If you are planning to buy or sell a business, there is a good chance you will work with a business broker somewhere along the way. Business brokers are the real estate agents of small business. It's their job to bring together the buyers and sellers of small businesses, and to facilitate the buying process.
(article continues below)
Is it absolutely necessary to use a business broker? No. But if you want to make the most of your buying dollar or sell your business for the highest possible price, a business broker may be the way to go. Brokers have a solid grasp on the market and are in a better position to represent your interests to a broad client base. They are also acutely aware of industry specifics and benchmarks, giving them an advantage when it comes to pricing and valuation.
Working with a business broker can either be a great experience or it can be a complete disaster. If you plan on working with a broker, here are some things to keep in mind.
1. Check your broker's credentials
It seems obvious, but one of the most important things you can do is to check out your broker's credentials before signing them on to represent you. The best way to do this is by perusing their other listings and asking for references. You may also want to ask other local brokers about their experiences with your broker.
It's also important make sure your broker has experience in your specific industry. Either way, you are going to pay your broker 10-15% (standard rate) of the sale price. You'll sleep a lot better knowing that he/she has the industry-specific knowledge required to make the best possible deal on your behalf.
2. Ask about "the plan"
A good broker will create a marketing or purchasing plan for your business. If you are selling a business, the marketing plan should involve an advertising plan and other information relevant to the sale of your business. If you are buying a business, you might expect the purchasing plan to include information about comparable listings, recent sales, etc.
As the business owner or buyer, it isn't unreasonable for you to be involved in the development of the plan. But remember: You hired a broker for a reason. It's okay to offer input, but you should also be willing to take your broker's advice because there is a very good chance he knows more than you do.
3. Maintain confidentiality
If you are selling your business, it is absolutely imperative that you keep your intention to sell as confidential as possible. If you don't, you will pay a hefty price with your employees, customers, and suppliers.
When it comes to confidentiality, your broker is caught between a rock and a hard place. On the one hand, his job is to make potential buyers aware that your business is for sale. On the other hand, he needs to work with you to keep that information limited to the right people. At some point, you need to have a conversation with him about how you can maintain confidentiality as you market your business to potential buyers.