Business broker companies offer a variety of services, which all function through business brokers. The term “broker” appears across many industries, but who exactly are business brokers?
Business brokers help business owners or prospective buyers throughout the process of buying or selling a business. It’s exceptionally common for a buyer to involve a broker, but sellers should also involve a business broker company to protect their best interests.
It can be confusing that business brokers go by many names. Common alternatives include business intermediary services, business transfer agents, and M&A consultants. These professionals, no matter what title you find them under, have an in-depth understanding of the vital steps of selling a business. They serve to help the person who enlists their
What Do Business Broker Companies Provide for Owners Selling Their Business?
Unlike other types of brokers, business owners can pick and choose when to enlist the help of business broker companies. Business M&A firms can come in to assist with just a few states, such as preparing the business or handling negotiations.
The stages that business broker firms provide support for include:
- Preparing a business for sale before it goes to market.
- Conducting a formal valuation of the business and establishing a sales price.
- Marketing and advertising the business.
- Screening interested buyers
- Facilitating the due diligence phase of the process
- Negotiating the sale terms
- Closing the deal, which includes all the necessary closing documents.
Business M&A firms tend to charge between five and ten percent of the final purchase price in commission. It incentivizes the business brokers to work in their clients’ best interest, giving them the attention the sale requires.
Choosing the Right Firm
How can you tell if you’re working with a well-qualified and professional firm? Business broker companies tend to tie their clients with an individual within their team. When trying to choose the right firm, focus on the individual that you’ll work with most frequently, as well as the company’s reputation, years of experience, and expertise.
It won’t do a seller much good if the firm has expertise in supporting financial buyers. Closely evaluating these elements will help you choose the right firm. These are all matters to consider, question, and investigate before hiring the broker or the broker company. Many sellers make the mistake of hiring the first person they come across and end up leaving money on the table.
Experience and Education
There is not a set education track for a business broker. Business broker companies understand that the broad range of daily work in handling business sales can’t be pigeonholed into one type or level of education.
Education is certainly an asset for the broker and the company. The best business brokers tend to have an educational background in accounting or finance.
Although education is a critical element of the formula, the experience is even more important. Ask:
- How long have you worked as a business broker?
- How long have you spent working with this company?
- What did you do beforehand?
- Have you successfully sold a company like mine before?
- Do you have experience handling businesses within my industry?
- What support do you think is most important for a company of this size, background, and profitability?
- When your sales are delayed, what is the most common cause of the delay?
Experience is something that can happen both individually and as a company. You’ll want to evaluate both levels here. For a broker, you can always ask for references and follow through. Take the information and call those references. Ask them anything you want about the sales process, how they negotiated, and about the broker. You can also ask the company for references to their recent clients and follow up with them as well.
Is this someone you can trust? How can you gauge integrity after just one short meeting? Don’t worry because there are a few ways that many professionals detect high (or low) levels of integrity in just one meeting. Keep in mind that you’re conducting an interview. You are giving the broker and the business broker companies on your list a chance at a job, but you have the final say.
- When was the last time you had to handle an ethical dilemma, and what came of it?
- Can you describe a time where you needed to work against popular opinion?
- How do you see integrity play out in your field?
- Is there a difference between a white lie and a false promise?
Then there are classic behavioral ways, which some people believe show varying degrees of integrity. Here are a few examples of behavior that could be associated with average to low integrity
- Being late for a meeting
- Cursing in a meeting
- Signs of laziness (attire, stature, physical demeanor)
- Overbooking or double-booking meeting times
- Rushing the meeting
- Gossipping without prompting
On the other side, here are a few examples of behavior which often associated with higher levels of integrity:
- Offering help or support (offering a drink, asking to take notes for their review, etc.)
- Showcasing times of high accountability such as being with the company for long periods of time, an active family life, or community involvement.
There are few ways for business broker companies to showcase that they have a well-established team. Individuals can obtain certification and become a Certified Business Intermediary, or CBI. This certification is a high-level credential through the International Business Brokers Association. A CBI shows that the professional has reached an impressive level of professional development and showcased that their ethical values align with the IBBA standards.
Past the CBI, it’s likely that you’ll need to rely on references for information on the broker’s individual capabilities. It’s very important that you get information for references and reach out to them to discuss their experiences. First-hand accounts of interactions with the company and the brokers can give remarkable insight into what you can expect.
