Buzz Harris: Confidentiality, credibility is key when choosing a business broker (Voices)

After deciding to sell or purchase a business through a business broker the next important decision a client needs to make is which business broker they should choose.

Like any other industry, there can be significant differences from one broker to the next, many of which may be confusing. Fortunately, what is good for the seller also can be good for the buyer. For example, some brokers freely hand out their clients’ financial data and other proprietary information, while others do not.

Because the biggest concern a seller often faces is confidentiality, it generally is considered that the safest procedure is to not release this information because of the serious risks associated with doing so. For example, a competitor might use the information against the seller, or if employees inadvertently learn about a pending sale, they might feel the need to look for employment elsewhere.

This is an unnecessary risk because when sensitive information is not passed out, it not only eliminates the risk, but it also does not negatively impact the buyer or the seller.

After all, if the buyer purchases the business, they won't need to worry about their new businesses financial documents floating around town. For buyers, a broker with a wide selection of quality businesses always is attractive when they are looking to purchase a business.

This is a nice benefit for sellers, too. Like an established shopping center, a healthy mix of quality and quantity is good for everyone. A good broker will not be afraid to welcome a client's financial and legal professional into their process. A great motto for any business broker is “no surprises” for either the buyer or the seller.

Having an accountant and an attorney involved in the due diligence process is better than having them involved after the sale of the business. For such a simple concept, I'm amazed at how many business brokers try to dissuade their clients from using their advisers.

A local broker can serve buyers and sellers better than an out-of-town franchise can. For sellers, selling their business is one of the most important decisions of their career and it is important that they can communicate directly with their broker. Similarly for buyers, they will appreciate the local brokers knowledge of the local market.

This is even more important when you consider that only a small percentage of brokers who start in the industry are successful enough to stay in the industry. A great indicator of a broker's abilities is their list of referrals.

Like any business, what former clients, including both buyers and sellers, have to say is more significant than what the broker says about themselves. Beware of brokers who say the confidentiality of a transaction keeps them from producing such a list.