Business Brokers – How to Choose the Right One

The vast majority of small businesses are sold without the assistance of business brokers.

But if you do decide the hire a broker, here are some suggestions on how to pick the right one and how to structure the agreement in your favor.

What Business Is The Broker Actually In?

In many states there is no training or certification needed to become a business broker. In other states, brokers are required to hold a real estate license.

In these states it’s common to find real estate agents that do business brokering as a side business. If you deal with a broker who is also a real estate agent, make sure that being a business broker is more than just his hobby.

You will pay a pretty penny for the broker’s expertise and experience – you should make sure they have that experience when it comes to selling businesses and not just experience selling houses.

Questions To Ask

If you hire a broker you will be working with them closely for months to come; they will have access to your most confidential business records; the amount of money you put in your pocket at closing will be influenced heavily by the quality of work they do.

Therefore, you absolutely must check them out.

Here are some questions you should ask any prospective broker before hiring him:

1. How long have you been a broker?
2. Have you ever owned a business?
3. How many businesses similar to mine have you helped sell?
4. Can I see a blank version of your Listing Agreement?
5. What percentage of you income comes from brokering and how much from real estate (If applicable)

Ask them to provide you with references from previous clients. Then, I suggest you do something very unusual: Actually call the broker’s references!
I know a lot of people ask for references just to see how the person will react when asked (and to see if they actuality have any). But you can learn a lot about the broker’s reliability and professionalism by talking to people who dealt with that broker when they were in the exact same spot you are in.

Business Broker Fees

There are two benefits a broker can provide the business seller. First, he can locate potential buyers while maintaining the seller’s confidentiality. And second, a broker will qualify these potential business buyers so the seller saves time by not having to deal with weak prospects.

The big negative of dealing with a business broker is his fee, which averages 10-12% of the sale price. This fee is charged to the seller.

There is also a minimum fee. A very small business will pay a flat amount, typically $8-$10,000, instead of the commission. For a business worth $50,000 this minimum fee actually works out to be a higher percentage than the 10-12% industry average. But as a matter of practice, brokers usually won’t be interested in your business unless the asking price is above $100,000.

These fees are the reason most business owners choose to sell their business themselves and rely on their lawyers and accountants for the professional assistance they need.

The Broker Agreement

If you decide to use a broker you’ll be asked to sign a broker agreement which will detail the his fees. If possible, have your agreement include the following clauses:

Timing of Payments – Have it written into the agreement that the broker’s fee will be paid at the time you receive the purchase price – not at the time the sale is closed. This way, if you finance part of the sale price over a number of years, you pay the business broker as you get the money, not all up front.

Length Of Agreement – Your listing agreement should be for a limited time. If the broker locates the buyer within that time he gets paid. Be careful of lengthy agreements that lock you in with one business broker for more than 6 months. If he doesn’t produce, you want to be able to try other options. A 6 month business broker agreement is the longest you should allow. However, because selling a business can be a lengthy process, 3 months is usually too little time for the broker to find the right buyer. Try to settle on something between 3 and 6 months. If after six months, you haven’t closed the deal but you think the broker has done a good job, you’re always free to extend the agreement. But you want to be free to decide on an extension 6 months from now, not today.

Broker’s Guarantee – Include a paragraph stating that if you find the buyer, you don’t have to pay the commission. Without this clause, the broker is usually paid no matter who locates the buyer. Before signing any listing agreement, it is best to have your attorney review it to make sure your interests are protected.

Best Resources for Small Businesses

Being a successful small business is not easy. The five core challenges most small business face are time management, pricing, cash flow, managing growth and marketing / client acquisition. In order to succeed, you must arm yourself against these challenges. The good news is that there are a number of fabulous resources to help you with these issues.

Actively seek out the right small business information.
Many small business owners are so over-extended that they neglect staying informed about business trends. This is a fatal error. In today’s modern marketplace, you simply cannot succeed if you run your business on intuition alone. You may stay afloat in the short run, but you will eventually lose out to better informed competitors.

There are a number of incredible online resources that are both free and invaluable. Sites like Inc.com and Entrepreneur.com provide tips on just about everything from starting your business to navigating advanced legal issues. They feature in depth information on running your business, leadership / management techniques, sales & marketing tips, small business technology and finances.

