Selling Your Business Without a Broker: Pros, Cons, & Steps in the Process
Whether you're retiring, or just ready to move on to the next phase, selling your business is an excellent way to exit and benefit from the value you have created. There are many potential buyers ready to pick up the reigns - and pay you for the privilege - but how do you find them and how do you close the deal?
Most small business owners will recruit an experienced business broker to manage the process - for good reason. Successfully pricing, marketing, and negotiating a business sale is a unique and nuanced process that few people have much experience with. Working with an experienced broker will help improve your chances of closing the sale at terms that meet your goals, and allow you to continue to focus on running the business and maintaining or increasing its value.
That said, some business owners prefer to take on the task without a broker and do so successfully.
We'll go over the benefits and risks to selling your business without a broker, as well as offer an overview of the steps you'll need to manage.
(Ready to get your business sale going? Start your business listing.)
Why Owners Consider Selling Directly
There are two main circumstances where a business owner would look to sell on their own:
To save on the commission cost.
Easily the most common reason business owners look into listing their business directly is to avoid the broker fees. Like real estate agents, business brokers work on a commission that is paid by the seller. This arrangement is advantageous because it ensures your brokers interests align with your own, and an effective broker can help you get more money for your business, making the investment worthwhile. Even so, with industry standard commissions around 10%, some business owners will try to avoid the cost.
If you're looking to save money by listing your business for sale directly, you will need to invest the time necessary to gauge the market, understand your business's value, and learn about the selling process.
They are unable to retain a good broker.
Alternatively, some business owners find that the brokers they reach out to are unwilling to help sell their business. The business may be “unsellable”, the owners price expectations too high, or the business may be worth too little to afford the brokers fees. Most good business brokers are selective about the businesses they represent and won't invest the necessary money and time into a business sale that is unlikely to ever close.
If you haven't found the right business broker, be sure to check out BizBuySell's Broker Directory. If you have, but all the brokers you've spoken with won't take on your business sale, it may be time for a reality check. Chances are your business is not as valuable as you have determined, and you need to take a dispassionate approach to your business valuation. Or it may be that yours is a business best liquidated in an asset sale.
Benefits
There are a several advantages to selling your business without a broker:
Avoid commission fees.
The idea of saving 10% of the business sale price – assuming you can sell it at the same price as a professional (a risky assumption) – is an alluring concept. The median sales price on BizBuySell is over $300,000, so the average broker commission is $30,000+. That's a lot of incentive for small business owners to go it alone.
Maintain 100% visibility and control.
Many business owners have spent decades building and growing their business. They're not the type of people to relinquish control at the last step. Further, managing the whole process from start to finish means you have complete visibility. You know the ROI on your marketing dollars, you are sure that every buyer lead is being followed up on, you understand how buyers are reacting to your asking price, and you get a sense of the market for businesses like yours.
Dictate the timeline.
If you are not in a rush to sell, it may be beneficial to remain free of a brokerage contract. Business brokers are incentivized to close a sale, and as such will act with urgency. As the saying goes, “time kills all deals”, so an effective business broker must keep deal momentum going. If you prefer to be selective about who buys your business, and are willing to wait for the right buyer, you may struggle with the pressure from a broker. But know that each offer you decline reduces the chance that you will sell successfully, so act accordingly.
Avoid hiring the wrong broker.
Choosing a good business broker isn't that simple. The business brokerage industry is largely unregulated, so due diligence is paramount when screening brokers. You don't want to sign a one-year exclusive contract with an ineffective broker, or one with whom you are unable to work.
Risks and Drawbacks
Choosing to sell without an expert comes with a lot of added work and risks:
You may overprice your business.
Almost every business owner inherently overvalues their own business. You have spent potentially decades to build and grow your business, so you're naturally inclined to value that hard work highly. The people you are selling to don't have that history, and they are only interested in the state of the business today, and its growth opportunities for the future.
A broker will help you value your business dispassionately, so you don't have to lower your asking price and put yourself in a poor negotiating position later on.
You may undersell your business.
Business owners tend overestimate the value of their business, which brings with it a host of problems. The real risk though, is leaving money on the table. Brokers earn their commission by helping owners get the full value at sale time. An experienced local business broker is closest to the market and understands how much buyers are willing to pay for a business such as yours.
Some buyers may not take you seriously.
