Can I buy or sell a business sans a business broker? Yes, but…
This is a common question for many people and there’s no definite answer to it.
A lot of prospective business buyers or sellers think that a business broker is just an unnecessary expense. On the contrary, a business broker actually plays a significant and very specific role in the buying or selling process, especially that many business owners are unable to sell when they want to.
Even so, this doesn’t mean that working with a broker would guarantee to sell your business for more than its worth or complete the sale process. Using a business broker has its disadvantages.
So, before you put your complete trust to a business broker, it pays to know and weigh the pros and cons of hiring one, says Orlando Business Broker Cress V. Diglio.
Advantages of a Business Broker
While it’s true that you can buy or sell a business even without a middleman, you might miss out on some of the advantages of getting the help of a professional business broker. And that can be a costly mistake.
Here are a few things you’ll miss out when you don’t use a business broker.
- Just like in the real estate sector, the business sale transaction involves technical processes, aspects, and nuances that demand knowledge and expertise. A business broker is a professional who has specific experience and training in helping people buy and sell businesses. They know all the minutiae necessary to close a business acquisition or sell-off.
- Evaluating a business requires an extensive knowledge and careful study. A business broker can help accurately set a fair market value of a business.
- Marketing a business-on-sale is vital to getting a good deal. With the help of a business broker, a seller can package up a business to showcase its highlights.
- Reputable business brokers have a wide network which enables them to attract more prospective buyers or locate various businesses-for-sale.
- Maintaining confidentiality of the planned sale is important to avoid any potential disruption in the business operations. Business brokers work in a very secretive manner ensuring that employees, competitors, suppliers, and customers are kept blind.
- Business brokers can help quickly evaluate a buyer’s intent. A novice seller can end up chasing a potential buyer only to get a dismal deal or the buyer backing out after a very long courting period.
- To increase the value of a business-for-sale, you want to create a competition among prospective buyers. Business brokers know just how to do this. With their experience, they’re adept at interpreting a potential seller or buyer’s appetite, and use it a leverage to close a better deal.
Buyers and sellers will always have contrasting interests; hence, mistrust between each other is something to be expected. Unfortunately, the lack of trust and miscommunication between the two parties can lead to failed transactions. A business broker can act as a middleman to interpret communications and initiate compromises that are amenable to the buyer and seller.
Disadvantages of a Business Broker
Now that you know the benefits of collaborating with a business broker, you should also know the potential disadvantages of using one.
- A business broker will always have a biased interest towards his or her client – that is the seller. If you are the buyer, be mindful that even if a broker is very helpful, his or her interests will be more aligned with the seller. On the other hand, buyers using a broker should also be wary and ensure that their broker truly represents their interests.
- Brokers charge a commission around 6-10% of the total selling price. This can be huge for small businesses expecting to get a decent amount off the sale. It’s not surprising why many sellers attempt to put up their business on For-Sale-By-Owner (FSBO) to see if they can succeed sans a broker.
- Not all business brokers have the same level of expertise and experience. Finding the best broker who can help you out is challenging, especially that this field is largely unregulated. With so many business brokers out there, looking for the right one may feel like finding a needle in the haystack.
- Since business brokers receive commission only after a successful sale, there is a fear that they might undervalue the business to sell it quickly. This is especially true if you end up with an unscrupulous broker whose goal is simply to earn and not really to represent the best interests of a client.
Long before you buy or sell a business, a more crucial decision you’ll make is whether to entrust the transaction to a business broker or do-it-yourself. Hopefully, this list of pros and cons can help you make a more informed decision.