SELLING A BUSINESS

May 4, 2023

How to Choose a Business Broker

Business brokers play a crucial role in helping small and medium-sized business owners sell or acquire businesses. However, not all business brokers are created equal, and choosing the right one can make or break the success of your business sale or acquisition. In this blog post, we will explore what a business broker does, as well as the considerations and steps you should take when choosing a business broker.

What does a Business Broker do? 

A business broker is a professional who helps facilitate the sale or acquisition of a business. Business brokers act as intermediaries between buyers and sellers, helping to negotiate the terms of the sale or acquisition and ensuring that the process runs smoothly.

Business brokers provide a range of services, including business valuation, marketing and advertising, buyer screening, and negotiation. They can help prepare the business for sale, including identifying potential areas for improvement and addressing any issues that may affect the sale price. Business brokers also help identify potential buyers and facilitate communication between the buyer and seller.

When working with a business broker, it is essential to understand their role in the sale or acquisition process. A broker is not a substitute for legal or financial advice and should work with other professionals, such as lawyers and accountants, to ensure that the transaction is structured appropriately. Business brokers can help an entrepreneur simplify the process of buying or selling a business, but it is important to have a clear understanding of their services and fees before hiring them.

Risks of Not Using a Broker

Some business owners may choose to sell or acquire a business without the help of a broker, but this approach can come with risks. Without the expertise and guidance of a business broker, it can be challenging to navigate the complex process of buying or selling a business.

For sellers, not working with a broker can result in a longer sales process, as the owner must identify potential buyers on their own and negotiate the terms of the sale. Additionally, without a broker to provide guidance on the business valuation and market conditions, the seller may undervalue their business or struggle to find a buyer willing to pay the desired price.

On the buyer side, not working with a broker can be equally risky. Buyers may struggle to find suitable businesses to acquire, as they may not have access to the same resources and networks as brokers. Without a broker to screen potential acquisitions and provide guidance on market conditions and pricing, buyers may make unwise investment decisions and end up with a business that doesn't meet their needs or expectations.

In short, while it is possible to buy or sell a business without a broker, it can be a risky proposition. Working with a reputable business broker can help ensure a smoother and more successful process, resulting in a better outcome for both buyers and sellers.

Considerations When Choosing a Business Broker

So, you’ve decided that you would like to work with a business broker, now it's time to find the right one for your needs. With so many options to choose from, it can be overwhelming to determine which broker is the best fit for your business. The following section will outline the key factors you should consider when selecting a business broker, helping you make an informed decision and find the right partner for your business sale or acquisition.

A. Experience

The experience of the business broker is critical when choosing the right professional to help you with your business sale or acquisition. You want to work with someone who has a track record of success in your industry and has worked with businesses similar to yours. Ask about the number of years the broker has been in the industry and the types of businesses they have helped in the past. You can also ask for references from previous clients and speak with them to gain insight into the broker's experience.

B. Professionalism

Professionalism is another essential consideration when choosing a business broker. You want to work with someone who has proper credentials and certifications, which indicates they have the knowledge and expertise to help you achieve your goals. Referrals and testimonials from previous clients can also be a good indicator of a broker's professionalism. You should look for a broker who has a reputation for being ethical, honest, and trustworthy.

C. Communication Skills

Good communication skills are vital when working with a business broker. You want someone who is responsive, available, and provides regular updates throughout the sale or acquisition process. It is essential to establish communication expectations at the beginning of your relationship with your broker. Consider the frequency and types of communication that work best for you and make sure the broker can meet those expectations. Good communication can help ensure the sale or acquisition process runs smoothly, and any issues are addressed promptly.

D. Red Flags to Avoid When Selecting a Business Broker 

When selecting a business broker, there are also some red flags to watch out for. One red flag is a broker who promises a high sale price without any supporting data or analysis. This may indicate that the broker is overpromising and may not have a realistic understanding of the market. 

Another red flag is a broker who asks for upfront fees before providing any services or without a clear explanation of what the fees cover. A reputable business broker typically works on a commission basis and only receives payment when the sale or acquisition is completed. 

Finally, be wary of brokers who pressure you into signing a contract or discourage you from seeking advice from other professionals. A good broker will provide you with the information and time you need to make an informed decision.

Steps to Choosing a Business Broker

A. Define Your Needs and Goals

The first step in choosing a business broker is to define your needs and goals. Determine what type of business broker you need based on your industry and the specific needs of your business sale or acquisition. For example, you may need a broker who specializes in retail businesses or has experience with mergers and acquisitions. It is also essential to identify your goals for the sale or acquisition, such as maximizing profits or finding the right buyer.

B. Research Potential Business Brokers

Once you have identified your needs and goals, you can begin to research potential business brokers. You can start by conducting an online search and looking at directories of business brokers. You can also ask for referrals from industry professionals, such as lawyers or accountants, who may have worked with business brokers in the past. Consider the broker's experience, professionalism, communication skills, and marketing strategy when evaluating potential candidates.

C. Evaluate Potential Business Brokers

Once you have a list of potential business brokers, the next step is to evaluate them. This involves conducting phone or in-person interviews with each broker and asking questions about their experience, credentials, communication skills, and fees. You should also request references and testimonials from previous clients and follow up with them to gain insight into their experience working with the broker.

D. Final Selection and Contract Signing

After evaluating potential business brokers, you can make your final selection and negotiate and sign the contract. This contract should outline the scope of services, fees, and expectations for communication and reporting. Make sure you understand the terms of the contract before signing and feel comfortable working with the broker you have selected.

Brokers We Recommend

There are many great business brokers specializing in small business. Below are a few business brokers that come highly recommended: 

#1. Transworld Business Advisors

Transworld is a national business brokerage franchise with over 200 territories.

• Type of Business Broker: National business brokerage franchise

• Number of Brokers: 15+

• Reviews: 4.8/5 (181)

• Services: Business Brokerage Services, Buy-side Representation, Broker Opinion of Value, Certified Valuation Services, Real Estate Services, Landlord Representation, Tenant Representation

#2. Beacon

Beacon is a national business brokerage with headquarters in Austin, TX.

• Type of Business Broker: National business brokerage

• Number of Brokers: 3

• Reviews: 5.0/5 (7)

• Services: Business Brokerage Services, Complimentary Valuations, Employee Transfers, Family Transfers, Exit Planning

#3. Peterson Acquisitions

Peterson Acquisitions is a Kansas City-based brokerage founded by Chad Peterson. 

• Type of Business Broker: Local business brokerage

• Number of Brokers: ~10

• Reviews: 4.9/5 (64)

• Services: Business Brokerage Services, Complimentary Valuations, Employee Transfers, Family Transfers, Exit Planning

#4. Woodbridge International

Woodbridge International has a unique 150-day auction process. Clients that use this firm have higher revenue, usually between $5-250 million. 

• Type of Business Broker: National business brokerage

• Number of Brokers: ~20

• Reviews: 4.5/5 (15)

• Services: Business Brokerage Services, Complimentary Valuations, Employee Transfers, Family Transfers, Exit Planning

Conclusion

Choosing the right business broker is crucial for the success of your business sale or acquisition. By considering the broker's experience, professionalism, communication skills, marketing strategy, and fees, you can find a broker that meets your specific needs and goals. Taking the time to research and evaluate potential brokers can help ensure that you choose the right professional for your business.

John McCleary

Transaction Advisor

Information posted on this page is not intended to be, and should not be construed as tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.