Some of the most qualified buyers may view your business being listed without a broker as a red flag. Again, brokers must be selective about the businesses they sell, so a buyer may view a business listed for sale without a broker as a negative and skip over it. Additionally, business brokers may have access to buyers that may not otherwise see your listing, since most have their own buyer databases and personal networks.
The time commitment is substantial.
Don't underestimate the amount of work involved in exit planning and selling your business. From the mountain of financials and paperwork, through business valuations and pricing, to marketing the sale and vetting buyer inquiries. And once you've received reasonable offers, there's due diligence and negotiations. After all that, deals may fall apart, and you will have to start all over. There's a reason business brokers' commissions are more than a typical real estate agent. There is specialized work and additional risk in selling businesses compared to selling homes.
Your business may suffer from lack of attention.
Given the effort and time involved in marketing and selling your business, you may wind up neglecting your business, or miss out on growth opportunities. The most recent performance of your business dictates how much a third-party is willing to pay for it, so the last thing you want is business to stagnate or decline while you are marketing the sale.
It may be more difficult to maintain confidentiality.
It is generally recommended that you keep your intention to sell confidential, to prevent spooking customers or employees, and to maintain the business's value. Without the buffer of a business broker, it is more difficult to prevent word of your sale getting out before you complete the transaction. The risk here is that employee or customer fears may result in a financial impact which directly affects business value.
Who is a Good Candidate to Sell on Their Own?
There are a few situations where it may be advantageous for a small business owner to manage the sale without a broker:
The business value is under $100,000.
Business brokers become more valuable as deal sizes go up. The greater the value of the business, the higher the risk of selling substantially below market. Even more, broker fees decrease as a percentage as the business value increases. If your business generates around $50,000 in owner earnings annually and you think it's worth a multiple of 2, there may not be enough additional value that a business broker can bring to cover their commission. So, if you're up for the work, it may be reasonable to skip the broker.
You already have a buyer.
If you've been approached by an interested buyer, and the offer is in line with a reasonable market valuation, you are halfway through the process. Look to a trusted advisor to confirm your valuation method and get a lawyer to help with legal documents. Alternatively, at this point you could retain a business broker to handle the transaction and negotiate a reduced fee.
You're comfortable with financial matters and confident in negotiating.
There is a mountain of paperwork involved, and many decisions that need to be made. Not everyone is comfortable handling complex transactions and negotiating when things start to get adversarial. Without the buffer of a broker, many people give up too much at the negotiating table and agree to terms they will later regret.
How to Sell Your Business Without a Broker
To sell your business on your own, you will need to navigate five general steps: Prepare your business for sale, calculate its value and determine your asking price, market it to potential buyers, negotiate the terms, and close the sale. To help you get started, here is an overview of each step, and links to learn more about each:
1. Prepare for Your Exit
The exit planning process can start years before you plan to sell. Start with an initial business valuation. Then you will want to take steps to shore up your business's financial performance and find ways to offload as much of the work that you manage personally. Remember, you want to sell a business, not a job, so the less involved you are in the day-to-day, the more valuable your business becomes.
See: Step 1 - Prepare for Your Exit
2. Determine Your Valuation & Asking Price
Once you are ready to list, you will have to pin down a market valuation and set an asking price. The crux of the valuation will be some multiple of your business earnings based on comparable sales from your market.
See: Step 2 - Set Your Asking Price
3. Market Your Business Sale
Marketing your sale can be tricky, because most business owners want to keep things confidential until the sale is complete. You can list your business for sale without giving up identifiable information with a "blind listing". Basically, you create a business for sale listing that describes the type of business, its general location, high level financials, some important qualities that may attract investors, and an anonymized method for contacting you. Only after a buyer is vetted and signs an NDA agreement are specific details shared.
4. Negotiate the Sale
Once you get some reasonable offers, you will need to go through due diligence and negotiate terms such as the sales price, seller financing, training, assets included, and the duration and nature of your continued involvement.
See: Step 4 - Negotiation Strategies
5. Finalize the Sale
The last phase is to sign the legal documents and transfer ownership of the business. Make sure your lawyer has gone over all the details before putting pen to paper.
See: Step 5 - Finalize the Deal
Get Started
If you're ready to get into the process, start by creating a free BizBuySell account. You can set up saved searches for your business type and geography and keep tabs on the market. Discover how many similar businesses are selling and get a gauge of the asking prices and price multiple range. Then leverage our free resources, read the book, and talk to local business brokers before you decide how you will proceed.