Four Questions to Ask a Business Broker - NYTimes.com

The night I sat down to write this post, I ate dinner at a Chinese restaurant and cracked open a fortune cookie with a prescient message: ?Cooperate with those who have both know-how and integrity.? These words of wisdom could easily apply to the vetting of business brokers. Alas, if only the process were that simple. Following are four questions to get you started on finding the right broker to help sell your business.

Will you get me top dollar for my business?
This is a trick question. Beware of the broker who answers with an unqualified ?yes.? As a friend of mine likes to say, I?d rather turn you down today than let you down tomorrow. Good business brokers not only have a realistic sense of what a buyer will pay for your business on the open market, they also take the time to educate their sellers and set expectations appropriately from the get-go.

With that said, good brokers should be able to get you the best possible price and terms for your business. At a minimum, they should be able to justify their fees by getting you more ? and saving you more ? than if you tried to sell the business on your own.

Where do most of your referrals come from?
Business brokers live and die by the strength of their referral network. My biggest source of referrals ? hands down ? is accountants. The C.P.A. is frequently the first person a business owner consults when considering the sale of a business, because two of the primary concerns are valuation and the tax consequences. Other sources of qualified referrals for me include lawyers, financial advisers, existing clients and other business people in my community.

Follow this question up by asking the business broker to provide a list of references from a variety of sources, not just past clients. In addition to sellers, ask for names of buyers, accountants, lawyers, lenders and financial advisers that the broker has worked with. Good business brokers should be able to inundate you with a list of people who are willing to sing their praises.

How do you market your firm to clients?
This question is the business equivalent of judging if a man is marriage-worthy based on how he treats his mother. I tend to be a stickler when it comes to marketing; if brokers do a poor job marketing their own business, why would you expect them to do a good job marketing yours? I would use this question as a set-up to the question of how the broker will market the sale of your business to potential buyers.

Another reason to ask this question is to see if you?re dealing with a business broker who is ?stuck in the ?80s,? as one colleague recently put it. While there are many time-tested truths when it comes to selling a business, the industry continues to evolve, thanks in part to an economic downturn that has been particularly rough on the business-for-sale marketplace and has forced many brokers to rethink how they do business. I would be wary of a broker who dismisses the use of social media and other alternative marketing channels as viable methods for marketing their own business, as well as yours. Look for brokers who have many weapons in their arsenal and who understand how to tailor their marketing efforts to attract the right type of buyer for your business.

What is your success rate?
This is actually a two-part question. My standard answer is that I aim for 80 percent or better. Beware of a broker who tries to justify a low close ratio by quoting dismal industry statistics. I sometimes compare myself to a plaintiff?s attorney: I can?t afford to take on a case unless I am reasonably sure I can win it. While I almost always charge a nominal upfront fee, the vast majority of my compensation comes in the form of success fees. Business brokers stay in business by knowing how to keep a winning streak going. That means consistently getting deals to the closing table.

The second part of the question is to get a feel for if the broker has a quality versus quantity mindset. Some brokers will take most of the listings that come across their desk, put in minimal effort and then rely on a minority to actually close. Other brokers take the opposite approach. I would rather do an extraordinary job for a small number of clients and sell all of their businesses than play a numbers game.

The exception to this is in certain industries, especially in big cities. I?ve met brokers who sell an enormous number of one kind of mom-and-pop business, like restaurants, florists or ethnic groceries. These brokers have a proven formula, targeted marketing efforts and a huge network of buyers, all of which enable them to sell many of the same type of business. Their business model also requires them to carry a large inventory of available businesses for sale because success fees associated with these transactions tend to be small.

In addition to heeding the wisdom of the fortune cookie, make sure you do your due diligence by asking a handful of business brokers these (and other) questions before choosing one to represent the sale of your business. And understand that good brokers will do their due diligence on you, too.

Barbara Taylor is co-owner of a business brokerage, Synergy Business Services, in Bentonville, Ark. Here is her guide to selling a business.

Source: http://boss.blogs.nytimes.com/2011/10/20/four-questions-to-ask-before-hiring-a-business-broker/

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