The Benefits of an M&A Adviser
You, the business owner, are a risk taker that is accustomed to getting things done on
Read FurtherPicking the right broker can make or break the sale of a business. It’s one of the most consequential decisions when planning your exit strategy. After all that hard work you put into building the business, you don’t want to rush the decision.
Here are 24 questions to ask a broker when selling a business before agreeing to the sale:
Experience matters. Find out how long the business broker in question has been in this business. Being new on the scene isn’t necessarily a red flag, and time in the game isn’t a guarantee of quality.
Still, a business broker who has been in business for a longer period of time may have had more time to hone their process and build their network. These are benefits that they may be able to pass on to you.
Time in business isn’t the only measure of experience, either. Ask about how many successful transactions they brought to a close. You may find that a broker who has been in business longer has less experience than a newer face on the scene, simply by the number of transactions closed.
The sale process can be quite different based on the size of the business. See if the broker has a history of success with businesses of roughly your size.
If they have brokered transactions of similar size to your expected valuation, they could be more likely to have buyers qualified for your transaction in their network. After all, they’ve closed deals of that size with them before!
Check as well if they have sold businesses in your industry or niche. A less experienced broker may actually be preferable if their experience is entirely in your niche (and they still have a history of wins).
For example, perhaps you wish to sell your manufacturing business in Austin. Then, it’s typically wise to retain a broker with brokering the sales of manufacturing companies.
See if the broker has their finger on the pulse of your industry. Can the broker tell you things
about your market that you can verify… maybe even things you didn’t know yourself? How plugged into your industry the broker is could make a big difference in their effectiveness at representing your business on the open market.
Investigate how the broker goes about valuing a business and setting the price. Remember: Setting the right price can make a significant difference in a quick sale versus your listing rotting on the vine forever.
What multiples, asset valuations, and market forces do they consider? Do they seek outside consultation for valuation, and how well-credentialed is that consultation?
Ask the broker about their approach to getting the word out about the system. Do they have a network of potential buyers?
On what marketplaces (online or otherwise) will they list your business? What inbound and outbound marketing methods will they use to drive interest? If they have samples of past marketing campaigns or advertising materials, now would be a good time to peruse them.
Review how many potential buyers the broker has in their customer relationship management (CRM) tools. Due to confidentiality reasons, the broker may not be at liberty to reveal the identities of those buyers, but the broker may be able to provide some sort of proof of their network.
What will the broker do to make the due diligence (DD) process easier? Does the broker have a checklist of DD necessities? Will the broker act as point-person and project manager during the due diligence period (so you don’t have to)?
Again, confidentiality agreements may apply, but the broker may have a few select clients who have given them permission to be used as references. Of course, brokers generally only pick happy clients, but it doesn’t hurt to verify that these happy clients exist. You can also gain valuable insights from the references as to what it’s like to work with this broker.
As an example, if you’re able to speak with the reference, consider starting with, “I’m looking to sell my business in Houston; who would you recommend I work with?” A more direct approach could be, “I’ve been wanting to sell my business in Dallas — did you enjoy working with [broker]?”
The more verifiable the details of the case studies, the better. Look for photographs, hard-to-fake financial records, and details you can verify on the public record. Where to find public information can vary by state.
For instance, to find records in Texas, one place to check is the Texas Secretary of State’s website. The Secretary of State’s site has information on limited liability partnerships, corporations, and nonprofits. The Taxable Entity Search on the Texas Comptroller of Public Accounts site hosts information about registration dates, ownership, management, addresses, and more.
Look into how the broker keeps clients up-to-date. Will you have weekly meetings? See if they have a plan to keep you in the loop that meets or exceeds your expectations.
Communication methods might include calls (by video or phone), check-ins, emails, or others. What do you prefer; question if the broker can accommodate you.
See if you feel comfortable with the level of access you will have to the broker. Try to verify if
you will deal directly with the broker or be filtered through assistants.
Will you have access by phone, text, or email? What is the general turn-around time for missed messages? Can you drop by the office without a planned meeting time?
Make sure the broker will protect your privacy and confidentiality through non-disclosure agreements, limited access, and redactions of any sensitive information prospective buyers don’t need to access.
If you prefer, see if the broker will agree to an anonymous listing. Anonymous listings disclose to the public vital details of the business for sale but don’t reveal the name of the business or the owner’s identity.
Question if the broker charges a commission on the sale, a flat fee, recoup of expenses, or more. When possible, get these promises in writing.
Find out if there are any listing, registration, or kickoff fees that you should budget for.
Does the broker expect money up-front just to start working with you? Will that retainer be applied to the commission upon closing of the sale?
Check what your obligations are to the broker and what their obligations are to you. When both sides work together as partners, the process can feel much smoother.
One of the most common terms in a brokerage contract is a period of time when the broker has the exclusive right to sell the business. This means that even if the final buyer did not come from the broker, the broker is still entitled to the fee or commission and no other broker. Determine if the broker requires such a period and how long it lasts.
If the broker has exclusive rights to sell, you’ll probably owe the agreed-upon commission or fee, even if you secure your own buyer with no help from the broker.
Find out what their approach to negotiations is and what strategies they deploy. See what terms they put on the table specifically to negotiate them away, and get on the same page about your non-negotiables.
Try to determine if they have the kind of “friendly discretion” that enables them to probe buyers for advantageous information… while at the same time withholding any information that the buyer could use to their advantage.
Inquire about how much of the closing process the broker can take off your plate, as well as any vendors or experts they loop into the process to ensure a successful closing.
A few professional affiliations that might add credibility to the broker include:
While real estate brokers require a license in every state, the requirement for business brokerage actually varies, with some states requiring no license at all. If required, see if the broker is a Certified Business Broker (CBB).
Other non-state certifications that might add credibility to the broker include:
Interested in discussing your sale further? We have a long track record of success brokering business sales in a variety of diverse industries.
Contact us to hear more about our accomplishments and strategy for getting entrepreneurs top dollar for their life’s work.
Sources:
Taxable Entity Search | Texas Comptroller of Public Accounts
Accessing Information | Texas Secretary of State
Prior to purchasing IBEX, Chuck Harvey spent 35 years as CEO, CFO and consultant to the Fortune 500, Middle Market, Mainstreet and in the Start-up community, including spending time at PepsiCo & Price Waterhouse Coopers. During that time, Chuck oversaw three dozen buy-side / sell-side transactions on three continents, including a $35M sale of a Texas digital photography pioneer to a $1 Billion Japanese conglomerate.
Copyright: Business Brokerage Press, Inc.
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“Texas Real Estate Commission Consumer Protection Notice.”
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