Selecting A Broker

Selecting the right broker is among the most important decisions for sellers, particularly since most offer exclusive listing agreements. Know the answers to these important questions:

  • How many companies does the brokerage firm represent? Some firms like Nicholson & Associates have a small number of assignments (such as 5 per agent) and give more personal attention–especially important if your business is unique. Brokerage firms with fewer listings tend to sell a high percentage of them. On the other hand, those with many listings generate a high volume of buyers, which is good for businesses like dry cleaners, liquor stores and others that require little buyer education.
  • How well does the broker present businesses? Does he/she prepare a detailed prospectus or a one-page summary? Are his marketing materials professional? Does he understand your business? A good presentation to a buyer and his/her advisors reduces uncertainties and results in a higher price.
  • Does the broker understand financial statements? Can he/she ask pertinent questions about the entries? Can he converse intelligently with your accountant? A broker who helps a buyer and his/her accountant understand your financial statements will reduce their natural skepticism and uncertainties.
  • How will the broker learn about your business? Has he/she asked about your products or services, suppliers, company history, personnel, financial details and the kind of buyer it will take to run the business?
  • How does the broker reach buyers? Does he/she actively solicit prospects using marketing methods such as the local newspaper, direct mail, calls to existing contacts, Internet advertising, trade publications, networking and multi-list services?
  • Does the broker solicit multiple offers? Some brokers are afraid multiple offers confuse the seller. In fact, your negotiating position greatly improves with multiple offers, so look for a firm that encourages bidding.
  • Does the broker restrict offers to one at a time? Some listing agreements actually contain a clause prohibiting the broker from presenting more than one offer to you. Make sure the firm you select gives you every advantage in negotiations.
  • What sales process does the broker use? Beware of those who simply place an ad in the paper and hope something will stick. Look instead for a broker with a formal process of targeting buyers for your specific business.
  • How does the broker maintain confidentiality throughout the sales process? As soon as buyers learn the identity of companies, they begin investigating and can breach confidentiality. Make sure your broker has a solid procedure for controlling the sales process and maintaining confidentiality.
  • How often will the broker communicate with you? Will he/she discuss possible buyers with you before introducing your business to them? Will he call even if nothing is going on? Make sure you’re comfortable with his level of communication.
  • What percentage of listings does the firm actually sell? The industry average is about 20%, but there are firms with much higher success rates. Nicholson & Associates, for example, sells over 90% of its listings.
  • What not to ask a broker: Do you have a buyer? All brokers “have a buyer” for your business. But without knowing your sales figures, profit or your company’s good and bad points, chances are slim that this “buyer” will purchase your business. Look for a broker that insists on using a professional process to find the right buyer for you.