How to spot a bad business broker [Case Study]

Selecting a good business broker

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This article was originally published on 14th of January 2019

Like any industry and any sector the business sale market has some excellent representatives, but also some sharks. We want to arm you with the knowledge and information to select the best broker for your needs.

Business brokers in the UK are not regulated. It does also mean there isn’t a minimum standard in place to weed out those less capable. So how do you spot a bad business broker from the good ones?

What does your broker ask you?

A good starting point here is to assess what the broker is asking you.

Here at Uscita, we know there are many reasons for selling a business, and some of those affect the way in which we conduct a sale. We don’t need to be experts in what you do (that’s you) but we do need to understand enough to sell it effectively.

That process begins our first call or meeting. We are interested in you as well as your business.

  • How long you’ve owned it
  • How you got started
  • What is behind your decision to sell
  • Are you hoping to meet a specific sale deadline
  • What are you planning to do after you have sold
  • Who runs the business on a daily basis
  • What is your involvement as owner
  • then we get into the staff, premises, financial accounts and the business information you would expect

If your broker has jumped into business and shown no interest in you or your reasons for sale, they only have half the picture. It’s like a doctor jumping in with a prescription before knowing what your symptoms are.

Throughout the process of a sale, we continue to ask questions. Specifics about your and your role, as well as specifics about the business, its customers and performance. Your business continuously evolves, and we need to keep up.

doctor diagnosing a bad business broker

Don’t just accept what you’re told, ask questions.

Here are 8 main questions you need to ask the brokers who want to represent your sale.

1. Who will be looking after my sale?

Don’t assume that the person sat in front of you will be your point of contact. Some larger firms employ sales teams to provide valuations and sign up clients. They then hand off to admin teams who manage your sale and possibly a 3rd team which handles offers. So what’s the problem?

When different teams are involved you will have to repeat yourself. Information may get lost across departments.

Smaller firms may not boast the volume of sales that a larger firm has, but you will get personal attention.

2. How will you advertise my sale?

What you want to hear is a blended approach to marketing. Who knows where your buyer might come from. We have been surprised on a number of occasions with people relocating families across counties to buy the business of their dreams.

We a world where the internet is king your broker should be represented on the 2 largest UK listing websites.

  • BusinessesForSale
  • DaltonsBusiness

There are other specialist listing sites which may be available to your business.

Websites produce reactive, inbound enquiries. What you also need to know is the broker’s outbound marketing strategy.

  • mailing or emails out to their database
  • sourcing dedicated of marketing lists
  • industry specific publications/websites may carry a sale section
  • social media activities
  • leaflet drops

It is also important to mention networking here. If your broker is tied to the office and does not network with other businesses, they are missing a trick. Word of mouth, being able to reach out to fellow professionals in their network is all part of the business sale process.

Some marketing channels won’t be appropriate for your type or size of business, but you need to know your broker has a blended approach.

Work closely with your business broker

3. Have you sold a business like mine before?

In actual fact, if you have an bookkeeping business to sell, it is not necessary for your broker to have sold one in the past. What is necessary is sector experience.

In this example, you need to know they have sold professional service businesses before. It might be an accountant, solicitor, HR firm, translation business. Key is that the types of people who have enquired on those previous sales can cross their interest over to your business too.

What you don’t want is a specialist jumping across specialisms. Some brokers are exceptional at pub sales but wouldn’t know where to begin with an engineering business. Some specialise in dental practices but couldn’t sell a restaurant. Specialists are great, but sometimes a generalist will get the best results.

4. Did it sell for asking price?

You’ve established experience in selling similar businesses. Now find out what happened.

  • What price was it valued at
  • What price did it sell for
  • Why did the price change
  • How long did it take to sell

Here you are testing 2 things. How close the initial valuation is to the reality that a buyer was willing to pay. How well your broker knows their own client base.

5. How have you arrived at my valuation?

Most businesses sell for a multiple of profits. The experience a broker brings is to know what that multiple is. Like waves in the ocean, if your business is run well, you can expect your multiple to be on the top crest of your value range. If it is not run so well, your multiple will be in the trough of the value range.

Wherever your broker has placed your multiple, ask them to explain why. What factors of your business or how you run it has led them to believe it will achieve that multiple.

By doing this, you will sniff out if they are flattering you with an inflated but unrealistic value. You will also be able to correct any misunderstandings around how your business operates.

Curl of a wave representing high and low business values

6. What are your fees?

There are 2 models in general use. One charges a fee on you signing up as a client. This generally contributes towards the advertising overheads and costs of finding a buyer for you. The other does not. Both charge a commission on completion of your sale.

If you think about it, brokers all have the similar overheads and costs to cover. If you have one with no sign up fee, they will be making up for it somewhere in your completion commission.

Look at the total cost, not just the initial part.

7. Can I see your contract?

You’re business people and it is assumed that you know what you are reading. There is no cooling off period on signing the contract.

Don’t be rushed. Take your time to read and understand the contract you are presented with. If that involves a Q&A with the broker, make notes of their answers and let it form part of your agreement.

In our time as brokers we have seen contracts from clients who have not been well served elsewhere. Clauses to watch out for are;

  • rolling contracts with no end date
  • unfair termination fees if you wish to cancel
  • being charged huge advertising costs, free up to the point you cancel
  • sign up fees which are higher than completion fees. What incentive is there to find you a buyer?
  • annual renewal fees to continue marketing
Be clear on contract terms

8. Have you anyone I can speak to for a reference?

Hopefully the broker you are speaking to has been recommended to you by your accountant, IFA, solicitor or other business contact. If not, every good business should be able to provide references.

You can also turn to Google and search for reviews on your broker company.

How to choose a good business broker

The Cheshire Gap [Case Study]

When David approached us to sell his business, The Cheshire Gap, it was important that the broker he worked with delivered on the personal touch.

“My wife and I ran The Cheshire Gap, a Deli based in Macclesfield, for twenty years. Last year we felt it was time to move on and so we had to decide how to market the business.

I reviewed several agents online one of which was Uscita. A few other companies were suggested but I decided to contact Paul and Alex after reading their case studies and testimonials. Paul set up a meeting with me, and made me feel at ease with him and Uscita’s approach to marketing. I wasn’t just going to be a number, Uscita delivered the personal touch.

I’ve had other businesses in the past and so had been through the sales process before, but felt very much like a tick in a box. My experience using Uscita was very different. The approach was to gain the maximum value possible from the sale, whilst being realistic.

I was asked for a lot of information at the start of the process. Alex was very persistent. Now that the sale has been completed, I understand why all the information was required at that initial point. Providing this at the start of the process also meant there was less stress at the end when a buyer was found.

“My experience using Uscita was very different.”

Choose the right business broker

I had bought The Cheshire Gap when the business was four years old, so when it came to sell, I knew that the new owners would need help to understand how it worked.  I sold it to a father and son team, and I worked with them for a short period to ensure the handover transition ran smoothly.

If you’re looking to sell your company, my advice is to be prepared.

I used to work right up to Christmas Eve, it’s nice that for this Christmas I was able to relax and enjoy the festive season with family and friends. Selling the business has given me time to do all the things you never get round to doing!

I would certainly recommend Paul and Alex’s services, I already have in fact. I felt supported throughout. The process felt more like I had friends with me, rather than advisors. I can’t thank Uscita enough, I felt I always had someone on my side.”

David Reading, former owner, The Cheshire Gap

Conclusion

If you’re ready to start the process of selling your business, it begins with a valuation request. Let us know the best time of day for us to call you and everything else will stem from there.

What have you got to loose, you are now armed with all the right questions to ask.

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