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When the time comes that you are beginning to think about selling your business, it is easy to get distracted by concentrating solely on wondering what your business is worth. But there are many more important issues to cover when you begin interviewing a business sale broker.
Here are some of the most important questions to ask a business broker when you are thinking about selling your business.
Before selling a business (or even when one of the partners is leaving the operation), many businesses will seek an appraisal. The purpose of this formal appraisal is to estimate the full and fair market value of the business. Brokers employ a variety of standard and accepted valuation methods to reach this estimate.
However, formal business appraisals are not always necessary when selling a small business. Often, a professional business broker will perform a less formal “business valuation” as part of the listing process, generally without any costs. This estimated valuation uses information you provide, as opposed to a certified appraisal, which is generally conducted by an accredited Certified Valuation Analyst and is a more in-depth process. It’s important to know which of these your broker recommends for your situation and why.
Once you begin the long trek down the road of selling your business, you may have concerns about employees and customers hearing about your transaction plans before you are ready to share the news. There are legitimate concerns about how employee morale and productivity could suffer and that clients may feel suddenly untethered to the relationship you’ve built with them. Your workforce and your customers are key factors in your business, and you want to be sure neither one is unsettled.
Be direct with your broker and ask them about it. Discuss creating a non-disclosure agreement that states all your discussions are confidential. It is important to understand that professional advisors operate under a code of ethics that demands confidentiality. Once a business is listed for sale, managing confidentiality is a major responsibility of your professional business broker, and they know it. Their reputation is at risk with every relationship they handle.
Among the questions to ask a broker when interviewing them for the sale of your business is, “Do you have experience selling in my industry?” No matter how big, successful, or prolific they may be, it matters more if they have helped businesses like yours before. That experience enables you to value your business, attract the right buyers, and avoid errors that could cause delays and cost you money.
You don’t want a broker learning on the job with you. Ideally, you want to be working with a broker who specializes in selling a business like yours to take advantage of the relationships they have initiated with qualified prospects in the past. In short, you’ll benefit if your business broker has experience selling a business like yours.
This is the broader question about their overall qualifications, history, and competence. It’s not the time to take a chance on someone new. If you are like the majority of individuals selling their business, you’re over 55 and have a lot of experience yourself. As in the prior question, you don’t want someone learning at your expense.
Of course, that does not mean that the biggest or oldest brokerage firm is the best. Talent matters; relationships count, especially in this long process. Make an effort to learn about and understand the business and the people you will be working with. For example, the firm could be small and new, but the broker could have decades of experience. The opposite is true as well—a well-established firm can have new, inexperienced brokers. It is your responsibility to identify just how you will be represented and by whom.
Always chief among the questions to ask a brokerage firm is, “How much is this going to cost?” While that should not be your sole factor in deciding who to work with, it is as important as any of the others we are discussing here.
There are as many ways for the broker to charge you as there are brokerage firms, and it will depend on various factors that include the range of services they provide and which of those are appropriate to your situation. Choosing an affordable broker is desirable, but don’t let the costs alone drive your decision. Like with evaluating experience, look deeper. A higher cost doesn’t guarantee you a better outcome, but lower costs aren’t always the bargain you might think they are.
There are two primary types of charges associated with selling your business through a broker:
Whatever you discuss with your broker, be certain to ask for it in writing so you can review it in your own time. Request that the costs be itemized in as much detail as possible and never assume anything that isn’t committed to in the document.
Another of the questions to ask your broker once you have decided to sell is to inquire about the process involved in selling your business. Once you have established the value of your business, agreed to an asking price for its sale, and discussed the structure for your relationship with the broker, you will be asked to sign a listing agreement that gives the broker exclusive rights to market your business to their buyer contacts. Ask about how the brokers will prepare the presentation and marketing materials promoting your business, and be sure to take part in the approval process for these items.
You should expect regular communication regarding buyers who show attention and to be included in the meetings held with the prospective buyers once they signal their interest. Ask your broker to detail their process, what involvement you can expect, and how the negotiations and closing of the sale will be handled.
Among the many questions to ask when interviewing a brokerage about selling your business is how the purchase agreement and closing documents will be prepared. You should require an attorney to craft the agreements to be certain the document is properly structured before it is presented to you for review and, eventually, your signature. For your own protection, you should also retain your own attorney (if your lawyer is not the one crafting the documents) and have them review all documents for potential issues, errors, or simple mistakes before you agree to sign these legally binding agreements.
Selling your business can be a complicated process, and it is not something you want to go into blindly or on good faith alone. Preparing the right questions to ask a broker when selling a business will help you ensure that the relationship with them is productive and that the ultimate outcome of the sale of your business is a successful one.