BUSINESS BROKERS

Want to sell your business and be assured the people you entrust to that sale are both knowledgeable and professional?  Don’t we all.

A broker is merely an expensive intermediary between buyer and seller supporting non disclosure between the parties and by validating financial and legal information leading to negotiated contractual agreements.

Unfortunately there are many so called brokers who should be in some other sort of real estate because business broking requires a deft set of learned skills so as not to disadvantage either seller or buyer.  Beware the broker who devalues a business just so they can get a quick sale commission to support their own cashflow.  Indeed, there are international methods of calculating worth remembering that ‘worth’ is not a fire sale but a true and proven financial statement showing value.

Seek the broker who recognises they have a fiduciary duty and can prove education, knowledge and results because without all three they cannot provide valid advice.

Indeed, a business broker must by necessity provide financial [valuation] and legal [contractual] advice on all matters related to both selling and buying a business and, if that advice is flawed because of a lack of education [knowledge] or for whatever reason, both buyer and seller may be severely disadvantaged. 

Brokers charge and accept significant remuneration for a ‘professional service’ being far more than the cost of just lodging an advertisement on some website.  This differentiation is critical because it means a broker has a fiduciary duty to the seller or the person paying the fees to be honest and act in good faith in all dealings.

Buyer beware because there are many ‘brokers’ who pontificate at length about their ability to sell a business yet may not have a clue other than bluster. 

In simple terms a broker must be able to prove the following and if not keep looking for one who does:

1.       Education:  A broker is supposed to be an expert professional in business valuations etc and as such needs to have some sort of financial qualification to offer that advice; at the very least at diploma level but preferably at degree or even masters level.

2.       Experience:  Whilst experience is not as crucial as educated knowledge it is desirable for the broker to have transferred their educated knowledge into sales where both parties are happy;

3.       Industry knowledge:  As a well paid mediator/negotiator it is expected that the broker has extensive industry knowledge to be able to facilitate any sale without misrepresentations;

4.       Client base:  Has the broker a good enough reputation to be able to support clients wanting to sell and buy?;

5.       Working for you:  The obligation on the broker is to represent the seller as they are paying the commission.  It is not their role to act for both sides therefore no kickbacks;

6.       Not quick turnover fire sale:  It’s worth remembering that many brokers work their sales to maximise cash flow in the short term.  Therefore avoid those who devalue a proven valuation just to get a quick sale.  They win, you don’t – a $100k drop in sale price means you lose $100k whilst the broker may lose just $5k but get $20k in the pocket today;

7.       Valuation expertise:  This is the hub of the broker’s input and where they must prove expertise ‘in good faith’.    Ask the broker to explain common terms such as ‘risk based multipliers’ and ‘EBIT normalisation’ and ‘payback’ and ‘capitalised future earnings [Nett EBIT/ rate of return] * 100 +- adjustments’;

8.       Discretionary cash flow:  This is the total owners benefit from the business including lawful tax breaks, goods and services for private purposes etc;

9.       Mitigating factors:  These are the wow and risk factors influencing a sale such as consistent and verifiable profits and hours required to sustain profit and growth potential;

The most crucial figure is proven revenue [BAS *6] from which any professional broker can deduct linked expenses at ATO published rates and wages etal, add EBIT normalisation [this is why BAS expenses are not indicative] and apply a multiplier based on risk and/or calculate worth based on capitalised future earnings and/or by detailed analysis of P&L to get an estimate of worth.  Then it’s up to market acceptance factors.

This is their job and they get paid for doing it.  If they can’t, then find someone who can.