How To Pick The Right Broker
Business Brokers Brisbane
When selling a business, you will hear a lot of sales pitches. It is important to be able to evaluate what is been said and to understand what the key points are. To do this you first need to understand how the market works.
Some facts first:
1) Only people who know your business is for sale will enquire and become potential buyers.
2) These people will look at lots of businesses to find one that:
a. They understand
b. They can see potential in
c. They believe they will enjoy
d. Is realistically priced and they can afford
e. Is in the right location
3) Buyers will have a short attention span – so speed of service is important. They often view 20—30 businesses before buying so staying front of mind is important.
4) 90% of enquiry is tyre-kicking, so filtering out the buyers is key.
5) Most brokers charge an upfront fee for advertising and producing your documentation and then a success fee. This is normally 6% to 10%, but often has a minimum $15,000.
So how can you evaluate your broker before signing up?
1) Advertising. The more coverage you have on the key business portals the more enquiry you will get and the more chance you have of finding your buyer quicker. As an example if you advertise on SeekBusiness alone, it has approximately 30% of the market share. So you miss 7/10 buyers. I.e. you have already reduced your chance to sell from 100% to 30%. If you then advertise for 3 months and not six, you are now at 15% likelihood of a sale. If you advertise on a local business broker’s site only, you miss up to 99% of potential buyers.
Bonza Tip – Before signing up test the broker. First of all find a business they have for sale on their web site and then try to find it on the 8 major business sales portals. If they are not advertising the business widely then you can expect similar service. Not sure what websites you should be advertised on? Put yourself in your buyers shoes and google “businesses for sale”. Those that appear on the first page of Google are the go-to websites to be on.
2) This is known as representation.
a. First of all, how do you know if you are correctly priced? Before listing get an appraisal done. Listen to the input. A lower price will not necessarily get a faster sale, but a too high price will certainly result in a slower if a sale at all.
Bonza Tip – Ask a couple of broker for a free appraisal. Do they sound knowledgeable about the process or are they just saying what you want to hear?
b. How do you get this information across in a concise, enjoyable way that encourages engagement with your buyers? How do you keep people engaged?
Bonza Tip – Ask any broker you meet to share a recent business profile they have done and find out if they charge to do this. Are you happy with what it says about the business? How long will it take them to produce it? As a benchmark this should be available within a week of the business providing the relevant information.
3) How do you measure speed of service? This is the response time from when a buyer enquires to when you get some feedback from the broker. How quickly does the confidentiality agreement come to the buyer? How quickly after that do they follow-up by providing information? Once they have provided information do they follow-up at all to gauge interest?
Bonza Tip – Before signing up test your broker. Having found a business listed by the broker in question on one of the major portals, make an online enquiry. How long does it take to get a response and finally the business profile? Have you forgotten about the enquiry before this arrives? This is a deal killer for most buyers who will have moved on by the time anything arrives. Once you have the documents is there any follow-up?
4) How do you filter out tyre-kickers? The confidentiality agreement is a start, but follow-up is key. How will your broker follow-up and can he demonstrate to you how he will do this?
Bonza Tip – Ask the broker if they are using a system to track your enquiries and if they are whether the follow-up is a scheduled event or a random manual event. If it’s the latter it generally will not get done.
5) Fees, commissions and exclusivity.
If you are paying upfront fees what do you get for them? Generally the rule in life is correct, the things that cost nothing have no value. If a broker will list your business for no fee upfront, it usually means they are not doing any paid advertising and not building you a great business profile. The hidden cost of this is that your business does not sell.
Therefore paying for advertising ensures you are getting advertised. Just make sure you get value!
If you are paying commission what do you get in return? And if you are signing up exclusively, which most brokers demand how does this benefit your sale?
Commission is paid after your business has sold, whether the broker has been helpful or not. Commission encourages the broker to focus on selling high value businesses and neglecting smaller businesses. If you are selling for $1m plus that’s great news. In fact Australia’s leading broker outsells itself 2.5:1 on businesses over $1m, compared to its success rate under $1m. Isn’t this a cause for concern?
Exclusivity in a contract is designed to lock you into their service even after the honeymoon period where you no longer hear from them and realise they are doing very little to sell your business. It does however lock you into paying commission regardless of who sells your business.
Bonza Tip – Ask why you are signing exclusivity and what you can do if you are dissatisfied with the service after two or three months.
At Bonza, with just our low fair flat fee starting from $3,990+GST, we outperform the market. Why? because we have built our business to sell businesses, fast, efficiently and cost effectively.
If you are serious about selling your business, don’t hire a bad broker. Get the service that sets the standard. Rely on our professional business brokers in Brisbane, call 1300 266 922.