Sell Your Business: Pros and Cons of Using a Broker
Selling a business is a significant decision, and one of the biggest questions owners face is whether to sell with a business broker or go it alone. Choosing to work with a broker can simplify the process, connect you with qualified buyers, and can lead to a higher sale price. However, for some owners, the cost of business broker fees and the loss of control can be concerns.
In this article, we’ll break down the pros and cons of using a broker to sell your business, outline what a broker brings to the table, and guide you in making the best choice for a smooth, successful sale. Whether you’re considering a DIY business sale or looking for support, understanding these options can help you maximize your outcome.
The Basics: Selling by Owner vs. Selling with a Broker
You’re in complete control when you sell your business on your own. You decide who to contact, whether to use a listing site, how to negotiate, and how much information to disclose. You can avoid broker fees, which typically range from 8% to 12% of the final sale price. Brokers often have minimum commissions, typically ranging from $10,000 to $15,000.
Selling by owner can work well for owners who understand their business’s value, industry trends, and negotiation tactics. However, it also comes with time demands and the need to navigate complex details.
A broker, on the other hand, is often professional and motivated to help you through the entire sale process. This can yield a higher sale price in less time.
They handle many responsibilities, from determining the initial value of the business to responding to potential buyers and managing negotiations. Brokers bring expertise, networks, and strategies that can help maximize the value of your sale. However, brokers come with their own considerations of fees, contracts, and sometimes being inflexible.
The Business Case for Using a Broker
So, why might an owner consider hiring a broker? It’s all about return on investment. Here are a few ways a broker can make a difference in your sale.
- Higher Selling Price Potential
Only good brokers can secure offers 10-15% higher than what owners can achieve independently. They know how to present your business, help negotiate top offers, and reach a vast network of qualified buyers through listing sites. The goal is to close for a higher price to offset their fees. - Time Savings
Selling a business requires a significant amount of time. An upright broker limits the demands of researching potential buyers, setting up meetings, negotiating, and organizing paperwork. For owners focused on maintaining the business during the sale or on retirement, this time savings can be invaluable. - Error Reduction and Due Diligence
Quality brokers have a deeper understanding of the financial, legal, and operational details that must be in place before a sale. This experience reduces the risk of errors that could jeopardize the sale or expose you to potential legal issues in the future. - Access to Market Insights
Some brokers have a deeper understanding of market trends and timing. They can guide you on when and how to sell based on what’s happening in the industry, which can positively impact your sale price and the ROI of using a broker.
What to Consider Before Signing a Broker Contract
Hiring a broker is a significant commitment, so it’s essential to thoroughly understand the terms of the contract before signing. Here are the key points to review:
- Fee Structure
Brokers are typically paid through a commission (8% to 12%) on the final sale price; however, some may also add monthly or quarterly marketing or consulting fees. Be clear on what you’ll owe, both upfront and at closing. - Opinion of Value
Some brokers charge business owners $10,000 to $50,000 for this service, which they use to pad their own pockets. If a broker wants you to pay this sum for their service, run from that broker. We will provide a better service to you for under $2,000. - Retainers
If a broker requests a retainer, expect a clearly written outline of the value you will receive in exchange for the payment. This written explanation will detail how value will be measured and how the retainer reduces the final payout if your business is sold. - Contract Length
Contracts generally last 18 to 24 months, but some brokers push for a 36-month lock-in. The 18-24 month time frame allows good brokers sufficient time to market the business, identify potential buyers, and facilitate negotiations.Be careful, some contracts stipulate that the broker is entitled to their full commission if a potential buyer who viewed your business during their contract term were to purchase your company within five years after your broker agreement terminates. - Over-promising Valuations
To win the listing, brokers often quote inflated sale prices. The online listing platforms attract tire-kickers, not serious buyers. During this phase, owners are distracted by updates and disclosure demands from the aspiring entrepreneurs.After months of busy work, with no serious offers presented, business owners must consider lowering the sales price. This creates frustration and mistrust, especially for companies where cash flow and equipment values fluctuate. At that point, it’s too late for the owner because they are locked into a contract.
Avoid signing long contracts (e.g., 13 months or more) without a broker performance clause, as they will lock you in with limited options if things don’t work out. Also, understand the provisions or auto-renewal terms for extensions.
- Exclusivity Clauses
Most brokers require exclusivity, meaning they’ll be your only sales representative during the contract period. While common, this clause means you can’t explore other broker options until the contract ends, so make sure it’s right for you. - Broker’s Track Record
Ask for the broker’s history of sales in your industry and market. Request to speak with owners who sold and a few who did not sell, showcasing their sales process with businesses similar to yours, as these provide insight into their expertise. - Termination Clauses
Check the termination clause to see what happens if you’re not satisfied with the broker’s services. Avoid contracts with penalties for early termination due to broker performance, or ensure that any penalties are fair and clearly stated in the contract.
Business owners need to review the terms of the broker agreement, including its duration and any provisions for fees, termination, or extension, before signing.
Worried About Broker Commissions? Here’s How We Can Help
For most business owners, broker fees are a big concern. That’s why we offer resources and services to make the process easier and more transparent. Here’s how we can support you:
- Alternative Support for DIY Sellers
If you choose to sell on your own, we will support you by outlining the requirements for non-disclosure, due diligence, and legal and financial documentation. You’ll have our review process without the pressure of signing a broker contract. - Selling Options
If we determine that your business is not a good fit for us, we will help you understand the pros and cons of working with brokers, as well as how brokers can potentially provide value. This way, you’re well-informed and ready to make a choice that feels right. - Flexible Commission Models
Brokers may be open to negotiating commission structures based on the final sale price or offering performance-based incentives. We can help you identify brokers willing to provide a flexible, performance-driven commission model, which means you only pay more if you get more. - Trusted Broker Partnerships
We work closely with a select group of reputable brokers who have a track record of fair fees, transparency, and successful sales. If you’re unsure about hiring a broker, we’ll connect you with professionals who’ve earned our trust and are committed to providing high-value service.
Ready to Get Started?
For the majority of brokers, the deal is the finish line. Realize that they don’t care about protecting employees, honoring long-standing relationships, or sustaining local reputations. That’s a sharp contrast to an owner’s desire for legacy preservation.
If you’re considering selling your business but feel uncertain about whether to work with a broker, we’re here to help. At Expanders, Inc., we believe in giving business owners the knowledge, tools, and trusted partnerships to make the right choice for their unique situations.
Complete the seller details form or contact us today to explore your options and see how we can support your transition and welcome your employees. We will talk with you about whether you’re going solo or want to find a good broker. It’s your business, and we’re here to help you make the most of it.
