When considering a business advisor to acquire a business, be sure to ask the following questions:
In California and many other states, a business broker must have a valid real estate license. If he is a broker, rather than an agent, that is even better.
A Certified Business Intermediary, by the International Business Brokers Association, is the gold standard certification for business brokers. It ensures a substantial level of training, experience and professionalism in the field of business brokerage. The California Association of Business Brokers recently started a Certified Business Broker program that, while not as stringent or prestigious as the CBI, is a start.
Some business brokers have more skills and experience than others. Is yours the owner and/or a real broker, or just an agent within the office? Has he owned or run his own businesses? What kinds of businesses has he actually sold? Does he have a college or professional degree, perhaps in business, law or technology? Is he a true business advisor, who can advise you in other aspects of your business?
An Independent business brokerage can offer service and innovation not offered by Franchised offices, which tend to use "cookie-cutter" approaches. For example, a Franchised office will often just throw business ads on the internet, while an Independent office might add more creative print and mail strategies to reach additional buyers and achieve higher selling prices. While Franchises will tout their the "billions and billions" of business sales, these figures generally refer to the entire franchise network. In reality, individual Franchised offices tend to be small and act alone, but lack the service and creativity of some Independent offices.
Do you require an exclusive agreement?
Let us hope so. Most good business brokers will require an exclusive representation agreement, which means that you will not employ other business brokers during the term of that agreement. If your business broker would accept an "open listing" or other non-exclusive arrangement, then he is probably either desparate to get a client, really a real estate agent posing as a business broker, or not planning to spend much on advertising your business. A good business broker will make a substantial investment in you, and expects a strong commitment from you in return.
Most business brokers will ask for 6-18 months to sell your business. This is because the average business sells in 7.5 months, although some may sell faster and others, especially larger businesses, can take 18 months or even longer. If your business broker gets paid only when you close escrow, then you should give him a reasonable time to sell the business and recover his marketing investments. Don't expect the business broker to spend much on advertising, if he has only a short time to sell the business. If you want success, give your broker time to achieve it.
Business brokers often charge a 10-15% success fee, payable as a percentage of the sale price at close of escrow, to sell a small business. They may also charge a $10,-000 - $20,000 preparation fee, along with a lower percentage success fee, to sell a multi-million dollar business. Fees for commercial real estate in the transaction are often 4-6%. As you can see, business brokerage fees can be 2-3 times real estate commissions, because there is a lot more work involved. If you receive a quote significantly below these figures, then tread carefully. Make sure that you are dealing with real business broker who: has a license and CBI; knows what he is doing; has sold businesses; and plans to really advertise your business. A 2-3% apparent "savings" in brokerage fees would mean nothing if the business is not sold, and pale in comparison to a 10-15% lower price due to inadequate marketing, or thousands in legal expenses due to transaction errors. Remember, you get what you pay for!
Although chemistry and trust will no doubt play strong roles in your selection of a business broker, the questions above should provide a sound foundation for you to make your final decision.
This may be one of the biggest decisions of your life.
