This is the second installment of a series discussing potential pitfalls of which closely held business owners should be wary when they are trying to sell their business. Here’s a link to our first installment.
After a lifetime of pouring time and energy into growing and expanding, Pawlenty Energy, JR and Sue Ellen Pawlenty are ready to sell their business and retire. Having never sold anything of this magnitude, JR and Sue Ellen have no idea where to start to try to sell their company. Even more challenging is that, until the money exchanges, they must continue to run their business. Marketing to sell their company will be a hassle that could negatively affect their operations, their personnel and their reputation both with their customers and with their vendors. Their friend Nancy Noitall recommended that they hire a business broker to assist them in handling the sale. Is this a good idea?
Benefits of a Business Broker
Business brokers can provide a valuable resource to sellers. For example, a business broker can mass market a company when the seller does not already have a prospective buyer lined up. The broker also serves as the seller’s spokesperson, allowing the seller to concentrate on running the business instead of dealing with the daily distractions that arise from trying to get a deal done. This includes screening prospective buyers to ensure they can afford the sales price. A broker can also come up with a market value for the business based on the sales prices of similar businesses.
Risks of Using a Broker
Sellers face some risks using business brokers. Because a business broker is the seller’s spokesperson, the seller would likely be liable if the broker misrepresented the business to a buyer. Business brokers also typically use form agreements for each transaction. If there are unique aspects of the transaction, or the business, that are a material part of the sale, form agreements may not address those issues and create the potential for litigation between the buyer and seller down the road.
Should I Involve Other Professionals?
Yes. If you have an accountant, he or she can help you get your financial statements in order before you advertise your business for sale. If your accountant did not previously do so, he or she may be able to audit your financial statements, which will improve your business’s value. If you hire a broker, your broker can deal directly with your accountant on any questions from potential buyers about the company’s financials.
You should also involve an attorney who can review and advise you about the broker agreement. Your attorney can also review and revise the broker’s form sales contracts to try to protect you from certain risks if the sale fails.
What Should I Look For in a Broker?
If you want to hire a broker, you should look for someone who has a proven track record selling similar businesses, or who has experience in your industry. The broker should be willing to work with your financial and legal advisers. Most importantly, you want a broker who puts your interests ahead of his or her fee.
Tilting the Scales in Your Favor
Whether you use a broker to help you sell your business depends on your personal circumstances. If you choose to use a broker, conduct a thorough background check, including references, of all potential candidates before hiring one. You also need to make sure you have a clear understanding of how the broker is compensated under the broker agreement – which you should have an attorney review with you.