The process of buying a business is long and complicated. Transferring ownership of a company, for both purchaser and vendor, can involve a range of issues including matters like valuation, checking the finances and accounting records, negotiating the price for the business and handling the escrow at the termination of the sale process.
A good business broker, particularly with experience, will make that process as seamless as possible, but there are pitfalls with any such process that requires expertise and experience.
What are the key steps that any business owner needs to consider before using a business broker. Business brokers A Neumann & Associates looks at the steps you need to know before hiring any business broker – here is the business broker 101 guide.
How to Find a Broker
Canvass or Contact Your Network
To find a reputable and experienced business broker, you can start by asking your own network for recommendations. Speaking with those who have used brokers and assessing their views on the issues that may have arisen is a good way to obtain some intelligence about both the brokers and the process that needs to be undertaken to make the business sale and/or purchase successful.
Next, you may want to approach industry contacts, lawyers, accountants, or a board of advisors to get a list of potential brokers. Some brokers only deal with sellers, so make sure they work with buyers as well. In some states a business broker may be permitted to act for both vendor and purchaser, which is not recommended for yourself as client. The risk of conflict is too great.
Keep in mind also that in some states a business broker can be unregulated and knowing that your brokers adheres to good ethical standards, has an overall successful reputation and preferably also belongs to an organization like the International Business Brokers Association (IBBA) will provide greater comfort as to their bona fides.
But once you have your short list of brokers, it is important to assess how successful they are – for instance how many businesses have they actually sold, compared to how many they have had on their books. And do they handle the sort of business you are looking at selling, or buying?
Having experience in particular sectors is extremely helpful for yourself as you know your broker can speak with authority and experience about the business area and will therefore be better placed to obtain a better price.
Check Broker Sites
Brokers with a Certified Business Intermediary designation are the best to look into, but brokers without this certification can still be skilled.
You should also check out listings of businesses for sale on broker websites and contact them if you find one that interests you and looks like they have the necessary expertise to handle your business sale or purchase.
How to Work With a Broker
Conducting Passive Searches
A passive search is when brokers put you on a list of potential buyers they think might want to purchase businesses. You can reach out to brokers and ask to include your name in the list. Many brokers maintain it so that you may get connected with the seller who has put up their business for sale.
This is an obvious and not always successful way to reach a business broker who fits the bill.
Conducting an Active Search
A broker may be a good choice if you want to search for companies actively. You’ll have to list your criteria, provide financial capacity and sign confidentiality agreements before the process can begin. They’ll use databases of active companies to look at who’s not on the market but open to selling their business.
You should ask the broker about their expertise, their track record and what experience they have in the niche that you are interested in.
You also need a broker with experience and a record of success, so check out testimonials and references and also whether there have been lawsuits or complaints about the broker.
Reasons For Hiring a Broker
The reasons are several-fold and for an important investment in the purchase or the sale of a business is, like a real estate transaction, one that requires considerable investment and therefore needs the expertise of a good broker.
They Help With Business Screening
People interested in buying a business should know that many companies do not want to advertise when trying to sell. However, a professional broker understands the local market well if they have the necessary background and experience. They will help you find a good investment if you are looking to buy a business and conduct the required research in evaluating if the business is viable and obtain the appropriate financials.
An experienced broker can also help determine the validity and pitfalls that might exist with the financials in a particular area or business type. They can obtain necessary disclosures from a business vendor as well as providing an assessment as to whether the business valuation is fair.
Similarly for those selling a business a good broker will also help assess the financial fitness of any prospective purchaser.
They Assist in Securing Financing
Most potential buyers of a business need to secure financing. Business brokers will generally have experience in finding financing options that match the needs and goals of their clients. Brokers will inquire about your situation to help suggest appropriate financing methods when buying a business.
They Assist With Paperwork
A broker can help you cut months off the purchase process by knowing the most efficient ways to avoid red tape and to negotiate the requirements to achieve a successful purchase. In addition, the risk that something will be missed is reduced when working through a broker who has experience, particularly in the business area that is the focus of the business purchaser.
It’s due to their understanding and knowledge of laws, regulations, licenses, permits, etc., affecting everything from finance processes to paperwork required to achieve a successful purchase.
They Help in Structuring an Offer
After finding a business you want to purchase, the next step is to put it in writing. A letter of intent outlines what assets will get bought and their worth. It may sound simple, but an experienced broker can be worth their weight in gold if they are good at helping with the structuring of the offer for a business, or in handling an offer that is forthcoming for a business purchase.
In addition, it outlines any conditions that must be met prior to closing, such as due diligence reviews. Having an experienced broker ensures this gets done correctly and also makes sure tax and legal requirements are adhered to in a manner that prevents problems after the business is bought (or sold).
Guidance in the Due Diligence Stage
The due diligence process can be a time-consuming and stressful stage in the business buying journey. Brokers are professionals who will guide the buyer through all steps using their experience and expertise. In addition, brokers make sure that everything goes smoothly within the time frame.
Closing the Deal
It is the final step in the buying process. An experienced broker will review all the documents and do a walkthrough. It is where they confirm that everything listed in the purchase agreement remains and generally ensure that the purchase of a business (or sale) involves all the required assets as provided in the documentation.
A good broker will also provide valuable assistance in negotiating a purchase or sale, ensuring that the deal is fair and achieves the objectives of the purchaser, or vendor, as the case may be.
Deciding whether a broker is right for your business needs depends on many factors. However, a little preparation and research can go a long way in helping you find the perfect match to achieve the desired ends.
The important research is to ensure due diligence is made in choosing a broker who fits the appropriate requirements you have for your business purchase or sale.