How to find the right Business Broker

David Screaigh and Catherine Jones, August 2020

One of the most important decisions you can make when selling your business is choosing the right Business Broker. If you select the wrong broker, it can be a costly mistake. Completing a quick Google search, then selecting a broker that pays to be at the top of the search is probably not the best idea, but it's a trap a lot of people fall into. So how do you choose the right broker? At a recent Zircom meeting, the team came up with several key factors every business owner should consider when trying to determine a good Business Broker.

Ethics
There is no quick test to check a broker's ethics. However, there are some things you can do to minimise the risk:

Check the broker has attained their CPBB (Certified Practicing Business Broker) from the AIBB (Australian Institute of Business Brokers). All CPBB have agreed to and must adhere to the AIBB's Code of Conduct and Code of Ethics. We acknowledge that agreeing to follow a code, isn't a guarantee of anything, but the AIBB may sanction any member who violates it, so it's a good start.

Check their references. Why not call around aligned professions and ask about the broker? Why not ring your accountant to ask for their opinion? Have they had any prior dealings with the broker? A large percentage of our clients are referred to us by aligned professionals, mostly accountants, simply because they appreciate our expertise, and we do not pay any commissions for referred clients. It’s important you put in the time and effort during the initial stages of finding a broker, to ensure you get it right the first time.

Honesty
Yet again, this can be somewhat tricky to judge. Think about your gut feeling. Is the broker giving you vague answers to your questions or is the broker willing to take the time and answer every question you have? If you find a broker trying to skirt your questions, they likely have something to hide or don’t know the answer. If a broker sits down and answers your questions and offers their thoughts on issues you have not even considered, it is likely they have nothing to hide and are experienced.

Appraising Knowledge and Ability
A broker may be honest and ethical, but they also have to be able to do the job. A good business broker is highly skilled in the appraisal of the realistic market price of a business. Understanding the realistic market price of a business and setting the right asking price for a business is critical. An overpriced business will sit on the market and may even harm the final selling price as a desperate owner asks for less, or never sell. Our advice is to make sure you ask a business broker how they appraise a business and the different methods they may use, the most common being the Capitalisation of Future Maintainable Earnings (aka ROI Method). A good broker will provide a detailed appraisal which shows they have reviewed your financials and carefully considered the factors relating to your particular business. An appraisal should never just be “on the back of an envelope”. If the broker is not willing to invest the time in providing you with a professional appraisal, you need to ask yourself “what will the rest of their service offering be like?”.

It is important to note that there is a difference between an appraisal and a valuation. A valuation is more in-depth than an appraisal and can be used in several circumstances, such as: disputes, family law, ATO matters, and Stamp Duty matters. At Zircom, as well as being Chartered Accountants (CA), we are also AIBB accredited Registered Business Valuers (RBV) and can undertake valuations as required.

Preparation of an Information Memorandum
We truly believe an essential part of the business sales process is the preparation of the Information Memorandum (IM). Have you ever seen an IM which was missing important information, seemed unrealistic, was full of colourful but rather useless pictures, contained baffling information and charts or didn’t even make sense? Worse still have you ever been presented a business opportunity which didn’t even have an IM!

The objective of the IM is to deliver the key points about the business in an engaging and informative manner. It needs to contain the relevant information for that particular business, so the potential buyer, their accountant and bank can understand the opportunity quickly and rule it in or out. Also, those potential buyers for which the business opportunity does not fit exactly, are eliminated early on in the process, thereby better protecting the confidentiality of additional information. The IM forms an essential part of our business sales process, as it is an excellent tool to provide information in a clear and concise manner, but certainly no trade secrets, customer names, employee or supplier details. One might say the IM is a “goldilocks document” that provides enough information, but not too much information such that the Seller is also comfortable.

Marketing
Most small to medium sized businesses are difficult to sell because you cannot simply go online, click a button and sell your business like shares on any major or secondary stock exchange. A market must be actively created for your business. It is essential to ask a potential broker, "How do you plan to market my business?". If you get a response that boils down to "I'm going to post it online" perhaps you should try a different broker. Anyone can post a business online, and yes, it is one of the MANY things we do here at Zircom to market a business. It is important to have a multi-pronged approach to marketing a business for sale. Each business is different and needs a considered approach and strategy.

Reputation
Most Business Brokers will have testimonials from past clients, but it's also a good idea to ask around for references from other aligned professions. One tip we recommend is to see if the broker has been invited to speak at industry events or has been the recipient of industry awards. We at Zircom have presented to the CA, CPA, IPA the AIBB as well as numerous accounting firms. In 2019 one of our Directors was named WA Business Broker of the Year by the AIBB and currently sits on the WA Committee for the AIBB. It stands to reason that reputable industry bodies like the CA, CPA, IPA and AIBB, can only afford to be associated with a credible and experienced brokerage.

People Skills
Make sure you meet with your prospective broker in person. You need to actually connect with them and feel comfortable with them. If the potential broker does not take the time to meet with you, then they probably won't put much effort into selling your business either. Once you physically meet with your potential broker, see how they interact with you. Do they seem knowledgeable and trustworthy? Are they friendly and likeable? People mostly buy from people they like and trust. If you don't like and trust your potential broker, chances are a buyer won't like or trust them either.

Experience and Education
Make sure your potential broker has continuously invested in their professional development. After all, Business Brokers, like accountants, lawyers, financial planners etc. are professional service providers. Would you hire a tax accountant who hasn't stayed abreast of the tax code? Your business is probably one of your most valuable financial, as well as emotional assets. The broker you entrust your business sale to, must be abreast of current government regulations, industry trends, pricing methodologies, marketing strategies and much more. A good broker who invests in their professional knowledge, will make a large difference to the successful sale of your business.

If you are thinking about engaging a Business Broker, we hope the above suggestions assist in your decision making process of finding the right broker for you and your business. At Zircom, we pride ourselves in doing more than embodying these recommendations. Operating for almost 30 years, we pride ourselves as being one of Perth's most reputable, trusted and experienced brokerages.

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