The Pro's and Con's of Using a Business Broker to Sell your Business
If you have ever thought about selling your business, you have likely asked yourself the question, "Should I Hire a Business Broker to Sell My Business?"
Over time, I have talked to many business owners who have struggled with the decision of whether or not to hire a business broker.
These conversations with business owners thinking about selling their business inspired me to write this guide for business owners that are considering using a broker to sell their business.
No matter the reason that you want to sell your business, most business owners have the same goals.
And that is to sell your business as quickly as possible, for as much money as possible, with as little stress as possible.
The answer to whether or not to use a business broker to sell you business depends a lot on your personal situation. And this article will help you sort through the pros and cons of hiring a business broker.
Who are Business Brokers?
Let's first talk about who a business broker is, and describe what exactly a business broker does.
A business broker’s primary responsibility is to help you sell your business at the highest price possible and with the best terms possible.
A professional business broker provides various services for the seller, including:
Helping you gather financial information and documents
Helping you understand what your business is worth (Business Valuations)
Marketing your small business and finding a buyer
Assisting in contract negotiations and handling all buyer inquiries
Managing the due diligence process for you
Facilitating the closing process
Handling any outstanding issues that may come up throughout the process
Business Broker Fee Structure
Business brokers have different fee structures.
Normal business broker fees include valuation fees, marketing fees, monthly retainers, and success commission fees.
Most business brokers will charge a success fee, typically between 10%-15% of the total sale price.
Some business brokers will also charge upfront fees and monthly retainers.
Use caution when selecting a business broker, as lower commission or sale fees are not always a good sign of who the best business broker is.
Why You Should Use a Business Broker to Sell Your Business
1. Business-Selling Expertise
A professional business broker’s expertise is in selling businesses and all the intricate details that go with selling a business.
Every business sale process is unique, and most business brokers have a proven track record of evaluating and selling businesses across different industries and markets.
Some business brokers specialize in specific industries and have knowledge of industry-specific and operations.
2. Professional Marketing Capabilities
Professional BC business brokers will help you create a strong marketing strategy to not only reach buyers, but also to position your business highly in the marketplace.
The more buyers you have competing to buy your business, the higher the purchase price you can get.
Business brokers often have access to a data base of prospective buyers and can get your business in front of the right buyer.
Business brokers source buyers through listings, while others will tap their networks or approach buyers in person.
3. Find Real Qualified Buyers and Create Buyer Competition
For most business owners, your business is your livelihood and your life's work.
You deserve a fair price for your business.
But if you price your small business too high, you won’t attract buyers and may not be able to sell at all.
Business valuations can often be an misunderstood process for small business owners, because business valuations involve many variables, including the business's assets and seller discretionary earnings (SDEs), and these factors vary depending on the business's industry and operations.
Business brokers can help you accurately evaluate and price your business, using pricing strategies that ensure you get the best price based on your business’ value and one that appeals to potential buyers.
In some cases, business brokers may be able to increase the value of your small business before the sale by suggesting improvements to your operations or bookkeeping practices.
Business brokers typically have more understanding about what’s happening in the market, through market research, and can help forecast trends so you can optimize the timing of your sale.
Business brokers can vet prospective buyers and separate the serious buyers from the ones wasting your time, screening out anyone who’s just “looking around” or not within your price range.
Business brokers can also help keep the sale confidential and have potential buyers sign non-disclosure agreements.
4. Understanding Accounting and Tax Implications
A business sale typically triggers capital gains tax and the way you choose to structure your business and your business sale transaction can have a major impact on how much of the profit goes to you.
The right business broker is knowledgeable about the tax implications of buying a business and stays abreast of any changes in the tax code.
A good business broker will find the best way to structure your small business in cooperation with your corporate accountant to achieve the lowest tax liability.
5. Making the Selling Process More Efficient
Business Brokers will help you pull together the correct documents and keep you organized.
Your Business Broker will handle any additional information requests, saving you time and relieving stress.
Business brokers can also help with outreach and sourcing and can help you assemble a high-quality professional team like lawyers and accountants.
They’ll use their connections and third-party relationships to make the entire process smoother.
Many business brokers will know which banks are lending, and can connect you with experienced attorneys, bankers, and accountants that can help facilitate a successful sale, saving you the time of shopping around to find the right person.
6. Great Negotiation Skills
Selling a business is something that may only happen once in your lifetime, so it’s important to be an expert negotiator when it comes to business transaction negotiations.
Business brokers have access to recent sales histories in your industry, to help determine an unbiased assessment of your business.
Brokers can facilitate any negotiations and do background research on any buyers to ensure you’re getting the best deal.
7. Save You Time
Running a business is a full-time job and many owners don’t have the capacity to create listings, field inquiries, and negotiate with potential buyers, let alone pull together all the documentation and paperwork needed to complete the sale, alongside their day-to-day operations.
Business brokers help your sale through the due diligence process, which involves the buyer requesting documents, data, and other information to review for potential liabilities or roadblocks to completing the transaction.
A business broker will help pull together all of the documentation you need for an effective sale, including financial records and statements.
Your Business Broker will field any last-minute requests and follow-ups, saving you the headache and time.
Using a Business Broker gives you the freedom to focus on what’s important: running your business.
Why you might not want to use a business broker
There are many benefits using a business broker to sell your business. But there are a few reasons why hiring one may not be for you.
Here are a few situations why you may not want to use a business broker to sell your small business.
1. You have Sold a Business Before
Maybe this isn’t your first rodeo, and you’re confident in your ability to sell your business on your own.
You’ll definitely save money on broker fees and the effort of finding a business broker by going through the process on your own.
2. You’re Selling Your Business to a Family Member or Employee
A large part of a business broker’s job is finding the right buyer.
If you already have a buyer in mind, especially if it’s a family member or employee and you have an agreed-upon price, it may be cheaper to not use a business broker.
It’s important to keep in mind that you’ll still be responsible for much of the leg work, including providing documentation, conducting due diligence, and handling any tax implications.
However, a good lawyer may be able to help here as well.
3. Established Business Network
Another job of a business broker is to connect you with other professionals, like attorneys or accountants.
If you already have established relationships in your professional network, or are working with other professional advisors that have experience selling businesses, you may not need to pay for the expertise of a business broker.
4. You Want to Avoid Broker Fees
Brokers are paid by commission, which makes broker fees pretty much unavoidable when using one.
These commission fees can often run in excess of 10% of the selling price of your business.
For some owners, that cost is too high to justify using a business broker.
5. Different Priorities
Some business brokers simply have different priorities than you do when it comes to the successful sale of your business.
If you’re in a specialized industry, you may also struggle to find a business broker that understands the market as well as you do.
Having the right information is essential when it comes to selling a business, so a business broker who doesn’t have full knowledge can hinder your sale and potentially lower your price.
How Stonebridge Business Brokers of BC Can Help
Stonebridge Business Brokers has a network of small business and finance experts, in order to provide business owners with valuations, recommendations, and vetted partners no matter what industry your business is in.
Stonebridge Business Brokers of BC offers business owners with a free, data-backed business valuation estimate, along with personalized feedback to help enhance the value of a small business before a sale.
We provide transparent information to business owners so you can make an informed decision about when to sell your business in BC.
Selling your business may be the largest financial event of your life, so make sure it’s in good hands.
Find out what your business is worth and start planning today.
Contact:
Chris Hall
Senior Business Broker
Stonebridge Business Brokers of BC
604-866-2236
Good objective article on using a business broker to sell my business.