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Before You Hire a Business Broker, Ask These Three Questions
By Quiet Light
Both buying a business and executing a successful exit have their own unique challenges. However, hiring a business broker can help simplify the entire process, regardless of whether you’re approaching the deal from a buyer or seller standpoint.
There are many benefits of working with a business broker, from making sure you have an accurate business valuation to navigating the due diligence process. In this article, we discuss:
- How working with a business broker can help you buy a successful business
- The benefits of selling your existing business with a business broker
- Where you can find a qualified business broker
- The three questions to help you find the right broker when selling your business
Four reasons to hire an online business broker when you’re purchasing a business
There are so many choices involved with buying a business that it can feel overwhelming. However, working with a qualified business broker can take all of the guesswork out of the purchasing process.
Just what does a business broker do? Simply put, brokers help entrepreneurs sell and purchase businesses. When you’re interested in buying a business, the benefits of working with a broker include:
- Access to pre-vetted business for sale that match your search criteria
- A professional to help you look past the multiple in the valuation process
- A guide through the often complicated due diligence process
- Negotiating experience help you close a successful purchase
Brokers can help you find quality businesses for sale
Once you’ve determined your purchasing criteria, defined your budget, and figured out financing, you’re ready to look for a business for sale. While you can turn to online marketplaces to find a business to purchase, the listings don’t always feature quality businesses. Working directly with a business owner who is selling for the first time and isn’t familiar with the exit and transition process can be frustrating.
Working with a business broker can help you find the right, high-quality business to buy and connect you with business owners who have the right reasons for selling. Established business brokers work with sellers who have already passed the vetting process. This means that brokers have connections with high quality sellers.
Reaching out to a business broker puts you on their radar. When they see a business owner planning to exit a company that lines up with all of your search criteria, they can facilitate a business sale where things run smoothly.
“A business broker can help you find the right, high-quality business to purchase.”
Brokers will help you determine the true business value
As a buyer, you want to purchase a business at a low multiple, which is generally seen as a better deal for the buyer. While low multiples can be a great indicator of value, it isn’t the only factor you should pay attention to when purchasing a business. In fact, if you’re only looking at the multiple to determine business value, you could end up getting a terrible deal.
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Business brokers have a holistic understanding of what makes a business a good deal for you as a purchaser. They’re looking at factors such as:
- Whether or not the business has growth potential
- The documentation processes currently in place
- What risks are involved
- How honest the seller is about their business
- Transferability of the business
Your broker can help you discover the full story behind the business. Their expertise and knowledge can help you decide on a purchase price that reflects the true value of the company you’re interested in buying.
“Business brokers have a holistic understanding of what makes a business a good deal for you as a buyer.”
You’ll have a guide through the due diligence process
When you’re acquiring a new business, due diligence is one of the most important steps. It’s also one of the more stressful components of buying a business. Even though a business could look fantastic on paper, it isn’t until you dig into the details that you understand whether or not it’s a good investment for you.
When you hire a business broker, you have someone in your corner to guide you through the entire due diligence checklist. Together, you’ll verify all of the information that the seller has shared with you about their business. This usually includes examining third-party documentation that corresponds to the profit and loss statements a seller provides.
A broker knows what information you should request from the seller and helps you process sensitive items with confidence. Having someone who has been through the process before is incredibly beneficial to you as a buyer.
Brokers can help you close a successful deal
Experienced business advisors have spent time closing deals, and that expertise benefits you as a buyer. They can help you put together your final purchase offer, work through the negotiations process with you, and close out a successful deal.
Then, after the business purchase is a done deal, your business broker can also help you step into the day-to-day operations of your new business. This assistance can include determining the transition period with the previous owner to help you learn the ropes to manage your business. Brokers can also assist you in reading through existing contracts or agreements and determining your next steps.
