The process of selling a business is relatively straightforward in Australia compared to the rest of the world. Out of the options, selling through contacts of the investor networks is the most popular option, where the majority of the business gets sold. Then the second most popular option is to sell through a business broker. However, there are many different and essential things to consider when selling your business through a broker in Australia.
In this article, we will also set aside some time to understand the entirety of the business selling process through a broker. Ultimately, that is what with we are going to guide you here.
Don’t get me wrong; a broker can help you find the right buyer with a great offer. Whatever your business is, preparing to sell, setting the right price, and finding a broker are all aspects of a business sale for most small business sellers.
Regardless, the intention is to introduce your company to potential buyers when you are ready for a business sale.
As noted earlier, in Australia, there are two significant ways to sell your business. The first is to do it by yourself using your network and investor contacts, and the second is to use the service of a business broker.
The business broker is the best way for an average business owner with no savvy relationships to find a buyer. Moreover, they (brokers) can also guide and assist with your exit strategy. After all, choosing a genuine broker is excellent for maximising the business sale price. Conversely, the wrong broker can paralyse your business for months or years and destroy its reputation too.
In this detailed article, we will explore all about business brokers. But before proceeding further, we must know who is a business broker in a bit more detail and their role in selling a business.
So, let’s get started.
Who Is A Business Broker?
Business brokers are transfer agents or intermediaries that assist in the buying and selling of businesses. They are professionals similar to real estate agents or brokers as they put buyers and sellers together.
A reputable broker has years of training and experience in selling various businesses. Hence, as a result, they can provide expert guidance and advice to sellers to achieve the best for their business. Moreover, they can easily guide their clients through each stage of the selling process to ensure success.
Selling a business takes time, usually taking 6-12 months that if it ever sells. The process is quite long and challenging. Brokers work with business owners to complete a successful sale. It is their responsibility to maintain confidentiality throughout the process.
Tip: Business brokers are not the same as Mortgage Brokers. Don’t get confused!
Role Of A Business Broker In Selling A Business
A business broker plays a valuable role in selling a business by providing guidance and resources. Therefore, it becomes easy for your transaction to happen on time. These brokers usually have contacts with accountants, finance professionals, attorneys, and other professionals necessary to facilitate the sale.
If you sell a business for the first time, then the guidance of a broker can be significant.
First, they put together the best marketing package. Second, they help determine the right business price. Third, they do all the leg work to market the business for sale.
If business brokers have gone through the certification program, their price is expert testimony. Therefore, whatever they do has a great deal of credibility. However, you should remember that the valuation they come up with is usually the best you can achieve if you are lucky enough.
In other words, the higher the valuation of your business, the higher the commission of the broker will be, so brokers always make sure to get the highest buck for their service.
As a result, if your business ends up in the market for years just as a listing, only you are going to lose and rock your boat as the confidence in you and your business diminishes over time.
Below are some of the critical roles a business broker performs.
1. Valuing The Business
Brokers use many valuation methods to determine a business’s fair market value. Thus, this is the most essential step in the sales process.
2. Preparing The Business Sale
Business brokers work with the sellers to prepare for the business sale. To clarify more, this may involve some essential things.
For instance, it includes updating the business plan, improving the financial side, repairing the facility, coming up with a story, etc.
3. Creating a Business Listing
Once the valuation is complete and the financials are sorted, the broker will advertise your business on online platforms.
Brokers usually advertise businesses on their website, on websites dedicated to advertising businesses for sale, and sometimes in newspapers too.
4. Marketing Of The Business
It is also the responsibility of the brokers to create a marketing plan or strategy.
The plan includes creating marketing materials, listing them on online marketplaces, and reaching out to their network of contacts.
5. Screening Potential Buyers
Screening of potential buyers
is necessary by brokers to see that they are qualified enough to buy the business. Hence, it will save time and the resources of both broker, seller and buyer.
6. Sale Negotiation
The buyers and sellers negotiate the terms of the sales through business brokers. It includes financing, price, and other conditions.
7. Closing Process
Business brokers guide the buyers and sellers throughout the closing process. Moreover, they also ensure that all the legal and financial requirements are complete.
The settlement is obviously a big day for the broker too, so they can receive their commission from the seller.
What Your Business Broker Would Do During The Sales Process?
Have you ever asked yourself this question what a business broker would do? If yes, you have come to the right place for the answer. Most people need an idea of how to buy and sell businesses. Thus, this is where we need the services of business brokers.
There are many tasks that a business broker would do during a sale of a business. For example, they organise business valuation and facilitate mergers and acquisitions. Apart from that, they also do machinery, equipment appraisals, and sometimes commercial real estate deals too.
