The vast majority of small businesses are sold without the assistance of business brokers.
But if you do decide the hire a broker, here are some suggestions on how to pick the right one and how to structure the agreement in your favor Business Brokers
What Business Is The Broker Actually In?
In many states there is no training or certification needed to become a business broker. In other states, brokers are required to hold a real estate license.
In these states it’s common to find real estate agents that do business brokering as a side business. If you deal with a broker who is also a real estate agent, make sure that being a business broker is more than just his hobby.
You will pay a pretty penny for the broker’s expertise and experience – you should make sure they have that experience when it comes to selling businesses and not just experience selling houses.
Questions To Ask
If you hire a broker you will be working with them closely for months to come; they will have access to your most confidential business records; the amount of money you put in your pocket at closing will be influenced heavily by the quality of work they do.
Therefore, you absolutely must check them out.
Here are some questions you should ask any prospective broker before hiring him:
1. How long have you been a broker?
2. Have you ever owned a business?
3. How many businesses similar to mine have you helped sell?
4. Can I see a blank version of your Listing Agreement?
5. What percentage of you income comes from brokering and how much from real estate (If applicable)
Ask them to provide you with references from previous clients. Then, I suggest you do something very unusual: Actually call the broker’s references!
I know a lot of people ask for references just to see how the person will react when asked (and to see if they actuality have any). But you can learn a lot about the broker’s reliability and professionalism by talking to people who dealt with that broker when they were in the exact same spot you are in.
Business Broker Fees
There are two benefits a broker can provide the business seller. First, he can locate potential buyers while maintaining the seller’s confidentiality. And second, a broker will qualify these potential business buyers so the seller saves time by not having to deal with weak prospects.
The big negative of dealing with a business broker is his fee, which averages 10-12% of the sale price. This fee is charged to the seller.
There is also a minimum fee. A very small business will pay a flat amount, typically $8-$10,000, instead of the commission. For a business worth $50,000 this minimum fee actually works out to be a higher percentage than the 10-12% industry average. But as a matter of practice, brokers usually won’t be interested in your business unless the asking price is above $100,000.