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Choosing The Right Business Broker – What To Look Out For!

Business Broker

Selling your business is an important step. Most likely, it will change your life. If you want to make sure you are doing everything right, you may want to consider hiring a business broker.

A business broker is your agent on the business market. This person knows all the ins and outs of selling a company and how to score the best deal. By finding the best business broker for your needs, you can forget about all the hassle related to searching for a client, ensuring all documents are in order and negotiating.

It makes sense to invest your time in finding the ideal broker. Otherwise, you’ll be spending much more on finalizing a deal. Not all business brokers are created equal. In order not to make common mistakes and speed up the search, take a close look at the errors you should watch out for.

1. Taking The Background Check Lightly

When you are speaking to the business broker or even before you set up an interview, you need to check the credentials. Even though credentials and licenses don’t mean the broker is your ideal candidate, without them, you shouldn’t consider the broker at all.

Don’t go further before checking if the broker is certified by the Business Brokers Association (IBBA). Certified Business Intermediary (CBI) certification provided by IBBA means that the broker has completed the essential coursework to become an expert.

Ideally, the business broker should have at least a bachelor’s degree in business or accounting. Some states require the broker to obtain a real estate license in order to sell companies. Find out if the broker of your choice has such a license.

Remember, it’s possible to work in the industry without credentials. However, if the broker didn’t think it smart to dedicate his or her time to getting certified, how good of a service can they really offer?

2. Not Asking About Past Experience

If the broker has been in business for a decade and has a stellar record, it still doesn’t mean you have found the perfect candidate. According to a business-selling expert, Cress V. Diglio, an ideal broker for your needs should have experience selling businesses similar to yours.

It doesn’t mean that a broker who is experienced in selling flower shops can’t sell a bakery. What it means that the process is likely to take more time. If the broker has already worked with flower shops before, he or she is likely to have the right customer base at hand and know all the nuances of such sales.

So if you are choosing between a broker with a decade of experience selling bakeries and a couple of years of experience selling flower shops, you should choose the latter. If, of course, your goal is to sell a flower shop fast.

3. Not Hearing the Broker Talk

The broker should show a genuine interest in your business. The expert should be asking you hundreds of questions during the interview to find out what the business is about, the reasons for selling it, your expectations about the sale, and much more.

By getting sufficient information about your business, brokers can go further to work on the sale and achieve the goals you set for them. Without a genuine interest in your company, brokers simply can’t do their job.

If during the meeting, the broker doesn’t ask too many questions and waits for you to share the information on your own, it should raise a red flag. Top-notch brokers take the initiative in their own hands. They should be the ones leading the conversation, not you.

4. Forgetting About the Size

Hardly all business are created equal. The size of the deal matters tremendously. If brokers have experience working with $20 million deals, they may not be ready to work with your small $2 million deal.

Make sure to ask the brokers the size of deals they have worked with in the past. Share your expectations about the final price. Remember, the broker’s fee depends on the size of the deal. Are brokers ready to work for a small fee compared to what they are used to?

5. Paying Money Upfront

Brokers typically get a commission when the deal is settled. Once you have sold your business, a broker receives about 10% of the deal’s cost. If the broker starts asking for part of the commission up front, it’s a huge red flag.

By getting money in advance, a broker may not be interested in completing the deal faster and getting the biggest amount possible for your company.

The average commission for the broker’s work is 10 percent. However, it’s possible to negotiate it if necessary. Some businesses are easier to sell than others. Meanwhile, some sellers do a big part of the preparation work on their own, making the broker’s task easier. In such cases, you may negotiate a lower rate.

6. Committing to One Broker

Even though each broker will ask you to sign an exclusivity contract, don’t rush into it. Sometimes, it may take many months to sell a business. Sometimes, it takes several weeks. Either way, you should give yourself an opportunity to hire another broker, if this one isn’t doing the job as expected.

That’s why you shouldn’t sign an exclusivity contract, which is longer than three months. If you see that the broker is working hard to sell your business, but the deal hasn’t been reached due to other factors, you can always renew the contract in three months.

7. Hiring a Busy Broker

Top-notch brokers are usually very busy. In order to understand how free the broker is to deal with your sale, you have to ask how many listings they are managing at the moment. If it’s over 10, you may want to find a broker, who is more available.

You can also ask how many businesses a broker has sold in the past year. This can help you evaluate the efficiency of the broker and the ability to work with several listings at once.

Hiring a busy broker may mean that you aren’t getting sufficient attention. In case some other sale the broker is dealing with is larger than yours is, the specialist is likely to spend more time on it to get a higher commission.

8. Ignoring Your Intuition

Following your intuition is one of the best ways to identify the right broker. When you have a list of brokers to work with, after checking all their credentials, experience, reviews, etc., ask yourself one question. Do you feel comfortable working with this person?

A broker should be the one dealing with a large chunk of sale-related problems. In the next several months, you will be working with this expert shoulder to shoulder. If you feel uncomfortable during the interview, the discomfort is likely to increase with time.

Don’t ignore your intuition. Go on to the next candidate.

Final Thoughts

Try to learn as much as possible about the business broker you are hiring. Ask about credentials, experience, and availability. The biggest mistake you can make when looking for a broker is to rush into a contract only to regret it later.

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