Your first foray into the business for sale marketplace can be very challenging for a number of reasons – first and foremost that business transactions are inherently complex and as such you need good, quality help.
The professionals who help buyers and sellers navigate this marketplace are called business brokers. A business broker assists both buyers and sellers – buyers with finding the right business to buy and sellers with listing their business for sale. Although the business of buying and selling businesses has very little to do with the real estate sphere, for the most part (and depending on the state) business brokers are licensed as real estate brokers. A “real” business broker also has specific insurance and industry memberships that allow them to do their jobs effectively.
Why did we say “real” business brokers? Unfortunately our industry looks to those outside it as something other professionals can do on the side or as a part-time diversion. Nothing could be farther from the truth, and if you end up working with a “moonlighting” business broker instead of the real thing, then your chances of a successful transaction are slim to none. There are typically three types of “moonlighting” brokers – the real estate agent, the lawyer and the random professional. We already looked at real estate agents in the previous article, so let’s look at the next two types of offenders, the lawyer and the random professional.
Unlike real estate agents, lawyers are much better at the confidentiality aspect of business sales as confidentiality (attorney/client privilege) is something that is built into their own business model. As we discussed in the previous article (read it here), confidentiality is the only way to ensure that a business survives the transaction process and has a chance to get to a closing table.
What lawyers are also good at? Protecting their clients from any and all legal harm. While this might seem like a good quality to have during a business transaction, in the business market the opposite may be true. If your lawyer’s job is to protect you from any and all risk, then how can they help you in a business transaction when every business deal comes (inherently) with at least a bit of risk? The short answer is they can’t.
We’ve seen attorneys talk their clients out of perfectly good business deals because there was a slight chance that the business could fail, the numbers wouldn’t meet projections or there was a clause in the lease (a very standard commercial lease) that the attorney didn’t like. Businesses are risky. It’s just part of the game. If you take over a business and then do nothing to keep it growing, then of course it will fail. Future projections are just that, projections. Contracts and leases are full of things that would make attorneys nervous because they are written to protect both sides of the deal, not just their client alone. We’ve even had attorneys who advised their clients not to sign our non-disclosure agreements (that are the standard form many in our industry use).
You absolutely need a business transaction attorney at your side when you buy or sell a business, and you should listen to all of their advice. The point here is there are many parts of a business transaction where a lawyer will be more of a hindrance than a help. Attorneys aren’t business brokers, so just like the reasons we gave for the real estate agents – pick someone to help you buy or sell a business who actually does this for a living and you’ll be far better off.
The Random Professional
This category is a bit more broad, but it has to be to accommodate the wide-ranging backgrounds of the “moonlighters” we come across. We’ve had dentists, neurologists, CPAs, corporate instructors – the list goes on – come to the table and try to present themselves as business brokers when in reality they are nothing of the sort. Would you go to a neurologist to fix a broken tooth? Would you come to a business broker with back pain? Absolutely not, but these professionals, while absolutely capable in their own professions, think they can make the transition to a completely different industry on a part-time basis. They definitely can’t.
When someone from any profession outside of the business broker sphere tries to get in the game, they come up against many of the same issues that we mentioned in the previous article about real estate agents. Any good business broker will absolutely refuse to work with someone who isn’t in the industry, both for confidentiality concerns and also because it is nearly impossible to get a deal done when the other side has no idea what they’re doing.
What should you do instead? Make sure you have a qualified and experienced full-time business broker at your side. You will save yourself a million headaches and do your transaction a favor by giving it the best chance of success.
Want to read the previous article about the most common “moonlighting” business brokers? Click here.
Have you tried to sell your business with the help of your attorney, CPA, etc. and have a story to share with other buyers and sellers? Do you have additional questions about the role of a business broker in your transaction? Leave us a comment or question here.
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