5 Things You Need To Know About Business Brokers Before Hiring One

As a business owner or aspiring entrepreneur, you will undoubtedly cross paths or hire a business broker sooner or later. Before you do, there are some important things you need to know about them. Some of these could benefit you if you’re trying to sell a business or break into a new market. So, here’s what you’ve got to know about business brokers.

1. What a business broker does

Business brokers usually work as individual professionals or within a brokerage firm. Their main services are assisting businesses or investors with selling or purchasing a business and transferring their assets. Essentially, they act as intermediaries between the seller and buyer of a business. While this may seem simple, they do quite a lot. 

When you hire a business broker, they don’t only do the tedious paperwork you want to avoid; they cover everything from analysing your business’ health to providing strategies to improve your business before its valuation. 

Speaking of valuation, some brokers offer this service, too. They will market your business for you, and when you receive letters of intent to purchase, they'll filter them to ensure you find the right buyer. Furthermore, they will also handle negotiations and all the legal specifics of the sale. If you're representing your company during this process, corporate public speaking training can help you communicate effectively and confidently in meetings. They'll do virtually everything for you, but strong communication skills can make all the difference.

2. How they sell businesses

The paragraph above gives insight into the process that business brokers typically go through when they sell a business. There are tons of brokers in Australia, and many have their own methods and techniques, so they may differ from what we explain. However, we’ll provide you with the gist of it. 

During your first consultation with a broker, their main goal will be to try and learn as much as possible about your business. And before putting a price on your business, they’ll need to access your financials and assess your operations. This helps them identify any red flags you can deal with before taking the business to market. Following this, they may do your EBITDA analysis and a valuation of your business if they are certified to do so. 

Likewise, they would need to know your business to market it. Thus, they’ll research your business to market it to the appropriate buyers. Once the business is on the market, they’ll receive letters of intent from potential buyers whom they’ll shortlist and filter to find you the right buyer. 

Following the negotiations, your broker will manage the due diligence, the paperwork, and any legal requirements you must abide by during the sale. Once you’re happy with their negotiated price, they’ll facilitate the sale's closing, take their cut, and you're all set. 

3. Understanding their fees

Another thing to know before hiring a business broker is how their fees work. Generally, a business broker will earn from a percentage of the total sales price of your business. Usually, this would be estimated between 5 to 10% of the total sales price. However, this payment structure puts significant risk on the broker if you withdraw from the sale after they’ve done all the work. To avoid this, some brokers have an exit clause agreement or charge an upfront fee to cover them in case of this. 

4. How they maintain confidentiality

A concern we often hear from business owners regarding the confidentiality practices of business brokers. During the sale of a business, businesses allow potential buyers to take a peak into their books to see how they’re doing. This information is confidential, as is the news of the sale. 

For example, when a business sells, its employees could fear for the security of their jobs. Or they may not feel comfortable with the new owners and may defer to another job. This can create issues for the business as employees are considered an asset. In addition, businesses that are selling or merging can be significantly impacted by sensitive information leaks that could risk the quality of their sale or merger. For that reason, confidentiality is vital. 

Many reputable business brokers in Australia know the impact of confidential information getting out. Likewise, their interests align with yours because they earn from your business's sales. Thus, they wouldn’t want to do anything to jeopardise this. 

5. How to find the right broker

In a perfect world, everyone would get along and work well with each other. Unfortunately, we don’t live in a perfect world, and finding the right fit when hiring a broker is important. Remember, you’re trusting this individual or firm with your business essentials. So, it’s important to try to find a broker who knows your industry, has a good reputation for being dependable and has a good track record for selling businesses in meaningful time. 

Should you hire a business broker?

Hiring a business broker is one of the best things you can do when trying to sell. Experienced business brokers, like Lloyds Business Brokers in Sydney, have a network of contacts and know how to market your business or optimise the price you get for it. If you plan to sell your business, we highly recommend hiring a business broker like Lloyd’s Business Brokers. 

Final Thoughts

It might seem counter-productive to hire a broker, considering they take a cut of the sales price of your business. However, if you weigh up their experience, their resources, and the loads of paperwork they do instead of you, the ends may justify the means. At least now you know what to expect if you ever need to hire a broker.