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Do I Need a Broker to Sell My Business?

December 1, 2020 | By Ryan Abbott

Picture this: you run a successful small business with loyal customers, steady cash flow, and a great management team. Day to day operations run smoothly even if you’re not in the office. In fact, you’re starting to think it’s time for the business to run without you entirely. Maybe it’s time to sell.

But where to start?

A quick internet search will send you to websites where you can list your business for sale. Or maybe you know someone—an acquaintance or a competitor—who told you once that if you ever thought about selling you should give them a call first. Sounds pretty easy, right?

But selling a business isn’t like putting that treadmill you bought and never used on Craigslist. In fact, it’s closer to selling your house, which you would probably never even consider doing on your own. Your business is probably worth more than your house, so why would you sell a business yourself?

Why Do You Want to Sell?

At The Value Builder System™, we often talk about push and pull factors. Push factors are the things that are driving you out of your business. They’re the things you won’t miss once you’ve sold the company. Taxes, red tape, employee relations. Eventually, enough of those build up that many business owners throw up their hands and say, “I’m out.”

But if you don’t also look at the pull side, you’re going to wind up unhappy when the sale is done. As many as 75% of business owners have regrets a year after the deal closes[i] and often that dissatisfaction goes back to the pull factors they never thought about.

Pull factors are what you’re excited to do next. They could be things like starting another business in a whole new market, traveling the world, writing a book, or spending more time with family.

If you feel you’re ready to sell your business, spend some time thinking about—and maybe even writing down—those pull factors. Envision what your life will be like when you don’t have to deal with regulatory filings and supplier mix-ups. Having a clear vision for the future will help you keep moving forward as the sale negotiations get tough.

Once you’ve laid out your push and pull factors, it’s time to find someone who can help you sell your business.

What Does a Business Broker Do?

Business brokers are one of a number of different intermediaries who can represent you as you look for a buyer and sell your business. These intermediaries serve six primary functions.

Create Competition

The best way to get a fair price and terms for your sale is to create competition among bidders. Having multiple offers means you have a clearer sense of what the market value for your business really is, so you can rest easier when the deal closes.

Depending on your business and your location, it may not always be possible to find more than one interested buyer, even with a broker’s contacts. But a savvy intermediary knows how to create the illusion of competition to keep the terms fair and your deal moving.

Keep Acquirers Interested

While competition is good for you, it can turn buyers off. Many want you to negotiate exclusively with them so they can press their advantage. Finding the balance between competitive tension and keeping a buyer at the table—especially if you really do only have one on the line—is something a broker experienced in the art of selling can help you navigate.

Provide a Buffer

Selling your business is personal, no matter how well prepared you are. The diligence process means buyers will dig deep into your business and you’ll be asked to explain and justify—sometimes repeatedly—the numbers and projections. It’s easy to take offense or feel undermined, and that’s when a good intermediary can step in to help you keep your cool and deflect the acquirer’s most personal criticisms, ultimately keeping the deal on track.

Play Good Cop/Bad Cop

While brokers can help smooth over the pointy bits of diligence, they can also be the bad cop when needed. Many acquisitions include a transition period where the owner stays on after the sale, either as an employee or consultant, so you want to maintain a reasonably good relationship with the buyer you’ll be working for. When it’s time to push back in diligence, your broker can step in, letting you stand gracefully in the background so you’ve got solid footing to start from when your transition period starts.

Time the Reveal

Selling your business is all about timing. While the information you need to share as part of wooing buyers and navigating the negotiation can be fairly straightforward, a good broker will know when this information should be shared to bring you the maximum amount of interest and keep buyers engaged.

Offer Services (Mostly) for Free

If your broker can do everything above for you, they’re going to earn their commission a few times over by creating competition, keeping your buyer engaged, and getting good terms for your deal. While a broker may be expensive, on a net basis, you’ll be better off financially than trying to go it alone.

How Do I Find the Right Broker?

