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Every small business owner needs an exit strategy. Whether that be passing ownership of a family business to the next generation, or selling it on the open market, a plan to transition ownership is necessary.
The challenge that many small business owners that do choose to sell their businesses face is whether or not to hire a professional business broker to guide them through the sales process. Many are unaware of the true, tangible benefits of using a business broker when selling a small business.
Further, not all business brokers are the same. If the business broker you are considering for representation does not provide the following key benefits, consider another option.
8 Key Benefits to Using a Business Broker When Selling a Small Business
1. Protect Confidentiality
One of the most important aspects of listing your business for sale is maintaining confidentiality throughout the entire process. If customers, suppliers, employees, or competitors learn the business is for sale it may be detrimental to the transaction.
It’s often perceived that the financial health of businesses up for sale is poor; this causes fear on the part of suppliers and distributors as they wonder if they’ll continue to be paid on time. Employees – whose continued employment is often a key need for a buyer – fear they’ll lose their jobs under new ownership so they often leave preemptively.
Utilizing a business broker helps to ensure confidentiality is protected from the initial meeting through the closing. A confidentiality and non-disclosure agreement between the brokerage and the business owner as the seller is just the start of these protections. Once the business is listed for sale, all potential buyers execute a confidentiality and non-disclosure agreement prior to learning any specific details about the business.
2. Buyer Qualification Process
The buyer qualification process takes confidentiality protections one step further. This process should include an interview to vet potential buyers both financially and on the basis of professional experience.
The financial qualification step makes sure the potential buyer has:
- the ability to qualify for the funding necessary to complete the transaction including money available for a down payment,
- a credit score to qualify for any loans,
- liquidity for working capital to operate the business post-closing.
The review of professional experience qualifies the potential buyer on the basis of industry expertise or aptitude to best ensure they are successful in the post-closing transition and operation of the business. Proof of this experience or expertise is often required by lenders, particularly the Small Business Administration, when considering a candidate for a loan.
3. Financing Assistance
Many buyers will require some level of financial assistance in closing the transaction. Often, financial institutions offer loans backed by the small business administration or SBA. A Small Business Administration (SBA) Loan is a terrific option for many buyers.
Though they are a terrific option, the process of applying for one can be confusing for someone who has not navigated it before; however, an experienced business broker will bring with them a network of lending institutions and experts that can support buyers in securing the deal structure and transaction types (for example small business administration and traditional commercial loans) that closes the sale.
A competent business broker will also work with lenders early in the listing process to pre-qualify the small business being sold for lender approval.
4. Professional Marketing Network
It is important to get your business maximum exposure to the right audiences in order to attract potential buyers. A professional business broker should bring with them a network of resources through which your small business can be showcased to potential, qualified buyers.
These resources should include (but aren’t limited to) membership in all of the major listing associations and listing sites. Much like any other item for purchase, buyers shop online. A technologically savvy broker will help you get in front of the most buyers.
5. Expertise and Professional Experience
The best business brokers are those who have been through the experience of buying or selling their own small businesses. This personal experience, coupled with continued education and training from reputable professional organizations, is key to success in managing sales for other small business owners. When considering whether or not to hire a particular broker, get answers to the following questions :
- Has the business broker ever owned a business?
- Have they ever bought or sold a business themselves?
- What education have they completed to improve their knowledge and skills?
- Are they members of professional associations such as the International Business Brokers Association (IBBA)?
Buying or selling an organization is often the single most significant transaction a business owner experiences in a lifetime; make sure your broker brings personal experience and professional training to yours.
6. Business Brokers Are Experts at Selling Small Businesses
A small business owner is an expert at running their business. Business brokers are experts in the process of selling a small business.
Selling a business takes time, work, and expertise. Attempting to sell your business while running it is a surefire way to lose value. Engaging a qualified business broker ensures the owner can maintain focus on running the business effectively so that it can be sold for maximum value.
That’s not to say the business owner should be left out of the process altogether; rather, the business broker should regularly update the seller on critical milestones. Be sure the business broker you chose to represent you is not just the face of the company but is the person that will be representing your business and interacting with potential buyers throughout the entire process.
7. Selective Representation
Not every business is a fit for every broker. A true professional will tell you this and, if they determine your business is not a fit for them, will recommend another broker that is better suited. Ensure that the broker representing you has demonstrated experience in successfully managing a business sale similar to yours in industry, size, location, etc.
A broker should also be selective in who they represent, only taking on a client they are confident they can sell and only taking on a limited number of listings at any given time. This ensures your business gets the attention your business listing deserves. This allows for effective communication and listing management from the initial meeting through closing, too.
8. Minimal Up-Front Fees
As a business owner preparing for the sale of your business, a thorough understanding of the costs associated with the process is paramount. Ensure your broker is clear about when and how you’ll be charged throughout the process. Make sure you understand any charges a business broker assesses for consultations, valuations, or has in their listing agreement.
It should begin with a no-cost, no-obligation business consultation. Then, you and the broker should mutually decide to move forward with a listing agreement. At this point a listing fee is typical; however, it should be minimal. The majority should be a success-based commission, due at closing, and based upon the total sale price of the business.
Be leery of anyone charging you excessive up-front fees or service fees vs a success-based commission.
NEO Business Advisors
At NEO Business Advisors, we have our pulse on the market. Our experienced business brokers have a vast network of seasoned accountants, attorneys, and lenders to help business owners build and implement a successful exit strategy. Contact us today so we can put our expertise to work for you.