19 Reasons to hire a broker when selling a business
I periodically reach out to business owners by asking to connect on LinkedIn; some choose to connect, and some of those might be selling a business. I recently got a message back from one owner who connected with me, saying he should be thinking about selling, and then agreed to a phone call in a few days.
Prior to our call, he sent another long message saying he is happy to talk about the “buyer I had for his business” but questioned why he should pay a broker a commission since the business would sell easily. He would “let me sell it” if I had a “good buyer”.
I thought for a bit and felt that maybe I should write a note explaining some of what brokers (and other M&A advisors) actually do for business owners.
Real Buyers are few and far between. Having a good buyer for your business is always a big issue: buyers are seemingly everywhere, but here is a secret of the M&A industry: 98% of people who express interest in buying a business, never do. Of the remaining 2%, about 99% of them never pay a fee to an advisor to buyer a business. Here is another not-so-secret: 80% of businesses for sell never do, the for-sale-by-owner market is likely worse.
This raises many questions, some of which are:
1. Who will pay for the advisor’s efforts?
2. What should a business owner do while the advisor/broker is preparing the business for sale and then marketing it?
3. More importantly, what does an advisor/broker do to help a business owner sell their company?
The answer to the first and second questions are relatively easy to explain:
First, owners (aka sellers) pay a commission on the sale of their business, and some pay a retainer as well, credited against the eventual commission (also called a success fee)
Second, owners should run their business as if they are not selling it: grow revenues, increase profits, maintain good employee/vendor/community relationships (and stay in regular communication with their advisor/broker)
Third, here is what most professional M&A advisors do:
1. Assess if the business is sell-able (i.e. transferable)
2. In some cases, offer advice to the owner to improve its value
3 .In some cases, assess value of real estate (many business brokers are also commercial real estate agents)
4. Prepare a business valuation (a price on which a willing seller and a willing buyer can base negotiations)
5. Prepare “the book”: financial and marketing materials to show prospective buyers (called a Confidential Business Review [CBR] or Confidential Information Memorandum [CIM])
6. Call strategic buyers: mainly competitors or private equity groups to assess interest
7. Create an anonymized Business Profiles (BP)
8. Market the BP in Ads for online business-for-sale websites
9. Email blast the BP to internal and MLS mailing lists (aka buyers)
10. Take numerous calls, text messages and emails from a variety of buyers at all hours of the day and night, (and as an added bonus, on weekends/holidays/vacations too)
11. Assess buyer fit
12. Set up buyer-seller meetings to view the business facility and answer some questions
13. Negotiate price and terms between buyer and seller
14. Set up data rooms for due diligence
15. Connect buyer to financing sources (SBA lenders, etc.)
16. Connect buyer to lawyers, accountants, insurance professionals (and more)
17. In some cases, help buyer and seller work with franchisors, landlords or other third parties who might impact the deal
18. Work with buyer’s and seller’s lawyers (and sometimes accountants) to ensure due diligence is completed and terms are adhered to
19. Help the seller overcome the anxiety of not knowing “what comes next, if I sell my business?”
The list is almost endless.
But that is the easy part.
The hard part is saving the deal from the “three deaths”. Most advisors know that deals always hit a few impasses (deaths), that the advisor must overcome to avoid killing the deal. Those are the stories we advisors talk about over drinks – with a bit of gallows humor. Some are controllable, some not (COVID-19), but we persevere because our clients count on us to do so.
Perhaps you can see by now why advisors/brokers earn their fees…
If you are unsure of how or when you might leave your business, check out my What’s Next? Self-Assessment, click image below
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