Hiring the Best Business Broker

The most critical step in selling one’s business is hiring the best possible business broker. The business broker will often be entrusted with confidentially selling a business that represents a business owner’s lifetime of hard work and perseverance. Maintaining a confidential sale throughout the sales process and obtaining the best possible purchase price (and terms) for the business owner are the business broker’s two main tasks. Hiring the best broker involves making sure that the business broker has the experience, training, and know-how to accomplish these difficult tasks.

Business Broker Should Have Business Experience

The best business broker must have the necessary business experience and expertise to truly understand the importance of a confidential sale.
Only by being a business owner (as this humble author was for several years) will a business broker truly understand how competitors, employees, or suppliers of a business can cause severe havoc if the sale is not conducted confidentially.
Further, a business broker with business experience anticipates issues that arise during the formal due diligence process that will interfere with the sale’s confidentiality.
For example, some buyers of business will want to speak with the company’s key employees prior to closing as a contingency to close.
This poses a major problem for many sellers because they do not want their employees alerted to the sale prior to closing, and they are afraid that the discussions between the buyer and employees may lead to even more problems (such as the employee quitting).
Such experience enables an experienced business broker to anticipate possible breaches of a seller’s confidentiality and to negotiate solutions that still enables a deal to close.
Another benefit of a business broker with a business background is understanding how blind ads work and why they are so important in protecting a seller’s confidentiality.
A blind ad is the publicly disclosed advertisement that a business broker should post online.
The blind ad does not reveal the actual name, city, or identity of the business (with no pictures of the business posted online).
Many business brokers do not properly protect the confidentiality of the business in their ‘blind ad’ because they do not realize that many competitors or even employees of business go online in order to see if the business is indeed for sale.

Business Broker Should Have Industry Experience

When hiring a business broker to sell their business, it is of paramount importance for the business broker to demonstrate their knowledge and experience in selling businesses in the same industry of the business being sold. Whether it is a retail business, a service-oriented business, a healthcare business, an online business, or even an unprofitable business, the business broker should know the best advertising methods in procuring a buyer for the particular industry, the standard due diligence techniques for the particular industry, and the standard industry methods for establishing the correct asking price.

Example of Business Broker with Industry Experience

Jim is thinking about selling his nurse registry business in South Florida.
As a result, he has contacted a business broker in order to evaluate his business, and to determine if the business broker is the right person to sell his business.
The business broker understands that nurse registries sell for a premium multiple of owner benefit, and the business broker (through careful analysis) determines that Jim’s owner benefit (or adjusted profits) is $250K/year.
Thus, the business broker suggests an asking price of $1M, or four times the owner benefit.
As a part of this analysis, the business broker reviews several important industry-specific factors with Jim that affects the valuation of the business as well as the overall selling process.
First, the business broker suggests focusing on competitors in the healthcare space as potential buyers.
Such buyers are more likely to pay a premium multiple because of synergistic benefits.
Also, dealing with a buyer already in the healthcare space will simplify the licensing transfer process.
A nurse registry is a licensed healthcare entity which holds a nurse registry license from the Agency of Healthcare Administration (AHCA).
This license must be transferred to the buyer, and the business broker knows (from prior experience of selling nurse registries) that the licensing transfer process is a matter that must be addressed up front with the seller and potential buyers.
A buyer that is already in the healthcare industry is far more likely to be able to effectuate a CHOW (Change of Ownership) transfer which shortens the time and eliminates the risk associated with the transfer process.
Otherwise a buyer will need to apply for and receive a new license from AHCA.
Moreover, the business broker informs Jim that a buyer of his nurse registry will want to know the current patient census, the company’s insurance contracts, and information about how exactly referrals to the registry are procured.
In particular, the business broker emphasizes to Jim that he should not be personally marketing and procuring referrals.
Otherwise, Jim will not receive a premium for his business because buyers will suspect the loss of patients, referral sources, and income when Jim is no longer affiliated with the business.
By having the right exit strategy in place and by being prepared for the licensing transfer process, the sale of Jim’s business is likely to go more smoothly and for a premium purchase price.

Establish Best Asking Price

Establishing the best asking price does not always mean establishing the highest asking price. Often, a business owner will overestimate the value of their business, and insist that the business be priced according to their own needs or desires. In reality, what a buyer will pay for a business is entirely different from what the seller thinks that it may be worth. A business broker must be honest and inform the seller of the true valuation of their business. The business owner may wish to first increase the valuation of their business prior to listing it for sale if they disagree with the valuation. Conversely, some business owners underestimate the value of their business, and the business broker must explain why the business is worth more based on its true value.

Finding the best business broker involves time and effort on the part of the business owner. Prior to listing the business with a business broker, the business owner must be sure that the business broker has the experience and knowledge necessary to confidentially sell the business for the best possible asking price.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.