So, you’re thinking about selling your business and are wondering if you should use a business broker to sell your business? Selling your business and hiring your exit dream team is a big decision! Here’s the thing, business brokers know their stuff when it comes to finding buyers, dealing with all the back-and-forth, and handling all that complicated paperwork. Want to know if a broker’s right for you? Then continue reading to find out what business brokers actually do and figure out if you need one in your corner.
Should I Use A Business Broker To Sell My Business?
The short answer is Yes, you should use a business broker when selling your business. I am not a business broker, so I have no benefit in saying you need one. But here’s the thing… Business brokers will draw from their experience and expertise to offer you guidance and professional advice to ensure you make informed decisions.
1. What Does A Business Broker (Not) Do?
A business broker is an individual (or company) who helps you sell your company. They are knowledgeable about the market, have a network of potential buyers, and are skilled negotiators. They typically work small, main street businesses, worth less than $2M.
They handle a lot of the hard stuff like:
- Finding buyers
- Valuing the business
- Marketing the sale
- Handling negotiations
2. How Much Does A Business Broker Charge?
Business brokers usually charge a commission—around 5-15% of the sale price. It sounds steep, but after weighing this against doing all the hard stuff yourself, it’s probably money well spent.
Some brokers charge a monthly retainer. This will likely be on top off a (reduced) sales commission. From experience I can say that brokers who charge a retainer:
- are not sure they can sell your business and want to reduce that risk by charging you a fixed fee
- believe they will need to give you a lot of advice on how to increase the value of your business before they can sell it
3. How Do You Know If A Broker Is Good?
Finding the right broker for your business is key. Here are some tips to find the best one for you:
- They need to have experience in your industry.
- They need to have a good track record of selling.
- They work on a sales commission only (which indicates they are confident they can sell your business).
- They can answer simple questions like:
- how many businesses just like mine have you sold in the last year
- who’s been buying businesses like mine recently
- of all the businesses like mine you couldn’t sell, what was the reason?
- how many businesses just like mine have you sold in the last year
- who’s been buying businesses like mine recently
- of all the businesses like mine you couldn’t sell, what was the reason?
- Certifications like Certified Business Intermediary (CBI) and memberships in groups like the International Business Brokers Association (IBBA) are indicator that someone is reputable.
4. What Can You (Not) Expect From A Business Broker?
- Brokers can’t guarantee a quick deal, even with their best efforts.
- Brokers can’t sell an unsellable business.
- Brokers work for a commission, so be mindful of conflicts of interest. They need to sell your business to make money. So even when the deal is not aligned with your, your business or your team’s best interests, they’ll push to close the deal.
- Brokers will not spend much time on advising you on the changes you need to make to increase the value of your business.
- Brokers might try to get your business listing by valuing your business (too) high. Don’t be tempted to work with a broker just because they gave you the highest valuation.
5. When You Might Not Need A Broker
There are situations where you might not need a broker:
- If you’re selling to a family member or employee: You probably already know the buyer well enough, and the price might already be set.
- If you’ve sold businesses before: If you know what you’re doing and don’t mind the extra work, you can skip the broker and save on fees.
Even if you don’t use a broker, you’d still need to work with a lawyer and accountant when selling your business. They’ll help with the legal and financial details to make sure everything is airtight.
Difference Between Business Brokers and M&A Advisors
Business brokers tend to work on more straightforward transactions than M&A advisors. Brokers will cater primarily to regional markets or smaller sized businesses (< $2M in annual sales).
They focus on businesses that have fewer moving parts than the larger companies who are mostly handled by M&A advisors.
Conclusion: Use A Business Broker To Sell Your Business
Deciding whether you should use a business broker to sell your business is a crucial decision. While their commission rates may seem significant, their expertise in finding buyers, handling negotiations, and managing paperwork can be invaluable. For businesses under $2M in annual sales, a broker can be particularly helpful in navigating the sale process.
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