Codiligent business brokerage primarily represents business sellers. Usually when active buyer representation is provided it is for companies who are seeking to acquire specific types of businesses as strategic acquisitions, and have concrete acquisition criteria. However, during the recession it has been more of a buyer’s market, so in recent months Codiligent has provided more general buyer representation than usual.
It has been interesting to deal with a variety of business brokers who are representing sellers of businesses. It has confirmed to me that business sellers should be very careful about who they choose to represent them. Here are some of the things I have experienced:
1. It is very common to have to be persistent and work hard at getting many brokers to provide information about a business (this shouldn’t be the case – they should make it relatively easy for qualified buyers). Often, after submitting a confidentiality agreement, days or even weeks will go by before receiving additional information despite follow-up calls and emails. I’m pretty certain that these brokers’ seller clients have no idea how unresponsive they are. In contrast, Codiligent responds to about 80% of all inquiries within a few hours, 97% of all inquiries within 24 hours, and of the 3% that aren’t responded to within a day it is because of a weekend, holiday, or travel and will still be responded to in a relatively timely manner.
2. The information that most brokers provide is insufficient to make an informed decision about whether a business may be appropriate to explore further. Even after signing a confidentiality agreement, most brokers provide little more than 1-7 pages of qualitative information and financials or tax returns. When you ask follow-up questions, those brokers immediately want to schedule a meeting with the owner rather than answer the questions (I suspect because they don’t know the answers). Yet, meeting with an owner when unknown basic information may make the business an inappropriate fit is not a productive use of the seller’s or buyer’s time. In contrast, Codiligent provides a 3-6 page overview of the business upfront, and then after receiving a confidentiality agreement a 60-200 page comprehensive confidential package of information is provided to qualified buyers. While some business sellers would prefer not to spend the time up front compiling information necessary for the package, it will save them significant time during the business sale process by avoiding inappropriate meetings, answering follow-up questions, and having a deal fall apart during due diligence as a result of the buyer discovering facts about the business that should have been disclosed earlier in the process. Having more complete information also gives buyers more confidence in the business, lowers their uncertainty, and increases the probability of a deal successfully being completed.
3, Unfortunately, some business brokers really don’t have the knowledge or background to be selling a business. This week I talked with a broker who didn’t seem to understand even basic financial statements or the difference between Inventory and Furniture, Fixtures, and Equipment (FF&E). I asked him for a current balance sheet. He faxed me an income statement and said, “here’s the balance sheet”. I thought that maybe he simply had missed a page and was providing me with an updated income statement in addition. So, I called him and told him I didn’t receive the balance sheet. He said, “I thought that’s what you wanted – the P&L.” I told him, “No, I wanted to see the balance sheet”, he then replied “well, the P&L should have all the information you need.” I explained to him that it didn’t – my client wanted to see how much inventory the business currently owned. So, he starts telling me about all of the FF&E of the company. I told him that I wasn’t asking about equipment, I wanted to know what the inventory level was. He said, “what do you mean by inventory, how is that defined?” I don’t even know what to say about how inappropriate it is for someone with this level of a lack of knowledge to be representing someone trying to sell their business.
So, how do you go about choosing a broker? I’ll cover this in more depth in another posting, but a few of the most basic things I would suggest you look for are: 1, the quality of the broker’s analysis and packaging of a business (look at samples or work they have done for other clients); 2, a broker who is very responsive to not just potential clients but also to buyers’ requests for information; and 3, a broker who has the right educational and professional background (i.e. formal education in business and finance – likely an MBA, CPA, or JD; and a professional background that is closely related to buying and selling businesses).
