How To Choose A Business Broker

Selling a business is a complex process requiring specific knowledge and expertise. As a business professional, making complex decisions is something you're used to doing, and selling a business all by yourself is not impossible. But for many entrepreneurs, the process can be overwhelming — especially when you have a business to run simultaneously. 

First, if you're considering selling your business, you should check out our article, "Ten Steps to Selling A Business,” to familiarize yourself with the different steps and terminology. You will see that one of our recommendations is to hire a reputable business broker. Aside from the headaches you'll avoid by allowing your broker to deal with many of the details involved in a sale, experts in brokerage and consulting have noted that 70-80% of small businesses never sell. Engaging a business broker will significantly enhance the odds of successfully selling your business, freeing you to move on to new endeavors or greener pastures. Plus, the added value a broker can bring to the transaction will likely offset the cost of their commission — but only if you choose the right business broker. 

We've put together a detailed guide to help you find business brokers and select the right business broker for you.

Where To Find Business Brokers

Initially, you want to cast a wide net and then narrow down your search as you continue to vet potential brokers. At this stage, the internet can be a smart place to start. Online search engines can help you get a feel for the broader landscape and a sense of the primary players (both individuals and firms). To narrow down your search, look at professional associations such as the following:

• International Business Brokers Association
• Association for Corporate Growth
• American Business Brokers Association

Memberships in key industry organizations are generally a good indicator of a broker's qualifications and reputation. Listing websites, such as DealStream, that specialize in offering businesses for sale are also excellent sources of information.

When it comes to person-to-person referrals, your local chamber of commerce can be a good resource. You should start attending chamber or industry events to network with people who can help you find a suitable broker or connect you with those who can.

You can also talk to professional service providers in your network, such as your CPA, law firm, or financial planner. These professionals are likely exposed to business brokers regularly, and since they know you and your business, they may be well-positioned to connect you with a business broker that is a good match for you. 

Finally, good old word of mouth can go a long way. Do the same name or names keep coming up? That's indicative of the size of the broker's network, which can prove critical to the transaction's success in many cases. Personal references can tell a lot about a broker's reputation in the industry — among buyers and sellers alike. 

Talk to your peers, especially business owners who've sold their businesses. Selling your business is often a once-in-a-lifetime event, and there's no substitute for personal experience from someone who has walked in your shoes. 

Five Key Questions to Ask When Selecting a Business Broker

By now, you probably have a shortlist of business brokers. But not all business brokers are created equal. To ensure that you select the broker best aligned with your goals, you'll need to ask the right questions. 

Here are five essential questions that should be part of your conversation when vetting brokers.

Question #1: What's Their Core Competence or Specialization?

Selling a business often requires industry-specific expertise. For example, selling a medical practice involves considerably different expertise from selling a restaurant. 

For this reason, many business brokers specialize in specific industries. Select a trusted broker with expertise and experience in your industry.

Question #2: What's Their Track Record?

When considering a business broker, that broker’s track record is a critical piece of information. 

You want to work with a business broker who knows how to close a deal. To assess their success, ask how many companies they've sold out of the total number of companies they’ve represented. That number is called their "close rate," and it is a key performance indicator. 

Feel free to dive deeper here. Ask them how many businesses similar to yours they have sold. Be as specific as you can when asking questions. You want to know how big these businesses were, how many employees they had, how many locations were involved, and in what industries they operated. A broker that is a good fit has successfully sold businesses like yours.

Question #3: What's Their Marketing Process?

Before deciding to work with a broker, you want to know how they intend to market your business to prospective buyers. A broker's marketing plan will significantly impact their ability to attract quality potential buyers. 

Suppose a broker uses digital marketing or a proprietary email list. In that case, it's generally a good indication that they have a well-rounded marketing plan to ensure your business gets in front of the eyes of qualified prospects. It's critical that they employ a modern marketing strategy based on a mix of inbound and outbound marketing efforts. To ensure that their marketing capabilities are top-notch, ask to see examples of materials they intend to use — from documents such as Offering Memorandum to marketing collateral such as videos. 

A membership with an online listing website, such as DealStream, is excellent for attracting interest to your business from a wide range of potential buyer leads. 

Ask for referrals to help narrow your decision down to one final firm or individual you'll trust with handling the whole selling process. They should be able to connect you with other business owners with whom they've worked.

Question #4: What's Their Fee?

Before hiring a business broker, you need to know how much they charge. Business brokers charge two main types of fees for their services: a success fee and a retainer.

A success fee, or a commission, is the percentage brokers take at closing. It's expressed as a fixed percentage of the value of the sale when the transaction is closed. Small businesses often pay a 10% success fee, but that percentage tends to drop for larger enterprises.

A retainer is a fixed dollar amount, charged as an upfront lump-sum payment or split over a specified period as a monthly charge. 

Some brokers may offer a combination of both. This means they charge a retainer at the contract's start and a commission or success fee after selling the business. Typically, this will involve a lower commission combined with an upfront fee. 

Some brokers will only get involved in a portion of the selling process because they specialize in certain aspects of the transaction. For example, some firms will specialize in business valuation, in which case they will charge a valuation fee.  

Remember that some business brokers will require you to sign a contract for a specific period, such as one year or six months. Make sure the agreement addresses what happens if either party wants to terminate the business relationship. 

Question #5: Is There Anything Else To Consider?

Although it may look like fees will eat your proceeds from selling the business, don't choose a broker based on costs alone. Sometimes the more expensive option is the better option.

It's vital to consider the full scope of services covered by the fees and compare it to other brokers you’re considering. An option that seems more expensive at first may turn out to be cheaper if it covers a broader range of services.

As compelling as it may seem, don't immediately select the broker who tells you your business is worth the most. At this stage — while you're still vetting brokers — they may be incentivized to tell you what you want to hear to get your business.

Your Next Steps to Achieve Successful Outcomes 

Having a good business broker on your team, one with solid qualifications and a strong reputation, can empower you to make the best possible decisions during a sale and will eliminate a sizable portion of the stress involved in the process. Every business is unique, so it's essential that you thoroughly evaluate potential brokers to identify the one that best fits your needs. Be sure to check out the other guides, lists, and valuable articles we have on our site. We work hard to provide you with the best information and helpful tips to meet you wherever you are in your buying, selling, or other investment pursuits. Remember: Whether you choose to do it alone or hire a business broker when selling a business, DealStream can help. As a global B2B marketplace, DealStream has more than 20,000 options listed for sale, including established businesses of all sizes across different industries, cities, states, and countries. List your business for sale and get the selling process started!