The best broker for you
When selling your business, selecting a broker can be tricky. FSB has the dirt on finding a good match here, but we want to hear from you. How did you know your broker was a good fit? Share your good experiences and horror stories here.
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DiggLooking for advice…. I am a small business owner of a retail store. The store has been in business for a little less than 2 yrs. Due to some circumstances that have happened in our lives we have decided to sell the store. We have listed it with an online agent, but haven’t really gotten anywhere. We are not asking a whole lot for the store, we are selling the fixtures and displays, computer, etc. all except for inventory. Mainly b/c we are low on our inventory, b/c of a sale we are running. My questions are what is the best way to get interested buyers? Should I announce it to my customers or not? Do you think that is a wise decision to maybe get potential buyers? I need to be out of the store asap, so that I don’t have to invest more money in the coming season inventory. Any suggestions?
I find the comment about 3 weeks to a month to sell a business and get a decent price to be unbelievable and uninformed. To think that a small business selling at an appropriate price in a month puts unrealistic expectations on all involved.
I was involved in the sale ov my family business several years ago. We had 3 public companies interested in addition to other options.
It took several months and several rounds of negotiations to pick the company that offered the best combination of price, terms and corporate culture.
I am now a REALTOR and also offer to broker business transactions as well.
I find that when a commercial property or business goes fast, someone left a lot on the table or they did not take due diligence very seriously.
Most business owners only sell one business in their lifetime. The results of that sale can have a major impact on the financial future of the family. For most business sales we recommend that the seller engage a professional specializing in business sales to assist. There are two broad categories of professionals that engage in business sales – business brokers and merger and acquisition advisors.
What should the seller be looking for? The first criteria is type of business. Generally, business brokers specialize in “Main Street” types of businesses such as dry cleaners, gas stations, restaurants, and convenience stores. M&A advisors specialize in more B2B types of businesses such as manufacturers, distributors, information technology firms, etc.
Size of Business – BB’s specialize in businesses under $1.5 million in revenues and M&A’s represent larger businesses or smaller businesses with a high component of technology or intellectual property.
The Targeted Buyer – BB’s are generally targeting individual buyers while M&A’s are seeking to locate corporate buyers.
Business Valuation – BB’s specialize in commodity type businesses that have “rule of thumb’ valuations that are consistently applied to arrive at a business selling price. There is usually a pretty narrow range of valuations applied to these businesses. M&A’s are recommended where there can be a broad interpretation of “strategic value” and rules of thumb do not apply. A high component of Intellectual Property, a unique niche, a hard to penetrate customer base are characteristics that can demand strategic value and purchase prices can vary widely.
Complexity of Transaction – BB’s are generally selling to individual buyers that have a finite approach structuring the transaction. The contracts are usually fairly straight forward and the negotiations focus on price, financing, and seller notes. For the M&A’s the targeted audience is the corporate buyer with vast experience in acquiring businesses. They employ both an internal legal team and outside council and make the purchase contracts quite complex. The number one goal is protecting the corporation. The contracts are 35 pages of complex legal language and schedules of reps and warranties. The seller will need someone that is familiar in navigating in that environment. Corporations generally send in a due diligence team that is well versed on finding every little wart in a seller company and will attempt to reduce transaction value during the process. The seller will need good advisors to offset these pros.
Exclusivity – because the BB’s are targeting individual buyers, their audience is vast so exclusivity is sometimes required and sometimes not required. Business sellers often engage multiple non-exclusive BB’s to insure the broadest coverage in presenting their business to the buyer audience. BB’s are often part of a network of BB’s to help broaden this exposure. Sunbelt Business Brokers and BBN are two very good networks.
M&A’s require exclusivity because they are targeting corporate buyers and the audience of potential buyers is finite. These corporate buyers have M&A departments or sometimes the president handles the process. If a target is presented to a corporate buyer by more than one professional the credibility immediately drops and the chance of serious interest is reduced significantly.
Up-Front or Monthly Fees – BB’s generally will charge a minor up-front fee to begin the engagement or have a simplified valuation completed. Generally there is no monthly fee charged. M&A’s generally charge either a substantial up-front fee or a monthly fee in the $3500 to $10,000 per month range depending on the size of the business.
Success Fees – BB’s generally charge a success fee of 10% of transaction value. M&A’s generally have a sliding scale based on the anticipated size of the business. The known Wall Street firms that sell the mega businesses will not touch a transaction where they are not guaranteed $1 million in fees. The big regional firms require at least $750,00. The M&A firms that deal in the lower end usually charge considerably less than that with a minimum or $150,000 cash at close. If your transaction value is in the $10 million range, count on paying your M&A firm $300K to $400K.
Conclusions – The deciding factor is in cost benefit. An M&A firm is going to cost a lot of money and you are going to be paying either an up front or monthly fees without a guarantee of success. If your business is smaller and is a commodity type business or Main Street business where the target buyer is an individual, an M&A firm will not add much value and is not worth the fee.
If your business is larger, complex, unusual, strategic, with a high component of intellectual property or technology and subject to a broad interpretation of value in the marketplace, an M&A firm is the right choice. In the final analysis, is a swing of 20% in your company’s selling price worth $5,000 per month for 8 months?
Finding the most suitable buyer is the biggest challenge of seller or a business brokers for company this size. There are several criteria to consider, especially if we are talking about service companies and B2B business. But its crucial to consider the size, the market, the competitors and the life-cycle of the company. The adequacy of the company profile with the profile of the buyer is something often forgotten and it compromises the business after the transaction. On the other hand there are a new flow of potential entrepreneurs, buyers, coming from the reengineering downsizing and outsourcing tendencies that can be attracted and motivated to explore an extension of their careers through acquiring a small or medium enterprise. Besides the globalization phenomenon and the dispersion of SME worldwide, opens new opportunities to create different organization models based on a network of SME, with cross ownership, to explore a wider market with a sustainable competitive advantage. These is the kind of approach that professional, and informed, business brokers should follow. In this new world, even small countries like Portugal can, and should, have practices that overcome traditional models and boundaries - even in Business Brokering.
I guess we shouldn’t be surprised when a journalist who writes a shoddy story from a single, seemingly unverified source doesn’t get it right! Perhaps the author should take the time to go to the International Business Broker’s Association (www.ibba.org) and find some real experts rather than a guy who wrote a book and is therefore all the expert needed for this article. This reminds me of the power of the written word for doing good, OR BAD, in the world. Getting used by an unqualified author for free publicity qualifies only as pathetic!
I think CNN should find a more qualified “Expert” for their next article. As a business broker, I believe this article sets unreal expectations for sellers.
Another option could be to sell your business yourself. There are a number of free online services such as BusinessFilter.com which allow you to list your business for sale.
As a small, unique, online business, it has been virtually impossible to find any broker that gets what we are doing, much less provide us with any evaluation or other assistance.
Any ideas for us Florida companies ?
Telling a business owner that a 90 day agreement to sell is the longest time that should be allowed is crazy. If a business sells in three weeks then the chances are good that it was under-priced. The article was not written well and should have included much more information, such as state associations and the better-known web sites for selling, which bizben is not.
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