This article are provided for information purposes only, and are not intended as legal advice.

Do you need a business broker?

December 15th, 2008

The economy is changing very quickly, banks are not lending as much money, less companies are providing sources of financing.  The business world is changing, revenue has been declining for many companies, profitability may or may not be affected.  How do you come up with the value of your business?

The purpose of a business broker is to facilitate the sale of your business and provide you guidance in selling your business.  If you are a small business, the broker is an educator, letting you know what is involved in selling a business, packaging the business into what investors are looking for and also to source out the investors.  More importantly, if they are good, they will have knowledge of pricing trends in the marketplace.  Are price rising or falling in your area? Are people looking for certain types of businesses? Are they looking for your type of business?  The key issue for the business broker is to determine what is the fair market value of your business.  If you require a person to buy your business who has a certain type of expertise, you may have a very small market of potential investors to cater to.  If anyone can run your business, then your options are much larger.  A business broker should be able to identify the type of buyer who would be interested in buying your business and the price that buyer may be willing to offer.  The broker is an independent person who should be objective.  If he finds that the price is overstated, then he hopefully will advise the owner that the purchase price for your industry is declining.  You can wait for a long time to find the needle in a haystack if the potential buying group is very small because you need a certain type of background to run the business i.e an electrical engineer.  Not only do you need a certain background, you also need one with money.  If the number of potential people who would buy your business is very small, the business broker should hopefully try to get you to negotiate with a potential buyer even if they offer a low price.

Selling a business is very emotional.  You built the business, you eat and breath the business.  Letting go is very hard.  You may want a certain price for the business but what you want and what is the market may be two different things.  Hopefully your business broker will advise you of market conditions and not just what you want to hear.  You may contact many different business brokers and pick the one who will list your business with the highest price.  That does not mean that they can sell it at that price, they may come back to you and say you need to drop the price.  At the end of the day, you may be at the same price or lower than one of the other brokers.

If several business brokers indicate the fair market value of the business is far lower in their opinion than the one you pick, maybe you should ask yourself a question, why is there a difference of opinion?  It is human nature to want to get the highest price for your business.  Just remember, did you agree to list your business based on fair market value or did you list it based on your emotions because you felt that the business was worth a certain price? The buyer will not be emotional.  If the asking price is too high, they will not even look at your business opportunity.  Listing at top dollar may scare off some people and hinder your opportunity to sell the business.

In my mind, your asking price should not be more than 10% above the real fair market value of the business.  In this price range, people will still look at the business.  I have never seen anyone offer the asking price for a business, they will always go below the asking price.  As a result, you always want to be slightly higher so that the negotiated price is the actual fair market value.  Both the buyer and seller will feel good, you got what was fair, and the buyer got to reduce your asking price.  Psychologically, it is a win win for everyone.

Filed under: find a broker,Sell a business — Gary Landa @ 1:36 pm

1 Comment »

  1. Good read. A broker also is a sheild between the owner and buyers waisting time. A good broker will make sure a buyer is financially qualified to buy the business.

    Comment by Buy a Business — December 18, 2008 @ 12:14 pm

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