First, business brokers analyse the market. Then they set a reasonable asking price for your business. Hence, this research is essential to know and gauge the business value. After the final price, they make a marketing plan and spread the word to potential buyers.
If the buyer wants to purchase the business, the business brokers will negotiate and structure with them for a ‘fair’ deal.
Business brokers can also help buyers with financing options as they know about different lenders and can help you find the best option. Moreover, they can also develop a sales pitch highlighting your business’s strengths.
Saying so, business wouldn’t agree to do anything… There are things they wouldn’t be doing for sellers too.
What Your Business Broker Wouldn’t Do?
Business brokers are a good asset when you are trying to sell your business, but there are some things that they cannot do too.
For instance, they cannot guarantee you a sale. Although they can help you find a buyer, they cannot ensure a successful deal.
Another thing is that business brokers must refrain from forcing any buyer to accept your offer. However, they can only recommend you, but the final decision stays with the buyer.
Business brokers can only advise or give the information, but you decide to buy or sell a business.
It is a fact that if you are selling through a business broker, then they are quite expensive. They will charge an upfront fee and take a percentage commission on the final sale. Sometimes if the deal is in your best interest and comes down to their commission, they will go with it.
You see, that all means, regardless of whether you sell or wouldn’t sell your business after a marketing campaign, the broker will earn enough to cover their effort. If the business sells, it’s a party for you and them. If it doesn’t, the broker will still win, while your losses will be enormous.
There are examples that business owners even losing their business and reputation by trying to sell through the wrong broker, immediately dropping their business valuations by a few folds over a year.
Sometimes a business broker may under perform as there are no incentives for them. Therefore, always choose a broker that is a trusted industry veteran. The last thing you need to do is find a cheap broker who promises you the world.
When Is Selling Your Business Through A Broker A Good Idea?
Suppose you have a business, so your expertise is in running a successful business. On the contrary, a professional and good business broker has expertise in selling a business.
Regardless, every business sale is unique, and business brokers have a proven track record of selling businesses in different markets.
Generally, selling through a business broker is a good idea if you have a short time to work with potential buyers or have no experience in selling.
Moreover, if you lack the necessary skills to market your business for sale effectively, then it is better to use a broker, although there are many success stories of small business owners selling businesses through Facebook and Gumtree on their own.
Business brokers have access to professional marketing. A qualified business broker also knows the tax implications of selling a business (to the seller). Therefore, they try to find the best way to structure your business for the lowest tax liability. Similarly, they also help you with your tax returns by connecting you with skilful accountants.
Brokers also gather all the correct documents and can handle additional information requests. In short, they keep you stay organised. They are efficient and use their connections to make the entire process smoother.
When Is Selling Your Business Through A Broker A Bad Idea?
If you have a company and want to sell it, then you must decide a few things. Should you sell a business by yourself or through a broker? If you would like to sell it by yourself, do you have strong investor contacts? Do you have the necessary skills and time to be able to do it yourself?
Business brokers are expensive and can charge an upfront fee with a large commission which is usually a percentage of the sales price. While brokers market themselves as they can deal with any business, they are good at serving the small business sector as most of those sellers lack skills or experience in selling a business.
On the other hand, if you have a larger or more significant business, the transactions are the most complex. Therefore, investment bankers, private equity firms and investor groups are the best to facilitate the transactions.
If the business is small, sometimes using something other than a broker’s service is better in many ways too. Most importantly, in protecting the privacy and confidence of your business by the market, its customers and most importantly, your employees.
Below are reasons why selling without a broker is much better, which you shouldn’t underestimate.
- The business owner can avoid transaction fees and commissions.
- Sometimes working with brokers becomes uncomfortable as they mostly rule your journey and rely on third parties.
- Picking an unreliable broker can cost you time and money. And, in the long run, it can destroy your small business too.
- They do not have an emotional tie to the business and cannot see what the owner sees in their company. In other words, they are motivated by numbers but not on your journey.
Saying so, this guide is not complete without telling you how to find a good business broker. So, let’s cover that too…
Tip: If you are based in Australia, investors such as Dr Yasoba Atukorale might be interested in your business.
How To Find The Best Business Broker?
Buying or selling a business has a substantial emotional and financial impact on the seller and buyer. Selling a business is a challenging thing, as it is a time-consuming process. A business broker is an expert who can guide you properly throughout the process.
The best business broker values your business and will try to maximise the sale. They determine a sale price, market your business, and negotiate.
Follow the below tips to choose the best business broker with the skills and experience to sell a business.
- Always look for a business broker with experience and expertise in selling businesses, specifically your type of business.
- A good business broker must have a verified track record.
- They must have good relationships with accountants, lawyers, and other local professionals.
- You can also find a broker through local referrals.
