Five Reasons to NOT Hire a Business Broker
Most articles written by business brokers (or their PR firms) are about all the wonderful reasons you should hire a business broker to facilitate the sale of your business – and there are of course some really good ones that focus getting the highest market price in the shortest amount of time with complete confidentialitytm. (Which happens to be a Trademarked slogan of ENLIGN Business Brokers.)
However, this article is about why you SHOULD NOT under any circumstances hire a business broker to sell your business.
1. You have no financial records, poor records, “multiple sets” of records or are taking cash off the books that you want considered in the sale. A business broker can’t help you. Get your financial house in order and we can talk in 12 months.
2. You want to ‘see what happens’. Business brokers are compensated based on performance. Even those that charge a retainer (like ENLIGN) don’t earn a dime until and unless your business actually sells. If you aren’t willing to sell if presented a fair offer, don’t list it and waste hundreds of hours of other people’s time.
3. The company is about to fail or take a big hit such as the loss of your top sales person, a large account, loss of a credit line or exclusivity of a product and you aren’t willing to disclose it. There is no way that a competent buyer will miss this during due diligence and it will either kill the deal or be priced out. These events don’t make a company unsellable, but they must be disclosed and considered in the asking price.
4. The company has cash flow problems or “can’t make payroll on Friday”. Properly preparing a business to be marketed takes at least two weeks. The average time to identify and qualify a buyer, complete lending applications and underwriting can be 12 months. Selling a business is not a quick fix it should be part of a long term strategic plan. If you have problems big enough that you need to sell the business, who is going to pay you money for those same problems?
5. You aren’t willing to provide any seller financing. The fact is the majority of business acquisitions are funded by commercial loans with an SBA guarantee. The SBA requires (it’s not an option or negotiable) that the seller finance a portion of the sale price. Typically it’s 10% of the sale price and the term is usually 5 years. Sometimes the seller note is on full stand-by for up to 2 years which means no interest or principal payments during that time. If you aren’t willing to comply with SBA regulations don’t hire a broker (and understand that your business is probably now unsellable).
6. You really want to sell it yourself but your attorney, accountant, financial advisor, private wealth manager (fill in the blank) told you that you should hire a business broker. If you don’t believe that a business broker will save you significant time, money and frustration throughout the process and more than earn the large fee that will be paid at closing don’t hire them in the first place! Marketing and selling a business is one of the most complex transactions imaginable. There are multiple stakeholders including not just the buyer and seller, but their spouses as well, the lender, the SBA, the loan packager, both parties attorneys and accountants. There are literally dozens and dozens of terms to be negotiated that all directly impact the financial benefit you will receive.
The sale of your business is likely the highest value transaction you have undertaken so far. It’s wise to seek the advice of your trusted advisors including a business broker. If you ultimately choose to work with a business broker make sure you check out our free article on Questions to Ask a Business Broker. Ultimately though selling a business is a complex transaction that takes a fair amount of time that is best managed by experienced professionals.
While there are some compelling reasons to hire a business broker to sell your business this article is intended to illustrate a few of the reasons that working with a business broker would not be advised.
