Selecting & Contracting with a Business Broker/Investment Banker
$750 Fixed-Fee Special Services Package
- The Wrong Reasons People Give for Not Using an Attorney to Help with Getting a Business Broker: I think there are 2 reasons why a lot of people pick a business broker and sign a contract without the help of an attorney. First, it’s too expensive to get an attorney’s help on something like this (that’s why I’ve created the special $750 fixed-fee package). Second, there’s a feeling in the air that the “legal stuff” doesn’t really come into play until the buyer and the seller start hammering out a deal. And besides, the broker is on your side, right?
- Who is Your Advocate? While good business brokers/investment bankers will have your best interest at heart once you have signed-on with them, it may be a different story as they attempt to convince you they are your best choice and their terms of engagement are acceptable. A little advocacy on your side may go a long way. As your attorney, I will be your advocate.
- Things to Think About Before You Jump-in with a Business Broker…..there is “legal stuff” to watch for when engaging a business broker/investment banker. Consider the following:
- There’s a Lot at Stake: A business broker/investment banker can provide a very valuable service and is often instrumental in getting a deal done, but you may wind up paying a lot of money for that. I’m not saying the service isn’t worth the fee. I’m just saying that the fee is big enough and the relationship important enough that you need to pay attention to a broker’s strengths and weaknesses and to the terms of its contract before you sign-up.
- Here’s to a Good Relationship with a Business Broker: Your goal should be to have a good working relationship with a broker that is right for you and to have a fair contract. That’s the combination that will help you arrive at your best sale or purchase outcome. As your advocate, I can help you get that done.
- How the Type of Buyer Your Business is Likely to Attract Affects Your Choice of Business Broker/Investment Banker: If you are a seller, who are your most likely potential buyers? A financial buyer (investor; private equity fund looking for a good investment return)? An industry/strategic buyer who sees synergistic value in your company? An individual buyer with enough wealth to get the deal done and enough desire, experience, and management talent be successful? Different brokers/investment bankers are better at different types of buyers. Some may be strong with all types of buyers. The type of industry you’re in and the size of your deal can also affect your broker/investment banker selection.
- How the Type of Approach to Selling Your Business (or of Finding a Business to Buy) Will Affect Your Choice of Business Broker/Investment Banker: What is the best approach for finding a buyer for your business (or finding a business you would like to purchase)? The answer can influence your choice of broker/banker. A targeted industry search (based on a lot of research the broker/banker will have to do)? A more scattered approach by placement in (or searching in) a large data base/listing service to get broad exposure to multiple cooperating brokers and potential buyers? Some business brokers/investment bankers have existing relationships with individuals and/or investment firms who are qualified buyers…..a short-list, confidential approach, so-to-speak. A targeted, researched approach to a broader base of investment/financial buyers? Some brokers/bankers have relationships with existing franchisees that may help if you are selling/buying a particular franchised business. Auction-type format? Stalking horse approach?
- Broker Desires Exclusive Representation Status and Control of the Process and Contacts: There are reasons why business brokers/investment bankers typically ask for exclusive rights to represent you for a set period of time and why they sometimes ask that you run all of the potentially interested buyers (or sellers) you know of through them…..and why they are entitled to be paid their fee for certain transactions you complete even after their contract has expired. But it’s important for you to understand these reasons and be able to spot when they don’t apply, so that you can negotiate your contract appropriately. I can help you with this.
- What Kind of Work Does the Broker/Banker Do to Try to Sell Your Business (or Find a Business for You to Buy)? If you are a seller, you’ll want to pay particular attention to the due diligence the broker will perform on your business, the approach the broker will take in attempting to sell your business, and the level of quality of the “pitch book” the broker will create to “shop” your business.
- What Happens When You’re Not Happy with Your Broker/Banker? What can you do if the broker/investment banker doesn’t live-up to its contractual obligations or your expectations? How do you get away from a broker you are not happy with?
- What if You Change Your Mind? What happens if you change your mind and don’t want to sell/buy after the broker/banker has identified a qualified party or business?
- Minimum Selling Price? Can you set a minimum selling price in in your contract with the broker/banker? Does it even make sense to think about doing that?
- Valuation? Will the business broker/investment banker do any valuation work? Will it be any good? Do you pay extra for that? Will the broker/banker valuation work be done by a certified appraiser? Should you have valuation work performed by someone other than the broker/banker? How much valuation work do you really need?
- Financing? Will the broker help your financing process?
- Who Owns the Information-Work Product About Your Business? Who owns the due diligence work product and “pitch book” if a buy or sale transaction is not completed?
- Business Broker/Investment Banker Fees: Broker/investment banker fees are fair topics for negotiation. Is the fee 100% contingent on a deal getting done or is there a base, minimum fee regardless of success or failure? Is there an up-front retainer required? If so, is all or part of it refundable? How and when does the broker/banker get paid if part of the sales/purchase price for your business is deferred (paid in a promissory note) or if part of the price is contingent upon certain events or milestones or if the price is paid in a non-cash form (such as the buyer’s stock)?
- A Deal Other Than a Straight-Out Purchase or Sale Occurs? What happens if you don’t sell (or buy) a business, but, instead, enter into a joint venture or other cooperative arrangement with a party to whom the broker/banker introduced to you? How does that, if at all, affect the fee you owe? If you owe a fee, how will it be calculated?
- How Do You Know if a Broker’s/Banker’s Response is Reasonable? You need to know what to ask of a prospective business broker/investment banker and whether the responses you get are reasonable. I can help you with this.
- Did I Mention There’s a Lot at Stake? You have a lot to gain or lose in choosing and contracting with a business broker/investment banker. As your attorney, I will be your advocate to help find the best broker/banker for you and to help get a fair contract in place. You want a cooperative relationship…..that starts with a good selection process and an “eyes-wide-open” contracting process.
- As a special service for a fixed $750 fee, I will meet with you and advise you as to all aspects of selecting a business broker/investment banker to best fit your needs and continue to help you get a fair contract in place with that broker/banker. Brian Rider, a solo practicing attorney and also a CPA at Rider Kenley & Associates, frequently collaborates with me on this and on other aspects of business sales and acquisitions. Please contact me to talk or to set an appointment. (Brian and I collaborate as independent professionals, not as partners)
©Jeffery Risinger, Brian Rider 2018