by Heather T. | Feb 17, 2025 | Business, Observations, Operations, Selling a Business
Additional information on each question from 50 Questions to Ask a Business Broker When Selling a Business
Q26. How do you manage negotiations with buyers?
Why should you ask this?
A broker’s negotiation skills are important to boosting your business’s worth. Sales success and timing depend heavily on their talent for productive discussions. Finding out how they deal with offers and counter-offers, and whether they’re usually the ones to make the first move, or prefer to respond to others, can help give some insight on how they address negotiations.
It’s important to have a broker who can effectively negotiate on your behalf, to get the best price and terms for your business sale. Finding out how they approach negotiations and manage buyer expectations for the business helps to make sure that your interests are being served in the best way possible.
Sales negotiation isn’t just about price, it also involves payment structures (cash vs seller financing), non-compete agreements, or other clauses. Asking for examples of how they’ve handled past negotiations and resolved any conflicts can give you a better sense of their approach and effectiveness. Look for a broker who can advocate for your best interests while ensuring the deal progresses. They should understand the buyer’s interests as well and structure the deal to serve both parties as much as possible.
Q27. What are your commission rates and fee structure?
Why should you ask this?
To determine your expenses, you must know the broker’s commission rate and fee structure. A commission-only system is used by many brokers. Broker commissions are typically 5–10% of the final sale price, however, this percentage is subject to change. I have also seen commission rates range up to 12% and sometimes more, depending on elements such as the size and complexity of the transaction. While more complex sales may involve higher rates, typically rates usually do cap around 10-12% for very small businesses. It’s important to clarify the fee structure right upfront, so you don’t get caught by surprise later on.
Some brokers use a tiered commission structure, where the percentage decreases as the sale price increases. Knowing these details right off the bat helps you understand the total cost of the broker’s services and ensures the rates align with your expectations. Some brokers ask for money upfront, since they’re not certain they can sell your business, but others only charge if they sell it, as they’re very selective about which businesses they work with. Brokers who charge primarily success fees may have an incentive structure better aligned with the seller’s interests.
Q28. Are there any upfront fees?
Why should you ask this?
Upfront service fees may apply with some brokers. You should clarify if the fees are included in the final commission to plan your budget effectively. Ask if the broker expects a retainer or upfront payment to work with you. Other upfront fees may pay for services such as formal business valuations or marketing materials like confidential information memorandums and teaser documents.
Make sure to ask the broker if they require any initial payments or retainers, and whether those are refundable. Understanding these fees in advance will help you know how much you’ll need to invest upfront before the sale is confirmed. You can also ask the broker whether they will credit this retainer toward the commission if the sale closes successfully. Clarifying these details upfront ensures you know the full scope of financial commitments before proceeding with the sale.
Q29. Do you charge a minimum fee if the sale price is lower than expected?
Why should you ask this?
You need to clarify whether the broker charges a minimum fee if your business sells for less than expected. This helps you avoid unexpected financial surprises.
Some brokers have a minimum fee that applies regardless of the final sale price. This can affect your net proceeds, particularly if market conditions lead to a lower-than-expected sale. For example, a broker may charge a 10% commission but have a minimum fee of $20,000. This means if the sale price falls below $200,000, you would still owe the broker $20,000.
Q30. How is the commission calculated (e.g., a percentage of the sale price)?
Why should you ask this?
It’s important to understand how the broker calculates the commission to accurately estimate your net proceeds after the sale is finished.
Brokers commonly determine their commission based on a percentage of the gross sale price, this includes all assets sold (real estate, equipment, and intellectual property etc.). The commission structure might vary depending on factors like the deal’s structure (e.g., cash, stock, or earn-outs).
If the sale involves contingencies like earn-outs, clarify in detail how the broker’s commission applies to future payments. Some brokers may charge their full commission upfront based on the total sale price, while others may tie their commission to each payment made as part of the earn-out.
by Heather T. | Jan 30, 2025 | Business, Observations, Operations, Selling a Business
Additional information on each question from 50 Questions to Ask a Business Broker When Selling a Business
Q21. How do you ensure the confidentiality of sensitive business information?
Why should you ask this?
This is critical to safeguarding your private business details.
