Transfer Agents - Do You Need One?
By: Richard Parker: President of The Business For Sale Buyer Resource Center and author of How To Buy A Good UK Business At A Great Price©
What is a Transfer Agent (business broker) and Should You Use One?
A Transfer Agent is similar to a real estate broker to the extent that they try to put buyers and sellers together. Instead of real estate being sold, they focus on businesses. The criteria to become a transfer agent varies from country to country and their individual training, history, specialty and area of expertise are things that you must investigate. Some agents work independently while others work for a brokerage company. Transfer Agents work on commission and if you do not ultimately buy a business then any work that they have done for you is not compensated.
I believe that you should absolutely use a transfer agent! However, it is critical that you use the right one. A transfer agent will provide you with access to businesses that are available for sale that you would never be able to find on your own. They can narrow the search for you to businesses that fit your criteria and they can help you avoid a lot of wasted time. The one thing that they cannot do no matter how good they may be is to find a business that is right for you. This is something that only you can do. Agents clearly prefer to work with knowledgeable buyers and if they have to spend their time educating you then they cannot make money. They can be an effective tool for you to use if you can provide them with a clear mandate of what it is that you are looking to buy. Avoid generalities; explain your strengths, weaknesses and objectives and never mislead them.
Understanding Their Challenges
Ninety percent of the potential buyers that brokers work with never buy a business. While this is part of the risk involved in their chosen profession, this does not give you the right to waste their time. Accordingly, they may be somewhat hesitant when working with new clients until you demonstrate your sincerity and commitment to buying a business. There is no doubt that if you are a serious and educated buyer then a good agent will go above and beyond the call of duty to service your needs. Be respectful of their time and realize that they have to make a living. If at any time you decide to drop out of the hunt to buy a business then let them know immediately. Conversely, if you do not feel that they are extending their best efforts on your behalf then find another one.
How They Can Help You
There are two significant ways that a transfer agent can help you. First, they can provide you with listings and information on businesses that are available fro sale that you would not discover on your own. In other words, they have the database from which you can search. Secondly, they can be "used" as the "bad guy". Once you get into negotiations with a seller you should let the agent deliver any bad news or commentary that you may have. The reason for this is because you are going to need the seller's help in completing the deal and thereafter for training and assistance. By letting the agent deal with the bad news you can maintain the integrity of your relationship and keep yourself in a third party position somewhat if renegotiations are needed.
How They Can Hurt You
If you use the wrong transfer agent they can hurt you significantly. They will be a monumental waste of your time. They can send you looking in the wrong direction altogether. They can try to work both parties and may not make you privy to everything that they are discussing with the other agent if applicable. If they represent both you and the seller their agenda may not be upfront and they could very well be in a conflict of interest position. This is specifically why you must control the negotiations and use them properly or you may find yourself terribly frustrated.
Where To Find One?
Check your local newspaper to see which agents seem to have the most prominence and exposure in the "Businesses For Sale/Business Opportunity" section. Start by calling these. Also, if you are aware of any business that have recently changed ownership, call the new owner and ask them for a recommendation. Speak to solicitors, accountants, bankers, friends, family, businesses associates and ask them if they can suggest anyone. Do not think a agent is good just because your accountant said so. You have to check them out and the only way to do so is through client references and one other test (see "How To Hire The Right One").
How To Find The Right One?
Before you hire an individual transfer agent arrange to meet with the owner of their firm. Let them know as much as possible about your goals, experience, finances, wants and needs. Have them suggest an agent to you from their stable who they believe will fit best with you. Do not allow yourself to meet with the agent that they may recommend yet. Tell the owner that you prefer to contact the broker to set up a meeting.
Checking Their References
Get the names of buyers and sellers that they have worked for in the past. Contact each one of these and ask them if they could tell you what they believe the agents's strengths and weaknesses are. Be sure to ask each one if they were going to buy or sell a business in the future would they use them again. Tell them the approximate price business you are looking for and ask if they feel that the broker is well suited for your needs. Ask them what it is specifically that the agent did well or poorly for them.
Some transfer agents may try to get you to sign exclusive representation agreements with them. Under no circumstances whatsoever are you to do this! Make it very clear that you will be pleased to work with them and that the best measure that they can take to ensure that they earn a commission from you is to lead you to the right business. Some agents may request an application fee. If you believe that the agentis right for you then you can consider it if it's a small amount.
They must put in writing that if they do not perform their duties then the money will be refunded, no questions asked and when you buy a business if they are involved in the transaction then they must also refund the money. They will ask you to sign Confidentiality Agreements for any individual listings they show you. This is for their protection and it is only fair if they show you a business first, then they should make the commission if you buy it. Have a lawyer review it briefly in any case.
The seller is genrally responsible to pay their commission from the proceeds of the sale. Ask the agent to confirm this at the beginning of your relationship. The commission is generally around ten percent of the total deal. Furthermore, if they work for a brokerage company, part of their share goes to the company. So, when all is said and done, they don't make as much as you think so don't feel that they are making money at your expense. Good agents earn their money; bad ones should not be allowed to handle your business. Nevertheless, as the buyer, you are always paying their fees because the seller has factored it into their price.
An Expense That Makes Sense
Even though the agent may earn a handsome commission from the business you buy, they are always at risk of earning zero if you don't buy. Never begrudge their commission; if they do their job, they are entitled to it. Whenever you meet with your broker over coffee or lunch always pick up the tab. It's a good way for you to express your appreciation for them doing work on your behalf not knowing if it will evolve into any compensation. It really is the right thing to do!
This article represents a fraction of what you’ll learn on this topic in How To Buy A Good UK Business At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying a business. Read a detailed listing of what you'll learn .