Financials Adjusted - Profit Marketed - Business Sold

Advice on whether a business broker should sell your business will depend on who is giving the advice. I am a business broker, so I think you should. The more people who follow that advice, the better for brokers like me.

But that is a poor reason for you to use a business broker.

Apart from reasons of convenience and minimising disruption, there is one genuine role that a business broker can help fulfill and it can cut either way in that it can benefit the seller of the business or the buyer of the business.

This begs the question of why a seller should engage a broker when it may end up benefiting the buyer rather than the seller.

Businesses are an Asset Class to be Viewed Strategically

The answer to this is that business sales are typically a strategic decision. Although they are an asset, they are a class of asset different to mainstream assets such as shares, property or cash.

Businesses are an active asset and require the active participation of the owner. The owner may not have to serve customers, but it is the care factor of the owner that makes the difference in running a successful business.

Businesses are illiquid assets which makes pricing difficult to assess. Property is also illiquid assets, but data that helps participants in the market establish a price is far more commonly available. In Australia, a comprehensive database provides the means for residential real estate agents to prepare valuations. No such well-established database exists for businesses.

The basis for establishing a market value of a business rests on a notion that we define it as the

‘… estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.’ IVS 2020.

For businesses, more than any other asset, it is more difficult to establish a price. Although a valuer can provide an opinion of value without a transaction, the best way to establish a market value is for the elements outlined above to be present. This is what a business broker does.

Minimising the Price Range

It means that a business is more likely to transact at a market value if a business broker manages the transaction. In a private transaction, the price outcome has a bigger chance of sitting on an extreme tail of the price range.

The most heart-breaking stories I have heard as a business broker is where a potential seller does a double take when I tell them amount the business is likely to sell for. They will say they paid much more for it when they bought it off their friend through a private sale. It is money they are not likely to recoup, and it is money they lost some time ago at the purchase, not at their conversation with me.

The Two Edged Benefit of Using a Business Broker

Using a broker offers a better chance of not overpaying when buying a business. It also offers the better chance of not being underpaid for it by canny buyers who can spot an isolated seller trying to do it on their own.

So it is a strategic decision. By using a broker you are likely to get a more realistic sign of the value of your business and can decide early on whether to place it on the market or keep it to improve its performance.

If you decide you want to sell the business yourself, do it as much as possible, like a broker would. This means advertising it on sites that are traditionally used to sell businesses. Don’t use sites that are not suited to selling businesses. Your business will have the smell of death on it and is more likely to attract interest from those you are better steering clear of.

Getting a Deal and Completing a Deal are Different

Finally, remember there are broadly two phases in selling a business. Finding a buyer and negotiating a price and other terms and conditions. Get that agreement to completion. If you are hellbent on saving money, the most expensive money you will ever save is the money you don’t spend on a solicitor.

I see their job as one of avoiding entanglement. Even simple businesses involve complicated transactions. There are adjustments that have to be made to the transaction on the date of settlement that mean the money that changes hands will be different to the amount agreed upon during the negotiation.

There are also third parties to a transaction that require satisfaction in order to complete the transaction. Lease commitments are as strong and as complicated as loan commitments. A landlord normally insists they communicate with a buyer through their solicitor so that they can avoid liability.

If you need help to find a solicitor, I can recommend a few.

A broker brings this all together and guides the seller through the obstacle course of a business sale. A broker also absorbs the heat when negotiations go off rails and give them the best possible chance or resuming. It is the job of the broker to keep everyone in the tent.

You will get the best price for your business when there are multiple buyers. This happens as a crescendo and a skilled broker will ride the wave that gets you the best outcome. It can require a subtle dexterity that is difficult to conjure if you have your hands full running your business.

The opposite end of the spectrum are the many occasions where there is only one buyer. It is even more important that whoever is dealing with them knows what they are doing.

Of all the stakeholders in the sale of a business, two have ownership interest. The seller and the business broker. If the business doesn’t sell, they don’t get paid. You will, however, receive a bill from your solicitor.

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