Selling your business means a lot of money on the line—not to mention your legacy, your customers, and your employees. You want to know that you’re working with someone who has the experience and expertise to get you across the finish line.

Finding the right intermediary will depend in part on the size of your business. In broad terms, the categories of intermediaries can be classified as:

  • Business brokers
  • Main Street business brokers
  • M&A professionals

Business Brokers

A typical small business broker will handle the sale of a company with up to $1 million or $2 million in annual revenue. If your business is around this size, you’re likely going to be looking for an individual buyer in your geographic area. Find a broker with a local presence and ideally some knowledge of potential buyers for your type of business, whether it’s a coffee shop, gym, or small retail store.

Main Street Business Brokers

Between business brokers and M&A professionals are the main street business brokers. They may work at the same firms as one of the other two intermediaries, and many are Certified Value Builders. Their focus is on the mid-range companies, those with $2 million to $10 million in annual revenue.

These mid-sized companies aren’t as simple to sell as a day spa that makes $400,000 a year, so it’s essential to dig a little deeper to find someone to represent you. Companies in this size range may have things like management teams and shareholders, along with more complex customer and supplier networks that need to be considered when a sale is in the works.

To find a main street broker, your best bet is to reach out to another entrepreneur or someone in your industry group and ask for a recommendation.

M&A Professionals

On the far end of the spectrum are the M&A professionals. They’re typically looking for companies with a market value of at least $10 million. The size of the deal means M&A professionals aren’t usually limited by geography, both because there aren’t that many $10 million+ companies to sell in any one geographic area, nor are there that many buyers.

As a result, if you’re looking for an M&A professional to help you sell your company, you’re looking for one with experience in your niche. They’ll know what prices you can expect, what pitfalls you may encounter, and how to find potential buyers elsewhere in the country.

What to Look for When Choosing a Business Broker or M&A Professional

Regardless of your company’s size, there are some common things to look for in an intermediary. Along with that geographic or market knowledge, you need to know you have an ally who will not only help you sell your business but do it in a way that will leave you satisfied with a result.

One of the critical skills for any intermediary is the ability to listen and understand what your goals are as well as what makes your business unique.. Selling businesses can be a high-adrenaline world, but you need to know your broker will take the time to listen to you.

Many business owners think they need to find an intermediary with industry experience, but this can be a double-edged sword. Finding someone who knows your industry or who has sold other businesses like yours can sound like an advantage, but it can also create rigidity if they think every sale will work the same way.

This is particularly true for larger businesses that only have a limited number of potential buyers, all of whom the M&A professional is already familiar with and wants to stay on good terms. Your intermediary should work for you and not be worried about keeping the buyer happy so they can approach them with future deals.

Find a Business Broker Who Will Get the Best Price for Your Business

In initial discussions with an intermediary it’s not uncommon to find out your business isn’t worth as much as you’d hoped. While you could just sell it for the current market value and wash your hands, working with an ally who will help you increase your company value can lead to a bigger payday for you and your broker.

The Value Builder System™ is a statistically proven methodology that helps business owners worldwide increase their company value. The system includes a network of qualified business advisors, including business brokers and M&A professionals who are skilled not only in the art of selling your business but also in identifying the factors that may be keeping you from reaching top dollar.

Your relationship with a broker doesn’t have to be a purely transactional one. If you find one who is motivated to help you look at which of the 8 Key Drivers of Company Value you can treat as a lever to pull that will ultimately drive up your sale price, in the end, both you and your intermediary win.

To speak with a Certified Value Builder™, start by filling out the Value Builder questionnaire. This 12-minute survey looks at everything from your financial performance to how dependent your business is on you to keep the lights on and the doors open. From there, we can connect you with a qualified advisor who can help you better understand what your business is worth, and what you can do to increase that number.

If you’re ready to undertake this valuable step in planning your business’s future, start the Value Builder questionnaire now.

 

[i] Prescore.com

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