers start shopping around and the excuse is they have no loyalty to the new buyer, since they always did business with Bob or Sam or the Smith family, you see? It gets worse the business brokers have a disclaimer that says when you buy a business that you realize they are not liable for any information given to you during the sale? Interesting since they are the appraisers, know the history, tell you that the franchisors are not to be trusted since they do not for the most part give comprehensive sets of earnings claims. Why? Due to lawyers and lawsuits and in adequate and unverifiable data and loss of proprietary information in disclosures.

So the business brokers use this fact to entice franchisors to list with them take their money knowing franchisors have to sell with their hands tied behind their backs then use their band name to attract buyers, then bait and switch the customers and have them sign a form stating the information might be here say (standard in the industry) check it out, and then to top it all off sell someone something that will not work and then in a year or two it is back on the market with guess who? The same broker.

I once had a discussion with some lawyers on the ABA Forum for Franchising discussing brokers and even they were unaware of this problem. You know more franchisors should be smarter and look into this. The FTC should not allow business brokers to do things that franchisors cannot. Actually they should let both do what the brokers do, but all should be truthful when doing so. Too many laws, too many loop holes, not enough jobs, not enough sales to build systems fast enough to build the economies of scale to compete with the Wal-Marts of the world. Franchising could deliver that level of fierce market competition regionally with economies of scale buying power and team work while giving back to the communities they serve and keeping the money local, but not with over regulation state by state and the inconsistencies in Canada, and with the FTC. We are allowing bad policies to dictate loopholes and never leveling the playing field, which shouldn’t have been titled in the first place. How can every one not see what is so obvious. The business brokers are using extortion to get franchisors to sign up, because they can play by different rules. It would be like playing a chess match when the opponent has two queens, Yes if you are smart you can beat them, but not often. No one knows how to deal with this problem I have stated. But I do.

Dust the over burdensome regulation and you will not find everyone trying to go around them. We are not helping consumers we are killing franchise systems and killing the franchisees (also consumer) and franchisors already out there trying to build back the job base, which is just over 2/3 of all people employed are employed by small businesses. You know the franchising model is a perfect way to build efficiency into the small businesses of the future so that they can compete with global products produced for less money and with big box stores supplying consumers with everything but giving little back to help the communities (in most cases). I hope this commentary was thought provoking, if you have any questions about it, go find out for yourself. I have had much experience with this and I know what is going on.

Surely, someone in the government regulatory area has a clue? Well, maybe not so surely, but maybe one? I bet nothing ever happens over this issue. So you consumers should stay heads up and if you call a business broker because they say they represent a franchise system, you may want to call that franchise system directly if the broker starts trying to coax you into a non-franchise business, especially one which has had more than one owner over the years. Franchising works and there is a reason, it will continue to work as long as it is not killed like so many other industries in America. Look at the devastation out there being caused by horrible policy by the frivolous lawsuits by government regulatory bodies.

To find out which business brokers are the most ethical and which business brokers the top franchises use go to; [http://www.Franchising.org].

What Separates the Good Business Broker From the Bad?

Over the years, I’ve heard a million horror stories from business owners about their experiences with some of the “fly by night” business brokers out there. It’s always the same names and it always makes me wonder, “How did you get hooked up with these people? Why did you hire them?” I mean, I’ve seen some of their work and it’s TERRIBLE!

So, of course I feel bad for the business owner and I begin to question my ability to market my business brokerage services. If only I had been there first. If only these folks knew to call me or one of the other good credible brokers out there rather than the yahoo they ended up using. Yes, you heard me right; there are a lot of good credible business brokers out there. The problem is, there are a lot of bad, unqualified brokers out there as well. I’m in the business so it’s easy for me to tell the difference. But how can you, as the business owner, tell the difference?

Well, that’s a tough question to answer but I’ve been giving it some from thought and I’ve decided that the most important factors that separate the good business brokers from the bad are:

1. Ethics – most horror stories I hear are a result of a lack of ethics by the broker. This is unfortunate and disgraceful in my opinion. Unfortunately, there’s no easy way to test a broker’s ethics. My best recommendation is to make sure they’ve achieved their CBI (Certified Business Intermediary) designation from the IBBA (International Business Brokers Association). All CBI’s agree to adhere to the IBBA’s Standards of Professional Conduct and the Code of Ethics. I know acceptance of a code doesn’t guarantee anything, but it’s a good start. The second thing I would recommend is to check references. This can be tricky. Like any good job applicant, when you ask for references you will get handed the happiest and most satisfied clients that the broker is confident will put in a good word. So, to me this is a waste of time. Instead, why not call the other professionals in your area. It takes more than just the broker to do a deal. It’s takes an accountant and attorney as well. Call your accountant, have your friends call their accountants, same with your attorney and their attorneys. Not all accountants and attorneys will be close to the transaction marketplace (they tend to specialize) but they will ask around. Chances are they probably work with, know of, or went to school with another accountant or attorney that is involved in transactions. If you’re willing to put some time into checking credentials, sooner or later you will find your answers.

