“I went through several

brokers before I found

one who was competent

enough to properly

prepare, price, market

and sell my business.

I wish I had this guide

when I started my pro-

cess. I would have sold

much, much sooner.”

Joe Waite

Former Owner

Platinum Dry Cleaners

Key Questions

• Certifications

• Associations

• Co-Broke

• Full-Time

• Sales Record

• Fees

• Valuation and Pricing

• Marketing Process

• Confidentiality

The IBBA reports a competent broker can add as much as 20% to your selling price.

You have one opportunity to sell your business You will want to hire the most qualified individual possible to assist you. This

guide asks nine very important questions all business owners should ask when

hiring a business broker. The profession is known for its lack of competence

as it is often attracts unqualified individuals who may mean well, but lack the

necessary temperament and skills to complete a successful transaction.

Make the right choice

• Take your time. Do not be afraid to start the process a year or more before

you plan to put your business up for sale.

• Interview multiple brokers. A second, third or even fourth opinion never hurts.

• Competency and focus is critical. You would not hire a podiatrist to perform

heart surgery; therefore, why would you hire a commercial or residential

realtor to sell your business?

It will benefit you

• BizBuySell reports only about 20% of businesses listed on their website sell.

• The International Business Brokers Association (IBBA) reports a competent

broker can add as much as 20% to your selling price.

July 2017

ULTIMATE GUIDE

for Selecting a

Business Broker

1. What are your qualifications, experience and certifications?

It is critical your broker is an expert at analyzing and recasting financial

statements; valuing and pricing businesses; and marketing and advertising.

Experience and creativity matter It is important your broker has been selling businesses for at least several years.

Selling a business is incredibly difficult. You need a broker who has the

experience and creative skills needed to keep your deal together. Former

business owners make the best brokers. A broker who has operated, bought

and/or sold their own business is better prepared to understand your emotional

needs and financial goals while guiding you through the process.

Certified Business Intermediary If your business is below $1M in EBITDA, make sure your broker is an active

Certified Business Intermediary (CBI) registered with the International Business

Brokers Association (IBBA.org). A broker who has obtained the CBI designation

has met the stringent education requirements and high ethical standards of the

IBBA for main street business sales. It is important your broker is an active CBI.

To maintain active status, the IBBA requires continual membership and

education.

Certified Merger & Acquisition Master Intermediary or Professional If your business is above $1M in EBITDA, make sure your broker/intermediary is

a Certified Mergers & Acquisitions Master Intermediary or Professional (M&AMI

or CM&AP). The M&AMI and CM&AP requires achieving in-depth knowledge of

the specialized approach required to successfully prepare and execute lower-

middle-market M&A.

Hire someone who has invested time and dollars into their craft.

Creativity keeps deals together.

Hire a CBI, M&AMI or CM&AP

A certified broker/intermediary

has the necessary training to

understand:

• Analyzing and Recasting

Financial Statements

• Valuing and Pricing

• Marketing and Advertising

• Ethical and Legal Aspects

of Business Transactions

• M&AMI and CM&AP’s

Understand the Specialized

Approach Required for

Lower-Middle-Market M&A

If your broker/intermediary is

not certified, it is a clear

indication they have not made

the investment in time and

dollars to ensure proper care

in preparing and selling your

business.

State and Regional Associations

• Business Brokers of Florida

• California Association of Business Brokers

• Texas Association of Business Brokers

• Carolinas-Virginia Business Brokers Association

• Midwest Business Brokers & Intermediaries

• New England Business Brokers Association

• Pennsylvania Business Brokers Association

• Mid-Atlantic Business Brokers Association

• Arizona Business Brokers Association

• Michigan Business Brokers Association

• Colorado Association of Business Intermediaries

Associations provide education, marketing and networking benefits.

2. What business broker associations do you belong to? Associations such as the International Business Brokers Association (IBBA) and

state/regional associations such as the Business Brokers of Florida (BBF) provide

not only excellent marketing and networking benefits, they also provide training to

stay on top of the latest processes, methods and tools for selling businesses.

Members of associations are better trained and equipped to sell businesses.

International Business Brokers Association As of June 2017, the IBBA has over 900 members. Roughly half of the members

have earned the prestigious CBI designation. For more information on the IBBA,

visit their website at www.ibba.org.

State and regional associations Florida is the most organized state when it comes to business brokerage. Their

association has over 1,200 members and promotes co-broking. California and

Texas are also very well organized. Other state and regional associations are

listed in the left-hand margin.

3. Are you willing to co-broke? Co-broking is helpful as it maximizes your business’s exposure to buyers. With

the exception of BBF members in Florida, very few associations require co-broking

with other business brokers. Financial planners, CPAs and business attorneys are

often great resources for finding buyers and sellers. Where allowed by law, referral

fees can entice other professionals to refer buyers and sellers to your broker. Your

broker’s focus should be on selling your business to the first qualified buyer and not

on earning 100% of the commission. Ask your broker how they plan to cooperate

with other brokers. Cooperation gets deals done.

