There is no doubt that there are some experienced Business Brokers who provide exceptional services. However, the reality is that the quality of the experience of working with a Business Broker varies to a wide degree. Therefore it would be wise for you to consider the following observations made by Owners who have worked with Brokers:
- The term of Listing Contract ties you up for too long if you decide to take a different approach to selling
- A "Free" business valuation is worth exactly what you are paying for it. Any price that you present to a Buyer, but cannot justify, only invites low-ball offers
- Only the Owners can prepare a business for sale. A Broker will collect your information to give to a potential buyer. If the prospective Buyer asks a question that you have not already provided to the Broker, guess who he is going to ask?
- Brokers do not advertise your specific business very frequently unless you are paying them an advance on commissions to be earned. More likely, they will advertise various businesses from their available pool of businesses for sale, and emphasize the new listings. This way they are appealing to the broadest Buyer base possible. Any prospective Buyer will be presented with many different businesses
- Many times the Broker is not as rigorous as necessary in qualifying a Buyer's financial ability or desire to purchase your business. This will waste your time.
- There are several possible conflicts of interest when brokers represent business sellers:
- Giving you honest feedback about the price of your business vs. Business Broker's need to get a listing and let the Buyer beat you up over the price.
- Obtaining a Valuation that reflects a justified price vs. Business Broker's need to price the business to sell.
- Getting Brokerage fees paid by, you, the Seller vs. the need to also assist and develop a relationship with the Buyer in order to close the sale.
- The Business Broker will get all of his commission at closing. For example: A business sells for $400,000 with 30% down. At closing the Seller will be expected to pay all of the $40,000 commission as well as all of his/her professional fees. Assuming the Seller's attorney and accountant charge $6,000 and $2,000 respectively, then the Seller will receive a maximum down payment of 120 minus 40 minus 6 minus 2, or, $72,000 and must then pay all applicable state and federal income taxes!!!
- Business Brokers are usually either sales oriented or analytically oriented, but rarely both. You need a sales oriented person to help you sell your business and an analytically oriented person to help you value it.
- If you do decide to use a business broker, be sure and first explore the obvious candidates to purchase your business. Why should you obligate yourself to a long term listing agreement and a large commission before you have exhausted your own contacts?
(Using a Business Broker)
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