The type of broker you should select depends on the type of buyer you hope to attract.
Last week, I wrote a post featuring a small-business owner, Ann Price, whose restaurant in Atlanta has been getting lots of press. Unfortunately, the attention has been focused less on the quality of her food and more on the fact that no one wants to buy her business.
The post generated a number of thoughtful and interesting comments, including this one from Ryan in Florida: “The business listing is being mismanaged by the real estate agent.” He added, “The business should be marketed by a local, licensed business broker who better understands how to package, position and (confidentially) market the business for sale.”
The process of selling your business can be fraught with complexities right from the get-go. I wish I could say that finding the right professional to help you sell your business is an easy task. As with most of the sales process, it requires careful thought and research.
I’ve found that there is quite a bit of overlap between the high end of business brokerage and the low end of mergers and acquisitions work, a sentiment echoed by John Warrillow, a well-known blogger. As he says, the line between the two can be “fuzzy.” The following is a quick overview of your options.
Commercial Real Estate Agents
Like Ryan, I have a bias against using real estate agents to sell a business (yes, I am a business broker). That said, you may own a business that is primarily an investment in real estate, like a bed and breakfast, storage facility, car wash or convenience store. It may be that your business’s most valuable asset is the land and the building — although you should get a professional opinion before making this determination.
In these instances, it may be best to hire a commercial real estate agent. But as Ryan mentions, it is difficult for real estate agents to sell your business while maintaining confidentiality, because their primary marketing tool is the local Multiple Listing Service. And keep in mind that real estate agents attract real estate investors, not “cash flow” buyers. If you are looking for a buyer who is going to be an owner-operator of your business, a financial buyer or strategic acquirer, then you will want to look elsewhere.
Business brokers run the gamut from selling small, Main Street enterprises to working with midsize businesses that attract serious interest from both private and public acquirers. While many business brokers call themselves business brokers, others use terms like business intermediary, business transfer specialist or transaction adviser.
Regardless of the name, there are a number of characteristics that I suggest you look for. My preference is that they come from a background of small-business ownership and have gone through a successful transaction of their own. In fact, this is the way many business brokers (including my husband and me) enter the field: we’ve been through the sale process ourselves and want to help other owners complete a successful exit. Formal education and professional backgrounds in business management, accounting and finance are also helpful.
If you think you have a good sense of a selling price for your business (again, get a professional valuation), find a business broker who handles deals of a similar size. Why? The reason has less to do with the business for sale than it does with the potential buyer. A colleague of mine said the other day that there’s typically not much of a difference between the seller of a $10 million business and the seller of a $40 million business. There is, however, a difference between the prospective buyers of those businesses.
Some business brokers work primarily with businesses doing less than $2 million in annual sales. Others work in the $2 million to $10 million range, with business brokerages typically topping out around $20 million (lower middle market).
Many of the mergers and acquisitions professionals that I’ve worked with come from an investment banking or corporate finance background. They work primarily with sellers of middle market businesses – loosely defined as having up to $500 million in annual sales. These professionals are also experienced in orchestrating what is called a “controlled auction” process, whereby strategic acquirers are invited to offer competitive bids on the seller’s company.
While business brokers typically charge a success fee with nominal or no upfront charges, mergers and acquisitions firms command hefty fees on the front end. At a minimum, I would expect an upfront retainer of $25,000 with a $5,000 to $7,000 monthly fee. Success fees are usually based on the Double Lehman Scale. Here’sa good piece comparing business broker and mergers and acquisitions commissions.
In short, it’s largely about the buyer. You need a clear understanding of the types of buyers who may be interested in purchasing your business, and then you have to find a professional who can attract and work with those buyers.
What aspect of selling a business do you find most confusing or frustrating?