“Why, especially in the beginning, you should engage business brokers”
We have used sell-side brokers to close deals. Some people seem to have a negative view of using brokers, but I believe they are highly useful.
Here is why:
First off, what is the difference between buy-side and sell-side brokers? A buy-side broker represents the buyer and a sell-side broker represents the seller. Whoever is being represented pays.
We use sell-side brokers. They have identified a business for sale and signed an agreement with the seller to represent them and charge a commission if the company sells.
How does that benefit me, the buyer?
Getting in reps
Brokers have a ton of deal flow, and this is a numbers game. Between my partner and I, we look at hundreds of deals per year. We pass on 99% of them. To some that seems like a waste of time, but I find it invaluable. I am getting in my reps. Reading about different businesses, seeing their financials, making mental notes of gross margins, operating cost levels, and management structures. When the right deal comes across my desk, I can sense it immediately. I have put in my reps. Brokers make this possible.
Emotional aspect of selling
For most of us, buying a business is a financial decision. But for most sellers, getting to the place where they are ready to sell is an emotional decision. That process can be long. This is their baby. We have cold-called companies who were not looking to sell. Two things have generally happened. Either they wanted so much money it made the emotional aspect irrelevant, or they took a very long time trying to get comfortable with the idea of selling. By the time a broker brings you a deal, that process has already happened. The seller is ready to speak with you, they have internalized the decision. This can save you a lot of grief in the long run.
Hand holding
Most sellers will probably only sell a business once in their life. They have never done this before and do not understand the process. We may be the nicest, most trustworthy people around, but in their minds, we are on the other side of the table. A broker holds the seller’s hand. From understanding tax implications to explaining the difference between an IOI and LOI; the broker is there. He is on their side of the table.
A Go-Between
Great brokers act as go-betweens. From the signing of the LOI to the purchase agreement a deal will generally die 3 times. That is where negotiation and finding a middle ground that works is crucial. Great brokers know how to handle those situations. Yes, they represent the seller, but they also can be reasonable. They can be a line of communication when trust is not yet solidified.
So, while a sell-side broker technically works for the seller, they make the buyer’s job much easier.