There is not much competition in the small business broker space. A handful of competitors usually dominate any single local market. How do you tell them apart? What makes one broker better than another?
Ask your prospective broker the following questions to ensure that you are working with the best of the best:
- How large is your database of buyers? - To effectively reach a critical mass of diverse buyers, the brokers contact list needs to be 15k+.
- How many websites is your listing marketed on? - Broad confidential exposure is the goal. Your broker should syndicate your listing on 15+ business for sale websites.
- What is their success rate of selling a listing? - Not every listing sells, but a good broker has a 60%+ success ratio.
- Has your broker covered the tax implications of selling? - Your broker is not your CPA (unless they are...), however they should be able to explain the basics of the net proceeds you will leave the closing table with. Has the prospective broker had this conversation with you?
- How many brokers are on their team? - The number of co-brokers can have a big impact on the pool of buyers you have to select from. The more brokers working on your deal the better success rate. A strong brokerage should have 10+ professionals pitching your listing to their networks.
- What experience and contacts does the broker have in your industry? - Strategically related companies are excellent sources of buyers. Does the broker have relationships in your industry to network your listing with? Have they sold a business in your industry? Do they have a list of buyers in your industry at the ready to hear about new listings from the broker?
- How many and what size deals have they closed? - An average broker closes 3-5 deals per year. A great broker closes 5-12 deals per year. In addition to the number of deals a broker has closed, it is also important that they have worked on deals that are similar in size to yours. A mid-market investment banker is as poor of a choice for a small business, as is a small business broker for a mid-market business.
- Does the broker employ an action strategy? - Can the broker bring multiple offers to the table at the same time so you can pick the right buyer at the right price?
- Are your phone calls and emails returned within 24-48 hours? The number one complaint of clients in the M&A space is that their broker does not get back to them either in a timely manner or at all. Does your broker drop the ball when it comes to communication?
- What is the strategic buyer strategy? A strong listing marketing strategy includes reaching out to strategic buyers via telemarketing, direct mail, and networking.
If your broker isn’t firing on all of these cylinders, keep looking. Success fees/commission rates are nothing if your broker can not bring multiple buyers to the table and SELL your listing. Ask critical questions of a potential broker to ensure that you are working with the industry's best.
Jamar Cobb-Dennard is a business broker and M&A attorney. Learn more about how to buy and sell businesses on Jamar's podcast, What's it Worth?