Selling a business is a sensitive matter. If word gets out that your business is for sale, it can create uncertainty among employees, customers, and suppliers, which may disrupt operations or reduce the value of the business. A broker must take steps to ensure confidentiality.
Brokers typically use non-disclosure agreements (NDAs) and limit the amount of information disclosed at the outset. They may also use “blind ads”—advertisements that describe the business without revealing its identity—to attract buyers while maintaining confidentiality. Ask the broker how they screen potential buyers before sharing sensitive information, such as requiring proof of financial stability or serious intent. A reliable broker will have strong confidentiality measures in place to protect your business’s identity while marketing it to qualified buyers.
Q22. What steps do you take to protect the identities of buyers and sellers?
Why should you ask this?
Brokers must take strong measures to protect the identities of both buyers and sellers throughout the sales process. Confidentiality is crucial during a business sale for both buyers and sellers. For sellers, revealing that the business is for sale can create uncertainty among employees, customers, competitors, or suppliers, potentially disrupting operations and reducing the business’s value. Companies buying other businesses, especially competitors, should keep their identity secret to avoid losing their advantage or harming other transactions.
Q23. How do you maintain confidentiality during the marketing and sale process?
Why should you ask this?
Confidentiality is crucial when selling a business, as a premature disclosure that the business is for sale can lead to significant risks, such as losing key employees, damaging relationships with customers and suppliers, or giving competitors an edge. Discretion is essential in preserving the business’s operations and value throughout the sale process.
Brokers typically use a combination of legal agreements, marketing strategies, and information management techniques to safeguard confidentiality.
Here are the key measures brokers take to ensure that both the seller’s and buyer’s identities and sensitive information are kept secure throughout the sale process:
1. Non-Disclosure Agreements (NDAs)
Before any confidential information is shared with potential buyers, brokers require them to sign a Non-Disclosure Agreement (NDA), a legally binding contract that obligates buyers to keep any business information they receive confidential and not use it for competitive purposes.
NDAs are the primary legal tool to protect confidentiality, ensuring that sensitive information (e.g., financials, customer lists, intellectual property) is not disclosed to third parties or misused. This also creates legal recourse if a buyer violates the agreement.
The broker will only release detailed information about the business (such as a financial summary or detailed operational data) to potential buyers who have signed an NDA. Additionally, NDAs often stipulate that buyers cannot contact the seller’s employees, customers, or suppliers without permission, further protecting the business.
2. Blind Listings (Teaser Documents)
Brokers often use “blind listings” or “teaser documents” in the early stages of marketing. These documents provide high-level details about the business—such as its industry, general location, and revenue range—without disclosing the name or any identifying characteristics of the business.
This tactic allows brokers to attract serious buyers without revealing the identity of the business too early. By keeping specific details anonymous, the broker can gauge buyer interest while minimizing the risk of competitors or other parties learning about the sale.
Blind listings typically include information like “a profitable manufacturing business in the Midwest with $5 million in annual revenue” rather than naming the specific company or location. This protects the seller’s identity while still providing enough detail to generate interest from prospective buyers.
3. Controlled Release of Information (Staged Disclosure)
Brokers control the flow of sensitive information, releasing details incrementally as the buyer progresses through the stages of interest and qualification. Only qualified and serious buyers who have signed NDAs, are given access to more detailed information.
Staged disclosure provides sensitive information only to buyers demonstrating financial capacity and genuine interest, thus minimizing the risk of competitors or non-serious buyers accessing valuable business data.
The broker may initially provide potential buyers with a high-level teaser document or a blind listing. If a buyer expresses interest and signs an NDA, they may then receive a more detailed information memorandum (IM) that includes financials, operational details, and business history. The most sensitive information, such as customer lists or specific pricing strategies, is often withheld until due diligence or after a Letter of Intent (LOI) is signed.
4. Buyer Screening and Qualification
Before sharing detailed information about the business, brokers carefully screen potential buyers to ensure they are financially qualified and genuinely interested in purchasing the business.
Screening buyers helps to prevent time-wasters, competitors, or those with no financial capacity from accessing confidential information. This process also ensures that only serious, qualified buyers reach the stages where sensitive business data is disclosed.
Brokers may ask buyers to provide proof of funds, a buyer profile, or details about their acquisition goals before moving forward. By verifying that a buyer has the financial capacity and intention to purchase, the broker can protect the business from unnecessary exposure to unqualified parties or competitors.
