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How to Choose a Business Broker When Selling Your Online Business
By Ian Drogin
There are numerous steps to consider when selling your online business. From performing a valuation to finding the right buyer and negotiating, the path to a successful exit is full of new experiences for first-time sellers. Fortunately, if you work with the right business broker, they can dramatically simplify the exit process while helping you receive maximum value at closing.
In this article, we discuss everything you need to know about choosing a qualified business broker, including:
- What business brokers do
- The value that good business brokers bring to the table
- How to find the right business broker
- How to avoid common challenges when working with a business broker
What Does a Business Broker Do?
The profession of “business broker” (a.k.a. Advisor) is one that is little understood by those who haven’t worked with one. Even among businesspeople, many only have a vague idea of what business brokers actually do.
In short, a business broker helps owners successfully sell their businesses. This includes helping owners take steps to maximize their business’s value, finding qualified buyers, negotiating favorable deal terms, and facilitating a smooth transition.
There are several specific activities that brokers engage in to help their clients achieve a successful exit. These include:
- Reviewing financial statements
- Creating an add-back schedule
- Performing a valuation
- Providing recommendations to increase business value (i.e., medium- and long-term exit planning)
- Creating a marketing package
- Providing access to a wide pool of qualified buyers
- Screening potential buyers
- Facilitating communications and negotiations
- Evaluating offers
- Helping both parties close the deal
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Brokerage firms that specialize in online business exits bring a wealth of knowledge to the table to help sellers succeed. They understand exactly what a prospective buyer will look for, which enables them to present your business in the most comprehensive way possible. Whether you choose to use a broker or not, speaking with one can provide you with invaluable insight for navigating the selling process.
Three Benefits of Hiring a Business Broker to Sell Your Online Business
One of the first decisions to make when selling your business is whether or not you want to use a business broker. Below, we address three of the top reasons many owners choose to hire an Advisor when selling their business. We also discuss the primary reason a business owner may consider not working with one.
Know what buyers are looking for
If you work with an experienced broker, they’ll know exactly what a qualified buyer is looking for. This enables them to provide clear, personalized guidance to help you prepare your business for a successful transaction.
When you work with a broker, the first thing they’ll do is offer a free valuation. In addition to telling you a monetary figure of your business’s value, they’ll also provide a detailed overview of its strengths, weaknesses, and opportunities. In many cases, sellers choose to use that information to make strategic improvements to increase their business worth before selling.
Once you’re ready to sell, your broker will put together a comprehensive marketing package. Everything from your P&Ls to brokerage account details will be thoroughly examined to ensure they’re presented correctly. This allows potential buyers to quickly gather key information about your business, which builds trust and instills confidence. Because your Advisor understands the market, they’ll be able to ensure that you’re putting the right foot forward to make a great first impression.
“If you work with an experienced broker, they’ll know exactly what a qualified buyer is looking for.”
Access to more qualified buyers
Another key element brokers offer is their network of qualified buyers. When they represent your business, it will gain immediate exposure to their vast list of investors. Typically, this leads to you, the seller, getting more offers and a higher purchase price.
In addition to having a large list, brokers also have personal relationships with buyers they’ve sold other businesses to. Therefore, it’s not uncommon for an Advisor to already know someone who might be the perfect fit for a specific business they are helping to sell. This allows them to connect buyers and sellers who otherwise would be unknown to one another.
Higher purchase price and better deal terms
The benefits mentioned above lead to a natural outcome. Sellers who work with a broker typically receive a higher purchase price and better deal terms.
It should come as no surprise that buyers are generally willing to pay a higher price if you’ve taken proactive steps to prepare for a successful business sale. A broker’s guidance can go a long way when it comes to planning ahead and maximizing value.
Similarly, by providing access to more potential buyers, you’re likely to receive more offers. In turn, competition among buyers tends to drive up the purchase price, which is great news for you.
In addition to receiving a higher purchase price, brokers can also help you negotiate more favorable deal terms. Typically, this leads to you receiving more cash at closing, as opposed to being forced to accept a significant portion of the deal as a seller note or earn-out.
“Sellers who work with a broker typically receive a higher purchase price and better deal terms.”
