Working With Business Brokers to Buy a Business
Mistakes to Avoid When Using a Business Broker to Buy a Business
A good business broker takes the pain out of the business buying process. But unless you invest time, energy, and a little common sense in your business broker relationship, you could be in for more than you bargained for when you use a business broker to buy a business.
The decision to hire a buyside business broker doesn't give you permission to check out of the buying process.
Smart buyers understand that a business broker can facilitate the purchase of a business, but they aren't foolproof - problems can (and do) commonly arise between buyers and their brokers.
The majority of broker-related problems are unnecessary. With a little foresight, business buyers can adeptly sidestep pitfalls and maintain a healthy business broker relationship. If you are using a business broker to buy a business, here are some common mistakes you will need to avoid.
- Wrong business broker. So you think you've found a superstar business broker to represent your interests in the purchase of a business. That's great - but does he have legitimate buyside brokerage credentials, or is he a seller's business broker who is interested in earning a little extra cash by representing buyers, too? And does he have experience helping buyers in your industry and in your geographic area? Sometimes hiring the wrong business broker can be worse than hiring no business broker at all, so be sure to identify the right business broker for your purchase.
- Too wide a search. A knowledgeable business broker will work with you to identify your search criteria and narrow your search to companies that are genuine purchase prospects. It's a waste of time and resources when a business broker casts his net too wide. But more importantly, an unfocused search can confuse the process and frustrate your efforts to locate the best prospects.
- Lack of communication. It is absolutely vital for you to maintain clear lines of communication with your business broker. If communication is unclear or absent, the deal will suffer and you'll be the one who has to deal with the consequences. Before you hire a business broker, talk with him about how often he communicates with his clients and make sure his communication policies meet your expectations.
- No non-disclosure agreement. If you expect your business broker to maintain confidence during and after the purchase, document it in a non-disclosure agreement before he does any work on your behalf. In some cases, you may even want to include a clause that protects your anonymity at various stages of the buying process.
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