Selling your business is something that most business owners do only once in their lifetime. So how do you make sure everything goes smoothly? Many business owners consider working with a business broker, an expert in selling businesses, to ensure they maximize the sale price of their business. Is this always a good idea? Let’s look at the pros and cons of working with a broker:
Why you should work with a commercial agent when selling your business
1) A broker has sold (hopefully!) Many businesses to previous clients, and you can use that experience to learn the basics of the process and avoid making careless mistakes.
2) They can act as facilitators of the transaction, ensuring that negotiations go smoothly, the transaction proceeds at the correct pace, and that the business is eventually sold with all parties satisfied.
3) A broker can lower his initial costs of selling the business, as many brokers will pay to create sales guarantees and advertise the business on their own for a fee when the business sells. They may also have insight into which advertising mechanisms offer the best “payoff” to ensure that as many potential buyers as possible are exposed to your business.
4) They can provide expert advice related to market conditions and can help evaluate potential offers to buy your business. For example, a commercial broker will generally provide a free initial estimate of the sale price of your business and can provide information on what similar businesses may have recently sold in your area.
5) A trade 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 a broker can help sell a business, it’s no wonder that most businesses that are sold eventually involve a commercial broker. However, there are downsides to working with a broker that a prudent entrepreneur should consider.
Why You Should NOT Work With A Trading Broker When Selling Your Business
1) Trade brokers can charge a large commission. The amount of the commission varies based on many factors, such as the final sale price, geographic location, and the skills of the broker. For a “high street” style business that sells for less than a million dollars, it would not be unusual to see between 10% and 20% commission. Some brokers will also have a guaranteed minimum, on the order of $ 10,000 or $ 15,000. You should only hire a trading broker if you think the time and effort involved justify this price, or if you think it will increase the sale price by more than your commission amount.
2) A great broker is worth his weight in gold, but a bad (or even mediocre) broker costs a lot more than he is worth. In many cases, the sale will be lost due to the incompetence of the trading broker. If you are not sure that the trading broker can not only increase the value of the transaction, but also increase the chances of selling the business, then it is probably best to manage the sale on your own.
3) Do not work with a trading broker if you go into the transaction without knowing what you want from it. Many times, trading brokers will proactively contact you to let you know that there are buyers interested in buying your business. Selling a business is an important decision and you must take it very carefully. Make sure you are talking to a broker because YOU made the decision to sell and that you have adequately informed yourself about the process and the final consequences of your decision.
Working with a business broker, when done correctly and for the right reasons, can be a huge benefit in selling your business. By learning about the different factors involved, you have taken an important first step in selling your business. Best of luck!