Knowing who to consult and engage with to successfully sell your company is essential. Learn about how brokers work and how it impacts the entire business sales process. Find out how Morgan & Westfield’s business model differs from those of other companies within the industry.
Many business brokers recommend obtaining a valuation from a third-party. Brokers make this recommendation because they can sell the valuation at a large markup and do not need the expertise required to appraise a company. Many franchised business broker offices push their franchisees to sell third-party appraisals, which is fairly simple. The business broker sells the report, often at a 2-10x markup. The drawback is that you never interact directly with the appraiser.
Third Party Report – Several business appraisers offer their appraisals through a network of business brokers. These networks actively market their services to business brokers, charging as little as a few hundred dollars, while the brokers may charge what they please. One major franchised business broker network actively convinces all of its franchisees to market their 3rd party appraisal services.
The world economy is evolving in ways no one could have predicted just 20 years ago. Amazon, Facebook, auto manufacturers, major grocery chains, and other companies that live in the digital world rather than the using brick-and-mortar model are changing the way they do business.Selling and valuing a business is no different.
There was a time when someone selling a business would find a local broker, meet in their local office and then put the business on the local market, hoping the broker could find a buyer.The internet has changed everything. Selling a business in the digital age requires innovation, nimbleness and an understanding of current technology that moves at the speed of light.
In this digital age, a broker who works exclusively on a local basis is limited in scope, vision and access to potential buyers.
Let’s examine some of the myths associated with the argument of the Local Broker versus national brokerage when it comes to selling a business:
A broker needs to know the local market – Not always true. A broker needs to know how to market a business and get that business in front of as many potential buyers as possible. In the digital age, potential buyers are shopping online using industry web portals. It doesn’t matter if the physical distance between the buyer and the seller is three blocks or 3,000 miles.
A broker needs specialized knowledge to sell a business – While specialized knowledge of a business or industry can be helpful, it is seldom the key element in making the sale. More important in this process is the ability to market the business, the scope and reach to potential buyers, access to financing, and the technology to expedite the sales process. No broker will ever know your business as well as you do. This is a team effort and you are a critical element of the team. We capitalize on your knowledge of your business. We are not naive enough to believe that we know more about your business than you do. Our transactions are structured wherein we function as the process expert and you function as the subject matter expert for your business.
Being local expedites the sales process – Many local brokers have not adapted to recent changes in the industry and are far less resourceful in many areas required to sell a business. We know many brokers who still use fax machines, require buyers to print and sign documents, and utilize outdated technology and processes. In the digital age, businesses are bought and sold electronically, documents are signed digitally, and business is conducted around the world in a matter of minutes.
Local connections and networking are required to sell a business – Let’s use the Amazon example. Hundreds of thousands of small businesses now sell their products to a worldwide clientele because their customers can find them anywhere there is an internet connection. Why limit the buyer pool to those within a certain radius when potential buyers across the globe could be looking at your business? Local connections are valuable when looking for a mechanic, plumber or roofer because they must be local. The same does not apply to selling a business. Networking now takes place in the virtual world where the number of potential buyers is far greater.
I speak from experience.
I started out as a traditional, local broker in Ohio, Nevada and California and did that for more than eight years before making the transition to a digital brokerage.
While working in Southern California, I was contacted by a golf club manufacturer in Northern California that wanted to sell.
I told the owner that I was in Southern California and that it would not be feasible for me to work on the deal. He stopped for a second and sounded puzzled. He asked why I needed to meet him. I had no idea what to say. I always assumed that the only way to do business was to physically meet with clients. I stuttered on the phone, paused, then jumped at the opportunity. Within 18 months of that event, I turned my business model upside down and now work 100 percent by phone and email.
An associate of mine sells companies valued in the hundreds of millions of dollars and never meets most of his clients. This evolution in our business has forced me to question the utility and effectiveness of conventional industry standards. Many industries have moved past a brick-and-mortar philosophy and are embracing new opportunities in the digital marketplace.
In the nascent gig and digital economy, disciplines that once required brick and mortar and physical proximity are now just a click away.
Management, entrepreneurship, marketing, accounting, sales, psychology, and interpretation of financial statements are disciplines and resources that are now readily available in a digital delivery environment.
Virtual offices now exist across the internet, lessening the need for the age-old requirements of team members functioning in the same physical work space.
Business brokerages are not the only professional service migrating to the virtual world.
