9 Questions You Should Ask Before Hiring a Business Broker

You have two main options available when you decide it
is time to sell your business. You can try to sell it on
your own, or you can retain the services of a business
broker to handle the details of the transaction. While it is
possible to sell a business on your own, most business
owners simply don’t have the time, contacts or
objectivity to negotiate a safe and fair deal.
Using a third-party professional is often the best option,
but only if you hire the right broker that properly
represents your best interests. Hiring the wrong broker
can be the difference between not selling at all and
selling for a price you are satisfied with. Here are nine
questions you need to ask prior to hiring a business
broker:
1. How much experience do you have
selling businesses like mine?
It is important that you look for a broker that has prior
experience selling a business similar to yours. Selling a
restaurant is much different than selling a website. Not
only is it a completely different business model, but the
target buyer is much different as well. Successful
business brokers will always have a number of
experienced buyers in his or her back pocket, making it
advantageous to work with someone that has existing
connections to buyers related to your business and
understands the nuances of that particular industry.
Related: Prepare for the Sale of a Business in 6 Steps
If you hire a broker that doesn’t have experience selling
a business similar to yours, it will require them to learn
your business and industry inside and out. This wastes
valuable time that is better spent prospecting and
negotiating.
2. Do you work from home or an office?
There is nothing wrong with working from home, and
many companies are migrating to a virtual
environment to cut costs. When it comes to business
brokers though, working from home will sometimes
signify that this is not the individual’s full-time
occupation. The last thing you want to do is hire a
broker that isn’t going to give your listing his or her full
attention because they have another job that takes up
the majority of their time.
A business brokerage with an office typically means that
they have a full team of brokers and experts that will all
work towards reaching the goal of selling your business
fast and for top dollar. An office setting also gives them
a professional environment to handle negotiations and
meet with potential buyers. The broker you choose to
hire is a direct representation of your business.
Do you want potential buyers discussing the purchase in
a nice office setting or at a Starbucks? A professional
image goes a long way when it comes time to close a
deal.
3. How many businesses like mine have
you sold?
It is important to find out how many businesses like
yours they have sold. Don’t confuse this with the
business type -- as there can be a huge different
between business in a particular category, such as a
restaurant, for example. A small mom-and-pop breakfast
restaurant that seats 30 people is much different than a
200-person Italian fine-dining restaurant with a full bar.
If a brokerage hasn’t successfully sold a business
similar to yours, it is in your best interest to keep looking
until you find one that is experienced and qualified to
handle your listing.
4. How do you value a business?
Asking a business broker how he or she values a
business will give you a good indication of how
experienced they are. If they give you a cookie cutter
response such as “net income multiplied by two” before
asking you many questions, then turn around and run.
Valuation calculations have so many factors to consider
-- the same formula doesn’t work for every business.
For example, you value a website or online business
much differently than you would a brick-and-mortar retail
business.
Most small businesses are valued on a multiple of seller
discretionary earnings (SDE), which are the net profits of
the business added to expenses that benefit the current
owner(s) but do not necessarily benefit the business.
Business valuation is a complex topic, so steer clear of
any brokers that mention a generic valuation formula, as
every business is different.
5. How will you prevent my customers and
competitors from hearing my business is
for sale?
Keeping the sale of your business confidential is very
important. Make sure to find out what policies are in
place that keeps the details of the sale confidential. If
your customers are made aware of the sale they might
interpret it as trouble -- when in reality you might be
selling simply to pursue other opportunities. Additionally,
you don’t want competitors to catch wind that you are
exploring options to sell.
A great broker will be able to stir up interest by just
providing teaser information. Once a potential buyer
expresses interest he or she will have to be qualified to
ensure they have the financial ability to purchase the
business. Once qualified, the broker should have a non-
disclosure agreement signed prior to releasing any
sensitive details about the business.
Related: Cut Through the Complexity of Selling Your
Company
6. How many qualified buyers do you have?
You might think that a broker who claims to have a large
number of buyers would be a good thing, but this isn’t
necessarily the case. In fact, someone claiming to have
tens of thousands of qualified buyers at his or her
fingertips is questionable.
It would be nearly impossible to build real relationships
and qualify that many buyers. Anyone claiming to have
tens of thousands of buyers more than likely has a
generic email list and doesn’t know the buyers
personally. A broker that specializes in selling
businesses exactly like yours and has solid relationships
with a couple dozen buyers is much more valuable to
you as a seller.
7. Can you just list my business for $1
million?
A good broker knows how to come up with a realistic
valuation and pricing strategy that will lead to a
successful sale. Remember, they don’t get paid unless
they sell your business, so it is in their best interest to
price it correctly with two goals in mind -- to sell it while
also commanding the highest possible price.
If you throw out a high, unrealistic amount and they
agree to your price demand, you will be wasting your
time. An experienced broker isn’t going to waste his or
her time with a listing that isn’t priced correctly -- they
value their time and aren’t going to waste it on a
business that isn’t going to sell.
8. How many listings do you have at the
moment?
Finding out how many listings a broker currently has will
give you a good indication of how much time they can
dedicate to selling your business. A broker with a large
number of listings might be taking on every listing they
can in hopes that they will eventually sell one. This
"throw it against the wall and see what sticks" approach
is not effective at all.
Look for a business brokerage that has between three to
seven active listings per broker -- any more than this will
mean your listing won’t receive the attention required to
sell it. A small, manageable number per broker indicates
that they understand the time and attention each listing
requires.
9. Do you help with sales contract
preparation? Do I need an attorney?
An experienced broker should be able to assist with the
drafting of legal agreements and should have experience
with different ways to structure deals. That being said,
they should also advise that you hire an independent
legal team to review documents before they are signed.
Use your broker for the initial paperwork and structuring
of the transaction, but always have it reviewed by
lawyers before you go to the signing table. With so
many different country and state rules you need to be
certain that all of your T’s are crossed and I’s dotted.
The small legal expense can end up saving you
headaches and money down the road.