A business broker or business transfer agent (BTA) effectively plays the role of an estate agent but in the sale of a business rather than a house.
And if you’ve ever sold a house then it’s worth bearing this in mind: selling a business is rather more complicated. It’s about more than just bricks and mortar and location; it’s also about staff, customers, brand and – crucially – financial performance.
“It’s perfectly possible to sell a business without the aid of a broker,” admits Rob Goddard, CEO of Reading-based BTA firm Evolution CBS. “But there are considerable risks in doing so.
“It takes a huge amount of time (not something that’s generally available for business owners), resources (to find and research potential buyers to assess their viability) and skills that most business owners lack – like writing the critically important sales prospectus, handling buyer negotiations and dealing with difficult and contentious issues that always arise.”
Aside from your lack of experience and objectivity, leading the time-consuming sales process means you risk neglecting the day-to-day running of your business – and that could ultimately undermine the sale price you achieve.
As you juggle both jobs the sales process could suffer too. Missed deadlines and cancelled meetings could cause the buyer to lose interest.
Says Sean Mallon, founder of Leeds-based brokerage Intelligent Business Transfer: “As you continue to run your small business, a broker is an important buffer who will handle and filter enquiries on your business.”
“Brokers will keep your business sale progressing and be the point of contact for other professional services such as solicitors and accountants. And most importantly, a good broker will actually sell your business and, in the process, maximise your sale price,” he says.
Generally, brokers/BTAs also provide an independent, objective business valuation. Emotionally attached to your business, you are liable to inflate to its worth. Your business broker, by contrast, can assess its value objectively according to a valuation model that fits your business and sector.
But this expertise is only worthwhile if the seller heeds it, says Goddard, whose experience in the industry spans three decades: “No broker can do the impossible. At the end of the day a business is worth what a buyer will pay. Your broker understands what will make your business worth more and, with knowledge of current market conditions, will advise you on what you might expect to realise from a sale.”
Some buyers will enquire on what businesses BTAs have on their books. BTAs will also target buyers through websites, print advertising, direct mail and trade publications.
Dealing with the buyer indirectly through an intermediary takes egos out of the equation and keeps your identity secret, maintaining confidentiality.
“The real skill of a broker,” says Goddard, “is ensuring that you receive the best possible price for your business in a deal structure that meets your specific requirements. For example, ensuring that the price isn’t dependent on an ‘earn-out’, where a portion of the value is performance-related and paid over a longer period during which you have little or no control.”
Your representative can also advise you on handling the transition to new ownership, including notifying employees, vendors and customers, and advising the buyer in a consultative capacity post-sale, should that form part of the deal.
Appoint an incompetent or unscrupulous broker, however, and you may fare no better than if you had foregone professional assistance.
Unlike in the US, where business brokers are legally required to hold a commercial real estate licence, UK BTAs need neither qualifications nor licences to operate. All the more imperative, then, that you do your research before appointing one.
“There are hundreds of business brokers who can sell your company,” says Philip de Lisle, who has sold businesses previously. “How do you know which one is right for you?”
“The answer,” continues the MD of executive mentoring specialist Enhancing Clarity, “will come down to four key factors: how much can you afford – or want – to spend; do you go online or offline; how much time do you have to spend on this process; and what is the broker’s track record?
“As a basic rule of thumb, the more money you spend (which is really an investment in your future lifestyle), the better your chances of success,” he says.
1. Your business broker should already have buyers in mind before they come to meet you for the first time.
2. They should be able to demonstrate their expertise in the area, similar previous sales and that they have buyers ready to buy your type of business.
3. As the majority of buyers start their search online, look for a business transfer agent with a strong online presence.
Headquartered in Leeds, Intelligent Business Transfer has 80 full-time staff across the UK. In 2016 it won a ‘Small Business Award’ from PwC, the world’s largest accountancy firm, in recognition of its growth and unique approach to clients.
It’s worth asking brokers for case studies of previous, successful deals and testimonials from former satisfied clients.
What is their plan for selling your business? “Make sure that they offer a complete service and aren’t just going to advertise your business for sale, write a basic prospectus and leave the rest to you,” says Goddard.
So we’ve discussed what a BTA should do; what are the red flags that that should send you running a mile?
Pushiness. Beware brokers who, from the outset, seem more interested in persuading you to pay their fees than learning about your business.
You want them to ask questions about your business and give an honest appraisal of its value, chances of selling and what you need to do to make it more appealing to buyers.
Unfair fees. Check out not just the size of the agent’s fees and commissions but how they are structured. For instance, if their earnings from the sale are front-loaded – i.e. a high up-front fee and minimal commission – then their incentive to find you a buyer is minimal. In this instance they are more likely to tell you what you want to hear just to get you signed up – which brings us to our next point...
They think your business is incredible! And maybe it is. But if your business is eliciting praise from your would-be broker which, deep down, you know it doesn’t deserve, then alarm bells should ring. An intermediary with your best interests at heart will give you the unvarnished truth about your business’s faults. An unscrupulous BTA, conversely, might wax lyrical about your business’s value to secure your custom.
As Evolution CBS CEO Rob Goddard says, a good broker should be doing their utmost to secure a sale on the best terms possible: “If you’re set on an unachievable figure – e.g. 10 times EBITDA [earnings before interest, taxes, depreciation, and amortisation] and the market is paying five times EBITDA – then you’re not going to get a sale. A good broker strikes the right balance between getting you the most value and keeping your expectations realistic.”
Jack of all trades, master of none. BTAs that specialise in real estate and only moonlight as business brokers are best avoided.
Ultimately, “you have to do your research,” says Goddard. “There’s no easy way to find the right broker. Check out their websites, call them and meet them. You have to be able to trust your broker and be able to work with them.”