Buyers make huge mistakes when deciding to purchase a business on their own and in choosing the business broker to handle the sale of buying their business.
When you choose to hire a business broker to represent you in the purchase of a business, you’ve already started the buying process by making a very good and sound decision. However, like any industry, there are both good and bad business brokers. You need to make sure you are choosing a great business broker with tremendous experience to handle the purchase of your business and most importantly to ensure that you are NOT overpaying for the business of your dreams.
I have listed the top ten questions that you should ask when interviewing business brokers. In addition, I am providing you with additional things you should ask for and review before hiring a broker.
1. How many years have you been a business broker?
It is imperative to hire a business broker or business brokerage firm that has years of experience in selling businesses. Some business brokerage firms will have agents that might not have as many years of experience. However, if that agent works for a business brokerage firm with years of experience, then interview that owner to make sure that the owner will be working with the agent during the entire process.
2. How long have you been with or owned your firm?
You should ask the agent how long they have been with the firm. That will provide you with further insight regarding the agent’s experience level.
3. Do you have a database of sellers, if so how many?
Most business brokerage firms do not utilize a contact management system properly. They attempt to keep a paper trail of signed NDAs and notebooks. They do not have a proper system in which to sort and maintain sellers. You should hire a business brokerage firm that has a database of sellers. Professional, experienced business brokers will run a query of all their sellers in their databases that could be a good fit.
4. What is your closing ratio?
Many of my competitors close less than 60% of all offers they write. Those are horrible odds and statistics. These odds are no better than trying to sell the business on your own. My firm closes 98% of all offers we write.
5. What is your protocol used to evaluate businesses?
Unfortunately there are a lot of order takers out their versus professional business brokers. Professional experienced business brokers will not take the listing if the seller’s expectations are not in line with the broker’s evaluation. Order takers will ask the seller what they want for the business and the broker will write up the listing with the seller’s dream price without running numbers, pulling industry standards, looking at business comps and properly evaluating the business for what it is actually worth. You can have a high price on a business and let it sit on the market for years and it will never sell. Or a professional experienced business broker will properly evaluate a business, put it on the market for the best and highest possible selling price, and sell it within a reasonable time.
6. What resources will you utilize to evaluate businesses of interest?
This is key, because a business broker, not order taker, will evaluate a business for what it is truly worth, not escalate the price. Ask them what type of resources do they utilize to evaluate a business and have them show you some evaluations they have performed..
7. Do you assist with creative financing?
Let’s face it, we are living in a whole new era. Due to the recession and financial debacle, banks are not lending unless the perfect storm has occurred. The perfect storm means that the seller has to have perfect books and records; the buyer has to have near perfect credit, twenty-five to thirty percent down, collateral to secure the loan, and industry experience. Typical financing is not so typical anymore and deals are not getting done the old-fashioned way. Therefore, you need to hire a business broker that understands this and has experience in creative financing. Otherwise, you will not be able to purchase the business of your dreams if you can not obtain SBA or traditional financing.
8. What steps do you implement to protect buyers?
At CBS are very protective of our buyers and do everything in our power to ensure their success. In order to set the buyer up for success we will not list a seller’s business unless the seller complies with the following:
- Agrees to list their business with our evaluated price
- Include all intellectual property
- FF&E needs to be in working condition
- Seller must provide training
- Seller must provide owner financing
- Seller must agree to and sign a non compete
9. Do you have relationships with lenders, attorneys, and tax specialists?
One of the number one reasons that deals fall apart is because of loss of control over other professionals that are involved in the deal or the buyer’s/seller’s problems are not being solved in order to finalize the sale. The more relationships that the broker has with attorneys, CPAs, tax specialist, and lenders, then the fewer problems they will have in that particular deal. I have said it many times, attorneys, CPAs and lenders kill deals. It is invaluable for a broker to have attorneys that they use to prepare the closing documents and close on the businesses. It is imperative for the broker to have relationships with CPAs that they can refer to first-time buyers in order to assist the buyer in the buying process. It is also imperative to have relationships with tax specialists to assist with structuring the deal so you can assist the seller in minimizing their tax liability before the business changes hands. If you wait until afterwards to minimize tax liability, then it becomes too late and the seller may decide not to sell if the tax liability is greater than their annual income and the deposit on the business. If the buyer is obtaining their own specialists and the seller has their own specialists, then the deal will become very chaotic because no one is controlling all the players and keeping them focused on one common goal. My firm has relationships with CPAs and we refer our buyers to them in order to assist them and provide a comfort level regarding evaluations, setting up their business entity, structuring offers, and assisting with due diligence items. We have law firms that we work with to represent the transaction and prepare closing documents and close on the sale of the business. We also work with all our sellers to minimize their tax liability. The more relationships a business brokerage firms has, then the more control they will maintain over the deal and their success rate will increase tremendously in their ability to assist you in buying the business of your dreams, solve problems, and ensure a smooth transition. Do not choose business brokers that tell you that they prepare the closing documents and handle the closing. Business Brokers are not attorneys and have absolutely no business in preparing closing documents! This is a sure fire way to give up protection and perhaps get sued. My firm does not prepare any closing documents whatsoever. All closings should be handled by an experienced closing attorney only!
10 Do you have testimonials?
Any professional, experienced business broker should have testimonials and references that you should be able to call. My firm has numerous testimonials. However, please keep in mind that all business sales are confidential and a business broker cannot disclose the information on any sold businesses without the seller’s permission.