The decision to sell a business can have a huge financial and emotional impact on the seller. Selling a business is a complex and time-consuming process, and you need an expert who can advise you along the way.
An effective business broker can help you maximize the sales proceeds that you receive for a business sale. Brokers value your business and determine a sale price, and business brokers also market the business to prospects and negotiate on your behalf.
Use these tips to understand what business brokers do, and learn how to find a business broker for your company’s sale.
4 Roles of the Business Broker
In order to find the right business broker, you need to understand the critical tasks that a broker performs for the seller. These tasks are important, because they have a direct impact on the price you receive, and the time required to close the sale.
Business brokers use metrics and a variety of valuation methods to determine a reasonable price for your business. Prices are often based on a multiple of annual sales (“three times sales”), or the price is based on a multiple of earnings (“five times earnings”).
Your company’s value is driven by other metrics, such as the cash flow generated each year, or the rate of increase in sales and profits in recent years.
The broker understands each of the metrics used to value a business, and can explain why a particular metric is important for your company’s sale price. This is important for sellers to understand, because getting the value of your company right sets you up for success when the broker begins the marketing process to sell your business. Your business value positions your company to attract the right buyers for your business.
You need a business broker who can perform in-depth research to support the sale price that they recommend.
During price negotiations with the buyer, your broker will use this research to justify the sale price and maximize the amount that you receive for the sale. Company valuations can differ greatly, depending on the firm’s industry, current market conditions, recent sales of similar businesses, and other factors.
An effective business broker knows how to perform this research, and can identify the information that is most relevant.
Perhaps the most valuable role for a business broker is the ability to identify prospects, create a marketing campaign, create buyer tension to maximize the purchase price and terms of the sale, and find interested buyers who can finance the purchase.
Brokers should pre-qualify potential buyers to determine if they have the funding in place to buy the company. A retired executive, for example, may have income from deferred compensation, such as exercising stock options, or may borrow from their 401(k). On the other hand, a buyer who is a competitor might obtain traditional or SBA financing from a bank.
An experienced business broker must quickly determine if a buyer has financing, so that only serious potential buyers are considered.
Brokers also educate buyers, by providing marketing information that explains why your business is attractive, and what makes your business unique from your competitors.
Finalizing the sale price of your business requires complex negotiation with potential buyers, and the business broker will work as your advocate in the negotiation.
The broker can help to negotiate the deal terms, when payments are made, contract details related to customers and vendors, and the seller’s role in a transition. These topics are complex, and you need an expert in your corner to represent your best interests.
Your ultimate goal is to address all of the outstanding issues and have a successful closing, and an experienced business broker will help to facilitate the process.
Once you understand the critical role of a business broker, you can start your search for an effective broker.
Finding a Good Business Broker
There are a number of ways to find a good business broker, and you should consider using each of these methods to locate a broker for your company’s sale.
You can find experts using your referral network, and the same is true for business brokers. Ask people you trust for referrals, including your accountant or attorney. Business peers are also a great referral source, particularly from an owner who has used a broker to sell a business.
Industry contracts are also useful, because they may know of a broker who works frequently in your particular industry. If a business broker does a good job for others in your industry, that broker will be referred to other sellers.
If you notice that a broker is listing a business, you can verify the credentials through your own contacts. Check the broker’s website, find information of prior business sales, and ask your network of contacts if they have worked with the broker.
Finally, business organizations and trade associations are good resources to find a broker. Check with your chamber of commerce, trade associations, and with the International Business Brokers Association (IBBA
Since a good business broker adds so much value to a sale transaction, many people are happy to refer an effective broker to a potential seller. Good news travels fast, and you’ll be able to find an expert to help you with your sale.
Defining a Good Business Broker
If you’re referred to several business brokers and want to interview them, what are the key traits that define a good business broker? Consider these important characteristics.
You need a broker with industry-specific experience, experience in your geographic market, and someone who has sold companies in your estimated price range. If, for example, you own an Ohio-based furniture manufacturer that generates $10 million in annual sales, you need a broker who has worked with similar companies.
Successful professionals are happy to provide references and their credentials. When you find a good candidate, ask for and contact their references. Ask each reference about their experience working with the broker, if the broker was responsive, and if they would recommend the broker to other contacts.
The broker must understand why your company has value, and your brand’s position in the marketplace. That information is summarized in a written business plan used to market your business, and the plan explains your value proposition to qualified prospects.
Your broker also needs a strategy for acquiring qualified leads, using digital marketing and his or her existing network of contacts. When an investor is identified, your broker must determine if the prospective buyer has the financial means to buy your business.
Finally, an effective broker is someone who can address the seller’s concerns, and manage a seller’s expectations. The broker and the seller need to have an open discussion about the expected business value, and cover any sensitive issues related to the sale.
To close a successful sale, you need a dedicated professional who works as a full-time broker. Invest the time to find a broker who has the traits explained above, and you’ll have a trusted advisor to help you sell your business.
A Trusted Advisor
A business broker must be an experienced professional who will work as a trusted advisor throughout the entire process of your business sale. Use this discussion to understand the role of a broker in a company sale, the traits your advisor must have, and the process needed to find a good business broker.
If you can find the right business broker, you can negotiate a fair price and sell your business successfully. If you’re ready to sell your business, contact Raincatcher to see why they’re the perfect broker for your sale.