Consider these three scenarios:
- You have built a strong business over the years, and you are ready to retire. You don’t have a family member to assume the day-to-day responsibilities and you are ready to move on.
- You own a software firm and a competitor has approached you about buying your business.
- You are ready to leave your corporate job and try running a business on your own.
A business broker could help out in each of these situations, providing expertise and attention to what can be a tedious process. Business brokers typically represent business owners interested in selling. A broker can provide a valuation; confidential marketing of a business; day-to-day attention to the process; and oversee negotiations with potential buyers. If you would rather have someone else manage the marketing process, meet potential buyers, and handle negotiations, Rose Stabler, president of Houston-based Certified Business Brokers, has some tips for choosing a broker:
- Check their track record. Ask for testimonials from clients with successful closed deals. A broker may tell you that such information is confidential. “That isn’t necessarily the case,” says Stabler, whose firm lists its completed sales on its website. “Sure, there are times when some deals shouldn’t be disclosed, but they are few.”
- Get referrals. Stabler indicated that most professionals may be able to give you a referral for reputable business brokerage firms in your area. Who should you ask for referrals? Transaction-experienced attorneys and accountants, financial planners, lenders who provide financing for business acquisitions, industry suppliers, trade associations, and commercial real estate firms.
- Ensure the broker can handle the workload. Selling a business requires day-to-day attention and diligence, says Stabler. “Successfully selling a company requires a team approach,” she says. “It begins with the detailed analysis and assessment of the business for the purpose of packaging and communicating its value, its market, its assets, its strengths, its areas that can be improved, its growth potential, and its financial history. This end product is the message that will introduce your business to the marketplace of appropriate buyers using a systematic methodology that protects the client’s confidentiality.” Make sure selling businesses isn’t a side or part-time job for the broker.
- Check professional certifications and affiliations. Business brokers who complete coursework and educational training earn the Certified Business Intermediary or CBI designation. Another certification to look for: Merger and Acquisition Master Intermediary, or M&AMI, which has similar requirements. The International Business Brokers Association (IBBA) can provide names of business brokers by state, along with their certifications. Stabler says her firm was one of the founding members of IBBA and was instrumental in starting the Texas Association of Business Brokers, lauded as the first state business brokers professional group in the nation.
- Ensure they understand your industry. Most business brokers are generalists, Stabler said, representing a variety of business types usually in a specific geographic area. For that reason, you need to make sure they have sold a business similar to yours in the past and determine whether they understand what makes your business distinctive. Their knowledge and expertise in what drives value in your business will help ensure a proper valuation and smooth selling process.
So why hire a business broker? Let’s look at the three scenarios mentioned earlier:
- You have a built a solid business and want to retire. Taking your focus away from that business to deal with valuations, marketing, negotiations, etc., could negatively impact it when it really needs to shine. Also, a business broker can provide anonymity in the marketing process so customers don’t get upset and you don’t have to spend valuable time fielding questions about why you are selling.
- A competitor wants to buy your business. You are interested, but do you know how to allow the prospective buyer to perform due diligence without giving away proprietary information? What if the competitor just wants access to your customer information? Do you have the expertise to know how much due diligence is too much?
- You want to buy a business. If you are inquiring about one that is being represented for sale, keep in mind a business broker is representing the seller. Once you find a business that you want to purchase, you may want to engage an accountant and/or attorney to review everything with you — valuations, contracts, and the due diligence process. Be sure you engage an accountant, your banker, and/or an attorney that specializes in business transfer transactions. A broker is instrumental in showing you what is available in the market that might meet your investment criteria.