5. Anonymous Communication and Initial Negotiation
In some cases, brokers will facilitate early communications between buyers and sellers without revealing the identity of the business or the seller until the buyer has progressed through the screening process.
Keeping the seller’s identity anonymous during initial negotiations prevents sensitive information from leaking to the broader market, competitors, or stakeholders. This is important when selling a business in a competitive industry, where revealing that the business is for sale could weaken its market position.
During the early stages of negotiation, the broker may act as the intermediary for all communications. The buyer might submit questions or initial offers through the broker without directly contacting the seller. The broker will gradually facilitate introductions as the process moves forward, and the buyer shows serious intent.
6. Use of Secure Data Rooms
A secure online data room is a digital repository where confidential documents and information about the business are stored. Brokers often use these platforms during due diligence to give buyers controlled access to sensitive information.
A secure data room allows for the controlled and monitored sharing of sensitive documents. The broker can restrict access to only certain documents based on the stage of the sale process and monitor who views the information, reducing the risk of data leaks.
Upon signing an NDA and showing serious interest, typically then a buyer receives access to the secure data room. The broker can track who has viewed the documents and limit downloads or printing to protect the confidentiality of the materials. This approach also allows the broker to revoke access if necessary, providing additional control over sensitive information.
7. Masked Financials and Redacted Information
Sometimes, brokers may provide financial statements or key business documents with certain details masked or redacted to maintain confidentiality while still providing necessary data to potential buyers.
Masking or redacting sensitive information ensures that buyers receive the financial data they need to assess the business’s value without gaining access to information that could compromise the seller’s position if the deal doesn’t close.
For example, the broker may provide financial statements that show overall revenue, profitability, and expenses but omit specific customer names or contract details. This allows the buyer to assess the business’s performance without having access to proprietary information that could harm the business if exposed prematurely.
8. Timing of Stakeholder Notifications
Brokers may advise sellers to wait to notify certain stakeholders, such as employees, suppliers, or customers, until after key milestones (such as signing an LOI or closing the deal) are reached.
Premature disclosure of a potential sale to employees or suppliers can cause disruptions in the business, such as staff departures or renegotiation of supplier contracts. Timing the notification of key stakeholders helps maintain business continuity and protects the business’s value.
The broker works with the seller to determine the right time to inform employees, suppliers, and customers about the sale. In many cases, sellers wait until after an LOI is signed or the due diligence process has begun to ensure that the buyer is serious and that the sale is likely to proceed.
9. Ensuring Buyer Anonymity
Just as sellers need confidentiality, some buyers, especially strategic acquirers or competitors, may also require their identities to remain confidential until the final stages of the sale.
Buyers, particularly those engaged in strategic acquisitions, may not want competitors or other market players to know about their acquisition plans. Disclosing the buyer’s identity too early can lead to competitive disadvantages or complicate other deals they are working on.
Brokers can maintain buyer anonymity by having initial discussions without revealing the buyer’s name. For instance, a strategic buyer might be referred to as “a regional player in the “X” industry” during early negotiations, with their identity only being revealed once the deal is further along.
Q24. What is the typical timeline for selling a business like mine?
Why should you ask this?
The timeline for selling a business can vary depending on factors such as the size of the business, the industry, and market conditions. However, a skilled broker should be able to provide a rough estimate, typically ranging from a few months to over a year. The process usually begins with preparing the business for sale, which can take a few weeks to several months.
This phase includes gathering financial documents, updating operational systems, and ensuring that all necessary paperwork is in order. After listing the business, finding a suitable buyer typically takes three to six months, although market demand can lengthen this period or shorten in some cases. After a buyer is found, the due diligence and negotiation phase can add another 1 to 3 months, followed by the final closing, which may take an additional few weeks to complete.
It’s important to recognize that certain factors can affect this timeline. For instance, if there are complicating factors such as real estate involved, or if the buyer is looking for specific assets or has unique terms, it may extend the process. The speed at which you and the broker can respond to offers, requests for additional information, and other deal elements will also affect the overall timeline. Working with a broker who is proactive and well-connected can sometimes shorten the process, but patience is key, as a thorough due diligence process is crucial for a successful sale.
