6 Important Facts – How to Sell a Small Business without a Broker
How to Sell a Small Business without a Broker
The facts are that for the question of how to sell a small business without a broker, there are several key points why you should be asking this and both getting involved personally as well as removing involvement of business brokers. Some of the key facts are listed below:
See also: 20 Insightful Secrets – How To Sell A Business Quickly
- Cost
- Integrity
- Buyer Networks
- Experience
- Legal
- Accounting
All the points mentioned above can be managed yourself or with a very small team of people if you have them.
It can be very costly to hire a broker to reach out to buyers, put together a sales document for the business, give you advice relative to industry multiples which are usually skewed towards the best multiple and enterprise value for the broker, so they themselves get paid the optimal amount.
It has nothing to do with what buyers will really pay for the business as the brokers themselves, in most cases, are not specialized business valuators.
They would then shop the sales package to as many buyers in their network as possible with the hope of gaining interest from a buyer.
Subsequently, if they do gather interest, they make the introductions and step out of the way for the buyers to have conversations with you the seller directly. This is one of the best ways how to sell a small business without a broker.
What I have seen in many cases is an understanding may begin to be derived by the buyer or seller and if the deal were not to the liking of the broker they would interject either during the conversation or soon there after to essentially “Kill the Deal”.
Why would they do this? Because they make less commissions on a deal they think is not closing at as high a value or cash at close as they would like.
To me this is a matter of integrity and ethical behavior which from my experience is missing from the M&A broker industry spare a few A class firms and guys out there.
Though for the most part, how to sell a small business without a broker has enough information out there now for sellers to put together a sales document on there own, get an accountant, get a lawyer and contact buyers themselves without risking a lot of wasted time and money.
So here I am going to jump in on how to sell a small business without a broker
How to Sell a Small Business without a Broker
Key Points
1) Cost
- The retainer or work fee would be from $50k to $250k, which is sometimes paid as a monthly Advisory fee over a period of 4-12 months with success fees within the ranges below:
- $1 million to $5 million – success fee of 12% to 8%
- $5 million to $25 million – success fee of 7% to 4%
- $30 million to $100 million – success fee 4% to 2%
How much is it going to cost to retain yourself? Way less than the above I am assuming. Unless your time is super valuable its going to be worth your while to handle the outreach to buyers yourself.
Whether through online searches, personal business networks, accountants, lawyers, friends and family even your competitors. However how to sell a small business without a broker can take some determination and patients.
2) Integrity
- Many business brokers are not accountants nor are they lawyers or even professional business valuators. Therefore, you would be better off speaking with an accountant or business valuation firm for advice on how much your business might be worth.
- You might even be better off having them do an official valuation of the business which would be much more valuable to you in your negotiations with potential buyers.
- Credible and reputable accountants and business valuators will be much more highly respected by buyers than a confidential information memorandum developed by a business broker.
- An Accountant can even provide you with an independent review of your business which adds even more weight to your business for sale.
- With a broker developing your confidential information memorandum (sales package), you are not sure of the methodology of valuation used to derive the enterprise value of the business in most of the cases I see. This only adds to the uphill battle of negotiating with buyers or even gaining interest in the business from buyers.
So, for the question of how to sell a small business without a broker, integrity of your numbers are key for buyers as well as your own personal integrity is worth more than changing it with someone else who you don’t know from Adam.
3) Buyer Networks
- Business brokers have networks of private equity firms with very specific criteria, they have connections with past buyers of businesses in specific industries, they also market businesses for sale on platforms such as Bizbuysell, Bizquest, Axial and more.
- At first glance this may seem like a good thing in the seller’s eyes but, the ugly truth is that most buyers worth having conversations with don’t like heavily marketed businesses for sale.
- This is so because no buyer with any sense wants to pay auction prices for a business which totally throws the potential valuation out of wack. A buyer wants to pay a fair price for a business based on its economics and economic alone.
- There may be some goodwill here or there but rationalizing a higher than fair value for a business, is an astronomically difficult thing to for a buyer. That is why 90% of businesses for sale do not sell.
- Ask yourself why are the other 10% getting sold. Food for thought right? So, you don’t have to take the easy road out using a business broker because the road isn’t that easy.
How to sell a small business without a broker isn’t as tough as it sounds.
4) Experience
- Many brokers don’t have the experience in your business sector and therefore may not necessarily have the ability to speak the language necessary to spur a successful negotiation with buyers.
- I have found that this is 50, 50. Sometimes you find business brokers who know the business inside out, sometimes you don’t. To me why risk that when you yourself know your business 100%.
- A guy with experience selling shoes should not be selling Aeronautic solutions and equipment. The chances of him being successful is next to 0.
These points are key, especially this one, if you are serious about how to sell a small business without a broker.
5) Legal
Another key point for how to sell a small business without a broker. This is your lawyer. The guy or gal you are going to pay for legal advice on deal structure, business model, transaction model, existing agreements pre-sale and agreements post sale.
You may or may not have to pay for guidance on how to go about negotiations or specifically how to structure the financial aspect of the deal, but they can be an extra set of eyes to weed out irregularities, malfeasance, or fraudulent behaviour upfront.
A business broker may not be able to pick this up. I would also say that for the purchase agreement, you definitely want to have a lawyer draft or review the purchase agreement so both you the seller and the buyer are protected legally, ensuring a smooth transaction. A key point in how to sell a business without a broker.
6) Accounting
As mentioned above an accountant or accounting firm is imperative if you are not an accountant yourself and for learning how to sell a business without a broker. As financial assumptions need to be sound and based on methodology used in the valuation of businesses.
I have found that many, brokers do not have a clue when it comes to business valuations. Which leads to a lot of strange conversations that end up in a pass buy buyers. Why risk this if you are in business and have access to accountants or an accounting firm.
Accounting firms are not all expensive. There are some really good boutique accounting firms out there which will also provide M&A services.
“Also….. Do you have an accounting cloud solution to help you get this done?”
In Closing
There you have it. 6 key points why you should avoid using business brokers to sell your small business and simultaneously, 6 key point answering how to sell a small business without a broker by understanding and involving yourself personally in the activities above.
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