Interviewing Tips When Selecting A Business Broker

Choosing the Right Business Broker

Choosing the right business broker may seem like a daunting task for many business owners unfamiliar with the business sales process. The interview or meeting between the business owner and prospective business broker should alleviate any concerns about the broker’s credibility, experience, and competency. During the interview process, the business broker should provide the business owner with a free business evaluation (based upon the financials, physical asset list, and business information provided by the owner at the meeting). The business valuation should be based on data of other comparably sold businesses relative to the specific competitive advantages and attributes of the business at hand. During the interview, the business broker may also provide testimonials or references from other clients within the same industry who successfully sold their business.

Interview Tips

  • What is the business broker’s industry knowledge and experience of selling similarly sized businesses?
  • What is the business broker’s track record of comparable sales and can the broker substantiate the track record with references or testimonials?
  • Can the business broker justify the suggested business valuation with data and market-based evidence based on the specific attributes of the business?
  • Does the business broker have a confidential marketing plan which reaches the maximum number of qualified buyers?
  • A reputable business broker should never charge up front fees, and the commission or success fee should be clearly disclosed.

Experience and Industry Knowledge

It is crucial to select a business broker with industry knowledge and experience in selling similarly sized business within the same industry. Industry knowledge includes understanding industry jargon, how businesses within an industry are typically priced, key factors relative to most business sales within an industry, and the specific type of formal due diligence methods common in certain industries. This knowledge can only be gained from years of experience in working with both sellers and buyers within a specific industry. A part-time business broker who works from home is very unlikely to have the requisite experience and knowledge necessary to confidentially sell and appropriately price most businesses. Viewing the broker’s webpage and active listings is a good way to gauge the broker’s level of experience and trustworthiness.

Track Record of Success

As a part of the interviewing process with a business broker, business owners should always ask the broker to name a similar business within the same industry that the broker has previously sold. Often times, the business broker will have testimonials on their website or social media, but it is best to still ask for specific references from other business owners who have sold their business through the broker. While business sales are not public knowledge and most owners prefer that the price and terms remains confidential after the sale, obtaining references from past clients is still essential.  An established track record of navigating the sales of similar businesses means it is far more likely that the business broker will anticipate and address obstacles (such as unique ways of conducting formal due diligence within certain industries) that can derail a successful closing.

Justifies Suggested Asking Price

  • Perhaps the most critical component of interviewing a business broker is observing how the business broker comes up with their suggested asking price, and more specifically how the business broker justifies the suggested asking price.
  • If the broker can not adequately explain exactly how and why the asking price was determined during the interview process with the business owner, then chances are that they will not be able to do overcome price objections with a prospective buyer.
  • Determining the best asking price first involves deciphering the annual adjusted owner benefit of the business from the most recent financial statement.
  • The broker must adjust the financials (such as a tax return or profit and loss report) to include the owner’s salary, personal expenses of the owner that flow through the income statement, and other irregular expenses that would not be borne by the buyer.
  • Then the business broker must understand similar valuation multiples assigned to businesses within the same industry, and apply a strong but justifiable valuation multiple based on carefully weighing all the attributes of the business at hand.
  • Factors affecting valuation multiples include the growth rate, physical assets, location, degree of recurring revenue, management in place, level of owner-dependency, and unique competitive advantages of the business.
  • During the interview process, the business broker should substantiate their suggested asking price with data from similarly sold businesses relative to the merits and underlying value of the evaluated business.
  • A well prepared broker with a firm grasp of the data and rationale underlying the suggested business valuation is much more likely to be able to convince a buyer that they should offer the best possible price and terms for the business.

Confidential Marketing Plan

Many brokers that purport to sell businesses do not understand the need for confidentiality, primarily because they lack the required experience and expertise. Since business owners do not want the general public to know that their business is for sale, professional business brokers use carefully crafted ‘blind ads’ (shielding the identity of the business) and require Non-Disclosure Agreements with financial disclosures from prospective buyers prior to releasing the Confidential Information Material (CIM). The confidential marketing plan must be clearly explained to the business owner during the interview process and should be tailored to the specific business. A solid marketing plan may include placing multiple online ads reaching a global audience of buyers, traditional advertisements in industry-specific trade journals, targeted outreach of competitors, and confidential teasers sent to buyers within the broker’s own network of qualified buyers.

A well prepared business owner with their most recent financial statement and physical asset list allows an experienced business broker to provide a justifiable business valuation during the interview process. The interview process should demonstrate the business broker’s experience, industry knowledge, and track record of confidentially selling similar businesses, while laying out the roadmap for success with a confidential marketing plan.

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.