Q25. What are the key milestones in the sales process and how do you handle each stage?
Why should you ask this?
Understanding the key milestones in the sales process—such as valuation, marketing, negotiations, and due diligence—along with how your broker manages each one, helps you know what to expect and the level of involvement required from you. Knowing these stages in advance ensures you’re prepared for each step of the process and that you’re aligned with your broker’s approach.
The sale of a business involves several critical milestones that need careful attention and coordination. Being aware of these steps helps you stay informed and engaged throughout the journey, minimizing surprises and setting realistic expectations.
Typical milestones include:
- Initial Business Valuation: The broker evaluates your business to determine its market value.
- Preparation of Your Marketing Materials: The broker creates key documents like teasers, confidential information memorandums, and financial summaries to attract potential buyers.
- Online and Offline Marketing: Your broker markets your business to qualified buyers using various channels and strategies.
- Receiving and Evaluating Offers: Offers come in, and the broker helps you assess their viability and terms.
- Negotiation: Your broker negotiates terms with the buyer to secure the best deal possible.
- Due Diligence: The buyer thoroughly reviews your business’s finances, operations, and legal standing to ensure the accuracy of the information provided.
- Finalizing the Sale: The purchase agreement is negotiated, and the sale is officially closed.
A good broker should clearly explain how they handle each of these stages, the level of communication you’ll have, and what role you will play throughout the process. For instance, ask about their approach to managing negotiations and due diligence, as these can often be the most intricate and time-consuming stages.
by Heather T. | Jan 29, 2025 | Business, Observations, Operations, Selling a Business
Additional information on each question from 50 Questions to Ask a Business Broker When Selling a Business
Q16. How will you market my business to potential buyers?
Why should you ask this?
A strong marketing strategy (e.g., leveraging industry-specific networks, confidential listings, or targeted outreach to private equity groups) can significantly expand the pool of potential buyers. Make sure they are using methods that effectively reach the right audience. A strategic marketing plan is essential for attracting the right buyers and achieving the highest sale price. Understanding how your broker intends to market your business gives you a lot of insight into their approach and reach.
Good brokers typically employ a variety of marketing tactics to promote a business. Ask if they plan to use confidential business-for-sale websites, industry-specific networks, or do direct outreach to their network of buyers. For larger or niche businesses, brokers may also work with private equity groups, strategic buyers, or even international markets.
Ask about the level of detail they’ll include in their marketing materials (executive summaries, teaser documents, and information memorandums) to attract serious buyers without revealing sensitive information too early.
Q17. What types of buyers do you typically attract (strategic, financial, individual)?
Why should you ask this?
Understanding the broker’s network of buyers is crucial in determining if they can connect you with the right buyer. Strategic buyers (companies in the same or related industries) may pay more for a business, while financial buyers (private equity firms, investors) often focus on a businesses profitability and scalability. Individual buyers may have different expectations regarding price and after the sale involvement.
Different types of buyers, such as strategic or financial buyers, have unique motivations and expectations. Your broker should find buyers who will help you achieve your goals, whether that’s getting the highest price, keeping your company’s culture, or something else important to you.
Ask the broker what percentage of their past deals have involved strategic buyers versus financial buyers or individual investors. This will give you some insight into their existing network and the types of potential buyers they’re familiar with.
For example, a strategic buyer might value your business for its customer base or technology, while a financial buyer might prioritize cash flow. The right type of buyer will depend on your goals, whether you’re looking for maximum cash upfront, a quick exit, or ongoing involvement. Ensure that the broker’s typical buyer base aligns with your desired outcome.
Q18. What online platforms do you use to promote listings?
Why should you ask this?
A broker’s online presence can reveal how modern and up to date their own marketing strategies are, and that can often mirror what they will do to promote your business.
A broker’s choice of online platforms significantly impacts how effectively their business is marketed to potential buyers. In today’s digital world, a broker’s online presence is a key indicator of their marketing reach, strategic approach, and ability to connect with a wide range of buyers. By understanding the platforms they use, you can assess whether they have the tools and resources to maximize your business’s visibility.
