Benefits of selling without a broker
he small fraction of entrepreneurs who try to sell their businesses alone might be doing so to avoid the expense of hiring a broker or because they succeeded in business because a do-it-yourself approach worked for them.
Business broker or investment banking fees are not insignificant. Typically, they collect a success fee at closing based on a percentage of the final sale price, with the broker’s percentage decreasing as the sale price increases (a $5 million deal might earn the broker 6%, or $300,000, while a $100 million deal would result in a fee of 2%, or $2 million).
Challenges encountered for solo sellers
While avoiding broker fees might be one benefit of trying to sell a business without assistance, those sellers go into the process with one significant disadvantage: Because they’ve likely never sold a business before, they don’t know how to differentiate a good deal from a mediocre one. In addition, they often overlook certain fundamentals, making the sales process lengthier, riskier and more frustrating than it needs to be.
If you’re the rare person who can handle selling a business by yourself, here are some of the most common pitfalls that can arise when selling a business without a broker.
Not knowing who the audience is.
Some entrepreneurs view selling a business as if they’re romancing somebody, rather than trying to discover who’s a good match. This leads to them trying to win over parties who are never going to be seriously interested no matter what.
Before doing anything else, sellers should develop a robust list of qualified candidates who meet certain high-level criteria. Candidates can come from a variety of places — some expected (a direct competitor, an investor or a PE fund), some less so (a supplier or a customer who might benefit from combining businesses). Determining those criteria, and knowing which questions to ask, is one area in which a broker like Oaklyn Consulting can provide value.
2. Not focusing on what buyers want to know.
Sellers often assume prospective buyers want to learn all about their company’s history, but to be blunt, nobody cares. The basis for a buyer’s interest in purchasing a company is their expected return on the investment. A company’s past is only relevant to the extent that it can help the buyer validate a vision of the future.
If another party agrees to have a conversation with you about purchasing your company, it’s because they’ve run the numbers and see the potential benefits. A broker can help a seller present what a buyer is looking for: a candid, metrics-oriented view of how the seller’s business operates compared with its peers.
3. Not being prepared to run a sales process.
When selling their business without assistance from a broker, a common mistake sellers make is only speaking with one buyer at a time, which takes forever and can be exhausting. Running the sales process in this inefficient manner also impedes the seller’s chances of receiving simultaneous offers, which makes it difficult to fully understand the level of interest from buyers.
Proper preparation makes all the difference — another way in which a broker like Oaklyn Consulting can be helpful. By efficiently qualifying multiple buyers at once, a broker can start putting names into the M&A version of a sales funnel. From there, a broker can start managing several simultaneous conversations with prospective buyers, making it more likely that the seller gets multiple offers at the same time.
4. Not anticipating the depth of questions.
Any prospective buyer of a business is going to ask questions. But when sellers try to manage the sales process without a broker, they’re often caught flat-footed by the sheer number and complexity of questions coming from prospective buyers as part of due diligence. Being unprepared for the length of the sales journey can make this part of the process feel invasive and frustrating.
At Oaklyn Consulting, we help our clients “pack” for the entire journey they’re on by making sure they’re organized from the very beginning. We advise sellers to prep their materials as if they’re going backwards through the sales journey — starting with the specifics that will be important toward the end, then summarizing everything into a high-level story to tell sellers at the outset. This helps prevent one of the biggest pitfalls a seller can fall into: telling a rosy story without having the facts to back it up.
5. Not knowing what good looks like.
When all of this hard work finally culminates in an offer, sellers working without a broker may find that they don’t have the proper tools to evaluate the offer’s quality. In addition, if they’ve left any important questions from the buyer unresolved, the offer will hinge on the buyer’s assumptions of certain conditions they believe to be true — which would need to be confirmed before the deal is finalized.
At Oaklyn Consulting, we work to interrogate every one of the buyer’s assumptions from the beginning, before both sides invest too much time in a deal. Also, as a market participant who has seen other deals before, a broker will be able to tell whether an offer is poor, medium or good.
During negotiations, working with a broker allows the work to be allocated — with one person focusing on concrete details and the other on social dynamics — which isn’t possible if a seller is handling the process by themselves.
Selling Your Business With Oaklyn Consulting
Yes, it’s possible to sell your business by yourself — but you can be certain that the folks on the other side are not doing the same. Having a broker by your side gives you the benefit of business sales experience, which manifests itself in countless ways, both large and small, throughout the sales process.
At Oaklyn Consulting, we charge a flat hourly rate to clients and never collect a success fee, which promotes true objectivity, since we don’t have a vested interest in the success of a sale.
We’ll help navigate you past any pitfalls, both common and uncommon, giving you your best chance at making a deal that delivers the maximum possible value for your business.
