When to Use a Business Broker
According to most research as many as 60 % of business sales assigned to brokers do not sell – but why? Are business brokers doing a bad job? – some probably are – the same as in most industries. More likely, the businesses they act for (and the owners and families they often represent) are not well prepared and are “in a rush” to sell. Business brokers are normally engaged after the owners have decided to sell and really on focus on one outcome – a successful sale – in many cases the wrong outcome given the owners goals, the business/ industry and the state of readiness / attractiveness of the business.
Business brokers engagement normally starts with preparing sales documents, marketing the business to potential buyers in a shotgun style approach and then negotiating and finalizing the transaction – typically over 3-4 months – but the research shows us that the value is added in 2 key areas: sale preparation over the 2-3 years leading up to this point and the ability to attract a strategic buyer (not thru shotgun advertising but thru highly targeted buyer profiling, research and engagement). To maximize business value and achieve a successful exit – including the best possible sale price and ensuring the owners financial affairs are in order, tax (especially CGT) is managed and the business is well positioned to continue to trade successfully for the new owners takes time – somewhere between 3-5 years is ideal!
Brokers are by definition engaged to “broker” a deal and this is a very important aspect – a good experienced broker can make a substantial difference to deal terms – and importantly not just the price – retention clauses, earn outs and financing are vitally important to the overall success of the deal. Broking the deal can make a substantial difference to the net proceeds the owner “walks away” with.
A good Business Succession and Exit planning adviser should do all of this but also should manage the process leading up to this point, prepare the business and owners for the transition, protect the asset properly, manage the taxation implications – in our proprietary 21 step process the sale transaction sits at step 18 – and it is far easier to manage if the preceeding 17 steps are handled correctly!