Should I Use A Business Broker To Sell My Business?

Article Summary of Should I Use A Business Broker To Sell My Business:

• Facts About Selling A Business
• Advantages of Using A Business Broker
• Disadvantages of Using A Business Broker

Should I Use A Business Broker To Sell My Business?

Many people ask whether they should use a business broker to sell my business.  This article will go over the pros & cons of selling using a business broker.

You’re a smart, savvy business owner. You’ve poured your time, energy, and money into your business and it has grown. The time has finally come for your graceful exit.

I remember when I sold my first business. I had planned, prepared for the exit, and needed to know how to get the most for my hard work. A fellow business owner told me about selling through a business broker.

You may be asking yourself now: Should I use a business broker to sell my business?

In this article, I’ll tell you about the benefits and disadvantages of a broker.

Facts About Selling A Business

Before I do, you need some facts about selling a business today. These come from the International Business Brokers Association’s (IBBA) Q1 2019 report.

• 70% of businesses are considered non-saleable
• 48% of the businesses on the market won’t sell
• Brokers turn away from 1 to 10 unqualified buyers per seller

Before you contract with a broker, consider the likelihood of a successful sale. If it’s low, you might need to consider an exit strategy like selling to a dedicated end buyer. That’s my job.

If you are still considering a broker, let’s take a look at the advantages and disadvantages. I’ve sold with brokers and without, so I know the good, the bad, and the ugly.

Advantages of Using A Business Broker

As a business broker, you’re an expert in doing what you do.  But how good are you in doing things that you’ve never done before?  If you’ve never sold a business, then it could make sense to rely on an expert for assistance.  Here are some advantages of using a business broker to sell your business:

• Access to qualified buyers. Finding potential buyers is easy. You can place an ad in the local paper or online, and in 24 hours you’ll have plenty of interest. The hard part is qualifying a buyer. Any broker worth their salt will have access to a pool of potential qualified buyers. These are buyers that have a history of reputable buying. They also screen unqualified buyers.
• Can help you keep your sale confidential. Customers, vendors, and employees panic when they hear about a sale, and rightly so. As a third party, part of the broker’s job is to keep your sale anonymous, and out of the public space. They are contractually obligated to keep the sale secret so the business continues to run smoothly.
• Can free you to focus on your business while they sell. As a business owner, you’re busy. Running a business is more than a full-time job. A broker’s full-time job is to facilitate the buying and selling of businesses. They can free you to run your business while they focus on the sale.
• Knowledge of how to value a business and how to negotiate a good price. Experienced brokers have a portfolio of successful sales. They understand how to properly evaluate the strengths and weaknesses of a business, and how to do a proper valuation. As an intermediary, a broker should be an expert at negotiating a fair deal. If you’re meeting with a broker, ask in detail about past deals.
• Access to financing for buyers. Good brokers have connections with investors, banks, and are able to track down other sources of funding for a buyer. The right buyer with proper financing means a better sale.

Disadvantages of Using A Business Broker

However, when you use a professional – especially one who works on commission – you’ve got to worry about whose best interest they’re thinking about.  Here are some of the disadvantages of 

using a business broker to sell your business:

• Takes a hefty commission. Standard broker commissions range from 6% to 12% depending on the industry and deal structure. The business owner pays this commission, and may also pay a fee to retain the broker. A good broker will usually justify their fee and then some.
• Have their own best interests at heart. Brokers don’t work for free. The job requires they generate returns for all parties involved. Unfortunately, a broker is sometimes incentivized to close a deal at a lower price instead of pushing for a higher price. A sale is often better than no sale at all. Make sure you negotiate clearly with your broker regarding your selling price.
• Skilled brokers are hard to find. Finding the right broker who understands your industry, and who has the right contacts can be difficult. Successful brokers with reasonable commission standards are quickly booked. Make sure you put in the time to ensure the broker is competent and qualified.
• Sell your business, not you. Good brokers will ask you hard questions about your business. They’ll work to understand the nuances so when a buyer asks, they have the right answer. Make sure to find a broker who understands what you do and who can sell like you.  
• An exclusive contract with the wrong broker is a problem. Many brokers require an exclusive, year-long contract when working with a business owner. This protects the broker’s investment of time and energy. Getting stuck in a contract with a broker who can’t sell your business is painful. Check references and make sure to negotiate terms of a non-sale before signing the contract.

Summary of Should I Use A Business Broker To Sell My Business

The right exit strategy is crucial. A broker is just such an exit strategy. Make sure you consider if the time and energy spent with a broker will be worth it. If not, you have other options when selling your business. Call me and we can talk.

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