I find it interesting that all the business brokers recommend using business brokers. As a recent buyer of a business from a private seller, let me recount my experience and why I think selling privately works well, especially at the lower end (under $200K in SDE).
I, too, thought that a business broker was a must, believing the businesses market was just like the real estate market. So, I called up a local business broker (I won't reveal the name, but there were some initials in it...), met at his office, and asked him to find me a business. I told him I had cash to spend, wanted a good deal, had 2 or 3 specific business profiles in mind. He told me there were no go deals out there, that once they found their way to him, they were by definition not good deals. I asked him if he had ever owned, bought or sold a business. He said he did once, and would never again own a business or buy a business. Wha??? A salesman who says he wouldn't even buy his own product? Eek.
Then, I worked with another delightful broker who knew her stuff and was great at writing prospectuses. But, when we started discussing what I was expecting to pay for a business, and when I told her I expected to pay 1-2x earnings, she told me there was no way I could ever buy a business for less than 3-4x earnings unless it was seriously flawed in some way. This didn't ring true to me, given that the economy had just tanked and the whole world was on sale. Holding firm, she just stopped returning my phone calls.
After that, I did some due diligence on a few businesses where the broker set up an initial meeting and came with the seller to the first meeting. Universally, they were NOT BUSINESS PROFESSIONALS. They could not talk the ins and outs of running a businesses. They were passive observers. They had no sense for business strategy. It was actually quite shocking.
I also got on some mailing lists from a couple of brokers sending me listings and updates. I actually really like these. BUT, at least 5 of the businesses I found mildly interesting but too expensive have been resent to me with "PRICE REDUCTION" in the e-mail subject. Yes indeed, we are in a recession, and buyers should get real.
Ultimately, I ended up buying a fantastic business from a private seller at 1.5x earnings. No commissions to pay, no attitudes to deal with, no agendas to figure out. So....long and short:
1. If you want to sell your business, get real. Today's market justifies a low multiple. It's unlikely you'll get more than 2x. Be willing to consider 1x or less.
2. A business broker will make you promises and list your business at 4-10x. He doesn't need to sell YOUR business, just 1 of the 10 he has listed. So he has every incentive to keep prices high, but chances are your business will go unsold at these multiples, because he will stop returning phone calls from people who have cash but aren't willing to spend as much. Also, he may not have the business acumen to add much to the discussions anyway.
3. If you have business savvy, you should consider doing it yourself. There are boilerplate templates on the internet to close your deal. I am not convinced that brokers are worth it, especially at the low end.
Ok, that's just my thing. Others are entitled to their opinions.