Using a business broker has many advantages for the small business owner. The most prevalent advantage is getting a higher price and because of this higher price the business broker can often pay for themselves.
Here are 4 ways a business broker can help you get a higher price for you company.
1. Proper pricing. Because business owners are not trained valuation professionals, sometimes they will seriously underestimate the true value of their business and a sophisticated buyer will get a “steal of a deal” without the seller even realizing the mistake.
Unlike selling real estate, there are many components of a business that you are selling. A business has its F&FE (furniture, fixtures and equipment), inventory, goodwill, non-compete, and also accounts receivable and accounts payable. All of this has to be considered when determining the pricing, not to mention any real estate that might also be included. It is the combination of all these items that composes the final price.
A professional trained to do valuations, like a business broker, understands valuing techniques and how your specific industry handles each item for the valuation of the company.
Depending on the industry of your business, there are certain rules of thumb when determining a fair market price. For example, in the insurance industry, it is common to use a factor of the commission. In other industries, it is common to use a factor of the profit or revenues to determine the fair market price. Each industry is different.
Lastly, to accurately determine the value, you need to review the comparable sold businesses and their selling price. This is information that is not readily available to business owners and it difficult to properly value a business without this critical information.
2. Stronger marketing effort. Often when sellers decide to sell themselves they will place their business on one or two business-for-sale websites. A professional broker may use as many 300 sites to promote the business as well as tap into existing buyer lists they already have. This alone can increase the price especially when there are multiple offers on a business.
Knowing the ideal buyer profile, a well-trained business broker can also target the ideal buyer and yield a higher price for the business by going after strategic buyers instead of financial buyers.
3. 3rd party negotiations. Using a third-party to negotiate the pricing removes the emotional factor and increases the price. One broker tells her customers, “Every time you talk about price with the buyer, you lose $25k.”
A business broker uses specific negotiating tactics to get sellers the highest price possible. Since a business broker is often paid a percentage of the selling price, it is in their best interest to get the highest price.
4. Time is money. A business’s value is heavily dependent on the profit and revenue. When an owner tries to sell their business themselves, they take their focus off running the business and often profit and revenue drops. This reduces the price of the business. Using a business broker allows the business owner to stay focused on running the business and getting the highest selling price possible.