FORTUNE Small Business:

Finding the best broker for your business

Ask tough questions to find the right one.

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Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.
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(FORTUNE Small Business) -- Dear FSB: My husband and I own a small distribution business with sales at $1.3 million per year. We would like to sell and, having no experience, would like to engage a business broker. What questions do we ask to determine who would be a match for us? So far the ones we have talked to have asked basic questions of us and don't offer much help. Any advice?

- JoAnn VonKrosigk, Tipp City, Ohio

Dear JoAnn: Finding the right business broker, investment banker or advisor is a crucial part of a successful exit strategy.

But there are a number of complex issues to examine when seeking the right professional. It starts with interviewing your prospects, says Mark Pittman, managing director at Los Angeles investment bank Grandview National.

First, determine their industries of expertise. Brokers who operate primarily in real estate transactions, for example, likely won't have sufficient experience in selling a distribution company. Make sure they know your field, Pittman says.

Next, see how much experience they have. Find out how many mergers and acquisitions deals a broker has worked on and closed - the more, the better.

Make sure the broker has no conflict of interest with you as a client. Some brokers represent both sides of a transaction, which means they have an incentive to close a deal whether or not it's in your best interests.

Explore how much will they cost you: Brokers may ask for an upfront retainer and fees of 8% to 12% percent. Some will set a minimum fee for their commission, too.

"Most reputable brokers and investment bankers will only represent one party in a transaction," says Kristina Meyers, a Grandview analyst. Always insist that this be the case.

Make sure a confidentiality agreement is in place. It can be important to keep details quiet so employees, vendors and customers do not become aware of any plans to sell until you are ready to disclose this information, Meyers says.

Most importantly, ask what type of buyers the broker will target. Find out how they plan to put together a list and approach potential acquirers.

From their answers, you should be able to determine whether they plan to simply post your business for sale on a website. Too many business brokers use the Internet to attract financial buyers, who tend to be less sophisticated and are likely to undervalue your business, Pittman says.

"Better advisors target strategic and private equity buyers," Pittman says. "They should look for acquirers with expertise in your industry, who typically pay a premium."

Also check out the broker's knowledge about legal and taxation issues involved in the sale. Your advisor should have the experience to manage a variety of complex business matters, Pittman says.

Finally, remember always to ask for references, and check them.  To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.