What to expect from your business broker

BusinessesForSale: How should a seller go about researching and choosing a broker?

Delon Cheung: Use the various resources available to you such as the Better Business Bureau, online research and, most importantly, ask for referrals. 

Make sure you meet a broker face to face. You need to know who you are dealing with – after all, most likely you will only selling a business once and the broker you hire will be representing you and your company.

One of the best ways of finding a broker is by referral. Maybe you have a business associate, accountant or lawyer who can refer a broker. 

Failing that, speak to some brokers and ask them how they will sell your business and how much experience they have. Ask them to provide you with references from past transactions. 

Don’t be afraid to follow up on those references. Make sure you are 100% comfortable with the broker before you hire them.

BFS: Does the number of listings define a good agent?

DC: No. More important is whether or not you feel the agent is experienced enough to assist you on a transaction from start to finish. Listing a business and generating interest is only part of the job. Negotiating an offer and closing the deal is where an experienced broker can really make a difference. 

An experienced broker will be able to navigate all the obstacles that appear along the way, allowing the seller to concentrate on running the business

BFS: What should a broker do for the seller?

DC: An experienced business broker will help minimize the influence of the seller’s emotional attachment. They will be able to evaluate the business and provide an unbiased opinion. 

The main role of the broker is to help the seller reach potential buyers, successfully negotiate a deal and see it through to closing. An experienced broker will be able to navigate all the obstacles that appear along the way, allowing the seller to concentrate on running the business.

BFS: Where should a broker advertise the client’s business?

DC: Without sounding too biased, I found most success with BusinessesforSale.com.

BFS: Can a broker represent the buyer and seller?

DC: Technically, yes. However, my feeling is that there will always be a conflict of interest. How can a broker represent a seller to the best of his ability, yet at the same time try and get the best deal for the buyer?

BFS: Should a broker attend the meeting between the seller and buyer or not?

DC: Yes, why else are you paying your broker? The broker is there to act as an intermediary and to help you negotiate a successful transaction. An experienced broker will be able to direct and filter questions accordingly.

BFS: Should confidentiality agreements be used?

DC: Absolutely. A lot of the information we are dealing with is very sensitive and it doesn’t help the seller’s business if staff, customers, suppliers and competitors are aware the business is for sale. 

BFS: How should a seller protect themselves and their business when selling?

DC: There are several things a seller can do:

• Be honest when providing information to the broker. Have the necessary paperwork to back up what you are saying. If the seller is hiding anything, you can be sure a buyer will find out during due diligence.
• Make sure confidentiality agreements are signed and sufficient information is known about the buyer before releasing information.
• Make sure you continue running your business as normal – it should be business as usual.

BFS: What rights does a seller have when their agent goes into administration?

DC: In Canada, brokers who are licensed realtors are covered under the Real Estate Services Act and have Errors and Omissions Insurance.

BFS: Should you pay for a valuation or not? 

DC: Not all businesses will require a full valuation. A good business broker, given sufficient information, should be able to provide a good indication of value for your business. 

However, if you are buying or seller a business with property, machinery or where a sizeable part of the business is made up of intangible assets, you may wish to hire the expertise of an appraiser to provide a third-party opinion. 

BFS: Is it fair for brokers to charge an up-front fee?

DC: Do you want your business sold? If a seller is unwilling to pay an up-front fee, how serious are they about selling?

We are coming across more and more brokers charging up-front fees. There are many costs involved in selling a business, not to mention the many hours spent on working on each transaction. In short, as with anything in life, you get what you pay for.