Selling a Business: Should You Use a Broker?
18 July 2022: Selling a Business: Should You Use a Broker?
If you’re selling a business, should you use a business broker?
Well, given that we’re professional business brokers, it’s probably not very difficult to figure out on which side of this debate we fall.
But the real issue here is “why”; why you should use a professional broker.
As you can probably imagine, brokers in the Worldwide Business Brokers network have this discussion with business owners every week – whether at an initial meeting to discuss the possible sale of the owner’s business, a Chamber of Commerce business get-together and even at a chance meeting at the local 7-11. I’ve personally had this discussion in the gym – more than once, in fact. A business owner asked about the process of selling a business and BOOM – we’re off to the races!
Some business owners think that handling the sale themself – sometimes referred to as a “private listing” – has some advantages over listing with a business broker. Let’s look at some of of those so-called advantages – and their more than counter-balancing disadvantages.
Using a Professional Broker: For and Against
- Control of the marketing and advertising. I’ve heard a weird argument that a private listing allows the business owner to control the marketing of their business. Supposedly, this will allow the seller more freedom to choose a buyer. But someone untrained in selling businesses has little to no knowledge on how to market the business or how to develop the marketing program and its attendant materials. And a private listing will get only a fraction of the exposure that listing with a broker will give it because professional brokers not only cast a wide net when looking for buyers but also have lists of buyers in their databases from the get-go. The more people aware of the opportunity, the more likely the sale – and more likely at a more favorable valuation.
- Managing the due diligence process. A private listing supposedly gives the business owner an advantage by managing the due diligence process themselves. Oh, yeah? In the more than 20 years since founding Worldwide Business Brokers, I’ve yet to hear of any business owner that understands the scope of a buyer’s due diligence, let alone has the time and zen-like personality to manage it. The due diligence process is often extremely invasive and many owners take offense at the questions buyers ask or proof of some claim that buyers request. This can completely derail a potential deal. Business brokers do this all the time and the properly trained ones know well how to manage the process.
We offer a comprehensive coaching program – both group coaching in our Brokers’ Roundtable community as well as one-on-one coaching – tailored to Realtors, business owners , buyers and anyone interested in valuing, buying or selling a business.
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- Setting the offering price. Business owners are notorious for having an exaggerated opinion of the value of their business. An over-priced business is one of the three primary reasons most businesses that come to market don’t sell. We’ve seen this dozens of times throughout the years. Getting a professional to value the business and then advise how to price it dramatically increases the likelihood of a successful outcome. Right now, near our headquarters is a business that we did a valuation for back in 2017. The owners were divorcing. The husband stated that he felt the business was worth $2 million. A cursory look at the financials suggested it may have been worth maybe $500,000. In due course we received an email from the owner announcing that he’s selling and “If you have any buyers….”. A “private listing”. He wanted $1.85 million. About eight months later, the price was down to $1.6 million. Six months after that, it was $1.4 million. A few months after that drop, he listed the business with a residential real estate agent (to save a couple of commission points) – who immediately uploaded the listing to the regional MLS where no one in the history of the world has ever gone to look for a business – at $1.2 million. Six months after that, that agent contacted us to see if we might have a buyer and maybe help him sell. After providing a brief education to the agent, he said he would meet with the owner to “have a discussion on price.”
- Private listings are free. Huh? Private listings are “free” only if the seller’s entire marketing effort consists of telling his or her friends over a couple of beers that their business is for sale. Anything even modestly more serious than that will cost. For most small businesses, business brokers operate similar to real estate brokers in that they assume the cost of marketing – which means the broker is financing the cost of that marketing. The seller will repay the broker at closing when the broker recoups his or her marketing expenses via the earned commission or success fee.
- Handling the sale themself will save the broker’s commission. This always gets a laugh around our offices because we’ve seen the futile efforts business owners make all the time. When this is the reason an owner tries to sell his business himself, we have to ask, “Is the objective to sell the business or to not pay a broker anything?” If you list your business yourself, you will certainly not have to pay a broker anything. But history and experience both suggest that you’re also highly unlikely to sell your business.
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The Real Issue
Business owners who try to sell their business themselves rarely have any idea what selling a business entails.
If they stop and think for a moment – and we point this out whenever the topic comes up – the only way they can productively market and sell their business is if they effectively stop running that business.
Try to imagine the amount of time it takes to put together a marketing plan and the required collateral pieces, and creating and uploading content for a web presence. Imagine having to respond to every Larry, Moe and Curley that calls or emails to discuss the business. Think about the vetting process and the number of tire-kickers the owner will have to weed through. And imagine the amount of time needed to assemble all the data that a buyer will need for due diligence. The vast majority of business owners can’t even come up with a list of that data.
And none of this even begins to address confidentiality.
Unless your business is running on auto-pilot – unless you’re spending 29 days of each month drinking piña coladas on a beach in French Polynesia and the remaining day in the office – no business owner has the time to both sell and run their business. Those that try will almost certainly see the business begin to falter – at a time when peak performance is the only way to achieve maximum value.
The Bottom Line
There are, of course, occasional success stories of sellers selling their own business without the involvement of a broker. But many such instances involve strategic acquisitions in which the acquiring company approaches the business owner directly.
In fact, this is essentially what happened to me more than 20 years ago.
My business wasn’t for sale but I was approached buy a small group of investors that wanted to buy it. I didn’t even think about getting a broker to represent my interests – or to even establish what the business was worth, a fact the suggests I might have left some money on the table.
But when I remember that event, I remember clearly how busy I was just running the business. I can’t for a moment imagine trying to sell it by myself.
I’d like to hear from you. What topics would you like me to cover? How can we tailor these posts to be more useful to you and your business. Let me know in the comments box, below, or email me at joe@WorldwideBusinessBlog.com.
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
A U.S.-based investor has contacted us about acquiring a service business – appliance repair, commercial HVAC, commercial landscaping, equipment and facilities maintenance, etc. – valued at up to $6 million and located in the Mid-Atlantic region of the US.
If any of you know of something that might fit, please let me know.
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 500 in the world. He can be reached at joe@WorldwideBusinessBlog.com