Get All Access for $5/mo

Is The Business Broker Working for You or Your Buyer? Good timing often short-circuits skepticism and due diligence. Before diving in, find out where everyone's interests lie.

By Sam Harrop Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Shutterstock

For an owner who was thinking about exiting their business, it almost seemed too good to be true when the phone rang. It was a business broker who had a prospective client that was interested in buying a business just like his.

This seemed like a perfectly timed phone call. However, the call started a chain of events that eventually put the business owner in a world of pain, just because he was not sure if the broker had the owner's best interests at heart.

First, a headlong rush into a complicated process.

The challenge is this business owner had only just started thinking about selling his business and had done very little to prepare the business for sale. The business broker was able to answer a lot of the owner's questions, in particular what his business was worth in the current market. It was a great call to get.

Related: 10 Mistakes to Avoid When Selling Your Business

Excited and relieved, encouraged and optimistic, the entrepreneur quickly gathered all his data. This included trying to organize and make sense of his financials, put together a list of assets, customers and suppliers, pricing lists, rental agreements and more.

There was a sense of urgency and enthusiasm. The energy was high and, while not all the data was ready or absolutely accurate, the belief was the broker would be able to sort through it and present it in a way that made sense. It all seemed reasonable, right? Well not really, you see some of the information he provided he shouldn't have made available when he did. First of all, it was ill prepared, and secondly, he hadn't even had a confidentiality agreement signed.

Based on the information he had provided, the broker pointed out that the business was actually worth less than expected and based on the current market it was still considered to be a good deal. The seller was left angry, frustrated and disappointed.

Related: Start Now to Prepare to Sell Your Business This Year

Then, a number of realities hit home.

  1. The business broker was working for the buyer not the seller. The broker had a vested interest to help the buyer get a good deal.
  2. Rushing to prepare the financials, the buyer had not accurately portrayed how the business was actually doing.
  3. The lease agreement for his premises had only a few months left before expiring and because he was renting from a good friend, the deal for the new buyer was not likely to be the same.
  4. The owner had not really thought about how much money he needed to sell his business for or what his business was really worth.
  5. His business needed a little more work to make it saleable on his terms.

These are just a few of the things that became apparent. Luckily the seller's accountant picked up that it was not a good deal and strongly advised the seller not to accept the offer. A few months down the line, his business started looking more attractive to potential buyers. Knowing that there is nothing better than having a number of interested parties coming to the table, he is now in a better position to negotiate a much better deal.

Related: Selling Your Business? How to Get the Most for It.

Always be clear who someone is working for. A great way of doing this is to understand explicitly how they stand to benefit from the advice they give you.

Sam Harrop

Author, speaker, trainer, mentor

For more than 20 years, Sam Harrop has been either building successful business ventures of his own or helping his clients to do the same.  In that time, he has used a wide range of strategies to make sure that his clients and their hard working team members are able to develop the knowledge and skills they require to be successful. Harrop, in order to share these strategies in ways that suit the diverse needs of his clients, has authored books, is an engaging professional speaker and is an accomplished trainer and supportive mentor.

 

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Starting a Business

What You Need to Know to Buy the Right Business and Acquire Your Empire

Once you've decided to follow the road of entrepreneurship through acquisition (ETA), it's time to focus on what your destination should be and what supports can help you get there.

Growing a Business

'Good Isn't Enough': He Turned a Company on the Brink of Collapse Into a $100 Million Brand. Here Is His Best Advice for Giving Your Business a Second Chance.

Brad Charron, CEO and "Re-Founder" of ALOHA, explains the moves he made to help this plant-based protein company finally thrive.

Real Estate

Why You Should Consider Commercial Real Estate as Your Next Investment

This article highlights the benefits of investing in commercial real estate while also addressing the associated risks you should consider.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.