7 Tips for Choosing a Business Broker

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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For serial entrepreneur Jane Angelich, deciding to sell the San Francisco uniform store she had owned for 13 years was easy. Finding an attentive business broker to help with the transaction proved to be less so.

"The first one I hired produced nothing," says Angelich, who's now CEO of Supercollar, a company that sells a dog collar with a built-in leash. "He pawned me off on an associate that worked over two hours from San Francisco and had no desire to make the trip to show the business. They weren't showing me buyers, and they weren't even coming up with clever reasons why they weren't showing me buyers."

It wasn't that Angelich hadn't sniffed out the guy in advance. She'd researched him online and off. She'd checked his references. She'd made a point to meet him at his office to ensure she wasn't "dealing with someone who was sitting in his garage."

After six months of getting the runaround, Angelich ditched her deadbeat broker and found a new one. Within a month, she had three attractive offers and sold her business. Still, the many weeks she'd wasted stuck in her craw.

How can you avoid losing valuable time to a bogus broker? What questions should you ask to ensure you don't get in bed with a dud? And what red flags should you watch for?

1. Experience Counts

You want a broker with a proven resume, not someone who just hung their shingle yesterday. Finding a broker credentialed by the International Business Brokers Association offers this assurance. To become an IBBA-sanctioned Certified Business Intermediary (CBI), brokers must log several years on the job and dedicate dozens of classroom hours to their training.

2. Beware of Generalists

It's not enough to Google any brokers you're considering using and call their references. Part of the vetting process includes making sure your broker is the right fit for your business. For starters, you want a broker who specializes in selling the type of business you own, be it a dotcom, a restaurant or a graphic design firm.

"Each industry has its own unique culture and requirements and knowledge base," says former business broker Mary McCarthy, who's now president of Your Management Team, a small business consulting firm, and chairperson of the Columbus, Ohio chapter of SCORE. "A broker that says 'The industry doesn't matter, I can sell any business' would be something to question. Because can they really represent you and sell your business the best?"

3. Size Does Matter

Also critical is whether the broker you choose typically handles transactions of your size. "If they handle $10 million deals and your deal is $3 million, they're not going to give you the level of attention you need," says Vanessa Troyer, co-owner of high-end mailbox manufacturer Architectural Mailboxes, who in 2008 sold a million-dollar online business for with the help of a broker.

4. Manage the Process

Getting a clear picture from the get-go of how the process will unfold is critical. "Ask what the steps will be in valuing your business, preparing the business for sale, uncovering potential buyers, and following through," McCarthy says. For example, after parting ways with her first broker, Angelich began asking the brokers she interviewed whether they planned to personally handle all aspects of her sale or farm out her account to an associate.

Another key detail to suss out: how the broker will keep you apprised of interested prospects and the transaction status. "You want to have weekly status reports, calls, and updates," says Toby Corey, who's currently using a broker to sell his company, the sports entertainment site NBX Inc. "If you allow yourself to be back-burnered, you're not going to get their mindshare."

5. Negotiate the Fee

Typically, business brokers make their money by collecting a commission on the sale of your business. "If anybody asks you for money up front, that's a big red flag," Troyer says. "That's not common protocol."

Although the average commission brokers make is 10 percent, like everything else in business, that figure sometimes can be negotiated. "For instance," McCarthy says, "if you know somebody that you think would be the perfect buyer, a broker may negotiate a lower rate because they're not doing as much work for you. It never hurts to ask."

6. Avoid Overcommitting

In all likelihood, your relationship with your broker will be a lengthy one. On average, it takes nine months to a year to sell a business — from the time you and your broker start assembling a comprehensive marketing package for your business to the time the sale closes.

Although it's customary for brokers to ask their clients to sign an exclusivity contract, that doesn't mean you have to sign your life away for the next year-plus. "Six months is probably the minimum you're going to get," says Troyer, who was happy to commit to her broker for half a year. However, Angelich negotiated a 90-day contract with the broker who sold her business, with an option to renew for 90 days more. "You can tell almost anything in 90 days," Angelich says. "You've given somebody a reasonable time to perform. And if they're not showing you their best stuff at the front end, it's unlikely they will later."

7. Trust Your Gut

While you don't need to bring your broker home to Mom, you do want to hire someone you're compatible with. "You have to work really well together as a team and have a good chemistry," Corey says. "You want to see the world the same way, see the opportunities the same way, because it really is a partnership to get your business sold."

Or, as Troyer puts it: "If you're uncertain about somebody, go with your gut. Trust your instinct that got you where you are today."