Compare these two anonymized reviews below, pulled from two different business brokerages on the east coast.
Review A: ★★★★★
“I am very impressed with the level of service that XXXX provided to me. They were very thorough from our very first meeting all the way to the successful sale of my company. I would highly recommend them to anyone considering the purchase or sale of a business.
Review B: ★★★★★
“Quite the horrible experience. I hired this firm to help me sell a technology company, and they executed poorly, with little to no communication, and a general lack of interest in helping me. They did however, collect $2,500 from me up front for an executive business listing contract, only to decline in interest in actually following through with appropriately marketing my company, and making efforts with interested buyers to close deals. Steer extremely clear.”
The importance of hiring a competent business broker cannot be understated. If you’re thinking about selling your business, here’s what you need to know about finding a business broker.
The Problem with our Industry
Business brokerage is an unlicensed profession. In 39 of our 50 states you do not need a license of any kind to sell a business. This means there are very few regulations around selling a business and no standards of care or protections for business owners.
The other 13 states only require you to have a real estate license to practice as a business broker. Those are: Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois (registration only), Michigan, Minnesota, Nebraska, Nevada, Oregon (only if real estate is involved), Rhode Island, South Dakota, Utah, Wisconsin, and Wyoming.
If you live outside the 13 states mentioned above, understand that anyone in your state can call themselves a business broker.
No, really. Anyone.
More importantly, you need to understand that a real estate broker is NOT trained to sell businesses. They’re trained to sell real estate.
The process of selling a business is much more complex, and since most business owners have the bulk of their net worth tied up in the business, the stakes are much higher.
Now that you know why a finding a good business broker is so important, we'll cover how to find the right broker.
How to Find a Good Business Broker
You need to find a broker/brokerage who has experience selling your type of business, accreditations, a positive reputation, and a high-quality marketing strategy.
1. Look For Experience and Accreditation
Like the REALTOR designation in real estate, the business brokerage industry has a few professional communities that were established to hold the industry to a higher standard. The most notable organizations are the International Business Broker Association (IBBA) and Mergers and Acquisitions Source (M&A Source).
The IBBA offers an accreditation as a Certified Business Intermediary (CBI). To achieve the CBI designation, brokers must complete 52 credit hours of required courses and 16 credit hours of electives, pass the CBI exam, and show evidence as a lead broker on 3 or more business transactions. Read more about the requirements here.
M&A Source Accreditation
The M&A Source offers an accreditation as an Mergers and Acquisitions Master Intermediary (M&AMI). To achieve this designation, brokers must have been the lead seller broker on 3 transactions of more than $1 million USD in sale price, meet the education requirements, and have more than 3 years of full-time M&A experience in the last 10 years. Read more about the requirements here.
As is the case with any field, accreditation does not always make a good broker, but it’s a reliable benchmark and a decent starting point. Take advantage of the IBBA's useful search-engine which you can use to identify the brokers in your area and their credentials.
2. Make Sure They Know Your Industry + Size
No two businesses are alike. However, businesses in the same industry (such as two pest control companies) share more similarities than a restaurant and a distribution company. It's not a hard rule, but specialization can be an important factor when selecting a business broker. Find someone who has:
- Sold a business in your industry
- Sold a business of your size
- Sells businesses in your area regularly
From understanding financials to marketing your business effectively and to the right buyers, these three factors play a key role in every aspect of selling your business.
3. Evaluate Their Public Reputation
What’s the best predictor of future behavior? Past behavior. A business broker’s reputation may be the most important attribute to evaluate.
Luckily for you, finding someone’s dirty laundry on the internet is easier than ever before. That said, be sure to dig past your initial impressions. Fake Google reviewers have become a real problem over the last 5 years, and many companies are using their services to inflate their Google reviews.
The picture below is taken from Fiverr.com, a website where freelancers offer a variety of services. Google is cracking down on these bootleg reviewers and penalizing the business owners who try and circumvent their system, but it takes time.
Your best option is to Google the brokerages in your area, read through their reviews, and ask anyone you're seriously considering for past-client references. Since selling a business is such a personal service, a good firm will have plenty of happy customers to vouch for them.
This is a critical step. Be aware that nearly everyone in the industry says they have the most comprehensive process, the best negotiators, and the most sophisticated selling strategies. You need to see those claims substantiated before you sign a listing agreement. We highly recommend asking for references from past clients.
4. Ask About Their Marketing Program
One of the biggest disparities between firms is the emphasis they place on marketing your business. Some firms have sophisticated strategies for marketing your business, while others do little more than place an advertisement on their website or an online business for sale site. While marketing your business online may be one component of a successful marketing strategy, it certainly shouldn't be the only one.
If you want to receive the best price and terms for your business (and who doesn't?), you need a brokerage that can get as many qualified buyers interested in your business as possible. The more competition you can create around your business, the better your deal will go.
In our opinion, the only way to do that is with a high-quality marketing program.
At MidStreet, we create a blind profile, a detailed write-up on your business, and a professional marketing video (here's an example). Then we deliver those items (while maintaining confidentiality) to a proprietary network of buyers, including high-net worth individuals, strategic acquirers, and private equity groups.
Ask the brokerages you’re considering to describe exactly how they market your business, and ask to see examples of their marketing materials. If they talk about the quality of their marketing but have nothing to show as proof, that’s a red flag.
Here's an example of a marketing video:
Trust your gut and find a broker you’re comfortable with. Selling your business is a long process, and along the way you’ll have to share plenty of sensitive information and have difficult conversations with your broker.
It may sound cliché, but you need someone by your side who tells you what you need to hear, rather than what you want to hear. Don’t trust any broker who tells you selling is going to be easy.
A good broker will be equipped to help you navigate all facets of a deal - from the logistical paperwork to the emotions of selling.
A good broker will look at your business and see more than dollar signs. They’ll see the employees, your reputation, how long you’ve been in the business, and what it means to you and your family.
A good broker will care about you and the legacy of your business.
Who you decide to hire is a big decision, but you’ve got everything you need to make an informed decision. Good luck, and please feel free to reach out with any questions!