Key Tips to Know When Hiring a Business Broker

Hiring a business broker seems to be the most convenient way to sell your business. Considering the fact that the broker will do all the administrative work, your job becomes much easier in a sale. However, there’s a lot that people don’t do or tell you before meeting with business brokers.

In this article, we’ll cover some key information that’ll help you approach and work with a business broker.

Ask them questions before signing an engagement letter

Before you sign with a broker, get to know their policies and how they do business. The only way to do this is to ask them a few questions. Here’s what we’d ask:

How long have you worked in the industry?

Business brokers who’ve been in the industry for longer would be more familiar with the customs and practices that surround the sale of a business. While newer brokers might have the theoretical knowledge to sell your business, brokers who’ve been practising for a long time have the practical knowledge, which gives them the edge over others.

What will your compensation be, and what fees do you have?

In most cases, business brokers will take 5-10% commission from the total sale price of your business. While this might seem like a lot, some brokers take this a step further and add their own fees plus the commission for their services. So, it’s helpful to know what you’re getting into before you do so.

How long have your last transactions taken?

Selling a business can take a long time. It all depends on the administration that has to go into it and if there are any legal issues to clean up. Once the business is on the market, it can take several months before a buyer shows interest. Then there’s the due diligence process and negotiations which can take another few months. Overall, a good turn around for a sale should be within 6 months.

Ask them about their marketing strategy

Finally, while you don’t need to know every little detail about the sale, being kept informed is still important. When it comes to how they’ll present your business to their group of buyers or investors and to the rest of the world, you should have a say. Especially if their vision for how they’ll market your business doesn’t fall into what you want.

Understand the terms of your engagement

Once you’ve decided to go with a business broker, they’ll write an engagement letter that describes their services for you. It’s imperative that you go through this engagement agreement thoroughly so you get a full understanding of what they are and aren’t doing for you during the sale. By doing this, you can mitigate the risks of making basic mistakes and having to pay for additional services without knowing.

Discuss the commission structure

Some business brokers might ask for their commission for the sale upfront. While this might seem hasty, it’s actually a good thing. For one, it ensures that you’ll have their services, and secondly, it shows them that you’re serious about selling your business and that you won’t pull out halfway through the sale, leaving them without any compensation.

What most business owners don’t know is that they can often negotiate the broker’s commission structure, though. Not everyone has 10% of their business value sitting in the bank account, so negotiating the commission structure would be your only way forward. Likewise, you can also negotiate the percentage of commission they take. Not all brokers will do this, but some prioritise the client over the commission and would be happy to meet you at a fair rate.

Talk about the timeframe of the sale and exclusivity

Another thing you should consider is whether you want to be exclusive with one broker or if you want to engage with multiple brokers at the same time. Being exclusive with one broker has its benefits. For example, one broker could offer you all of their attention and resources, ensuring that your sale goes through well without any hiccups. Likewise, engaging with multiple brokers might offer you a larger target audience to market your business in front of. Factor in the time it’ll take to sell your business. Remember, selling your business will take six months or more, so remember to organise any plan reliant on the sale after this period.

Define what terminating the engagement entails

You need to make sure that the termination of your engagement with a broker is clear and actionable. For instance, you don’t want to be locked into a contract that doesn’t have an escape clause; your goal is to protect your interests, which a broker should do as well. However, if they don’t, you might want to stop your contract with them and find a broker who will. For that reason, make sure that the engagement agreement clearly stipulates how either party in the agreement can cancel by giving the proper notice or paying a cancellation fee.

Final Thoughts

Selling a business can be a time-consuming process, especially when you still have to keep the business running. That’s why people often hire a business broker like Lloyds business brokers to assist them in selling the business. If you’re considering doing the same thing, remember the tips above so you know exactly what you’re getting into.