Brokers typically use a mix of industry-specific marketplaces, general business-for-sale websites, social media, and other digital strategies to attract qualified buyers. Here’s an overview of some commonly used online platforms and their benefits:
1. Business-For-Sale Marketplaces
These platforms list businesses on the market, attracting individual buyers, private equity firms, and strategic acquirers seeking acquisitions.
Some popular platforms include:
BizBuySell
BizBuySell is one of the largest and most recognized online marketplaces for buying and selling businesses. With millions of monthly visitors, listing your business here ensures wide visibility and access to a large pool of potential buyers, from individuals to private investors.
BizBuySell enables brokers to add detailed business information while protecting confidentiality. They also offer tools for managing inquiries, which can help filter out unqualified buyers early in the process.
BusinessBroker.net
Another leading platform for listing small and mid-sized businesses, BusinessBroker.net attracts a broad audience of buyers and investors. A broker who lists on this platform can provide additional exposure, particularly if your business falls within a popular industry category.
This platform includes resources like valuation tools, making it appealing to buyers looking for detailed insights, and helping your broker engage with more qualified leads.
LoopNet
Although primarily known for commercial real estate listings, LoopNet also includes business sale listings, especially those that include real estate components. This platform is beneficial if your business involves significant real estate holdings or physical assets that need to be highlighted as part of the sale.
LoopNet reaches buyers who are specifically interested in businesses with real estate, which can enhance the appeal of listings that have an asset-based component.
BusinessesForSale.com
This global platform provides access to a diverse international buyer base, making it particularly useful if you’re open to international buyers or if your business operates in industries with global appeal (e.g., technology, hospitality).
The international exposure of BusinessesForSale.com allows your business to reach buyers beyond your local market, increasing the chances of finding a buyer with specific expertise or a strategic interest in your business.
Crexi
Crexi (Commercial Real Estate Exchange, Inc.) focuses on commercial real estate transactions but is also useful for businesses tied to real estate, such as retail, hospitality, or industrial operations.
Known for its user-friendly interface and analytics tools, Crexi helps sellers market properties effectively while providing buyers with detailed insights. It’s ideal for those seeking a modern, data-driven platform for business-related property transactions.
2. Private Equity and Investor Networks
Besides general marketplaces, many brokers will also target private equity firms, venture capitalists, and high-net-worth individuals through specialized platforms. If your business is larger, growing quickly, or has high profitability, these networks are crucial.
Axial
Axial is a platform that connects small to mid-market businesses with private equity firms, family offices, and strategic acquirers. If your broker is using Axial, it shows that they are actively targeting financial and strategic buyers who are looking for businesses to invest in or acquire.
Axial’s network of professional buyers is particularly attractive for businesses looking for growth capital, partnerships, or partial exits. If your business is appealing to institutional investors, listing on Axial increases your chances of connecting with sophisticated, qualified buyers.
DealStream
DealStream, (formerly MergerNetwork) is another platform used by brokers to connect with private investors, mergers and acquisitions (M&A) firms, and industry-specific buyers. It’s known for attracting a more professional buyer pool than general business-for-sale sites.
This platform serves higher-end deals, making it more suitable for businesses with substantial revenue or strategic value. If your broker uses this platform, it shows they are aiming to connect your business with institutional buyers or strategic acquirers rather than individual investors.
3. Social Media Marketing
Social media has become an increasingly important tool for business brokers to promote listings and connect with a wider audience. Effective use of platforms like LinkedIn, Facebook, and X (formerly Twitter) can show a broker’s ability to modernize their approach and reach tech-savvy buyers.
LinkedIn
LinkedIn is a powerful tool for reaching professional buyers, including executives, strategic acquirers, and private equity groups. Brokers who actively promote listings on LinkedIn can tap into a network of professionals who may be interested in acquisitions to grow their own companies or investment portfolios.
LinkedIn also allows brokers to join relevant industry groups, publish articles, and connect with potential buyers directly, which can give your business exposure to a more targeted audience. If your business operates in a B2B or professional services space, LinkedIn can be especially useful.
Facebook
While primarily a social platform, Facebook is used by brokers to reach individual buyers and investors. Brokers might create targeted ads or post listings in industry-related groups.
Facebook’s robust ad targeting allows brokers to tailor their promotions based on location, industry, and buyer behavior, reaching potential buyers who may not be actively searching business-for-sale platforms but are still interested in entrepreneurial opportunities.