Do the benefits of hiring a broker justify the fee?
The broker fee is the main objection some sellers have to hiring a broker. While no one likes paying a success fee and giving up part of their hard-earned purchase price, the cost is generally significantly outweighed by the increased value that sellers receive at closing. Not to mention, a broker can add tremendous clarity and peace of mind throughout the entire process—something that no seller should overlook.
Challenges of Working With a Business Broker
The right broker should help you avoid challenges, not create them. However, like in all service industries, challenges can creep up if you choose the wrong broker.
One of the most common challenges sellers face is unrealistic expectations. In some cases, brokers try to win clients by promising exaggerated values and quick closing timelines. While such promises are nice to hear, optimism soon gives way to frustration once you realize you’ve been operating under false pretenses.
At Quiet Light, we take great pride in avoiding such tactics and always being transparent with our clients, even if that means sharing difficult truths at times. To really pick the right facilitator for your deal, it’s important to know how to evaluate brokers.
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How to Hire a Business Broker
Given the importance of working with the right business broker, it’s essential that you know what to look for when evaluating your options. Below, we discuss a few different areas to pay attention to when speaking with brokers.
Are they genuinely interested in understanding your business?
Every business is different, so it’s impossible for your business brokerage firm to provide an accurate business valuation without first understanding your particular business.
When speaking with brokers, look to see if they ask detailed questions. Are they interested in your business’s story? Do they look critically at the financials? Do they spend time evaluating your trends? These are just a few areas they should be examining.
If a broker provides a valuation before actually looking carefully at your business, beware. That could be a sign that they’re more interested in signing you as a client than actually providing an accurate valuation. Of course, you want to steer clear of brokers who don’t have your best interests at heart.
Are they knowledgeable and experienced?
It’s best to work with a broker who has experience selling businesses that are similar to yours.
For example, if you own an Amazon brand, you might want to think twice before hiring a broker who specializes in brick-and-mortar businesses. Although there’s certainly some overlap between the two, the market for online businesses is much different than physical retail stores.
One way to gauge their experience is simply to look at their listings. If they’re representing other businesses like yours, that’s a great sign.
Additionally, try to assess how knowledgeable they are in their craft. Do they have insight into the current market and know what a potential buyer will value? Can they identify your business’s strengths and weaknesses? A good broker should be able to provide a wealth of knowledge to help you succeed.
Do they set realistic expectations?
As we discussed in the previous section, it’s essential to work with a broker who sets realistic expectations. If you don’t understand the market, this could be tricky to assess. There are some clear signs you should pay attention to, however.
If you tell a broker what you think your business is worth and they immediately agree with you without carefully examining it first, that should be a warning sign. More than likely, they’re trying to get you excited so you’ll commit to working with them.
“It’s essential to work with a broker who sets realistic expectations.”
An honest broker will do their own research before offering a valuation. In other words, they won’t just ignorantly agree with you. In fact, a good Advisor will be willing to push back when they feel that your small business is worth less than what you’ve been expecting. Those conversations can be sobering, but it’s essential they happen before you commit to working with someone.
Are they trying to “sell” you or provide guidance?
A good broker is always focused on providing valuable insight and letting you choose how to proceed.
Sometimes, that means letting you know that your business will be worth more if you wait six months to a year. At other times, it means respecting your decision to hold onto your business a bit longer for personal reasons. Essentially, a broker should fully support whatever is best for you, even if it means they’ll miss out on a deal.
If you ever feel pressured to sell, that should be a huge red flag. A broker who is more concerned about their commissions than your interests doesn’t deserve to work with you. Don’t let them talk you into doing something that doesn’t feel right to you. Instead, walk away and find someone else who respects your decision-making autonomy.
At Quiet Light, all of our Advisors have bought or sold an online business of their own. We understand all of the ins and outs that the process entails, as well as what it feels like to be in your shoes. If you want a free, no-obligation valuation of your business, please reach out to us and we’ll be happy to talk.
Thinking of Selling Your Business?
Get a free, individually-tailored valuation and business-readiness assessment. Sell when you're ready. Not a minute before.