What Differentiates a Good Business Broker From a Bad One?
Over the years, we’ve heard a million horrifying stories from business owners about their experiences with some of the ‘fly over night’ business brokers. It has always been the same names and makes us wonder, “how did you get hooked up with such people when we all have heard about them in the news?”
Of course we feel bad for such business owners and question our ability to market our business brokerage services. If only we had been there first. If only these people knew to call us or one of the other good reliable brokers out there rather than on the highest ranking ones on Google that they ended up using. Yes, there are a lot of good reliable business brokers out there. The problem is that there are loads of bad, unqualified brokers as well. Since we are into this business, it is easy for us to tell the difference. But as a business owner, can you tell the difference?
Well, that’s a tough question to answer but we have been giving in some thought and hence decided on the most important factors that separate the good business brokers from the bad. Let’s refer through a few:
Ethics–The most horror stories we hear are results of a lack of ethics of the broker. This is unfortunate and disgraceful. Unfortunately, there is no easy way to test the ethics of a broker. The best recommendation is to make sure that they have achieved their CBI (Certified Business Intermediary) designation from the IBBA (International Business Brokers Association). All CBIs agree to adhere to the IBBA’s Standards of Professional Conduct and the Code of Ethics. Though the acceptance of code doesn’t guarantee anything, but it’s a good start. The second thing is to check references. So why not call the other professionals in your area? Well, it takes more than just the broker to crack a deal – it takes an accountant and attorney. So, call your accountant, get your friends call their accountants, do the same with your attorney and with their attorneys. If you are willing to put some time into checking the credentials, sooner or later, you will surely find your answers.
Honesty – This again can be difficult to judge for the amateur eye. But, what does your gut say? Are you receiving vague answers to your questions? Or, is the business broker that you are interviewing willing to sit down with you and answer every question that you have? If this is the case, it is predominantly because they have nothing to hide. And thus, they don’t have to tiptoe around your questions.
Pricing Ability – Being honest and ethical is just one part of the game. It is equally important that the business broker be educated on the matters of business valuation. One of the most important factors in selling a business is pricing it right. A mispriced business will either never sell (overpricing) or will soon fly off the market (under-pricing). Both these situations are bad for you as the business seller. If it is overpriced, it will sit on the market, get stigmatized and be difficult to sell even with a different broker. If underpriced, you will not be able to maximize your retirement money. So, make sure that you ask the business broker you are interviewing if they are aware of how to price businesses. Besides, make them prove it. Ask them to explain the different approaches to value (Asset, Income and Market).
Ask for samples of his pricing analyses. Don’t settle for a broker who answers, “We cannot provide the pricing, it’s confidential”. Every broker can provide some generic samples. Take them home. Review them, see if you would be at profit by buying the business presented to you. Discuss it to your accountant and your advocate. Get their insights and proceed accordingly.
Marketing Ability – Always remember, your small business is a non-marketable entity. You cannot go online, click a button and get rid of it. Someone has to actively create a market for your business. Ask the broker you are interviewing, “How do you plan to market my business?” Sit back and listen. If all they say is, “I’m going to post it on the internet,” Don’t Waste Your Money! You yourself can also post it on the internet. Make sure that the fee you are paying to the broker is getting value added to it. Dig deep onto this. You don’t need to be a marketing guru to determine if the broker has developed a process that works.
Reputation – A part of probing the reputation of the broker is inviting references. Not only the reference of the client but asking around for inputs and insights from other professionals about their known business brokers in melbourne and all that they know about them. Besides this, look up for the broker, visit his website, search for him on Google and see what other people are saying about him. It is not easy to get quoted in articles, to be written about in papers, invited to be a guest on TV or trade shows. The professional media houses do such a kind of homework. They cannot afford to put their name next to a non-reliable source. At Medvisors, we believe that a business broker who is taken serious and considered a reliable source by the mainstream media deserves consideration. Remember, credibility cannot be bought, it needs to be earned.
People Skills – Take time to interview the broker in person. By no means hire a business broker without meeting personally. If they are not willing to take the time to meet with you, chances are they will not put much effort into selling your business either. Once in front of you, see how they interact with you. Are they friendly? Can you trust them? How well are they versed with your business and its brokerage industry? Don’t make mistakes, this is business. People buy only from people they like. If you don’t like the person you are interviewing, neither of the potential buyers will like them too.
Experience and Education – Business brokers are professional service providers, like accountants, advocates, financial planners. Make sure that the person you hire to sell or buy your business continually invests in his own professional development. Would you hire an advocate who doesn’t keep up with the current laws? Would you hire an accountant who isn’t updated with the tax code? Your business is the biggest and most treasured asset you own. Ensure that the person you hire to turn it into cash is someone who stays updated on the current industry trends, government regulations, marketing strategies, new pricing methodologies, and more. Business brokerage is a full time profession. If your broker doesn’t invest in his own professional knowledge, there definitely is someone else out there who can and will do a better job by selling your business for the highest conceivable price.
The recommendations above are not fool proof, but will get you pointed in the right direction. Don’t ever take the sale of your business lightly. Make sure you do your homework to get the wheat quickly separate from the chaff. At Medvisors, we are more than just these recommendations. With a huge experience in this field of business brokerage, we are an eminent name for the same in Melbourne.