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Should You Use a Business Broker?
The answer to this question is -- it depends.
If your business is too small to motivate a broker (say under $300,000 selling price), you may be better off without retaining a broker. For the reasons discussed above, a firm of this size may not get the full attention of a good broker. It will simply not be very important to him or her relative to the larger, higher commission listings.
To you as the owner, however, the sale will be very important-- you have 100% riding on it, not 10% (with no downside loss to worry about) as the broker. While the broker may know more about selling businesses, your motivation may offset a lack of knowledge and experience.
If, on the other hand, your business is larger and relatively saleable (see section II), a broker may be your best route. A broker will be motivated to sell your business and may have cultivated the kinds of buyer contacts that could lead to a quick deal. Also, with a larger firm to sell, you will have more leverage in negotiating commissions and other terms with a broker. For example, you should insist on a relatively short commitment such as three months rather than the six to twenty-four months that the broker will ask for.
Finally, in making the decision, consider the quality of the broker. If a competent broker is anxious to list your firm, even though it is small, it may be worth doing. Conversely, if you can't find a good broker for your firm even though it is well over the $100,000 value range, no broker at all might well be better than a bad broker.
If you decide to sell your firm without a broker, you should consider paying a broker for specific services on a fee basis to help sell your company. These services might include:
- Valuation of the business
- Written presentation (see section VIII)
- Finding leads
- Negotiating a deal
Alternatives to a Traditional Broker Arrangement
If you are anticipating doing the majority of the work yourself, you may want to retain a broker that usually works on a commission basis to do work for you on an hourly or fixed fee basis. We will gladly provide support as you sell your business and have developed fixed price packages for the many of the steps in the process of selling your business that you may not wish to do on your own. Please feel free to call us at 517 347 4902 to discuss delegating some or all of the tasks involved in selling your business. Another option would be to buy down the commission rate by offering to pay a fee up front.
Choosing A Broker
Keep in mind my contention that many business brokers are not very good. It is clearly to your advantage to search out a competent broker to sell your business.
In evaluating prospective business brokers don't be afraid to ask for their credentials and experience. Some significant plusses include:
- Previous experience in running a business
- Understanding of basic accounting (as a minimum, a broker should be able to understand a set of financial statements)
- A track record of success
- At least one year's experience buying and selling businesses
- Business training at the college level and beyond (an MBA degree is the best credential to look for)
In interviewing prospective brokers, ask how they plan to market your business. Look for a clear and confident answer with the steps spelled out. Don't settle for something like "Oh, we do this all the time, don't worry," or "We'll put it in the paper; It'll sell."
Try to get a sense of how well the broker understands small business in general and your business in particular. If he doesn't understand that, he can't possibly do a good job presenting your business and responding to questions about it.
Also, ask, "What have you sold lately? How did you sell it?" Ask for references. However, understand that in some cases brokers won't want to release specific references because they need to protect confidentiality.
Much comes down to your own personal judgment. Don't make the decision lightly; a lot is riding on it. It can mean the difference between selling your company for a good price and not selling it at all.
If your business is one that is highly dependent on a local market, a Laundromat or a restaurant for example, then you probably want to hire a broker that is local. It is unlikely that a buyer from far away will buy that kind of business, unless the enterprise is very large. For businesses where a significant portion of the enterprise value you may want to get a real estate agent to handle the transactions, although in general real estate agents tend to lack the business expertise that a good business broker brings to the table. If your customers do not need to be local then having a broker with business expertise makes more sense than looking for a local broker.
Finally, for a professional practice, such as physician, dental, legal, or accounting practices select a broker that transacts only your type of business. The broker will know who has the appropriate licenses and is looking to purchase practices.
You can use BusinessBrokerLocator.com to get up to four proposals from pre-screened, qualified business brokers before you reveal your identity to the brokers.
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