Selling your business is the second most important decision you can make after your decision about buying the business in the first place. There are many reasons why small business owners decide to sell – to get into some other business, because they cannot handle the workload, because they want to cash out and so on. Whatever the reason, we cannot overemphasize the importance of selling process and the attention you need to pay to it.
One of the first decisions you will need to make when selling a business is hiring a broker. The business broker should help you find the buyer in the shortest time for the highest price possible. However, many business brokers don’t always have the best interest of their client in mind when working with sellers. Their primary goal is to collect the commission with the minimal effort as quickly as possible. Now, we are not saying that all business brokers are act this way. We have worked with some excellent brokers in the past who have given their best to their clients. However, it is important to do your homework to ensure you don’t end up stuck with a bad broker for several months and waste precious time in the selling process.
Below we have provided several tips to keep in mind when choosing a business broker.
- Broker should work in the same geographical area
While it is possible for a broker to work remotely in this age of electronic communication; buying and selling a small business is still personal experience and requires number of face-to-face meetings between seller, buyer and the broker. Also, you are likely to find buyers who live and work in the same geography as yours. That’s why it is important to have a broker who works within an hour drive from your business.
- Broker should be able to handle similar size transaction in your industry
If your asking price for the business is in $200K – $300K range; don’t hire a broker who typically handles $1M – $2M deals. Similarly, if you are selling a fast food franchise, don’t hire a broker whose expertise is to sell manufacturing companies. Even though the broker can handle these transactions they may not understand the subtle differences between industries or may not pay enough attention to your smaller deal.
- Broker should have IBBA Certification
Make sure that the broker has credentials from International Business Brokers Association (IBBA). Having credentials from IBBA does not guarantee that you will not have issues with the broker in the future; but it offers some assurance to you. Brokers have to work on their jobs for several years and participate in substantial classroom training to become IBBA-sanctioned Certified Business Intermediary (CBI).
- Negotiate broker commission and fees
Typically, business brokers charge 10% of the selling price of the business as their commission. However, like everything else in business, this is negotiable. You should structure the fees to match your goals – if you want to sell business fast include incentives in the commission for early sale; while still fetching the price you are looking to get. It helps to interview several brokers before making your decision.
- Watch for contract duration
Many business brokers want you to sign exclusive contract with them for 1 year. Our advice is to sign for the minimum duration possible (no more than 6 months) with possible extension. That way, if things don’t work out as planned or if you are not getting proper service you have a way out. We have worked in several situations where signing for shorter duration would have spared lot of hassle and save valuable time in the selling process.
Working with business broker is not the only way you can sell your business. You can use some of the web sites dedicated to business buying and selling. Some of the popular ones are BizBuySell , BizQuest and BusinessForSale. However, selling a business is a complicated and time-consuming task and having a business broker helps make things a bit easier.