How To Choose The Right Business Broker Once You’re Ready To Sell Your Small Business

Deciding to sell the small business you’ve invested your time, money, and energy into is never a decision to take lightly. That’s not to say there aren’t good reasons to consider selling. Maybe it’s a matter of selling while the business is at an all-time high in terms of value, for example, or perhaps you’re just ready to move on to a new endeavor.

No matter how solid your reasons, getting your business ready to sell can be a stressful, exhausting process. A business broker helps you navigate each stage of the selling process, from maximizing your business valuation to getting you the best sale price and deal terms possible, through what’s known as business exit strategy consulting.

The broker you choose shapes the quality of buyers you’re able to attract, as well as how the entire process plays out. It’s not always easy to know how to choose a business broker that’s best for you, though. At a bare minimum, you’ll need one that’s experienced and trustworthy, with a proven track record of helping business owners.

Does Your Small Business Actually Need a Broker to Sell?

For most owners selling a small business, the answer is yes. Most qualified brokers have been through what you’re about to go through countless times before, providing invaluable experience and perspective.

The right business broker brings tangible value to the process, like broad buyer exposure, confidentiality management, negotiation leverage, and the ability to run a structured sales process while you keep the business functioning.  

Especially if you’re time-constrained or don’t have an extensive network of qualified buyers to connect with, a small business broker can fill a crucial gap. 

Before deciding whether to use a broker, it’s also worth getting clear on which type of exit you’re pursuing different business exit strategies have different requirements, and a broker’s value varies depending on the path you choose.

When Should You Use an Investment Banker Instead of a Broker?

In the context of selling a business, the distinction between business broker vs. investment banker is mainly a matter of deal size and complexity. Small business brokers are ideal for many owners, typically working with businesses with lower- or middle-market value (like $1M to $20M in transaction value). 

They’re generalists who understand the business sale process for owner-operated companies. That includes how to deal with the full range of potential buyers worth targeting, a range that may include a mixture of private individuals as well as smaller private equity groups.

Investment bankers, by contrast, are a better option for larger, more complex transactions, especially when the transaction value is expected to exceed $20M. Their skillset is also useful when institutional capital, sophisticated earn-out structures (deferred payments tied to future performance, for example), or multi-party negotiations are part of the deal.

Every deal, of course, is different, so it may be worth consulting a trusted advisor to determine your best option and get your business transaction-ready. For example, a small business owner might benefit from working with an investment banker if the deal involves significant intangible assets, recurring revenue, or strategic buyers with intensive due diligence processes.

What Makes an Experienced Business Broker Worth Hiring?

An experienced business broker provides relevant industry knowledge and insights, a proven track record of quality deals, and an understanding of what it takes to get you a fair valuation and find qualified buyers for your company.

How a broker approaches valuation is something to carefully consider, since it sets the foundation for the entire process (and its outcomes). A seasoned broker won’t just suggest a high number in order to win your listing. Instead, they will give you a realistic range based on your financials and actual market conditions, both of which are equally important. An inflated valuation really doesn’t help you much, especially when you find yourself months into the process without attracting any serious buyers. 

There are a few ways to vet different brokers. One of the best is through their credentials. It doesn’t take too much research to learn whether a broker is a member of the International Business Brokers Association (IBBA) or holds a Certified Business Intermediary (CBI) distinction, for example. 

Another way to evaluate a broker is to determine whether they have a strong track record of completed deals. Ask for examples of deals they have helped to broker and how they delivered successful outcomes. 

How Do You Verify a Broker’s Track Record Using Previous Clients and Closed Deals?

A broker’s track record often tells you more about them than their pitch deck or how they handle your discovery call, though these can tell you something, too. 

The best thing you can do is to request a list of successful transactions they’ve brokered. Don’t just ask for business names; ask for meaningful details like deal sizes, industries, and average time-to-close. 

From there, you can ask for a short list of their previous clients to serve as references on their behalf. Through these references, you can learn a great deal about what it’s like to work with that specific broker.

Another option is to check online directories (like the IBBA) to find potential brokers and review their qualifications. These directories are less about vetting specific brokers and more about finding some candidates to consider.

How Does a Good Business Broker Find and Qualify the Right Buyers?

