Why Do I Need a Business Broker?
A business broker (sometimes called a business transfer agent) fulfils a role that often people don’t even realise is a role until they come to sell their business and start looking into the process. This then prompts the questions – do I need a broker and if I do, how do I make sure I appoint a good one? While a cynic might say it would be unusual for a broker to write an article dismissing the need for their existence, this article aims to explain via salient argument, rather than mere self-preservation.
What Is The Alternative?
Frankly, the only alternative to appointing a business broker is to do it yourself (perhaps with assistance from your accountant) but that would presuppose the following:
- You are confident about valuing your business
- You understand what you are selling – ie shares vs assets & goodwill
- You recognise the good housekeeping processes you should undertake as part of preparing the business for sale.
- You understand and have access to the ‘routes to market’ – ie sources to identify buyers
- You are able to present the business in written format that will answer the questions that buyers expect to be answered and encourage further discussion.
- You have a grasp of what constitutes relevant information and what is sensitive information at the different points in the process
- You are comfortable negotiating both a deal and a deal structure and are familiar with terms such as cash free and debt free when preparing a completion balance sheet for sale
- You are confident that you can negotiate your way through the due diligence process and importantly maintain a good relationship with the buyer when the process hits obstacles. If the buyer and seller fall out, the deal will not complete.
The owner of a very small business may be able to manage without a broker, but beyond that, and particularly if the sale is a share sale, not appointing a business broker is a false economy. The output of the process is likely to have a significant influence on future wealth and that in itself should be good enough reason to engage the appropriate expertise.
A final and fairly compelling reason to engage a broker is that there are a surprisingly high number of buyers who will try to dilute the influence of the broker in the process ‘we don’t need them there when we meet, we should talk 1-1 etc’. Other buyers actually market directly to attract business owners wishing to sell and the sale prospectus will include a slide with comments like:
- We work to create a ‘win -win’ for the buyer and the seller
- Avoid valuation fees
- Avoid broker and agent fees
There is only one reason these buyers want a process that doesn’t include the seller having business broker assistance and that is because they believe they will do better as a result. A business sale is not a ‘win-win’, it is necessarily a compromise where a deal is reached that is acceptable to both buyer and seller and in that process, it is the broker’s role to protect the interests of the seller, ensuring that the consideration being paid, the deal structure, the terms being attached to the sale, are all reasonable.
What Makes a Good Business Broker?
So, if you need a business broker, how do you ensure that you appoint a good one?
First and foremost, a good broker will give you confidence when you are talking to them that they ‘know their onions!’ They will be your point of contact from start to finish. A business sale is often a series of threads running in parallel, and it is of great benefit if it is the same person managing all the threads.
A good business broker will be confident about valuing the business. The valuation may well be a range because there is always art as well as science in a business valuation but they will be confident about the dynamics of generating a value and clear in explaining the rationale.
A good business broker will have open and transparent terms of business, where any exclusivity clauses are explained clearly and fees are transparent. Furthermore, upfront fees should be modest with the vast majority of fees being success fee based.
A good business broker will be able to explain the different routes to market and which are most likely to be the more successful approaches in the particular case.
A good business broker will have the commercial expertise to be able to field enquiries raised by buyers while also having the technical expertise to understand issues raised by accountants and solicitors through the due diligence and legal stages.
It is a fact of the process that ultimately one never knows if the deal done was the best available but a good business broker will have the experience of when to recommend a deal to a seller and as importantly, when to recommend a seller rejects a deal.
A good broker will have strong negotiation skills that will persuade a buyer to improve an offer, both in monetary and structure terms. A broker should never boast of being able to ‘double an offer’ – that presupposes a gullible buyer and they are in very short supply, but a good broker will expect to move the needle 10-15%.
A good broker often acts as a counsellor as well as an adviser. As the day of completion approaches, it is not uncommon for a seller to need to have their nerves calmed!
Ultimately, as in all walks of life there are good brokers, indifferent brokers, and some poor ones. If you take your time and consider the above points, then you should make a sensible appointment and dare we say it, at the end of the process you may conclude that they were worth their weight in gold.
Recent Comments