Selling Your Business for All It’s Worth!
By Nina Kaufman, Esq.A faithful reader of my blog is developing his exit plan from his business of 28 years. He asked if he should use a broker to sell his business or negotiate the sale himself. And, is 20% commission of the sales price reasonable?
First, I’m usually in favor of using a broker instead of trying to sell your business yourself. The road leading up to that day can be full of potholes, hidden turns and dead ends – challenging, even for the most grizzled entrepreneurial veteran. Your expertise is managing your business. A broker’s is selling your business.
1. A good broker will go through all of the information that you would be providing to a buyer anyway to make sure you’re presenting everything in the best light and in a way that can command the highest price.
2. Brokers can do a lot of the background screening to make sure that only legitimate buyers are taking your time (especially as you don’t want your company’s confidential information shared all over the place).
3. Business sales can take a number of months to close. If you’re energies are deflected from running the business while you’re in the midst of this process, it could affect your sale price.
Second, as to the 20% brokers commission—from what I’ve seen, a flat 20% is very high. For small businesses commissions, I’ve heard of flat commissions up to the 10-12% range. But a lot of that depends on how much of the work the broker will do for you (and take off your plate). You get what you pay for. For larger businesses (over $5-10M), there are often tiered commission structures (e.g., 10% of the first $1M, 5% of the second $1M, etc.). Make sure to meet with several brokers to get a sense of how they work, their experience with businesses in your industry, and how they charge.
Just a reminder, my reply to this reader is based on my experience with NY law, and is meant for general guidance only. If you’re in a similar situation, you’ll want to be sure you work with local counsel so that you’re properly protected and represented.
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