How Do You Choose The Right Business Broker?

By Author: Mark Drake
Total Articles: 12
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Without the help of a business broker, the vast majority of small businesses are sold.

However, if you do decide to use a San Diego business broker, here are some tips on how to choose the proper one and structure the contract in your benefit.

What is the Broker's Actual Business?

In many states, there is no requirement for training or certification to work as a business broker. Brokers in several states are needed to have a real estate license.

Real estate agents that perform business brokering as a side business are common in these states. If you're dealing with a real estate agent who also happens to be a business broker, make sure it's more than a sideline.

You'll pay a premium for the broker's knowledge and experience, so make sure they have it when it comes to selling businesses, not just houses.

Questions to Ponder

If you engage a broker, you'll be working closely with them for months; they'll have access to your most sensitive business documents; and the amount of money you get at closing will be highly determined by the quality of job they do.

As a result, you ...
... should definitely check them out.

Before you choose a broker, you should ask him the following questions:

1. Have you been a broker for a long time?
2. Have you ever run your own company?
3. How many similar businesses have you assisted in the sale of?
4. Do you have a blank version of your Listing Agreement that I may look at?
5. How much of your income is generated by brokerage and how much is generated by real estate? (If applicable)

Request that they offer you with client references. Then I recommend that you try something out of the ordinary: Make contact with the broker's references!I'm sure a lot of people ask for references merely to observe how they respond when they're questioned (and to see if they actuality have any). However, talking to people who dealt with the broker when they were in the same situation as you will teach you a lot about the broker's dependability and professionalism.

Fees for Business Brokers

A San Diego business brokers can give the business seller with two advantages. For starters, he can find possible buyers while respecting the seller's privacy. Second, a broker will qualify these possible business purchasers, saving the seller time by avoiding dealing with unqualified buyers.

Dealing with a company broker has a number of drawbacks, the most significant of which is his fee, which typically ranges from 10% to 12% of the transaction price. The vendor is responsible for this cost.

There is also a set amount that must be paid. Instead of a commission, a very small business will pay a flat fee, often $8-$10,000. For a $50,000 business, this minimal price turns out to be a greater percentage than the industry norm of 10-12 percent. Brokers, on the other hand, are unlikely to be interested in your company until the asking price is greater than $100,000.

Most business owners avoid these fees by selling their company alone and relying on their lawyers and accountants for expert advice.

The Brokerage Contract

If you want to hire a broker, you will be required to sign a broker agreement that outlines his costs. If at all possible, incorporate the following clauses in your contract:

Payment Schedule - Include a clause in the agreement stating that the broker's fee will be paid when you receive the purchase price, not when the sale is completed. If you finance a portion of the sale price over several years, you can pay the business broker as you receive the funds, rather than all at once.

Your listing agreement should be for a specific amount of time. If the San Diego business broker finds the buyer within that time frame, he is compensated. Be wary of long-term contracts that bind you to a single business broker for more than six months. You want to be able to test other choices if he doesn't produce. The maximum length of time you should allow for a business broker agreement is six months. However, because selling a firm might take a long time, 3 months is often insufficient time for the broker to identify the proper buyer. Choose a period that is between 3 and 6 months long. If you haven't finalized the deal after six months but believe the broker has done a decent job, you can always extend the arrangement. However, you want to be able to decide on an extension in six months, not today.

Include a statement explaining that if you find the buyer, you will not be required to pay the commission. If this clause is not included, the San Diego business brokers is normally compensated regardless of who finds the buyer. It is advisable to have your attorney analyze any listing agreement before signing it to ensure that your interests are protected.

Mark Drake is the author of this article on business broker san diego. Find more information, about san diego business brokers.