Are you contemplating selling your business or creating an exit strategy? It could be tempting to jump into the process of selling your business without hiring...
Is it Possible to Sell a Business Without a Broker?
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.
We recommend using a broker in these situations:
- 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.
Here are a few situations in which we believe it is not necessary to hire a broker:
- 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.
What are the pros and cons of selling without a broker?
There are five primary drawbacks to not using a broker:
- 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.
What specific tasks do you need help with from a broker?
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.
The primary tasks brokers perform are:
- 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
- Screening buyers
- Showing the business
- Negotiating the transaction
- Preparing the offer
- Managing the due diligence process
- Closing the transaction
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.
The one step that you can do without a broker
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
How to make the sale process smoother and easier
Jacob Orosz Bio
Jacob Orosz ,Founder and President, Morgan & Westfield
Jacob is the president and founder of Morgan & Westfield. A certified business broker and licensed business/real estate broker, Jacob has over 15 years of experience facilitating mergers, acquisitions, sales and other business transfers with transaction values ranging from $30,000 to $75 million. Jacob has successfully participated in or managed the sale of over 300 privately held companies...