How to Spot a Bad Business Broker

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detectiveWhen selecting a business broker to help sell your business, make sure to watch for the red flags in their business plan. These few tips can help you save time and money during the selling process.

The broker wants a significant or total fee paid up front:

Many brokers have begun taking upfront fees, but generally the total fee is a combination of an upfront fee and commission paid upon sale of the business. An unreliable broker meets with you, runs some quick numbers, tells you that you can get your price or even more for your business, and then asks for a check to get started. In many cases, business owners are so relieved that they’ve found a broker and elated that they’ll write a check on the spot, without checking any references. “They get to ‘take away’ your check when they leave and you may not see them again, if they can help it.

During your first meeting, the broker says he or she can get your asking price or higher:

Be wary of too much optimism. The key to selling is that the price be reasonable. Most owners overvalue their businesses thereby slowing the transfer process. An unreliable broker might suggest, after a brief meeting with you, that he or she can get you your asking price or higher for your business.

 The broker doesn’t have a website:

Most likely, if the broker doesn’t have a site, he or she is behind the times. The Internet is a powerful marketing tool for business brokers. Is the site well-written? That’s another way to gauge a broker’s competence and commitment to sellers.

The broker can’t or won’t show you printed marketing materials:

Today, all brokers prepare some kind of offering summary for each business they represent. He or she should be willing to share materials prepared for past clients to show you how they might handle your business.

The broker doesn’t seem well grounded in business valuation:

Your broker should be able to explain business valuation to you clearly. If he or she can’t, then how can he or she explain to a buyer what your business is worth? Make sure your broker is confident in this area.

 The broker isn’t licensed to sell or lease real estate in your state:

Ninety-two percent of business brokers have a real estate license, according to an annual survey of business brokers. Even if your business doesn’t include real estate, make sure your broker carries the license. Unlicensed brokers are usually new to the business or out-of-state con artists. Just because the broker holds a real estate license doesn’t mean he or she should be selling commercial or residential real estate too. A good broker will hold the licenses but be focused on selling businesses.

Interview multiple business brokers:

Talk to several business brokers and visit the business brokerage office. Make sure the business broker has adequate experience specific to your industry. Most business brokers specialize within an industry. You want a business broker that understands the culture and language associated with your industry. And finally, if you’re a franchisee, be sure to select a business broker that understands franchise protocol.


The bottom line:

Choose the right business broker and realize the greatest return on your business transfer.

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