Four Benefits of Hiring a Business Broker to Sell Your Online Business
If you’re selling a business, a business broker can help make the sales process go smoothly. Some benefits of working with a business broker include:
- An accurate business valuation to help you sell your business for maximum value
- Knowledge of what potential buyers are looking for in an online business
- Access to a brokerage firm’s large pool of buyers
- The experience to make sure your sale is secure
Business brokers help ensure you’re receiving maximum value for your business
The first step in preparing your business for sale is knowing what your business is worth. Plugging in numbers to a business valuation calculator online can get you started, but working with a broker through the valuation process can give you an in-depth look at business value. Many online businesses are valued using the SDE Multiple Method, which involves two parts: the SDE and the multiple.
SDE stands for seller’s discretionary earnings. This is the pre-interest and pretax profits your online business makes before you take into account noncash expenses, one-time investments, your owner benefits, and any unrelated discretionary expenses or income. In other words, SDE is the total amount of money your business generates for you as a single owner.
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The next step in the valuation process is to multiply the SDE by the multiple. If your business generates $100,000 in SDE and is valued at a 3x multiple, it’s worth $300,000 ($100,000 x 3 = $300,000).
When you go through the valuation process with Quiet Light brokerage, a business Advisor examines your business to determine where your business stands in regard to our Four Pillars of Value. These pillars include:
Working with a business broker can ensure you calculate your SDE accurately and end up with an asking price that honors the work and energy you’ve spent building up your company.
Brokers know what buyers are looking for in a business
An experienced broker understands the online business model. Because they’ve brokered other deals before, they have experience and knowledge. Brokers know what buyers are looking for and understand how to close a deal.
This knowledge means that a broker can help you present your business in a way that grabs the attention of a potential buyer. Their expertise helps you present your business in a clear, trustworthy manner to potential buyers.
You can tap into a broker’s large pool of quality buyers
Finding the right buyer is a critical part of a successful exit. Business brokers have access to a large pool of quality buyers who are looking for businesses like yours.
If multiple buyers are interested in your business, that competition can drive up offer prices, which is great news when you’re looking to sell your business.
Brokers can ensure safe and secure deals
Brokers have spent time working with online business owners and cultivating relationships. This means that they have working knowledge of the strength of the current business market. They have a full picture of the process because they’ve worked with business owners who are selling their business, and buyers who are interested in purchasing.
This experience brings security to you as a seller. Working with a broker frees you up from sorting through the complex aspects of the sales process. You don’t run the risk of missing an important step because an experienced broker is working as your guide through the entire process.
“Brokers have spent time working with online business owners and cultivating relationships.”
Where to find an online business broker
Now that you know the benefits of hiring a business broker, you’re ready to take the next step and start looking for a business broker for your specific needs.
There are many places you can connect with business brokers, such as:
- Your own referral network
- Online broker directories
- The International Business Brokers Association directory
Finding a broker through your own business network
If you want to discover a new local restaurant, you might reach out to your friend who is passionate about exploring local spots and ask for their recommendations. The same is true when you want to connect with a high quality business broker.
Often, your own business connections are a great place to start when you’re looking for a business broker. Because they know you and your goals, they could connect you with a broker who is a great fit for your business needs.
People you can turn to for advice on hiring a broker could include attorneys, your tax professionals, and business contacts who have recently bought or sold a business.
“Because your friends and colleagues know you and your goals, they could connect you with a broker who is a great fit for your business needs.”
Searching broker directories for a connection
Online business broker directories allow you to sort through a large amount of individual brokers and brokerage firms all in one place.
You can search for business brokers by geographical location or industry specialization. If you’re looking to buy a business, you can search criteria could also include information about your budget.
Finding a broker through IBBA
The International Business Brokers Association (IBBA) is an association that provides services for business brokerage and mergers and acquisitions within the United States and Canada. Their services include business broker education, conference, professional designations, and an advanced search engine to help you connect with a business broker.
To run your search, you’ll enter your address, city, or zipcode to find a qualified broker near you. Or, you can narrow your search through their broker directory by finding a broker who specializes in your industry. You can also search for brokers with the Certified Business Intermediary (CBI) designation to find someone who meets IBBA’s high standards for education and ethics.
Are broker fees worth it?
The price of working with a business broker might be one reason you’re considering buying or selling a business on your own. Maybe you’ve invested your own time and money into building your business and seeing some of the profit from the sale of your business can be challenging. Or perhaps you’ve already set your budget for purchasing a business and adding another line item for broker fees seems like an unnecessary expense.
