Should I Hire a Business Broker to Sell My Business?

We've had a lot of people call us over the last couple of months with questions about selling their businesses. I'm Katherine Taylor, the lawyer for business owners, and today I'm going to answer a question we hear frequently:

Should I hire a business broker to sell my business?

The answer is: it depends.

There are both pros and cons to hiring a business broker, and whether a broker is right for you depends on your particular business, your circumstances, and what you need help with during the sales process.

What Does a Business Broker Do?

A business broker is somewhat like a real estate broker. A business broker helps a business owner find potential buyers who are interested in purchasing the business. Sometimes a buyer will hire a broker, but most of the time, it's the seller who hires the business broker. The broker's primary function is to find a buyer for the business.

Pro #1: Access to Potential Buyers

One of the biggest advantages of hiring a business broker is access to a broad network of potential buyers. Experienced brokers typically have extensive networks. They know other brokers, investors, and potential buyers, and they spend a significant amount of time networking.

Many brokers also specialize in a particular type of business or industry. If your business operates in a specialized or niche industry, it may be worthwhile to talk with a broker to find out what channels and connections they have that could help you locate the right buyer. For many business owners, that access can be extremely valuable.

Pro #2: Experience With the Sales Process

Another significant advantage is experience. An experienced business broker has likely been through the business-sale process many times. They can help walk you through the process and take on much of the legwork involved in selling a business.

A broker may be able to help you:

• Develop a suggested asking price or valuation

• Identify and screen potential buyers

• Negotiate with prospective buyers

• Establish the primary business terms of a transaction

• Manage communications throughout the sales process

While a broker may not perform a formal business valuation, they can often provide guidance regarding a suggested purchase price based on their experience and knowledge of the market. This can be particularly helpful because selling a business can be a complicated and daunting process.

What Are the Cons of Hiring a Business Broker?

Of course, there are also disadvantages to consider.

Con #1: The Cost

The biggest drawback is simple: you have to pay for the broker's services. Business brokers typically charge a percentage of the sales price, similar to the way a residential real estate broker is compensated. For example, if you're selling a $1 million business and the broker charges a 10% commission, that's $100,000. At a 20% commission, the cost would be $200,000. That's a significant expense that needs to be considered when deciding whether a broker's services are worth the cost.

Con #2: Another Layer of Communication

Another potential disadvantage is that when you hire a broker, the broker will generally want to be the primary point of communication between you, as the seller, and the other side. That may mean communicating with the buyer directly or communicating with the buyer's attorney. There can be advantages to having a broker manage those communications, but in my practice, I've also found that it can sometimes slow down negotiations.

When another layer of communication is added to the process, information can occasionally get miscommunicated or delayed. So, while having a broker involved can be helpful, it's important to understand how that communication process will work before you hire one.

Do You Need a Business Broker to Sell Your Business?

Ultimately, the decision comes down to your particular circumstances.

Do you need the broker's network to help you find potential buyers?

Do you want someone with experience to help guide you through the sales process?

Are the broker's services worth the commission you'll pay?

Those are all questions you should consider before deciding whether to hire a business broker.

You Still Need a Lawyer

There is one very important point I want to emphasize:

Even if you hire a business broker, you still need a lawyer when selling your business.

Business brokers are not permitted to practice law. While they may provide certain standardized or templated documents, they generally cannot provide legal advice or make substantive legal changes to those documents on your behalf. A business broker is working to facilitate the transaction and get the deal done. Your lawyer, on the other hand, is there to protect your legal interests.

Your lawyer should review the transaction documents, evaluate the terms of the deal, identify potential legal issues, and make sure your specific interests are protected both before and after the sale. That distinction is extremely important.

Whether or not you decide to hire a business broker, you should always have an experienced business lawyer involved in the transaction to make sure you understand what you are agreeing to and that your interests are protected.

Have Questions About Selling Your Business?

Selling a business is a complex process, and there are many legal and financial considerations that should be addressed before you sign a deal. If you have questions about selling your business or are considering whether you should hire a business broker, please give us a call. We're happy to help you understand your options and protect your interests throughout the process.