Five Key Questions to Ask A Business Broker

What to Know About Your Broker Before You Engage Them To Sell Your Practice 

Published May 2023

Selling your practice is a big decision.  And engaging the right expert to support you will increase your likelihood of a successful sale. How to you choose the right broker though? Here are five key questions to ask a broker before you decide whether to engage them.

1. Do You Only Represent Sellers?

Some brokers only represent sellers only, some only buyers. And a few represent both.  This can be in the form of taking money from buyers to secure an acquisition or for them to advertise on a broker's website. This is a problem. As soon as you are taking money from both sides of a possible transaction it creates inherent conflicts of interest. How can you be looking after your client's (the seller's) best interest and providing truely independent advice when you have a commercial arrangement where they buyer also expects something in return? It also creates an uneven playing field where other buyers who haven't paid the broker are not treated as equals. It simply doesn't work. 

At DMY we only represent Sellers and do not allow buyers to advertise on our website. That's good news for sellers because we are always working in their best interest, but also good news for buyers because they can be assured that they will all be treated equally.

2. How Do You Find Buyers ?

Practices typically sell in two ways through a broker: Off market or open market. DMY favours the latter in most cases because it increases the likelihood that the seller will secure a buyer with a strong cultural fit and a good commercial outcome. Off market sales can work well though for larger practices (eg $5 million plus in fees) or highly specialised ones where the pool of suitable buyers is much smaller.

In both situations though, as a practice owner, you need to understand how the broker is finding the buyers.  Are they running a transparent and effective marketing campaign to attract a large number of interested parties or are they adopting a lazy way of selling whereby 2-3 buyers, who the broker has an existing relationship with, are introduced to a seller up in the hope that one of them can strike a deal.

At DMY we have the largest pool of active buyers in Australia. Our fortnightly Market Updates reach 7,000+ industry professionals and we invest heavily in digital marketing to keep growing our buyers network. We market every practice from scratch and attract an average of 76 interested parties in metro locations. (This does not mean 76 people are reading your confidential information. )What it does mean though is that you will have a healthy and diverse pool of vetted buyers from which YOU can choose who you would like to meet.

3. How Do You Value My Practice?

We hear stories of practice owners being told their practice is worth 100 cents in the dollar by a broker without even doing a proper appraisal. That's just lazy. We have been selling metro practices recently for between 100-130 cents in the dollar, with most going for higher than 100 cents, so it pays for sellers to have their practice independently appraised using a robust methodology to avoid leaving money on the table.

At DMY we undertake a structured appraisal of every practice we list before the practice owner formally engages us. These appraisals use a transparent and logical methodology that we step clients through, and we leverage our significant volumes of current market data.  This gives the client the opportunity to see what we are like to work with and it ensures alignment on selling price if moving to formal engagement.  DMY are the only specialist broker that regular publishes market data on selling prices and our use of market data, when dealing with buyers, is one of the reasons we are achieving average selling prices in metro locations of 110 cents in the dollar, with many going for much higher.

4. What Is Included In Your Service?

Not every broker offers the same service and it is important to understand how they will work with you. We see three types of broker in the market: Introducers, Passive Brokers and Trusted Advisors:

• Introducers will tell you how quick and easy the sale process will be, introduce you to a couple of buyers they know, ask for summary financials which they pass across to the buyer, then leave you to try and negotiate the deal with the other parties. It's sink or swim. If everything goes well you can quickly get a sale outcome ...but at what cost? Do you really know whether you have received a good price for the years of hard work building up your practice? Are you receiving as much money upfront as you should be? And what risks have you been exposed during transition and in the contract of sale?
• Passive Brokers will list your practice then...not much happens. Weeks, or even months, can go past without much contact with the seller left wondering: Are we making progress? How many buyers are enquiring? Why aren't I meeting anyone? What is the Plan B to start getting some traction?
• Trusted Advisors believe the key to a successful sale outcome is a well managed and supported sale process, where they do the heavy lifting and run an efficient, effective and transparent process. They prepare a high quality Information Memorandum on your practice, support you at meetings with shortlisted parties,  help prepare Heads of Agreements to button down the key commercial terms and take on the final negotiations on your behalf.

At DMY our whole business and approach to working with practice owners is based around being their Trusted Advisor to sell their practice.  We support you every step of the way and will actively drive the sale process to a successful conclusion through what is widely recognised as the best sale process for accounting practices in Australia.  Don't take our word for it though  - see what our clients say about the service we provide:  Testimonials

5.What About Your Fees and Commercial Terms?

When it comes to their fee it pays to ask yourself: Am I getting good value? (Clue: It's much easier to answer this if you already know the answers to the questions above). A focus on cost alone rather than value can lead to lead to regret down the track if, for example, you are comparing the fees of an Introducer to a full-service Trusted Advisor. Saving a few thousand dollars on your broker but then selling your practice for less than market value, on less favourable terms, or with more commercial risk (or not selling it at all!) is a false economy.

Other common points of discussion when negotiating terms with your broker include the following:

1. Upfront Retainers. Most brokers have these (DMY does) as there is a significant amount of work upfront in preparing a high quality Information Memorandum and marketing a practice to attract a healthy pool of suitable buyers. If a broker doesn't ask for an Upfront Retainer it is probably because the are operating as an Introducer ie they aren't preparing an Information Memorandum nor spending much time actively marketing your practice. 
2. Exclusivity. The vast majority of brokers (including DMY) only operate on an exclusive basis. This avoids a double up of process for the Vendor and confusion in the marketplace for buyers with potentially different information and terms being available. Any broker offering to work on a non-exclusive basis is not being honest with you as to the risks and complexity this presents and is relying on the fact that most other brokers wouldn't go near it.
3. Length of Contract and Termination. Twelve month terms are not uncommon. DMY's position on this is simple. We have no fixed terms and our clients can terminate at seven days notice at any time. We want clients to work with us because they are receiving great value not because they are locked into a contract.

 The Wrap

You only sell your practice once and getting the right expert support is critical to a successful outcome.  Getting your proposed broker to answer these five key questions before you engage them will help ensure you receive the right level of service and support, value for money and advice that is independent of any conflicts of interest.

To discuss this article in more detail and what it may mean for your situation contact one of DMY's Directors below:

Mark Emney

Mobile: 0434 079 530
Email: mark@dmyassoc.com.au

Daniel Jones

Mobile: 0401 493 773
Email: Daniel@dmyassoc.com.au