You deserve an expert at transacting businesses and available when you need them.

4. Do you sell businesses full-time? Your broker should be 100% dedicated to business transactions. If your broker’s

time is split between selling houses, commercial properties or other side-jobs, they

will have less time to commit to learning the nuances required to sell a business

and to you. You deserve a broker who is an expert at selling businesses and

available when you or a prospective buyer needs them to keep your deal together.

5. What is your sales record?

Ask your broker for the number of deals and average transaction size they

completed in the past year and lifetime. How many deals are near your transaction

size? This will give you an indication of how many buyers your broker has

financially qualified to complete your transaction. If your broker has only completed

very large transactions and your business is worth $500K, chances are they are

not talking to buyers who will buy your business, and visa-versa.

6. What are your fees?

Success fees Expect to pay a success fee of 10% at time of sale for a business transacting

under $1M, $10,000 for a business transacting under $100K and Double Lehman

for transactions over $1M. Some brokers want to charge 12% or 15%. If you have

a good, solid and profitable business, demand 10%. If your business is struggling

or the broker believes you may be difficult to work with, 12% or 15% may be fair.

Advance fees Some brokers will charge an up-front fee to list your business for sale, perform

specific marketing programs or complete a valuation. Ensure any up-front fee is

discounted against the commissions upon the sale of your business. A broker

asking for significant sums of money up-front, e.g., $5,000 or more to list your

business, will likely to be less motivated to sell your business than a broker who

earns their fee upon successful sale of your business.

Know what you are paying for.

Realtors Are Not Business Brokers Many business brokers are

realtors due to State licensing

laws. Do not confuse the two.

Selling homes and commer-

cial properties is very different

from selling a business.

Many residential and

commercial realtors trying to

sell businesses often do not

understand or respect

confidentiality nor do they

understand the financial

recasting, valuation and

pricing processes at a depth

necessary to successfully sell

your business and maximize

your return.

Sales Record

• Number of Deals

• Average Transaction Size

in the past year and lifetime.

Valuation Methods

MARKET Approach

• Direct Market Data

Method

• Guideline Public

Company Method

• Mergers & Acquisitions

Method

INCOME Approach

• Capitalization of

Benefits Method

• Discounted Future

Benefits Method

• Multiple of Discretionary

Earnings (DE) Method

ASSET Approach

• Net Asset Accumulation

Method

• Excess Earnings

Method

Valuation Tools

• Pratt’s Stats

• BizComps

• PeerComps

• BBF MLS

• Proprietary Tools

Adjustments

Made for • Industry

• Assets

• Inventory

• Buyer Perceived

Defects/Risk Factors

• Fair Compensation

• Debt Coverage

• Return on Investment

Pricing

Factors • Supply and Demand

• Willingness to Offer

Seller Financing

• Strategic or Synergistic

The percentage of brokers who do not value and price properly is shocking.

7. How do you value and price a business? Having a thorough understanding of analyzing and recasting financial statements

is critical when valuing and pricing a business. Trust can be broken and deals can

fall apart if the initial recast by the broker is inaccurate.

In general, there are three approaches to valuing a business, i.e., Market, Income

and Asset Value. Together these approaches have eight methods for valuing a

business. Your broker should know the appropriate valuation methods to select

when valuing your business, e.g., Direct Market Data, Multiple of Discretionary

Earnings, M&A and Excess Earnings Methods.

Access to valuation tools is imperative Competent brokers have access to many valuation tools; specifically, sold

databases and valuation software. Sold databases include the Pratt’s Stats,

BizComps, PeerComps and BBF MLS. Valuation software includes BizComps,

PeerComps and proprietary tools. Adjustments are made to the valuation

based on industry, assets, inventory and buyer perceived defects/risk factors.

Your broker should also take into consideration a buyer’s fair compensation,

debt coverage and return on investment when valuing your business.

Pricing is dependent upon supply and demand of your business type, your

willingness to offer seller financing and in rare cases interest from strategic or

synergistic buyers. If your broker lets you set the price, or simply uses “rules-of-

thumb,” they are not doing their job and the chance of selling your business is

diminished.

If your broker lets you set the price or uses “rules-of-thumb,” they are not doing their job.

8. What is your marketing process? Anyone can post a listing on BizBuySell and BizQuest and wait for emails and

phone calls. Does your broker re-enter listings periodically to move them back

to the top? What other listing websites do they utilize? Do they have an active

buyer email list and how many qualified buyers are on it? How often are they

in contact with these buyers? How active are they on social media, especially

LinkedIn? Will they do targeted marketing campaigns based on an agreement

with you?

Confidential Business Review Ask your broker for a recent Confidential Business Review (CBR). The CBR

should answer the basic questions a buyer will ask to determine if the business

is a good fit or not. Sadly, many brokers are lazy and only provide marked up

P&Ls or tax returns. Laziness wastes a ton of time for buyers and sellers. Most

buyers will simply skip over a business not properly prepared for sale. Others

will demand a meeting with the seller only to ask very basic questions that if

answered in a CBR, would have led the buyer to realize the business is not a fit.

