01/05/2022

4 Questions to Ask Before Hiring a Business Broker

Author: Mike Donahue
Categories: Business Brokers
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When selling a business, one of the biggest impacts on the sales process will be whether you choose to employ the services of a business broker or navigate the sale yourself. Remember, though, not all business brokers are created equal. Here are four important questions to ask a business broker before you commit.

1. How will you protect my confidentiality?

Confidentiality is absolutely critical when selling a business, so it is equally important that you work with business brokers who have protocols in place for protecting that confidentiality.

A lack of protocol around confidentiality is more than a red flag; it is a dealbreaker. If competitors are made aware of an impending sale, they may try to use the information to sell against you. If customers hear that you are selling, they may assume trouble and begin to shop around. Likewise, if employees hear that you are (or even might be) selling, they may question their job stability and begin to look for employment elsewhere.

Business brokers can protect confidentiality by reaching out to prospects and fielding inquiries with teaser information, never mentioning your name or the name of your business. Then, after thoroughly qualifying a prospective buyer, responsible business brokers will ensure that a non-disclosure agreement is signed before releasing any sensitive information.

2. How much experience do you have selling businesses in my industry?

Prioritize business brokers who have experience selling businesses that are similar to yours, whether in your particular industry or those with a similar business model. The advantage of this is twofold: one benefit is the business brokers’ prior knowledge of the nuances to the industry itself, and the other is the likelihood of having existing connections to buyers in that industry.

If a broker does not have experience selling businesses in your industry, it does not necessarily have to be a dealbreaker, but it is a reason for pause. Remember, however, the question is not “how much experience do you have working in my industry.” You do not necessarily need an industry expert. Business brokers are experts at buying and selling businesses; that is the experience to look for. Thus, business brokers with experience buying or selling business in your industry could serve you very well.

3. How many businesses of my size have you sold?

In addition to having experience selling businesses in your industry, it is important to consider whether the brokers have experience selling businesses of your size. There can be quite a large difference in the nuances of the sale of a $1 million company versus a $50 million company, including the types of buyer pools that may be interested.

Businesses valued at under $10 million are most often acquired by individual or financial buyers. Businesses valued at over $10 million, by contrast, can garner interest from additional buyer pools including private equity firms and larger strategic buyers.

Working with business brokers who have not successfully sold a business similar in size to yours is a red flag and not advisable. Keep looking until you find a brokerage firm that has the kind of experience that will get you to a successful closing at top dollar.

4. How will you value my business?

There are numerous ways to value a business and it is not a generic formula based on a multiple on your financials. Successful business brokers know that an accurate business valuation is quite complex, and no single formula works for every business.

A business valuation provides crucial financial information about your company. Another key factor in selling your business is verifying that it meets current lending guidelines prior to going to market. A large step toward ensuring a successful sale is beginning with a business valuation that can hold up to the scrutiny of a lender’s pre-screen. This kind of valuation requires more than one ill-fitting cookie-cutter formula. Work with business brokers who have the experience and take the time to complete a thorough, insightful valuation.

Hiring a business broker can make all the difference in the sale of your business; take the time to ask these questions and find a business broker that will help you achieve the best possible outcome. Over the past 25 years, Viking Mergers & Acquisitions has sold over 700 businesses, and the majority of those by volume were in the $1 million to $25 million sales price range. If you are considering selling your business, contact us today for a confidential consultation. We are here to help.

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