Engaging a Business Broker
When using a business broker, the broker will do several things right after you’ve engaged the broker to represent you and list your business. They will prepare a blind profile, which gives summary information about the industry and your business without disclosing the name or exact location of the business. Similar information will be used by the broker to list the business on the Internet. DeFoor Business Services subscribes to the highest traffic business for sale websites to give your listing extensive exposure to potential buyers.
In addition to listing your business on popular business for sale websites, most brokers also have their own database of buyers. Your business profile will be submitted to the broker’s own universe of buyers that may a fit for your business.
The broker will obtain a lot of preliminary information and use that information to prepare a document called a confidential business profile or confidential business memorandum. This document contains narrative and financial information about the business.
How Business Brokers Help Sellers
Using a business broker will allow you to operate your day-to-day business without having to stop to respond to inquiries. Once a buyer prospect submits an inquiry about the listing, the broker will do a few things to screen the buyer. The broker will obtain a confidentiality agreement from the buyer and most of the time will also ask for a bio from the buyer. Our firm has a buyer profile form and a buyer intro form we use for that purpose and we require a confidentiality agreement from each buyer prospect prior to disclosing information about any of our client companies. We also spend a lot of time on the phone discussing the business and finding out more about the buyer.
After a buyer prospect reviews the confidential business profile or confidential business memorandum, they may have a series of questions they would like answered. That discussion is usually held between the buyer and the broker with the broker obtaining additional information from the seller as warranted. If those discussions lead to further interest from the buyer, then the broker will arrange either a conference call or a face-to-face meeting between the buyer and seller. The broker should have a representative on all conference calls and at all meetings between buyer and seller.
Marketing a Business for Sale
Some sellers using a business broker expect the broker to do mass mailings, conduct cold calls, perform extensive buyer searches or utilize other direct marketing methods to find a buyer. In most cases, time spent doing that is unproductive. Our experience has been that the buyer of the business is more likely than not to come from an Internet inquiry. The reason for that is even though every broker has their own universe of buyers, those buyers frequently leave the market or have specific criteria they are looking for. Buyers that search the Internet for businesses to buy are currently in the market and are ready and capable. Brokers that utilize specific types of Internet marketing techniques, which we utilize, usually generate more buyer interest from those efforts than from any other method of marketing the business.
The most important thing for the seller when using a business broker is patience. We never know if a listing will start getting traffic the first day or not for several weeks. It takes time to sell a business. The typical timeframe is six to twelve months after listing a business.
How Can Sellers Help?
What can a seller do to help the process? There are a number of things. Keep running the day-to-day business and don’t lose focus. Provide monthly or quarterly financial statements to the broker. Minimize personal items or commingling. Run it like a corporation even if it’s a small business. Delegate what you can. Help the business get to the point where you don’t have to be there all of the time for the business to be successful. Have good tax returns for lenders and buyers. If the buyer is obtaining a loan to finance the transaction, the lender will use the tax returns to determine what they will loan. The returns need to be clean and accurately reflect the operating income of the business. If you are running a lot of personal or discretionary expenses through the business, you won’t be able to maximize the sales price because you’re reducing your net profit through extra write-offs and deductions. That net profit on your business tax return is part of what determines what your business would sell for and doesn’t need to be minimized for taxes; it needs to be maximized for value.
Be prepared for lots of questions. The broker doesn’t know your business like you do. The broker can generate buyer interest but you will have to be the one that fills in the details about the day-to-day operations. Expect lots of questions and each buyer will probably have questions not previously asked.
Buyers want clean, detailed records and anything short of that makes it harder to sell the business and more difficult to get the best price. They want a business with room for expansion that can handle additional revenue. They want a business that has key employees in place and a workplace that is conducive to employee retention.
Using a broker requires realistic expectations regarding price and terms. Hardly any business sells for 100% of the asking price for all cash at closing. The seller needs to be flexible and understand a transaction may require some form of seller financing or a holdback amount that is to be paid at a future date. Accepting additional terms may result in obtaining a higher overall price than requiring an offer with fewer terms.
A business broker works hard behind the scenes to get your business sold. Often times, you are not aware of how much work or time it involves. That’s the way we like it. We do all of the time-intensive stuff while you run the business and at some point, it all comes together at the closing table.
Greg DeFoor, CPA, CFE, is a licensed business broker and was the 2015-2016 President of the Georgia Association of Business Brokers.