Selling your business is something most business owners do only once in a lifetime. So how do you make sure everything goes smoothly? Many business owners consider working with a business broker, an expert in selling businesses, to ensure they maximize the sale price of their business. Is this always a good idea? Let’s look at the pros and cons of working with a broker:
Why should you work with a business broker? when selling your business
1) A broker has (hopefully!) sold many deals for previous clients, and can use that experience to learn the basics of the process and avoid making careless mistakes.
2) They can act as facilitators of the transaction, making sure that negotiations run smoothly, the transaction proceeds at the right pace, and that the business is ultimately sold with all parties satisfied.
3) A broker can lower your initial costs of selling the business, as many brokers will pay to create sales collateral and advertise the business at their expense for a fee when the business is sold. They may also have insight into which advertising mechanisms offer the best “bang for the buck” to ensure that as many potential buyers as possible are exposed to your business.
4) They can provide expert advice related to market conditions and can help evaluate potential offers to buy your business. For example, a commercial broker will usually provide a free initial estimate of the selling price of your business and may provide information on the recent selling price of similar businesses in your area.
5) A business broker can help keep the sale confidential. By involving a third party, buyers can interact with the broker instead of the business owner, making it easier to protect the identity of the business for sale.
With so many good reasons why a broker can help sell a business, it’s no wonder that the majority of businesses that are sold ultimately involve a business broker. However, there are downsides to working with a broker that a prudent business owner should consider.
Why you should NOT work with a business broker when selling your business
1) Commercial brokers can charge a large commission. The amount of the commission varies based on many factors, such as the final sale price, geographic location, and the skills of the broker. For a “high street” style business selling for less than a million dollars, it would not be unusual to see between 10% and 20% commission. Some brokers will also have a guaranteed minimum, on the order of $10,000 or $15,000. You should only hire a commercial broker if you believe the time and effort involved is worth this price, or if you believe they will increase the sales price by more than the amount of your commission.
2) A great racer is worth his weight in gold, but a bad (or even mediocre) racer costs a lot more than he is worth. In many cases, the sale will be lost due to incompetence on the part of the trading broker. If you are not sure that the business broker can not only increase the value of the transaction, but also increase the chances of selling the business, then you are probably better off handling the sale on their behalf.
3) Do not work with a business broker if you enter the transaction without knowing what you want to get out of it. Many times, business brokers will proactively contact you and let you know that there are buyers interested in buying your business. Selling a business is an important decision and should be made very carefully. Make sure you are talking to a broker because YOU made the decision to sell and that you have properly informed yourself about the process and the ultimate consequences of your decision.
Working with a business broker, when done correctly and for the right reasons, can be a huge benefit in selling your business. By learning about the different factors involved, you have taken an important first step in selling your business. Best of luck!