Get All Access for $5/mo

How to Choose The Right Investment Banker to Sell Your Business Trusting someone to sell your business is no small matter. Here are three ways to make sure you're hiring the best person for the job.

By Jay Turo Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Shutterstock

With U.S. merger and acquisition activity up 34 percent this year, now might be a very good time to consider selling your business.

Part and parcel to this exploration is deciding whether or not to hire an investment banker to help you. And then, which one to choose.

But first, a word of caution.

It is a truism among old-time investment bankers to not take on clients who "need them," The idea being that if a business owner is not capable of selling their business on their own, the business is probably unsellable.

For starters, you and your team need to have an understanding of key business sale concepts like valuation and discounted cash flow. You need to understand and articulate how your industry and market are evolving and how your business fits into this changing landscape.

Until you are able to do this, don't even attempt to sell your business.

With this important caveat, here are three battle-tested strategies for how to hire an investment banker:

1. Buy individuals, not firms. Iinformation technology and social media have leveled the playing field between big and small investment banking firms.

These days, everyone -- from Goldman Sachs and Morgan Stanley to the one and two person shops -- have access to the same deal and industry databases needed to build a "Sell Book" and deal distribution list.

As importantly, social media tools -- yes LinkedIn, but also industry-specific ones like Axial and BizBuySell -- provide the ability to connect with almost any buyer anywhere.

Because of these new realities, when choosing an investment banker, it is more important to evaluate the specific individuals who will be working on your deal, rather than the firms at which they work.

This evaluation should go beyond checking references. Consider your one-on-one chemistry and camaraderie. Also important is your communication styles. Do you like to work face-to-face, at off hours, only through scheduled meetings?

2. Build "outs" into the engagement letter. No matter how well one tries to evaluate an investment banker, nothing compares to actually undertaking a business sale process with them.

Be sure to negotiate an "out" into the engagement letter, so that you have the right to terminate the relationship at any time with no, or at the least, a limited "tail" compensation required.

Investment bankers usually resent this type of request, but if they aren't willing to cooperate, move on.

Remember: They are professional negotiators. If they're unwilling to agree to this, they probably are not as confident in their ability to get a deal done as they let on.

3. Insist on weekly activity reports. Most bankers struggle to regularly and accurately track their hours. Making them do so will help keep your deal more top of mind. Insist your banker provide you with a weekly report of activities performed on your behalf, and the number of hours required to complete them.

In short, in hiring and working with an investment banker to help you sell your business, don't check your common and good business sense at the door.

As the old adage goes -- "Trust but verify." And always leave yourself an easy way out if things start to not go as planned.

Jay Turo

CEO of Growthink

Jay Turo is CEO of Growthink, a Los Angeles-based consulting firm that has helped more than 500,000 entrepreneurs and business owners develop business plans, raise funding and grow their businesses. His column appears on the Growthink blog on Mondays.

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

Side Hustle

This Mom Started a Side Hustle on Facebook — Now It Averages $14,000 a Month and She Can 'Work From a Resort in the Maldives'

Heather Freeman was searching for a way to make some extra cash — and her cousin gave her a great idea.

Starting a Business

He Turned His High School Science Fair Project Into a Product That Solves a $390 Billion Problem: 'This Has Not Been Done Before'

Vasya Tremsin was just 18 years old when he came up with the idea for outdoor fire sensor company Torch Sensors.

Business News

Why Does Taylor Swift Keep Stopping Her Shows Mid-Song? It's Actually a Great Lesson in Leadership.

Taylor Swift has paused nearly half of her shows while on the European leg of her Eras tour, and the reason is something leaders can learn from.

Business News

YouTube Takes on TikTok With New Tools: 'You Can Build a Business'

Though YouTube Shorts videos are brief, they still draw 70 billion daily views.

Business News

Melinda French Gates Says This Mindset Hack Helped Her Overcome Imposter Syndrome

Melinda French Gates said she faced (and conquered) imposter syndrome while working at the Bill and Melinda Gates Foundation. Here's how.

Side Hustle

This 26-Year-Old's Side Hustle That 'Anybody Can Do' Grew to Earn $170,000 a Month. Here's What Happened When I Tested It.

Stephen Alvarez was working at a dental supply company and following his passion for cars on the side — then an Instagram ad changed everything.