Selling Your Business – Pros and Cons of Working With a Business Broker

Selling your business is something that most business owners do only once in a lifetime. So how do you make sure everything goes well? Many business owners consider working with a business broker, an expert in selling businesses, to make sure they maximize the sell price of their business. Is this always a good idea? Lets look at the pros and cons of working with a broker:

Why you should work with a business broker when selling your business

1) A broker has (hopefully!) sold many businesses for prior clients, and you can use that expertise to learn the basics of the process and avoid making careless mistakes.

2) They can act as a facilitator to the transaction, making sure that negotiations go smoothly, the transaction proceeds at the right pace, and that the business is ultimately sold with all parties satisfied.

3) A broker may reduce your upfront costs of selling the business, as many brokers will pay for creating sales collateral and advertising the business at their own expense in exchange for a fee when the business sells. They also may have insights as to what advertising mechanisms deliver the best “bang for the buck” to make sure as many potential buyers as possible are exposed to your business.

4) They can provide expert advise related to market conditions and can help evaluate potential offers to buy your business. For example, a business broker will typically provide a free initial estimate of the sales price of your business, and can provide information on what similar businesses may have recently sold for in your area.

5) A business broker can help preserve the confidentiality of the sale. By having a third party involved, 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, no wonder that most 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) Business brokers may charge a large commission. The amount of commission varies based on many factors, such as the ultimate sales price, geographic location, and the skills of the broker. For a “main street” style business selling for less than a million dollars, it would not be unusual to see between a 10% to 20% commission fee. Some brokers will also have a guaranteed minimum, on the order of $10,000 or $15,000. You should only hire a business broker if you believe that the time and effort involved justifies this price, or if you believe they will raise the selling price by more than the amount of their commission.

2) A great broker is worth their weight in gold, but a bad (or even mediocre) broker costs far more than they are worth. In many cases, the sale will be lost due to incompetence on the part of the business broker. If you are not confidant that the business broker can not only increase the transaction value, but can also increase the chances of actually getting the business sold, then you are probably better of managing the sale on your own.

3) Do not work with a business broker if you go into the transaction not knowing what you want out of it. Many times business brokers will contact you proactively, letting you know that there are buyers interested in buying your business. Selling a business is a big decision, and one that you should enter into with a great deal of care. Make sure that you are talking to a broker because YOU made the decision to sell, and that you have properly educated yourself about the process and the ultimate consequences of your decision.

Working with a business broker, when done properly and for the right reasons, can be a great benefit to selling your business. By educating yourself about the different factors involved, you have taken an important first step towards getting your business sold. Best of luck!

7 Tips on Picking the Best Business Broker

Thinking of selling your small business? Are you one of those fearless entrepreneurs who think they can market, negotiate and close a deal by themselves or are you going to take the more logical route of working with a business broker? If sanity prevails and you are going to work with a pro, here are a few things to look for to find the best business broker.

1. Get recent references

Ignore all the hype a brokerage firm places in their literature and ask for recent references and then follow up and actually check them out. If you’re dealing with a larger business brokerage, get references from the broker you will be working with. Big offices will always have rookies and you want to insure that the broker you get knows his or her stuff.

2. Work with certified brokers

Many states require that business brokers hold a real estate license but just having that license does not mean that the broker necessarily knows anything about buying or selling a business. In fact a number of realtors turn “business brokers” when the real estate market gets slow. What you should be looking for is certification from the International Business Brokers Association who grants a certificate as Certified Business Intermediary (CBI) after completion of an extensive educational course.

3. Don’t be fooled

If the reason that you are considering selling is because you received a letter or email from a broker with the message “We have a buyer for you” then think again. This is one of the most common marketing ploys used in this business. Without question these brokers probably have people interested in buying a business but not necessarily yours.

