USE THESE 7 KEY TIPS WHEN CONSIDERING HIRING A BUSINESS BROKER TO SELL YOUR SMALL BUSINESS
Selling a business requires careful planning, strategic decision-making, and expert guidance. When it comes to selecting a business broker to assist you with this critical transaction, making the right choice is paramount. In this blog post, we will explore seven key tips to help you hire a business broker who will serve as a trusted partner throughout the selling process. By following these guidelines, you can ensure a successful and smooth experience, maximizing the value of your business while safeguarding your interests.
I have been advising clients starting, buying, selling, operating, financing, and investing in businesses for over 20 years in Los Angeles and Ventura County, CA, and in New York City. Whether you want to purchase or sell a business, I will guide you through the steps and proactively address legal and related financial and other business issues.
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Here are some tips for negotiating the business broker engagement agreement as a seller.
1. Start with the Basics: Understand the Terms!
You'd be surprised how many people sign contracts without understanding the terms. Before entering into any agreement, take the time to thoroughly understand the terms and conditions outlined in the business broker engagement agreement. Pay attention to aspects such as the scope of services, duration of the agreement, commission structure, exclusivity, termination clauses, and any additional fees or expenses. Clarify any ambiguities and seek legal advice if necessary to ensure you fully comprehend the implications of each provision. Pro Tip: I alway remind my clients of these twin axioms: (1) you don't know what you don't know, and (2) the question whether something is a legal question is itself a legal question. Hire your deal lawyer before you hire your broker. Your lawyer can be key in negotiating a business broker contract that serves you well.
2. Negotiate the Commission Structure
Seems obvious when you see it in print, right? But, commission structure, though a crucial aspect of the engagement agreement, is not set in stone. Don't fall for the "its customary" or "its market." If the broker has a fee she or he wants, fine. But if not, then references to market practice are nonsensical here. Typically, brokers charge a percentage of the final sale price as their commission. However, this percentage is negotiable. Discuss the commission rate with the broker and consider factors such as the size and complexity of your business, prevailing market conditions, and the broker's track record. Aim to strike a balance between a fair commission and the level of service and expertise you expect from the broker.
3. Determine Exclusivity and Timeframe
Consider whether you want to grant exclusivity to the broker or have the freedom to engage multiple brokers simultaneously. Exclusivity can be advantageous as it ensures the broker's undivided attention and commitment to your sale. However, it may limit your options if the broker fails to deliver desired results within a specified timeframe. Negotiate the duration of exclusivity and set realistic expectations for achieving a sale. Consider including performance benchmarks to evaluate the broker's progress.
4. Define Termination Provisions
Include clear termination provisions in the agreement to protect your interests. Specify the circumstances under which either party can terminate the agreement, such as breaches of contract, lack of performance, or failure to meet agreed-upon targets. Additionally, outline the notice period required for termination and any associated penalties or fees. This ensures you have the flexibility to discontinue the engagement if the broker fails to meet your expectations.
5. Discuss Marketing Strategies
Engage in a detailed discussion with the broker about their marketing strategies to attract potential buyers. Inquire about the channels they plan to use, such as online platforms, industry publications, or direct outreach. Assess the quality of marketing materials they will create, including business profiles, advertisements, and confidentiality measures. Seek transparency regarding the broker's plans to promote your business effectively. Consider requiring the contract to give you the right to reasonably "veto" any marketing materials the broker proposes using.
6. Request Regular Updates and Communication
Communication is key throughout the selling process! Ensure the agreement includes provisions for regular updates from the broker regarding the status of potential buyers, marketing efforts, and any feedback received. Establish the preferred method and frequency of communication, whether through meetings, phone calls, or email. A proactive and transparent broker who keeps you informed at each stage of the process will provide you with peace of mind.
7. Seek Flexibility in Service Options
Consider negotiating the flexibility to tailor the broker's services to your specific needs. Not all businesses require the same level of support, and you may prefer a more customized approach. Discuss options such as allowing you to handle certain aspects of the sale independently, while the broker focuses on critical tasks like marketing, buyer screening, and negotiations. This flexibility can help align the engagement agreement with your preferences and optimize efficiency.
Remember, the negotiation process is an opportunity to establish clear expectations and ensure a mutually beneficial arrangement. Be open to discussing your requirements and concerns with the broker to find common ground that maximizes the chances of a successful sale while protecting your interests. Again: it is highly advisable to consult with a qualified attorney or business advisor who can review and provide guidance on the engagement agreement to ensure it aligns with your specific needs and complies with legal requirements.
I would love the chance to get to know you and your business, for you to consider me a professional resource to help you negotiate and structure the sale, acquisition, or merger of business interests. Click here to make an appointment now for a free consultation, or call me at 310-567-5966 (California), 212-414-5966 (NYC) or 888-774-1474 (Toll Free) to schedule a Free Consultation.
I have become very impressed with the efficiency possibilities of AI. So, I gave ChatGPT a try. I generated this text in part with GPT-3, OpenAI's large-scale language-generation model. After it generated its own draft language, I reviewed, edited, revised, and expanded on it to my own liking and to ensure accuracy in all material respects. WLF takes ultimate responsibility for the content of this article.
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