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Sell the Business: Need a Business Broker?

by markheitner

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.

Mark Heitner, MD, MBA, the founder of <a
href="http://www.midmex.com">MidMEx</a>, is a psychiatrist,
author and software developer. Many patients have been owners of
mid-sized companies with a <a
href="http://www.midmex.com">business for sale</a>. 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 <a href="http://www.midmex.com">sell
the business</a>.

Syndicated by Top Gazebos - www.topgazebos.net

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