“The right business broker can reduce the stress of buying or selling a business, which can take a lot of weight off of your shoulders during the process.”
However, the increased value that you receive when you close a successful deal far outweighs the broker fees you’ll pay. The right business broker can reduce the stress of buying or selling a business, which can take a lot of weight off of your shoulders during the process.
Choosing the right business broker for your business needs
Working with a broker can help make buying or selling a business a smooth and secure process. When you’re deciding which business broker you want to hire, it’s important to know the services that brokers can provide for you.
Then, once you know what services you need, you’re ready to make that initial email or phone call to connect with the business broker you’re interested in hiring.
What services do business brokers provide for your business?
A broker can help you navigate the sales process. The services they provide include:
- A professional valuation of your company to ensure you’re selling your business for maximum value
- Guidance on how to increase your business’s value before selling
- The creation of a marketing package to showcase your online business to potential buyers
- Access to their network of qualified buyers interested in purchasing online businesses
- Assistance with negotiating offers from financial or strategic buyers
- Working with both you and the potential buyer to close the deal
- Minimizing any confusion when you transfer business ownership
When you work with a knowledgeable business broker, you can be confident that the online business that you’re buying or selling is valued at what it is really worth. You’ll also lower your risks for leaving money on the table if you’re selling a business, or paying more than a fair price as the purchaser.
Three questions to ask business brokers before hiring them
If you decide to hire a business broker to buy or sell an online business, you want to work with someone who is honest and experienced. But how can you tell someone is a good fit for you and your business goals in those initial conversations?
Here are a few different questions you can use to start a conversation with a broker you’re thinking about hiring:
- How do they value a business?
- Does their area of expertise match the type of business you want to buy or sell?
- What does their network look like?
What does their valuation process look like?
The first step to buying or selling a business is knowing what a business is worth. If you’re ready to make a successful exit, an accurate valuation provides a clear understanding of your current business value as well as strategies to increase that value. And if you’re on the purchasing side of the deal, you want to know that you’re paying a fair price.
If you’re selling a business, pay attention to how a broker values your business. Do they know to ask specific questions about your business so that they can accurately evaluate your business? Or are you having to bring up parts of your business that they didn’t even know to ask about?
After the valuation is complete, pay attention to the numbers. Does it seem like the broker overvalued the business you want to sell? If you’re interested in purchasing a company and you’re looking at the valuation price the seller presented, is the broker quick to agree? Do they hesitate to ask questions or dig deeper, leaving you without a full picture of the business?
You want to hire a business broker who helps you set realistic expectations for the selling or buying process.
Have they worked with businesses that are similar to yours?
When you’re searching for a business broker, it’s important to look for someone who brokers deals within the business industry you’re interested in. Because of the different types of business deals, that specialized experience is beneficial to you whether you’re buying or selling.
You wouldn’t sell your small online business through a broker whose portfolio features large, brick-and-mortar stores. Pay attention to who the brokerage firm has worked with before and see if their experience aligns with your needs.
Do they have access to a large pool of qualified buyers?
Remember, one of the main benefits to working with a broker is their connections. If you’re selling a business, you want to tap into a broker’s wide pool of high-quality buyers. And if you’re interested in buying a business, you want to be confident that your broker knows which businesses are out there for sale on the market.
Experienced brokers have spent time building up business relationships. It’s not uncommon for a broker to know a previous buyer who is the perfect fit for the business you want to sell. Or, they might know of a business that’s coming up for sale that matches all of your purchasing qualifications. If so, this could open up new opportunities you might not have encountered if you were buying or selling a business on your own.
There are many benefits of working with an honest and knowledgeable broker whether you’re looking to buy or sell a business. From the initial valuation to a successfully closed deal, you can rely on the experience of a broker to help reduce the stress often involved with transferring the ownership of a business.
If you’d like a free, no-obligation valuation of your online business or you want to talk about any of the businesses that are for sale, reach out to us—we’d love to learn more about you and the dreams you have for your business!