Business Brokers – not always the best way to sell a business

As the year draws to an end, you might be wondering if now is the right time to sell your business. You’ve spent years building up your business. So it might soon be the time to claw that sweat equity back.

Maybe 2019-2020 is calling you to do something else, spend a year travelling, starting something new or maybe even retiring. It might even be taking on a new business partner and selling a portion of your business to them, so that you can have time for other things in your life.

But as we’ve written about before, there are a number of things that you need to get put in place before you think about selling. For the purposes of today’s blog post though, let’s assume that you’re well across your systems and processes, your business is turning over a nice profit and you’re good to sell.

Selling your business, however, is not always a piece of cake. More often than not you will find that the offers are much lower than what you’d thought it was worth. This can be an all too common occurrence – especially now that there are many retiring baby boomer businesses for sale. Selling your business and making a profit is not just about listing it and waiting for the best offer.

That’s when you might consider a business broker the best way to go. Many think it’s like real estate sales, the broker will do their very best to sell your business to the highest bidder. But unfortunately, that’s often not the way it goes – read: disappointment and diminished bank balances and no sale.

Unscrupulous and/or inexperienced brokers can be a key reason for underselling of businesses especially those of medium or small scale.

An inexperienced broker might make faulty valuations without any strong reasoning related to;

• Buying trends
• Market conditions and/or
• Interest rates

Another key factor in the disappointment sellers often experience is that the broker is likely to get paid a service fee, regardless of whether or not the business sells. So they get their money either way and you pay for it, without seeing a payday of your own.

One of the key complaints is that many brokers don’t break down their fees and costs of service, so business owners are not aware of the value they get for their ‘investment’.

So, how do you minimise errors in choosing the right broker?

• Ask your accountant and/or solicitor to recommend a broker they know of that’s sold the last couple their clients’ businesses. That will give you a place to start.
• Another surefire way to confirm the credibility and efficacy of a broker is to ask for their listing to selling ratio. A high ratio is a good indicator of the broker’s capability. A professional broker who uses advanced technology to provide clients with dedicated and national systems and processes is an apt choice, if you decide on using a broker.
• Ask them how they go about their selling process. How many leads are you likely to see over what period of time? What sort of timeframe should you expect. Get very clear on whether your expectations and theirs are aligned.
• Be clear on what a ‘good sale’ looks like. Talk that through with your broker (and your accountant/solicitor).
• Have the broker break down their costs as much as possible. Check if they get paid for a ‘no sale’. If anything is unclear, get them to explain it in clear language.
• Run the contract past your solicitor – just in case there’s anything hidden in there you weren’t across.
• If anything seems off to you, it probably is. That’s when you start your broker search again before signing on the dotted line.

Systematic approach – the ideal solution

Before you put up your business on the market, you should ensure that the business is properly saleable. To achieve this, you should make the business processes independent so they do not need your specific input or that of other key personnel. Reverse any abnormal or personal expenses and ensure you have solid records of the financials.

And last but not least you should know the right time for selling your business. To make this possible, you have to think about the saleability of the business from the beginning and aiming at increasing its value at all points from its beginning to the end.

Proper preparation, valuation and packaging of the business are significant factors in improving the value and attractiveness of your business. Having a detailed valuation of your business including its financial and operational aspects is for maximising its value.

And that’s where we can help. If selling your business in your future plans, we can work with you to ensure your financials are sorted for a solid valuation and that you’ve got the necessary systems and processes in place to ensure a good sale. You can call us on 02 6023 1700 or drop us a note via the form below.