Broken Woes of the Business Broker

As you know, a business broker is typically involved in the sale of a business. The broker can be an individual or company that typically assists with arranging the details for the transaction.

In this post, I'll share some of the broken woes I've seen with the business brokers that my firm has had to deal with in assisting clients. A discussion will follow on how Brokerage houses should establish their internal operations to best serve their clients' needs and avoid such problems in order to save their own businesses and maintain profitability.

Woe #1: The Broker Doesn't Act in the Best Interest of Their Client

A business broker is an outsider and not a client advocate. A business broker makes money by selling businesses, not helping their client maintain or protect their asset from sale. While a good broker will work hard on behalf of the seller they also have other clients who they are trying to get a business for.

Brokers should put effort into assisting clients in getting the best possible deal, but it is ultimately up to the seller to make that decision. As a client, if you feel your broker isn't helping you, it is time to find another broker.

Woe #2: Business Brokers Don't Do Their Homework and Don't Create Optimal Solutions for the Client

There is a lot of competition with business brokers to sell businesses. The more they sell, the better their chance at getting paid. In some cases, a broker doesn't truly understand the industry that they are selling in or they don't fully comprehend the issue that the seller is facing and how to resolve it. They may even get your hopes up on an unrealistic solution which you will later find out is not true at all.

Brokers should have a good sense on the market from both the buyer and seller perspective. They should be able to accurately tell you whether or not your business or asset will sell for the price you hope for.

Woe #3: Business Brokers Fail to Negotiate a Fair Price

Business brokers typically don't know what you are selling as well as you do (the seller) so they tend to rely on their network to find buyers. This is where a business broker can fail in their role of helping a seller get top dollar.

A business broker should be able to clearly understand the seller's intentions and needs on how they want to be compensated as well as what a fair price is. It might also be necessary for the broker to research similar sales in your industry to determine how much similar businesses sold for.

For you, getting a fair price means that you are grateful for the buyers' consideration and hope that you can have a smooth business transaction with them. A proper business deal is one where both sides are satisfied and walk away happy after the transaction has been completed.

Woe #4: Business Brokers Don't Know How to Negotiate a Sale with the Seller

Many times, business brokers tend to rely on their network of buyers to obtain a buyer for your business. This may result in the broker offering you a low price which you cannot refuse without losing all customer relationships. As far as the broker is concerned, they will have "sold" your business at that price so they did their job. The buyer on the other hand has settled on a low value deal and doesn't have to pay much in order to close the deal.

Business brokers should be able to research the market and have a good sense of what your business is worth in the current marketplace. This can be done by surveying similar sales in your industry or research. The broker then has a good idea on what they should offer to the seller. A good broker will give you options at different prices so you can pick and choose which option fits you best.

Brokerages that invest into sales training for their employees are able to obtain higher average prices for their clients than brokerages who don't. The results of sales training is to improve the skill level and confidence of Brokerage employees when presenting business offers to sellers which improves their ability to earn top dollar for their clients.

Conclusion:

With these points in mind, it is important to have an understanding of the various roles and responsibilities of a business broker when assisting a client through the sales process. I recommend that you thoroughly research the brokerage firms you hire to represent your company and ensure they provide value added services for you or your clients. A reputable business broker will take time to understand what your goals are for selling your business before suggesting a solution for you. Just remember, as long as you are happy with the offer presented, it doesn't matter how much money they make off of it. The most important thing is that both sides walk away happy with a great experience and plan on doing more business together in the future.

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David M. Presnell is the Principal at Presnell Consulting. He is a business broker, attorney and business advisor in the insurance technology, IT Solutions and business brokerage industries. He has over 20 years of experience in sales, marketing, operations and strategy for startups through mid-size companies. He has consulted with insurance companies on their overall sales strategy to promote them as well as providing sales leads for their IT vendors. David has been named "California Business Broker of the Year" in 2010 by The Local Agent Magazine. He can be reached at presnellconsulting@gmail.com or 858-787-8368 x 107. www.businessbrokeragreement.com/

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* Nothing contained in this article or on this blog is legal advice. Please consult your attorney for legal advice on your specific situation.

Other posts you may be interested in: "Management Fee Analysis" By Kevin Koymans How to Choose an Insurance Agent that Will Produce Results by David M. Presnell Key Principles of Successful Internet Lead Generation by Paul E. Marino, CLTC and Susan Perschbacher, CPCU Why Rejection May Be a Good Thing for Your Career by Paul E. Marino, CLTC and Susan Perschbacher, CPCU Getting the Most Out of Your Leads: Prospect Profiling by David M. Presnell How to Price Your Insurance Agency's Website by Paul E. Marino, CLTC and Susan Perschbacher, CPCU Top Tips for Marketing Your Insurance Services Online by Paul E. Marino, CLTC and Susan Perschbacher, CPCU

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Conclusion:

With these points in mind, it is important to have an understanding of the various roles and responsibilities of a business broker when assisting a client through the sales process. I recommend that you thoroughly research the brokerage firms you hire to represent your company and ensure they provide value added services for you or your clients. A reputable business broker will take time to understand what your goals are for selling your business before suggesting a solution for you. Just remember, as long as you are happy with the offer presented, it doesn't matter how much money they make off of it. The most important thing is that both sides walk away happy with a great experience and plan on doing more business together in the future.