When a business owner is ready to sell their company, one of the first things they’ll think to do is hire a broker to manage the sale for them. These business brokers are the equivalent of real estate brokers or agents who sell properties for their clients. This may seem like the convenient thing to do because brokers will handle the marketing and paperwork regarding the sale of your business. However, brokers tend to charge outrageous fees (up to 10%) for their brokerage services which will cut into the profits of the sale.
If you were to sell your company to a family member or friend, for example, then it would serve no purpose to use a broker anyway. Also, if your company has a lot of liabilities and you’re trying to conduct a distressed sale so you can pay back the debt, then a broker would be just one more person that you’d have to pay in addition to all the others. Therefore, you mine as well go without a broker and save as much money as you can. Selling a business without a broker is not as hard as you might think anyway.
Save Time and Money
When a broker tries to sell your business, they are only doing it for a commission. They are not as emotionally and financially invested into the business as you are. This means they might not take as much time and energy towards trying to market and sell the business as you would like them too. You could have your business listing on the market for months or even years without any results because the broker isn’t trying hard enough.
Now you might think that you could find a buyer yourself if this were the case, but there’s just one problem. When you sign a contract with a broker to have them sell your company, you are giving them permission to be the only ones who can manage the sale of your business. So, if you were to find a buyer on your own after signing a contract with a broker, then you’d be legally obligated to have the broker handle the transaction even though you found the buyer.
Related: Business Broker Agreement
As about advertising of your business for sale, this is not so complicated either. The internet has made it easy for business owners to find buyers with the kind of money it takes to purchase a company. Some notable websites you can find buyers on include ExitAdviser.com, Businessesforsale.com, Bizquest.com, and Bizbuysell.com. These are the same kinds of platforms that a broker would use to market your business for sale anyway. Therefore, you mine as well cut out the middleman and just do the marketing yourself. These websites are not brokers, but rather advertising services for business owners. They make their money from the listing fees that owners pay to advertise their business for sale. These fees are typically a fixed price that is nowhere near as much as what a broker would charge. On the listing page, there is a contact form that potential buyers can fill out to send the owner an email message. This is how communication gets established between owners and buyers. From there, they can negotiate the deal and pursue a purchase transaction if an agreement is made.
Managing the Deal
Once a buyer has been found for the business, you need to do your homework on the buyer first. Don’t just jump right into the sale because you’re excited about getting the money. If the buyer is not getting their own commercial loan to pay for the business, then they’re liking going to expect you to seller finance it to them. This means you’ll have to act as the bank and conduct a credit check on them. You’ll also need to request a personal financial statement from them, which is what a broker would ask for as well.
The last thing you’ll want to do is waste your time dealing with some buyer who has no possible means of paying back the loan or even managing your company. Their personal financial statement should show a long list of assets and possibly a history of purchasing other businesses. If all is well, then continue setting up meetings with the buyer and keep their interest alive. You want to be careful not to delay the transaction too much because it might turn a buyer away, even if they are a good buyer who can follow through. So, try to act quickly when you’re conducting your research on potential buyers.
When managing and negotiating a business sale, buyers will request information from you as the seller. They’ll want to see sales reports, expense reports, income reports, and so on. This is information that you should provide because it will help motivate them into making a decision to purchase the business. If you hold back this information, it may look suspicious and it will probably scare the buyer away.
Even if the information is bad or negative, it is better that you show them it in the beginning rather than have them discover it half way through the transaction.
The only information that you should not give them is the information about your customers. It is one thing to show them a sales report but if the report has the names of the customers that you do business with, then the buyer may just contact the customers directly while forming their own business instead of buying yours. That is why you must be discrete about certain specific information regarding your clientele list until the buyer has signed a contract agreeing to purchase your business.
Selling Your Business: Going by FSBO vs Hiring a Broker
Taxes and Attorneys
The two words people hate the most in any setting are taxes and Attorneys. But they are important considerations to make when selling a business because you don’t want to make the mistake of creating a deal that will cost you more money than you should have to pay. The amount of taxes that you’ll have to pay, for example, depends on the type of business sale that you are conducting. If you’re getting one lump sum, then you’ll pay more taxes than you would with a seller financed transaction. You may want to hire an Accountant to help you work out the tax information that you’ll need to know before the sale takes place.
Also, you may want to hire an attorney to handle the sales contracts and agreements so that you know they’re done properly. Brokers typically have accountants and attorneys on their payroll who do these tasks for their clients. But since you are not using a broker, you’ll have to go and hire them yourself. Don’t worry because attorneys and accountants typically have fixed fees for tasks like these. Even though some charge by the hour, it won’t take much time for them if they’re just calculating taxes or creating documents. The only scenario where it would cost more money is if you had the attorney do the negotiating for you. But, you can handle that aspect of the deal yourself. Just let the attorney know what you want and what you expect out of the transaction. Then they’ll create the contracts and agreements in accordance with the information that you provide them.