Why Brokers Aren’t Interested Selling Your Business
Have you ever wondered why business brokers seem to dodge your calls or show little interest when you mention selling your business? It's not because your business lacks value—it might even be a goldmine. However, for most brokers, a business making less than $2 million annually simply isn't worth their time. They're more focused on larger deals where the commission checks are significantly bigger.
This leaves many small business owners in a frustrating no-man’s land, struggling to find the right guidance to successfully sell their businesses. Selling a small business is a different ballgame. Personal stakes are high, the buyer pool is diverse, and the strategies needed to close a deal are unique. During the sales process, the chances of facing rejection, lowball offers, or inexperienced buyers are high.
But don’t worry—by understanding the specific challenges and following a strategic plan, you can successfully navigate this tricky terrain and achieve the big exit you deserve. Here a step-by-step guide to selling your small business without a broker.
Understand Why Brokers Aren't Interested
The first step to overcoming a challenge is understanding it, which means you need to know what is the average broker fee. When brokers see a business potentially valued at less than a couple of million, they often calculate the commission and compare it to larger deals they could be working on.
Let’s say a broker typically earns a 5% commission (they’ll charge up to 10% for smaller businesses like yours)—selling a $50 million business would yield a $2.5 million commission, whereas selling a $5 million business would only net them $250,000. Considering the effort required is nearly the same, if not more for a smaller business, you can see why brokers might hesitate.
Additionally, smaller businesses like yours often require a more personalized marketing approach. The buyer pool is diverse and fragmented—ranging from individuals to competitors to private equity firms. Each of these potential buyers has different motivations, and the broker must employ different strategies for each. This complexity adds to the workload, making the deal less attractive to brokers.
To summarize, here’s why brokers aren’t jumping at the chance to sell your small business:
Commission Structures Favor Bigger Deals:
To understand why a broker is not interested in selling your business, you need to know why and how much does a business broker charge. Brokers typically earn a percentage of the sales price. For them, the effort required to sell your small business isn't much different from selling a $50 million business, but the payoff is significantly lower.Market Complexity for Smaller Businesses:
Smaller businesses often attract a wider variety of potential buyers—individuals, competitors, employees, private equity firms, and more. Each type requires different marketing strategies and negotiation tactics, making the process more complex.
Build a Comprehensive Exit Strategy
Instead of Googling ‘business broker near me’ and getting no response, I suggest you take on the responsibility of creating a solid exit strategy yourself. Start by identifying your ideal buyer. Are you looking for someone who will take over the reins completely, or would you prefer a buyer who will allow you to remain involved in some capacity?
Preparing your business for sale is critical. This means not only getting your financials in order but also ensuring that your business can run smoothly without your daily involvement. Prospective buyers are looking for businesses that are profitable and have growth potential. A business with streamlined operations, a strong management team, and clean financial records will attract higher offers.
Setting a realistic valuation is also crucial. An inflated valuation can scare off potential buyers, while undervaluing your business can leave money on the table. Engage an independent expert who can provide an objective valuation based on market conditions, industry trends, and your business's performance.
So, if brokers won’t prioritize your business, you need to take the lead in crafting your exit plan. To summarize, here's how:
Identify Your Ideal Buyer:
Understand who is most likely to buy your business—whether it's an individual, a competitor, an employee, a small business buyer, or a private equity firm—and tailor your marketing strategy accordingly.Prepare Your Business for Sale:
Streamline operations, ensure financials are in top shape, and build a strong management team to make your business more attractive to potential buyers.Set a Realistic Valuation:
Work with an independent expert to set a realistic valuation that reflects the true worth of your business without scaring off potential buyers.
Looking for more resources? Here’s our blog post on why every entrepreneur needs an exit strategy.
Market Your Business Effectively
Marketing your business without a broker might sound daunting, but it’s entirely possible with the right approach. Start by leveraging your existing network. Often, the best buyers are those already familiar with your business or industry. Reach out to industry contacts, attend networking events, and consider reaching out to competitors who might be interested in acquiring your business.
Creating a detailed information memorandum is the next key step. This document should include everything a potential buyer needs to know—financial statements, customer data, growth opportunities, and operational details. Transparency builds trust, and a well-prepared memorandum can set you apart from other sellers.
Don’t underestimate the power of online platforms. Websites like BizBuySell and Flippa allow you to list your business and reach a broader audience. While you’ll need to invest time in managing these listings, they can help you connect with serious buyers who are actively searching for businesses like yours.
With brokers out of the picture, marketing your business falls squarely on your shoulders. So, here’s how to do it right:
Leverage Your Network:
Use your existing connections and industry relationships to confidentially start conversations. Often, the best buyers are those already familiar with your business or industry.Create a Detailed Information Memorandum:
Provide potential buyers with a comprehensive overview of your business, including financials, growth potential, and operational details. Transparency is key, avoiding to share too many details about what goes on in the kitchen.Utilize Online Platforms:
Listing your business on reputable online marketplaces can help you reach a broader audience of potential buyers.
Negotiate Like a Pro
Negotiation is where the deal is won or lost. The key to successful negotiation is preparation. Know your bottom line—what’s the lowest price and terms you’re willing to accept? Having this figure in mind will help you stay firm during tough negotiations.
It’s also important to be willing to walk away if the deal isn’t right. This can be a powerful tactic, signaling to the buyer that you’re serious about getting the best terms possible. Sometimes, this willingness to walk away can prompt the buyer to improve their offer.
Consider creative deal structures if the cash offer doesn’t meet your expectations. Seller financing, where you finance part of the purchase price, can be attractive to buyers and allow you to secure a higher overall price. Earn-outs, where you receive additional payments based on the business’s future performance, can also be a way to bridge the gap between your asking price and the buyer’s offer.
Selling a business involves negotiation, and you’ll need to be prepared to handle it yourself:
Know Your Bottom Line:
Before entering negotiations, determine the lowest price and terms you're willing to accept.Be Ready to Walk Away:
Sometimes, the best negotiation tactic is the willingness to walk away if the deal isn’t right.Consider Creative Deal Structures:
If the cash offer isn't meeting your expectations, explore options like seller financing, earn-outs, or retaining a minority stake.
Looking for more resources? Here's our blog post on how to sell a business quickly.
Close the Deal Smoothly
The final hurdle is closing the deal. This is where the expertise of experienced legal and financial advisors becomes invaluable. They can help you navigate the complexities of the sale, ensuring that all legal documents are in order and that you’re aware of the tax implications of the transaction.
Planning the transition is also crucial. A smooth transition ensures that the business continues to thrive under new ownership. This might involve training the new owners, helping them understand the operational nuances, and ensuring that employees and clients are well-informed and comfortable with the change.
Finally, don’t forget to celebrate. Selling a business is a significant achievement, and it’s important to acknowledge the hard work and dedication that got you to this point. Whether you’re planning to start a new venture or enjoy some well-deserved time off, take a moment to savor your success.
So, the final step in selling your business is closing the deal, which requires careful attention to detail:
Hire the Right Legal and Financial Advisors:
Ensure you have experienced advisors who can guide you through the legal complexities and tax implications of the sale.Plan the Transition:
Develop a clear plan for transitioning ownership, including training the new owners and communicating with employees and clients.Celebrate the Exit:
After the deal is closed, take time to celebrate your success and plan your next steps, whether it’s a new venture or enjoying your newfound freedom.
Wrapping Things Up
Now that you’ve learned the steps to successfully selling your small business, it’s time to put this knowledge into action. Take the above steps and watch how they transform your approach to selling your business. Remember, with the right strategy, you can achieve the big exit you deserve.
