How Does a Business Broker Get a Better Price for My Business?
If you’re selling your business (or even just considering it), you might have heard people tell you to work with a business broker. You also might understandably hesitate — why hire someone and pay a commission when you could just sell your business yourself?
You may not realize that a good business broker can often get you a better price for your business. Even when you factor in the broker’s commission, you still end up with a larger profit than you would if you sold your business yourself.
How can a business broker convince a buyer to pay so much more? Here’s a closer look.
They Can Accurately Value Your Business
A business valuation calculator can give you a quick idea of what your business may be worth. However, when it comes to selling, you want your valuation to be as detailed and accurate as possible.
If you set the price too low, you could miss out on thousands. But if you set it too high, you’ll waste time marketing it before you realize you’ll need to drop the price.
Business brokers are experts at valuing businesses. They’re also attuned to market trends and know what features of a business may make it worth paying a premium for.
They Have Access to a Pool of Buyers
Business brokers will usually maintain a list of people who are actively looking to purchase businesses. More potential buyers generate more competition, and that puts you in a place to possibly receive offers above the asking price.
They’re Expert Negotiators
In virtually every case, selling a business involves negotiating the price, the terms and conditions of the sale, or both. If you aren’t experienced when it comes to negotiating the sale of a business, you might find this step hard to navigate. There’s also a very real possibility that you’ll lose money by agreeing to unreasonable terms.
When you work with a business broker, you’ll have an advocate during this critical process. Your business broker can handle negotiations for you while representing your best interests.
They Keep Everything Confidential
If you sell your business on your own, it’s nearly impossible to avoid the word getting out. If this happens, your employees may quit because they’re worried their jobs are in jeopardy. Your existing client base may be tempted to go elsewhere, and some of your trade secrets may be revealed.
Business brokers are experts at maintaining confidentiality throughout the sales process. When you work with one, you can avoid arousing suspicion — and all the complications that come with it.
Should You Hire a Business Broker?
Choosing whether you should work with a business broker is just one of the many decisions you’ll make as a part of selling your business. It’s not a decision you should make lightly — it’s a choice that can dramatically affect your business’s final sale price.
Ultimately, unless you already have extensive experience selling businesses, working with a broker makes the process easier and is also likely to get you the greatest profit.
Do Business Brokers Charge a Commission or a Flat Fee?
Your business is humming along, and you’re thinking about selling it or buying another. Either way, you will need someone to help you find a buyer or seller and navigate state regulations, the valuation of your business, and tax implications. That person is a business broker.
While you know what business brokers can do for you, there’s one thing you might not have explored: Do business brokers charge a commission or a flat fee?
Most Business Brokers Charge a Commission
Instead of a flat fee, many business brokers work on commission, or a “success fee,” as it is known in the business broker world. It’s called this because you pay a percentage commission to the business broker only after the deal is successful. This fee structure is similar to working with a real estate agent, who gets paid at the closing of a sale.
The commission for business brokers is typically between 10% and 15%, depending on the price and size of the business. Generally, the smaller the sale or purchase, the higher the percentage commission; deals worth more than $1 million might see commissions slide toward the lower range of the scale.
Good business brokers should always work in your best interests, trying to get the most value they can for you. Working on commission can be an added incentive.
Some Business Brokers Charge a Flat Fee
Generally, a flat fee structure doesn’t give business brokers an incentive to increase the value of the transaction. But there are reasons business brokers might charge a flat fee.
Some business brokers charge a flat fee of $10,000 to $15,000 for sales and purchases of smaller businesses. These small businesses might generate around six figures in annual sales or less.
For businesses valued at less than $100,000, the flat fee might seem high, but the value of hiring a business broker — finding a buyer or seller, adding value to the business, and marketing the deal — might be worth it.
The opposite end of the spectrum is another time business brokers might charge a flat fee. Large, multimillion-dollar deals or transactions that take 12 months or longer might require a flat fee as a retainer.
Other Fees You Might Encounter
While typical commissions are around 10% to 15% and flat fees are often at least $15,000, there are no set prices for business brokers. You can negotiate the commission or flat fee.
One thing to keep in mind when researching business brokers is that you might be charged additional fees, even if you’re paying a commission. Business brokers handle a lot of tasks, and they might charge fees for some of those tasks in addition to their usual commission or flat fee. For example, a business broker might charge you additional fees related to legal work, accounting, and marketing. Whether you pay a commission or a flat fee, find out up front whether these additional fees or others are included in your payment agreement.
Is It Worth Contracting a Business Broker When I Sell My Company?
Selling your business is an exciting time, as it likely means you’re retiring or moving onto a new venture. All too often, though, making a sale is harder than it sounds.
Some business owners are determined to stick it out and make the sale alone. Others call in business brokers.
If you’re like many business owners who are preparing to sell, you might find yourself wondering whether contracting a business broker is worth the trouble. Here are a few questions to ask yourself as you make this key decision.
Do I Have a Buyer in Mind?
Many business owners who sell independently do so because they already have an interested buyer lined up. If you plan on selling your business to an employee or existing contact, you may not need to hire a broker — you can simply work out the details with your buyer and make it official.
On the other hand, if you’re ready to sell but don’t have a prospective buyer, a broker can be a tremendous help. Brokers maintain networks of eager, qualified buyers. And because your broker is invested in getting you the best sale price possible, they can encourage interested parties to bid against one another.
Do I Have the Time to Coordinate the Sale?
Selling a business isn’t like selling a car. It’s a sustained effort with endless loose ends to tie up.If you’re an owner-operator or are otherwise deeply involved in the day-to-day operations of your business, you’ll likely find it overwhelming to add managing and coordinating a sale to the mix. However, if the role you play is relatively hands-off, you might be able to find the time.
Am I Familiar With the Sales Process?
One of the primary advantages business brokers offer is that they know exactly what steps must be taken to make a successful sale. A good broker will be able to ensure that you get an accurate valuation and help you negotiate a deal with the buyer you choose. They’ll also be able to guide you through the closing process.
In all the intricacies of the sale itself, it’s easy to forget about another important element: taxes. If you’ve never sold a business before, you may find it challenging to fully grasp the resulting tax consequences.
Taxes aren’t an area where you want to make a mistake, either. If you don’t file all necessary paperwork with the IRS or pay the appropriate amount, you could be charged with tax fraud. A good broker will help you handle all taxes associated with selling your business.
Take Time to Consider Whether a Business Broker Is Right for You
In nearly every situation, a business broker can facilitate a faster sale (and get you a better price) than if you sold your business on your own. That being said, not all business brokers are created equal.
Before committing to one, make sure you do your due diligence. When you take the time to find the right broker, they’ll be able to find you the right buyer in turn.