If you’re anything like me, your default stance towards brokers is likely skepticism. When I first contacted our broker, I had a really hard time trusting them. On the first call, they told me exactly what I wanted to hear, and it seemed too good to be true. Fortunately, over the next six months, they changed my perspective. There are, of course, good brokers and bad brokers. You’ll need to find the right one for you–and you may not even need one. Either way, though, talking to one won’t hurt.
Let’s get one thing out of the way: with the right buyer and a healthy relationship between buyer and seller, you might not need a broker. But if you need help finding a buyer or negotiating a sale, a good broker will make a world of difference. With nothing to lose from a phone call, I’d strongly advise at least talking to one or two.
Brokers usually get paid only if they’re successful, and the fee will be in the range of 10–15% of the deal’s total value. You may be able to negotiate a better rate, but that’s what you can expect. While 10–15% sounds like a lot, the right broker can more than make up for their cut by getting you a better price for your business. Whether through more offers or better offers, a good broker will be worth their fees. And remember, if they don’t find you a buyer, you’re not on the hook for anything.
One of the first things a (good) broker will do is set realistic expectations. They can provide some basic numbers from their experience, based on the current market and some simple facts about your business. That number might be way higher or way lower than you assumed.
Sifter’s valuation was significantly higher. I had always assumed that the salary I paid myself would make the business essentially not profitable. However, once I learned that from a buyer’s perspective my salary was the profit, it made selling Sifter financially viable.
Alternatively, if you try to sell your business at an unrealistic valuation, you’ll be wasting everybody’s time. Brokers help you find a point that’s both realistic and still worth it for you. If it’s not worth it, you’ll find out sooner and can quit daydreaming about what’s next and get back to work.
Once you get started with a good broker, they’ll help you gather and assemble everything buyers will want. This ensures there are no surprises for anyone, and it helps you prepare everything you’ll need to make it much more efficient for potential buyers to evaluate the business. During this process, brokers may uncover weaknesses or strengths in your business, and make sure the weaknesses are corrected or the strengths are put in the spotlight.
A broker’s goal is to sell your business for the most money possible. The more it sells for, the more they make. But an honest broker also cares about their reputation. They won’t lie or mislead potential buyers because they know that when due diligence rolls around, those secrets will come out.
Financially speaking, a good broker will present your business to a much larger pool of potential buyers. In some cases, they find the one-in-a-million buyer that’s perfect for your business. In others, they get multiple offers and you get into a bidding war. In the worst-case scenario, they can’t find any interested buyers, and you owe them nothing.
In my experience, a particular benefit of using a broker is that they help prequalify buyers. From reading a detailed prospectus prepared by the broker, potential buyers have everything they need to decide if a deal is worth pursuing. The broker can then call and screen people who can’t afford your business or otherwise don’t meet your other requirements. This saves you time and ensures you only talk to highly qualified and interested parties.
Finally, brokers help you negotiate. They explain deal structures, what’s normal, what’s abnormal, and when a buyer isn’t being being totally above board. They can advise you on when to accept an offer and when to walk away. They make a great regret-minimization framework. There are times when you should hold out for more, and times when you should pull the trigger and move forward with a buyer even though you want to hold out for more.
You may or may not need a broker, but in my experience it’s worth at least talking to a couple. You have nothing to lose from a conversation, and a lot to gain.