Why selling your business privately is better than through a broker
Your business broker will tell you all about why you should sell your business through them. To balance this out and help you to make an informed decision, below are 9 reasons why you should not sell your business through a business broker and instead consider a private sale.
A typical broker will try to sell you on 3 major promises:
- Sell at higher price than you
- Sell for all cash
- Pre-qualify potential buyers and limit their access to you
9 reasons you will regret selling business through a broker
Even though some business brokers are extraordinary professionals that can make all the difference in the business selling process, most of them are not. The chances of you finding a good one are very slim.
- On average, brokers are able to complete only about 10% of all business acquisition transactions
- You will end up paying them commissions in the range of 1% to 5%, and sometimes even 10% of the amount you sell your company for. You will have to pay their fees on the close of escrow even if the transaction is not all cash.
- They promise you all cash, but if your business is overpriced, the chances of you getting paid all cash are very remote.
- Often, you will be the one paying fees to prepare your company listing as well as other related expenses. You may never get this money back if the company doesn’t sell
- It could take several months to prepare your company profile before it can be listed for sale.
- Brokers make your company listing widely available. Essentially anyone qualified and interested could become aware of the sale, including some of your suppliers, partners and customers. This may damage your business and reputation. The very fact that so many buyers are looking at your company could work against you as some of the more serious buyers may decide not to pursue so as to avoid a multi-offer situation.
- Brokers who restrict buyer’s access to sellers make it difficult to negotiate and obtain vital information about your company, which could become the reason why serious buyers will not consider your company for acquisition. Brokers may convince you that this is for your own benefit. Beware, this is how they control the transaction and ensure they get paid their commission if the company is sold.
- Many deals fall through because buyers feel that they don’t receive sufficient amount of information to make an informed decision about your company. Working directly with the buyer will give both the seller and the buyer the opportunity to establish and build rapport, which in any business increases the likelihood of success. We all know that people do business with people, not companies.
- Some brokers will try to convince you that there is an eager buyer waiting around the corner to purchase your company for unrealistic multiples. However, most buyers that are able to pay for your business in all cash are intelligent, educated and very well informed people. As much as it’s true that there is no exact price for your business, there is an acceptable range that would also make economic sense for the buyer. At the end of the day, the seller wants to be paid fairly for the amount of effort (s)he put into building their business, and the buyer wants to succeed in the business they acquire. The number one reason for post-acquisition failures is a result of business overpricing. There are many ways to determine a mutually acceptable price range, but you, as a seller, should not overprice your business from the get go as it will end up working to your detriment.