4. Search Engine Optimization (SEO) and Paid Advertising
Many modern brokers go beyond traditional listing platforms and use digital marketing techniques such as SEO and paid search advertising, to increase visibility.
Search Engine Optimization (SEO)
SEO allows brokers to rank their listings higher in search engine results when potential buyers are searching for relevant business opportunities. For example, a broker with a strong SEO strategy might ensure that when someone searches “businesses for sale in X industry” or “buy a company in Y location,” your business listing appears at the top of the search results.
SEO helps attract organic traffic from qualified buyers who are actively looking for business opportunities, driving more attention to your listing without additional advertising costs.
A good broker won’t just concentrate on Google, but also focus on Bing (Alexa from Amazon draws a lot of information from Bing among some other content sources) and lesser search engines.
Google Ads (Paid Search Advertising)
Paid search advertising (e.g., Google Ads) allows brokers to promote your listing directly to potential buyers based on their search queries. If your broker uses paid ads, they can target specific keywords and demographics to ensure your listing appears in front of qualified buyers.
Google Ads can generate immediate visibility for your business listing, especially in competitive markets where organic traffic alone might not be enough. Paid ads also offer geographic targeting, ensuring your listing reaches buyers in specific regions or countries.
5. Industry-Specific Websites and Platforms
Besides general business-for-sale platforms, some industries have niche websites and forums where people buy and sell businesses. A broker with industry expertise may use these specialized platforms to attract buyers with a specific interest or expertise.
Franchise Direct (for franchises)
If your business is part of a franchise, brokers may list it on franchise-specific platforms like Franchise Direct. These platforms attract buyers specifically looking for franchise opportunities, ensuring your business is seen by the right audience.
Franchise-specific platforms have buyers who are familiar with the franchising model and are likely to be more serious and knowledgeable about the requirements and costs associated with buying a franchise.
BizQuest
BizQuest is an industry-specific site that caters to certain types of businesses, such as restaurants, retail, and manufacturing companies. It attracts buyers who are specifically looking for businesses within these industries.
BizQuest’s focus on specific sectors means that it often draws more qualified buyers with industry knowledge and experience, which can lead to quicker and more informed negotiations.
Q19. Do you have an existing network of potential buyers or sellers? Do you maintain a database of qualified buyers, or will you be reaching out to new prospects?
Why should you ask this?
While confidentiality may prevent the broker from disclosing specific buyer identities, they should be able to provide evidence of their network.
A broker with an established network of qualified buyers can streamline the selling process, while one without such a network might take longer to find suitable candidates. A strong, relevant network enhances the chances of a quick sale at a favorable price.
Some brokers have access to large, targeted databases of buyers, including strategic, financial, and individual buyers, while others may rely more on outreach and advertising. If a broker has a pre-vetted list of buyers, this can significantly speed up the process. Ask them for details about their database—such as the size of the list, how often it’s updated, and whether they can tailor it to specific industries or locations. If they mainly source new prospects, inquire about their process for qualifying buyers and ensuring they are serious and capable of completing the deal.
Q20. What services do you provide during the due diligence process?
Why should you ask this?
How will the broker assist with making the due diligence (DD) process smoother? Do they have a checklist of essential due diligence items? Will the broker serve as the main point of contact and project manager throughout the due diligence period, so you don’t have to manage it yourself?
by Heather T. | Jan 28, 2025 | Business, Observations, Operations, Selling a Business
Additional information on each question from 50 Questions to Ask a Business Broker When Selling a Business
Q11. Do you have any case studies or success stories I can review?
Why should you ask this?
In case studies or success stories, examine the evidence they provide on their website for tangible items such as photos, difficult-to-fabricate financial records, and publicly verifiable details.
For example, if you’re looking for records in California, you can search the California Secretary of State’s website for business entity filings, which provides details on corporations, limited liability companies (LLCs), and partnerships.
Q12. Do you have a team supporting you, or are you handling everything on your own?
Why should you ask this?
Your broker should have a support team to help with the selling process. Without one, they’re managing everything on their own. A team ensures that each aspect of the sale gets the attention it needs.
No single broker can be an expert in all the areas required to sell your business. Marketing, valuation, negotiation, tax planning, and working with buyers each demand focused time and specialized expertise.