Industry overview In some instances, it is helpful for the CBR to include industry market, trend and

benchmarking information to better understand your companies position in your

industry. This information can be obtained from databases such as BizMiner

and IbisWorld. Ask your broker what industry databases they use to help position

your business.

Lower-middle-market strategy If your business generates more than $2M in EBITDA, BizBuySell and BizQuest

are not the best marketing tools for finding buyers. In fact, placing it in public

listing forums and/or putting a price on the business is a sure sign of your broker's

incompetence in handling a business your size. These businesses need to be

placed in lower-middle-market deal rooms such as Axial, DealNexus or BankerBay

where private equity groups and large private or public investors search for

acquisitions. Sophisticated investors will have their own process for valuing a

company; therefore, establishing a price sets an upper limit on what a buyer may

be willing to pay.

Sadly, many brokers are lazy and only provide marked up P&Ls or tax returns.

Marketing Process

• Appropriate Websites

• Re-Enter Listings

• Buyer Email List

• Social Media Ads

• Targeted Marketing

Campaigns

CBR

• Business Description

• Price and Terms

• Financial Recast

• Asset List

• Competitive Overview

• Customer Overview

• Employee Overview

• Facilities and/or Lease

• Hours of Operation

• Industry Trends

• Inventory

• Licenses Required

• Products and Services

• Required Skills

• Reason For Selling

• Restrictive Covenant

• Seasonality

• Transition Assistance

• Year Established

• Other

Industry Overview

• BizMiner

• IbisWorld

M&A Strategy

• Corporate and Private

Equity Buyers

• Unique Deal Sourcing

Platforms

• Quality of Earnings

Report

9. How do you ensure confiden- tiality and qualify buyers?

Non-disclosure agreement Keeping the sale of your business confidential is very important. It can be

detrimental if customers, employees, competitors or suppliers become aware

you are selling. Ask what policies are in place to keep the details of your sale

confidential. Every prospect should be required to sign a non-disclosure

agreement (NDA).

Personal financial statements and skill set

If your business is priced over $100K, make sure your broker demands a financial

statement from each prospect and takes the time to learn a little bit about their

qualifications to operate your business. The last thing you want is to waste your

time with a prospect who does not financially qualify to purchase, or have the right

skill set to operate, your business.

Maintaining confidentiality is crucial in the sell of a business.

Handling Inquires

• Non-Disclosure

Agreement

• Personal Financial

Statement

• Skill Set Qualifications

• Seller Approval to

Release Confidential

Business Review

Offers and Closing

• Offers Presented within

24-Hours of Receipt

• Due Diligence Management

• Assist with Lease and

License Transfers

• Recommend Lenders,

Closing Attorneys, etc.

Every prospect should be required to sign a non-disclosure agreement (NDA).

Key Questions

• Certifications

• Associations

• Co-Broke

• Full-Time

• Sales Record

• Fees

• Valuation and Pricing

• Marketing Process

• Confidentiality

Contact Us

Address 8891 Brighton Lane,

Suite 105

Bonita Springs, FL 34135

Phone 239.738.6227

Email Eric@EdisonAvenue.com

Website www.EdisonAvenue.com

By investing time and money in

education, certifications and best

practices, Eric has achieved

tremendous return for Edison

Avenue clients who have

successfully transacted

businesses at a much higher

rate than the industry average.

Results Eric J. Gall is the registered Broker and a Managing Partner at Edison

Avenue. Over the past 20 years, he has participated in many forms of

business transactions totaling over $140M. He won the 2016 & 2014

Business Brokers of Florida (BBF) #1 Top Dollar Producer Award for

Southwest Florida beating out 70 other BBF brokers. His 2016 transaction

volume ranked seventh in the State of Florida out of 1,115 BBF brokers.

He is the only broker in the Top 10 not located in the larger Tampa,

Orlando or Miami/Fort Lauderdale markets.

Credentials Eric is highly credentialed having obtained his Certified Business

Intermediary (CBI) from the International Business Brokers Association

(IBBA) and his Certified Mergers & Acquisitions Professional (CM&AP)

from Kennesaw State University. He is one of two active CBIs and the

only CM&AP in Southwest Florida. The CBI requires meeting stringent

education and performance requirements as well as the high ethical

standards of the IBBA. The CM&AP requires achieving in-depth

knowledge of the specialized approach required to successfully prepare

and execute lower-middle-market transactions (above $1M in EBITDA).

Eric holds BSE and MBA degrees from the University of Michigan.

Experience Prior to co-founding Edison Avenue, Eric bought, sold and operated

several businesses in the automotive, IT and transportation sectors and

worked in Corporate M&A at Ford Motor Company. He is a member of

IBBA, BBF and is the ABBA's National Best Practices Forum Leader.

Trust a firm with proven credentials and results.

July 2017

Why Edison

Avenue?