The Business Owner’s Guide to Choosing a Business Broker
© 2025 Donald L. Beezley
All business owners have the same basic questions when it’s time to sell their business: What can I get for it, how long will it take, and how does it work? This guide provides insight to each of these aspects of selling a business, including:
· How to prepare your business for sale | · How will your business be valued |
· What buyers are looking for | · How to choose a business broker |
Times have been both very good and very challenging for business sales in recent years due to the effects and uncertainty around the pandemic and its after-effects, and now inflation and rising interest rates. Your broker must know how to explain recent or unusual trends in your business in a way that positions it to overcome a down period—or maximize your price after good years. It’s a talent not many possess.
The Basics of Selling a Business
Selling a business is a complex process involving many parties—buyers, bankers, lawyers, CPA’s, employees, customers and yourself, not to mention partners, family members and spouses. It also involves multiple steps—valuation, packaging/marketing your business, managing buyers, site visits, offers, negotiations, contracts, managing closing, post-closing transition and more.
What are you selling? Most people assume they are selling their corporation (or LLC, etc.). This isn’t necessarily the case, and in a smaller transaction is almost never the case.
In a “stock” or “equity” sale, you are selling your business “entity.” The buyer buys the stock or membership interest and continues with the existing organization. In an “asset sale,” the buyer already has or sets up their own corporation or LLC and that entity buys the “assets” out of your entity, and the buyer’s corporation now owns those assets. The transfer would include the name of your business and “substantially all” of the assets required for the business to continue to do what it had done before, while you retain your original entity, shutting it down when you deem it appropriate (consult your attorney and CPA).
Stock sales are the most seamless with the least paperwork—only the owner of the stock changed; everything else remains largely the same. In an asset sale, on the other hand, if you have 50 service vehicles, for example, all 50 vehicles have to be individually transferred and retitled. They have different tax and legal implications.
Your broker needs to understand the implications of both structures—and the multiple variations that can take place—so he or she can work intelligently with the tax and legal counsel for both parties to help negotiate and close the best deal for you.
What about my real estate? If you own your real estate (even if in a different legal entity than the business), your broker should package it up with the business as a total value proposition and pursue either a sale or lease of your facility to the buyer of the business. If you lease from a third party, your broker should work with your landlord and the buyer to transfer the lease or put a new one in place.
How long does it take to sell? Realistically, it’s anywhere from 6 months to 3 years for a quality business. Businesses with unique or challenging attributes take longer because there is a smaller buyer pool. My record from listing to close is 67 days. It’s extremely important to listen to feedback from buyers in the first 6 months.
How long will I have to train the buyer? This is a function of the deal, the type of buyer and the challenges of transition. You’ll be expected to stay on anywhere from 30 days to a year or even longer for large deals.
How to Prepare your Business for Sale
If you were selling your car, you’d probably vacuum the inside and wash and polish the outside in the hope of selling it faster or getting a few hundred dollars more–or both. In a competitive business sales environment and in a world of ever-more savvy buyers, it’s more important than ever that you put a little “polish” on your business as well when it’s time to sell.
If you focus on the five areas listed below, the chance of selling your business—and getting top dollar for it– will go up.
- Financial Records—accurate, up-to-date financial statements that match your tax returns at year-end are a must. Minimize “extra” expenses or missing revenue you have to explain. Verifiable cash flow is king. Consider an outside bookkeeping firm if you’re doing your own books. Ideally, you should have monthly financial statements completed, but no less than quarterly.
- Can you be replaced? Your departure is the greatest risk to the buyer. If you’re the top salesperson or indispensable operations leader, that’s a problem for a buyer. Redesign your business so it isn’t so dependent on you. If you don’t know how to do this, get help from someone who does.
- Physical Appearance—First impressions count, and your facility needs to be clean and organized in both office and warehouse areas. Your office areas especially need to be in good condition, even for “shop” oriented businesses—new carpet and paint make a dramatic difference. This is one of the first impressions a buyer will have—can they envision themselves walking in every day to a place they’d be proud to own?
- Operations—Document your basic procedures in a manual. This creates a sense of comfort for a buyer and helps them believe they can run your business after they buy it—and that not all knowledge leaves with the seller. It’s also just good management practice for any business.
- Do you really know what your business is worth? Get a valuation done so you can take action to plan ahead for a sale and make your business even more valuable so you can get top dollar when you sell.
What Determines the Value/Price of your Business?
