Insurance agents are often solicited to employ the services of a business broker. A business broker can be a useful intermediary if an agent is considering selling. The question of whether an agent should or should not used a business broker is a matter that has to be decided on a case by case basis. In dealing with a business broker, however, there are certain items that an agent should always consider and check out prior to entering into any business arrangement with one of them.
1. No contract, no deal
The important fact to know about business brokerage in Massachusetts is that you need a written contract. If a business broker does not have a signed agreement then they have no legal right to compensation. In Massachusetts, an agreement regarding compensation for negotiating all or part of the purchase, sale or exchange of a business is “void and unenforceable” unless in writing and signed by the agency or an authorized person.
2. That means finder’s fees too.
The same requirement of a signed written contract applies if the claim is for a “finder’s fee” for having brought a buyer to the agency. Under Massachusetts law, unless there is an agreement in writing and it is signed by the agency, nothing will be owed to the broker or finder.
3. Put it in writing
If you are intending to sell your agency and you believe that a particular business broker can enhance your agency’s market value make sure that the required contract includes the specific services that the business broker is going to provide. If you have hired the business broker to value your agency, make sure you have discussed the price for this service and that the specific terms are specified in the written contract. If the business broker is going to screen prospective buyers for your agency and qualify them for the financial ability to purchase your agency, then be sure to specify this condition in the contract.
4. Qualifications count
Be sure to verify the business broker’s qualifications and then write them into the agreement as a condition of his or her representation of your agency. If you sign a brokerage agreement with someone, you want to make sure that you can get out of the agreement if, in fact, the representations the broker made regarding his or her expertise are not accurate.
5. Talk numbers
If the business broker’s compensation is contingent on a agency sale being completed, make sure that the agreement clearly specifies that there is no payment owed for services provided by the business broker.
6. Don’t rush in
If a business broker comes to your agency with an “interested buyer” don’t rush in and sign a general brokerage contract for a fixed term. Instead, you should think about signing a contract which limits the brokerage agreement to the particular buyer who the business broker is going to present upon the signing of the brokerage agreement.
7. Who’s representing who?
Make sure that you know who the business broker is actually representing. If you are relying solely upon the advice of a broker make sure you know whose interests he is protecting and whether or not he has a conflict of interest with regard to the potential sale. Rest assured, you do not want to find out after a sale the sale of your agency, that your broker also was paid a commission fee by the buyer.
8. Details, details
Specify in any purchase and sale as to what brokers have been retained by the parties and who is going to compensate them.
9. Hire a lawyer
You can avoid a lot of potential grief and potential anxiety by having an attorney with experience in the area review the proposed brokerage agreement and negotiate the terms. Remember, the insurance agency is your asset and every percentage point received by the business broker lessens your net. Make sure that the business broker is adding enough value to offset the commission.
If you have any questions about this checklist or are interested in learning more about how a lawyer can help you in your negotiations with a business broker, please contact Owen Gallagher here.