Coming to the realization that it may be time to sell a business or acquire one can be daunting and stressful. When navigating the complicated process, hiring a qualified business broker is a smart and sound decision. Not all business brokers are the same, so determining which one is right for you can be challenging.
A business broker is experienced in business strategies and corporate transactions. If selling a business, a great broker can maximize value in the sale of a business, whereas a bad broker can cause a business to stay on the market for too long, will not maximize value, and cost the business owner money. If buying a business, the best broker will work with you from the start to understand your interest in purchasing a business, guide you through the buying process, and prepare you to negotiate the transaction.
A key element to selecting the right broker is how he or she values the worth of the business. Valuations help determine the sale or market value of a business taking a multitude of factors into account, such as profits and losses, current payroll and lease obligations, as well as other related figures. Brokers use a variety of methods, such as percentages of revenue and multiples of seller discretionary earnings to value a business. Percentages of revenue is a ratio based on net sales or gross revenue. Seller discretionary earnings are net profits of the business with certain expenses added back.
There are pros and cons, however, associated with any particular method, as some financial experts find them unreliable and a poor indicator of value. The valuation process is complex. Determining the correct evaluation method comes down to the type of business and many other factors. An experienced broker will not use a standard or generic valuation formula, as all businesses are different. A good broker will properly evaluate a business based upon the aforementioned factors, command the best and highest possible selling price, and sell it within a reasonable time.
Other key attributes
It is helpful to meet with several brokers to identify the one that is the best match for your unique needs and sale or purchase objectives. Several key attributes should be considered when selecting a business broker to represent your business needs.
- The broker’s background and experience – It’s imperative to choose a business broker or business brokerage firm that has many years of experience in selling or purchasing businesses. Ensure the broker has a proven track record of successful business sales in your industry, as he or she may not have the contacts needed to adequately represent your business.
- Current number of listings the broker is managing – On average, a business broker will carry 15-20 listings at a time. If broker candidates represent less than the average, it could indicate that he or she is inexperienced, unmotivated, or incapable of meeting your needs. If the broker represents too many, you run the risk that your business may not receive the attention it deserves. In some cases, if the broker has a good support staff in place, having above the average number of listings won’t be a problem.
- Number of qualified buyers – It may sound promising if a broker has a large number of buyers, but this isn’t necessarily the case, as it would be difficult to build relationships and properly qualify buyers. As a business owner, your time is valuable and you don’t want to personally meet with every individual that expresses interest in the business. A good broker will screen prospects to capture and qualify the serious buyers. A qualified buyer should be willing to share his or her financials. If a buyer is not willing to provide this information, a good broker will disqualify the prospect and refuse to provide information about your business.
- How the broker promotes your business – It isn’t enough for broker candidates to promise that he or she will attract the interest of qualified buyers. Instead, a good broker should provide a detailed strategy to advertise and market your business. Many brokers will post the listing on multiple websites, which is the extent of their marketing. It is imperative to select a broker that has your best interest at heart. A good broker will develop a marketing plan and prospectus on your business to help market the sale appropriately.
- Steps taken to maintain confidentiality – Keeping the sale of your business confidential is very important. Talk of a business’ potential sale may be looked at as a sign of trouble in the eyes of customers and competitors. A good broker/brokerage firm will have policies in place to keep the details of the business’ sale confidential. A good broker can also generate interest without releasing too many details about the business to the buyer. Upon qualifying a buyer, a broker will have a non-disclosure agreement signed prior to releasing information about the business.
Corporate Investment Business Brokers have the experience and expertise to help you. Please contact us for a free consultation. Call (239) 936-1718. Online at CIBB.com.