As a Certified Business Intermediary and owner of a lower mergers and acquisitions and upper main street business brokerage firm, I get to speak with many individuals on a weekly basis about selling their business.
Recently I had an owner of a lower middle market business explain to me how frustrating it is to work so hard to build their business up throughout the years and to have to pay so much out in commissions to a business brokerage firm when it is time to sell it.
Trust me I understand and have paid out a hefty commission on the sale of my own in the past.
I like to compare the services of a real estate firm to a business brokerage firm and the amount of time and money invested in each to accomplish the goal of successfully selling your asset for maximum profit.
To be honest, I have never enjoyed paying out a six percent real estate commission on the sale of my homes in the past either, yet I knew it was not in my wheelhouse at the time to try and sell it for maximum profit on my own, and it was worth the investment to leave it to the professionals. Low and behold, the purchases and sales of several homes throughout the years were successfully accomplished.
Unlike selling a home, selling a business is a complex process and most business owners need help to do it correctly. Not only are there customer, employee, and vendor confidentiality issues to contend with, a business owner needs to focus on running the business to maintain and grow sales.
If the statistics are accurate that states about 80% of all businesses listed for sale never do sale, and that owners that use a business brokerage firm to sell their businesses can add 30% or more to their earnings from the sale, it seems obvious that a good business brokerage firm earns their commission.
I have personally paid for all or a substantial portion of my sellers’ commissions in the terms of the sale (such as the allocation of the purchase price) and through negotiations. Some owners were told by other advisors that their businesses were worth less than we were able to sell them for and we even sold them for better terms.
To successfully sell a business, the business brokerage firm must invest in marketing expenses and in finding and vetting qualified buyers. Business brokers typically do this with the risk that the business could not sell during their listing period, and all the time and money they spent during the process could be for nothing.
When brokers find more qualified buyers that are interested in acquiring your business, they are in a stronger position to not accept lower offers.
Brokers also function as a buffer between the buyer and seller and help to keep emotions in check.
Also, the larger the deal size, typically the lower the advisor’s commission percentage.
Considering the benefits mentioned above in addition to a myriad of other fine points such as the legal and financing portion of a business acquisition a business brokerage firm’s commission should be well worth the investment.