How to Pick an Advisor

How to Pick an Advisor

“You want a trusted adviser, not a peddler” Stan Loar

“At Redcap&Truss, we are business advisors, not business brokers”…This is something you hear from us first and often.

What’s the difference – we think a lot.  We view business brokers like real-estate agents.  That’s not meant to be disparaging in any way, but a good business broker will put together a marketing package, introduce potential buyers to the seller, organize the due diligence process, and work with lawyers to negotiate the final deal.  If all of our broker brethren were that focused, we wouldn’t necessarily have to differentiate ourselves as advisors.  Unfortunately, many business brokers due the bare minimum to complete the deal.  They may not run a fulsome process (instead they only run it by the same 5 guys they always work with), they may not actively market the business, instead relying on a passive website to draw in suitors, and they will leave the deal negotiations to either the entrepreneur or their counsel and generally just add value by making an introduction.  Sometimes, especially for seasoned entrepreneurs who are experienced with mergers and acquisitions, that can be enough.  Business brokers are incented to get the deal done quickly and with the least amount of personal time invested.

We view an advisor role very differently.  We spend a great deal of time upfront, trying to learn the business and what makes it successful (and identifying its weaknesses) and we work with an entrepreneur to make any potential improvements to the business before selling.  However, what we think differentiates a broker from an advisor is the fact that we ask questions about what the long-term objectives are for an entrepreneur and their family, for their business and their staff.  Often these conversations happen in the evening or on weekends when there are less “ears” around to listen in and when the entrepreneur has less immediate distractions and more time to focus.  We have found, especially with younger entrepreneurs that these conversations often evolve into just general discussions around business ideas (e.g. how to grow into other markets, how to finance a new purchase or how to deal with a human resources issue).  Many of these entrepreneurs don’t have anyone else they can talk to about their business, or at least someone who knows the finer details of their business like an advisor does.

Entrepreneurs are not subject matter experts in buying or selling businesses and frankly, most have day to day responsibilities to tend to around their business.  Once the decision to sell (or in some cases buy) has been made, a strong advisor will then take over all facets of the deal.  An advisor will quarterback all facets of a deal that not only includes putting together the marketing materials and contacting buyers (similar to a broker), but we often negotiate the key business terms (in consultation with the business owner) and will work with counsel to complete the definitive documentation (often called “papering the deal”).  Because we know the business and the sellers objectives so intimately by the time we get to this stage, we are often given a lot of latitude by the entrepreneur to negotiate on their behalf (consulting with them of course).

So how do you pick a good advisor

  • Get references (both buy and sell side); ask what their style is in negotiating, asking questions, material preparation
  • Ask what their fee model is and critically assess whether it is aligned with your objectives (a good place to start is work fees vs success fees)
  • Ask for examples of prior deliverables such as teaser documents and management presentations
  • Ask for reasons why mandates go well and why they fail
  • Finally – trust your gut