Whether you’re a business owner that’s approaching retirement age or you’re just ready to move on to bigger and better things, you’re ready to sell. But when businesses are up for sale, you can bet that business brokers will be arriving on the scene to help you find the perfect buyer. But, do you actually need a business broker to sell your business?
Yes! Let’s find out why.
Using a Business Broker
A business broker means they are an intermediary between the buyer and the seller, almost like a real estate agent when buying or selling a house. A business broker will help you sell your business by finding a purchaser, ensuring that you have the necessary paperwork in order, and checking that the transfer meets all legal requirements. At the end of the transaction, they will charge you a commission on the final sale price.
Naturally, it would be best if you aimed to sell your business at a high price to make a healthy profit. Your business broker is likely to charge you at least 10% of the final sale price. This fee will significantly reduce the money you take home.
However, a business broker does nothing that you can’t do yourself.
Selling Without a Business Broker
Some businesses don’t require the services of a business broker. You may be selling to a relative or an employee who already knows the business. In these cases, you simply arrange the transfer, agree on a price, and sign all the relevant paperwork.
Even when you have no purchaser in mind, you will find that a business broker is unnecessary. The number of business brokers has risen over the years, but so have freely available resources to independent buyers or sellers. If you are willing to do the work involved in selling your business, you can save yourself a lot of money.
So, you’ve chosen to sell your business on your own. Good for you! Let’s walk through steps you may need to take to sell your business without a business broker.
Eddie Rickenbacker (1890-1973), an American First World War flying ace, race car driver, and entrepreneur, said, “The four cornerstones of character on which the structure of this nation was built are initiative, imagination, individuality, and independence.”
As a business owner, you have demonstrated that you possess all of the qualities Rickenbacker mentions. Nobody can build a business without them. When it comes to selling your business, you should not compromise on the last of them, independence. You can retain your independence by not relying on a business broker to sell your life’s work.
Below are some points that you should consider once you have decided to sell independently.
Start as Soon as You Can
Selling your business can be a lengthy process. It would be best if you didn’t wait until the last minute to put your business on the market. For example, if you are retiring in five years, start preparing for the sale now. A rushed sale may force you to accept the first offer that comes along, and your business may be worth more.
Prepare Your Business
If you are selling your house, you wouldn’t show it without tidying the garden and making sure that the rooms are clean. It’s exactly the same with your business. Updates, fixes, and regular maintenance apply equally to your physical premises and your online presence.
Complete all necessary “repairs” early and keep the business in presentable condition. Your future purchaser will want to see your business in tip-top shape.
When selling your business, speak to people in your community. You are close to your business; someone who is not so involved might offer a different perspective. You can ask your clients and suppliers if they know of anyone who might be interested in buying. If you are a member of a business association or a chamber of commerce, ask them if they can help too.
The internet offers a wealth of advice and information for independent sellers. An excellent place to begin for United States residents is with the Small Business Administration (SBA). Their website learning center has a series of short videos on selling your business.
Play Up the Value of Your Business
Ask yourself why someone would want to buy your business. What makes your business unique? Potential purchasers are looking for viable businesses with an established track record and a solid revenue stream. It would be best if you stressed these aspects of your business.
Do not let your service standards, products, customer services, sales, etc., slip. A decrease in productivity while selling your business may deter buyers and affect the sale price of your business.
Keep Accurate Records
A potential buyer will want to know about your business. Make sure that your accounts are up to date; this includes paying any vendors. A buyer does not want to take on any added debts or expenses when making their purchase.
Also, a messy or unkept records department may deter buyers. If you need to make changes, do so now, before you find your buyer.
Put Your Business on the Market
Many business brokers will stress that marketing and advertising your business is their area of expertise. They will persuade you that they can find a buyer that you will not be able to find.
To find these “unobtainable” buyers there are websites that will advertise your business to a potentially unlimited number of prospective buyers. It would be best if you also told as many people as possible that your business is for sale. Such as your suppliers, clients, etc. You never know who is in the market to purchase a small business.
Some potential purchasers might appear to be interested in your business and ask a lot of pertinent questions. In reality, they are only gathering information for their own use. These people might ask you about your pricing, the competition, and your customer base.
Before you choose to disclose any information, you should have the interested party sign a non-disclosure agreement. This keeps your propriety information safe and may protect you from fraud.