Helpful Tip: Set aside at least 1 hour each week to review these sites. If you find that you prefer to read in bed, consider subscribing to a few of these magazines. This information will make you and your business stronger.

Know your industry and target market in real time.
In our modern age, trends shift at break-neck speed. It is important to stay abreast of developments in both your industry and your target market’s microcosm. After all, more often than not, what concerned your target market 3 months ago is now ancient history.

Subscribe to industry related publications and consume the same media as your target market. If you sell jewelry for eco-friendly women in their thirties and forties, spend an hour each week reading news and publications that are relevant to that market. Likewise, be sure to check industry news every week. For example, using the same eco-friendly jewelry analogy, you might read up on green product developments, new fashion trends or even ecological political issues.

Helpful Tip: Set two separate Google Alerts – one on your industry and one for your target market – to send you period updates on relevant news. Google will send these news stories to you automatically, making it easy to skim over the headlines and read through the meaningful stories.

Find the right on-line partnerships.
The proliferation of online office supply stores makes economically and efficiently stocking your office a lot easier than it was 10 years ago. Buying office supplies online takes less time and makes price comparison easy. Because of online competition, online suppliers are eager to earn your business. The good ones will provide a wealth of free information on their site and happily take your calls to field questions and offer advice. For example, if you are looking for discounted printer ink cartridges but are a little confused about toner versus regular stores like compandsave not only provide free yet invaluable printer cartridge information resource center but they also eagerly accept calls and offer advice on how to save on office supplies.

Helpful Tip: When you find a supplier with great prices and customer service, hold onto them for the long-haul. A good supplier relationship can save you thousands, streamline your operations and free up your time so you can focus on growing your business.

Small Business Strategy: 4 Vital Tips for Success

Your small business strategy rests directly on the foundation of your marketing system; and if you don’t have a marketing system and you’re not planning on creating one, then you have no small business strategy. End of.

If being successful in business is important to you, then there is no alternative but to take marketing very seriously indeed, and to educate yourself to become very, very good at it. Frankly, the level of marketing expertise I see from most small business owners is embarrassing.

The furthest most of them go is to have some fuzzy notion about the need for more business, and then to leave the rest to chance, hoping, wishing and even praying for punters to walk through the door or hit their website and buy something from them. But hope is a rotten strategy for success.

If you want to enjoy the advantages of a successful marketing system, you need to understand most of what you listen to, believe, and probably think you know about marketing and small business strategy is incorrect. The business world is dominated by marketing myths, and they serve no one but a few phonies.

Strategy idea # 1: Marketing is a money maker

Most small business strategy is curbed by an unscientific “marketing budget”. But why? If you’re marketing properly, then you should be getting an expected positive ROI from everything you do. So… why would you limit your marketing according to some number a bean counter has pulled out of his butt? Bottom line: when your marketing is making money like this, and it’s measurable, trackable and predictable, be ready to plough back as much as you have into it.

Strategy tip # 2: Grab the keys to the Mint!

OK, now let’s pretend you have this stupendous marketing system and you know from experience there’s a 90 % probability every time you run it you’re going to make a handsome profit. A nice place to be, right?

Right. (it’s eminently practical for your business, too).

Nope. If you had any sense at all you’d keep pushing that button like a rat with a wire in its head giving it the shots of “happy juice”

Strategy tip # 3: Look before you leap
But, be smart about this. Start with small tests and monitor responses like a hawk watching a mouse. And even when you have a process that works, don’t wager more than you can stand losing, because the unpredictable happens, and you don’t want to be cleared out by rotten luck falling on bad judgement.

The safe thing to do is determine your evil “budget” as a fraction of profits, so the more you bring in, the more money you can spend on your marketing.

More than once small business owners have said to me they can’t do any more marketing this year on the grounds that they don’t have the budget for it, even though their marketing is making them a profit. Some years ago, right at the beginning of the 2007 recession, I heard a real estate agent say she was stopping all of her advertising, even though it was the only thing bringing in business. Now THAT is insane..

Strategy tip # 4: How to make it pay

So how do you know when your marketing is working?

When it’s making you money.

How do you know that?

By ruthlessly and conscientiously tracking and measuring everything you do.

So the “secret” here is to ensure that your small business strategy is designed in a way to let you track every sale to the marketing activity that brought it in. Right down to every email, postcard and sales call. You can never ever have too much information about this, since it’s the difference that’ll make you wealthy.

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