There are many reasons why an owner may wonder how to sell a small business without a broker. Perhaps you’ve received an unsolicited offer to buy your business, eliminating the need for a buyer search. Perhaps a family member is poised to buy you out. Or, perhaps you’d like to avoid paying 6% to 12% of the sale price in broker fees.
Selling a business to an outside buyer tends to be the most popular and lucrative exit strategy for small business owners. However, that big sale price can also come with some hefty fees and expenses attached.
While there are many strong arguments against trying to sell your business without a business broker or intermediary working on your behalf, sometimes it is the best – or the only – way to get your business sold.
In this article, we’ll start by taking a look at scenarios where it might make sense to sell without a business broker, as well as some caveats about going it alone. We’ll list out the primary steps involved in selling a small business without a broker, along with a few warnings to help you avoid common pitfalls.
When It May Make Sense To Sell Without a Broker
Selling a business is a complex process, regardless of size or industry. It’s also an endeavor that most business owners know nothing about. This is to be expected, by the way. Most successful business owners have been busy running their business, not learning the nuances of merger and acquisition (M&A) transactions.
A few reasons why you may be considering how to sell your business without a broker include:
- Already knowing who the buyer for your business will be
- Wanting or needing to save the broker’s commission expense
- Already having experience with buying or selling a small business
- Selling the business in a distressed sale scenario
- Not being able to find a good broker to work with
Regarding that last point, one survey found that business brokers consider 70% of the businesses that contact them to be unsellable. The best business brokers are extremely selective, and tend to work with anywhere from 10% to 30% of the business owners who inquire about engaging their services. In other words, it’s not uncommon to be unable to find a business brokerage firm to help you sell your business.
How Working With a Business Broker Adds Value
There are eight primary ways in which a small business broker adds value to the selling process:
- They understand business valuation
- They know how to find qualified buyers
- They keep the sale confidential
- They negotiate on your behalf
- They manage a very detailed process
- They maintain deal momentum
- They are familiar with deal structuring
- They act as a buffer between you and the buyer
If you’re going to sell your business without a broker, it’s important to understand what either you or one of your advisors will need to do in their place.
10-Step Guide to Selling Your Business Without a Broker
If you’ve decided that selling your business without a broker may be the way to go, we’ve put together a 10-step guide to help you get through the process. Just because you’re not working with a business broker doesn’t mean you can’t do your best to run a similar process.
STEP 1: Get a Business Valuation
If you’ve never had a business valuation done, now is definitely the time to do it. Ideally, you should understand how buyers value a business well in advance of ever wanting to sell. With that said, get a business valuation before you embark on an actual business sale process.
The valuation will be a benchmark from which to set a reasonable asking price for the business and judge incoming offers. It will also help you in negotiations with a buyer.
Have the valuation certified by a professional valuation analyst (cost: $5,000+). There is a good chance the valuation report will also be used in securing the buyer’s bank financing.
Lastly, a business valuation gives you an opportunity to close a valuation gap: The difference between what the business is worth on the open market and what you want or need from a sale. A valuation report can also act as a roadmap for how to increase the value of your small business before selling.
STEP 2: Talk to Your Attorney and CPA
All sellers rely heavily on both their attorney and CPA during a business sale process. This will go double without the help of a business broker, M&A advisor, or other intermediary.
Be sure both advisors know about your plans to sell your business yourself. Make sure your CPA knows that you will need to respond quickly to due diligence requests from the buyer. Go over your tax returns and financial statements with them. Make sure they are buyer-ready, and discuss possible tax consequences from a sale.
Talk to your attorney about the same sense of urgency around negotiating and signing a Letter of Intent (LOI), as well as negotiating and finalizing the Definitive Agreement. Talk to them about common deal terms, and what you consider to be non-negotiable.
Business brokers keep deals moving forward by taking some of the load off your other advisors. Brokers do much of the negotiating with the buyer, as well as coordinate deliverables and due dates. You will need to do this yourself with help from your attorney and CPA.
WARNING: TIME KILLS DEALS. KEEP DEAL MOMENTUM MOVING FORWARD.
The reality is that lawyers and accountants are busy people. The urgency behind a lawyer’s calendar often revolves around court dates, while an accountant’s clock is set by IRS deadlines. You will need to respect that they have a lot on their plate, but also reiterate that your deal will only progress if deadlines and expectations are met. It can be a difficult balancing act.
STEP 3: Prepare Your Business for the Sale Process
Talking to buyers without being prepared will doom any proposed deal to failure. You need to start from a position of strength, and maintain the trust of the buyer throughout the entire process. The way to do this is to prepare your business for sale like a pro.
Gather all documents that will be requested during due diligence. Spend as much time as you need on making sure that your financial statements are bulletproof. They will be the foundation of the buyer’s valuation, the lender’s financing, the terms of a final agreement … pretty much the entire deal.
STEP 4: Keep the Sale of Your Business Confidential With an NDA
How do you keep the sale of your business confidential?
This is one of the primary challenges of selling your business without a business broker or intermediary of some kind.
A Semi-Confidential Option
One option is to do your best to control who knows about the sale and who doesn’t. It’s difficult to approach potential buyers, and respond to them, without revealing your identity and that of your business without an intermediary. However, here is one approach:
- Consider making a list of potential buyers within your network of entrepreneurs and advisors. For example: Customers, suppliers, competitors, management teams, or companies in your industry that might be interested in growth through acquisition.
- Approach them simultaneously, informing the decision-maker that you are in the early stages of considering a sale in the near future. Be sure to state your reasons why (i.e., retirement, health concerns, business growth, ready for a change, etc.).