4. Don’t rush to a decision

Selling your business is a big deal and one you want to be sure you do right. In your conversation with brokers ask them if now is a good time to sell. Ask for an opinion of value. Coming up with this could take a bit of time and if the broker is reputable, he or she may advise you not to put the business on the market but rather make suggestions on what to do to improve the value. A broker who makes this suggestion is looking to make both of you a bigger buck by making the business more attractive.

5. Pick a brokerage with experience in your industry

Look at current listings that the broker has. Check out both the size and types of industries to insure that he or she has experience in your market place. Again, don’t rely on marketing material find out the facts yourself.

6. How does the broker market

Ask what the broker’s marketing plans are and ask to see samples. If he simply puts an ad in the paper or posts it to a single website you probably aren’t getting the exposure you deserve. Good brokers have networks they can tap to find interested and qualified buyers.

7. Avoid packaged services

At some point in the sales process you are going to need the services of an attorney and a qualified accountant. Your broker will probably offer those services but in most cases what he or she is doing is outsourcing to someone else. If you have your own attorney and CPA just stick with them. Otherwise it may be less expensive to find and deal direct with those professionals rather than getting them through the broker.

Finding the best business broker isn’t really that difficult it simply requires some time and effort on your part. However, getting the best broker makes a huge difference in how the experience plays out and the total value of the deal.

7 Benefits of American Business Brokers

Nobody has to tell you that these are pretty volatile economic times and if you’re contemplating buying or selling a business you are going to be facing some serious challenges. American business brokers have been doing a brisk business over the past two years thanks to a banking collapse and a stock market that no longer appears to be a prudent place to invest. Some businesses have to sell and others have cash that they can’t profitably invest elsewhere so they invest in growth. Business brokers are the professionals in the middle that make it happen for both the buyer and the seller. Here’s a short list of their services.

1. Preparing a business to sell

If you feel it’s time to sell your business a broker can help you put together the best look and then market your business professionally. When you’re selling you should be focusing on what you do best, running the business and making it as attractive as possible, and not be distracted with all the minutiae involved in selling a business. Leave that to the broker.

2. Valuation service

Arriving at a real market value for a business is obviously important to both a buyer and a seller and a professional broker can provide that service. In a sales transaction, the ultimate value of a business is what a buyer is willing to pay. However there are other times when an owner may want a certified value to satisfy estate planning, marital or partnership issues or when facing litigation. Once again the business broker is the pro you can turn to.

3. Closing

As hard and as complicated as it is to market and then negotiate a price, closing can be even more difficult because more people and organizations are involved. A business broker can handle much of the coordination that is required. He or she will have to deal with two sets of attorneys, accountants, possibly two or more banks, government agencies and vendors. This is a critical step and not the time to start learning by on the job training. Let a broker do it.

4. Exit strategy

The time to think about an exit strategy is before you put your business on the market. Discuss with your broker just what you want to do, retire or move on to another opportunity. This will actually have an impact on the method of payout. Many times you can get a more profitable deal if you agree to manage the business for a short time after the sale. There’s also the question of relationships with clients, vendors and employees. A broker can assist you in a strategy that leaves everybody feeling good.

5. Support services

Many brokers will work in partnership with support services such as legal and accounting. Some even work in conjunction with lending or funding sources as well. As a general rule, it is probably less expensive to contract directly with the services but if you don’t have a relationship with one or more already, then the broker is a good bet.

6. Up to date market intelligence

In a sense, business brokers work much like realtors, listing businesses and presenting the relevant facts. Brokers have the latest intelligence on a given industry in a given geographical area which can prove to be invaluable for either a buyer or a seller. And there are other market concerns that they stay current with as well. Perhaps one of the biggest changes for small businesses is in the area of financing a buy. With the banks as tight as they are, it is not uncommon for the seller to provide some or all of the financing.

7. Peace of mind

Buying or selling a business is a complex task and having a broker can assure the buyer or the seller that the transaction was fair, completed legally and save a considerable amount of time. Full time brokers make their living doing this, are professionals and render both the buyer and seller a real service of value.

The first step that a wise buyer or seller makes is to contact a professional business broker.