One of the most valuable aspects of working with a small business broker is their ability to find and qualify buyers for you to consider. A broker who relies on a generic database to broadcast your listing to a wide network of buyers (some qualified, some not) is not an efficient broker. Instead, the best business broker is the one that has access to strategic buyers, private equity groups, and financial buyers that could be ideal targets for your sale.

The quality of buyers means a lot more than the volume of buyers. When considering a specific broker, ask them about how they source buyers. The more you understand about their buyer network and active buyer database, the better you can understand their competence and ability to find a buyer. 

A broker’s ability to protect sensitive information about your business and manage confidentiality agreements matters, too. You want a broker that can engage and qualify buyers without revealing what they shouldn’t, often through the use of NDAs and blind teasers. That way, your employees, customers, and competitors won’t know you’re for sale until you’re ready for them to know.

A final way to evaluate how a broker qualifies potential buyers is by asking to see how they put together an offering memorandum, also known as a Confidential Information Memorandum, or CIM. These documents should be professionally written, as they are one of the main ways a potential buyer evaluates your business (and the opportunity it presents).

What Questions Should You Ask a Business Broker Before You Sign?

There are at least three questions worth asking before you sign with any business brokerage firm:

1. Who runs your deal, and how accessible will they be?

Many firms sell you on working with a senior partner before handing you off to junior staff. Ask for a confirmation of who your dedicated advisors are, as well as how many deals they are actively managing and how often you can expect updates from them. 

If they’re not as responsive as you’d like during your initial conversations, that’s a preview of what the process will feel like.

2. What’s the fee structure?

For smaller deals, business broker fees typically run 8-12% of the sale price as a success fee, sometimes with a minimum threshold. Additionally, some will charge upfront fees or retainers. 

These aren’t necessarily red flags; just make sure you understand what you’re committing to and what performance benchmarks, if any, are tied to their fees.

3. What does the exclusivity clause look like?

Most brokers require exclusivity for 12 months. That’s a fairly standard-length clause, but you’ll want to ask about what type of performance expectations are built in. Generally, long exclusivity with no accountability protects the broker, not you.

What Are the Red Flags That Should Make You Walk Away?

Consider walking away if you encounter any of these red flags:

• Unrealistic promises that seem like they’re meant to win your listing, rather than reflect the reality of the market for your business.
• No recent closings in your deal size range or industry.
• Generic buyer lists with no evidence of real relationships or pre-qualification.
• Slow or inconsistent communication during your initial conversations.
• Pressure to sign a deal quickly.
• High upfront fees and/or long exclusivity periods without accountability measures.

What Should Be in Place Before You Hire a Broker?

Recent data shows that a majority (between 70% and 80%) of small businesses listed for sale never actually sell, with the most common reasons including “messy financials, overestimating value, and not engaging with buyers early.” In many cases, these issues are entirely preventable, had more owners taken the time to understand what goes into an exit strategy for a small business owner.

Before you hire a broker, you’ll need clean financials, optimized EBITDA (earnings before interest, taxes, depreciation, and amortization), and a well-organized data room to keep vital information both accessible and secure. If you need help or support as you work to make your business buyer-ready, Milestone’s highly-qualified team can help, bringing out accounting, CFO, and HR experience to ensure that every aspect of your exit planning and business exit strategy lines up for a successful sale.

We use a three-stage process to help you get ready to sell:

• Discovery: Assessing your current transaction-readiness, identifying gaps in your financial presentation, and establishing a baseline for what your business is worth today.

• Strategy: Optimizing EBITDA, refining your valuation story, and mapping the steps needed to close the gap between where you are and what buyers will pay.

• Execution: Building your data room, organizing documentation, and preparing the clean, compelling financials that make a broker’s job (and a buyer’s decision) easier.

At the end of the day, the right business broker and the right financial preparation are not separate considerations. Instead, they work in tandem to tell the story of your business, shine a light on what makes it uniquely valuable, and find qualified buyers who are most likely to see, and pay you for, that value.

Milestone provides a wide range of business consulting and related services, including accounting, CFO, and HR. Our team of dedicated advisors knows what successful transactions require, and has helped countless small business owners implement custom-tailored exit strategies that reduce anxiety while maximizing the value of what you’ve built. Learn more by scheduling a discovery call.