How To Choose The Right Business Brokers

Many small business owners sell their businesses without the help of business brokers. Yet, if you want to hire a broker to sell your business, here are some tips on selecting the right one. Also, this guide will help you on how to set up the agreement in your favor.

business brokers

What business is a broker actually in?

Find out: Who is a Broker?

There is no strict regulation as regards the training, education or certification of becoming business brokers in many states. While in some other states, business brokers have a real estate license. Estate agents that are as well into business brokering are commonly found in such states. In case you are dealing with a real estate agent who is also into business broking services, make sure that being a business broker is not just a hobby.

Since you are paying for the broker’s experience and expertise, make sure that they have the required experience and expertise. Also, make sure he well-versed in business brokering and not just an experience in selling houses.

Questions to ask

While hiring a business broker, bear it in mind that they will have access to your confidential business records. Also, you will be working with them for a few weeks. Also, your profit, in the end, will depend on the quality of work they offer. Hence, it is essential to thoroughly scrutinize them.

Below are some of the questions you should ask any prospective broker before you hire them.

  • For wow long have you been working as a broker?
  • Do you own a business?
  • Have you helped to sell any businesses similar to mine?
  • Can I see a blank version of your Listing Agreement?
  • What is the ratio of your income from brokering and from real estate (If Applicable?)

If possible, request for the references or contacts of the previous clients they have worked with and make some reviews. This will give you an insight into the professionalism and reliability of the broker you are about to hire. Also, it will reveal some facts you need to know.

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Business Brokers Fees

There are majorly 2 ways by which a business broker is beneficial to the business seller. First, he can get potential buyers while the confidentiality of the seller is concealed. Second, he can access the potential buyers so that the seller does not waste time dealing with weak prospects.

The major disadvantage of using a business broker is the fee that will be deducted from the sales price. Normally, the fee is averagely between 10-12% of the actual selling price which is charged on the seller. Nevertheless, there is also a minimum fee. The minimum fee means that the business seller will pay a fixed amount and no deductions will be made on the actual selling price.

This is the typical reason why business sellers attempt to sell their business and depend on the legal backings from their lawyers and financial assistance from their accountant.

The Broker Agreement

You will need to sign an agreement if you decide to use a broker. The agreement will contain the following clauses.

Timing of Payments

It is wise to pay your broker’s fee at the time you receive the purchase price – not at the time the sale is closed. This way, if you finance part of the sale price over several years, you pay the business brokers as you get the money, not all up front.

Length of Agreement

Your listing agreement should be for a limited time. If the broker locates the buyer within that time, you will pay. Be careful of lengthy agreements that lock you in with one business broker for more than 6 months. If he doesn’t produce, you want to be able to try other options. A 6-month business broker agreement is the longest you should allow. However, because selling a business can be a lengthy process, 3 months is usually too little time for the broker to find the right buyer. Try to settle on something between 3 and 6 months. If after six months, you haven’t closed the deal but you think the broker has done a good job, you’re always free to extend the agreement

Broker’s Guarantee

Include a paragraph stating that if you find the buyer, you don’t have to pay the commission. Without this clause, you may have to pay your broker no matter who locates the buyer. Before signing any listing agreement, it is best to have your attorney review it to make sure your interests are protected.

Also read: Role Of a Business Broker In Selling Your Business

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