How to Choose a Broker to Sell Your Small Business

By Pedro Hernandez | Posted June 24, 2013

Thinking of selling your business? Is an uncertain economic climate dashing your hopes of a retirement in paradise? Don’t despair.

"Buyers and sellers will always have to find each other in good and bad economic times," says Michelle Seiler-Tucker, president and founder of Better Business Brokers and author of Sell Your Business for More Than It's Worth. Of the 27 million businesses in the country, "at any given time 25 percent are up for sale," says the former Xerox sales executive.

And she would know; she's had a hand in successfully brokering several of them. Seiler-Tucker has closed nearly 98 percent of all offers that she has written. On average, she's able to get a 20-40 percent higher selling price for her clients.

How? A good broker does more than just manage a listing; Seiler-Tucker's an expert at evaluating businesses, knowing the market and connecting with buyers. She can also stand up to some scrutiny.

Questions to Ask A Business Broker

When it comes time to sell your business, Seiler-Tucker strongly suggests that you interview potential brokers, and that you ask the following questions:

  • How long have you been selling businesses?
  • How many businesses have you sold and in which industries?
  • Do you have any testimonials?
  • How do you find, locate and qualify buyers?
  • What is your closing ratio?

Above all, make sure that you "keep the sale of your business confidential," says Seiler-Tucker. A surefire way to spook your employees and customers and to send your company into a tailspin is to signal that you're interested in selling.

The Other Side of Selling your Business

Now, it's time to view the sale of your company from the broker's standpoint. Here are five questions that a good business broker will ask the business owner. Not only do these questions offer clues about what makes a small business desirable to buyers, they'll help you gauge whether a broker is serious about selling your business.

1. How is your company branded?

A strong brand helps build customer loyalty and will go a long way in securing a successful sale.

First, a savvy broker will help you determine if your company has earned "location loyalty or brand loyalty," says Seiler-Tucker. Location rules in real estate, but a solid brand trumps in business.

Seiler-Tucker asks, "Do customers go out of their way to purchase your product?" If they do, that's an indication of a strong brand, one that potential business buyers look for. So learn and implement some effective small business brand-building, even if you don't plan on selling any time soon.

2. Is it an actual business or a job?

If your company has "few to no employees," buyers may not bite, says Seiler-Tucker. And why should they? The minute the deal is sealed, you'll take your skill set and management expertise with you.

Take an honest assessment of your situation. If you're running a one-man or one-woman show, it's an indication that your business is essentially a profession. Except in this case, employer and employee are one and the same. Buyers want the whole package.

3. Do you have a healthy customer base?

When potential buyers consider buying a company, they want a good sense of how the prospective customer base affects the bottom line.

If "most of [a company's] revenues are tied up in just a few customers," it's a sign of an unhealthy customer base, Seiler-Tucker says. Losing a couple of important clients can spell trouble.

Instead, buyers look for a well-established and diversified customer base that can shake off the loss of some customers and keep on going. This gives them confidence that they're "buying a good, solid business with excellent branding." You know, that thing that keeps customers coming back.

4. Do you have more than one profit stream?

Buyers remain leery of one-trick ponies. They generally look for companies with more than one product or service that generates profits.

The marketplace is unpredictable, and buyers don't want to risk losing their investments on a supply chain meltdown or an economic downturn that negatively affects certain market sectors. For instance, a buyer may prefer an air conditioning and heating specialist that also offers facilities maintenance services over an HVAC pure-play.

5. Are your financials in good shape?

You may have healthy bank balances, but if you don't know how they arrived at that state, you're not keeping good books.

If a shoebox full of receipts doubles as your accounting department, or if you're on the verge of a panic attack when tax time comes around, there's a problem. Before selling your business, perform a thorough "financial housecleaning," advises Seiler-Tucker.

Buyers will want a down-to-the-last-penny look at your company's financial health. Don't let shoddy accounting torpedo your chances of selling your business.

Pedro Hernandez is a contributing editor at Small Business Computing and InternetNews.com. Follow him on Twitter @ecoINSITE.

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

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