How to Choose the Right Business Broker in Kansas City
It takes dedication and often personal sacrifice to build a business to the point where it’s sellable. Owners are responsible for product development, increasing profit margins, and scaling at just the right pace for operations to continue. Now, imagine selling the business and finding a buyer who can take the business to its next level.
Selling a business is an emotional experience, and sellers are often not equipped to navigate sale agreements and negotiations. An experienced business broker can be the difference between a smooth, profitable sale and a missed opportunity. And with good reason, as the business broker service market is worth $1.8 billion and is largely untapped. That means it’s likely more firms — and competition — will be popping up soon.
In a metropolis such as Kansas City, business owners have a wealth of experienced business brokers to choose from. Choosing the right one comes down to research.
Start with Local Market Expertise
If localization is important to your business operations, it’s worth investing in the services of a business broker with local market experience. They understand the market dynamics, such as similar businesses for sale in the area, going rates, and whether there is a market for it at the moment.
Kansas City is home to a wide variety of industries and was named a top 10 city for launching a business. A serious business broker will have experience in these industries and know where the market has serious buyers and where businesses might sit on the market for a while.
Check for Experience and Expertise
An experienced broker knows the ins and outs of the market, leverages the right networks, and has a clear understanding of the valuation process. Ask about the business broker’s portfolio or case studies to see if they have experience selling organizations like yours in terms of industry, complexity, and size.
The broker also needs to have in-depth knowledge of the area; for instance, Kansas City’s Crossroads Arts District might do better with an artisanal shop rather than a franchised business.
Review Their Marketing and Buyer Network
A broker should have an extensive network of buyers in a number of industries to better promote their clients’ businesses. This network may include a list of professionals, such as accountants, business consultants, legal representatives, and commercial real estate agents.
A solid marketing network is also an essential component of business broker services. Business brokers rely on established marketing techniques such as networking and referral marketing to engage prospects. Marketing networks also need to be localized. For instance, a Los Angeles network could look fairly different from a Kansas City network.
Modern digital marketing plans are multifaceted. Ask which channels the broker advertises on and request to see their case studies or previous examples. Email marketing, social media campaigns, and long-form content (like blogs and landing pages) are some of the most common techniques for reaching interested buyers.
Ask for Insight Into Their Valuation Process
Only 2% of business owners know the value of their company, yet a business valuation is an integral part of the business sales process. It finds the value in the business and ensures that the sale is a fair and equitable process for all parties involved.
Business brokers may recommend one of these business valuation methods:
- Market Capitalization: Typically used for publicly traded companies, this method multiplies the company’s stock price by its total outstanding shares to determine market value.
- Times Revenue Method: This method multiplies the revenue by a multiplier that follows the industry standard. For instance, you wouldn’t use the same multiplier for a hair salon as you would for a factory. The multiplier is influenced by factors like stability, profit margin, and market conditions.
- Earnings Multiplier/Price-to-Earnings Ratio (P/E Ratio): With this method, profits are used instead of sales revenue to determine the value.
- Discounted Cash Flow Method (DCF): Companies use future cash flows to determine the value.
- Book Value: Subtract the liabilities from the assets.
- Liquidation Method: Assesses the business’s value based on selling all assets and settling liabilities.
It’s important to know that even if a valuation method was used, buyers typically only pay what they believe to be the value of the business. It’s up to the broker and seller to gather enough information to support their valuation claim.
Understand Their Deal Process and Support
Businesses need help with the deal process from the planning stage right through to the conclusion of the sale. A typical deal process can include:
- Preparation, valuation, and goal clarification
- Building the sales team, marketing, and going to market
- Performing due diligence, structuring the deal, selecting the buyer, and negotiating
- Finalizing the legalities and the conclusion of the sale
A business broker should also feature in the after-sales period to assist with the transition. Change management is a critical component of a business sale as it adds value and may influence the buyer's decision.
Assess Communication and Compatibility
Good communication is vital in any business relationship, and that between a business and its business broker is no different. Discuss communication standards and how often the brokerage will provide feedback.
One way to verify a brokerage’s reputation for communication is through online reviews such as Google and the Better Business Bureau (BBB). When looking for a business broker in Kansas City, like those at www.ibexbeyond.com, look for reviews that mention past sales and closed deals in that market.
Understand the Fee Structure
Business brokers typically have three fee structures. These are commission-based, flat fees, or success fees. Each of these fee structures has its own advantages and disadvantages, and it's up to the business owner to decide which would suit their goals and needs better.
- Commission-based: The fee is a percentage of the sale amount
- Flat fee: A specific amount irrespective of the sale value of the business
- Success fee: The fee is percentage-based and charged at the successful conclusion of the sale
Final Tips for Finding the Right Broker
The sale of a business can take several months, if not a year or two to conclude. It’s important that the broker you choose to represent the sale is a good fit for the Kansas City market and has the right credentials, experience, and expertise to guide you through the sale.