Too often we hear horror stories of vendors dealings with Cowboy Brokers which besmirch all brokers and the industry as a whole. Paul commented in theSunday Star-Times recently about the ludicrous requirements for Business brokers to complete a ‘Real Estate Agents Salespersons Licence’ which is a 12 paper course with not one mention of business broking. The article can be seenhere.

We currently have an experienced sales person who is about to start an internship with Switch Business to sell franchises. He is currently enrolled in a correspondence course to complete this Licence and is greatly frustrated that when he qualifies, he then will have to actually start learning about the business of business broking.

So what do we get when newbie brokers complete this course? Real estate sales people, who are no good to you whatever when you come to sell your business.

To give you an example of how differently two different companies can look at the same business and the repercussions of that, we looked at an Industrial machinery sales/hire business recently. We appraised the business and come up with what we believed to be a fair representation of a Fair Market Value in the range of $3-3.5m.

Another brokerage better known for smaller transactions, and not really understanding the complexity of the business, informed the owners that they believed the business to have a market value of $6m. Their reasoning was that the two owners’ remuneration and depreciation weren’t a cost to the business and therefore a multiplier of four was appropriate on "Earnings before Proprietors Income, Tax and Depreciation" basis.

The broker didn’t understand that the two working owners were essential to the business and depreciation has to be a cost in a hire business as machinery must be replaced. The result is that after six months on the market the owners are trying to extricate themselves from the sole agency arrangement. The information memorandum has been sent out to all and sundry, including competitors, the business lost one of the agencies and now they have to start again. Who could blame any owner going with the broker who promises nearly double what his rival can?

It really does make a difference who you entrust with the sale of your business. In the last few years there really has been a shift in the mix of business brokerages operating in Auckland. Younger, or younger thinking individuals have broken away from the large real estate-based brokerages and set up business for themselves. There are still good established brokerages out there; for example, if you wanted to buy or sell a business in hospitality, it would be hard to go past Clyth MacLeod Business Sales. Realties Business Brokers Ltd has recently hit the wall, so that is one less choice for selling your business. We hear a number of others, especially those with large fancy offices, are struggling.

Paul and I left Tabak Ltd two years ago. Tony van Camp (also ex Tabak & Company Sales) has recently set up a business sales division at Bayleys. Cameron White @ BTTS (A division of Staples Rodway), John Isaac and Sandy Hay (again ex Tabak) of Wilson Hay are all good examples of people we would use if we weren’t around.

In a number of my previous posts I have written about how important a decision it is who you entrust with the sale of your business to. See the below checklist you should go through before you push the button:

1. Would I buy a business off this broker?
2. What experience does he/she have?
3. Do they have any references?
4. Did I get to choose the broker or was he/she allocated?
5. Have they merely added their fee to what I want for the business to come up with an asking price?
6. Would I pay the asking price for this business?
7. If no, what do I feel is the most likely result if I believe it is overpriced?
8. What are the chances you can maintain confidentiality if the business remains on the market for a significant period of time (should it be overpriced?
9. Should I pick the cheapest broker or the most experienced?
10. Does the broker have a marketing plan or do they just ask for an advertising contribution?

There are obviously more questions you could ask but if you feel positive after asking the above then you are probably on the right track