Once the non-disclosure agreement has been signed, you can answer any relevant questions they may have about the business.
You may be lucky and sell your business as soon as you put it on the market. Yet, market practices suggest that selling a business usually takes two to four years. Due to this lengthy timeline, you should plan your sale well in advance. Aim to create a potential market before your business is up for sale, which can significantly speed up the process. Even if you do everything right, you may still need to wait for a buyer to come along. Be patient, and trust the process.
Prepare for Your Buyers Due Diligence
Due diligence is the careful check that a buyer makes of your business. At this stage, you have found someone interested in buying. Naturally, they want to find out exactly what they are purchasing. The buyer will ask detailed questions about everything from cash flow to relationships with suppliers.
It’s always a good idea to prepare an information packet about your business. This should describe your business in as much detail as possible and include negative points as well as positive ones. The information packet is not primarily a marketing tool, just an honest assessment of your business.
For example, does the sale price include the stock, fixtures, and fittings? Do you have any outstanding debts that will be passed on? Are some of your clients problematic? Etc.
It would help if you only give your business information packet to serious candidates. Don’t give detailed information to every casual enquirer. Again, you might consider asking the interested party to sign a non-disclosure agreement. This will protect potentially sensitive information from becoming common knowledge. As mentioned above: be cautious and complete your own due diligence with all interested parties.
Your purchaser may require you to sign a non-compete agreement. This agreement prohibits you from starting a similar business, a competing business, within a specific timeframe or territory. The buyer does not want you to take your clients with you, ultimately reducing their business. Signing a non-compete agreement is a fairly common practice when buying and selling a business.
Seek Professional Help
You are not using a business broker, but you will still need a specialist’s help in dealing with the business’s sale aspects. An accountant can advise you about preparing your accounts for due diligence and tell you about your tax liabilities. An attorney will help you with the necessary legal requirements and the dreaded paperwork.
Undoubtedly, you have used an accountant and an attorney during the life of your business, so you should already have access to these connections. If your company is merging into a more prominent brand, you may still need advice and help from an attorney and accountant.
Mistakes Sellers Make
While we have covered many do’s and don’ts, let’s review the most important principles of selling your business.
- Asking Price. It can be challenging to know what a fair price for your business is. You may undervalue your business and lose a lot of money. On the other hand, you might ask too much for it and fail to find a buyer. You can look at sale prices for similar businesses on the internet and ask for advice. You may also want to pay for an appraisal of your location and business practices.
- Type of Sale. Some business owners retire and pass on their business to a relative or employee. In this case, the business owner does not have to do very much. If you have put your business on the open market, you need to think differently. You are selling a commodity that needs to be marketed like any other product.
- Using a Bad Business Broker. We hope that this article has given you enough confidence to sell your business without using a business broker. However, let’s imagine that you have contracted a business broker. Six months go by, and nothing happens for your business. Hopefully, you won’t lose any money, but you have lost time. This might not be the business broker’s fault, but you shouldn’t believe that a business broker can work miracles.
- Insufficient Marketing. It’s not enough to put a “For Sale” sign in your window and sit back and wait for offers to come flooding in. Use every avenue you can think of to market your business. The internet, trade periodicals, newspapers, and word of mouth can all profoundly affect finding a buyer. The more publicity, the more potential purchasers you reach.
- Lack of Preparation. Imagine a potential buyer arrives with a well-prepared list of questions that you don’t have answers to. Know your business inside out. It’s not a bad idea to ask a friend to role-play the part of a buyer to practice your delivery and review the answer you have ready. This is where you should utilize your packet of information that has been prepared for potential buyers.
- Don’t Sell to the Wrong Person. Not everyone can run a business; if you wish for your business to continue its operations, you should find a buyer that respects that. A buyer should only want to improve your business.
You’ve Completed your Sale, Now What?
When you had your business, you devoted all your energy and resources to this one asset. Now that you have sold it, you need to think about what you will do with your money. Will you invest in a new startup? Take a tropical vacation? The possibilities are endless.
Enjoy retirement, even if your retirement is temporary. We know you can’t keep an entrepreneur down for long.
Running a successful business is hard work, and we know you have sacrificed a lot. You have built your brand to be what it is today from long hours, weekends, holidays, and through the good and bad times. The choice to sell can be daunting, but you can do it. And you can do it yourself, without a business broker.