5 Red Flags in Choosing a Business Broker

When selecting a broker to sell your business, be aware of the following tips…

The broker wants a significant or total fee paid upfront.

Many brokers have begun taking upfront fees, but generally the total fee is a combination of an upfront fee and commission paid upon sale of the business. An unreliable broker meets with you, runs some quick numbers, tells you that you can get your price or even more for your business, and then asks for a check to get started. In many cases, business owners are so relieved that they’ve found a broker and elated that they’ll write a check on the spot, without checking any references.

During your first meeting, the broker says he or she can get your asking price or higher.

Be wary of too much optimism. The key to selling is that the price be reasonable. According to Tom West of Business Brokerage Press in Concord, Mass., most owners over value their businesses. An unreliable broker might suggest after a brief meeting with you that he or she can get you your asking price or higher for your business.

The broker doesn’t have a Web site.

Most likely, if the broker doesn’t have a site, he or she is behind the times. The Internet is a powerful marketing tool for business brokers, according to Cooper. Is the site well-written? That’s another way to gauge a broker’s competence, he adds.

The broker doesn’t seem well grounded in business valuation.

Your broker should be able to explain business valuation to you clearly and if he or she can’t, then how can he or she explain to a buyer what your business is worth? Make sure your broker is confident in this area.

The broker is not licensed to sell or lease real estate in your state.

Ninety-two percent of business brokers have a real estate license, according to an annual survey of business brokers West conducted. Even if your business doesn’t include real estate, make sure your broker carries the license. Also be aware that if a broker holds a real estate license doesn’t mean he or she should be selling commercial or residential real estate too. A good broker will hold the licenses but be focused on selling businesses.

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