A Good Broker is Essential

Who Does the Broker Work For?
A business broker works for the client who engages them. If you are selling a business, the broker will act for you on the sale of that business and is responsible to you, their client. The broker still has a responsibility to the buyer of the business in providing, under law, a duty of care but in essence is working for the seller.

" It is important to discuss and clarify what the broker is to do ..."

Even if the buyer befriends the broker and develops a relationship, the broker still is responsible mainly to the client (the seller), and therefore must act with all diligence in obtaining benefit for the client. However, a broker can also be engaged by a potential buyer, so in that case will be acting for the buyer in respect to assessing and finding potential businesses for the buyer to purchase.

When the buyer finds a business to purchase, the seller will generally have another broker acting on their behalf, so that there is an independent broker looking after the sale as well as looking after the purchase. However, where the seller of the business decides to allow the broker, acting for the buyer, to conduct the sale as well as the purchase, then the relationship can get blurred and it is important to discuss and clarify what the broker is to do and who the broker is representing.

What to Look For When Choosing a Broker
Here are some guidelines you can use:

  1. Has the broker had a background in business or accounting, or finance, or is he/she simply a sales person?
  2. Has the person qualified as a broker under the regulations?
  3. Is the broker working as a full-time consultant or does he/she have other business interests?
  4. Has the broker been involved in the broking industry for a while and does he/she have any letters of recommendation or testimonials.
  5. Has the broker been open or evasive about answers to all questions you have asked?

Red Flags When Selecting a Broker
Some signs you should consider as red flags include:

  • During your first meeting the broker says he/she can get your asking price or even higher. - Be wary of this type of optimism because often the talk doesn't match the walk.

  • A broker wants a significant part of his/her fee paid up front. - This is not the general policy of most brokerage firms and should tell you they are more interested in the money than the results.

  • The broker does not seem very grounded in business valuation.

  • Your broker should be able to give you a fair estimate or appraisal of what your business is worth.

  • The broker cannot show you any promotional material.

  • All brokers should have a summary of the types of businesses they have represented in the past and the results they achieved for others.

  • The broker is not licensed. Unless the person is an accountant or financial adviser you trust, it is best to deal with brokers who have qualifications and is licensed to sell businesses.

Unfortunately most brokers are qualified under real estate examinations, which approve them to sell real estate, including businesses.

Many do not feel this is a wise situation. Many feel only those people who have professionally qualified in accounting or with extensive business experience should be allowed to sell businesses.

The fact is, most real estate sales people are wonderful people to deal with but they do not have the necessary qualifications to sell businesses. Their lack of formal business qualifications, experience in accounting, finance or business operations can often disadvantage a business owner.

The moral of the story? - Always ask about the broker's experience before employing them.