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Warning Signs When Choosing a Business Broker

Watch Your Step!

Watch Your Step!

An experienced UK business broker offers advice to help private company owners pick a competent broker when it is time to sell their company.

For most entrepreneurs selling their business is a once in a lifetime opportunity to raise capital. Selecting the right business broker is crucial if you are to get the best price for your life’s work. Part of this is selecting the right kind of business broker for your type of company (We tackled this in an earlier post The Different Kinds of Business Broker) but even if you pick the right kind of broker – how can you be sure they are competent, or even honest?

What Are The Warning Signs To Look For When Picking A Broker?

The broker does not seem to have a good grasp of business valuation.

A competent broker will quickly pull the relevant figures out of your accounts and explain how they are used to arrive at an estimate of value. He should be able to clearly explain the principals of business valuation, and how non-financial issues will effect the final selling price. There should be lots of questions about your customer base, suppliers, staff and other relevant commercial matters.

The broker immediately says he can achieve your asking price or higher.

Be wary of too much optimism. Especially if there is no subsequent explanation of how the valuation relates to your reported financial figures. In our experience most business owners are overly optimistic about the value of their business.

The broker wants a significant part or all the fee paid upfront.

We wrote about typical broker fee structures in this post The Different Kinds of Business Broker . In short upfront fees should range from zero for an advertising only broker, to a maximum of £15,000 for a corporate finance boutique. Something in the order of £5000 would be typical for a traditional business broker. In no circumstances should the upfront fees exceed 25% of the likely total fee for the transaction. Beware of the broker who runs some quick numbers, tells you that you can get your own estimated value or even more for your business, and then asks for a large proportion of the fees upfront to get started.

The broker asks for a long period of exclusivity.

If the broker asks for more than six months exclusivity they clearly have little confidence that they can find a buyer.  You need to be able to switch brokers if after a few months it is clear the incumbents are not delivering.

The broker cannot offer references.

You should never appoint a broker without checking references. References from former owners of similar sized companies to yours, and of a similar (though not necessarily identical) type.

The broker doesn’t have a website.

If they don’t have a website they are probably new to the business. You don’t want them learning on your life’s work.

The broker can’t show you marketing materials and progress reports from previous jobs.

He or she should be willing to share materials prepared for past clients to show you how they might handle your business.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

 
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