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.
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 license, 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.
There are many advantages to using a business broker when selling your business:
A key challenge when selling a business is accurately determining its value. Valuation multiples vary from industry to industry and so without the expertise of a professional Australian based broker, business owners may either overvalue or undervalue their business, which can either scare off potential buyers or result in a sale at a price lower than what the business is worth.
Business brokers have an established network of qualified buyers and often have access to institutional buyers, private equity firms, and high-net-worth individuals actively looking to invest. By selling independently, business owners may miss out on these opportunities and limit the pool of potential buyers.
Negotiating a business sale involves complex terms and conditions while time is of the essence. Without professional guidance, owners may struggle to navigate these negotiations effectively, potentially leading to an unfavorable deal. Time can often kill a deal. Brokers are skilled negotiators who know how to secure favorable terms and manage buyer expectations.
The process of selling a business involves various legal and regulatory requirements. Without professional assistance, business owners may overlook critical compliance issues, leading to delays or even legal challenges after the sale. A broker can help ensure that all legal documents are in order and that the transaction adheres to applicable laws.
Business owners are often emotionally attached to their business, which can cloud their judgment during the sale process. Navigation the emotional response to selling your business can be difficult. Emotions can lead to poor decision-making eg.rejecting reasonable offers or becoming too attached to unrealistic terms. A broker can provide an objective, detached perspective, guiding the sale in the best interest of the business owner.
While there are many advantages using a business broker, there are also some potential drawbacks to consider:
While there are potential advantages to FSBO, there are also significant drawbacks, including:
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.
