7 Key Questions To Ask Your Business Broker Before Hiring Them
Selling your business is one of the most important decisions you may make in your life - it’s not one to be taken lightly. Business sales are inherently more complicated than almost any other kind of sales - you need an experienced business broker to help guide you through the process.
No two business brokers have the same skillset. Each broker will have experience selling certain types of businesses, and they’ll each use varied valuation methods, charge different fees, and offer unique services.
To find the right business broker, you need to ask the right questions. Here, we’ll present the seven questions we feel are most important to open up a candid discussion with a potential broker in an effort to determine if they’re the right fit for your needs.
What methods do you use for business valuation?
There are a plethora of methods a broker can use to determine the value of a business. Various factors can affect how different parties calculate the value of a business, from the type of business being sold to economic and social conditions.
As such, it’s important to ask your broker not only how they determine the value of businesses in general but how they’ll determine the value of your specific business. Methods of valuation can vary from Discounted Cash Flow to a simple Earnings Multiplier. The multiplier used in most valuation methods varies from industry to industry and varies greatly depending on the revenue trend of the specific business. A good business broker will ask you for enough details about your business to determine the best valuation method. They’ll also be able to explain the rationale behind the valuation.
How long will it take to sell my business?
The time it takes to sell a business depends on a number of factors, including location, industry, the value of the business, and prevailing market conditions. Selling a business isn’t an exact science, but a good broker should be able to estimate how long it will take to sell your business in the current market. Price will be the single greatest factor that determines how fast your business will sell.
Ideally, your broker will have experience selling businesses like yours and will use previous sales trends to better estimate the amount of time your business will be on the market. With Jason Brice, sales are completed, on average, within six to nine months, however some sales have been much quicker or longer.
Brokers will also have a listing term - this term is the maximum amount of time they’ll list a business on the market for. Generally, the listing term is one year, but the length of the contract can be modified if need be.
What’s your level of experience?
Experience comes in many different forms. A broker who has worked for 25 years in the industry but has moved from city to city has a very different type of experience than someone who spent ten to fifteen years in a single market, selling comparable businesses.
That means a broker’s level of experience isn’t just about how much time they’ve spent as a business broker - it’s about how they’ve spent that time. Ask your broker about where they’ve been doing sales, the kinds of businesses that they sell most often, their greatest triumphs, and their biggest failures.
We can’t detail all of Jason’s experience here, but we can give you a tight overview: He’s a business broker in Vancouver who has been selling businesses worth anywhere from $500,000 to $5 million for almost 15 years. If Jason ever feels that your business niche would be better represented by another broker, he’ll refer you to them.
What services do you offer?
Different brokers offer different services. Optimally, you want a broker who can guide you through every step of the process. Jason Brice offers:
Consultation
Valuation
Complete Marketing Services
Pre-Financing the Deal
Negotiations
Closing
That covers a lot of ground - financial, legal, sales, and more. Of course, how those services are offered is just as important as what they are. You should, for example, ask what methods your broker will use for marketing, the experience they have in negotiations, and more.
What are your fees?
Good business brokers work on a commission-only basis. (Although some charge fees upfront for valuation or marketing efforts, which is something Jason Brice does not recommend.) The commission rates can vary, but there are usually two different rates: A commission on the sale of the business and a different commission on the sale of any real estate. Plus there is usually a different commission rate for the first $1Million of purchase price and any purchase price greater than $1Million.
Some business brokers also charge a retainer, though this generally only occurs with brokers selling businesses valued at tens of millions of dollars. Most brokers will also charge a minimum commission - somewhere between $15,000-$25,000.
What other professionals do you work with?
With all the services available through a business broker, it should come as no surprise that the enterprise is rarely a one-person show. Your business broker will, for example, work with a stable of lawyers when closing the deals in order to ensure that the paperwork is airtight.
Your broker may also work with accountants, marketers, and other professionals in order to get you the best price for your business. Ask your broker who they work with!
What’s your pricing and sales process?
Business valuation is one thing - determining the initial sales price you should set for your business is another. The right price is determined by a variety of market factors. Optimally, you want your business to be listed for a low enough price that a number of bidders will compete to buy it but a high enough price that you’ll be getting a purchase price equal to the value of your business or higher.
The sales process will vary from broker to broker. Typically, brokers have a few avenues through which they can sell your business. These avenues include:
Online marketing
A pool of prospective buyers
Collaboration with other brokers
You can ask your business broker what percentage of their sales come from which sources.
Finally, you should ensure that your broker has systems in place to keep the sale of your business confidential. If the news that you’re planning on selling gets out, you could lose key employees and contracts, as well as give vital information away to competitors.
Have questions? Talk to Jason Brice
Jason will be happy to answer all of the questions we’ve laid out here, as well as any other questions you may have. We encourage you to ask these same questions to other business brokers.
We hope this helps you in your efforts to find the perfect broker for your business!