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Should I Hire a Business Broker?

Should I Hire a Business Broker?

Lincoln said that a man who represents himself in court has a fool for a client.  While I would not go so far as to say that, it also applies to someone who attempts to sell his own business without a broker. Moreover, there are significant reasons for not attempting to act as your own intermediary.

First, there is the issue of confidentiality.  When selling a business, maintaining confidentiality is usually an extremely important goal.  Employees often leave if they learn of the impending sale, suppliers sometimes curtail credit, and customers sometimes leave. If any or all of these occur, the value of the enterprise will be seriously undermined.  A good broker will be a major asset in helping you maintain confidentiality.

Second, there is the negotiating process.  A competent broker is able to manage the negotiating process without alienating the prospective buyer.  This is important since the seller will usually be required to work for the buyer for a period of time after the sale. The broker should also be able to obtain a higher price on more favorable terms then you would be able to achieve on your own.

Third, a good broker has financing sources and knows how to present a package to a financial institution that is far more likely to be approved than would be the case if you were to attempt to assist the buyer in procuring funding. The broker is aware of how different financial institutions perceive different types of businesses and industries, and knows how to present your business and the prospective buyer in the most favorable light.

Fourth, the due diligence process must be managed. This is the process whereby the prospective buyer will have the opportunity to verify the truthfulness of what the seller has represented to him.  This is the stage where many small business deals fall apart. Sometimes the seller has intentionally lied, but more often s/he has unintentionally provided inaccurate information.   A good broker knows how to manage the due diligence process so that the deal stays on track.

Obviously, if you are selling the business to a relative or employee you do not need the services of a broker.   If, however, you are placing the enterprise on the market and advertising it to the general public, think long and hard before you attempt to go it alone

  1. Thank you for your article about hiring a business broker. I am looking to sell my online business as I will be out of the country, and running it from outside will be a logistical nightmare. I understand what you said about the confidentiality and how it is important, but what I really like is how a good broker will be able to negotiate the terms with the buyer. I am not that familiar with the processes involved, so I think hiring a business broker really is the best option for me.

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