Well, that escalated quickly!
I recently went off on how many bad brokers there are out there and wow did y'all chime in! From broken promises to manipulation and even one instance of outright lying. But these are the opportunists that move into any new market. Where are the good brokers? I'll share all we've learned about preparing for and finding the right broker for you. So keep reading!
A solid process for getting a good broker
Thanks to everyone who sent me their "you need to know" and "I wish I'd known" replies to our last newsletter. Your experiences and insights helped me put together this approach to finding an effective broker.
How to get started
One of the toughest parts of the broker process is how to start. It can be easy to select the company that's right in front of you. But if you're selling something that you put 5, 10, or hell even 20 years of your life into maybe you should take a week to review a few options?
I can hear you thinking, "sure, Carl. Review a few of them. Makes sense. But where do I find them, smart guy?" Sheesh, simmer down would ya. It can be a simple web search or looking through a directory of brokers. But I'd recommend referrals where possible. Someone who knows you, your shop, and has been through the process with a company they appreciated after the sale went through.
And what should you review them on? As someone who runs a community of digital professionals, it pains me to say not their website. Some of the worst options have the best presence. To start, find out what training they've been through and what associations they've joined. If they are a Certified Business Intermediary and part of the IBBA then they've worked hard and belong to an association that promotes good business ethics. Even if the association and certifications aren't directly related to selling a digital shop, it still shows they are working at their craft and not just hanging up a shingle in a crazy market.
The initial meeting
Think about how you start a meeting with a new prospect. Do you start by saying you can get everything done really quick and on budget? No, you start by telling them you need to understand their business and their goals so you can put together the best plan for them. A good broker will do the same. They won't just ask about financials and your revenue mix. They'll ask about your culture, client relationships, and what matters most to you in the transaction. They want to understand the why behind your decision to sell.
And really review the agreement. We've got it on good authority that some of the best-known brokerages have very sloppy agreements. Be extra careful to review it for any non-compete type language that prevents you from hiring another brokerage for a certain time period if you fire them. Sheesh!
Have they sold shops like yours before?
If they don't understand what makes you a special snowflake then how will they find the right buyer? Ask them how many shops like yours they've sold in the last 24 months. Then find out what percentage of their initial valuation did the seller actually get. Of course, you'll want to talk with these past customers as references. And make sure and compare what the broker told you with the experience of the seller.
What's their valuation method?
Brokers need to share their valuation with you before you sign up with them. Dig into the how and why of the number they present to you. Compare it with the value other brokers have determined. Is what everyone is sharing consistent? Does it hold true with what past customers of the brokerages have experienced?
How do they get paid?
Some brokers are going to try and make money off both ends of the transaction. Good for them! If it helps them keep going and you don't get stuck with the entire bill it can make sense. It's also a common practice that you'll pay a flat fee, a percentage of the sale, and/or a monthly management fee. It can be hard to compare the different scenarios between brokers, but take the time to run different scenarios and make sure their piece of the pie feels right to you.
How will they sell your business?
Most brokers will have a database of buyers and an email list that goes on for days. But how are they going to market your company? A shotgun approach that gets lost in the mix of a hundred shops for sale? Or will they focus on getting you a love connection by analyzing the intangibles that a buyer and seller might both have? If it's a "numbers game" approach get ready for a lot of tire kickers and hours of wasted time.
With that said, ask how many companies they are currently selling. Compare that with the number of people at the company and you'll get a good understanding of how much time your project will get.
How quickly do they reply to your messages? Pro-tip: it won't get faster once you hire them. In fact, a common story is when they want a new client they are all over them. Once they're in the door it's hard to get a response in a timely manner.
And be doubly sure that however they promote you doesn't hurt your company now. It only takes a few people to know you're selling the shop before your top talent starts looking and clients get nervous. Make sure those confidentiality clauses are front and center in the agreement.
Do you trust them?
You don't have to want to have dinner with them, or hell you don't have to even like them. But you need to trust them. You need to feel they are being honest and have your best interest at heart. Any successful business person knows that happy customers are the path to a prosperous future.
So there you have it. Yes, hiring a broker can be a really smart thing to do if you're prepared and select the right one. Because you're in charge of the decisions you make. And if it ever feels like you aren't, then it's time to find a new broker.