Why Hire A Business Broker?
Business owners, by the nature of their role, have very little experience with business brokers or M&A advisers. Most owners have the opportunity to sell one business, or maybe two, in their careers. Seasoned owners that have relied on their own devices, sometimes ask, “Why should I hire a business broker?”
Let’s start with “What is a business broker?”
The answer may provide information to help with the first question.
A business broker is affiliated with a firm that specializes in selling businesses. The best brokers have business experience (generally acquired from owning their own businesses) and are well-versed in business finance, marketing, accounting, economics and contracts. These skills are absolutely necessary if a broker is to provide value.
The broker and his/her associates should be experts in preparing financial and marketing materials to sell the business. In addition, critically important is the ability to manage the process to maintain confidentiality, multiple buyer inquiries and deal flow once a buyer evolves from a prospect to an active buyer.
The network of a brokerage firm is also important to the selling process. If a business broker relies solely on posting your business on an internet site with the hope that someone happens by, your chances of finding a qualified buyer are pretty slim.
Your business broker and the firm must have the tools to effectively advise you throughout this complicated process and achieve a successful sale.
How much do business brokers charge?
There are generally two types of fees charged by business brokers or M&A advisers: a listing fee and a success fee.
A listing fee establishes a crucial difference between brokerage firms. Some firms either don’t charge any fee or charge a nominal fee that does not reflect the amount of preparation required to successfully market and sell a business. Others require up-front listing fees based on the amount of preparation required to successfully launch the business.
Preparing a business for sale is an extensive process that includes determining the value of the business, examining deal structure, developing marketing materials and integrating multiple years of financial data to support the asking price.
Successfully preparing and marketing a business costs between $8,000 and $10,000. Many brokerage firms will request that the seller participate in that cost to show commitment to sell. Depending on the level of anticipated expenses, the listing fees may represent 40% to 60% of those anticipated costs.
Experience should tell you that you get what you pay for, and if you are promised substantial value for nothing, let your instincts be your guide. Can you honestly believe that all those skills and preparation can be delivered at no charge?
A success fee is calculated on the total consideration paid for the business and is collected at closing. If the business does not sell, there is no success fee. The higher the amount of total consideration paid, the lower the percentage of dollars paid to the brokerage firm. A business that sells for $3 million will pay a smaller percentage in success fees than a business selling for $1 million.
In a nutshell, a professional adviser has the experience, skills, time and network to prepare, market and sell a business efficiently, resulting in the best financial return for you.
The level of professionalism, knowledge and experience needed does not come cheap, but the right business broker is worth it. Remember, you have one shot at a successful launch of your business for sale; if it’s not done properly, the do-over will be hard because the market will question why the business didn’t sell sooner.