The decision as to whether and when to sell your California business will be one of the largest decisions you will make in your lifetime. Before pulling the trigger and listing your business it is important to analyze your goals, determine your desired outcome, and come up with a list of questions you would like to ask the California business broker you are considering to represent you in the sale of your business.
Your California business broker should be able to answer questions ranging from how the business is valued, what the marketing plan would be, the commission/broker fee structure, and the buyer screening processes the broker employs. The following are questions to ask a business broker before listing your business with them.
5 Essential Questions to Ask a Business Broker
1. What level of experience does your business broker have in the business brokerage industry in California?
A business owner considering the sale of their California business should look for a business broker that has significant experience with business sales in the California market. An experienced business broker will be a licensed California Broker, have familiarity with California transaction structures, the steps involved in the sale of a business in California, applicable regulations for California business sales, and the local psychology of buyers.
Pacific Business Sales brings over twenty years of experience in business sales, backed by brokers with expertise as a former CEO of publicly traded and privately held companies and an associate broker with experience in the legal field. This unique combination provides clients with a comprehensive foundation for consultation throughout the sales process.
2. How will my business be valued for determining the listing price?
Before listing your business, it is important to determine the value of your business so that you and your broker can agree on the listing price. The listing price is crucial to any business listing because if it is too high, then buyers will not respond to the advertising because of fears the seller is unrealistic, or, if it’s too low, the seller will have left significant money on the table, or a buyer might fear there is a red flag lurking somewhere in the transaction.
When discussing valuation with a business broker, you should ask them how the business value will be determined? Does the broker-firm use professional business valuation software and if so, what software?
The business broker should be comfortable explaining how a valuation is developed and the various valuation approaches (i.e. market approach and income approach). The business broker should also be familiar with the factors that play into each approach positively and negatively. If the business broker cannot explain how a business is valued to you, then they will not be able to defend the value of the business when negotiating with buyers; therefore, this is a critical question to ask when selling a business.
Pacific Business Sales uses Peercomps.com professional business valuation software for all of our market value analysis reports prepared for our clients.
Pacific Business Sales offers a free market valuation for owners looking to sell within the next five years. We will not only send a report to the owner, but we will also explain how the valuation was developed.
3. What are the broker’s commission rates and are there any upfront fees?
Once you and your California business broker have agreed on a listing price, you should discuss what the broker’s commission and fees will be. Ask the business broker what their commission rate/broker’s fees are and whether there are any additional costs, upfront fees, or monthly retainers.
Pacific Business Sales does not charge any upfront fees or additional costs beyond the broker’s fee paid at closing. A seller should expect, however, to pay for their own legal and financial consulting fees and escrow fees.
4. How will confidentiality be maintained during the sale process?
The most crucial aspect of any business listing is maintaining confidentiality of not only the fact that your business is for sale but also the information transmitted to any potential buyer. Prior to listing your business with a California business broker, you should ask what steps a broker takes to ensure the confidentiality of the listing and your business information.
Pacific Business Sales utilizes non-disclosure agreements prior to providing any potential buyer information. Further, potential buyers are required to fill out a buyer profile to disclose whether they have adequate capital to fund the transaction. If a buyer does not meet the basic requirements to fund the transaction, information is not sent to that buyer to limit the spread of information to persons who are not qualified.
Read more about Confidentiality here: How to Confidentially Sell Your Business
5. Will the broker attend all meetings between the buyer and the seller?
A business broker acts as an intermediary between you and the buyer during the sales process. At times, the business broker can assist in acting as a buffer between you and the buyer if they put the seller on the spot and start negotiating terms at an inappropriate time.
A skilled business broker will know how to divert the conversation to both preserve the relationship between the seller and the potential buyer while also maintaining the seller’s optimum negotiation positions. Because of this, it is important that a business broker attends every meeting with the seller and the potential buyer (even after an offer has been accepted) until closing; this is an essential question to ask a business broker.
Final Questions to Ask When Choosing Your Business Broker
The questions outlined above highlight the key inquiries to make when selecting a business broker for selling your business. These questions help to quickly assess the broker’s commitment to the transaction, their ability to maintain confidentiality, and their overall competency.
Frequently Asked Questions
- What is the best time to sell a business in California?
The best time to sell your business is when the market value matches your personal goals and cash needs for exiting your business. In the present economic environment, there isn’t a need to try and “time the market”. Business sales for the middle market businesses in California have remained consistent and buyers remain enthusiastic and interested in purchasing quality businesses.
Pacific Business Sales offers a free no commitment market valuation to sellers interested in selling their business within the next 5 years so that business owners can form an exit plan well in advance of the date they need or want to sell their business. Contact our office to obtain a free-market valuation and our Exit Planning Guide.
read more Is Now a Good Time to Sell My Business? - How do I ensure my business valuation is fair?
A skilled business broker will utilize the appropriate valuation model as applied to your business size, performance, and other factors to ensure that the valuation of your business. The business broker should be familiar with both the market approach and the income approach to valuation and when each approach is applied to valuing a business and to what degree.
Pacific Business Sales uses Peercomps.com professional business valuation software for all of our market value analysis reports prepared for our clients.
- Preparing My Business For Sale
Taking steps in advance to prepare your business for sale can increase the value of your company and reduce the time it takes to successfully sell your business. Frequently when business owners decide it’s time to sell their business they have not prepared for the sale and the business has issues that diminish the value and hurt the marketability of the company.
Read more 7 Steps to Prepare Your Business for Sale
Read more FAQs about selling your business here: https://www.pbsbrokers.com/selling-your-business-faqs/
When it is time to sell your California business, Pacific Business Sales is ready to assist you in the process. Contact us today for more information.
