The 8 Key Questions You Need to Ask Any Business Sale Advisor Before Signing

Business sale advisors are very adept at convincing potential sellers to sign up by telling them what they want to hear. This can give sellers unrealistic expectations, ultimately frustrating buyers, leading to no end product.

Not all sale advisors work in this manner – so how can you determine the right sale advisor that will work with you to achieve your exit goals?

1. Do they have experience in your sector?

Sale advisory firms with a successful track record in your sector tend to have a better understanding of attainable business value. This increases your chances of achieving a lucrative sale and should certainly give you confidence. They should be able to name at least one company in your sector that they have successfully sold. Better still, challenge them to give you permission to contact the ex-client for a reference.

2. What is their real sale success rate?

It may come as a shock to you, but only 20% of businesses listed for sale are sold! Some of the largest advisors don’t improve this significantly. This means the majority of sellers are disappointed at the outcome, still own their business at the end of the process, and are out of pocket too.

If you ask them for a success rate, they often exclude certain companies from their calculations. Can they explain why? Ultimately it is to report better performance than the data would otherwise suggest. But there are some valid reasons, for example, a frustrated client cancels early, so the broker could argue they weren’t given enough time. Or an offer was rejected but was significantly lower than the promised sale price.

3. Who will be your main point of contact?

It is important you know who will be running your project. Many firms roll out ‘heavy hitters’ to sign clients up, but the actual management of the project passes to a junior with little or no experience, and potentially without any oversight from the senior team. Make sure you have met and spoken with the main person you’re going to be working with, and judge for yourself that they have the necessary experience and knowledge to present your businesses and handle opportunities competently.

4. What valuation have they placed on your business?

Overvaluation is rife in the industry. Just like in property, the biggest number on the table often gets the signature. But, before you jump: you need to ask how they calculated this valuation. They should either evidence the numbers behind the valuation or point to specific examples of companies sold at the kinds of multiples they are suggesting.

Advisors often value your business themselves, with an incentive to inflate this value in order to secure you as a client. This is often why their true success rate is so low. In our opinion, it is worth seeking an independent valuation to ensure the valuation is realistic.

5. What is their expected timing on the project?

It is often useful to ask the sale advisor to break down the project. How long will the preliminaries take before you are actively marketed? When do they expect to get the first enquiries? How long do they think it will take to have an offer? What is the average time to completion from achieving Heads of Terms?

6. What are their fees and how are they structured?

Some business sale advisors charge significant up-front fees with additional success fees over the top. Whilst it is important to recognise that fees need to be paid for a good level of service, remember that all fees are negotiable!

Ensure there are milestones for the first fees so that they can be spread over time. Explore the commitment of the sale advisor to generate interest in your company, and use that as a means to structure payments. For example, an initial payment could be followed by other payments based on the first written offer and then reaching an agreement on a Heads of Terms with a preferred buyer.

Furthermore, make sure that the up-front cost does not negate the need for them to successfully sell businesses. There are a number of advisory firms that have such high engagement fees that success is a nice to have, not a necessity.

7. What work are they committing to do for you and your business?

It is also vital to know exactly what you are getting for this price from each potential advisor.

• What is their overall approach to selling your company?
• Do they believe it will be a trade sale, or more likely to be acquired by a PE firm or similar?
• Will they attend client meetings?
• Do they prepare marketing materials?
• Are they going to be actively prospecting potential trade buyers? UK or Internationally?
• What frequency of contact will they have with you?
• Do they include any due diligence or legal fees in the process?

8. What is in the detail of the business sale contract you are signing?

Business sale advisors almost always include exclusivity in their contract, which is reasonable. But, what are the cancellation terms? Does the contract cover all or any buyer and, if so, then for how long is the sunset period?

Some advisors will not include a time period without being asked to do so, which can end up shackling your future sale prospects. We have heard reports of advisors chasing success fees more than 10 years after a failed company sale. This can be incredibly frustrating for the client who signed up in good faith and was previously let down by the business broker.

Importantly, too, how is the success fee calculated? Often advisors will try to sign clients on a percentage fee of the valuation price, not the price of the accepted offer. Or have an unreasonably high minimum fee based on the valuation, not the sale price. Which not only gives them even more reason to overvalue your business but may also be incredibly painful if your business sells for considerably less.

Understanding what you can expect from your advisor and your contract terms is critical. We can help you find your ideal business sale advisor. Call us on 0333 050 8225 to discuss your exit goals.