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
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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