Continuing the discussion of professionals that are involved in the process of buying a business, today I want to focus upon business brokers. In the past, I have brought up the issue of the number of complaints I receive from buyers and sellers about business brokers in general and while there is certainly validity to these issues, buyers and sellers have to understand that it is symptomatic of any commissioned sales industry.
Just like real estate, insurance or auto sales, there are good brokers and bad ones.
Since I strongly believe that both buyers and sellers can be well served by using a business broker, the key of course is using the right one.
A good part of the dissatisfaction that buyers and sellers express stems from a basic misunderstanding of the broker’s role in the business-buying process.
In the nine businesses I have sold, I used a broker in seven of the transactions (two of the deals were initiated by buyers directly). Similarly, in the eleven businesses I have purchased, a broker was involved in eight of them (I believe) and while there were moments that became contentious in some of the transactions, for the most part, they were far more of an asset than a liability to the deal.
For The Buyer:
Business brokers can provide you with access to a wealth of business for sale listings including ones that are new or about to come on to the market before others see them as long as you have demonstrated that you are a well-qualified and serious buyer.
They have done this before. Brokering transactions is their job. They understand the process and the flow of a transaction. As such, they can keep a deal moving when obstacles are encountered, and they understand how to get the parties to the closing table.
Probably the most significant role they play is acting as a buffer between the parties.
Deals can get complicated. It is common to have situations where one of the parties has encountered a “deal-breaker” scenario which needs to be addressed. Problems inevitably surface and brokers can assist in not only finding a resolution, but also to be a “go-between” and thereby allowing the buyer and seller to maintain a cordial relationship which is critically important if the seller has to remain on board post-sale for training.
At the same time, buyers have to realize that unless they have engaged and will be compensating a broker directly, they do not represent the buyer. Do not expect them to provide you with material advice or guidance. Their fiduciary duty extends to the seller to varying degrees depending upon the nature of their engagement with the seller and it can vary between states which also dictates their obligations to disclose certain material facts or not to the buyer.
(By the way, I have just launched a discussion group on LinkedIn for business buyers. Feel free to join at: http://www.linkedin.com/groups/How-Buy-Good-Business-4538130/about )
For The Seller:
Most importantly in my opinion is the fact that a broker allows the business owner to continue to focus on running their business while it is up for sale. Do not underestimate the importance of this function. The market is flooded with buyers (and lookers) and the last thing any seller needs is to be distracted from operating their business. Most businesses listed for sale never get sold and so it would be foolish to lose focus from the business while pursuing a potential sale that may not materialize.
Next, a competent business broker knows how to market a business.
It is not just a matter of putting up a listing online. There are buyer databases, potential strategic buyers, and proven industry avenues that brokers can access to pursue prospective buyers. In addition, this includes properly preparing your business for sale, setting reasonable expectations for the seller and establishing a business valuation and purchase price that makese sense.
Additionally, as noted above for buyers, business brokers have done this before and so they are able to sustain the transaction and discussion between the buyer and seller. Plus, they are a much needed buffer between the parties.
Effective business brokers are able to sift through inquiries and identify qualified prospects. Doing so allows them to conduct the important initial dialogue with buyers so that the seller only meets with potential buyers who understand the business and are able to execute a transaction.
Quick Recap:
As I mentioned at the beginning, whether as a buyer or seller, I believe in using a business broker. In the business-buying process you will encounter ones of all degrees of competency. Simply disregard the ineffective ones. Once you understand their role and engage a qualified business broker, they will prove to be a very helpful resource to you.
Have a great week!
Richard Parker
Diomo.com – The Business Buyer Resource Center™