We all have emotional attachments to our businesses. For a buyer, however, cash flow is king. Essentially, a buyer has to pay themselves, service their debt, and earn a return on the business. What creates value in your business is its ability to earn a return. An owner might say, “But we have a great logo!” Great, how much money does it make for you? Or say, “We have the best reputation in the industry!” Great, how much money does it make you? The point isn’t that these things don’t have value—they do; a lot in fact—but these things are the reason why your business makes the money it does and is attractive to a buyer. A great reputation that makes a million dollars a year is worth more than an equally great reputation that makes $50k a year.
The condition of your equipment is another factor. Let’s say two businesses each make $2million, but if business A’s equipment is worn out and needs a $500,000 investment and Business B’s equipment is new and up-to-date, Business B will be worth more (or A worth less), but the rate of return must still make sense to the buyer. And if one business can run without the owner due to a strong management team, versus one that is highly dependent on the owner’s skills, that business will be worth more because it represents lower risk once the new owner takes over. With that in mind, different buyers also impart different values, that’s why your broker must understand how to market to the right buyers (such as “Strategics” versus just individuals) and negotiate the best deal in both price and terms.
Also think of value in terms of “what buyers want.” They want cash flow that is, or seems to be, dependable and predictable, i.e., lower risk. That means they want a diversified customer base, upward trends in sales and profits, good processes in place so they can replicate your success, trained employees, and a business that doesn’t rely solely on the former owner. So, it’s not just “cash flow,” but “quality of cash flow.” In other words, how likely (risk!) is it that existing cash flow will continue into the future?
The 4 Qualities of a Good Business Broker
This could better be called 40 or 400 qualities of a good business broker. It’s a dynamic profession that requires diverse talents to be truly good at it. We’ve dialed it down to four things we think are critical, but that also seem to be real shortfalls in many business brokers’ abilities.
- The knowledge to understand your company’s financial profile
- The ability to properly set a high value expectation with buyers
- The willingness to respond to and engage buyers
- The ability to negotiate and manage a deal in your best interests and get it to closing
Most brokers fall down on at least two of these criteria, and many on all four.
Now, let me share a few tips on how to choose a business broker on those points.
- Financial Savvy
Don’t just assume a broker knows what they’re doing when it comes to your financial information. During your first meeting, ask them questions about your financials. Questions can be as simple as, “what do you see in my financials that you like?” and “what do you see that you don’t like” or “what in my company’s financial history do you think will be attractive to a buyer, or a problem for a buyer?” Open ended questions such as these let you see if a business broker can talk coherently about your financials and zero in on key items. You also want to get an understanding of how they approach business valuation. Expect thorough, coherent answers in terms of business valuation methods used, and ask if a certified business appraiser (such as BCA—Business Certified Appraiser) is used.
- Value Expectations
Many brokers are afraid to tell you what they think your business is worth. They don’t want to disappoint you or make you angry or worry that you might decide not to sell if the value they state is too low. That’s foolish. Facts are facts, and without them, you can’t plan appropriately. Although there are strategies that should be employed to get you more for your business than you otherwise might get (we do it all the time), the first step has to be an objective business valuation (ours are reviewed by a Business Certified Appraiser or, “BCA”). The valuation should be reviewed with you in detail. If the value isn’t where you want it, then a broker should have the skills to work together to with you to lay out a plan and timeline for increasing the value and going to market later. The flipside of this of course is the ability to present your business in a way that maximizes a buyer’s perception of value.
- Buyer Management
The list of qualities above included, “the willingness to respond to and engage buyers.” You might think, well, why wouldn’t they, isn’t that their job? You’d think so, but I hear multiple times per year, “You’re the only broker who called me back.” Ask any business broker what their “process” is for things such as dealing with inquiries, their process for follow-up, using Non-Disclosure Agreements, financially qualifying buyers, and, perhaps most importantly, when and how often they follow up with buyers. Just as important, how do they track that follow up and keep you informed? If they don’t have an immediate, coherent answer on their follow up, move on.
- Deal Management
You may not know it, but this is what you’re really paying for—getting your business sold in a great deal. Ask them how they think about negotiations, their involvement in managing financing for buyer’s, working with attorneys and CPA’s (yours and the buyer’s), how they expect the offer process to work, the actual closing to be managed and so on. Expect concise, intelligent answers. Most sales are lost here, often due to poor management or coordination of the process, or an inability to deal effectively with follow up points of negotiation that come up in the deal.
Other Considerations
Ok, I said there were a lot more than 4 qualities, so squeezing in a few extra points here.
- Do they have a comprehensive approach to finding the best buyers?
- How and how often will they update you on progress? You deserve to know what’s going on.
- Do they have a client orientation plan to help you be a successful seller?
