Striking A Fair Deal With Your Business Broker « Email Marketing
05.30.2010 · Posted in Email Marketing
Many of the questions that I receive are about working with a business broker and striking a deal that works. One might assume since I’m a business broker, I’d be completely biased. But I’m very much of the belief that the best deals are ones that work for both sides. So with that in mind, let me provide some feedback on some of the most common issues that arise when business owners hire a business broker to sell their business. I sell businesses in the Boston area, but the issues are fairly common anywhere:
“Why should I pay an up-front fee?”: Good question. As pointed out in a previous post, the majority of good business brokers charge some up-front fee. It ensures that the seller has some “skin in the game” and compensates the broker for the considerable up-front work that needs to be done. So it’s all about balance. How much makes sense? My take is that it should enough such that the seller thinks twice about whether they want to move forward, but not much more than that. Your broker should be running his business on success fees, not retainers.
“How do I know that the business broker will do a good job?”: Another good question. The reality is that for the most part, business brokerage is a completely unlicensed, unregulated profession. So my suggestion is to spend a lot of time with the broker and really get a sense of how they will go about selling your business. Make sure you have a strong comfort level, but also make sure that the business broker has strong skills and experience. Ask lots of “what if” questions to get a sense of how they’d handle various situations. But also make sure that you get references and call them.
“What if I already have a buyer?”: If there’s a buyer you already have in mind – - perhaps a friendly competitor, an employee or an individual you know – - then discuss it with your broker and work out a reasonable discount if the business is sold to that buyer. A 25% discount is fairly common. Why not more? By definition, if the business broker is doing a good job, he’s creating competition. That gives you some leverage. Too often if a friendly buyer thinks they’ve got a clear shot to buy the business, they’ll bid low and take their time getting the deal closed. So the business broker is providing some subtle leverage that that’s well worth the fee being charged.
“What’s the term of a typical business broker agreement? Do I have any obligation after the contract is over?”: A business broker agreement typically has a term of 6 to 12 months. That’s fair, since on average it takes 6 to 9 months to sell a business. Upon the termination date, the agreement often remains in force until either side terminates. Once it does, you may still have some obligations. For some period of time after the agreement terminates, you may be obligated to pay the broker their full fee if the business is sold to someone with whom the broker had contact during the term of the agreement. This period of time, often called a “tail”, is usually in the 12 to 24 month range. Make sure that the agreement defines a process whereby these “buyers” are flagged. What defines someone being included on this list? How does the broker keep you informed about who’s on this list? Make sure that it’s all spelled out.
Key business terms should be clearly defined in the agreement that your business broker asks you to sign. Make sure that you fully understand it before moving forward. The litmus test should be to make sure that you and your business broker have goals that are aligned to the greatest extent possible.
The Coral Group is a business broker, specializing in the sale of owner-run businesses in the Greater Boston and New England areas. To learn more about selling your business, the Coral Group web site, (see link below) provides real-world, practical advice. Coral Group Web Site: http://www.coral-group.com
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