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Posted on 06/02/2019 in News by Hospitality Trader

The 7 Key Ingredients to a Good Hospitality Business Broker.


The 7 Key Ingredients to a Good Hospitality Business Broker.

If you are in the market as a buyer or a seller, chances are you will cross paths with a Business Broker. 

Many sellers choose to use a Business Broker as it’s an easier option to have someone else deal with prospective buyers, take care of negotiations and contract details.

There are good business brokers and bad business brokers, like any industry, its matter of knowing what you’re looking for. 

A big part of a brokers job is educating inexperienced buyers and sellers on the process, keeping in mind a broker's main motivation is selling listings and finding new stock.

Business Brokers work for commission, and primarily represent the seller, the one paying the commission. 

The long time frame in between sales is why some broker’s cut corners preparing the business for sale and make mistakes in the hope of a quick sale.

A good business broker makes money by having good listings and intimately knows how to prepare a business for sale and hit the market running. 

They will, have expertise in your category, take the time to assess, review and understand your business, know how to communicate with all parties, help you with marketing the business and many other tasks that will increase your chances of selling.

1. Asses the Business.

When brokers are in a hurry to list a business, they make the mistake of not taking the time to evaluate all the necessary information. 

A good broker will want verified financials, lease, operational overview, discuss owner’s input and more, then asses the business using a variety of valuation methods and comparison sales.  

The amount of information a seller has to provide a broker is substantial, but if a broker doesn’t ask for all this information, how can they make an informed assessment or identify potential deal breakers based on a conversation alone? it should bring up some red flags.

2. Marketing the Business.

When detailed information is not immediately available, buyers can quickly become disinterested in a business, get a poor impression and move on to the next. 

Many good businesses don’t sell due to poor preparation by the broker. 

Aside from writing the listing for the broker website, there won’t be much else. 

Buyers want as much information as possible about a business to be sure the business is a worthwhile investment. 

A Business Profile is the foundation of marketing and selling a business, good business brokers will prepare a comprehensive profile on the business as standard practice from the outset to present the business in the best possible way which thoroughly explains the business, opportunities, and risks to buyers when they enquire. 

Whether your business is worth $20,000 or $20 million, out of all the potential businesses a buyer might look at, they will remember the one with the information pack.

3. Advertising your Business for Sale.

It’s surprising how many sellers and brokers don’t want to spend money advertising the business, but expect the business to sell, hence many advertising campaigns are not effective and don’t generate enough enquiries. 

Putting an ad or two on the internet hardly qualifies for advertising, any seller can do that without a broker. 

Unfortunately, that’s the reality, an ad goes up and everyone expects to get lots of enquiries, not the case.

The result is that many businesses end up on the market for a longer period of time with little or no interest.

A good broker understands businesses require different strategies to generate interest from buyers. 

They will know how to create a plan to get a good mix of eyeballs and enquiries using a combination of targeted web sites, print publications and make direct phone and email contact with clients. 

Get the broker to outline exactly what advertising will be done to sell the business.

4. Screen and Qualify Buyers.

A business brokers job is to protect the seller's confidentiality and connect the business’s opportunity with buyers, qualifying buyers is a big part of what brokers do. 

It’s not uncommon for brokers to rush through enquiries and send unqualified buyers on a drive by inspection of the business then have buyers drop in unexpectedly, asking questions in front of staff and customers, it can be highly damaging to the business.

A good broker will have specific questions to determine if buyers are genuinely motivated and serious and most often will get them to sign a confidentiality agreement before disclosing sensitive and confidential information about the business or organising a guided inspection.

5. Prepare an Offer.

It takes a lot of effort from a business broker and many elements in the sales process to align before a buyer will be convinced a business is worth the risk and exposure to make an offer. 

Most buyers will make an offer after a few meetings if they are genuinely serious. 

A good business broker will have the skills and experience to manage the expectations of both parties, facilitate the negotiation process from the offer, deposit, heads of agreement, obligations, leases, trial period, assistance period and any other special condition into a mutually acceptable agreement, usually non-binding until the contract is signed.

6. Manage The Due Diligence Process.

Once a buyer makes an offer and you accept, the broker will start putting together the contract and let the buyer do their due diligence, a period of time for them to investigate the business thoroughly before taking the next step of signing the contract.

If the broker has not prepared and anticipated possible obstacles, formal due diligence can drag on for weeks potentially uncovering issues that were not previously documented, putting the buyer off the business, the broker and effectively killing the deal. 

There is nothing worse when deals go wrong at this stage. 

If the buyer was given a detailed business profile by the business broker when they were first qualified, there is no reason why due diligence should be anything but routine with few surprises or deal breakers!

7. Close the Deal.

Ideally by now, due diligence has progressed well, possibly completed and no major deal breakers have surfaced. 

Everything would have been seen, done and discussed by now, the broker would be getting both parties to sign contracts and close the deal. 

It’s a crucial time for all parties to stay focused as many things can still come into play and derail the sale. 

The seller has to stay focused on maintaining the business, the landlord has to approve the lease assignment, health inspections have to be done, licenses, transfer, staff, stocktakes, trial, training, handover, etc all the while the broker hopes the sale goes through to completion or all the work thus far would have been for nothing.  

Even if issues do come up at this late stage, a good broker can mediate and keep things on track to the end.

Some Questions to Ask Before Choosing a Business Broker.

  • How many years have you been a broker? (the more established the better)
  • How long have you been at this agency?
  • How many brokers in the team?
  • What’s your experience selling similar businesses like mine?
  • What valuation methods do you use?
  • How many listings do you currently have?
  • How many businesses like these have you sold in the last 3, 6, 12 months?
  • Can I speak to current business owners or get current testimonials on your recent business sales?
  • How many of these were your actual listings?
  • Can I see an example of a business profile and information memorandum?
  • How do you maintain confidentiality and screen buyers?

Takeout

Business brokers play a key role in the business market, helping buyers and sellers simplify a complex process. 

Choosing a business broker should be based on their level of skill, experience, and professionalism, not because they charge a lower commission fee and no marketing costs. 

Making the wrong choice will likely result in the business staying on the market for longer than expected or may never sell at all.

Last Updated April 9, 2019

 Peter Kais | hospitalitytrader.com


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