Yes, it is possible to sell a business without a broker, just as it is possible to sue someone without the help of an attorney. Although a broker is not always necessary, there are instances when a broker may be useful and other times when you can manage a sale without the help of a broker.
You have never sold a business before.
You would like to maximize the purchase price of your business.
You would like to sell your business as quickly as possible.
You do not want the sale of the business to distract you from running your business.
You are working full time in the business and cannot invest a significant amount of time in the sale process.
You have been approached by a potential buyer, either with or without an offer.
You have already negotiated a price with a buyer, and you are not concerned about maximizing the price. While you may not need a full-service broker in a case like this, we still recommend hiring an attorney or a broker to assist with the closing.
You are selling your business to an insider, such as a family member or an employee. Our recommendation is to hire an attorney in this case.
You are a serial entrepreneur and have sold multiple businesses before.
The main advantage of not using a broker is the opportunity to lower professional fees. This does not necessarily mean you will maximize your net proceeds from the sale. Just as you may “save” money by litigating a case yourself, your net result may mean less money in your pocket than if you hired an attorney.
Lack of expertise – If you hire a broker whose sole expertise is selling companies, their knowledge alone may justify the fee.
Lack of emotional objectivity – Selling a business is an emotionally charged event, and an intermediary can put you in a stronger negotiating position and help you maintain your cool throughout the process. This may result in a potentially higher purchase price, and therefore, justify the broker’s fee.
Larger investment of time – Selling a business requires an enormous amount of time. An experienced broker is 5 to 10 times more efficient in the process than you. For example, while you may save money by waxing your car yourself, the process may take you eight hours, whereas a professional can get the job done in two hours. If a retailer charges $50 per hour, it will cost you $100, while saving you lots of time. Doing the job on your own is like paying yourself only $12.50 an hour, but look at the time you’ve lost. It’s six hours worth of time that you could have spent doing something else on your priority list.
Lack of focus – Selling your business on your own carries the enormous risk of losing focus on your business, letting revenues slip, and therefore, negatively impacting the value of your business. Again, while you may save on professional fees, the net result may mean less money in your pocket.
Lack of confidentiality – Selling a business on your own could put the confidentiality of the sale at risk. If, instead of a broker, you are the contact person of the advertisements you place, it will be easy to trace the sale to you. Your employees or other parties that you may not want to know you’re selling may find out about the sale. You may think you can save money by not paying professional fees, but without confidentiality, the risk of losing more money is high.
While the services of a broker are helpful in a variety of scenarios, you should intelligently structure the engagement to use only those services that you need. This is the secret that most entrepreneurs miss. Most business owners hire brokers on an exclusive basis, at a 10% to 12% commission, without giving thought to what they really need assistance with.
Unfortunately, most brokers today only structure their engagements as a full-commission, one-year, take-it-or-leave-it option. We are one of the few that offer our services on an a-la-carte basis.
Preparing an exit strategy for the business
Assessing the readiness of the owner to sell
Valuing the business
Preparing a business summary
Preparing a teaser profile, an abstracted version of a business summary
Normalizing, adjusting or recasting the financial statements
Marketing the business for sale
Showing the business
Negotiating the transaction
Preparing the offer
Managing the due diligence process
Closing the transaction
Not all steps are required for the sale of every business. Review the options above and ask yourself if you need help with these steps. If not, the fee should be reduced accordingly. For example, many businesses do not require a formal valuation or the use of a teaser profile.
Or, an owner may approach us after a buyer has made an offer. Some brokers may attempt to charge a full commission on a deal like this. We, however, believe the fee should be reduced accordingly. In fact, that is exactly how we handle an engagement like this.
You can sell your business without a broker in some instances, such as selling to a family member or employee.
Determine the pros and cons of not using a broker and decide whether to use a broker. Often, the cons far outweigh the pros, which primarily consists of saving on professional fees.
Rather than asking whether or not to use a broker, ask yourself how you should use a broker.
Review the steps above again. Ask yourself if you have the requisite skills, knowledge, experience and tools to perform these tasks. In our opinion, these steps involve either the use of specialized tools or technical knowledge or experience that you are unlikely to have — except one.
Alarmingly, the one step that does not require specialized knowledge or skills also consumes the majority of a broker’s time. Why would you pay the broker to do this when you can do it yourself? Brokers do it because that is the way it has always been done and that is how everyone is currently doing it. In other words, they are mindlessly performing this function without questioning its utility. The reasoning behind this doesn’t make sense to us.
What is this function? It is showing the business. This involves meeting with the buyer, touring the business, and answering basic questions about your business. Frankly, we have attended hundreds of these types of meetings in the past, long before we abandoned this practice. After the 499th meeting we attended, we realized we were not providing value at these meetings and decided to cut this step out of the process entirely.
What was the result? Simple — we cut the time we personally invested in the deal by over 70%, and we reduced the fees accordingly.
The real question is not “Should I use a broker?” but rather, “How do I use a broker?” As we’ve mentioned, there are a few situations in which using a broker is not necessary. Once you have established that a broker would be helpful, ask yourself what you really need help with. Then, negotiate with the broker to provide only those services. Following this route will result in the maximum proceeds and the smoothest sale possible.
As a professional service provider, we must learn to work with what is given to us. We do, however, communicate with our clients, are honest, and work hard to align our goals and set realistic expectations. Being the perfect client for us or any other business broker will help you and is in your own best interests, as doing so will make the sale process smoother and easier.