How Business Broker Companies Manage the Sale Process
A good business broker firm will understand that they should deliver substantial expertise, experience, and valuable know-how to deliver a great deal for the seller. Business broker companies accomplish this through creative problem solving, effective negotiations, strategic deal structuring, and more.
Finding buyers is usually the easiest part of selling a business, but you should expect far more than that from a firm. The M&A firm’s ability to value a business, manage the purchase agreement, perform due diligence, and navigate the sales contract are equally important.
Value of the Business
Valuing a business often calls upon unique approaches to problem-solving and creative thinking. Before a business owner puts their company on the market or sets an asking price, they should work closely with a broker or appraiser for a formal valuation.
When determining the value of a company, professionals will consider the information on tax documents, financial statements, and a variety of other factors such as the quality of your management team and branding. Many valuation elements don’t appear on standard financial documentation but can provide genuine value to a potential buyer.
Offer to Purchase Agreement
The purchase agreement, sometimes called the Offer to Purchase Agreement or Letter of Intent, will reduce misunderstandings and complications. This document stands to resolve any ambiguity and ensure that both parties are serious about the transaction.
The Offer to Purchase Agreement establishes the framework for the deal’s structure and opens the conversation for which matters are available for negotiation.
This agreement is a vital moment in the sales process. Business broker companies use this agreement to establish a deadline for closing to keep all parties focused on the main issues rather than smaller matters that may arise. It’s possible that without this step, a potential buyer could drag out the deal for months, or that a seller could unintentionally kill the deal.
Many owners don’t understand the power and position they have when it comes to negotiations. They have something that the potential buyer wants or needs. The Letter of Intent or Offer to Purchase Agreement sets the benchmark for negotiating on the sales price and many other aspects of the final arrangements.
There are many elements to consider at this stage. During negotiations, the two parties may discuss customer issues, training, seller financing, the value of accounts receivables, employee difficulties, the value of the inventory, and the value of goodwill.
Due Diligence and Legal Technicalities
The business broker firm should prepare for and facilitate the due diligence process. Buyers have their own form of due diligence and handling legal elements which is a primary reason why they need business brokers. However, the company should serve to protect their client, and it’s through this phase that the seller’s brokers should work to preserve the deal, solve any issues that arise, and work toward win-win solutions.
The Sales Contract
The sales contract requires that the attorneys from both sides formalize the agreements for the sale. Business broker firms should strive to answer or address any questions or concerts from the Letter of Intent or due diligence steps before drafting the sales contract. Addressing issues and questions will help ensure that the deal doesn’t fall apart.
Learn More About The Sales Process from a Business Broker Company
Business broker companies have superior skills in handling deals, but the buyer and their advisers may utilize certain tactics which can threaten the entire deal. They can demand an outright price reduction or demand some new contingency at the last moment. The firm’s experience should pay off to ensure that a reasonable and fair deal goes through while protecting the seller’s best interests.
American Fortune operates as a well-experienced, established, and reliable business broker firm. We aid sellers throughout the continental USA, providing unmatched levels of service through all the stages of selling a business. Discuss your reasons for needing these services with a professional and get the most out of this experience; contact us today.
Learn about due diligence, properly screening buyers, or business exit planning through our extensive resources for business owners.
American Fortune Business Broker Company has provided business broker consulting services in the following areas of the continental USA: Columbus Ohio, Atlanta Georgia, Lexington Kentucky, Bowling Green Kentucky, Nashville Tennessee, Memphis Tennessee, Cincinnati Ohio, Dayton Ohio, Toledo Ohio, Los Angeles, Cleveland Ohio, Pittsburgh Pennsylvania, Baltimore, Maryland, Indianapolis Indiana, Chicago Illinois, Detroit Michigan, Flint Michigan, Tampa Florida, St. Louis Missouri, Kansas City Kansas, Des Moines Iowa, Minneapolis Minnesota, Louisville Kentucky, Oklahoma City, Oklahoma, Dallas Texas, Fort Worth Texas, Denver Colorado, San Francisco California, Salt Lake City Utah, Phoenix Arizona, Lexington Kentucky, Los Angeles California, San Diego California.