If you're considering selling your business, you may be wondering whether to use a business broker or go the "For Sale By Owner" (FSBO) route. Both options have their pros and cons. So carefully weigh the potential advantages and drawbacks before making a decision.
What is a "Business Broker"?
A business broker is a professional intermediary who assists with the sale of a business. They typically charge a commission for their services, usually made up of an upfront marketing fee and a commission of the sale price. In Australia, to act in the capacity of a business broker you must hold a real estate licence, which is moderated by the REIQ https://www.reiq.com/articles/what-is-a-business-broker/ . Business Brokers (at least good ones) have many years experience in business. They may have been former accountants, business owners or executive officers. They understand how to read financial documents like PnL, balance sheets, tax returns and understand how to value a business. And a good business broker will importantly know how to interact with people, to achieve a satisfactory outcome for both parties.
On the other hand, "For Sale By Owner" (FSBO) refers to the process of the owner selling their business directly, without the assistance of a broker. This option allows the seller to retain 100% control over the sale process and potentially save on commission fees, but it also requires them to handle all aspects of the sale themselves – many of which are extremely complicated and time consuming.
The advantages of using a business broker
There are many advantages to using a business broker when selling your business:
- Expertise in the sale process
Business brokers are professionals with extensive experience in the sale of businesses. They can help you determine the right asking price, handle negotiations with potential buyers, and handle all necessary paperwork. If you've not sold a business before, navigating successfully through the choppy waters of a business sale can be fraught with danger and anxiety.
- Access to a wider pool of potential buyers
Business brokers have access to a network of potential buyers and can help you reach a wider audience. This can be especially helpful if you're selling a specialized business that may not attract as many buyers on your own.
- Ability to handle negotiations and paperwork
Business brokers are skilled negotiators and can handle all necessary paperwork on your behalf. This can save you a significant amount of time and stress during the sale process.
- Reduced stress and time commitment for the seller
Using a business broker allows you to step back and let the professionals handle the details of the sale. This can be invaluable if you're running a business and don't have the time or expertise to handle the sale yourself.
Potential drawbacks of using a business broker
While there are many advantages using a business broker, there are also some potential drawbacks to consider:
- Commission & fees
One of the main drawbacks of using a business broker is the commission and fees. The commission is typically a percentage of up to 5% of the sale price. This can be a significant cost, especially for a high-priced business. And the upfront marketing fees can be a sunk cost that is not refundable should the seller change their mind about selling.
- Loss of control over the sale process:
When using a business broker, it is inevitable that at least some of the sale process will be under the control and at the discretion of the broker. While this can be beneficial in terms of reduced stress and time commitment, it can also be a drawback for owners who like to retain 100% control.
Drawbacks of FSBO
While there are potential advantages to FSBO, there are also significant drawbacks, including:
- Lack of expertise in the sale process
- Limited access to potential buyers
- Increased time and stress for the seller
- Difficulty with negotiations and paperwork
- Lack of experience valuing a business
The decision to use a business broker or go FSBO ultimately depends on the individual seller's circumstances and preferences. If you're in doubt, our business brokers would be glad to have a free discussion with you. You would be under no-obligation to proceed with the sale, but will come away from the discussion with greater clarity surrounding the process and timeframe.
Geoffrey
Lloyds Corporate Partner - Mergers & Acquisition Specialist
Jack
Corporate Advisory
Dianne
Research Director and Corporate Broker