2. Candor / Honesty – Again, this can be difficult to judge for the untrained eye. But, what does your gut tell you? Are you receiving vague answers to your questions? Or, is the business broker you’re interviewing willing to sit down with you and answer every question that you have to the best of their ability, sometimes going above and beyond? If this is the case, usually it’s because they have nothing to hide. And, as a result, don’t have to tiptoe around your questions.

3. Pricing Ability – Being open, honest and ethical is only part of the game. It’s equally as important that the business broker be educated on matters of business valuation. One of the most important factors in selling a business is pricing it right. A mispriced business will either never sell (if overpriced) or fly off the market (if underpriced). Both situations are bad news for you as the business seller. If it’s overpriced it will sit on the market, get stigmatized and be difficult to sell even with a different broker. If it’s underpriced you will not maximize your retirement money. Make sure you ask the business broker you are interviewing if they know how to price a business. Moreover, make them prove it. Ask them to explain the three different approaches to value (Asset, Income and Market). If they don’t know what you’re talking about, RUN!! Ask for samples of the broker’s pricing analyses. Don’t settle for a broker that answers, “I can’t provide that it’s confidential”. Every broker can cleanse some samples and make them generic. Take them home. Review them, see if you would buy the business they present to you. Show it to your accountant and your attorney. Get their thoughts. If you’re not sure whether you’re looking at quality work or not, chances are your accountant or attorney will.

4. Marketing Ability – Remember at the end of the day, your small business is a non-marketable entity. You can’t go online, click a button and get rid of it. Someone has to actively create a market for your business. Ask the broker you are interviewing, “How do you plan to market my business?” Sit back and listen. If all they say is, “I’m going to post it on the internet,” RUN!! You can post it on the internet. For the fee the broker is taking, make sure they’re adding value. Dig deep on this subject. You won’t need to be a marketing guru to determine if the broker has a developed process that works.

5. Reputation – Part of investigating the reputation of the broker is requesting references. Not only client references but asking around for input and insight from other professionals about what business brokers they know and what they know about them. Also, go to the broker’s website; go to industry sites such as http://www.ibba.org. Look up the broker; see what other people are saying about them. Do the TV, newspaper, radio and trade publications value the broker’s opinion? It’s not easy to get quoted in articles, written about in papers, invited to be a guest on TV or radio shows. Professional media outlets do their homework. They can’t afford to put their name next to a non-credible source. A business broker that is taken serious and considered a credible source by mainstream media deserves consideration. Credibility is not bought, it is earned.

6. Courtesy / People Skills – Take the time to interview the broker in person. Never hire a business broker without meeting them. If they’re not willing to take the time to meet with you, chances are they won’t put much effort into selling your business either. Once they’re in front of you, see how they interact with you. Are they personable? Do you trust them? Are they friendly? Are they educated about your business and the business brokerage industry? Make no mistake, this is a people business. People buy from people they like. If you don’t like the person you’re interviewing, chances are neither will a potential buyer for your business.

7. Education / Experience – Business brokers are professional service providers, like accountants, attorney, financial planners, etc. Make sure the person you hire to sell your business (or help you buy one) continually invests in their own education and professional development. Would you hire an attorney that doesn’t keep up with current laws? Would you hire an account that isn’t updated on the tax code? Your business is the largest and most valuable asset that you own. Make sure the person you hire to turn it into cash is someone that stays current on industry trends, government regulations, new pricing methodologies, marketing strategies, etc. Business brokerage is a full time profession. If your broker doesn’t invest in their own professional development, chances are there’s someone else out there that does and will do a better job at selling your business for the highest possible price.

The suggestions above are not fool proof but, they will get you pointed in the right direction. Don’t take the sale of your business lightly. Make sure you do your homework. If you do, the wheat will quickly separate from the chaff.