What Separates the Good Business Broker From the Bad?

Over the years, I’ve heard a million horror stories from business owners about their experiences with some of the “fly by night” business brokers out there. It’s always the same names and it always makes me wonder, “How did you get hooked up with these people? Why did you hire them?” I mean, I’ve seen some of their work and it’s TERRIBLE!

So, of course I feel bad for the business owner and I begin to question my ability to market my business brokerage services. If only I had been there first. If only these folks knew to call me or one of the other good credible brokers out there rather than the yahoo they ended up using. Yes, you heard me right; there are a lot of good credible business brokers out there. The problem is, there are a lot of bad, unqualified brokers out there as well. I’m in the business so it’s easy for me to tell the difference. But how can you, as the business owner, tell the difference?

Well, that’s a tough question to answer but I’ve been giving it some from thought and I’ve decided that the most important factors that separate the good business brokers from the bad are:

1. Ethics – most horror stories I hear are a result of a lack of ethics by the broker. This is unfortunate and disgraceful in my opinion. Unfortunately, there’s no easy way to test a broker’s ethics. My best recommendation is to make sure they’ve achieved their CBI (Certified Business Intermediary) designation from the IBBA (International Business Brokers Association). All CBI’s agree to adhere to the IBBA’s Standards of Professional Conduct and the Code of Ethics. I know acceptance of a code doesn’t guarantee anything, but it’s a good start. The second thing I would recommend is to check references. This can be tricky. Like any good job applicant, when you ask for references you will get handed the happiest and most satisfied clients that the broker is confident will put in a good word. So, to me this is a waste of time. Instead, why not call the other professionals in your area. It takes more than just the broker to do a deal. It’s takes an accountant and attorney as well. Call your accountant, have your friends call their accountants, same with your attorney and their attorneys. Not all accountants and attorneys will be close to the transaction marketplace (they tend to specialize) but they will ask around. Chances are they probably work with, know of, or went to school with another accountant or attorney that is involved in transactions. If you’re willing to put some time into checking credentials, sooner or later you will find your answers.

2. Candor / Honesty – Again, this can be difficult to judge for the untrained eye. But, what does your gut tell you? Are you receiving vague answers to your questions? Or, is the business broker you’re interviewing willing to sit down with you and answer every question that you have to the best of their ability, sometimes going above and beyond? If this is the case, usually it’s because they have nothing to hide. And, as a result, don’t have to tiptoe around your questions.

3. Pricing Ability – Being open, honest and ethical is only part of the game. It’s equally as important that the business broker be educated on matters of business valuation. One of the most important factors in selling a business is pricing it right. A mispriced business will either never sell (if overpriced) or fly off the market (if underpriced). Both situations are bad news for you as the business seller. If it’s overpriced it will sit on the market, get stigmatized and be difficult to sell even with a different broker. If it’s underpriced you will not maximize your retirement money. Make sure you ask the business broker you are interviewing if they know how to price a business. Moreover, make them prove it. Ask them to explain the three different approaches to value (Asset, Income and Market). If they don’t know what you’re talking about, RUN!! Ask for samples of the broker’s pricing analyses. Don’t settle for a broker that answers, “I can’t provide that it’s confidential”. Every broker can cleanse some samples and make them generic. Take them home. Review them, see if you would buy the business they present to you. Show it to your accountant and your attorney. Get their thoughts. If you’re not sure whether you’re looking at quality work or not, chances are your accountant or attorney will.

4. Marketing Ability – Remember at the end of the day, your small business is a non-marketable entity. You can’t go online, click a button and get rid of it. Someone has to actively create a market for your business. Ask the broker you are interviewing, “How do you plan to market my business?” Sit back and listen. If all they say is, “I’m going to post it on the internet,” RUN!! You can post it on the internet. For the fee the broker is taking, make sure they’re adding value. Dig deep on this subject. You won’t need to be a marketing guru to determine if the broker has a developed process that works.

5. Reputation – Part of investigating the reputation of the broker is requesting references. Not only client references but asking around for input and insight from other professionals about what business brokers they know and what they know about them. Also, go to the broker’s website; go to industry sites such as http://www.ibba.org. Look up the broker; see what other people are saying about them. Do the TV, newspaper, radio and trade publications value the broker’s opinion? It’s not easy to get quoted in articles, written about in papers, invited to be a guest on TV or radio shows. Professional media outlets do their homework. They can’t afford to put their name next to a non-credible source. A business broker that is taken serious and considered a credible source by mainstream media deserves consideration. Credibility is not bought, it is earned.

6. Courtesy / People Skills – Take the time to interview the broker in person. Never hire a business broker without meeting them. If they’re not willing to take the time to meet with you, chances are they won’t put much effort into selling your business either. Once they’re in front of you, see how they interact with you. Are they personable? Do you trust them? Are they friendly? Are they educated about your business and the business brokerage industry? Make no mistake, this is a people business. People buy from people they like. If you don’t like the person you’re interviewing, chances are neither will a potential buyer for your business.

7. Education / Experience – Business brokers are professional service providers, like accountants, attorney, financial planners, etc. Make sure the person you hire to sell your business (or help you buy one) continually invests in their own education and professional development. Would you hire an attorney that doesn’t keep up with current laws? Would you hire an account that isn’t updated on the tax code? Your business is the largest and most valuable asset that you own. Make sure the person you hire to turn it into cash is someone that stays current on industry trends, government regulations, new pricing methodologies, marketing strategies, etc. Business brokerage is a full time profession. If your broker doesn’t invest in their own professional development, chances are there’s someone else out there that does and will do a better job at selling your business for the highest possible price.

The suggestions above are not fool proof but, they will get you pointed in the right direction. Don’t take the sale of your business lightly. Make sure you do your homework. If you do, the wheat will quickly separate from the chaff.