How to Choose a Business Broker

Many business owners made their resolution to sell their company this year. If you are one of them, there are some steps you can take in selecting a business broker that will make your goal more likely to come to fruition.

Before we go into the list of questions to ask each prospective broker, first let’s clarify what added value a broker can provide. Business owners typically sell one, maybe two, businesses in a lifetime. All business brokers do is sell businesses. A knowledgeable business broker can make the entire transaction run smoother: finding the buyers, coordinating with the lawyers and accountants (and possibly lenders and escrow companies), handling the negotiations, keeping things on track for a timely close, and advising the owner throughout the entire process. They are there to make the seller’s (and buyer’s) life easier.

If you decide you would like professional representation for the process of selling your business, here are five questions you should definitely ask each broker you interview.

How long have you been a business broker?

While longevity does not necessarily equal quality, industry experience can be quite valuable. If the person you are looking to hire to help you sell your business has not been selling businesses for very long, what are they adding to the process other than a bill for their commission? Do you want to help them through their learning curve?

The reason to ask “How long have you been a business broker?” versus “How long have you been in business?” is an important one: Business brokers fall under real estate licensing requirements. With the slow down in the housing market, it is quite possible that some of those now underemployed individuals will use their exact same license, reorder some business cards, and now package themselves as merger and acquisition specialists. It’s perfectly legal. If you consider selling houses different from selling businesses (and it is!!!!), do you want them to include their previous career as part of their industry experience?

What is my business worth?

If you ever get an on-the-spot answer to this question, run! No one can tell you what your business is worth without analyzing your company financial statements and recasting them. Any reputable business broker will ask to see 3-5 years tax returns, a current profit & loss statement and balance sheet, and will have follow up questions for you.

If you ever get a price quote for calculating the estimated value of your business, run! Some companies out there will charge you anywhere from $5,000 to $80,000 just to tell you a number range of what buyers MIGHT pay for your business. Admittedly, when they are charging that much they do provide the information in a very nice binder, but the money is better spent elsewhere. There are business brokerage firms out there that will do the valuation for free and without obligation. It is worth your effort to find one.

How do you market your clients?

There are some business brokers out there that cold call potential clients saying that they have a buyer in the wings waiting to buy your company. This is impossible. No one is willing to buy a company sight unseen. Giving them the benefit of the doubt, they might have someone who has expressed an industry interest, but typically this line is used to get their foot in the door and get your company as a listing.

It is important that you agree with the marketing strategy that your prospective business broker proposes. Maintaining confidentiality is vital, so all marketing efforts must be done carefully, particularly when dealing with competitors and vendors.

Any marketing strategy should focus on the various buyer categories. Some businesses are better suited to individual acquirer, while others are better suited for another company to purchase. Your potential broker should be able to tell you not only who would be the best match for you company, but also explain to you the “why”.

How much do you charge?

Fee structures vary from firm to firm. In addition to the possibility of a charge for the initial valuation, there are a variety of other charges that might be imposed. Some brokerages charge a monthly fee to actively market the firm; others directly bill the client for all expenses incurred on their behalf plus a commission at the sale.

One thing to keep in mind is that if a broker receives his/her money up front (or on a recurring monthly basis), what is the enticement to sell the business? There are brokers out there that earn only a success fee – a commission paid directly out of escrow when the deal closes, so the broker gets paid only if you get paid. The fee percentage is based on the overall value of the transaction. Since there is no money due if a transaction is not completed, these brokers tie their financial interests to your business selling, which is why you are hiring a business broker in the first place.

Who will be handling the sale of my business?

You’ve met with a business broker who answered all the questions well, you feel comfortable with him/her, and there is great rapport between you. Before you decide to sign the representation agreement, it’s important that you confirm that it is that individual who will be handling your transaction.

Many business brokerage firms send their best people to meet with potential clients. They are very impressive and knowledgeable. Once the contract is signed, however, the account is handed over to a junior associate at the firm, and the initial contact person is not seen again.

Clarifying this point, in writing, can save much heart ache later.


By asking these questions, hopefully you will be able to find a broker that you are comfortable with and who will work in your best interest.