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The Value of a Business Broker
People often wonder why they should hire a business broker to sell their business, and most do not fully understand the value of a good business broker. Below are some reasons you may not have considered:
THE VALUE OF YOUR BUSINESS
Time and time again we come across sellers who don’t really understand the value of a business, and often times they realize after a valuation that they were going to leave money on the table. If sellers are not realistic in their pricing, their business will sit on the market and never sell. How do you know how much your business is worth? Comps are not always reliable in business transactions because each business is unique. Even businesses with similar financials may differ in value due to things like customer concentration, contract lengths, accounts receivable, time in the industry, etc. While you may think or feel like your business doesn’t make much money, there are often expenses and addbacks that you may not have considered that a new owner would not assume and therefore, your business may be worth more than you expected. You have worked hard to build a business and you want to make sure that you get a fair price for your business when you sell. Brokers will study the unique components of your business before offering you their assessment of value in the marketplace.
Confidentiality is extremely important when selling a business. You don’t want your clients to know that you are selling and you do not want your day to day operations disrupted. A Business Broker is seasoned at marketing your business blindly in order to protect your business and keep the sale confidential. Often, it is your competitors that will call to further inquire about your business, and having a third party handle these inquiries gives you another level of protection from exposure. Brokers will ensure that Non-Disclosure Agreements are filled out and honored and they will assess a buyer’s strength before giving out identifying details about your business. This protects both you and your business from over-exposure.
IDENTIFYING REAL BUYERS
Once you list your business, you will receive calls and emails from people wanting to know about your business. As stated above, limited exposure of your business is important. A broker’s job is to identify real buyers before releasing any information. Many buyers that inquire are not financially qualified to buy your business. In fact, only about 2% of all inquiries that brokers receive turn out to be real buyers. Brokers interview buyers and can quickly assess a buyer’s motivation, financial strength, and criteria which will determine whether or not the buyer is a qualified candidate to buy your business. This process of identifying real buyers is time consuming for owners who need to remain focused on ensuring that their business continues to thrive. Owners who attempt to sell their own business can waste a lot of time and exposure due to their inexperience in sifting through the buyers to find the real ones. In addition, Brokers deal with buyers all the time and have often built their own network of real buyers in each industry, which can result in a timely sale if the business is a fit for these buyers.
Negotiating can be an emotional process for sellers to engage in directly, and these emotions can keep buyers and sellers from reaching deals. For example, a buyer offers a lowball price for your business. Your gut reaction is to argue or not engage at all. Brokers negotiate all the time, and having a third party mediate the negotiations can ensure that emotions don’t get in the way of a deal. Negotiating involves not only reaching an agreed upon price but also making sure that each deal-point is addressed and agreed upon. Brokers have a lot of experience in different deal structures so they often can suggest a scenario that is a win for both buyer and seller.
Once you have reached an agreed upon price, who will draft the contracts that need to be in place? Brokers will draft these documents and this process can save you lots of money in legal fees. Because brokers deal with the transfer of businesses all of the time, their documents are specific to a business transfer. While it is important to always have a lawyer review legal documents prior to signing, a simple review is much cheaper than paying a lawyer to draft these agreements themselves.
Selling a business is not like selling a car. Businesses have many moving parts and components that need to be transferred successfully in order for a successful sale. There are dynamics such as lease negotiations, successive liability, difficult landlords, complicated license transfers etc. and working through these obstacles takes experience. Business brokers navigate these hurdles all of the time, are seasoned with dealing with the logistics of business transfers and their experience can often prevent some of these complications from occurring in the first place.
PRESSURING AND CLOSING THE DEAL
Once a buyer has been identified and an agreeable price has been reached, this is just the beginning of the process. As mentioned above, the transfer is often complicated and someone needs to drive the process or the deal often dies. A business broker’s job is to facilitate each component of the transfer and to set a timeline for the process. Brokers will work with buyers and sellers to make sure that all documents are in place, moneys are transferred at the appropriate time, etc. so that the transaction closes in a timely manner. Time often kills deals, and a broker will ensure that both buyer and seller handle their respective duties in a timely manner to ensure that they stay on track and get to the close.
Your ultimate goal is to sell your business for the best price you can get, and to have that process go smoothly. This is exactly the job of a business broker, and the best part is that brokers are paid on performance only. This means that they are only paid when your business transfer is successful. No out of pocket expense to you upfront, and the commission at closing is motivation for the broker to perform and get the deal done!
Written By: Caroline Guidi, LINK San Diego, BRE # 01984947