- Give them your timeline. For example: “I’m reaching out to a number of potential buyers and plan to have an LOI signed by [date].” Again, if you don’t keep this process moving forward people will think they have unlimited time to decide and pursue the opportunity.
- If they are interested in learning more, be sure to ask them for their reasons for wanting to pursue the opportunity to buy your business.
- If there seems to be alignment between your goals and those of an interested buyer, ask them to sign an NDA before sending any additional information.
Regardless of the level of confidentiality you maintain, work with your attorney to create a Non-Disclosure Agreement (NDA) for potential buyers to sign before revealing any identifying or sensitive information about your business.
STEP 5: Create a Confidential Information Memorandum (CIM)
A Confidential Information Memorandum (CIM) is the primary marketing document that you will provide to interested buyers after they’ve signed an NDA. It should tell them enough to know if they’d like to move forward with the opportunity to buy your business without “giving away the farm,” so to speak.
Like the business valuation, this is something that you’ll want to have prepared ahead of time that is normally handled by a good business broker. You can create one yourself, or hire a firm to create one for you (cost: $500-$5,000).
STEP 6: Buyer Outreach
As mentioned in Step #4, you can make a list of potential buyers from within your network to approach.
There are also a number of options for selling a business online using business-for-sale marketplaces (costs vary). The most popular business listing websites are BizBuySell.com, BizQuest.com, BusinessBroker.net, and Axial.net for larger businesses.
You can also do a Google search on a keyword like “sell your business without a broker.” The results should yield a number of firms that offer for-sale-by-owner assistance as a service for a fee.
Lastly, LinkedIn is a great resource for finding not only buyers (try using Sales Navigator to find similar businesses in your industry), but also some of the other assistance mentioned in this article.
STEP 7: Sign a Letter of Intent (LOI) With the Buyer
After you’ve found a buyer, asked them to sign an NDA, gauged their interest and ability to purchase your business, and negotiated the primary deal points – like sale price and basic terms – you’ll want to reduce everyone’s thoughts into writing using a Letter of Intent (LOI).
WARNING: DO NOT LET A BUYER COMPLETE THEIR DUE DILIGENCE BEFORE PUTTING IN AN OFFER. GET THE LOI SIGNED FIRST, THEN MOVE INTO DUE DILIGENCE.
Following your initial conversations and meeting with the buyer – along with the CIM and perhaps a few reasonable follow-up items – you’ll want to halt the process until an LOI has been negotiated and signed.
The worst thing you can do is let a buyer go through an exhaustive due diligence process, only to have them present an offer that is light years from anything that you would accept.
The LOI will act as the foundation for drafting the Definitive Agreement (the buyer’s attorney usually creates the first draft), completing due diligence, and getting everyone to the closing table. While it is typically non-binding, the LOI is agreed to in good faith and is an important step in the overall business sale process.
Be sure to have your attorney review the final version of the LOI before signing.
STEP 8: Enter Due Diligence Phase
Due Diligence is the buyer’s opportunity to ask you for pretty much everything under the sun: Income Statements, Cash Flow Statements, Balance Sheets, tax returns, insurance policies, legal documents, you name it.
This is also your opportunity to ask for additional information about the buyer. If you haven’t already asked for a personal financial statement (if the buyer is an individual), do so immediately. If the buyer is another company or private equity firm, ask for their sources of funding as well as a list of other sellers they have worked with that you can interview.
If there is real estate associated with the sale of your business, you may need to have a commercial real estate appraisal done. There may also be an inspection of the premises with a punch list of desired repairs from the buyer.
STEP 9: Negotiate and Finalize the Definitive Agreement
Steps #8 and #9 typically happen simultaneously. The attorneys for both buyer and seller will be negotiating the details of the Definitive Agreement with their clients. Expect to be working closely with your attorney during this time.
There are a number of other legal documents the lawyers will draft along with the Definitive Agreement – i.e., Non-Compete Agreement, Employment Agreement, promissory note, list of equipment and inventory, payoff of liabilities, sale of real estate, excluded assets, etc.
Again, you will need to keep everyone on your side of the deal moving towards the closing date. You’ll also be checking in with the buyer – sometimes daily – to make sure their end is doing the same.
STEP 10: Close and Move Into Post-Sale Transition Period
Your involvement will not be over until you’ve helped with a reasonable transition period, which will be spelled out in the LOI and Definitive Agreement. Be prepared to stay on with the new owner anywhere from a month to a year post-sale.
Don’t Wing It: Use the Same Process Business Brokers Use
Selling your business is a heavy lift in the best of circumstances. It will likely be even more difficult without the help of a business broker. With that said, doing it yourself is not synonymous with winging it. There’s a reason that business brokers follow a tight process: It works.
Never forget that the odds associated with successfully selling a business are low. It’s also likely that you are embarking on a complex and unfamiliar task. Stick to the process that professionals use, and try not to skip any steps. To recap:
Selling Your Business Without a Broker
- Get a business valuation before starting the sale process
- Prepare your business for sale ahead of time
- Create a Confidential Information Memorandum (CIM)
- Have your lawyer draft an NDA for interested buyers to sign
- Make a list of potential buyers within your network
- Use business-for-sale websites and/or a firm to help source buyers
- Get an LOI signed with your chosen buyer before entering into due diligence
- Respond promptly to due diligence requests, and research the buyer
- Be prepared to treat the sale of your business like a part-time job
- Expect the entire sale process to take six to 12 months
- Anticipate staying on for a post-sale transition period with the new owner
If you’re on the fence about whether or not to work with a business broker to sell your business, feel free to contact the advisors at Allan Taylor & Co. There’s no charge, and no pressure, to get our initial thoughts on your business and goals for a sale.