How to Know if You’re Working with a Bad Broker

Written for EO by Scot Cockroft, president of Sigma Mergers & Acquisitions LLC.

For many business owners, working with a business broker can ease the stress involved with selling their organization. From preparing the business for sale to determining the right valuation and vetting potential buyers, selling a business is complex.

But how do you know if you’ve chosen the right broker? Would you know if you’re working with a bad broker? Consider these telltale warning signs.

They Only Tell You What You Want to Hear

While you may see your business in only the most favorable light, it is the business broker’s duty to identify possible red flags to buyers. Your business broker should lay out any potential problems in time for you to make necessary changes before a buyer walks through the door. Additionally, your business broker should set realistic expectations for the sales process.

Signs your business broker is only telling you what you want to hear:
• Your broker has no concerns or recommendations about your business.
• Your broker guarantees you’ll get certain sales prices for your business.
• Your broker guarantees the business will be sold “in a matter of days.”

They Don’t Understand Business

A successful broker doesn’t need to know everything about your particular business, but they should have a general understanding of your industry, and have a vested interest in learning about the details of your company. This knowledge will allow them to communicate clearly with not only you, but prospective buyers as well. If your broker doesn’t understand the basics, it will be hard to negotiate a deal that all parties can agree to.

Signs your business broker doesn’t understand business:
• Your broker asks only general questions about your business.
• Your broker has no experience in the sector in which you work.
• Your broker is unable to identify a target market for your business.

They Don’t Have a Clear Plan

Experienced brokers may not be able to predict how the sales process will go, but they should have a clear plan to market and sell your business. A bad business broker, working without a strategy in place, could significantly delay the sale of your business.

Signs your business broker doesn’t have a clear plan:
• Your broker speaks in generalities but does not communicate a plan for your business.
• Your broker doesn’t determine a target audience for your business.
• Your broker relies on you, the buyer or the buyer’s broker to determine how the process will go.

They Don’t Provide a Detailed Business Valuation

Determining the right valuation for a business is a critical part of the sales process. Ask too much and you could turn away prospective buyers. Undervalue your business, and you could leave profit on the table.

Experienced business brokers will analyze every facet of your business, from financial records to the condition of the property, to determine the right valuation. They’ll provide the details of the valuation to you as well. Do not accept an offer until you’ve seen a detailed valuation.

Signs your broker hasn’t done a detailed business valuation:
• Your broker provides an instant valuation.
• Your broker doesn’t analyze your financial records.
• Your broker can’t communicate the reasoning behind the valuation.

They Charge Upfront Fees

Some business brokers are more concerned with signing your business than selling it. They know their closing rate is low, so they rely on the upfront fees of business owners to cover their overhead. Successful business brokers will not charge a signing fee or ask you to pay the cost of marketing your business.

Signs you need to find a new broker:
• Your broker asks you to front the costs to market or sell your business.
• Your broker talks about the number of businesses they’ve signed, not the number of businesses they’ve sold.

Finding the Right Business Broker

You’ve worked hard to build a successful business. Don’t put the sale of your business in the hands of an inexperienced or unprofessional broker. The right broker will work to find and correct any red flags within the business. They will ask the right questions and develop a clear plan to market your business.

An experienced broker will provide you a detailed business valuation, and you won’t pay upfront fees. If you spot any warning signs in your current broker, it may be time to consider finding a highly qualified business broker to take over the sale.

Scot Cockroft is a serial entrepreneur and business broker who helps business owners realize their full potential in selling their business. He is passionate about the process, having created and sold four of his own businesses to date, and helped hundreds of other businesses do the same. He is the president at Sigma Mergers & Acquisitions.

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