Ron Morris, the self-proclaimed “American Entrepreneur”, on his October 11, 2008 radio show received a call from an entrepreneur and avid listener named Yuri. Yuri recalled Ron’s statement from a previous show declaring that, “it is a bad idea to use a business broker to sell your business.” Yuri’s question, “Why?”
Ron’s response provided yet another black eye to a profession that has been at times fairly, but mostly unfairly, bruised and battered over the years. You can hear Ron’s full response by beginning at the 1:08:25 mark of the recording.
Ron’s basic argument to Yuri was that you should not use a business broker to handle the sale of your business because of the fee that you will be required to pay. Ron argued that the fee is not worth the cost and that the transaction will be just as successful if you couple your own efforts with those of your accountant and attorney. This advice is misinformed, misguided and reckless.
The cost of NOT hiring a business broker FAR EXCEEDS the cost of hiring one. There is no active market in which ownership in small closely-held businesses is traded. Unlike owning stock in a publicly traded company like Wal-Mart or Microsoft, you cannot simply call your broker or click a button to sell your small closely-held business. A market for your business must be created from scratch.
Ron argued that you can create this market yourself and save the brokerage fee. This is the classic build versus buy dilemma. As with any product or service that you purchase from a retailer or service provider you must make the decision either to buy the product or service or build/create/provide the product or service yourself. Consider a few examples: Should you buy a house or build a house? Should you hire an accountant to prepare your tax returns or self prepare? Should you see a heart specialist for chest pain or go to medical school and fix it yourself?
If you are an expert in any of these areas you may elect to go at it alone. If not, then you either need to learn how to do them or pay a fee to have someone else do them. If you elect to learn them yourself, you may in time be extremely successful. However, it will take time (and lots of it) to obtain the experience of an expert. The only way to avoid making mistakes with your new endeavor is to be an expert and the only way to become an expert is to make mistakes.
You only have one chance to sell your business. There is no time for mistakes. This is in all likelihood the largest asset that you own and the backbone of your retirement plans. There is no margin for error. If you don’t sell your business at its highest potential price the first time around, there are no second chances.
To maximize your potential for success you must surround yourself with the right people and the right team. This team consists of your accountant, a transaction attorney (both as suggested by Ron) AND a business broker.
Common mistakes made by those who fail to use a business broker:
Confidentiality Breach – Your employees receiving word that they may not have a job in 6 months because you are looking to sell is business suicide. If word reaches your vendors that you are looking to sell, they will almost certainly stop extending you credit and require cash on delivery. They can no longer be certain that you will be there to pay your bills in 60 – 90 days. If word reaches your customers that you are looking to sell, sales in all likelihood will plummet while customers wonder if you will be there to support your products and services in 6-12 months. What an edge you just handed the competition!
Lower Sales Price – Determining the proper asking price for your business is one of the key elements in generating interest in your business from potential buyers. Taking time away from running your business and investing it in selling your business almost guarantees that your business will not receive the time and attention that it requires to sell at its maximum price. A buyer is only willing to pay for what you bring to the table going forward as of the date of sale, not what they as the buyer bring to the table.
As I have stated on many occasions, the question that needs to be asked is not, “Should I use a business broker?” That answer is a loud and resounding, “YES!” The question that needs to be asked is, “How do I select the BEST business broker to handle the sale of my business?” Unfortunately, just like there are bad accountants, bad doctors and bad radio show hosts, there are bad business brokers. It is imperative that you find the best broker for selling your business. For more information, please read my February 26, 2008 blog post on how to select the right business broker to sell your business.