Selling a Business on Your Own: Do You Need a Broker?
Before going at it alone, consider the risks and benefits of hiring a business broker.
Selling a business is no easy feat. After years, or decades, of building and growing your successful company, getting comfortable with the idea of selling your business is tough. Acceptance and initial planning can be tedious but that doesn’t even scratch the surface of what is actually required to facilitate a business sale. Selling a business has many moving parts and requires the expertise of a variety of professionals to ensure a successful transition. After all of your years of hard work and dedication, it would be terrible to lose it all on a botched sale based on M&A inexperience and naivete.
After facilitating hundreds of business sales in the Southeast, it is amazing how many business owners attempt to try and sell their business themselves. Generally, we see business owners pursue the route of ‘for sale by owner’ in order to save money or because they don’t actually realize how much work it is. Due to the level of involvement, legal and tax liabilities, and confidentiality, we do not recommend business owners attempt to sell the business themselves. Most people wouldn’t try to buy a house without a real estate agent or go to court without a lawyer, why is selling your greatest asset any different? Having a trusted professional on your side can make a world of difference during the M&A process. If you’re still not sure how a broker can help facilitate a more successful sale, check out this list of what can go wrong when selling your business without a broker.
- Breached Confidentiality
- Under-priced/Poor deal structure
- Stuck in an Earnout
- Wasting time with buyers
- Inefficient marketing/low visibility
- No coverage with legal/tax issues
- Poorly negotiated transition phase
All of the above risks could potentially ruin a deal or leave a sour taste in any seller’s mouth. Business owners may feel like they are saving money that would have been spent on a broker’s commission, but after reviewing the list of potential issues, are you really saving? A good business broker won’t charge you for their services until after the deal is completed; putting you in a favorable position where the broker is motivated to do the best job they can. Think of all the money, time and energy you’ll really save by taking advantage of the benefits of hiring a broker.
- Confidentiality
- Seller can concentrate on running the business
- Large networks of qualified buyers
- Marketing
- Valuation
- Experience
- Motivation to close the deal
- Negotiation
- Assist buyers in obtaining financing
- Resources (CPAs, lenders, etc)
If you’re warming up to the idea of hiring a third party professional to represent you during the sale of your business, the next question you need to ask yourself is what firm is right for you. There are all kinds of brokerage firms out there, ranging from big banks that represent million dollar deals to the broker who’s working out of a home office. Finding the right intermediary to represent you all starts with your business. Think about your industry, revenue size, and geographic location and start researching brokers who have sold businesses within the same parameters. Once you have narrowed down your options, we recommend asking these questions to determine if they are the right firm for you.
- What experience do you have in selling businesses like mine?
- How do you calculate the value of a business? What resources will you use during this process?
- How many businesses similar to mine have you sold?
- How will you maintain confidentiality during the sale?
- How many buyers are in your network and how do you qualify them?
- How many businesses are currently listed with your firm?
- Can you help me build an advisory team of CPAs, attorneys and financial advisors?
Once you meet with a couple brokers and get a better idea of their qualifications and experience, you will be able to make the decision on which firm is right for you. A good rule of thumb is to choose a brokerage firm that has sold other businesses like yours in terms of industry and revenue volume, and also a firm that has a reputation for confidentiality. Confidentiality is the key to a successful M&A deal, and if the firm you are looking at has been careless with privacy in the past, consider that a red flag. The benefits of working with a business broker far outweigh the risks of going at it alone. Not only will a good business broker stay by your side throughout the whole deal, but they can also help you find ways to maximize the value of your business and ultimately secure the best price possible. We said it before – you would utilize a 3rd party professional when selling a house or filing your taxes, why would selling your greatest asset be any different?