Is it worth paying a business broker a 10-15% commission to sell your small business?
The answer is a resounding yes.
We often encounter this question, and more often than not, our response is affirmative. It may seem contradictory, considering that at BizCanyon the largest classifieds platform for businesses and services.
We provide a platform for owners to connect with potential buyers, offer resources to determine business value, and provide a wealth of information on the selling process. So why do we consistently recommend hiring a broker who will claim a 10% “success fee” from the sale proceeds?
The simple answer is that selling a business successfully is a challenging endeavor.
While listing your business on our site is straightforward, adequately preparing it for sale, pricing it accurately, vetting qualified buyers, evaluating offers, managing due diligence, and negotiating terms require specialized skills. Simultaneously, you need to ensure that your business continues to thrive during the selling process to maximize its value. No amount of online research can match the expertise of someone who does this for a living. Novices are prone to inadequate preparation, undervaluing their business, accepting unfavorable financing terms, rejecting the best offer, or making unforeseen errors.
Competent business broker has honed their craft through experience and has encountered and overcome various challenges. You are paying for their invaluable expertise. While a 10% commission may seem steep, it reflects the nature of a niche, low-volume industry. The difference between a well-managed sale and a poorly managed one can significantly impact the sale price—sometimes even preventing a sale altogether.
In contrast, higher volume industries like real estate brokerage have established pricing norms that fluctuate by only a few percentage points over a season. This is why real estate brokers typically charge 6% while business brokers charge 8-12%. Each brings distinct value, assumes different levels of risk, and offers owners varying levels of potential returns.
Now, can business owners sell their businesses without a broker?
Certainly.
Generally, for smaller businesses, the role a broker plays may be less significant. Owners of such businesses may fare better by selling on their own. Alternatively, if you already have a buyer lined up, you can hire a broker to handle the negotiations and transaction for a reduced fee.
FAQs
Are business brokers necessary for selling a small business?
While it is possible to sell a small business without a broker, hiring a business broker can offer numerous advantages. Business brokers possess expertise in navigating the complexities of the selling process, including preparing the business for sale, evaluating its value, finding qualified buyers, negotiating terms, and managing due diligence. They bring valuable experience and insights that can streamline the process and increase the likelihood of a successful sale.
What are the benefits of hiring a business broker?
Hiring a business broker can provide several benefits. First, brokers have a deep understanding of the market and industry trends, allowing them to accurately price the business and attract potential buyers. They have an extensive network of contacts and marketing resources to reach a wider pool of interested buyers. Brokers also handle the time-consuming tasks of vetting buyers, managing negotiations, and ensuring confidentiality throughout the process. Their expertise and guidance can help owners maximize the value of their business and navigate potential pitfalls.
Can business owners sell their businesses without professional assistance?
Yes, business owners can sell their businesses without professional assistance, especially for smaller main street businesses. However, it is important to recognize that selling a business involves intricate steps and complexities. Owners who choose to sell on their own must be prepared to invest significant time and effort in researching the market, valuing the business, marketing it effectively, negotiating with buyers, and managing the entire process. Hiring a broker can alleviate these burdens and provide specialized knowledge and support.
How do business brokers contribute to the selling process?
Business brokers play a crucial role in the selling process. They bring extensive experience and expertise in preparing businesses for sale, identifying potential buyers, marketing the business, and managing negotiations. Brokers handle the administrative tasks, such as vetting buyers, conducting due diligence, and coordinating with lawyers and accountants. They act as intermediaries, facilitating effective communication and ensuring a smooth transaction. With their insights and guidance, business brokers can help owners navigate challenges, maximize the value of their business, and achieve a successful sale.
What factors determine the commission percentage charged by business brokers?
The commission percentage charged by business brokers can vary based on several factors. The complexity of the business, its size, industry, financial performance, and market conditions all influence the commission rate. Brokers typically consider the amount of work required to sell the business, the level of risk involved, and the potential returns for the owner. Additionally, the broker’s expertise, track record, and reputation may influence the commission percentage. It is important to discuss and negotiate the commission structure with the broker before engaging their services.
Leave a Reply