What Is A Business Broker? PLUS How To Identify An Experienced Business Broker
What is a Business Broker?
What is their primary role and why should you hire one to help you sell your business? In this article I’m going to talk about Business Brokers. I’m going to explain to you what the good ones really do. I’m going to talk about the experience and qualities a business broker must possess.
What experience and qualities they must posses, in order to effectively help you.
What experience and qualities they must possess, in order to successfully sell your business to the right, qualified, individual or couple.
Business Brokers specialize in helping people buy and sell privately owned businesses. Business Brokers are experts in their field and have invaluable knowledge and experience when it comes to buying and selling a business. They will have local market knowledge and can protect you from making very common, very costly, mistakes. So your first thought might be that a Business Broker is simply a salesman or saleswoman. Someone who flogs businesses. Someone similar to a real estate agent.
NOTHING can be further from the truth. Let me explain.
Take a moment to consider a very typical scenario when it comes to selling a business. (Selling a small business in Canada which by definition is a firm that has fewer than 100 employees) :
|Has never sold a business before.||Has never purchased a business before.|
|They are unprepared.||They are unprepared.|
|Vastly underestimate what is involved in selling a business.||Vastly underestimate what is involved in buying a business.|
Therefore if you want to sell your business – the right way,
- If you want to sell your business for the highest possible price and for the best possible Terms,
- If you want to sell your business to that perfect individual or couple…
Then you need to understand that a Business Broker’s primary role can only be that of an “Educator“.
An experienced Business Broker will draw on their knowledge and experience to educate you on:
- What you need to do to best prepare yourself and your business for the sale.
- What you need to do to optimize the value of your business.
- What you need to do to ensure the business is financeable, (in the likely event a buyer needs financing in order to buy the business).
- What you need to do to present your business in such a way that it attracts the greatest number of qualified buyers.
Furthermore, and this is very important, an experienced Business Broker will not only present a business opportunity in a transparent way to a potential buyer, they will explain what opportunities that buyer should explore in order to grow the business!
Buyers are not just buying a business – they want to buy an opportunity. Given the buyer has no experience doing this, they need some help – help that can only come from an experienced business broker.
There Is No Substitute For Experience
As I hope you can start to see there is absolutely no comparison between the role of the business broker and that of say a real estate agent.
The role of a Business Broker has absolutely nothing to do with strong arm sales tactics as you simply cannot force someone to buy or sell a business.
The role of a Business Broker has everything to do with educating people. Sharing specialized knowledge and experience specific to the business buying and selling process and helping these people connect with other experienced experts (such as experienced lender representatives and experienced lawyers). And it’s on that note which makes an experienced Business Broker very different from that of someone (inexperienced) who says “… yerr I can sell your business”.
8 Qualities Your Business Broker Must Possess
Recognizing how important an experienced Business Broker is to you and the successful sale of your business, we should now discuss how to identify an experienced Business Broker. The following is a list of 8 qualities the very best, most experienced Business Brokers all possess:
1 – Business Brokers Must Have Business Ownership Experience
How can a representative possibly understand how your business works, if they have had no business ownership experience themselves? Remember, people looking to buy a business have very likely, never purchased a business before, so they will be looking for guidance and advice. It’s simply not possible for a representative to advise a potential buyer as to why your business is a fantastic business to buy, if that representative has no business ownership experience themselves. The fact is a Business Broker:
- Must be able to accurately answer business related questions a buyer has about the business they represent.
- Must be able to explain to a buyer where the business opportunity / opportunities exists.
- Must be able to advise a buyer how to mitigate any concerns the buyer may have about the business they represent.
In order for someone to do this, in order for this person to call themselves a business broker, they must have experience owning at least one (ideally more than one) successful business themselves.
2 – Business Brokers Must Be Thorough
Thorough as in a Business Broker:
- Must verify their understanding of every aspect of the business they represent.
- Must complete a thorough Review & Valuation of your business BEFORE it is listed for sale.
- Must verify all the information they receive about you and your business BEFORE releasing it to a potential buyer.
- Must qualify every buyer inquiry.
- Must provide all the necessary documentation to a qualified buyer, so that the buyer can make an informed decision.
If a Business Broker is thorough, it resonates positively with a buyer, as this will reassure the buyer that there is nothing untoward or funky going on with the business. If a Business Broker is thorough, it resonates positively with the buyers lender (in the likely event that buyer needs financing in order to buy your business). If a Business Broker is thorough, it often resonates positively with both the buyers lawyer, as well as the sellers lawyer. (Happy lawyers cost less money than unhappy lawyers).
3 – Business Brokers Must Understand How A Buyer Can Qualify For Financing
Why should you care about this? Well I hate to tell you this but YOU and YOUR business has a DIRECT effect on wether a buyer can secure the financing they likely need, in order to buy your business.
In other words a Business Broker must be able to quickly identify if there is anything about you, your business or the buyer that will or potentially will jeopardize the buyers ability to secure the financing they likely need, in order to buy your business.
In order to do this a Business Broker must have long term relationships with “A” Lenders, at an underwriter level – in other words with experienced Lender Representatives in order to be able to identify any “potential” financing concerns.