Companies in information technology, healthcare, education, law, and others are finding the practical and functional advantages of the virtual office.
A recent American Bar Association survey indicated that the number of law firms and solo practitioners that offer legal services virtually is increasing. These firms understand that the marketplace and clients’ needs are changing and that by leveraging sophisticated technology, particularly cloud-based management tools and platforms, they can provide services on par with, if not better than, services offered to a client in person.
Another advantage is that virtual firms can charge lower fees than traditional law firms.
In this virtual workplace, companies can now hire anyone from a graphic designer to a website developer. This is no passing fad but an indicator where business is headed.
There are, of course, instances when hiring local professionals is necessary. For example:
For certain types of business appraisals, a site visit may be necessary.
Because laws vary among states, retaining an attorney licensed to practice in that state may be necessary in certain circumstances.
Hiring an in-state CPA is also recommended if your state has personal or corporate income taxes.
Escrow – If your state is one of the few states where the bulk sale statutes have not been redacted (e.g., California), then we highly recommend hiring an in-state escrow agent or attorney. We have contacts in most states. If we don’t, then we will help you locate one.
Listed below are selling points for using Morgan & Westfield’s digital approach:
Technology – We use the latest technology.
Cost effectiveness – Our rates are more competitive than those of other business brokers.
Resources – We use the best resources available, regardless of location.
Knowledge – We have an enormous amount of concentrated knowledge. Our one and only specialty is selling businesses.
Experience – We have successfully participated in hundreds of transactions.
Focus – Our exclusive focus is selling businesses.
Tools – We have developed dozens of proprietary tools.
Team – We have a large back-end administrative team to execute our controlled sales process.
Processes – We have dozens of written, documented procedures in place for each step of the process of selling a business.
Innovation – We are on the leading edge of the industry and have developed proprietary technologies and processes that are used by few in the industry.
Maximum exposure – We view the process of selling a business as a three-step sales funnel. The bottleneck of the funnel is gaining interest (marketing a business for sale), and most of our focus has been in this area.
Not a franchise – We are not a franchise, so we exclusively concentrate on selling businesses, not selling ‘Morgan & Westfield franchises’.
Unbundled services – We offer our services on an “a la carte” basis and customize our approach for every client.
Fees - You know upfront how much you will pay for our services. We have no hidden charges or high commissions — just a simple, fixed and reasonable fee.
Paperless – Your transaction will be virtually paperless. There will be no mounds of paper. You can keep all transaction-related documents in your computer. This also minimizes the chance of a confidentiality leak.
Network – We have an extensive network of highly specialized professionals.
Competition - You are competing with the broker’s other businesses for sale. If the broker is showing your business to a potential buyer, then the broker has likely also shown that buyer dozens of other businesses in your local area.
Commissions – Almost every local broker we know works exclusively on a commission basis. Buyers know they are the ones paying the commission, and they simply factor this into the purchase price. Additionally, this creates a bias, and most buyers distrust brokers who work exclusively on commission.
Lack of accessibility – Remember, if you are meeting with the broker, then your broker is also spending a significant amount of his or her time meeting with other clients and is thus more difficult to reach.
Higher fees – Local brokers must charge higher fees to offset their travel expenses and higher office expenses.
Fewer (or lower quality) resources – Local brokers do not have access to the same level of resources that a firm with a national footprint has.
Less innovation/less technology – Working on a nationwide basis requires advanced technology. Most local brokers have not made this investment in advanced technology.
Less knowledge – Brokers who work on a national basis are exposed to a wider variety of situations, deal types and circumstances. This increases their knowledge base, resourcefulness and pattern recognition capabilities.
Lower skill level – The cream always rises to the top. Most successful brokers usually start out locally and then begin doing either bigger deals or more deals. The easiest way to do more deals is to start working on a regional or national basis. Thus, most regional or national brokers are more experienced and have acquired more accumulated knowledge.
Limited selection - In most cities, your selection of business brokers will be extremely limited.
If you are contemplating selling your business, we suggest that you carefully weigh the advantages of using a brokerage that offers the best chance of finding a buyer against other options. We have spelled out the strengths of using a national digital approach and the weaknesses associated with using a local-only broker. Give us a call or send us an email today so we can get started with the selling process and get you closer to a final sale. Choosing Morgan & Westfield may be one of the best decisions you will ever make.