What is a Business Broker and Should You Use One
A business broker is similar to a real estate broker
to the extent that they try to put buyers and sellers
together. Instead of real estate being sold, they focus
on businesses. The criteria to become a business broker
varies from country to country and their individual training,
history, specialty and area of expertise are things that
you must investigate. Some brokers work independently
while others work for a brokerage company. Business Brokers
work on commission and if you do not ultimately buy a
business then any work that they have done for you is
not compensated. Brokers prefer to work with knowledgeable
buyers and if they have to spend their time educating
you then they cannot make money. They can be an effective
tool for you to use if you can provide them with a clear
mandate of what it is that you are looking to buy. Avoid
generalities; explain your strengths, weaknesses and objectives
and never mislead them.
Understanding Their Challenges
Ninety percent of the potential buyers that brokers
work with never buy a business. That is why they may be
hesitant when working with new clients until you demonstrate
your sincerity and commitment to buying a business. Be
respectful of their time and realize that they have to
make a living. If at any time you decide to drop out of
the hunt to buy a business then let them know immediately.
Conversely, if you do not feel that they are extending
their best efforts on your behalf then find another one.
How They Can Help You
There are two significant ways that a broker can help
you. First, they can provide you with listings and information
on businesses that are available fro sale that you would
not discover on your own. Secondly, they can be "used"
as the "bad guy". Once you get into negotiations
with a seller you should let the broker deliver any bad
news or commentary that you may have. The reason for this
is because you are going to need the seller's help in
completing the deal and for training and assistance after
that. By letting the broker deal with the bad news you
can maintain the integrity of your relationship and keep
yourself in a third party position if renegotiations are
needed.
How They Can Hurt You
If you use the wrong broker they can hurt you significantly.
They will be a monumental waste of your time. They can
send you looking in the wrong direction altogether. They
can try to work both parties and may not make you privy
to everything that they are discussing with the other
broker. If they represent both you and the seller their
agenda may not be upfront and they could very well be
in a conflict of interest position. This is why you must
control the negotiations and use them properly.
Where To Find One?
Check your local classifieds to see which brokers seem
to have the most prominence and exposure in the "Businesses
For Sale/Business Opportunity" section. Start by
calling these. Also, if you are aware of any business
that have recently changed ownership, call the new owner
and ask them for a recommendation. Speak to lawyers, accountants,
friends, family, businesses associates and ask them if
they can suggest anyone.
How To Hire The Right One?
Before you hire an individual broker arrange to meet
with the owner of the brokerage firm. Let them know as
much as possible about your goals, experience, wants and
needs. Have them suggest a broker to you who they believe
will fit best with you. Do not allow yourself to meet
with the broker that they may recommend yet. Tell the
owner that you prefer to contact the broker to set up
a meeting.
When you call a potential broker, if they do not return
your call within 24 hours forget about them as a candidate.
When you do speak with them, don't tell them that you
met with the owner and don't agree to go to their office
to meet them. Tell them that you want to meet them outside.
Find out where their office is and where they live then
arrange to meet them 20 miles in the opposite direction
at a weird hour (i.e. 7:00 am on a Sunday morning). This
technique will demonstrate very quickly how committed
they are to getting you as a client.
Checking Their References
Get the names of buyers and sellers that they have worked
for in the past. Once they give you the list of 4-5 of
each, ask them for some more. The reason for this is because
they will give you the names of people that they believe
are pleased with them so try to get some additional ones.
Contact each one of these and ask them if they could tell
you what they believe the broker's strengths and weaknesses
are. Be sure to ask each one if they were going to buy
or sell a business in the future would they use them again.
Tell them the approximate price business you are looking
for and ask if they feel that the broker is well suited
for your needs. Ask them what it is specifically that
the broker did well or poorly for them.
Exclusive Agreements
Some brokers may try to get you to sign exclusive representation
agreements with them. Do not do this. Some brokers may
request an application fee. If you believe that the broker
is right for you then you can consider it if it's a small
amount. They must put in writing that if they do not perform
their duties then the money will be refunded, no questions
asked and when you buy a business if they are involved
in the transaction then they must also refund the money.
They will ask you to sign Confidentiality Agreements for
any individual listings they show you. This is for their
protection and it is only fair if they show you a business
first, then they should make the commission if you buy
it. Have a lawyer review it briefly in any case.
Their Commission
The seller is responsible to pay their commission from
the proceeds of the sale. Ask the broker to send you a
copy of the agreements that they have in place with sellers
so you understand the terms and conditions of their agreements
and to see if you have any exposure whatsoever. Generally,
the commission is 10% of the total deal regardless of
the terms of the agreement and this amount is split between
all of the brokers involved. Furthermore, if they work
for a brokerage company, part of their share goes to the
company.
What If They Don't Perform For You?
It's very simple; if you do not feel that the broker
is working out well then find another one. Remember, they
are entitled to receive a commission for any businesses
that they may have shown you, so when you hire a new one
give them all of these details and have them document
how the broker's commission will be split in the event
that you buy a business that your previous broker introduced
to you.
By Richard Parke Source: bizbuyerinfo.com
