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Sell the Business: Need a Business Broker?

Jul 2, 2008
Most company owners sell the company themselves. Whereas homeowners use brokers (Realtors) 90% of the time, sellers of companies use brokers only about 30% of the time.

When is it a good idea to use a broker?

If the seller thinks that it will be difficult to run the company AND put in the time and effort to sell the company, then retaining a business broker is a good idea. This is the most compelling reason we know.

Other reasons to hire a broker:

1) The seller recognizes that selling is not core management strength, and should be outsourced to an expert.

2) The management team has suffered a disaster that makes the task of selling the company unbearable.

3) The seller does not know how to maintain confidentiality, and is worried that employees, customers, vendors and competitors will learn that the company is for sale. (This is the easiest problem to solve, by the way).

4) The seller does not know how to qualify potential buyers before disclosing confidential materials.*

5) The seller does not know how to realistically value the company.*

6) The seller is unfamiliar with the acquisition process.*

7) The seller does not know how to find potential buyers.*

8) The seller has difficulties writing high quality marketing materials for potential buyers.*

*There are many resources for sellers that can help the seller address these issues.

What is the best way to find a business broker?

Unlike realtors, business brokers are not licensed or regulated by any State or Federal agency. Virtually anyone can call himself or herself a business broker. Someone can call them self a business broker without having to graduate from college, take a certifying test, or have any actual training or experience. Few business brokers have actual business degrees.

Most firms that do business brokerage are small outfits, consisting of one to four people, and have been in business for less than five years. There are few larger firms operating in several states, however they face two substantial limitations. The first is that State Boards of Realtors require business brokers to have a real estate license in any State in which they do business. Real estate is often a substantial part of the sale of a middle market company.

The second limit is that the larger firms often focus on selling smaller companies (known as "Main Street" deals) - mom and pop companies generating $50,000 - $500,000 in annual revenue. They lack expertise in middle market deals. Would you hire a Chevy salesman to sell your Ferrari, or let a nurse take out your appendix?

Most business people have never heard of the business brokers in their communities, even if they have been in business for twenty years. Your accountant, corporate attorney or wealth manager may be able to refer you to a broker.

There is one national association of business brokers, the International Business Brokers Association. Virtually anyone can join by paying a membership fee, so that membership alone means very little. However, the IBBA offers many courses of instruction, as well as a certificate once these courses have been competed. Members of the IBBA, who are also certified business intermediaries (CBI), are likely to be well trained. Unfortunately, there are fewer than 200 CBI members at last count. [Full disclosure: author is a member].

What do business brokers charge?

Whether certified or not, brokers use a standard formula for calculating their commission. Their fees, which are often based on the successful sale of the company, are a percentage of the sale price. The commission percent rate decreases with the size of the sale, according to the schedule below. Here is an example of the calculation of a $600,000 commission on a $12 million sale:

Percent Sale price, millions Commission, $

10 First million 100,000

8 Second million 80,000

6 Third million 60,000

4 All additional millions 360,000

You can calculate the commission you will pay using this formula. You will then be able to better decide if you think you are too busy to run the company and sell it.
About the Author
Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.
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