Choosing A Broker
Selecting a Professional to Sell Your Business

©Premier Sales, Inc

As seen in The Scottsdale Airpark News - May 1995

Someday you will probably want to sell your business. When that time comes, how will you find a qualified professional to help you get the job done? The business brokerage industry is in its infancy. Other than the requirement that brokers must have a valid license issued by the Arizona Department of Real Estate, there is not much in the way of standards by which to judge the quality or competence of the individual practitioner. There are many excellent business brokers who conduct themselves and their practices to the highest standards of ethics and business proficiency. However, as in any industry, there are those who are less than professional and ethical. How can you tell the difference? Is there a sure-fire, can't-miss formula for picking the right broker for your business? Not really. But there are many questions you can ask and many ways for you to increase your chances of making the right choice. The selection of a broker to represent you is not a decision to be taken lightly; there is a lot riding on it. Make the right choice and you should sell your company within a reasonable time period and for a good price. Pick wrong and you may damage your business and not be able to sell it at all.

Questions to Ask

A seller should look for a business broker who is full-time in the business and already making a living solely from the transfer of business ownership. He or she knows what it takes to value, list, market and sell businesses. Start by asking the broker candidate some basic questions. What is your business and educational background? Have you ever owned a business of your own? How long have you been selling businesses? How many have you sold? What size transactions do you handle? Can I contact the buyers and sellers of recent companies you have sold? If he or she gives you references, check them out. Call the buyer and seller and ask them how their transactions were handled. Ask them if they would use that broker again.

Additional questions that any reputable broker should be glad to answer are: How many businesses do you currently represent? Of the businesses you have represented in the last year, how many have sold?  Of the listings your brokerage firm has, how many have sold in the past year.  This information will provide a glimpse into how effective a brokerage is in actually selling a business vs. just being able to list a business.  The national average for selling a business is pretty low - about 18% - 25% of all businesses listed, will actually sell. Look at the brokerage's current listings to get an idea of how many businesses they currently represent. If they have 150 businesses, they should be selling at least 30-40 businesses.  If they are not, further investigation of their skills and focus is warranted. 

What professional organizations do you belong to? Are you a member of the Valley Board of Business Brokers? How about the International Business Brokers Association? The local Chamber of Commerce? The Better Business Bureau? 

It is also helpful in your decision making process to inquire as to how your business will be marketed. Does the broker rely on local newspaper ads or is he a member of area and national organizations that can help find the right buyer for your business. How about the internet, the Wall Street Journal or Trade Publications? Ask the broker candidate about his office. Better yet, visit the facility yourself. How many other agents are active there? Is the office neat and business like? Are office functions computerized?

The Hard Questions

By now you have probably come to some level of understanding as to the broker's credentials. You should also be comfortable with his or her capabilities, procedures and strategies for getting your business sold. There are still several very important questions to be answered:

1. How will your business be valued? Correctly valuing a business is a blending of art and science. In the final analysis, the business is worth what a buyer is willing to pay. Nevertheless, an experienced broker will come up with a selling price that he can defend; both to you and to a prospective buyer. Chances are, he or she will suggest a range of pricing depending on your willingness to carry a note for part of the selling price or your need to have an all cash transaction. A qualified business broker should be able to develop a well-reasoned asking price. If he or she merely agrees to list the business for whatever price you have in mind, regardless of how you decided on that number, then the broker is simply not doing his job. He or she is either lazy or incompetent. Perhaps both.

2. Once you have agreed upon a selling price the question that naturally follows is the amount of the broker's fee. More than likely, he or she will quote you a percentage of the transaction value, usually somewhere between 10 and 12%. If the offering price of your business will be over $1,000,000 the percentage should decrease. Most brokers will however, have an established minimum fee. This often ranges from $8,000 to $12,000 or more. Depending on the size and complexity of the challenge, an up front fee of some kind may be required as well. This is not a good time to be "penny wise and pound foolish". While all fees are negotiable, remember that the competent broker has significant overhead which is required to properly run his business and do the best job for you. If yours is a larger business, he or she will no doubt commit to a healthy advertising budget specifically for your business.

3. Ask the broker what steps he or she takes to maintain the appropriate level of confidentiality. It is critical at this point to have the broker fully understand your requirements in this important area. A good broker will clearly outline the procedures and safeguards he has in place to protect the privacy of the transaction.

Finally, there are many business brokers in the marketplace. Be sure you are comfortable and able to work well with your broker. Your company deserves representation of a true professional. Make your decision based on carefully considered criteria. It may be the most important financial decision you will ever make.