How to Sell a Small Business Without a Broker
Sep 13, 2021
Conventional wisdom suggests that hiring a broker is the best way to sell a small business. However, many entrepreneurs wonder how to sell their business and if they can benefit by doing so. If you’ve been seeking brokers to sell your small business with limited success or have misgivings about the process, explore the steps of finding a buyer for your enterprise without going the broker route.
First and foremost, bypassing broker services when you sell your business allows you to save on the associated fee. Small business brokers tend to charge 1 to 5 percent commission on the sale of your business in exchange for marketing the company and finding a buyer. Business owners who have a strong professional network and keen sales skills often feel confident that they can save money by marketing the company without a broker’s help.
Taking the DIY route also helps you avoid using a broker motivated solely by profit. While business brokers may have certification from the International Business Brokers Association or another industry association, most states do not require any specific education or training. Without due diligence, you could end up wasting time with an inexperienced or ineffective broker. What’s more, many brokers require a binding contract that lasts 12 to 18 months. If the relationship doesn’t work out when you sell with a business broker, you might not have any recourse besides waiting out your legal agreement.
Many sellers who use a business broker find they lose control over the fate of their small business. If you have a vested interest in maintaining the culture of the company you’ve built by choosing a buyer who subscribes to your mission and ideals, working with a broker may require you to let go of that vision for the fate of your enterprise.
In the digital age, it’s easy to connect with potential buyers for your business through dedicated websites and apps for that purpose without necessarily relying on brokers to sell your business.
Networking with other small business owners can also present prospective buyers who may be interested in expanding or investing. Consider joining your local Chamber of Commerce and industry associations if you have not already done so to explore this avenue.
Strategies to succeed when selling a small business by owner
Partnering with relevant professionals can provide the expert guidance you need during your small business sale. Before beginning the process, find a trustworthy, experienced business attorney and certified public accountant. This team can help you prepare the documents you’ll need to give prospective buyers, including comprehensive income, expense, and sales reports. Forbes recommends this “hybrid DIY” model as a money-saving, time-saving alternative to either using a broker or doing it all on your own.
When you connect with a potential buyer, prepare to answer detailed questions about why you plan to sell. Highlight business attributes that appeal to investors, such as valuable long-term contracts, loyal clientele, strong and steady income, and rising profits. The detailed marketing package for your business should include:
- Three to five years of financial information, including balance sheets, cash flow reports, and income statements
- Existing contracts such as leases, vendor agreements, employment contracts, and all other legal contracts affecting the firm
- Marketing plans
- Market research
- Sales reports
Many small business sales involve seller financing. If the buyer does not come to the table with funding for the purchase and you plan to offer financing for the sale, you must thoroughly vet the buyer’s ability to pay as agreed. Your CPA can help you analyze documentation of the buyer’s income, debt, and assets. You should also perform a credit check.
Your accountant should also guide you in the process of setting an appropriate price for your small business. As a rule of thumb, most small businesses are worth three to six times their yearly cash flow. However, this figure varies significantly based on a variety of factors, including but not limited to trends in your industry, location, demand, competition, and financial health.
As negotiations progress, the buyer will also want to learn about the inner workings of your business. Before sharing sensitive information that constitutes trade secrets, such as client lists and details about your processes and procedures, require a prospective purchaser to sign a nondisclosure agreement.
Patience can help you extract the maximum possible profit from the sale of your small business. Forbes recommends starting the process of a by-owner business sale about five years before you plan to exit the enterprise, dating from the first time you search “broker to sell my business” on Google.
Don’t forget to consider the tax implications of your small business sale. Your CPA can help you understand your potential tax liability depending on the financing structure, transfer of equity and assets, and other variables.