When selecting a business broker to assist you in the process of transitioning the ownership of your business, there are several criteria to keep in mind. Making the right decision (and being able to right a "wrong" decision) can make all the difference in how much your business sells for, how much you get to keep, and how stressful the process will be for you.
Experience: Many business brokerage firms have part-time independent contractors who vary in competence, knowledge and experience. Do you want a part-timer handling things for you? In addition to experience, find out what size businesses the firm or the individual normally handle. Ensure not to disclose the size of your business first because a less than ethical broker will immediately state his/her track records to be in concert with the size and nature of your business. Another way to gain this information is to call the firm, posing as a buyer, and ask for a list of the businesses they represent. This will show exactly the size of businesses that they handle. If your business is worth $3 million, do you really want someone who sells hair salons, convenience stores, and small retail stores handling your affairs? Or, if you have a smaller business, how much time do you think will be dedicated to your transaction if your business brokerage firm specializes in companies several times larger than yours?
Compensation: Over the last decade, more and more business brokerage firms have gravitated to charging valuation fees, other front end fees, monthly retainers, and collecting for expenses, rather than being solely compensated for results. Almost invariably, these brokers tell prospective clients whatever they want to hear to get them signed up to collect their front end fee, as opposed to firms that work solely on a performance and success fee basis (i.e. they get paid when/if you get paid) who by their very nature tend to be more accurate as to their valuations and the statements that they make to prospective clients. This latter group of Mergers and Acquisition professionals have little to gain by blowing hot air to gain a listing with unrealistic price or other expectations. Why pay a business broker for anything other than success?
Valuation: It is vitally important that you and your selected business broker agree upon the reasonable fair market valuation of your business BEFORE you retain their services. If you wouldn't accept what they feel the business is worth, both your time and the broker's will be wasted. Professional business brokers will often provide you with a fair market valuation without cost or obligation, thus providing you key information before you proceed.
Tax Issues: It is important to understand that C and S Corporations, LLCs and Sole proprietorships all have differing tax issues. You need a broker that can give you an accurate picture of what taxes you will have to pay based upon how the transaction is structured. This is vitally important because the after tax cash is the figure that really matters, and how transactions are structured can change this number significantly. Whatever a business broker says about taxes should also be verified with you CPA.
Personality and Appearance: As you talk to and meet prospective business brokers, you should not only listen to what they have to say but also note their appearance, attitudes and ability to accurately communicate. In other words, rate them on two different scales: Are you comfortable enough with them to work together closely over the next several months? and How will prospective buyers perceive them? Remember they would be representing YOU and your business throughout the process.
Cancellation Clause: Not all marriages are made in heaven, and if you end up being unhappy with the business broker you hired, you should have stated in your agreement the right to terminate future representation. If you terminate, obviously you would still have a commission obligation if one of the potential buyers that he/she resourced ultimately acquires your business.
Keeping these factors in mind when selecting your business broker will help you select a representative that will work towards receiving the most after-tax cash for your business, have it be best represented, and you will only pay for services that produced results.