While it’s not uncommon to find solo brokers in the industry, it’s important to evaluate how many listings they manage each year and how they handle each stage of the process. If they’re overseeing every detail of multiple deals at once, realistically, they may not have the time or bandwidth to give your business the attention it deserves.
Q13. How will you determine the value of my business?
Why should you ask this?
Brokers use various valuation methods, such as earnings multiples, revenue multiples, or asset-based valuations. Understanding the broker’s approach helps ensure it aligns with both what you expect and the current market conditions.
Valuation is one of the most crucial aspects of selling your business. An incorrect valuation can result in leaving money behind if it’s undervalued, OR failing to attract buyers if it’s overvalued.
Brokers typically use several approaches to determine your business’s value, including income-based methods (such as EBITDA multiples or DCF-discounted cash flow analysis), market comparables (comparing sales of similar businesses), or asset-based valuations. Ask the broker to explain their preferred method and why it suits your business and explain the terminology in layperson’s terms.
Q14. What factors do you consider when valuing my business?
Why should you ask this?
A range of factors influences valuation, so it’s important to understand which ones the broker considers most significant for determining your business’s value. This question helps you find out if the broker is considering important factors such as growth, competition, your customers, and any unique assets that could affect the price.
Key factors to consider include financial performance (such as revenue, profit margins, and cash flow), customer base (diversity, contracts, and loyalty), industry trends, intellectual property, brand strength, the competitive environment, and growth potential. Each of these elements will affect the valuation, and brokers may prioritize them differently. For example, a business with strong recurring revenue and long-term customer contracts might justify a higher multiple estimate than one with declining sales, even if both are similarly profitable. Keep in mind what you think a business might be worth isn’t necessarily what it IS worth. Even though you put $200K into renovations to a property doesn’t mean you can raise your estimated price by that much and get it back.
Q15. Can you walk me through how you determine the valuation?
Why should you ask this?
Understanding the step-by-step process the broker uses to evaluate your business gives you a clearer picture of how accurate and thorough their valuation will be. Having the broker explain their valuation process will help you gain a better understanding of how they arrived at the final price and help you feel confident that it’s realistic.
Ask the broker to explain how they collected data and how they compared your business to others in the market. A good broker should be able to outline their process clearly, which may include analyzing your financials, conducting market research, and assessing operational factors. This also helps you understand whether they’ll rely solely on historical data or if they’ll consider future projections and strategic opportunities. Make sure the broker explains their reasoning in simple terms so that you can fully grasp the basis of their valuation.
by Heather T. | Jan 24, 2025 | Business, Observations, Operations, Selling a Business
Additional information on each question from 50 Questions to Ask a Business Broker When Selling a Business
Q10. Can you provide references from past clients, especially in my industry?
Why should you ask this?
Hearing directly from past clients can offer valuable insights into a broker’s communication style, integrity, and effectiveness in closing deals.
Speaking with previous clients, especially those in your industry, will give you firsthand knowledge of the broker’s approach, their ability to handle challenges, and their track record of closing deals successfully. Don’t just go by the references they give, call some businesses that they have listed as “sold” on their website.
When you reach out to people, ask about their overall satisfaction with the broker, how the broker managed any problems that came up, how they ensured confidentiality, and whether the broker met their expectations regarding pricing and other timelines.
Warning Signs to Look Out For:
- Hesitation to provide references
- Unrealistic pricing or timelines
- Limited experience in your industry
- Use of high-pressure tactics to get you to sign an agreement
- Ambiguous responses regarding marketing strategy
by Heather T. | Jan 23, 2025 | Business, Observations, Operations, Selling a Business
Additional information on each question from 50 Questions to Ask a Business Broker When Selling a Business.
Q9. How long did it take you to close your last three sales?
Why should you ask this?
Experienced brokers excel at closing deals in a shorter time frame than average. They achieve this by implementing effective strategies for sourcing and vetting buyers, leveraging existing relationships to expedite the process, and providing valuable guidance to both the seller and the buyer throughout the process.
A sales process that drags on is typically frustrating for all parties involved. The seller becomes discouraged and may consider closing the business, the broker may reduce their efforts in marketing the listing, and buyers question why the business has been on the market for so long. The median time for a successful sale is around 6 months.
