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12 Part guide to selling a business - Part 1 - Selecting a business broker

12 part guide to selling a business

How to select a business broker to sell your business?

Creating and growing a business is substantially different to selling a business, the reality is that to give a transaction the best chance of completing successfully you will need the specialist skills of a transaction expert such as a business broker or M&A advisor.

Someone who deals with the process of selling larger businesses on a daily basis, someone who has experienced every twist and every turn that a larger deal can throw at you.

Cost of a business broker
Affordability can be a major concern, but the questions is 'Can you afford not to engage a broker?’.

In most cases the main fee for a broker comes from successfully selling the business. This means there is no substantial financial burden to the vendor until an agreed transaction takes place. This also ensures that a broker is working hard to complete your transaction for maximum value.

The services of a Business Broker should be viewed, as ‘invaluable’, the role of the broker should be to identify the right buyers and generate offers and to achieve the maximum value possible through expert negotiation and deal management.

Not all Business Brokers are the same.
Some operate a basic advertising model and do not spend much effort for you in terms of finding a buyer through other more proactive means. Others specialise in smaller businesses or extremely large businesses. This article is aimed at the substantial mid market sector. Clearly therefore you will need to know how to differentiate the various broker types out there. Here are some tips as to who to avoid if you are faced with statements, claims or requirements such as these:

We have hundreds of businesses for sale!
This suggests that the broker’s model is one based on collecting up front fees and profiting from them, rather than focusing on giving a personal service to a valued client in order to secure a buyer and complete a transaction as quickly as possible.

We have hundreds of buyers for your business!
Some brokers may claim that there are literally hundreds of suitable buyers for your business and that their process is to approach all of them, then whittle down the numbers to about 100 and then whittle down the numbers to … You get where I am going on this one. There are not hundreds of buyers. There may be some. A scattergun approach such as this, despite protestations to the contrary, is not scientific, does not bring results quickly and creates false expectations that many buyers may bid for your business.

You need to pay a large fee upfront!
Most brokers will want some form of fee up front but this should in normal circumstances be sufficient to cover basic expenses and show your commitment to the process only. It should not be substantial as the main earnings of a broker should be from a successful sale. Any broker that front ends its fees is really showing a lack of confidence in being able to complete the sale of your business.

Beware of exclusivity

It is right and proper that the broker should expect exclusivity. But it is not right that they should expect it regardless of performance or forever. Check carefully how the broker is going to report progress to you and make it clear on what grounds you would want to walk away from the agreement. E.g. I will not hold you exclusive for more than 1 year.

Just sign here!

Do not be pressured into signing any agreement or letter of appointment in your office with the broker present. Be highly suspicious of the intent of the agreement if it runs for more than one page. Clearly brokers need to protect themselves but fundamentally the job spec is simple. I appoint you to sell my business and I will pay you an initial fee of (keep this reasonably low) and a success fee on completion of contracts of x%.

Meet junior!
Some brokers will send their most experienced executives to ‘sign you up’. These executives may tell you about how they will move heaven and earth to sell your business and you may indeed be impressed. You will be less impressed when the recent school leaver is the day-to-day contact. Make sure that the person who says he / she will give you personal attention actually is going to do so.

Is it really worth that much!?!
If you react with surprise or shock at the high valuation placed on your business then be on your guard. Remember it’s your business. You are in business because you have shown commercial awareness. You will know instinctively how much your business is worth within sensible parameters. Some brokers deliberately over value on the basis that if you appoint an estate agent who gives the highest valuation of your home you will do the same for your business. Wrong. Failing to meet value aspirations in business creates conflict and ultimately disappointment when you are unable to sell.

Here are some straight forward but testing questions for anyone that you might talk to wanting to represent you in the selling of your business.

1. What was the last business you sold?
Seek to establish that it handles businesses of similar value to your own and that it has worked in your business sector previously. Ask for references.

2. When did you sell it?
Seek to establish how active the broker is. The same firm that claims loads of business on its books should be able to demonstrate similar sales volumes. A smaller firm will be delighted to reveal that they survive on much smaller volume, giving personal service and delivering a top class service.

3. Where did you sell the business?
The market for your business may not be limited to the UK, you may want buyers from Europe, Asia, USA and rest of the world!

To discuss how the broking services of Hyde House could benefit your business please call us on 0333 3440 778 or email us at info@hhcbs.co.uk

 

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