I recently read the interesting and informative article titled, "The 10 Things Your Business Broker Must Do to Earn Their Fee." It is a very good synopsis of key attributes you want to find in a business broker. In fact, out of the 10 points made, there is only one that I would argue is inaccurate more often than accurate. It heads the list at #1: "They just don’t say they know your industry, they prove it."

This little devil speaks to a growing voice that is saying that business owners need an industry specialist to represent them in the sale of their business. That growing voice, however, is often the voice of the specialists.

I would argue that there are times when a specialist is absolutely necessary, times when a specialist can hurt the seller's ability to achieve the best outcome, and times when using a generalist or specialist would result in the same outcomes for a business owner. Specialists can, by the nature of being specialists, end up with a cookie cutter approach to both valuation and marketing that potentially could narrow the pool of buyers, and not clearly represent the attributes, or challenges, that a given business enjoys.

I further hypothesize that 90% (generalization alert!!!) of the attributes needed to successfully own and operate a company are transportable to almost any business. The remaining 10% represents the specific skills and drivers for a given company. The ability to learn the 10% (in the absence of a statutory requirement of a trade, license, etc.) becomes the learning curve, and transition focus, for the new owner.

Size Matters for the Approach Used

Main Street Business (a majority of companies out there). In these cases, the businesses are very likely to be sold to first-time business buyers who are local to the business. Unless there is a specific technical requirement, the buyer could come from a broad range of backgrounds and cultures. You need a business broker with their fingers on the pulse of their local market, with a diversified database of potential buyers and referral contacts, and marketing tools to drive new traffic to look at the company. Business brokers are fundamental to buyer and seller education, and need to be available, in person, as needed throughout the process.

Lower Mid-Market Businesses. In many cases, these businesses will be sold to individuals, or groups of individuals, seeking new challenges. They may also be sold to competitors, private equity groups, and others for synergistic or financial reasons. In this case, you need a business broker with the capacity not only to reach within a sector to find buyers, but also to cast a wider net that will allow buyers outside of that likely buyer pool to find this opportunity. For many brokers, their relationships with other brokers, their international corporate network, diverse marketing entities, and their experience will bring this breadth to the table and provide a business seller with more options than may come forth from a specialist in a certain sector.

Upper Mid-Market Businesses. In these cases, businesses are most often going to sell as a part of a consolidation (vertical or horizontal), or as a platform to commence a consolidation. Your business broker or investment banker may well undertake an engagement of this kind through the formation of a transaction team. The team would bring together skills to facilitate the divestiture, but keep the local, hands-on benefits of having your business broker as part of the team, fulfilling the role best suiting his/her skills and attributes.

Business Brokerage Best Practices

Our firm uses best practices that many successful practitioners follow when conducting an initial assessment of a potential sell-side engagement:

  • Assess each potential client against established benchmarks for client acceptance. In our firm, one of these benchmarks relates to our knowledge and understanding of their business sector and how that would impact a transaction. We would, therefore, not represent a company if we did not have the competency to do so. We understand our limitations and the impact this could have to the client and also our ability to successfully close a transaction.
  • Understand the objectives of the client and assess if a standard sell-side marketing process will meet these objectives. It may be necessary to modify the program to better suit the attributes of the company and meet the needs of the owner.
  • Determine if there are adequate resources in our firm due to size or nature of the engagement to execute properly. If necessary, a team approach should be utilized to represent the needs of the client. In that case, a team would be assembled and the engagement offering would define the appropriate role of each team member.

Our goal, as a firm, is not to have engagements but to have successful transactions. As in most professional services markets, there will be good and bad practitioners. There will be ethical and unethical practitioners. As you determine who to engage, assess their attributes as defined in the original article, but also consider what you need and whether you have a sense of trust towards them. Engaging a business broker is the start of a long road you will be travelling together. Trust and integrity are key to how you will look back upon the experience.