Your broker may not bring you people who want to buy your business!
I have hesitated to write this article, because I have many good relationships with other business brokers. However for every one I have, there is another that will not allow me to bring buyers for their listing clients. That being said, in this difficult market it is every professionals responsibility to do their utmost to fulfill their fiduciary responsibility to their clients.
We are business brokers in Phoenix. However, additionally my wife / partner wants to buys a light manufacturing business and was intrigued when we saw a Hoist Company in South AZ. So we went through the exercise of contacting the listing broker. My wife wanted to be represented by me, make offers on our forms, use our due diligence process, and have the benefits of being represented by her own broker in the purchase process. Yes, we also wanted to take advantage the commission split which would reduce our investment. Truth be known we may have settled for a referral fee, but the listing broker said "I will not co-broke on a deal this size." Which was $85K. So we looked elsewhere and that seller lost a possible buyer for his business because the broker wanted 'both sides'. Who wins in this scenario?
So what's meant by "does your Business Broker Co-Broke"? This mean the Listing Broker of your business will split his commission with a broker who has a buyer for your business. This is an important consideration in choosing a Broker. Will they allow another broker to bring a buyer he may have for your business. Not may brokers who want to feed their family will go through the considerable amount of work involved in assisting an investor in finding, negotiating and closing on a business without getting paid Additionally, many buyers just feel more comfortable acquiring a business when they have their own broker representing them.
This market is tough, money is tight, and all qualified buyers should be introduced to your business. This should be the fiduciary responsibility of your business broker. I have heard many excuses from non-participating brokers, from the most honest. "No, we don't co-broke", to the more mystical "We are protecting the confidentiality of our client." Really they are really saying is. "We won't give up both sides of the deal, no matter how long it takes to sell this business." Remember, all potential buyers sign NDA (Non-Disclosure Agreements) from the listing broker and brokers are very attentive to assuring that their buyers understand the seriousness of revealing information about the company they examine.
So if you are considering listing your business for sale.
1. Assure yourself that your broker will "co-broke" and ask to see the co-broke agreement. Several we have spoken to say they don't have one at all, yet they tell their clients they co-broke.
2. Some brokers will only bring you a buyer from another broker when your listing gets "old" and they haven't been able to find a buyer themselves. How many potential buyers did they turn away before then?
3. Some brokerage houses say they co-broke, but if you have ever inquired about a business with that firm they keep your name in a database, and consider you "their buyer" forever. Then if you have another broker representing you they will not co-broke. Clarify this if you are listing with a brokerage.
4. If your broker does not bring potential buyers, get rid of him. Their are brokers out there who want to bring a buyer for your business, and your own broker maybe preventing them!
5. It is a great day for a broker when they find a buyer for their own listing, and most do their best to make certain that all facts are disclosed about the business and the buyer makes an informed decision. However, he should like it when the buyer is represented by another broker. The broker can then act in the best interest of the buyer and many times the negotiation, and acquisition process moves along very smoothly.
Years ago, my wife came home after a long day as financial consultant and said "we could have made a lot of money today, but we didn't." "Why?" I asked. "Because I did what was right for my client." She said. Is your broker?