Hiring A Business Broker: Red Flags To Look Out For

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Eventually, selling your business looms over every business owner, especially when the hard times arise. Some push through and come out the other side, while others sell. Regardless of your approach, knowing where to find a business broker and what the traits of a good broker are will help you if you ever decide to sell. You also want to know what red flags to look for so you can avoid hiring someone who isn’t going to do your sales justice.

What is a business broker?

A Business Brokers is a specialist in the business industry who specialise in the sale, merges, and acquisition of businesses. Brokers can either form a firm, which often has more resources and is able to manage larger transactions, or they can be run by individuals.

In general, business brokers would assist businesses mostly with sales, helping them optimise their business valuation, conducting the valuation, creating and implementing a marketing strategy to market the business to investors, conducting due diligence, and eventually negotiating with potential investors and closing the sale.

How can a business broker help you sell your business?

Every business is unique, but there are some similar methods that brokers can use to help you get a good sale on your business. Here’s how a business broker can help you sell your business:

  • Brokers bring their tools, resources and relationships to the table when it comes to selling your business. Because of these tools, they can help you achieve a better and faster sale
  • Because they know the industry, a good broker will create an effective marketing plan to help attract the right audience to your business
  • They could identify areas that might affect the sale of your business negatively and give you the time and a plan to improve that area
  • Brokers could create competitive tension between your investors with the aim to drive the price higher
  • They can present you with a realistic valuation of your business based on the current market

What red flags you should look out for when hiring a business broker

While many business brokers aim to offer ethical and professional services, there are some signs that should make you weary when it comes to letting them sell your business. Here are some red flags you should look for when hiring a business broker:

Lack of referrals

A lack of referrals is one of the first red flags for us. If you’re in the process of consulting a broker who has no backing behind their name, you won’t know whether they’ll pull off the sale well or not. Referrals and reviews offer you a view into how your contract with the broker will be. Rather go with a broker who has a proven track record with good reviews.

They base the valuation on you

Another red flag is how they process the valuation of your business. Genuine and experienced brokers should be able to come to a valuation of your business by doing their own research and their knowledge of the industry. If they have to rely on your opinion to value your business, they may not have the experience you’re looking for to sell for you.

Unrealistic transaction time

The standard business transaction when it comes to the sale of a business in Australia takes a minimum of two months or more, and that’s for a straightforward sale. If a broker says that the sale of your business will be shorter than that, then this is either a lack of experience or a “shoot from the hip” kind of answer. Experience brokers will be very upfront about the expected duration and would usually err on the side of caution to ensure the sale goes through without any hassles.

Large upfront fees

This is a difficult one because some brokers charge an upfront fee as a precaution against businesses choosing not to sell halfway through the process and leaving the brokers hanging. Other business brokers charge a success fee, usually taking a percentage of the sale price of the business.

If the broker you’re considering charges you a high upfront fee prior to your sale, it could be risky as you don’t know if the sale will succeed at this point or not.

Tips for hiring a good business broker

Hiring a business broker doesn’t have to be rocket science. Here are a few simple things you can do to try and find a good business broker:

  • Get referrals from other businesses in and around the area
  • Look online to see if those brokers have good reviews

For a reputable business broker, with tons of experience and happy clients, Lloyds Brokers in Adelaide is one of the best in Australia! It has a proven track record in multiple industries and over 40 years of experience, so we highly recommend going to them when looking to sell or buy a business.

Final thoughts

When you hire a business broker from the get-go, their goal should be to sell your business for you to the right buyer and at the right price while ensuring that everything is done ethically and above board. Business brokers who cut corners, aren’t upfront about fees and have shocking administrative skills can be sifted out by doing just a bit of research and asking a few questions when you meet. The right business broker makes all the difference in a sale, so choose wisely.

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