Five Questions You Should Ask Your Business Broker Before You Choose To Hire Him or Her
1. If you’re so successful, why do you need a retainer?
Many investment bankers and business brokers alike have gotten used to asking for elaborate retainers: $10,000, $20,000, $50,000, $100,000 in advance. Another scam is so many thousand dollars a month until you finally sell the business.
Since one may earn hundreds of thousands or more in commissions, why would they possibly need a retainer, if they are so sure and so smart?
If you don’t get a good answer (which you won’t), then you are not dealing with a good business broker. The answer is simply that you don’t need a retainer if you are confident that you will sell the business. If they are not confident, then they shouldn’t accept the assignment.
2. What do you know about tax treatment?
Unless your business broker can answer the question regarding the difference between a “C Corp” and “S Corp” and an “LLC” you are dealing with the wrong business broker or wrong investment banker.
There is a huge difference in doing a stock sale or an asset sale. It could double the amount of taxes that you have to pay. All sales are not created equal on a tax basis. If you end up paying 20% twice in capital gains tax, or worse yet in ordinary income taxes, then it doesn’t matter what the purchase price was. If your business broker doesn’t understand that consequence, then you are dealing with the wrong business broker.
Ask your business broker what is a triangular forward looking merger. If they can’t answer you, then they are probably more experienced in selling pharmacies and gas stations.
3. What does your business broker know about the legal process in selling a business? Does he or she understand letters of interest, letters of confidentiality, indication of interest letters, letters of intent, definitive purchase agreements or employment agreements?
If the answer to any of these questions is no, then you are dealing with the wrong business broker, who is used to throwing people together in a room and hoping the lawyers figure out the answers to their questions.
4. Does your business broker have access to Prequin and Pitchbook – the two major databases of every single business sale transaction?
These two databases, which are licensed annually for more than $50,000 a year, are the only true way to understand comparable sales in a specific industry. Every possible transaction within a decade has been reported to one or the other of those two databases. If your business broker can’t afford to spend the $50,000 a year to have access to those databases, then you can’t afford to hire that business broker.
5. Does your business broker have worldwide contacts and worldwide offices?
Your business is not being sold in your local city. The odds against that are at least 20-1, your buyer is coming from another city, another sate or possibly another country. The days of a business broker simply putting a listing on a website and hoping someone comes across it, are the days when high button shoes went out of fashion. Unless your business broker has a national and international reach, you will reduce the odds of selling your business by 90% or more.
New York Private Equity, a Business Broker with a national presence, employs a unique program that leads to a very high level of success, thus we can afford to take all the financial risk that most firms charge up-front. Contact Us