Insightful questions to ask a business broker before selling your business
March 13, 2023 ⋅ 10 min read
It might feel overwhelming to find and select a business broker when the stakes are so high, after all this person may be representing your life’s work to the market, become privy to sensitive business information, and have a high influence over the success of the sale.
Selling a business involves complex logistics and a lot of paperwork. A DIY approach may prove complicated and, if not done right, result in wasted time and financial loss. Fortunately, professional business brokers can drive the process, saving you a ton of time and work and, most importantly, helping you secure a fair price and terms for your business.
What is the role of a business broker?
Before we dive in, let’s identify what a business broker actually does. For most business brokers, their main role is to help you sell your business for a fair price and fair terms. Business brokers offer various services, including:
Supporting the valuation of your business.
Finding and vetting prospective buyers.
Preparing paperwork, including permitting and licensing requirements.
Finalizing the transaction and closing the deal.
However, not all business brokers guarantee stellar results – some are incompetent and will only waste your time and money, while others will work around the clock to close the deal. This is why hiring a business broker may be the right call to sell your business. If you decide to work with a broker, it is important to be thorough during the vetting process. Here is an overview of 20 insightful questions to ask a business broker before selling your business.
How much experience do you have selling businesses like mine?
Businesses differ in important aspects such as legal structure and operations depending on their industry. For example, restaurants are subject to more health and hygiene-based regulations than retailers, so the process of selling a restaurant differs considerably from that of selling a retail shop.
How many businesses have you sold in my industry?
Preferably, your business broker should have experience selling a business like yours, whether at their current business brokerage firm or one previous. This experience will impart them with specialized knowledge of the requirements for selling a business in your industry.
In contrast to a good business broker, a broker who doesn't have experience selling a business like yours would spend considerable time familiarizing themselves with the industry's dynamics. They may also make crucial errors as they learn, costing you time and money. It’s not the time to take a chance on someone new. Instead, hire a broker who has experience selling several businesses in your industry.
How long have you been selling businesses?
Business brokers, like most professionals, generally sharpen their skills as they gain experience over the years. Expectedly, a broker with ten years of experience is more resourceful than a novice with several months on the job.
However, talent and passion sometimes beat experience, so don't necessarily go for the oldest broker. Experience in other related fields (such as having worked as a business owner in the past) is also an added advantage.
How long did it take you to close your last three transactions?
Presumably, you will want to sell your business as fast as possible. However, the timeline can range from several days to months or years. This mostly depends on the current demand from potential buyers and partly on your business broker's dedication and ability to find prospective buyers.
Asking your business broker how long it took them to close their last three transactions will give you an idea of how fast they move. It is also advisable to be patient and set a reasonable deadline to avoid disappointment from factors such as local market demand that are beyond the broker's control.
How many transactions did you close last year?
Selling a business is easier said than done, and some businesses may take months or years to sell. This mostly depends on the demand for that type of business, the complexity and size of the businesses sold, and partly on the business broker's diligence, as explained earlier.
What is your success rate?
Success rate is an essential factor to consider when planning how to hire a business broker. It is a way of measuring the broker's diligence and dedication to selling businesses.
A broker's success rate is measured by comparing the number of businesses sold to those listed. For example, one broker may list 20 businesses and sell ten per year (50% success rate), while another may list and sell only one (100% success rate). A percentage measurement can thus be inaccurate, so it is advisable to consider the exact number of businesses the broker sold in addition to their success rate.
Do you have a team to assist you, or is it just you?
A business broker may play many roles in the process of selling a business, from valuation to filing legal paperwork. Depending on the business, some of these roles may require specialized knowledge and dedicated time, so it may prove to be helpful to find a business broker with an extended network or colleagues for support.
This is why business brokers usually work with teams of professionals specializing in some of these roles. A team enables a broker to work faster and minimize errors, all to your benefit. For example, Baton has a network of brokers that rely on their services for accurate valuations, market comps, qualified buyers, and more.
Who will prepare the sales contract: you or an attorney?
Your business's sales contract is legally binding, so mistakes and errors can have permanent implications that can put you at a disadvantage and compromise the deal. The legal language in a sale contract is usually complicated, so brokers usually work with attorneys to avoid making mistakes. While this mitigates the risk of mistakes, an attorney's time will likely have a cost associated with it.
How much do you charge?
