Contemplating the Benefits of Engaging a Business Broker for Your Business Sale?
You're contemplating selling your business and wondering if you should go through a business broker for the sale? Selling your business and securing your exit strategy is a major move! The thing is, business brokers are pros when it comes to identifying potential buyers, dealing with the back and forth, and handling all the complex paperwork involved. Considering working with a broker, but unsure if it's the right move for you? Keep reading to discover what business brokers do and determine if their expertise is needed in your corner.
Should I Hire A Business Broker To Sell My Business?
The answer is yes, you should consider using a business broker for the sale of your business. I'm not a broker, so there's no benefit for me to recommend one. However, brokers offer valuable insight and expertise to guide your decision-making process.
1. What Does A Business Broker (Not) Do?
A business broker is an individual or company who assists in the sale of a business. They're knowledgeable about the market, have a network of potential buyers, and are skilled negotiators. Typically, they work with small businesses, worth less than $2M.
They handle tasks such as:
- Identifying potential buyers
- Valuing the business
- Advertising the sale
- Negotiating terms
2. How Much Does A Business Broker Charge?
Brokers usually charge a commission—around 5-15% of the sales price. Although it may seem pricey, considering the time and effort you'd spend on the sale yourself, it's more than justifiable.
Some brokers charge a monthly retainer. This fee will likely be in addition to the (reduced) sales commission. From personal experience, I can say that brokers who charge a retainer:
- are unsure of their ability to sell your business and want to reduce their risk by charging a fixed fee
- believe they will need to offer you advice on increasing the value of your business before they can sell it
3. How Can I Tell If A Broker Is Good?
Finding the right broker for your business is essential. Here are some tips to help you find the best one:
- They need to have experience in your industry.
- They should have a solid track record of successful sales.
- They work on sales commission only (which indicates their confidence in selling your business).
- They can answer questions like:
- How many similar businesses have you sold in the last year?
- Who has been buying businesses like mine recently?
- Why were the unsold businesses unable to be sold?
4. What Should I (Not) Expect From A Business Broker?
- Brokers cannot guarantee a quick sale, no matter their efforts.
- Brokers cannot sell a business that is inherently unsellable.
- Brokers make their income from sales commissions, so be aware of potential conflicts of interest. They may push to close the deal, even if it's not in your or your business's best interest.
- Brokers will not spend much time advising you on ways to increase the value of your business.
- Some brokers may try to overvalue your business to secure your listing. Be cautious of working with a broker based solely on a high valuation.
5. When Might I Not Need A Broker?
There are instances where you might not need a broker:
- If you're selling to a family member or employee: Chances are, you already know the buyer, and the sale price may be set.
- If you've sold businesses before: If you're comfortable with the process and don't mind the extra work, you can opt out of the broker and save on fees.
Even if you decide against using a broker, you'll still need to consult with a lawyer and accountant when selling your business. They'll help you navigate the legal and financial aspects to ensure the contract is watertight.
Difference Between Business Brokers and M&A Advisors
Business brokers primarily focus on simpler, regional transactions compared to M&A (merger and acquisition) advisors. Brokers typically cater to smaller businesses (less than $2M in annual sales), while M&A advisors handle larger companies with more complex structures.
Conclusion: Consider Using A Business Broker To Sell Your Business
Deciding to work with a business broker to sell your business is a significant decision. Although their commission rates may appear high, their expertise in finding buyers, handling negotiations, and managing paperwork can significantly streamline the process and foster a successful sale. For small businesses under $2M in annual sales, a broker's guidance can prove invaluable.
- If you're contemplating selling your business and securing your exit strategy, you might consider using a business broker. Their expertise in identifying potential buyers, dealing with negotiations, and handling complex paperwork can be invaluable.
- Reasons you should use a business broker to sell your business include their knowledge of the market, network of potential buyers, and negotiation skills. They can save you time and effort by handling tasks such as valuing the business, advertising the sale, and negotiating terms.
- You might wonder, 'why should I use a business broker to sell my business?' The answer lies in their ability to streamline the sales process, foster a successful sale, and provide valuable insight and expertise to guide your decision-making.
- If you're considering working with a broker but unsure if it's the right move for you, consider the benefits. They can help you obtain a higher sales price, navigate the legal and financial aspects of the sale, and reduce the risk of miscommunication or disputes with potential buyers.
- For those wondering, 'should I use a broker for selling small business?' The answer is yes, especially if you're looking to sell a business worth less than $2M. The time, effort, and expertise a business broker can bring to the table can significantly increase the chances of a successful sale.
