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Should You Sell It Yourself or Hire an Intermediary?

The term “for sale by owner” or FSBO (“fizbo”) is commonplace in the sale of real estate. It would seem natural that a business could be sold under the same guise. After all, who better to actually sell the business than the person who owns it and has operated the business everyday? In fact, a case could even be made that a business sale would more likely be a FSBO candidate than property because of the seller’s importance to the entity being sold. However; that is not necessarily the case.

While statistics in the business brokerage and intermediary world generally state they handle around 10% of all transactions then ninety percent are sold by other means usually to family members, strategic buyers, employee/management purchases, mergers, etc.

Although a small business owner will play a huge role in the sale of the business, I am a firm believer that engaging an intermediary is a wise choice in most cases. I don’t just say this because I do intermediary work myself. Rather, in my experience, and having personally sold nine of my own businesses, I engaged a business broker in all transactions except for the ones where another party approached me first and the deal itself was going to be quick and relatively smooth.

The choice is clearly up to you and both scenarios have their pros and cons which you should weigh heavily before making a decision.

The biggest issue to consider is that any transaction, no matter how straightforward or simple, will take time and many hours of your actual involvement in meetings, discussions, negotiations, reviewing documents and other time-consuming phases of the process. You need to ask yourself if this will distract you from continuing to operate your business. Although your goal is to sell the business, what if it doesn’t sell? The last thing you want is to lose focus on your business for an extended period.  

Using an Intermediary

Regardless of what you decide to do, it is well worth the exercise to at least meet with a few business brokers/ M & A Professionals as the case may be, to get their insight on your business, the market and other factors that could influence the sale.

The key benefits to hiring a broker are:

1. They allow you to run your business while it is being marketed for sale
2. They can be a good buffer between you and the buyer
3. They can handle the flow of documentation
4. They have done it before and have likely dealt with most challenges that can arise

Should you decide to engage a broker, these are some things you need to consider:

• Get referrals from your network. Speak with your CPA, attorney, and business associates and see if they can recommend someone to you.
• Many business brokers are generalists meaning they represent many different types of businesses and that is fine as long as business sales NOT real estate, is their main business.
• It is critical that you meet with and interview them on a few occasions.
• Their commission is higher than the standard 6% in real estate and averages around ten to twelve percent. Before you go through the roof you should know that completing a business sale is almost always infinitely more difficult than a real estate transaction. Further, a competent broker will assist you to the point that their fees are meaningless relative to what they are able to deliver in a deal.
• Upfront fees are not the norm although some do charge them. The question is what are you getting for these fees?
• Engage one that you like and learn to trust
• You will want someone with a “take charge” attitude but not arrogant. They will lead the way for you and may sometimes have to be aggressive with a prospect on your behalf. You will therefore want someone who can handle that role well.
• What is the nature of their relationship with you? Is it fiduciary? Are they simply a transactional broker? Do they operate as a dual agent to buyer and seller? Clarify this upfront with them.
• Get them to provide you with client references and they should actually offer these to you without your asking. Past clients are the best mechanism for you to evaluate them.
• Have them outline how they will advertise and market your business. Will they just throw up some ads on the Internet or do they have a database of buyers. Will they do trade publications advertising or direct buyer solicitations? Naturally, if you are selling a $100,000 retail store they are not going to spend thousands of dollars to advertise it, so be realistic.
• Do they share listings with other brokers in your region? Not all do unlike real estate. If they don’t, then question how will reach potential buyers any differently than you could?
• Are they members of a local or state business broker association? Do they have any professional certifications? Although professional accreditations are a good sign, they should not be the deciding factor alone. A successful intermediary with a solid track record, one that you feel comfortable with and can trust and above all of highly recommended will almost always work out to be the right one for you.
• Despite what they may have been taught in training, they should never push you for a listing at the first meeting. You need to get to know them and vice versa a bit better.
• Inquire how many listings they have currently and the number of businesses they have sold in the past year(s). This does not mean you should only hire a veteran. In fact, a rookie may be the ideal candidate if he or she is well-trained and will run through fire on your behalf.
• You want to get a sense from them that they are truly interested in your business, they are smart, think quickly, will be enjoyable to work with and you are comfortable with them.

Selling It on Your Own

One would think that with ninety percent of all business sales happening without a formal intermediary, there’s no reason not to do it yourself. Yes, that is a reasonable argument but not necessarily the right decision in all cases. First, even without a broker’s involvement, every transaction has intermediaries or at least should such as attorneys, accountants, mentors, advisors, business associates and family members (they can be the worst ones by the way). A buyer will also bring their entourage to the deal.

Here are a few things to consider before deciding:

• Do you really have the time to do this?
• A business sale involves a lot of preparation (see other articles on this subject). Are you willing to properly package the business and invest in the necessary materials to do so?
• Do you have access to an experienced transactional attorney who can assist you and at what cost? On this note, while every attorney will claim to be a “deal maker” not a “deal breaker”, many are in the latter category..
• Are you comfortable making all of the decisions you will face in the process?
• Have you ever sold a business before?
• Will selling it on your own take away from the day to day running of the business?
• Do you have some potential buyers in mind already? These can be employees, family members, competitors, suppliers or other strategic buyers?

Summary

Ultimately I believe that the decision should come down to timing. If your business has just a few employees or is the type where you are heavily involved everyday, I would absolutely recommend hiring a business broker. If, on the other hand, you have sold a business or two before and have the necessary resources to commit to this project then it may be worth it to first attempt it on your own. However, if you do not generate a lot of activity or have a pending sale within three to four months, be humble and engage someone who does this for a living everyday. 

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