Why use a business broker?
The right representation can make the difference between closing or losing a deal. Due to confidentiality, a business broker cannot simply place a sign in a window like a real estate broker and wait for a prospective buyer to call. A professional business broker finds financially capable prospects, negotiates the deal, and sets up closing without anyone finding out until the deal is done.
Pricing a business
How can a seller be sure the price set is the highest justifiable price? Does the price enable a seller, to receive the highest price the market will pay without leaving money on the table? A competent business broker will be able to help the seller arrive at this price. Having a business on the market at a sale price that is too high will ultimately frighten prospective buyers. Underpricing a business could make the buyer question the worth of the business and cost the seller money. A business broker can assist in determining the best price for taking a business to the market.
Once a business owner decides to sell his business and all the pertinent documents have been prepared, how will prospective buyers find out about the business? How can the seller be assured a buyer is capable? A majority of people in the United States have thought about owning their own business but only a small percentage ever do. On average, for every prospective buyer introduced to a business owner, a broker has usually met with between 10-30 prospects. Many want-to-be buyers do not have the financial resources, are not a good fit or are just “tire kicking.” A business broker will act as a buffer and allow the seller to concentrate on running the business rather than wasting valuable time, jacking around with unqualified buyers.
Confidentiality with a business broker
Preserving confidentiality is one of the main reasons to hire a business broker. A professional business broker will have variations of confidentiality agreements drawn up and waiting for a prospective buyer. The broker is familiar effectively administering this important document. Most business brokers will not discuss a business with a perspective buyer unless a confidentiality agreement has been signed. To further ensure confidentiality, a financial statement from the buyer will often be required at the same time the confidentiality agreement is signed. The idea is that if a prospect signs both a confidentiality agreement and gives his financial statement, he will most likely adhere to confidentiality and not waste time kicking tires. These measures are taken in the beginning before a company name or location is given.
Higher sale price
There are several skill sets a professional business broker uses to ensure that a seller gets the right price for a business. Evaluation experience, market awareness, and knowledge of deal structure are a few of these skills.
A business broker sells businesses daily and is knowledgeable about current supply and demand. No other professional is in this position. It is important to use everyone on a support team for their specific area of expertise. Refer to your attorney to draft legal documents, your CPA for his tax advice, and your broker to guide you through the business acquisition process.
The business broker draws on his and the seller’s positions of strength to obtain the highest justifiable price. Having knowledge of comparable cash flow and active business offerings enables the business broker to position buyers more effectively. The business broker does not work directly for the business but rather as a consultant, which allows him to negotiate with prospects unemotionally.
Negotiating a better deal
The old adage, “You cannot negotiate the best deal for yourself” certainly applies when trying to sell a business. Do you do your own dental work? Cut your own hair? Here is the problem: A business owner is emotionally tied to his business and negotiates on emotion rather than reason. A business broker can negotiate for the owner because he is not connected with emotion to the business. The broker’s emotional interest is in operating in the owner’s best interests. A business broker has dealt with many business acquisitions and is aware of all the pain-in-the-ass issues that can come up.
He can weather those storms with detachment. A seller often cannot. A broker foresees problems and deals with them, while a business owner going through the process for the first time could lose a deal because of an emotional reaction, sending the deal to down the drain.
Professional marketing program
An experienced business owner certainly knows how to run a successful entity and make it grow.
When you are ready to sell, the “nuts and bolts” of your business have to be presented in the most honest and positive manner in order to entice prospective buyers to consider your business as an acquisitions candidate. A business broker is skilled at preparing concise, powerful marketing packages on businesses he represents. After a package has been prepared, going to market like an 800-pound gorilla is the only way to win. You must be voracious if you want a victory. Without a proper marketing campaign, an otherwise terrific business may go unnoticed.
Most business brokers will search their internal database for pre-qualified buyers to find a match for your business. If no match is found, a business broker will use marketing mediums such as newspaper, internet, trade publications, and other business brokerage firms until the right buyer is discovered. Even though a business broker utilizes an enormous amount of time, effort, and money to market a business, it is a fraction of what an owner would expend. A business broker knows the quickest, most effective methods of reaching the best buyers for this particular business, while preserving confidentiality.
The closing process
The closing process is usually the most strenuous and nerve-racking step for all parties involved. A seasoned business broker experienced the process many times. The broker will have worked with a variety of closing attorneys or escrow companies. He will be able to handle the problems that arise with them. The business broker, along with the closer, will ensure that the seller’s interest is protected and that the deal goes through.
Handling the support team
Having a support team in place to facilitate the process is important. Your CPA, attorney, broker, lender, comptroller, and others will be needed in the process. It is crucial to have a point person to coordinate the team. That person should be your business broker.
Using a business broker to sell your business will alleviate the time constraints involved in coordinating your support team. Most importantly, no one on your team will have the experience that a business broker has. Members of the team specialize in different areas, but the business broker is the only one whose job is to facilitate and coordinate the entire process.
Business broker services
Following is a list of services that a qualified business broker provides during the business acquisitions process:
• Consultation with seller and review of seller’s documentation
• Review of seller’s financial statements
• Preparation of a listing agreement, seller’s disclosure, and seller file
• Development and marketing package
• Initial buyer response interview and screening
• Business showings and buyer follow-up
• Additional consultations with buyer/seller
• Assisting buyer with preparation of Offer to Purchase or Letter of Intent and presentation to seller
• Meetings with buyer/seller to coordinate buyer due diligence
• Consultations with buyer/seller and outside advisors
• Coordination of closing and other documentations
• Consultation with parties regarding acquisitions of licenses, utilities, etc.
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