- Online directories can also help you find a reliable broker in your region.
16 Things To Consider When Selling Your Business Through A Broker In Australia
Selling a business in Australia through a broker is a wise decision you will make as an entrepreneur, especially if you lack contact with business investors. When selling your business, you could hire a professional broker to ensure all processes and transactions go smoothly.
Below are the 16 things to consider when selling your business through a broker in Australia.
1. Check The Background And Credentials Of The Broker
First, you must check that the business broker you are hiring has experience in your industry. Secondly, have they sold similar businesses in the past, and do they have a list of success stories? Thus, finding someone who knows what they are doing is crucial.
2. Hire A Trustworthy And Reliable Broker
The business selling process is complex, and a reliable broker will guide you easily. He can perform a business valuation and advise you on a valuation range.
Moreover, a good broker maintains confidentiality and performs due diligence to ensure a smooth sale process.
3. Estimation Of Your Business’s Worth
A good business broker helps in estimating your business worth. There is an actual fair market value for your business. An expert broker will examine sales and expenses, the business’s financial stability and anticipated performance, etc. to come up with a valuation you could likely achievable if you are ‘lucky’.
4. Maintain Well-Documented Financials
The financial data of the company is the foundation of the future sale.
Business brokers have contacts with accountants and tax professionals who would help you polish those financial records. They will help in the company’s valuation and sale negotiation. In addition, they help in organising and maintaining the business’s financial forecasts.
5. Cost Of Broker
When selling your business, you need to consider the cost of a broker. They charge a flat fee and definitely a commission that is a percentage of the sale. Hence, this depends on the business size in terms of revenue.
Always do your research before hiring a broker, and ask previous clients about their experiences.
6. Brokers Pre-Qualify Buyers
As the seller, you only need serious buyers for your business. Thus, a good broker will help you screen potential buyers who want to buy your business.
7. Steps In Selling A Company
When hiring a business broker, you must ask them what steps they will take to sell a company. Apart from that, what will be their due diligence process? The best broker must be with you in every sale process step.
8. Present Your Business Professionally
The value of professional marketing is significant when selling your business. The broker on your behalf will take care of the marketing and advertising. In addition, they will give salient information to prospective buyers. A good broker in Australia is meticulous about your business marketing.
9. Structure A Good Deal
Structuring a deal is a science that includes many things, like it combines communication and negotiation skills and industry expertise. Therefore, always hire a broker with all the qualities to attract potential buyers and make a successful deal.
10. Protect Your Privacy
Sometimes business owners don’t want the public or their employees to know they are selling their business. To avoid this, a reliable business broker maintains confidentiality and privacy from start to finish in some cases, although maintaining privacy and achieving a good sale is sometimes don’t go together.
11. Professional Negotiators
Negotiations are vital when buying or selling any significant asset. Buyers want to buy the business at the lowest price, and sellers want the opposite.
In this situation, brokers can be your representative, helping you sell your business and removing you from conflicts.
12. Familiar With The Legal Matters
Business brokers know how to protect you as they are familiar with legal matters. As an entrepreneur, choose those brokers that can legally navigate the sale and avoid complications with proper documentation.
13. Business Continuity
A trustworthy business broker has all the knowledge and skills to handle all your day-to-day sales details easily. On the contrary, as an entrepreneur, you can continue to run your business efficiently.
14. Pricing Strategy Of Brokers
The key to attracting the right buyers for your business is to put an accurate price tag. An intelligent business broker knows how to develop a realistic pricing plan. However, as a business owner, you must ask your broker about their pricing strategy and how realistic it is so that you can gauge their ability to land a deal faster.
Remember, brokers are generally biased while setting a sales price, as they are incentives by the sales price. The broker gets a higher commission if your business sells at a higher price. However, if your business doesn’t sell and stagnate, you lose everything, but the broker still wins by receiving his flat charge.
15. Success Rate Of The Broker
When hiring a business broker, one of the most essential factors is their success rate. In short, by knowing this, you will learn about the broker’s diligence, dedication, and commitment to selling businesses.
16. Finalise Contracts
The brokers have several contacts in their network through which you can finalise a contract. But make sure that all the documents, like purchase agreements, bills of sale, asset lists, and transfers, are appropriately organised. The slightest error can cost you a lot for your business.
Always find a business broker who can quickly sell your business and handle the workload. The best business broker sells themselves on their skills, reputation, and experience. If a broker gives you a bad gut feeling, they are unsuitable for your business sale.
You need to trust your feelings and instincts. You should find such a broker whom you can easily believe. Likewise, the business broker must be confident that they can sell your business before agreeing to come on board.
It is correct to say here that the process of selling a business is a two-way street!
Thanks for reading!