Business brokers charge varying rates depending on factors such as the range of services offered. Finding an affordable broker is prudent, but it is unwise to compromise the deal to save a few dollars by hiring a cheap, incompetent broker.
What do business brokers typically charge?
Different business brokers have varying fee structures. Typical charges include:
Most brokers will charge a success fee (typically 5%-15% of the total sale price), which essentially is a commission deducted from the final sale. Some brokers also charge significant upfront fees and continue charging monthly retainers without putting much effort into finding a buyer for your business (they earn regardless of whether or not your business sells). As you may expect, brokers who charge high commissions are usually more motivated to close the deal to get their share of the money.
How can I prevent my customers and competitors from hearing my business is for sale (confidentiality)?
Selling your business will have many implications for third parties such as employees, suppliers, creditors, competitors, and customers. For example, your most talented employees could decide to take offers elsewhere because their future now seems uncertain. Your creditors may also decide to call in your loans, and your competitors would certainly take the opportunity to win your customers. Such challenges can lower your business's value and appeal to potential buyers.
It is important to ensure that your business broker will keep the sale confidential. Find out about their confidentiality solutions, such as making interested buyers sign non-disclosure agreements.
How do you vet buyers?
Expectedly, you want to sell your business to someone who can pay your asking price and run the business well. Unfortunately, many potential buyers' inquiries are comparable to window shopping. Smart business brokers usually distinguish serious buyers from jokers by vetting them thoroughly.
How many qualified buyers do you have?
A business broker can have thousands of prospective buyers, but it doesn't necessarily mean that they are all interested in your business. Ultimately, what matters is the number of buyers qualified to buy your business.
How do you source buyers?
Finding qualified buyers for your business can take a long time, depending mostly on where the broker looks. Some brokers will list your business and wait for prospective buyers to respond, while others will reach out to their networks and even approach potential buyers in person.
How do you approach financing?
Some prospective buyers may not have enough cash on hand and would need financial help to close the deal. Some brokers don't concern themselves with buyers' financing, but some go the extra mile to facilitate financing options such as loans – the latter may close more deals than the former.
What accreditations do you have?
The standard industry certifications and accreditations for business brokers include:
Certified Business Intermediary (CBI)
Merger and Acquisitions Master Intermediary (M&AMI)
Certified Mergers and Acquisitions Professional (CMAP)
A professional business broker may not necessarily be certified or accredited - however, accreditations and certifications could demonstrate a broker's dedication to advancing their career through higher learning and experience.
How do you value a business?
This is one of the most important questions to ask a business broker during vetting because it will determine your business's asking and selling prices. Business valuations involve many factors and variables, including the business's assets and seller discretionary earnings (SDEs), and these factors vary depending on the business's industry and operations. Business valuation formulas vary, so it is advisable to avoid brokers who propose generic valuation techniques because they may undervalue your business.
Business intermediaries who work with Baton have a leg up with Baton’s comprehensive and standard valuation process. You can get a free valuation for your business on Baton.
What is your pricing strategy?
Pricing is a balancing act between appealing to potential buyers and getting you the best price based on your business's value. Pricing strategies vary similarly to valuation formulas, so a generic approach may not work. You would be better off working with a broker willing to develop a pricing strategy personalized according to your business's unique characteristics and your unique goals for the sale of your business.
What steps do you take to prepare a company for sale?
Different business brokers offer varying services, as explained earlier. For example, some brokers will only list your business and handle negotiations with potential buyers, while others will prepare the paperwork and handle virtually every aspect of the sales process – working with the latter will save you time, work, and money. Some brokers will support you in activities to make your business more attractive to investors such as cleaning up your books, updating your website, etc. Getting a valuation from Baton will give you a deeper insight into the factors that increase the investability of your business.
Bonus: How do you think about negotiating key terms in the sale?
You may have heard the expression, “You name the price and I’ll name the terms.” Acquisitions, even with equal sticker prices, may not be created equal. For example, you may be able to negotiate a higher purchase price if you give the buyer seller financing – but then you will receive less money upfront. Or, it may be important to you that a key employee retains their role or that you serve as an advisor for a period after the acquisition. An experienced business broker will take the time to understand your goals and work to ensure an optimal outcome.
Baton is here to help with everything from understanding your business’s value to selecting the right business broker. After receiving a valuation, if you decide you're ready to sell, Baton can connect you with trustworthy brokers from our vetted partner network.