If you’re planning on selling your business, you’ve probably had at least one of these questions floating around your head at some point:
Q1: What does a good business broker actually do?
Q2: How to find one more suitable for your needs.
Q3: When does it make sense to NOT hire one?
Well good news… today I’m going to answer them.
However, before I answer the first question of ‘What does a business broker do’, I think it’s important to note that just like accountants, solicitors or teachers, within the industry there is a large range in the skills and value delivered for clients…
Q1: What does a good business broker actually do?
There are between 50-60 steps in a business sale process depending on the business type, most of which the broker handles. Here is a broad overview of some of what a good business broker will do (not all brokers will do everything on here):
Pre-Sale:
- Valuing a business accurately
- Correctly normalising profit
- Utilising the correct valuation method
- Using recent comparable sales data to find the correct multiple
- Put together appraisal to include SWOT analysis
- Preparing the business properly for sale
- Provide recommendations to improve the attractiveness of the business
- Identifying correct sale type
- Creating sale plan that includes what a seller’s non negotiables are
- Identifying likely buyer types and where to find them
- Marketing the business effectively to find buyers
- Create professional IM to highlight selling points, advantages and unique features of the business
- Writing persuasive ads to be used in various mediums:
- Big 4 websites
- Benchmark exclusive website
- 80,000 buyer database
- Targeted social media ads
- Strategic buyer active outreach
- Press advertising
Getting A Deal Done:
- Responding to buyer leads promptly
- The sooner a buyer can be contacted (within 60 mins ideally) the higher chance of them being contactable.
- Promptly providing buyers with information and building a relationship with them.
- Taking the time to speak to a buyer lead to find out about their goals and needs.
- Promptly provide relevant information about the business.
- Finding solutions to their problems and concerns about the business and overcoming their objections.
- Negotiating with buyers.
- Working with buyers to find out and their key concern, and what is most important to them in a deal, to get the best deal for the seller that also works for a buyer.
- Putting together a deal that works for both parties.
- Using creative deal structuring
Contract Management
- Getting ahead of potential problems before they happen.
- Finding solutions to problems that present themselves to keep the deal intact.
- Keeping in contact with all relevant parties to keep the deal moving forward.
At the end of the day a good business broker will:
- Keep the sale of the business confidential.
- Save time by doing most of the work in getting a deal done, allowing the seller to continue to focus on running their business.
- Save stress and hassle by handling negotiations.
- Get the best deal for the buyer by understanding sales, persuasion and non-standard deal structures.
- Manage a deal to a successful completion post-contract, saving the time of losing deals and having to start form scratch and find a new buyer.
Q2: How to find a business broker more suitable for your needs.
There are a few questions you can ask yourself when finding a suitable broker:
Do I definitely want to sell my business?
Do I care about maximising my sale price, or what are the important deal terms I want?
Do I want the cheapest fee brokerage, or prefer to pay for a higher level of service and better outcome?
Do I want to be out of my business in less than 18 months time or have no time frame?
The answers to those questions will help you decide on which broker or brokerage to go for.
If you don’t mind not getting the highest price…
And you’re happy to keep your business for sale for 18 months or more…
Aren’t really serious about selling…
Are ok with a lack of communication from a broker…
Then it doesn’t really matter who you hire, probably go for the brokerage with the cheapest fees
But if you are serious about selling…
Want to ideally sell in under 12 months or less…
Want to minimise mistakes…
Want the highest price and best terms for your deal…
Then you may want to look for a higher-end broker that:
1. Doesn’t have too many businesses listed for sale (12-15 or less is ideal), so they have enough time to dedicate to:
- Correctly valuing a business
- Correctly preparing a business for sale
- Following up with each buyer lead in a short time frame
- Develop relationships with interested buyers
- Responding to buyers questions in a short time so they don’t lose interest and move onto another deal
- Find solutions to buyers goals and concerns
- Keeping in continual communication with all parties
- Negotiate with buyers to achieve the best price for the seller
- Keeping a deal on track post contract signing
2. Is an AIBB (Australian Institute Of Business Brokers Member), which indicates that:
- They have access to recent comparable sales data for an accurate value appraisal
- They regularly perform continued education to continuously improve their skills
3. Utilises a multi-channel marketing-approach to find as many buyers as possible with goal to be negotiating with multiple buyers at a time in order to achieve the highest possible sale price. Including:
- Public websites
- Exclusive websites
- Active buyer outreach
- Targeted social media ads
- Large buyer databases and networks
- Pro-active strategic acquirer outreach
- Press advertising
Just like in any industry, as is with business brokers in that some brokers are going to be in the volume business of having a large number of listings (20-50 at once) and they’re happy to sell around 30%-40% of them. Those brokers will skip a lot of these steps, because they simply don’t have the time to do everything listed (and more that isn’t listed).
Those guys will generally be cheaper to hire, with low minimum fees and low commission %.
As with anything, you usually get what you pay for.
Q3: When does it make sense to NOT hire a broker at all?
When it comes to selling your business, you do have the choice to just sell it on your own rather than hire a broker.
And sometimes that actually makes sense, for instance:
If your business is worth less than $200k, it might make sense to either do it yourself or utilise a ‘done with you’ or DIY option from some brokerages. These options can be around $5k, and include basic marketing on websites and writing of ads.
With businesses that small the value a full business broker service can bring to the end deal price is likely going to be less than the fee they charge.
The reality is that the larger the business value, the more a good broker’s skills, knowledge and processes will be able to impact the final sale price.
Adding 10%-20% to a sale price is typical for a skilled broker.
For example, if a business is worth $1M, and a business broker is able to add $100k to the end sale price due to:
- having access to current market data
- being able to attract a larger number of high value buyers
- having the time to build trust with a buyer
- be able to utilise negotiation skills while staying calm to not lose the deal
- avoiding potential problems ahead of time
- fixing potential deal-breaking problems as they arise to keep the deal on track
Then a broker can be seen as worth it, not only for leaving the seller with more money in their pocket at settlement time, but also having saved the seller a significant amount of time and stress throughout the process – which is worth more than money in a lot of cases.
In conclusion – a broker can help maximise sale price while saving a seller time and hassle by correctly pricing, preparing, and marketing a business, as well as attracting buyers, negotiating a higher price and managing a deal through to completion…
All while avoiding common mistakes that could be made in complex business transactions.
When choosing a broker it pays to know what your goals are with maximising sale price and transaction timeframe when making a decision on who to go with.
And if your business is likely to sell for less than a couple hundred thousand dollars, then it might be a better idea to just sell it yourself with a ‘done with you’ or DIY option from a brokerage.
If you’re thinking about selling your business, I hope you got some value out of this, and as always, feel free to reach out to me with any questions you have at kurt@newchapterbusinesssales.com.au, or give us a call on 1300 405 597 for a confidential conversation about potentially selling your business.
Thanks and have a great day.
Kurt
