What Is Your Broker's Responsibility When Selling Your business?

by Dave Driscoll

Absolutely, selling the business is the reason you chose your business broker, but there is another equally important responsibility: protecting the seller!
The first objective is obvious. You draw on the reputation, business acumen and experience of the broker and their firm to help you achieve a successful sale. Your business is your largest, single most important financial asset, so the broker’s experience and process count.

The second objective is not as obvious and may be revealed only if your business broker does not recognize that they are charged with the responsibility to protect the seller.

Selling your business requires communicating the story of your company, including its history, market, future opportunities, financial performance, assets and why you are choosing to sell. The broker’s responsibility is to present these specifics to the market at the appropriate time. However, if not done with the utmost care and adherence to a solid process, exposing such details to the market has the potential to damage the business.

Each step between your initial interview with a business broker and the closing of the sale requires revealing more information about you and your business. And as experienced brokers understand, a deal can go sideways in a heartbeat, so maintaining the priority of protecting the seller is extremely important.

Only a sterile profile describing the business in generic terms should be used to generate initial interest in the opportunity. Confidentiality must be secured from all prospective buyers before the release of any information that could identify your specific business. In addition, each prospect expressing interest based on the sterile profile must have the ability (that is, money, assets and experience) to realistically consummate a transaction before the business’s information is exposed.

Once confidentiality and the ability to transact are secured, your broker should interview the potential buyer to assess suitability. Your broker should vet prospects based on your business’s unique complexities and the skill set required for successful ownership. Only if the buyer “passes” this interview should details such as identity, history and financial performance be released.

If serious interest is determined after reviewing and discussing the in-depth information with the broker, the next step is a discreet owner meeting and a possible walk-through of the business. After determining the chemistry between you and the potential buyer, your broker will qualify ongoing interest and intent to proceed. If appropriate, the broker will then work with you and the buyer to create a nonbinding letter of intent.

The letter of intent (LOI) is a negotiated document describing “the essence of the deal” to identify the business terms as well as any contingencies, such as a buyer’s right of inspection, financing, a lease/purchase of the building, a noncompete agreement, and employment agreements with the owner or key employees.

When you reach agreement on the LOI, a legally binding asset purchase agreement (APA) is created to embody the commitments necessary for you and the buyer to consummate a transaction once the contingencies are satisfied.

With the APA in place, you and the buyer move into the due diligence phase, during which the seller reveals the business information you requested. Reflecting on the broker’s responsibility to protect the seller, due diligence should not begin until the APA has been fully negotiated. If you and the buyer cannot agree at the APA phase of the process, your company’s in-depth information should not be further exposed.

If agreement is reached on the APA, due diligence is the process of the buyer verifying the information that has been presented and satisfying the contingencies contained in the LOI. Once all contingencies have been satisfied, then the deal moves to closing.

Revealing too much information too soon in the sales process can damage a seller’s ongoing business value, so contemplate how your interests will be protected before engaging a business broker to sell your business.

Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or 314-303-5600. For more information, visit www.MetroBusinessAdvisors.com.