- Closely evaluate the “seminar sellers.” There’s nothing wrong with a brokerage firm using seminars to find clients. However, overhyped promises are something to evaluate closely.
- Some states may require business brokers to have a real estate license, but remember, licensing doesn’t protect you, being a good and informed consumer does.
This is basically an interview. Imagine you’re hiring them as your full time “M&A” employee and paying them a salary. What would you want to know?
How do Business Brokers Typically Charge?
Business brokerage and M & A is a very custom business in many ways. Each business has unique aspects, some have challenges that make them harder to sell and of course some are much larger than others. Regardless of those facts, fairly standardized fee and commission arrangements have evolved in the industry.
Business Commission: The most common commission schedules are tiered, paying a progressively lower % on successive portions of the purchase price such as:
- 10% of the first million dollars of the purchase price
- 8% of the second million dollars
- 6% of the third million dollars
- 4% of the 4th and 5th million dollars
- 2% on everything over $5 million
So, a $5 million-dollar purchase price would be a 320 commission at an effective rate of 6.4% of the total transaction; $10mm purchase price 4.2%; and $20mm purchase price a 3.1% effective rate; and $30mm an effective rate of 2.7%. The schedules will vary a little from firm to firm, but typically reflect some version of this basic structure. Minimum commissions are typically a fact and range from $25,000 to $100,000, regardless of purchase price. Our minimum commission is technically $50,000 in our Client Engagement Agreement, however, that implies a purchase price of $500,000 ($50,000 divided by 10%), and we typically wouldn’t take on a client that small, unless it was a high demand sector.
Real Estate Commission—Typically 5% to 6% of the total lease value or sales price, if you own the real estate. Less on larger deals.
Upfront Fees—An upfront fee is appropriate. M&A is a technical specialty requiring years of education, experience, and talent, and you shouldn’t expect or even want your advisor to work for free. Our firm charges a small “commitment fee” of about $5,000. This doesn’t cover our costs by a longshot as just our valuation and Offering Memorandum—the “book” on your business—is a $10,000 – $12,000 set of services. The Commitment fee is credited back to you at closing, so it’s not really an “extra” fee. It’s designed to make sure you’re a serious seller, while still placing the bulk of our compensation squarely on us for being successful for you. Very often, such a fee is the difference between working with professionals who are good at what they do, and someone who is simply desperate for a listing (desperate people don’t negotiate strongly). Some firms charge as much as $40,000 – $60,000 up front. I won’t judge them one way or the other for that, but it is our philosophy to keep the bulk of compensation on the back end when the sale is made, while still charging an appropriate commitment fee.
Business Valuation Fees—These vary depending on size and complexity of your business. Our range is typically $5,000 – $10,000, with most being closer to $5,000. (Valuation is included at a deep discount as part of your commitment fee when you list with us). Valuation fees can range higher for larger, more complex businesses.
Business Broker or “M & A Advisor”?
A typical dividing line referenced is $1mm or less is “Business Brokerage” and over $1mm is “M&A”. Selling a business valued at $2mm isn’t necessarily that much different than one valued at $1MM. However, as transactions get larger, typically around $5mm on up, legal and tax implications become more complicated and deal structures and forms of financing evolve. In addition, buyers become more sophisticated and the brokerage firm’s buyer and financial relationships become more important too. So, you may not want someone used to selling sub shops helping you out with your $50mm dollar distribution business. Someone with more sophisticated “M&A” experience can likely help you sell your sub shop if they choose to.
Our Money Back Guarantee
At Proforma Partners, our first goal is great relationships. We’ve set up our business and processes to do a great job for you. We want to produce the best Offering Memorandum book, have the highest professionalism, negotiate the best deals and communicate effectively with our clients, buyers, and everyone else involved. With that in mind, if after 60 days from signing our Client Engagement Agreement you are not completely happy, we will refund half your commitment fee (the other half going towards the valuation, which you get to keep, at up to a 75% discount) and cancel the balance of your contract. I had someone ask, aren’t you worried someone will take advantage of you? It’s possible, but we find business owners are honest, hardworking people who take their obligations seriously. So, we’ll bet on their integrity and our ability to do a great job.
Saving the Best for Last: It’s All About You!
A great business broker isn’t thinking about their commission. They’re thinking about you. What are your goals? What are your needs? Every seller is in a different place in life. Some may have health concerns they need to tend to ASAP and just want to “get it sold.” Some may want to retire but be in no hurry while others want to “retire yesterday.” One seller may need it done within a year for any of the above reasons; another seller may be fine if it takes three years or more. The point is that every seller’s needs, goals, and priorities are different. Understanding those is the only place to start.