4 – Business Brokers Must Be Honest, Ethical And Trustworthy
The fact of the matter is the type of representative you choose to represent you, will be interpreted as a reflection of you, your motives and your level of seriousness.
If you hire someone to represent you who clearly does not give a damn, a serious buyer will naturally think you the business owner don’t give a damn. Within a heartbeat, you’ll have lost a potential buyer because they will have quickly moved onto the next business opportunity that is listed for sale.
Serious buyers are thrilled when they come across an experienced Business Broker, someone who is clearly honest, ethical and trustworthy. For a serious buyer it makes the decision of making the largest purchase of their lives, that much easier.
5 – Business Brokers Must Be Problem Solvers
Problems will arise throughout the business selling process and a critical characteristic of any Business Broker is that they have to be problem solvers.
NOT problem creators,
NOT deal killers… but individuals who can draw from their experience to overcome and find solutions to common problems and concerns.
A representative who freaks out, is rude to a buyer and or who bad mouths other (expert) advisors involved in the process, is not a problem solver.
Again the type of representative you hire will be interpreted as a direct reflection of you. I cannot emphasize this enough, you need to have someone represent you who is an experienced problem solver.
6 – Business Brokers Must Have A Heathy Respect And Understanding Of Confidentiality
Serious buyers will respect AND insist on Confidentiality.
As the business owner you should respect AND insist on Confidentiality from your representative.
You need to understand that it can have a devastating effect on your business if your representative posts pictures of your business and fires off unsolicited emails out all over the internet announcing that your business is for sale…
- Your competitors might jump at the opportunity to use this information against you.
- Your staff, upon learning of the business sale from someone other than yourself, might be very motivated to leave you.
- At the very least your staff, upon learning of the business sale from someone other than yourself, will no longer trust you.
- Your suppliers might be motivated to change the Terms of their agreement with you.
Serious buyers will quickly disappear when they find out there has been a complete disregard for Confidentiality and the release of information was not controlled. … and the list goes on and on.
On the other hand:
An experienced Business Broker will know exactly how to sell a business Confidentially.
An experienced Business Broker will follow a specific protocol for qualifying each any every buyer inquiry.
An experienced Business Broker will know exactly when certain information should be released.
7 – A Business Broker Must Be Eager To Learn About Your Business
A Business Broker is the expert at selling a business. You are the expert when it comes to the detailed operation of your business.
A great Business Broker will want to learn about your business. They will want to learn about all the unique nuances of your business.
Then, given their experience looking at hundreds of other businesses, the Business Broker will be able to advise you of potential issues or areas of improvement that will improve your chances of:
- Attracting Qualified Buyers
- Attracting A Suitable Lender (for the buyer)
- You Selling Your Business For The Highest Possible Price
- You Selling Your Business For the Best Possible Terms
8 – A Business Broker Must Have “Hands-On” Business Selling Experience
Last but not least, the person who represents you and your business MUST have “Hand’s-On” experience, helping people buy and sell businesses for the following reasons:
- You cannot possibly valuate a business (properly) unless you have “hands-on” experience helping people buy and sell businesses.
- There are specific steps that must take place at specific times throughout the business selling process. Knowing when these steps take place only comes from years of “hand’s-on” experience.
- There are specific relationships the representative must have with experienced lender representatives, lawyers, accountants and other industry experts that are essential to selling a business, this only comes from years of “hands-on” experience.
An experienced Business Broker costs money, yes. But their fee is a fraction of what you stand to loose if you hire an inexperienced person. Furthermore, you run the very real risk of irreparably damaging your business if you hire an inexperienced representative.
8a. Sole Practitioner Business Broker vs A Business Broker From A Large Corporation
On a related note I’d like at this point to dispel a myth.
Large national and international business brokerages would like you to believe that they are the better option over hiring the sole practitioner business broker or boutique business brokerage. This simply is not true, for one very important reason.
Business Brokering is a personal service.
The experience required and quality of advice needed to sell a business comes from the individual – the person calling themselves an expert Business Broker.
It is the Business Broker that will sell your business.
It is not the corporation that the business broker works for, that will sell your business. Furthermore, an experienced sole practitioner Business Broker has experience and a marketing reach as good as, if not better than, any national or international business brokerage.
Let’s Summarize The Discussion
As a business owner you need to understand how very important your decision is as to who you hire to represent you and your business.
Again, I want to be very clear on a few points:
- You cannot expect any buyer to simply look at your business and “work it out for themselves”. Both you and the buyer need guidance throughout the entire process!
- A representative simply cannot strong arm someone into buying your business.
- People will judge you and your business based on the type of representative you hire.
Furthermore, the type of representative you hire will have a direct effect on:
- The number of qualified inquiries you get.
- Wether you sell your business or not, and
- If you are lucky enough to sell it:
- How much you end up selling your business for, and
- The Terms of the sale.
The fact is a buyer will be more attracted to you and your business if the representative you select is friendly, helpful, informative and experienced.
The fact is a buyer will be more likely to purchase your business if the representative you select is friendly, helpful, informative and experienced.
The fact is Business Brokering is about people, helping people, educating people.
If you enjoyed reading this article and found it helpful and informative, please do take a moment to Comment & Share! Doing so really will help me get my message out to other people just like you, who are searching for such expert advice.