What is a Business Broker and How Do I Get the Best Out of Them?

What do Business Brokers do?

A business broker is a highly skilled and trained professional who helps people sell businesses. If you are serious about selling your business, it is generally recommended that you engage the services of a business broker.

Business brokers are sometimes compared to real estate agents, but the role is actually quite different. Real estate agents mainly deal with bricks-and-mortar sales, whilst business brokers sell businesses.

However, when you look at the history of business brokering, it is a profession that grew out of the real estate industry. But, as time went past, it has become more about the business itself than the real estate.

A good business broker will not only understand the sales process but also the intricacies of lease negotiations, sales systems, staff issues, profit and loss, and more.

The Role of the Business Broker

A business broker’s role is to help individuals and organisations sell and sometimes buy businesses.

In Australia, around 95% of a business broker’s work is representing sellers.

Skills that every Business Broker should have

A business broker is expected to possess a wide range of skills. He or she should be an excellent salesperson, communicator, advisor, and negotiator, but should also display skills in accounting, legal expertise, and business dynamics.

However, a business broker’s greatest asset is the large network of skilled advisors they can bring to your sale, such as commercial lawyers and tax experts.

How Much value does a business broker bring to the Sales process?

This is a common question as it’s tempting to try and sell your business yourself. However, even those people who do attempt to sell a business on their own generally end up using a business broker.

A business broker brings value to the process in several ways. First and foremost, they generally have an extensive database of buyers and sellers and, in many cases, will already have someone in mind for your business. If this is the case, your buying or selling experience will be more controlled, removing much of the stress.

It’s important to remember that finding a buyer for your business is only part of the equation. The most important aspect is getting the buyer across the line and this is where a business broker really brings value.

A business broker also knows how to value your business correctly to achieve the best results. Sometimes the valuation is lower than you may have hoped for; that’s because you are looking at the business emotionally, whereas a business broker is using expert knowledge and research.

Pricing a business correctly is one of the most important aspects of the sale.

Business sales and purchases tend to involve a wide range of professionals, including accountants, solicitors, landlords, conveyancers, franchisors and even Government authorities. A business broker is able to confidently tackle the red tape and paperwork and liaise with the different parties, saving you time, money, and stress. Remember, you still need to focus on running your business so let someone else deal with the hassle!

Your business broker will take care of the marketing and negotiations, answer buyers’ and sellers’ questions, deal with paperwork, and basically do all the leg work. They also have the experience and expertise to close the deal for you.

When to engage a Business Broker?

Ideally, you should engage a business broker right at the start of your selling journey. There are many things you need to do before offering your business to the market and a business broker will be able to advise and help you through this process.

A business broker knows exactly what needs to be done and when. By engaging them at the start of the process, they will ensure everything is in order when the business goes to market.

If you are looking to buy a business, a business broker could help you decide what type of business best suits your budget, timeline, skills and knowledge, lifestyle and expectations.

How to choose a Business Broker?

There’s no shortage of business brokers out there, but it’s a case of quality not quantity. Obviously, you want a professional, experienced business broker, but you also want the right broker for your business and industry.

Types of Business Broker

Whilst all professional business brokers require the same skillset and expertise, many also specialise in particular industries and business types. For example, one business broker may only deal with franchises, whilst another helps people buy and sell legal and accounting firms.

What questions to ask a Business Broker?

The first question most people ask a business broker is ‘how much’? However, it’s not so much about what they charge, but what results they will bring for you.

Don’t focus on the cost, but on what the business broker will add to the transaction.

Anyone selling a business will have concerns about the experience and the outcome. The questions you should ask a business broker before hiring them are best based around your concerns. For example, you want to know that your business broker is trained and experienced. And be sure to ask what services the broker offers and how much they charge.

How to check references

Don’t be afraid to ask your broker for references. A qualified, experienced broker will be pleased to discuss their work with you and tell you about other businesses they have successfully marketed. However, whilst a good track record is reassuring, it’s important to also choose a broker that you feel comfortable with and trust.

In Australia, all professional business brokers are licensed. The best brokers have a strong brokering company behind them with experience across all industries.

  • Ask for the names of three clients they are currently working with, for businesses that haven’t yet sold. Talk to these clients to get a better idea of how well the broker communicates with them and reacts to any issues that arise. You need a broker who’s with you the whole way, not one who signs you up and then disappears!
  • Ask to speak to other clients who have sold a similar sized and type business through this broker.
  • Check their workload. You can do this by visiting their website and seeing how many brokers the company has, and how many businesses they are selling. Divide the numbers to work out your broker’s workload.

How to verify a Business Broker’s appraisal?

Be very wary of broker appraisals; remember, they have a good reason for talking your business up! Many will tell you what you want to hear to improve their chances of getting the listing. This is called ‘buying the listing’.

Some will even double the appraisal amount to get your custom. Just bear in mind, if it sounds too good to be true, it probably is!

When the appraisal is presented to you, ask the broker to show you other businesses they have sold quickly at a similar price. Ask for three examples in the last 12 months and then speak to those business owners about their experience.

Also ask to speak to clients whose businesses sold at a high price.

And then ask yourself this: Knowing what you know about your business, inside and out, good and bad, would you pay that amount to buy it. If the answer is ‘no’, then don’t expect anyone else to pay it!

If the business broker refuses to give you any of this information, ask yourself if they are just trying to talk up your business to get the listing.