3. Business Brokers – How They can Help You
One of the most frequent questions asked by prospective business buyers is whether or not they should hire a business broker. The response is always: “yes… but.” The “but” is that you should “use” one, not “hire” one. A business broker can have a very specific and important role in the buying process. The “but” is related to understanding what that role is.
Business brokers almost always represent the seller or the deal in a transactional role. The seller pays their commission and even if they are assisting you indirectly in the process, they have in fact a fiduciary duty to the seller. Why then, you may ask, should you use a broker?
Keep in mind that business brokers work like real estate agents in almost every sense. They will represent a seller or a buyer, that is, the person who hired them and will pay their commission. If the seller has a broker in his team, it is advisable that you hire one, too. He will be paid in a commission of success, that is, only when the transaction is closed. He will surely help you to make it happen in the most favorable terms for you and at a price as accurate as possible.
In the past fifteen years, I have personally purchased and sold several businesses. I have used a business broker in almost every transaction. Even though I would consider myself a very savvy buyer, there are the things that a business broker can do that are very helpful:
1) Business-For-Sale Listings
They can provide you with access to business-for-sale listings and details about the business that you may not discover on your own.
There are businesses for sale that are not “made public” on this site because of the vendor’s desire to maintain maximum confidentiality. Even the businesses that are “on sight” have a brief form of listing for the same reason. It takes a business broker to access this information to make a list of possible businesses that interest you based on the formulated criteria.
2) It’s Always a Good Idea to Have a Buffer Between You and the Seller:
They can be an intermediary to help deliver bad news to the seller. There may be instances where you have to retract or modify an offer and certainly times where you’ll need to adopt an aggressive negotiating position. Since you’ll most likely need the seller to train you after the purchase, it’s not a good idea to aggravate them too severely. As such, let the business broker deliver the bad news.
3) The Paperwork Is Astounding.
A business purchase, no matter how small, requires a tremendous amount of coordination and document chasing. The data you’ll need from a seller to evaluate a business, the documentation required to close a deal and the overall chasing that must be done between buyer/seller and their professional advisors, can be astounding. A good broker will be an enormous help putting all of it together.
4) Using the Right Broker.
A business broker cannot help you buy the right business. They can assist you, but ultimately it is up to you to make that decision. A business broker cannot afford to spend countless unpaid hours searching for the right business for you. The search is something that you must do. They’ll provide you with the tools to do it, but it’s your responsibility to get the ball rolling. A business broker cannot conduct the investigation for you. They may suggest common things to look for, but they won’t be your detective. A business broker cannot negotiate the best deal for you. Most will certainly attempt to bring all parties to a point of understanding, but if you want the best deal, then you must realize that nobody cares more about your investment than you do.
Here are a few questions you should ask them:
- How experienced are they?
- How many transactions have they been involved with?
- Have they ever owned a business?
- Do they specialize in a particular business type?
- What references can they provide?
- How many clients are they working with presently?
- How many agents work in their office?
5) Your Presentation Will Determine Everything.
Don’t just call or email a broker inquiring about a particular listing. The point of your contact is to first determine how effectively they communicate and to get the dialogue going.
In your first contact, don’t ask for three years of financials or other confidential information. Simply express your interest and request a standard non-disclosure document to execute so they will be able to tell you more about the business.
6) Help Them to Help You.
Once you begin to speak with a broker, if you feel good about their attitude, follow up and arrange to meet them. Keep in mind that you want them to keep an eye out for the hottest listings for you. To accomplish that, you must convey several things to them:
- Show them you’re serious. A business broker wants to be sure that if the right opportunity comes along, you’ll be ready to buy!
- Prepare a list of the types of businesses you’re interested in purchasing.
- Present them with your personal financial statement.
- Tell them precisely how much money you have to invest.
- Ask them for suggestions as to how you should conduct your search.
- Ask them to show you how to best navigate the Internet.
- Call them regularly, at least once a week.
- For the first couple of businesses that you locate on your own, ask them to check them out. See how long it takes for them to give you data or follow up with you. If it’s more than a couple of days, use someone else.
If you find a business for sale on your own, do not think you no longer need a business broker. The most difficult part of the process is the part that comes after it – your relationship with the seller until the business transfer is successful. This is the big difference between a real estate transaction and a business transaction. In real estate, once you find what you want to buy, the deal is almost over. When you buy a business, this is the beginning of a not-so-simple process.
Much of this information may be confusing for a first-time buyer. Business brokers have a role to play. Use them effectively, and they can be a solid asset to help you complete the deal. Likewise, if they do not demonstrate a serious commitment to follow up on your requests, then get another broker.
But remember, no matter how effective a broker is, when all is said and done, the task of buying the right business is ultimately, entirely, in your hands!