Sell ​​a business? What not to expect from a trading broker – Part 2

In the first part of this article, I gave some examples of what a business broker cannot be expected to do when selling a business. In the second part, I cover more no-no when working with trade brokers.

Some business owners are looking to have multiple brokers working to sell their business. We refer to this as an open list. This can cause a lot of headaches for the owner. Most of my clients want the sales process to be kept confidential and an open list does not allow them to point out any breach of confidentiality. If five brokers are working on a listing, who will you also turn to when a potential buyer breaches confidentiality? An open list also invites broker judgments when closing time comes. Two trade brokers can claim that a buyer is theirs, which can ultimately delay the closing. It is understandable for a business owner to be concerned that a business broker is not paying enough attention to their business and that a nine to twelve month contract may make them uncomfortable. I generally give my clients an exit after a reasonable period of time if this is a concern. I indicate that an average company takes approximately nine months to sell.

Sometimes when I meet with a salesperson, they ask for commissions that are not realistic. Some sellers suggest that I can keep any amount above their target selling price. This is called net listing which is illegal in many states because commercial brokerage falls under the state’s real estate commission. It also paves the way for the broker to give an unrealistic asking price to increase the size of your commission. It also causes disagreements when the offers are lower than the indicative price.

Some business owners have no problem with a direct percentage commission, but ask me to add my commission to the sales price. Although this is a legal exit on the net list, it creates other problems. By adding the commission to the sales price, you increase the sales price above what the market will bear. This will reduce the number of people looking at your business and will ultimately take more time and the end result will be for the business to sell at market price anyway. There is nothing wrong with starting a little high, but you must be willing to lower the price if the market dictates it.

A salesperson should not expect a broker to deal with verbal financial figures. Sometimes when I meet a business owner, they don’t want to provide tax returns or financial statements. A proper valuation is made from profit and loss statements and tax returns. A good business broker will be able to reissue the profit and loss or tax return to show the true cash flow of the business. As noted above, buyers are more sophisticated and want to see accurate financial information before purchasing a business.

Trade brokers provide a valuable service to business owners selling their businesses. An experienced business broker should make the process easy (although it never is) for their clients. Having realistic expectations of your services should make the process easier for a business owner selling a business.