March 4, 2024
How To Select The Right Broker To Sell Your Business
By Ted Kantor
“By failing to prepare, you are preparing to fail.” – Benjamin Franklin
As a business owner, there are many major milestones throughout your history of ownership including buying the business, growing and reaping the financial rewards of satisfying your customers, and ultimately making the decision to sell. However, this final stage requires a new team to successfully navigate a complex process. Without expert guidance, your odds are against you to maximize the potential of your business value.
In addition to an attorney skilled in M&A transactions, a tax advisor, and your CPA, hiring the right business broker to sell your business is a critical decision that warrants proper scrutiny and preparation. First, it is important for you to establish your objectives for selling your business, including factors such as timing, retirement plans and any deal specific terms. This ensures that the broker you partner with understands and can guide the process to meet your goals.
As you begin the broker selection process, here are three key areas to consider:
- Expertise, Reputation, & Track Record
- Transaction Advisory Process
- Fit & Communication Style
Step 1: Expertise, Reputation, & Track Record
An initial review of the broker’s website should provide a comprehensive overview of their services, with the ability to understand their areas of expertise and track record.
- How long have they been in business? A broker with 10 or even 20 years has a longer history of demonstrated success for their clients. Are there proper testimonials on the site?
- How large is the team? Smaller one or two person shops require the broker to handle all aspects of your engagement. Larger firms will have dedicated teams for marketing, and maintaining large network of buyers which could prove advantageous for your buyer search.
- Does the broker have industry affiliations or advanced degrees? A broker who invests their time building their network or advancing their skill set often translates to a higher success rate for your transaction.
- Does the Broker have both a local & national presence? Consideration should be given when deciding whether a broker offers both local knowledge specific to the regional market in conjunction with a national buyer reach encompassing a wider target audience.
Once you have completed the review above, it is important to do some independent research including a Google search for reviews of the company. In addition, you may want to request references from previous clients. Speaking with individuals who have previously worked with the broker can provide valuable information about their capabilities. In summary, engaging in due diligence activities regarding potential brokers forms an integral first step of making an informed decision.
Step 2: Transaction Advisory Process
Understanding the broker’s advisory process will highlight and differentiate their services. What are the key steps or phases that the broker offers assistance?
- Business Valuation: Does the broker advocate for an independent valuation of your business? A red flag for buyers and bankers would pop up, if the broker wants to handle in-house or thru your CPA.
- Market Documentation: Review a sample marketing document called a Confidential Memorandum. How well does it represent a business?
- Marketing Approach: How comprehensive is the approach to finding buyers? Does it combine both online and offline methods in order to effectively reach a broad audience. Does the firm have a database of buyers to market against, or are they just using websites to post ads?
- Confidentiality: Probe extensively with the broker how they will maintain confidentiality throughout the process. Loss of confidentiality can impact your employees, customers, and suppliers. Pay strong attention to any broker who doesn’t offer a clear explanation on their process.
- Deal Closing: Explore how the broker handles negotiations and the offer process. Ask for a sample Offer-To-Purchase document to understand if it is thorough and can assist your attorney in drafting the sales agreement. Keep note of how much assistance the broker provides during the due diligence period, the buyer obtaining bank financing, and working with your attorney on the agreement.
- Exit Planning: Depending on your time horizon, explore whether a broker can assist you in exit planning in advance of engaging in transaction services. Will the broker provide a strategic review of the marketability of your firm and assist in a strategic valuation for planning purposes.
Last but not least, it is crucial to fully understand their fee structure and terms. Brokers can charge an upfront retainer in the range of $25K to $50K to offset their costs. Other brokers work on a “success fee” and charge a percentage based on the sale price. Clarifying whether there are any upfront fees or additional costs is important in preventing any surprises down the line.
Step 3: Fit & Communication Style
It is essential to evaluate the broker’s communication style and level of responsiveness when considering their services. Effective and efficient communication throughout the entire selling process is paramount for a successful transaction. Selecting a broker with whom you feel comfortable working with is vital for achieving success during your business transaction. A good rapport between yourself and your chosen professional is essential.
You have invested in and grown your business. The selection of a broker that aligns with your goals will successfully facilitate the sale of your business. By considering the broker’s expertise, track record, process and fit, you will identify the partner to help implement your exit strategy.
Ideally, start 3+ years out from when you want to exit. This will allow you to work with your advisor to assess your business strategically and implement key steps in advance of the sale. Also, remember to build in time for the sale process (can be a year) plus a proper transition with the new owner.
Contact us if you are interested to sell your business!
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com
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