In the first part of this article I gave some examples of what not to expect a business broker to do when selling a business. In the second part I cover more no-no’s when working with business brokers.
Some business owners look to have multiple brokers work on selling their business. We refer to this as an open listing. This can lead to many headaches for the owner. Most of my clients want the selling process to be kept confidential and an open listing does not allow them to pin point any breach in confidentiality. If five brokers are working on a listing who will you turn too when a potential buyer breaks confidentiality. An open listing also invites broker law suits when it comes time for closing. Two business brokers can claim a buyer is theirs which can ultimately delay a closing. It is understandable that a business owner is concerned that a business broker might not give their business enough attention and a nine to twelve month agreement might make them uneasy. I usually give my clients an out after a reasonable period time if this is a concern. I do point out that the average business takes approximately nine months to sell.
Some times when I meet with a seller they make commission requests that are not realistic. Some sellers suggest that I can keep any amount over their target sale price. This is called a net listing which is illegal in many states due to business brokering falling under the state’s real estate commission. It also paves the way for the broker to give an unrealistic selling price to increase the size of their commission. It also causes disagreements when offers come in under the target price.
Some business owners have no problem with a straight percentage commission, but they ask me to add my commission in the asking price. Although this is a legal away around the net listing it creates other problems. By adding the commission to the selling price you are increasing the selling price above what the market will bear. This will reduce the amount of people looking at your business and ultimately take longer and the end result will be the business sells at the market price anyway. There is nothing wrong with starting a little high, but you have to be willing to drop the price if the market dictates this.
A seller should not expect a broker to work on verbal financial figures. Sometimes when I meet a business owner they don’t want to provide tax returns or financial statements. A proper valuation is performed from P&L statements and tax returns. A good business broker will be able to re-cast the P&L or tax return to show the true cash flow of the business. As noted earlier buyers are more sophisticated and want to see accurate financial information before buying a business.
Business brokers provide a valuable service to business owners selling their businesses. An experienced business broker should make the process easier (although it is never easy) for their clients. Having realistic expectations of their services should make the process smoother for an owner selling a business.