Questions to ask a Business Broker Before hiring them…

You have two main options available when you decide it is time to sell your business. You can try to sell it on your own, or you can retain the services of a business broker to handle the details of the transaction. While it is possible to sell on your own, most owners simply don’t have the time, contacts or objectivity to negotiate a safe and fair deal. 

Using a third-party professional (a Business Broker) is often the best option, but only if you hire the right broker that properly represents your best interests. Hiring the wrong broker can be the difference between not selling at all and selling for a price you are satisfied with.

Here are Seven questions you need to ask Before hiring a business broker:

1. How much experience do you have selling businesses like mine?

It is important that you look for a professional that has prior experience selling a business like yours. Selling a gym is very different to selling a restaurant. Not only is it a completely different business model, but the target buyer is different as well. Successful business brokers will always have a number of experienced buyers in his or her back pocket, making it advantageous to work with someone that has existing connections to buyers related to your business and understands the nuances of that particular industry.

If you hire an agent that doesn’t have experience selling a business similar to yours, it will require them to learn your business and industry inside and out. This wastes valuable time that is better spent prospecting and negotiating. 

2. How many businesses like mine have you sold?

It is important to find out how many businesses like yours they have sold. Don’t confuse this with the business type -- as there can be a huge difference between business in a particular category eg. Big gym v’s small gym. Full group ex timetable v’s no group ex.

If a brokerage hasn’t successfully sold a business similar to yours, it is in your best interest to keep looking until you find one that is experienced and qualified to handle your listing.

3. How do you value a business?

Asking a broker how he or she values a business for sale will give you a good indication of how experienced they are. If they give you a cookie cutter response such as “net income multiplied by two” before asking you many questions, then turn around and run. Valuation calculations have so many factors to consider (building lease term remaining, Lease options, Equipment leases being Transfer or not, quality of membership base and so on…) -- the same formula doesn’t work for every business.

Most small businesses are valued on a multiple of PEBITDA Proprietors Earnings Before Interest, Taxation, Depreciation, Amortisation, which are the net profits of the business added to expenses that benefit the current owner(s) but do not necessarily benefit the business.

Business valuation is a complex topic, so steer clear of any brokers that mention a generic valuation formula, as every business is different.

4. How will you prevent my Members, staff and competitors from hearing my business is for sale?

Keeping the sale of your business confidential is very important.
Make sure to find out what policies are in place that keeps the details of the sale confidential.

If your staff or members are made aware of the sale they might interpret it as trouble -- when in reality you might be selling simply to pursue other opportunities. Additionally, you don’t want competitors to catch wind that you are exploring options to sell.

A great broker will be able to stir up interest by just providing teaser information or better yet have a number of qualified buyers ready to go.

Once a potential buyer expresses interest he or she will have to be qualified to ensure they have the financial ability to purchase the business. Once qualified, the broker should have a non-disclosure agreement signed prior to releasing any sensitive details.

Watch out for Brokers that just send out NDA (Non-disclosure agreement) to everyone.

5. How many qualified buyers do you have?

You might think that a broker who claims to have a large number of buyers would be a good thing, but this isn’t necessarily the case. In fact, someone claiming to have tens of thousands of qualified buyers at his or her fingertips is questionable.

It would be nearly impossible to build real relationships and qualify that many buyers. Anyone claiming to have tens of thousands of buyers more than likely has a generic email list and doesn’t know the buyers personally. A broker that specialises in selling businesses exactly like yours and has solid relationships with a couple of dozen buyers is much more valuable to you as a seller.

6. Mystery shop them and do they pass the “Cringe” test?

Don’t be afraid to Mystery Shop a broker first.  Enquire about a business they have listed and see how they treat you.  Do they respond quickly?  Will they give out sensitive information before NDA’s are signed?  Will they start wheeling and dealing before they understand your needs?  Do they talk about having offers already in hope that you will move quick?  Do you feel like you can trust them?  Do you feel like are you “being Sold”? Do they pass your Cringe Test or not?

How they treat you here is mostly likely how they will represent you if you choose to list with them.
Trusting your Broker is so important in this whole process.  If you don’t trust them… then find a broker you can trust.

7.  Don’t be afraid to ask questions about their Agency Agreements if needed before signing with them.

Agency Agreements can sometime be a little confusing with legal jargon however it is still important that you understand what agreement you are entering into. At no time should you ever feel pressured or rushed into signing a Brokers Agency Agreement.  So ask away your questions.  The broker should be able to answer your questions and if they brush you… move on to another broker who will take time to talk you through an Agency Agreement so you feel comfortable.